Jefferies & Company Morgan Keegan & Company, Inc. Raymond James & Associates, Inc.

Transcription

1 NEW ISSUE BOOK-ENTRY-ONLY Ratings: Fitch AA (ratings watch negative) Moody s Aa2 (on review for possible downgrade) (See RATINGS and BOND INSURANCE herein) OFFICIAL STATEMENT Dated: August 13, 2009 In the opinion of Bond Counsel, interest on the 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 consequences for corporations. THE BONDS WILL NOT BE DESIGNATED AS QUALIFIED TAX-EXEMPT OBLIGATIONS FOR FINANCIAL INSTITUTIONS $66,700,000 BURLESON INDEPENDENT SCHOOL DISTRICT (Johnson and Tarrant Counties, Texas) UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2009 Dated Date: August 15, 2009 Due: August 1, as shown on inside front cover page The $66,700,000 Burleson Independent School District Unlimited Tax School Building Bonds, Series 2009 which are issued in part as current interest bonds (the Current Interest Bonds or CIBs ) and in part as capital appreciation bonds (the Capital Appreciation Bonds or CABs ) (collectively the Bonds ), as shown on the inside front cover page hereof, are direct obligations of the Burleson Independent School District (the District or Issuer ) and are payable from an ad valorem tax levied, without legal limit as to rate or amount, upon all taxable property within the District. The Bonds are authorized and issued pursuant to the Constitution and general laws of the State of Texas, particularly Sections and (b)(1), Texas Education Code, as amended, an election held in the District on November 7, 2006; and an order passed by the Board of Trustees of the District (the "Order"). (See THE BONDS Security for Payment, Authorization and Purpose, STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS and CURRENT PUBLIC SCHOOL FINANCE SYSTEM. ) Interest on the CIBs will accrue from the dated date set forth above and will be payable February 1 and August 1 of each year, commencing February 1, 2010 until maturity or prior redemption. Interest on the CABs will accrete from the date they are initially delivered to the initial purchasers (the Underwriters ) and will compound semiannually on February 1 and August 1 of each year (each an Accretion Date ) commencing February 1, 2010, and be payable only upon maturity. The CIBs will be issued in fully registered form in principal denominations of $5,000 or any integral multiple thereof within a maturity and the CABs will be issued as fully registered bonds in denominations of $5,000 representing the total amount of principal, plus the initial premium, if any, therefor and accreted/compounded interest payable upon maturity (the Maturity Value ), or any integral multiple thereof within a maturity. (See THE BONDS General Description herein). The Bonds will be issued in book-entry form only and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository (the Securities Depository ). Book-entry interests in the Bonds will be made available for purchase in the principal amount or Maturity Value of $5,000 or any integral multiple thereof within a maturity. Purchasers of the Bonds ( Beneficial Owners ) will not receive physical delivery of certificates representing their interest in the Bonds purchased. So long as DTC or its nominee is the registered owner of the Bonds, the principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to the Securities Depository, which will in turn remit such principal and interest to its participants, which will in turn remit such principal and interest to the Beneficial Owners of the Bonds. (See BOOK- ENTRY-ONLY SYSTEM herein.) The initial Paying Agent/Registrar shall be The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (see REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar herein). The Bonds will mature as set forth on the inside front cover page hereof and interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Proceeds from the sale of the Bonds will be used (i) to construct, renovate and equip school facilities and (ii) to pay the costs of issuing the Bonds. (See THE BONDS - Authorization and Purpose herein.) The District reserves the right to redeem the CIBs maturing on or after August 1, 2020, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 1, 2019, or any date thereafter, at a price equal to the principal amount thereof, plus accrued interest to the date of redemption, as further described herein. The CIBs scheduled to mature on August 1 in the years 2034 and 2039 are subject to mandatory sinking fund redemption. (See THE BONDS Redemption Provisions herein.) The CABs are not subject to redemption prior to maturity. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. ( Assured Guaranty.) (See BOND INSURANCE herein.) The Bonds are offered for delivery, when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Bond Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Vinson& Elkins L.L.P., Dallas, Texas. It is expected that the Bonds will be available for delivery through DTC on or about September 15, First Southwest Company Jefferies & Company Morgan Keegan & Company, Inc. Raymond James & Associates, Inc.

2 STATED MATURITY SCHEDULE (Due August 1) Base CUSIP (a) $66,700,000 UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2009 $26,515,000 Serial Current Interest Bonds Stated Principal Interest Initial CUSIP Stated Principal Interest Initial CUSIP Maturity Amount Rate Yield (a) Suffix (b) Maturity Amount Rate Yield (a) Suffix (b) 8/1/2021 $1,080, % 4.020% YP8 8/1/2027 $1,435, % 4.700% YV5 8/1/2022 1,120, % 4.190% YQ6 8/1/2028 1,515, % 4.790% YW3 8/1/2023 1,160, % 4.300% YR4 8/1/2029 2,225, % 4.880% YX1 8/1/2024 1,210, % 4.400% YS2 *** *** *** *** *** 8/1/2025 1,280, % 4.510% YT0 8/1/ ,135, % 5.280% ZA0 8/1/2026 1,355, % 4.610% YU7 (Interest accrues from Dated Date) $39,570,000 Term Current Interest Bonds $13,125,000, 5.000% Term Current Interest Bonds, due August 1, 2034, Yield 5.120% (a), CUSIP (b) Suffix YY9 $26,445,000, 5.000% Term Current Interest Bonds, due August 1, 2039, Yield 5.210% (a), CUSIP (b) Suffix YZ6 (Interest accrues from Dated Date) $615,000 Capital Appreciation Bonds Original Initial Offering Stated Principal Initial Maturity Price per $5,000 CUSIP Maturity Amount Yield Value in Maturity Value Suffix (b) 8/1/2013 $ 140, % $625,000 $4, ZB8 8/1/ , % 1,075,000 4, ZC6 8/1/ , % 1,080,000 4, ZD4 8/1/ , % 1,080,000 3, ZE2 8/1/ , % 1,075,000 3, ZF9 8/1/ , % 1,075,000 3, ZG7 8/1/ , % 1,080,000 3, ZH5 8/1/ , % 1,075,000 3, ZJ1 (Interest accretes from Date of Delivery) (a) The initial yields and prices are established by, and are the sole responsibility of the Underwriters, and may subsequently be changed from time to time at the sole discretion of the Underwriters. (b) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. None of the District, the Financial Advisor nor the Underwriters are responsible for the selection or correctness of the CUSIP numbers set forth herein. ii

3 LOCATION OF BURLESON INDEPENDENT SCHOOL DISTRICT iii

4 BURLESON INDEPENDENT SCHOOL DISTRICT 1160 SW Wilshire Blvd. Burleson, Texas (817) ELECTED OFFICIALS BOARD OF TRUSTEES Name Term Expires Length of Service Occupation Staci Eisner, President years General Contractor Beverly Volkman Powell, Vice President years Developer Michael Ancy, Secretary years General Manager Ronnie Johnson, Trustee years Business Owner JoAnn Smith, Trustee years Educational Diagnostician Pat Worrell, Trustee 2012 New Retired Trustee Vacancy CERTAIN APPOINTED OFFICIALS Name Position Length of Service Dr. Mark Jackson Superintendent 8 years Ms. Pam Ehrich Assistant Superintendent of Curriculum, Assessment, and Instruction 14 years Mr. Ronald Kuehler Assistant Superintendent of Business and Support Services 11 years CONSULTANTS AND ADVISORS Bond Counsel...McCall, Parkhurst & Horton L.L.P., Dallas, Texas Financial Advisor...Southwest Securities, Inc., Dallas, Texas Certified Public Accountants...Hankins, Eastup, Deaton, Tonn & Seay, C.P.A., Denton, Texas Chief Appraiser... Johnson and Tarrant County Appraisal Districts For additional Information regarding the District, please contact: Dr. Mark Jackson Jim Brooks or Brian Grubbs Superintendent Southwest Securities, Inc. Burleson Independent School District 1201 Elm Street 1160 SW Wilshire Blvd. Suite 3500 Burleson, Texas Dallas, Texas Phone: (817) Phone: (214) iv

5 USE OF INFORMATION IN THE OFFICIAL STATEMENT No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon. This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the District and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor or the Underwriters. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. 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 District or other matters described. See CONTINUING DISCLOSURE OF INFORMATION for a description of the undertaking by the District to provide certain information on a continuing basis. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The agreements of the District and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as constituting an agreement with the purchaser of the Bonds. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL SCHEDULES AND APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACT. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAW OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES, IF ANY, CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. THE BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. NONE OF THE DISTRICT, ITS FINANCIAL ADVISOR OR THE UNDERWRITERS MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY ("DTC") OR ITS BOOK-ENTRY-ONLY SYSTEM, NOR THE INFORMATION REGARDING ASSURED GUARANTY CORP., AS SUCH INFORMATION HAS BEEN FURNISHED BY DTC AND ASSURED GUARANTY CORP., RESPECTIVELY. THIS OFFICIAL STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS, PERFORMANCE AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriters after such 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. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS 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. Assured Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading BOND INSURANCE and Exhibit E - Specimen Financial Guaranty Insurance Policy. v

6 TABLE OF CONTENTS STATED MATURITY SCHEDULE... ii LOCATION OF BURLESON INDEPENDENT SCHOOL DISTRICT... iii ELECTED OFFICIALS... iv CERTAIN APPOINTED OFFICIALS... iv CONSULTANTS AND ADVISORS... iv USE OF INFORMATION IN THE OFFICIAL STATEMENT... v TABLE OF CONTENTS... vi SELECTED DATA FROM THE OFFICIAL STATEMENT... vii INTRODUCTORY STATEMENT...1 THE BONDS...1 Authorization and Purpose...1 General Description...1 Yield on Capital Appreciation Bonds...2 Redemption Provisions...2 Notice of Redemption and DTC Notices...2 Amendments...3 Defeasance of Bonds...3 Sources and Uses of Funds...4 Security for Payment...4 Bond Insurance for Bonds...4 Payment Record...4 REGISTERED OWNERS REMEDIES...4 BOOK-ENTRY-ONLY SYSTEM...5 REGISTRATION, TRANSFER AND EXCHANGE...6 AD VALOREM TAX PROCEDURES...7 THE PROPERTY TAX CODE AS APPLIED TO THE BURLESON INDEPENDENT SCHOOL DISTRICT...10 STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS CURRENT PUBLIC SCHOOL FINANCE SYSTEM BOND INSURANCE INVESTMENT CONSIDERATIONS REGARDING BOND INSURANCE TAX RATE LIMITATIONS DEBT LIMITATIONS EMPLOYEES BENEFIT PLANS RATINGS LEGAL MATTERS TAX MATTERS LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT FINANCIAL ADVISOR AUTHENTICITY OF FINANCIAL INFORMATION UNDERWRITERS LITIGATION CONTINUING DISCLOSURE OF INFORMATION Annual Report Material Event Notices Availability of Information Limitations and Amendments Compliance with Prior Undertakings REGISTRATION AND QUALIFICATION OF BONDS FOR SALE FORWARD LOOKING STATEMENTS CONCLUDING STATEMENT Schedule of Accreted Values of the Capital Appreciation Bonds...Schedule I Financial Information of the District... Appendix A General Information Regarding Burleson Independent School District, City of Burleson, and Johnson County, Texas... Appendix B Form of Legal Opinion of Bond Counsel... Appendix C Report of examination for the Year Ended August 31, Appendix D Specimen Financial Guaranty Insurance Policy... Appendix E The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. vi

7 SELECTED DATA FROM THE OFFICIAL STATEMENT The selected data is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this page from this Official Statement or to otherwise use it without the entire Official Statement. The District The Bonds Burleson Independent School District (the District ) is a political subdivision located in Johnson and Tarrant Counties, Texas. The District is governed by a seven-member Board of Trustees (the Board ). Policy-making and supervisory functions are the responsibility of, and are vested in, the Board. The Board delegates administrative responsibilities to the Superintendent of Schools who is the chief administrative officer of the District. Support services are supplied by consultants and advisors. The Bonds are being issued in the principal amount of $66,700,000 pursuant to the Constitution and general laws of the State of Texas, particularly Sections and (b)(1), Texas Education Code, as amended, an election held in the District on November 7, 2006 and an order (the "Order") adopted by the Board of Trustees (the Board ) of the District. Proceeds from the sale of the Bonds will be used (i) to construct, renovate and equip school facilities, and (ii) to pay the costs of issuing the Bonds. (See THE BONDS - Authorization and Purpose herein.) Paying Agent/Registrar Security Bond Insurance Redemption Provisions Tax Exemption Payment Record Legal Opinion The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. The District intends to use the Book-Entry Only System of The Depository Trust Company. (See REGISTRATION, TRANSFER AND EXCHANGE and BOOK-ENTRY-ONLY SYSTEM herein.) The Bonds will constitute direct obligations of the District, payable as to the principal, interest and maturity value from ad valorem taxes levied annually against all taxable property located within the District, without legal limitation as to rate or amount. (See THE BONDS Security for Payment herein.) The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. (See BOND INSURANCE herein). The CIBs maturing on or after August 1, 2020, are subject to redemption at the option of the District, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on August 1, 2019, or any date thereafter, at a price equal to the principal amount thereof, plus accrued interest to the date of redemption, as further described herein. The CIBs scheduled to mature on August 1 in the years 2034 and 2039 are subject to mandatory sinking fund redemption. The CABs are not subject to redemption prior to maturity. (See THE BONDS Redemption Provisions herein.) In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income for federal 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 consequences for corporations. (See TAX MATTERS and APPENDIX C - FORM OF LEGAL OPINION OF BOND COUNSEL herein.) The District has never defaulted on the payment of its bonded indebtedness. McCall, Parkhurst & Horton L.L.P., Bond Counsel, Dallas, Texas. vii

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9 INTRODUCTORY STATEMENT This Official Statement, including Appendices A, B and D, has been prepared by the Burleson Independent School District, located in Johnson and Tarrant Counties, Texas (the "District"), in connection with the offering by the District of its $66,700,000 Unlimited Tax School Building Bonds, Series 2009 (the "Bonds") identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the District from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the District. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. (See FORWARD LOOKING STATEMENTS.) There follows in this Official Statement descriptions of the Bonds and the Order (as defined herein), and certain other information about the District 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 by writing the District. This Official Statement speaks only as to its date, and the information contained herein is subject to change. A copy of the Official Statement will be submitted to the Municipal Securities Rulemaking Board and will be available through its Electronic Municipal Market Access ( EMMA ) system. See CONTINUING DISCLOSURE OF INFORMATION for a description of the District s undertaking to provide certain information on a continuing basis. Authorization and Purpose THE BONDS The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 45 Texas Education Code, as amended, an election held in the District on November 7, 2006 and the Order adopted by the Board of Trustees of the District (the Board ) authorizing the issuance of the Bonds. Proceeds from the sale of the Bonds will be used (i) to construct, renovate and equip school facilities, and (ii) to pay the costs of issuing the Bonds. Capitalized terms used herein have the same meanings assigned to such terms in the Order except as otherwise indicated. General Description The Bonds will be dated August 15, 2009 (the Dated Date ) and are issued in part as Current Interest Bonds ( CIBs ) and in part as Premium Capital Appreciation Bonds ( CABs ). The CIBs will mature on the dates, in the principal amounts and accrue interest at the per annum rates set forth on the inside cover page of this Official Statement. Interest on the CIBs is payable on February 1, 2010 and each August 1 and February 1 thereafter until maturity or prior redemption. The CABs accrete in value from the date of delivery to the Underwriters and the total accreted value thereon is payable only at maturity. The CABs will mature on the dates and in the maturity values set forth on the inside cover page of this Official Statement. Interest on the CABs will compound on February 1 and August 1, beginning February 1, 2010, and the sum of the principal of, premium, if any, and accrued/compounded interest on the CABs (the Maturity Value ) is payable only at maturity. A table of accreted values for the CABs per $5,000 maturity amount as of each August 1 and February 1 is set forth in Schedule I hereto and such table of accreted values is provided for informational purposes only and may not reflect the prices for the CABs in the secondary market. Principal and Maturity Value will be payable at maturity by the Paying Agent/Registrar (the Paying Agent/Registrar ) which initially is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, upon presentation and surrender of the Bonds for payment. Interest on the CIBs is payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar on the close of business as of the fifteenth day of the preceding month (the Record Date ). It is expected that the Bonds will be eligible for delivery to the Underwriters through The Depository Trust Company ( DTC ). If the date for the payment of the principal, Maturity Value, or interest on a Bond shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or a day on which banking institutions are authorized to close and payment on such date shall have the same force and effect as if made on the original date payment was due. The Bonds shall be transferable only on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount or Maturity Value in any authorized denomination upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Paying Agent/Registrar. Initially, the Bonds will be registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ( DTC ) pursuant to the Book-Entry-Only System described below. No physical delivery of the bonds will be made to the beneficial owners. Principal and Maturity Value of the Bonds at maturity or upon a prior redemption date (with respect to the CIBs), and interest on the CIBs will be payable by the Paying Agent/Registrar to Cede & Co., which will distribute the amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See BOOK-ENTRY-ONLY SYSTEM for a more complete description of such system. 1

10 Yield on Capital Appreciation Bonds The respective approximate yields of the CABs, as set forth on the inside cover of this Official Statement, are based upon the offering prices therefor set forth on the inside cover of this Official Statement. Such offering prices include the principal amounts of the CABs plus premiums, if any, equal to the amounts by which such offering prices exceed the respective principal amounts of such CABs. The respective yields on the CABs to a particular purchaser may differ depending upon the price paid by that purchaser. For various reasons, securities that do not pay interest periodically, such as the CABs, have traditionally experienced greater price fluctuation in the secondary market than securities that pay interest on a periodic basis. Redemption Provisions Optional Redemption: The CIBs maturing on or after August 1, 2020 are subject to optional redemption in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 1, 2019, or any date thereafter at a redemption price of par, plus accrued interest to the date of redemption. If less than all of the CIBs within a stated maturity are to be redeemed, the District shall determine the principal amount and maturities to be redeemed and shall direct the Paying Agent/Registrar to select by lot or other customary method that results in a random selection, the CIBs or portions thereof, to be redeemed. The CABs are not subject to redemption prior to maturity. Mandatory Sinking Fund Redemption: The Bonds maturing on August 1 in 2034 and 2039 (the Term Bonds ) are subject to mandatory sinking fund redemption in part prior to their stated maturity, and will be redeemed by the District at a redemption price equal to the principal amount thereof plus interest accrued thereon to the redemption date, on the date and in the principal amounts shown in the following schedule: *Stated maturity. $13,125,000 $26,445,000 Term Bonds Due Term Bonds Due August 1, 2034* August 1, 2039* Redemption Date Principal Amount Redemption Date Principal Amount August 1, 2030 $2,350,000 August 1, 2035 $3,040,000 August 1, ,490,000 August 1, ,170,000 August 1, ,630,000 August 1, ,310,000 August 1, ,760,000 August 1, ,455,000 August 1, 2034* 2,895,000 August 1, 2039* 13,470,000 Approximately forty-five (45) days prior to each mandatory redemption date for the Term Bonds, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds within the applicable stated maturity to be redeemed on the next following August 1 from moneys set aside for that purpose in the interest and sinking fund maintained for the payment of the Bonds. Any Term Bonds not selected for prior redemption shall be paid on the date of their stated maturity. The principal amount of the Term Bonds for a stated maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the District, by the principal amount of the Term Bonds of like stated maturity which, at least 50 days prior to the mandatory 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 Bonds plus accrued interest to the date of purchase or (3) shall have been redeemed pursuant to the optional redemption provisions set forth above. Notice of Redemption and DTC Notices At least 30 days prior to the date fixed for any redemption of CIBs or portions thereof prior to maturity, the District shall cause a notice of such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each CIB or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the day such notice of redemption is mailed. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING CIBS OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON BONDS OR PORTION THEREOF SHALL CEASE TO ACCRUE. By the date fixed for any such redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the CIBs or portions thereof which are to be so redeemed. If such notice of redemption is given and if due provision for such payment is made, all as provided above, the CIBs or portions thereof which are to be redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and 2

11 they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the District, 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 Order 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 CIBs by the District will reduce the outstanding principal amount of such CIBs held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a redemption of such CIBs 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 CIBs from the beneficial owners. Any such selection of CIBs to be redeemed will not be governed by the Order and will not be conducted by the District or the Paying Agent/Registrar. Neither the District 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 CIBs or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the CIBs for redemption. See "BOOK-ENTRY-ONLY SYSTEM" herein. With respect to any optional redemption of the Bonds, unless certain prerequisites to such redemption required by the Order have been met and money sufficient to pay the principal of and premium, if any, and interest on the CIBs 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 District, 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 our 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 District will not redeem such CIBs, and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given, to the effect that the CIBs have not been redeemed. Amendments The District may amend the Order without the consent of or notice to any registered owner in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity inconsistency, or formal defect or omission therein. In addition, the District may, with the written consent of the holders of a majority in aggregate principal amount and Maturity Value of the Bonds then outstanding and affected thereby, amend, add to, or rescind any of the provisions of the Order; except that, without the consent of the registered owners of all of the Bonds affected, no such amendment, addition or rescission may (1) make any change in the maturity of any of the outstanding Bonds; (2) reduce the rate of interest borne by any of the outstanding Bonds; (3) reduce the amount of the principal or Maturity Value of, or redemption premium, if any, payable on any outstanding Bonds, (4) modify the terms of payment of principal or Maturity Value of interest or redemption premium on outstanding Bonds or any of them or impose any condition with respect to such payment; or (5) change the minimum percentage of the principal amount and Maturity Value of the Bonds necessary for consent to such amendment. Defeasance of Bonds The District reserves the right to defease the Bonds in any manner now or hereafter permitted by law. Under Texas law, the Bonds are defeased when the payment of the principal of and premium, if any, on the 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, in trust (1) money sufficient to make such payment and/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 ensure 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. The Order provides that Defeasance Securities means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United Sates of America, (b) 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 are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and 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 are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The District 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 District 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. Provided, however, the District has reserved the option, to be exercised at the time of the defeasance of the Bonds, to call for redemption, at an earlier date, those Bonds which have been defeased to their maturity date, if the District: (i) in the proceeding 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. 3

12 Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied approximately as follows: Sources Par Amount of Bonds $ 66,700, Net Premium on Bonds 3,642, Accrued Interest 269, Total Sources of Funds $ 70,611, Uses Deposit to Construction Fund $ 66,700, Underwriters Discount, Bond Insurance Premium, and Costs of Issuance 1,642, Deposit to Interest and Sinking Fund 2,269, Total Uses of Funds $ 70,611, Security for Payment The Bonds are direct obligations of the District and are payable as to both principal and interest from a continuing, direct annual ad valorem tax levied, without legal limitation as to maximum rate or amount, on all taxable property within the District. (See "STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS ). Bond Insurance for Bonds The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under financial guaranty insurance policies to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. (See BOND INSURANCE herein). Payment Record The District has never defaulted on the payment of its bonded indebtedness. REGISTERED OWNERS REMEDIES The Order does not specify events of default with respect to the Bonds. If the District defaults in the payment of principal, interest, or redemption price on the Bonds when due, or the District defaults in the observation or performance of any other covenants, conditions, or obligations set forth in the Order, the registered owners may seek a writ of mandamus to compel the District or District officials to carry out the legally imposed duties with respect to the Bonds if there is no other available remedy at law to compel performance of the Bonds or the Order and the District's obligations are not uncertain or disputed. The issuance of a writ 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 Order does not provide for the appointment of a trustee to represent the interest of the Bondholders upon any failure of the District to perform in accordance with the terms of the Order, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W. 3rd 325 (Tex. 2006), that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in "clear and unambiguous" language. Because it is unclear whether the Texas legislature has effectively waived the District s sovereign immunity from a suit for money damages, Bondholders may not be able to bring such a suit against the District for breach of the Bonds or Order covenants in the absence of District action. Chapter 1371, Texas Government Code ("Chapter 1371"), which pertains to the issuance of public securities by issuers such as the District, permits the District to waive sovereign immunity in the proceedings authorizing its bonds, but in connection with the issuance of the Bonds, the District has not waived sovereign immunity pursuant to and is not using the legal authority provided by Chapter Even if a judgment against the District could be obtained, it could not be enforced by direct levy and execution against the District's property. Further, the registered owners cannot themselves foreclose on property within the District or sell property within the District to enforce the tax lien on taxable property to pay the principal of and interest on the Bonds. Furthermore, the District is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or Bondholders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. 4

13 BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, Maturity Value 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 District, the Financial Advisor and the Underwriter believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurance that (1) DTC will distribute payments 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 certificate will be issued for each maturity of the Bonds, in the aggregate principal amount or maturity value of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, is the holding company for DTC, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 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 Bonds, except in the event that use of the book-entry 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 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 CIBs within a maturity 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. 5

14 Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payment of redemption proceeds, and payments of principal, interest and Maturity Value 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 Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and payment of principal,interest and maturity value 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. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to Issuer or Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates 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, Bond certificates 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 no responsibility for the accuracy thereof. So long as Cede & Co. is the registered owner of the Bonds, the Issuer will have no obligation or responsibility to the DTC. Participants or Indirect Participants, or the persons for which they act as nominees, with respect to payment to or providing of notice to such Participants, or the persons for which they act as nominees. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, payment or notices that are to be given to registered owners under the Order will be given only to DTC. Paying Agent/Registrar REGISTRATION, TRANSFER AND EXCHANGE The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. The Bonds are being issued in fully registered form in integral multiples of $5,000 of principal amount or Maturity Value. Successor Paying Agent/Registrar Provision is made in the Order for replacing the Paying Agent/Registrar. If the District replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar s records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the District shall be a commercial bank; a trust company organized under the laws of the State of Texas; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Future Registration In the event the Book-Entry Only System is discontinued, the Bonds may be transferred, registered and assigned on the registration books only upon presentation and surrender of the Bonds to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. A Bond may be assigned by the execution of an assignment form on such Bond or by such 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 office of the Paying Agent/Registrar, or sent by United States registered mail to the new registered owner at the registered owner's request, risk and expense. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the Owner in not more than three (3) business days after the receipt of the Bonds to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in authorized denominations and for a like aggregate principal amount or 6

15 Maturity Value as applicable, as the Bond or Bonds surrendered for exchange or transfer. See BOOK-ENTRY-ONLY SYSTEM herein for a description of the system to be utilized initially in regard to the ownership and transferability of the Bonds. Record Date For Interest Payment The record date ( Record Date ) for the interest payable on any interest payment date means the close of business on the fifteenth calendar day of the calendar month next preceding each interest payment date. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a Special Record Date ) will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the Special Payment Date, which 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 CIB appearing on the books of the Paying Agent/Registrar at the close of business on the day next preceding the date of mailing of such notice. Limitation on Transfer of Bonds Neither the District nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any CIB during a period beginning at the close of business on any Record Date and ending with the next interest payment date or, with respect to any CIB called for redemption, within 30 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a CIB called for redemption in part. Replacement Bonds If any Bond is mutilated, destroyed, stolen or lost, a new Bond in the same principal amount or Maturity Value, as applicable, as the Bond so mutilated, destroyed, stolen or lost will be issued. 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 (a) upon filing with the District and the Paying Agent/Registrar a certificate to the effect that such Bond has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the District and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Bond must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. Property Tax Code and County-Wide Appraisal District AD VALOREM TAX PROCEDURES The Texas Property Tax Code (the Property Tax Code ) provides for county-wide appraisal and equalization of taxable property values and establishes in each county of the State an appraisal district and an appraisal review board responsible for appraising property for all taxable units within the county. The Johnson and Tarrant County Appraisal Districts (each an Appraisal District ) are responsible for appraising property within the District, generally, as of January 1 of each year. The appraisal values set by the Appraisal District are subject to review and change by the respective Appraisal Review Board (each an Appraisal Review Board ), which is appointed by the Appraisal District. Such appraisal rolls, as approved by the Appraisal Review Board, are used by the District in establishing its tax rolls and tax rate. Reference is made to the Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Property Subject to Taxation by the District Except for certain exemptions provided by Texas law, all real and certain tangible personal property with a tax situs in the District is subject to taxation by the District. Principal categories of exempt property (including certain exemptions which are subject to local option by the board of trustees) include property owned by the State of Texas or its political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law, certain improvements to real property and certain tangible personal property located in designated reinvestment zones on which the District has agreed to abate ad valorem taxes; certain household goods, family supplies and personal effects; farm products owned by the producers; certain property of a nonprofit corporation used in scientific research and educational activities benefiting a college or university, and designated historic sites. Other principal categories of exempt property include tangible personal property not held or used for production of income; solar and wind-powered energy devices; real or personal property that is used wholly or partly as a facility, device or method for the control of air, water or land pollution; most individually owned automobiles; $10,000 exemption to residential homesteads of disabled persons or persons ages 65 or over; up to $12,000 exemption for real or personal property of disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; $15,000 in market value for all residential homesteads; and certain classes of intangible property. In addition, except for increases attributable to certain improvements, the District is prohibited by state law from increasing the total ad valorem tax on the residence homestead of persons who are 65 years of age or older or disabled above the amount of tax imposed in the year such residence qualified for an exemption based on age or disability of the owner. A disabled person is one who is under a disability for purposes of payment of disability insurance benefits under the Federal Old Age, Survivors and Disability Insurance. 7

16 The freeze on ad valorem taxes on the homesteads of persons who are 65 years of age or older or disabled is also transferable to a different residence homestead. Also, a surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes based on such person s age is entitled to the same exemption so long as the property is the homestead of the surviving spouse and the spouse is at least 55 years of age at the time of the death of the individual s spouse. Pursuant to State Law enacted in 2007, taxes paid on residence homesteads of persons 65 years of age or over or of disabled persons were reduced to correspond to reductions in local school district tax rates from the 2005 tax year to the 2006 tax year and from the 2006 tax year to the 2007 tax year (see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - General" herein). The school property tax limitation provided by the constitutional amendment and enabling legislation apply to the 2007 and subsequent tax years. Article VIII, Section 1-j of the Texas Constitution provides for an exemption from ad valorem taxation for freeport property, which is defined as goods detained in the state for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Taxing units that took action prior to April 1, 1990 may continue to tax freeport property and decisions to continue to tax Freeport property may be reversed in the future. However, decisions to exempt freeport property are not subject to reversal. Article VIII, Section 1-n of the Texas Constitution provides for the exemption from taxation of goods-intransit. Goods-in-transit is defined by Section of the Tax Code, which is effective for tax years 2008 and thereafter, as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor, heavy equipment and manufactured housing inventory. The Tax Code provision permits local governmental entities, on a local option basis, to take official action by January 1 of the year preceding a tax year, after holding a public hearing, to tax goods-in-transit during the following tax year. A taxpayer may only receive either the freeport exemption or the goods-in-transit exemption for items of personal property. A city or county may create a tax increment financing district ( TIF ) within the city or county with defined boundaries and establish a base value of taxable property in the TIF at the time of its creation. Overlapping taxing units, including school districts, may agree with the city or county to contribute all or part of future ad valorem taxes levied and collected against the incremental value (taxable value in excess of the base value) of taxable real property in the TIF to pay or finance the costs of certain public improvements in the TIF, and such taxes levied and collected for and on behalf of the TIF are not available for general use by such contributing taxing units. Effective September 1, 2001, school districts may not enter into tax abatement agreements under the general statute that permits cities and counties to initiate tax abatement agreements. In addition, credit will not be given by the Commissioner of Education in determining a district s property value wealth per student for (1) the appraised value, in excess of the frozen value, of property that is located in a TIF created after May 31, 1999 (except in certain limited circumstances where the municipality creating the tax increment financing zone gave notice prior to May 31, 1999 to all other taxing units that levy ad valorem taxes in the TIF of its intention to create the TIF and the TIF was created and had its final project and financing plan approved by the municipality prior to August 31, 1999), or (2) for the loss of value of abated property under any abatement agreement entered into after May 31, Notwithstanding the foregoing, in 2001 the Legislature enacted legislation known as the Texas Economic Development Act, which provides incentives for school districts to grant limitations on appraised property values and provide ad valorem tax credits to certain corporations and limited liability companies to encourage economic development within the district. Generally, during the last eight years of the ten-year term of a tax limitation agreement, the school district may only levy and collect ad valorem taxes for maintenance and operation purposes on the agreed-to limited appraised property value. The taxpayer is entitled to a tax credit from the school district for the amount of taxes imposed during the first two years of the tax limitation agreement on the appraised value of the property above the agreedto limited value. Additional State funding is provided to a school district for each year of such tax limitation in the amount of the tax credit provided to the taxpayer. During the first two years of a tax limitation agreement, the school district may not adopt a tax rate that exceeds the district s rollback tax rate (see AD VALOREM TAX PROCEDURES Public Hearing and Rollback Tax Rate ). See Appendix A FINANCIAL INFORMATION OF THE DISTRICT and THE PROPERTY TAX CODE AS APPLIED TO THE BURLESON INDEPENDENT SCHOOL DISTRICT for a schedule of exemptions allowed by the District. Valuation of Property for Taxation Generally, property in the District must be appraised by the Appraisal Districts at market value as of January 1 of each year. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by the District in establishing its tax rolls and tax rate. Assessments under the Property Tax Code are based on one hundred percent (100%) of market value, except as described below, and no assessment ratio can be applied. The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at its value based on the land's capacity to produce agricultural or timber products rather than at its fair market value. Landowners wishing to avail themselves of the agricultural use designation must apply for the designation, and the appraiser is required by the Property Tax Code to act on each claimant's right to the designation individually. If a claimant receives the designation and later loses it by changing the use of the property or selling it to an unqualified owner, the District can collect taxes for previous years based on the new value, including three years for agricultural use and five years for agricultural open-space land and timberland prior to the loss of the designation. 8

17 State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the property s market value in the most recent tax year in which the market value was determined by the Appraisal District or (2) the sum of (a) 10% of the property s appraised value for the preceding tax year, plus (b) the appraised value of the property for the preceding tax year plus (c) the market value of all new improvements to the property. Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update appraisal values. The plan must provide for appraisal of all real property in the Appraisal District at least once every three years. The District, at its expense, has the right to obtain from the Appraisal District a current estimate of appraised values within the District or an estimate of any new property or improvements within the District. While such current estimate of appraisal values may serve to indicate the rate and extent of growth of taxable values within the District, it cannot be used for establishing a tax rate within the District until such time as the Appraisal District chooses to formally include such values on its appraisal roll. Residential Homestead Exemption The Texas Constitution permits the exemption of certain percentages of the market value of residential homesteads from ad valorem taxation. The Constitution authorizes the governing body of each political subdivision in the state to exempt up to twenty percent (20%) of the market value of all residential homesteads from ad valorem taxation, and permits an additional optional homestead exemption for taxpayers 65 years of age or older. District and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units, including the District, may appeal orders of the appraisal Review Board by filing a petition for review in district court within 45 days after notice is received that a final order has been entered. In such event, the property value in question may be determined by the court, or by a jury, if requested by any party, or through binding arbitration, if requested by the taxpayer. Additionally, taxing units may bring suit against the Appraisal District to compel compliance with the Property Tax Code. Public Hearing and Rollback Tax Rate In setting its annual tax rate, the governing body of a school district generally cannot adopt a tax rate exceeding the district's "rollback tax rate" without approval by a majority of the voters voting at an election approving the higher rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service For the fiscal year and thereafter, the rollback tax rate for a school district is the lesser of (A) the sum of (1) the product of the district's "state compression percentage" for that year multiplied by $1.50, (2) the rate of $0.04, (3) any rate increase above the rollback tax rate in prior years that were approved by voters, and (4) the district's current debt rate, or (B) the sum of (1) the district's effective maintenance and operations tax rate, (2) the product of the district's state compression percentage for that year multiplied by $0.06; and (3) the district's current debt rate (see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - General" for a description of the "state compression percentage"). For tax years through 2008, the rollback tax rate includes the tax rate that, applied to current tax values, would impose taxes in an amount sufficient for the district to fund its minimum local effort requirement for employee health care coverage (see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM"). The "effective maintenance and operations tax rate" for a school district is the tax rate that, applied to the current tax values, would provide local maintenance and operating funds, when added to State funds to be distributed to the district pursuant to Chapter 42 of the Texas Education Code for the school year beginning in the current tax year, in the same amount as would have been available to the district in the preceding year if the funding elements of wealth equalization and State funding for the current year had been in effect for the preceding year. Section of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Before adopting its annual tax rate, a public meeting must be held for the purpose of adopting a budget for the succeeding year. A notice of public meeting to discuss budget and proposed tax rate must be published in the time, format and manner prescribed in Section of the Texas Education Code. Section (e) of the Texas Education Code provides that a person who owns taxable property in a school district is entitled to an injunction restraining the collection of taxes by the district if the district has not complied with such notice requirements or the language and format requirements of such notice as set forth in Section (b), (c) and (d) and if such failure to comply was not in good faith. Section (e) further provides the action to enjoin the collection of taxes must be filed before the date the district delivers substantially all of its tax bills. Levy and Collection of Taxes Property within the District is assessed as of January 1 of each year; taxes become due October 1 of the same year and become delinquent on February 1 of the following year. Split payments are not permitted. Discounts are not permitted. The District is responsible for the collections of its taxes, unless it elects to transfer such functions to another governmental entity. Before September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set by the Board of Trustees of the District based upon the valuation of property within the District as of the preceding January 1. Taxes are due October 1, 9

18 or when billed, whichever comes later, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty from six percent (6%) to twelve percent (12%) of the amount of the tax, depending on the time of payment, and accrued interest at the rate of one percent (1%) per month. If the tax is not paid by the following July 1, an additional penalty of up to twenty percent (20%) may under certain circumstances be imposed by the District. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. District's Rights in the Event of Tax Delinquencies Taxes levied by the District are a personal obligation of the owner of the property. The District has no lien for unpaid taxes on personal property but does have a lien for unpaid taxes upon real property, which lien is discharged upon payment. On January 1 of each year, such tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed for the year on the property. The District's tax lien is on a parity with the tax liens of other such taxing units. A tax lien on real property taxes takes priority over the claims of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. The automatic stay in bankruptcy will prevent the automatic attachment of tax liens with respect to post-petition tax years unless relief is sought and granted by the bankruptcy judge. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. Except with respect to taxpayers who are 65 years of age or older, at any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights, or by bankruptcy proceedings which restrict the collection of taxpayer debts. THE PROPERTY TAX CODE AS APPLIED TO THE BURLESON INDEPENDENT SCHOOL DISTRICT The Johnson County and Tarrant Central Appraisal Districts have the responsibility for appraising property in the District as well as other taxing units in Johnson and Tarrant Counties. The Appraisal Districts are governed by a board of five directors appointed by voters of the governing bodies of various Johnson and Tarrant County political subdivisions. Split payments are not permitted. Discounts are not permitted. The District does not grant any Freeport exemptions. The District has not granted any tax abatements. Property within the District is assessed as of January 1 of each year; taxes become due October 1 of the same year and become delinquent on February 1 of the following year. The District does not participate in any tax increment financing zones. The District has taken action to tax goods-in-transit for the 2009 tax year. Charges for penalties and interest on the unpaid balance of delinquent taxes are as follows: Month Cumulative Penalty Cumulative Interest (b) Total February 6% 1% 7% March April May June July 32 (a) 6 38 (a) Includes additional penalty of up to 20% assessed after July 1 in order to defray attorney collection expenses. (b) Interest continues to accrue after July 1 at the rate of 1% per month until paid. STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS Litigation Relating to the Texas Public School Finance System On April 9, 2001, four property wealthy districts filed suit in the 250th District Court of Travis County, Texas (the "District Court") against the Texas Education Agency, the Texas State Board of Education, the Texas Commissioner of Education (the "Commissioner") and the Texas Comptroller of Public Accounts in a case styled West Orange-Cove Consolidated Independent School District, et al. v. Neeley, et al. The plaintiffs alleged that the $1.50 maximum maintenance and operations tax rate had 10

19 become in effect a state property tax, in violation of Article VIII, Section 1-e of the Texas Constitution, because it precluded them and other school districts from having meaningful discretion to tax at a lower rate. Forty school districts intervened alleging that the Texas public school finance system (the "Finance System") was inefficient, inadequate, and unsuitable, in violation of Article VII, Section 1 of the Texas Constitution, because the State of Texas (the "State") did not provide adequate funding. As described below, this case has twice reached the Texas Supreme Court (the "Supreme Court"), which rendered decisions in the case on May 29, 2003 ("West Orange-Cove I") and November 22, 2005 ("West Orange-Cove II"). After the remand by the Supreme Court back to the District Court in West Orange-Cove I, 285 other school districts were added as plaintiffs or intervenors. The plaintiffs joined the intervenors in their Article VII, Section 1 claims that the Finance System was inadequate and unsuitable, but not in their claims that the Finance System was inefficient. On November 30, 2004, the final judgment of the District Court was released in connection with its reconsideration of the issues remanded to it by the Supreme Court in West Orange-Cove I. In that case, the District Court rendered judgment for the plaintiffs on all of their claims and for the intervenors on all but one of their claims, finding that (1) the Finance System was unconstitutional in that the Finance System violated Article VIII, Section 1-e of the Texas Constitution because the statutory limit of $1.50 per $ of taxable assessed valuation on property taxes levied by school districts for maintenance and operation purposes had become both a floor and a ceiling, denying school districts meaningful discretion in setting their tax rates; (2) the constitutional mandate of adequacy set forth in Article VII, Section 1, of the Texas Constitution exceeded the maximum amount of funding available under the funding formulas administered by the State; and (3) the Finance System was financially inefficient, inadequate, and unsuitable in that it failed to provide sufficient access to revenue to provide for a general diffusion of knowledge as required by Article VII, Section 1, of the Texas Constitution. As stated above, in West Orange-Cove I the plaintiff school districts asserted that the $1.50 per $ of taxable assessed valuation tax that was generally authorized by State law to be levied for school maintenance and operations purposes (the "M&O Tax"), though imposed locally, had become in effect a State property tax prohibited by Article VIII, Section 1-e of the Texas Constitution. The intervening school district groups contended that funding for school operations and facilities was inefficient in violation of Article VII, Section 1 of the Texas Constitution, because children in property-poor districts did not have substantially equal access to education revenue. All of the plaintiff and intervenor school districts asserted that the Finance System could not achieve "[a] general diffusion of knowledge" as required by Article VII, Section 1 of the Texas Constitution, because the system was underfunded. The State, represented by the Texas Attorney General, made a number of arguments opposing the positions of the school districts, as well as asserting that school districts did not have standing to challenge the State in these matters. In West Orange-Cove II, the Supreme Court's holding was twofold: (1) that the local M&O Tax had become a state property tax in violation of Article VIII, Section 1-e of the Texas Constitution and (2) the deficiencies in the Finance System did not amount to a violation of Article VII, Section 1 of the Texas Constitution. In reaching its first holding, the Supreme Court relied on evidence presented in the District Court to conclude that school districts did not have meaningful discretion in levying the M&O Tax. In reaching its second holding, the Supreme Court, using a test of arbitrariness determined that: the public education system was "adequate," since it is capable of accomplishing a general diffusion of knowledge; the Finance System was not "inefficient," because school districts have substantially equal access to similar revenues per pupil at similar levels of tax effort, and efficiency does not preclude supplementation of revenues with local funds by school districts; and the Finance System does not violate the constitutional requirement of "suitability," since the system was suitable for adequately and efficiently providing a public education. In reversing the District Court's holding that the Finance System was unconstitutional under Article VII, Section 1 of the Texas Constitution, the Supreme Court stated: Although the districts have offered evidence of deficiencies in the public school finance system, we conclude that those deficiencies do not amount to a violation of Article VII, Section 1. We remain convinced, however, as we were sixteen years ago, that defects in the structure of the public school finance system expose the system to constitutional challenge. Pouring more money into the system may forestall those challenges, but only for a time. They will repeat until the system is overhauled. In response to the intervenor districts' contention that the Finance System was constitutionally inefficient, the West Orange-Cove II decision states that the Texas Constitution does not prevent the Finance System from being structured in a manner that results in gaps between the amount of funding per student that is available to the richest districts as compared to the poorest district, but reiterated its statements in Edgewood Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995) ("Edgewood IV") that such funding variances may not be unreasonable. The Supreme Court further stated that "[t]he standards of Article VII, Section 1 - adequacy, efficiency, and suitability - do not dictate a particular structure that a system of free public schools must have." The Supreme Court also noted that "[e]fficiency requires only substantially equal access to revenue for facilities necessary for an adequate system," and the Supreme Court agreed with arguments put forth by the State that the plaintiffs had failed to present sufficient evidence to prove that there was an inability to provide for a "general diffusion of knowledge" without additional facilities. Funding Changes in Response to West Orange-Cove II In response to the decision in West Orange-Cove II, the Texas Legislature (the "Legislature") enacted House Bill 1 ("HB 1"), which made substantive changes in the way the Finance System is funded, as well as other legislation which, among other things, established a special fund in the Texas state treasury to be used to collect new tax revenues that are dedicated under 11

20 certain conditions for appropriation by the Legislature to reduce M&O Tax rates, broadened the State business franchise tax, modified the procedures for assessing the State motor vehicle sales and use tax and increased the State tax on tobacco products (HB 1 and other described legislation are collectively referred to herein as the "Reform Legislation"). The Reform Legislation generally became effective at the beginning of the fiscal year of each district. Possible Effects of Litigation and Changes in Law on District Bonds The Reform Legislation did not alter the provisions of Chapter 45, Texas Education Code, that authorizes districts to secure their bonds by pledging the receipts of an unlimited ad valorem debt service tax as security for payment of the Bonds. Reference is made, in particular, to the information under the headings "THE BONDS - Security for Payment" in the Official Statement. In the future, the Legislature could enact additional changes to the Finance System which could benefit or be a detriment to a school district depending upon a variety of factors, including the financial strategies that the district has implemented in light of past State funding systems. Among other possibilities, a district's boundaries could be redrawn, taxing powers restricted, State funding reallocated, or local ad valorem taxes replaced with State funding subject to biennial appropriation. In Edgewood IV, the Supreme Court stated that any future determination of unconstitutionality "would not, however, affect the district's authority to levy the taxes necessary to retire previously issued bonds, but would instead require the Legislature to cure the system's unconstitutionality in a way that is consistent with the Contract Clauses of the U.S. and Texas Constitutions" (collectively, the "Contract Clauses"). Consistent with the Contract Clauses, in the exercise of its police powers, the State may make such modifications in the terms and conditions of contractual covenants related to the payment of the Bonds as are reasonable and necessary for the attainment of important public purposes. Although, as a matter of law, the Bonds, upon issuance and delivery, will be entitled to the protections afforded previously existing contractual obligations under the Contract Clauses, the District can make no representations or predictions concerning the effect of future legislation or litigation, or how such legislation or future court orders may affect the District's financial condition, revenues or operations. While the disposition of any possible future litigation or the enactment of future legislation to address school funding in Texas could substantially adversely affect the financial condition, revenues or operations of the District, as noted herein, the District does not anticipate that the security for payment of the Bonds, specifically, the District's obligation to levy an unlimited debt service tax, would be adversely affected by any such litigation or legislation. See "CURRENT PUBLIC SCHOOL FINANCE SYSTEM." Effects of the 81 st Texas Legislative Session The Texas Legislature convened in regular session on January 13, 2009, and adjourned its regular session on June 1, Certain legislation has been enacted that could have an impact on public school finance matters. This legislation is generally not effective until September 1, At this time, the full impact on the District from this legislation has not been determined. General CURRENT PUBLIC SCHOOL FINANCE SYSTEM The following description of the Finance System includes material provisions of the Reform Legislation. For a more complete description of school finance and fiscal management in the State, reference is made to Vernon's Texas Codes Annotated, Education Code, Chapters 41 through 46, as amended. The Reform Legislation, which generally became effective at the beginning of the fiscal year of each district, made substantive changes to the manner in which the Finance System is funded, but did not modify the basic structure of the Finance System. The changes to the manner in which the Finance System is funded are intended to reduce local M&O Tax rates by one third over two years, with M&O Tax levies declining by approximately 11% in fiscal year and approximately another 22% in fiscal year Additional State funding needed to offset local tax rate reductions must be generated by the modified State franchise, motor vehicle and tobacco taxes or any other revenue source appropriated by the Legislature. The Legislative Budget Board ("LBB") projected that the Reform Legislation will be underfunded from the Reform Legislation revenue sources by a cumulative amount of $25 billion over fiscal years through , although State surpluses were appropriated to offset the revenue shortfall in fiscal year and for the State biennium, and the shortfall could be addressed in future years if the Reform Legislation, particularly the ad valorem tax compression measures of HB 1, should prove to be an economic stimulus for the State or if there is sustained growth in the economy of the State that generates greater State revenues than were originally forecast by the LBB. Under the Finance System, school districts are guaranteed to receive State funding necessary to provide the district the greater of (A) the amount of State and local revenue per student for the district in the fiscal year, (B) the amount of State and local revenue per student the district would have been entitled to for the fiscal year based on the funding elements in place prior to the Reform Legislation using the M&O Tax rate the district adopted for the fiscal year, or (C) the amount of State and local revenue per student the district would have been entitled to for the fiscal year based on the funding elements in place prior to the Reform Legislation using an M&O Tax rate that would allow the district to maintain total revenue per student under the funding elements in place prior to the Reform Legislation. In addition to the greater of (A), (B) or (C), HB 1 provided a $2,500 salary allotment to fund a salary increase for teachers and certain other employees and a high school student allotment of $275 per student in average daily attendance for dropout prevention and college readiness programs. During the 12

21 2007 Regular Legislative Session, which convened on January 9, 2007 and adjourned on May 28, 2007, a new funding allotment was created and funded by the Legislature to provide an average $425 salary increase for educators at each school district. State funds appropriated to provide districts the guaranteed amount may only be used for maintenance and operating purposes and not to fund facilities, debt service or other purposes. If a district adopts an M&O Tax rate in any fiscal year below a rate equal to the state compression percentage for the district in that year multiplied by the M&O Tax rate adopted by the district for the fiscal year, the district's guaranteed amount is reduced in a proportionate amount. If a district would receive more State and local revenue from the Tier One and Tier Two allotments and wealth equalization than the guaranteed amount described above, the amount of State funding will be reduced by the amount of such surplus over the guaranteed amount described above. In general terms, funds are allocated to districts in a manner that requires districts to "compress" their tax rates in order to receive increased State funding at a level that equalizes local tax wealth at the 88th percentile yield for the fiscal year. A basic component of the funding formulas is the "state compression percentage". The state compression percentage is 88.67% for fiscal year and 66.67% for fiscal year For fiscal year and thereafter, the Commissioner is required to determine the state compression percentage for each fiscal year based on the percentage by which a district is able to reduce its M&O Tax rate for that year, as compared to such district's adopted M&O Tax rate for the fiscal year, as a result of State funds appropriated for distribution for the current fiscal year from the property tax relief fund established under the Reform Legislation, or from any other funding source made available by the Legislature for school district property tax relief. For fiscal year , the Commissioner determined the state compression percentage to be 66.67%. State Funding for Local School Districts To limit disparities in school district funding abilities, the Finance System (1) compels districts with taxable property wealth per weighted student higher than the "equalized wealth level" to reduce their wealth to such amount or to divert a portion of their tax revenues to other districts as described below and (2) provides various State funding allotments, including a basic funding allotment and other allotments for "enrichment" of the basic program, for debt service tax assistance and for new facilities construction. The Finance System provides for (1) State guaranteed basic funding allotments per student ("Tier One") and (2) State guaranteed revenues per student for each cent of local tax effort to provide operational funding for an "enriched" educational program ("Tier Two"). In addition, to the extent funded by the Legislature, the Finance System includes, among other funding allotments, an allotment to subsidize existing debt service up to certain limits ("EDA"), the Instructional Facilities Allotment ("IFA"), and an allotment to pay operational expenses associated with the opening of a new instructional facility. Tier One, Tier Two, EDA and IFA are generally referred to as the Foundation School Program. Tier One and Tier Two allotments represent the State funding share of the cost of maintenance and operations of school districts and supplement local ad valorem M&O Taxes levied for that purpose. Tier One and Tier Two allotments and prior year IFA allotments are generally required to be funded each year by the Legislature. EDA and future year IFA allotments supplement local ad valorem taxes levied for debt service on bonds issued by districts to construct, acquire and improve facilities and are generally subject to appropriation by the Legislature. State funding allotments may be altered and adjusted to penalize school districts with high administrative costs and, in certain circumstances, to account for shortages in State appropriations or to allocate available funds in accordance with wealth equalization goals. Tier One allotments are intended to provide all districts a basic program of education rated academically acceptable and meeting other applicable legal standards. If needed, the State will subsidize local tax receipts at a tax rate of $.86 per $100 of property value to ensure that the cost to a district of the basic program is met. Tier Two allotments are intended to guarantee each school district that is not subject to the wealth transfer provisions described below an opportunity to supplement that program at a level of its own choice, however Tier Two allotments may not be used for the payment of debt service or capital outlay. The cost of the basic program is based on an allotment per student known as the "Tier One Basic Allotment." The Tier One Basic Allotment is adjusted for all districts by a cost-of-living factor known as the "cost of education index." In addition, a district-size adjustment further adjusts the Tier One Basic Allotment for districts that have less than 5,000 students in average daily attendance. For the fiscal year the Tier One Basic Allotment was funded at $3,135 based upon a guaranteed yield of $36.45 for each cent of tax effort. For fiscal year , the Tier One Basic Allotment is $3,218 based upon a guaranteed yield of $37.42 for each cent of tax effort. Tier Two consists of State equalization funding for local M&O Tax levies that exceed $0.86. For fiscal year , State funding to equalize local M&O Tax levies above $0.86, up to a district's compressed rate, was funded at a guaranteed yield of $36.45 per student in weighted average daily attendance ("WADA") for each cent of tax effort; any amount above a district's compressed rate up to $0.04 was funded at a guaranteed yield of $46.94 per WADA for each cent of tax effort; and any tax effort associated with a tax approved by voters at a roll back election was funded at a guaranteed yield of $31.95 per WADA for each cent of tax effort above a district's compressed rate plus $0.04. For fiscal year , these three levels of Tier Two are funded at $37.42, $50.98 and $31.95, respectively. See "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - General" for a discussion of the state compression percentage. The IFA guarantees each school district a specified amount per student (the "IFA Guaranteed Yield") in State and local funds for each cent of tax effort to pay principal of and interest on eligible bonds issued to construct, acquire, renovate or improve instructional facilities. To receive an IFA, a school district must apply to the Commissioner in accordance with rules adopted by the Commissioner before issuing the bonds to be paid with State assistance. The total amount of debt service assistance over a biennium for which a district may be awarded is limited to the lesser of (1) the actual debt service payments made by the district in the biennium in which the bonds are issued; or (2) the greater of (a) $100,000 or (b) $250 multiplied by the number of students 13

22 in average daily attendance. The IFA is also available for lease-purchase agreements and refunding bonds meeting certain prescribed conditions. If the total amount appropriated by the State for IFA in a year is less than the amount of money school districts applying for IFA are entitled to for that year, districts applying will be ranked by the Commissioner by wealth per student, and State assistance will be awarded to applying districts in ascending order of adjusted wealth per student beginning with the district with the lowest adjusted wealth per student. In determining wealth per student for purposes of IFA, adjustments are made to reduce wealth for certain fast growing districts. Once a district receives an IFA award for bonds, it is entitled to continue receiving State assistance without reapplying to the Commissioner and the guaranteed level of State and local funds per student per cent of tax effort applicable to the bonds may not be reduced below the level provided for the year in which the bonds were issued. In 2007, the Legislature appropriated funds for outstanding school district bonds that qualified in prior budget cycles for IFA allotments and added funding for qualified debt to be issued for instructional facilities in the State's fiscal biennium, however, the Texas Education Agency has indicated that it intends to reserve all such new appropriation for the second year of the biennium. State financial assistance is provided for certain existing debt issued by school districts (referred to herein as EDA) to produce a guaranteed yield (the "EDA Yield"), which for the State Biennium is $35.00 (subject to adjustment as described below) in State and local revenue per student for each cent of debt service tax levy; however, for bonds that became eligible for EDA funding after August 31, 2001, and prior to August 31, 2005, EDA assistance for such eligible bonds may be less than $35 in revenue per student for each cent of debt service tax, as a result of certain administrative delegations to the Commissioner under State law. Effective September 1, 2003, the portion of the local debt service rate that has qualified for equalization funding by the State has been limited to the first 29 cents of debt service tax or a greater amount for any year provided by appropriation by the Legislature. In general, a district's bonds are eligible for the allotment if, during the fiscal year of the preceding State fiscal biennium, the district (i) made payments on such bonds or (ii) levied and collected debt service taxes for the payment of principal and interest on such bonds. In 2009, the Legislature appropriated funds for outstanding school district bonds that qualified in prior budget cycles for EDA allotments, provided additional EDA funding for the State's fiscal biennium for new bonds that qualify for the allotment. A district may not receive EDA funding for the principal and interest on a series of otherwise eligible bonds for which the district receives overlapping IFA funding. A district may also qualify for an allotment for operational expenses associated with opening new instructional facilities. This funding source may not exceed $25,000,000 in one school year on a State-wide basis. For the first school year in which students attend a new instructional facility, a district is entitled to an allotment of $250 for each student in average daily attendance at the facility. For the second school year in which students attend that facility, a district is entitled to an allotment of $250 for each additional student in average daily attendance at the facility. The new facility operational expense allotment will be deducted from wealth per student for purposes of calculating a district's Tier Two State funding. Local Revenue Sources - Property Tax Authority The primary source of local funding for school districts is ad valorem taxes levied against the local tax base. The former provision of the Education Code, Section , that in general limited the M&O Tax rate to $1.50 per $100 of taxable assessed value, was replaced with a formula using the state compression percentage so that the maximum tax rate that may be adopted by a district in any fiscal year is limited based on the amount of State funds to be received by the District in that year. For the and fiscal years, districts may generate additional local funds by raising their M&O Tax rate by $0.04 above the compressed tax rates (without taking into account changes in taxable valuation) without voter approval, and such amounts will generate equalized funding dollars from the State under the Tier Two program. In fiscal year and thereafter, districts may, in general, increase their tax rate by an additional two or more cents and receive State equalization funds for such taxing effort so long as the voters approve such tax rate increase. Many school districts, however, voted their M&O Tax under prior law and may be subject to other limitations on the M&O Tax rate. School districts are also authorized to levy a bond debt service tax that may be unlimited in rate. See "TAX RATE LIMITATIONS" herein. The governing body of a school district cannot adopt an annual tax rate which exceeds the district's "rollback tax rate" without submitting such proposed tax rate to the voters at a referendum election. See "AD VALOREM TAX PROCEDURES-Public Hearing and Rollback Tax Rate" herein. Wealth Transfer Provisions Under the Finance System, districts are required, with certain limited exceptions, to effectively adjust taxable property wealth per weighted student ("wealth per student") for each school year to no greater than the "equalized wealth level", determined in accordance with a formula set forth in the Reform Legislation. A district may effectively reduce its wealth per student either by reducing the amount of taxable property within the district relative to the number of weighted students, by transferring revenue out of the district or by exercising any combination of these remedies. The wealth level that required wealth reduction measures for fiscal year was $319,500 per student in average daily attendance. For that wealth level was increased to $364,500 per student in average daily attendance with respect to that portion of a district's M&O tax effort that does not exceed its compressed tax rate, and remains at $319,500 with respect to that portion of a district's local tax effort that is beyond its compressed rate plus $.04. For that wealth level has been increased to $374,200 per student in average daily attendance with respect to that portion of a district s M&O tax effort that does not exceed its compressed tax rate, and remains at $319,500 with respect to that portion of a district s local tax effort that is beyond its compressed rate plus $.04. Property wealthy districts may also be able to levy up to an additional four cents (six cents beginning with fiscal year ) per $100 of assessed valuation of M&O Taxes above their compressed rate to provide revenue that is not subject to recapture. 14

23 A district has four options to reduce its wealth per student so that it does not exceed the equalized wealth level: (1) A district may consolidate by agreement with one or more districts to form a consolidated district. All property and debt of the consolidating districts vest in the consolidated district. (2) Subject to approval by the voters of all affected districts, a district may consolidate by agreement with one or more districts to form a consolidated taxing district solely to levy and distribute either M&O Taxes or both M&O Taxes and debt service taxes. (3) A district may detach property from its territory for annexation by a property-poor district. (4) A district may educate students from other districts who transfer to the district without charging tuition to such students. A district has three options to transfer tax revenues from its excess property wealth. First, a district with excess wealth per student may purchase "attendance credits" by paying the tax revenues to the State for redistribution under the Foundation School Program. Second, it can contract to disburse the tax revenues to educate students in another district, if the payment does not result in effective wealth per student in the other district to be greater than the equalized wealth level. Both options to transfer property wealth are subject to approving elections by the transferring district's qualified voters. Third, a wealthy district may reduce its wealth by paying tuition to a non-wealthy district for the education of students that reside in the wealthy district. A district may not adopt a tax rate until its effective wealth per student is the equalized wealth level or less. If a final court decision holds any of the preceding permitted remedial options unlawful, districts may exercise any remaining option under a revised schedule approved by the Commissioner. If a district fails to exercise a permitted option, the Commissioner must reduce the district's property wealth per student to the equalized wealth level by detaching certain types of property from the district and annexing the property to a property-poor district or, if necessary, consolidate the district with a property-poor district. Provisions governing detachment and annexation of taxable property by the Commissioner do not provide for assumption of any of the transferring district's existing debt. Possible Effects of Wealth Transfer Provisions and on the District's Financial Condition The District's wealth per student for the school year is less than the equalized wealth value. Accordingly, the District has not been required to exercise one of the permitted wealth equalization options. As a district with wealth per student less than the equalized wealth value, the District may benefit in the future by agreeing to accept taxable property or funding assistance from or agreeing to consolidate with a property-rich district to enable such district to reduce its wealth per student to the permitted level. A district's wealth per student must be tested for each future school year and, if it exceeds the maximum permitted level, must be reduced by exercise of one of the permitted wealth equalization options. Accordingly, if the District's wealth per student should exceed the maximum permitted level in future school years, it will be required each year to exercise one or more of the wealth reduction options. If the District were to consolidate (or consolidate its tax base for all purposes) with a property-poor district, the outstanding debt of each district could become payable from the consolidated district's combined property tax base, and the District's ratio of taxable property to debt could become diluted. If the District were to detach property voluntarily, a portion of its outstanding debt (including the Bonds) could be assumed by the district to which the property is annexed, in which case timely payment of the Bonds could become dependent in part on the financial performance of the annexing district. The Insurance Policy BOND INSURANCE Concurrently with the issuance of the Bonds, Assured Guaranty Corp. ( Assured Guaranty or the Insurer ) will issue its financial guaranty insurance policy (the Policy ) for the Bonds. The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. The Insurer Assured Guaranty is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty. 15

24 Assured Guaranty s financial strength is rated AAA (negative outlook) by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( S&P ), Aa2 (on review for possible downgrade) by Moody s Investors Service, Inc. ( Moody s ) and AA (ratings watch negative) by Fitch, Inc. ( Fitch ). Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. Recent Developments Ratings On July 1, 2009, S&P published a Research Update in which it affirmed its AAA counterparty credit and financial strength ratings on Assured Guaranty. At the same time, S&P revised its outlook on Assured Guaranty to negative from stable. Reference is made to the Research Update, a copy of which is available at for the complete text of S&P s comments. On May 20, 2009, Moody s issued a press release stating that it had placed the Aa2 insurance financial strength rating of Assured Guaranty on review for possible downgrade. Subsequently, in an announcement dated July 24, 2009 entitled Moody s Comments on Assured s Announcement to Guarantee and Delist FSA Debt, Moody s announced that it expects to conclude its review by mid-august Reference is made to the press release and the announcement, copies of which are available at for the complete text of Moody s comments. In a press release dated August 10, 2009, Fitch revised its outlook on Assured Guaranty to negative from evolving. Reference is made to the press release, a copy of which is available at for the complete text of Fitch s comments. There can be no assurance as to the outcome of Moody s review, or as to the further action that Fitch or S&P may take with respect to Assured Guaranty. For more information regarding Assured Guaranty s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed by AGL with the Securities and Exchange Commission ( SEC ) on February 26, 2009, AGL s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, which was filed by AGL with the SEC on May 11, 2009, and AGL s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, which was filed by AGL with the SEC on August 10, Acquisition of FSA On July 1, 2009, AGL acquired the financial guaranty operations of Financial Security Assurance Holdings Ltd. ( FSA ), the parent of financial guaranty insurance company Financial Security Assurance Inc. For more information regarding the acquisition by AGL of FSA, see Item 1.01 of the Current Report on Form 8-K filed by AGL with the SEC on July 8, Capitalization of Assured Guaranty Corp. As of June 30, 2009, Assured Guaranty had total admitted assets of $1,950,949,811 (unaudited), total liabilities of $1,653,306,246 (unaudited), total surplus of $297,643,565 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,084,906,800 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Incorporation of Certain Documents by Reference The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: the Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2008 (which was filed by AGL with the SEC on February 26, 2009); the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (which was filed by AGL with the SEC on May 11, 2009); the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (which was filed by AGL with the SEC on August 10, 2009); and the Current Reports on Form 8-K filed by AGL with the SEC relating to the periods following the fiscal year ended December 31,

25 All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the heading BOND INSURANCE-The Insurer shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York or by calling Assured Guaranty at (212) In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC s web site at and at AGL s web site at from the SEC s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C , and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York Assured Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading BOND INSURANCE. INVESTMENT CONSIDERATIONS REGARDING BOND INSURANCE In the event of default of the payment of principal, Maturity Value, or interest with respect to the Bonds when all or some becomes due, any owner of the Bonds shall have a claim under the Policy for such payments. The Policy will not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional prepayment of the Bonds by the District which is recovered by the District from the bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the Insurer at such time and in such amounts as would have been due absent such prepayment by the District unless the bond insurer chooses to pay such amounts at an earlier date. Default of payment of principal, Maturity Value and interest does not obligate acceleration of the obligations of the Insurer. Absent a default in its obligations under the Policy, the Insurer may direct and must consent to any remedies that the Bond owners may exercise, and the Insurer s consent may be required in connection with amendments to the Order. In the event the Insurer is unable to make payment of principal, Maturity Value and interest as such payments become due under the Policy, the Bonds are payable solely from the moneys received by the Paying Agent/Registrar pursuant to the Order. In the event the Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. The long-term ratings on the Bonds are dependent in part on the financial strength of the Insurer and its claim paying ability. The Insurer s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Insurer and of the ratings on the Bonds insured by the Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See description of OTHER INFORMATION Ratings herein. The obligations of the Insurer will be general obligations of the Insurer and in an event of default by the Insurer, the remedies available to the Bond owners may be limited by applicable bankruptcy law or other similar laws related to insolvency. Neither the District nor the Underwriters have made independent investigation into the claims paying ability of the Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the District to pay principal, Maturity Value and interest on the Bonds and the claims paying ability of the Insurer, particularly over the life of the investment. See BOND INSURANCE, for current financial information concerning the Insurer. 17

26 TAX RATE LIMITATIONS A school district is authorized to levy maintenance and operation taxes ("O&M tax") subject to approval of a proposition submitted to district voters under Section (d) of the Texas Education Code, as amended. The maximum O&M Tax rate that may be levied by a district cannot exceed the voted maximum rate or the maximum rate described in the next succeeding paragraph. The maximum voted O&M Tax rate for the District is $1.50 per $100 of assessed valuation as approved by the voters at an election held on November 7, 2006 under Section , Texas Education Code. For any fiscal year beginning with the fiscal year, the maximum tax rate per $100 of assessed valuation that may be adopted by the District may not exceed the lesser of (A) $1.50 and (B) the sum of (1) the rate of $0.17, and (2) the product of the "state compression percentage" multiplied by $1.50. For fiscal year and thereafter, the Commissioner is required to determine the state compression percentage for each fiscal year which is based on the amount of State funds appropriated for distribution to the District for the current fiscal year. For fiscal year , the Comptroller has determined the state compression percentage to be 66.67%. For a more detailed description of the state compression percentage, see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - General." Furthermore, a school district cannot annually increase its tax rate in excess of the district's "rollback tax rate" without submitting such tax rate to a referendum election and a majority of the voters voting at such election approving the adopted rate. See "AD VALOREM TAX PROCEDURES-Public Hearing and Rollback Tax Rate." A school district is also authorized to issue bonds and levy taxes for payment of bonds subject to voter approval of a proposition submitted to the voters under Section (b)(1), Texas Education Code, as amended, which provides a tax unlimited as to rate or amount for the support school district bonded indebtedness (see "THE BONDS - Security for Payment", and STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS ). Chapter 45 of the Texas Education Code, as amended, requires a district to demonstrate to the Texas Attorney General that it has the prospective ability to pay debt service on a proposed issue of bonds, together with debt service on other outstanding "new debt" of the district, from a tax levied at a rate of $0.50 per $100 of assessed valuation before bonds may be issued. In demonstrating the ability to pay debt service at a rate of $0.50, a district may take into account State allotments to the district which effectively reduces the district's local share of debt service. Once the prospective ability to pay such tax has been shown and the bonds are issued, a district may levy an unlimited tax to pay debt service. Taxes levied to pay debt service on bonds approved by district voters at an election held on or before April 1, 1991 and issued before September 1, 1992 (or debt issued to refund such bonds) are not subject to the foregoing threshold tax rate test. In addition, taxes levied to pay refunding bonds issued pursuant to Chapter 1207, Texas Government Code, are not subject to the $0.50 tax rate test; however, taxes levied to pay debt service on such bonds are included in the calculation of the $0.50 tax rate test as applied to subsequent issues of "new debt." The Bonds are "new debt" and are subject to the $0.50 threshold tax rate test. Under current law, a district may demonstrate its ability to comply with the $0.50 threshold tax rate test by applying the $0.50 tax rate to an amount equal to 90% of projected future taxable value of property in the district, as certified by a registered professional appraiser, anticipated for the earlier of the tax year five years after the current tax year or the tax year in which the final payment for the bonds is due. However, if a district uses projected future taxable values to meet the $0.50 threshold tax rate test and subsequently imposes a tax at a rate greater than $0.50 per $100 of valuation to pay for bonds subject to the test, then for subsequent bond issues, the Attorney General must find that the district has the projected ability to pay principal and interest on the proposed bonds and all previously issued bonds subject to the $0.50 threshold tax rate test from a tax rate of $0.45 per $100 of valuation. The District has not used projected property values to satisfy this threshold test. The District has not used projected future taxable values to meet the test. DEBT LIMITATIONS Under State law, there is no explicit bonded indebtedness limitation, although the tax rate limits described above under Tax Rate Limitations effectively impose a limit on the incurrence of debt. Such tax rate limits require school districts to demonstrate the ability to pay new debt secured by the district s debt service tax from a tax rate of $0.50, and to pay all debt and operating expenses which must be paid from receipts of the district s maintenance tax from a tax that does not exceed the maintenance tax limitations described under the caption TAX RATE LIMITATIONS. In demonstrating compliance with the requirement, a district may take into account State equalization payments, and effective September 1, 1997, if compliance with such requirement is contingent on receiving State assistance, a district may not adopt a tax rate for a year for purposes of paying the principal and interest on bonds unless the district credits to the interest and sinking fund of the bonds the amount of State assistance equal to the amount needed to demonstrate compliance and received or to be received in that year. The State Attorney General reviews a district s calculations showing the compliance with these tests as a condition to the legal approval of the debt. The Bonds constitute new debt and are, therefore, subject to the $0.50 limitation. See also "TAX RATE LIMITATIONS". EMPLOYEES BENEFIT PLANS The District s employees participate in a retirement plan with the State of Texas; the Plan is administered by the Teacher Retirement System of Texas ( TRS ). State contributions are made to cover costs of the TRS retirement plan up to certain statutory limits. The District is obligated for a portion of TRS costs relating to employee salaries that exceed the statutory limit. For the year ended August 31, 2008, the State contributed $2,480,015 to TRS on behalf of the District, District employees paid $2,878,795 and other contributions into the plan made from federal grants and from the District for salaries above the statutory minimum was $479,

27 In addition to the TRS retirement plan, the District also contributes to the Texas Public School Retired Employees Group Insurance Program (TRS-Care), a cost-sharing multiple employer defined benefit postemployment health care plan administered by TRS. TRS-Care Retired Plan provides health care coverage for certain persons and their dependents who retired under TRS. Contribution requirements are not actuarially determined but are legally established each biennium by the Texas Legislature. The State of Texas and active public school employee contribution rates were 1.00% and 0.65%, respectively, in 2008, with school districts contributing a percentage of payroll set at 0.55%. State law provides that the public school contribution rate cannot be less than.025% or greater than 0.75% of the salary of each active employee of the school district. For more information, see Note 7 to the audited financial statements of the District. Aside from the District s contribution to TRS, the District has no pension fund expenditures or liabilities within the meaning of Government Accounting Standards Board Statement 45. (See Note 9 pension plan obligations in the audited financial statements of the District for the year ended August 31, 2008 set forth in Appendix D herein). Formal collective bargaining agreements relating directly to wages and other conditions of employment are prohibited by State law, as are strikes by teachers. There are various local, state and national organized employee groups who engage in efforts to better terms and conditions of employment of school employees. Some districts have adopted a policy to consult with employer groups with respect to certain terms and conditions of employment. Some examples of these groups are the Texas State Teachers Association, the Texas Classroom Teachers Association, the Association of Texas Professional Educators and the National Education Association. RATINGS The Bonds are rated AA (ratings watch negative) by Fitch Ratings ( Fitch ) and Aa2 (on review for possible downgrade) by Moody s Investor Service Inc. ( Moody s) as a result of the issuance of financial guaranty insurance policies by Assured Guaranty Corp. The presently outstanding unlimited tax supported debt of the District is rated A2 by Moody s and A by Fitch, without regard to credit enhancement. The District also has outstanding bonds that are rated Aaa and AAA by Moody s and Fitch, respectively, based upon the Permanent School Fund Guarantee. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The rating reflects only the respective view of such organization and the District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating company, if in the judgment of the company, circumstances so warrant. Any such downward revision or withdrawal of such rating, may have an adverse effect on the market price of the Bonds. LEGAL MATTERS The District will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of the State of Texas as to the Bonds to the effect that the Bonds are valid and legally binding obligations of the District, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, with respect to the Bonds issued in compliance with the provisions of the Order. A form of such opinion is attached hereto as Appendix C. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, or which would affect the provisions made for their payment or security, or in any manner questioning the validity of said Bonds will also be furnished. In connection with the issuance of the Bonds, Bond Counsel has been engaged by and only represents the District. Except as noted below, Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained herein, except that in its capacity as Bond Counsel, such firm has reviewed the information appearing under captions or subcaptions THE BONDS (except under the subcaptions Yield on Capital Appreciation Bonds, Payment Record and Sources and Uses of Funds ), REGISTRATION, TRANSFER AND EXCHANGE, STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS, CURRENT PUBLIC SCHOOL FINANCE SYSTEM (except under the subcaption Possible Effects of Wealth Transfer Provisions on the District s Financial Condition ), TAX RATE LIMITATIONS, TAX MATTERS, LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS, CONTINUING DISCLOSURE OF INFORMATION (except for subcaption Compliance with Prior Undertakings ), and REGISTRATION AND QUALIFICATION OF BONDS FOR SALE, and such firm is of the opinion that the information relating to the bonds and legal matters contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Order. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriters by their counsel, Vinson& Elkins L.L.P., Dallas, Texas, whose fee is contingent upon the sale and delivery of the Bonds. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinion as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. 19

28 TAX MATTERS Opinion On the date of initial delivery of the Bonds, McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Bond Counsel to the Issuer, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ("Existing Law"), (1) interest on the Bonds for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Bonds are obligations described in section 1503 of The American Recovery and Reinvestment Act of 2009 and accordingly, the interest on the Bonds will not be included in the owner's alternative minimum taxable income under section 55 of the Internal Revenue Code of 1986 (the "Code"). Except as stated above, Bond Counsel to the Issuer will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds. See Appendix C -- Form of Legal Opinion of Bond Counsel. In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the Issuer, including information and representations contained in the Issuer's federal tax certificate and (b) covenants of the Issuer contained in the Bond documents relating to certain matters, including arbitrage and the use of the proceeds of the Bonds and the property financed or refinanced therewith. Failure by the Issuer to observe the aforementioned representations or covenants could cause the interest on the Bonds to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Bonds in order for interest on the Bonds to be, and to remain, excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Bonds to be included in gross income retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel is conditioned on compliance by the Issuer with such requirements, and Bond Counsel has not been retained to monitor compliance with these requirements subsequent to the issuance of the Bonds. Bond Counsel's opinion represents its legal judgement based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel's opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Bonds. A ruling was not sought from the Internal Revenue Service by the Issuer with respect to the Bonds or the property financed or refinanced with proceeds of the Bonds. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Bonds. Bond Counsel's opinion is not binding on the Internal Revenue Service. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Issuer as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Federal Income Tax Accounting Treatment of Original Issue Discount The initial public offering price to be paid for one or more maturities of the Bonds may be less than the maturity amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year (the "Original Issue Discount Bonds"). In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Bond in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield 20

29 to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. In addition, various provisions of the Texas Finance Code provide that, subject to a prudence standard, the Bonds are legal investments for state banks, savings banks, trust companies with at least $1 million of capital, and savings and loans associations. In accordance with the Public Funds Investment Act, Chapter 2256, Texas Government Code, the Bonds must be rated not less than A or its equivalent as to investment quality by a national rating agency in order for most municipalities or other political subdivisions or public agencies of the State of Texas to invest in the Bonds, except for purchases for interest and sinking funds of such entities. (See RATINGS herein.) Moreover, municipalities or other political subdivisions or public agencies of the State of Texas that have adopted investment policies and guidelines in accordance with the Public Funds Investment Act may have other, more stringent requirements for purchasing securities, including the Bonds. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. 21

30 The District has made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The District has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states. INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT Available District funds are invested as authorized by Texas law and in accordance with investment policies approved by the Board of Trustees. Both state law and the District's investment policies are subject to change. Under Texas law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) that are issued by or through an institution that either has its main office or a branch in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas; (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District's name and deposited at the time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less; (10) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency; (11) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank; (12) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and; (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The District may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The District may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution. The District is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for District funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All District funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. 22

31 Under Texas law, the District's investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived." At least quarterly the District's investment officers must submit an investment report to the Board of Trustees detailing: (1) the investment position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest District funds without express written authority from the Board of Trustees. Under Texas law, the District is additionally required to: (1) annually review its adopted policies and strategies, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the District, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the District to disclose the relationship and file a statement with the Texas Ethics Commission and the District, (3) require the registered principal of firms seeking to sell securities to the District to: (a) receive and review the District's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the District's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non-money market mutual funds in the aggregate to no more than 15% of the District's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. FINANCIAL ADVISOR Southwest Securities, Inc. is employed as Financial Advisor to the District to assist in the issuance of the Bonds. In this capacity, the Financial Advisor has compiled certain data relating to the Bonds that is contained in this Official Statement. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the District to determine the accuracy or completeness of this Official Statement. Because of their limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. The fee of the Financial Advisor for services with respect to the Bonds is contingent upon the issuance and sale of the Bonds. In the normal course of business, the Financial Advisor may also from time to time sell investment securities to the District for the investment of bond proceeds or other funds of the District upon the request of the District. AUTHENTICITY OF FINANCIAL INFORMATION The financial data and other information contained herein have been obtained from the District s records, audited financial statements and other sources which are believed to be reliable. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. UNDERWRITERS The Underwriters have agreed, subject to certain customary conditions, to purchase the Bonds at a price equal to the initial offering prices to the public, as shown on the inside cover page, less an Underwriters Discount of $451, The Underwriters obligations are subject to certain conditions precedent, and the Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have 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 Underwriters do not guarantee the accuracy or completeness of such information. LITIGATION The District is not a party to any litigation or other proceeding pending or to its knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the District, would have a material adverse effect on the financial statements or operations of the District. At the time of the initial delivery of the Bonds, the District will provide the Underwriters with a certificate to the effect that no litigation of any nature has been filed or is then pending challenging the issuance of the Bonds or that affects the payment and security of the bonds or in any other manner questioning the issuance, sale or delivery of the Bonds. 23

32 CONTINUING DISCLOSURE OF INFORMATION In the Order, the District has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the District will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board (the MSRB ). Annual Report The District will provide certain updated financial information and operating data to the MSRB annually in an electronic format that is prescribed by the MSRB and available via the Electronic Municipal Market Access System ( EMMA ) at The information to be updated includes all quantitative financial information and operating data with respect to the District of the general type included in this Official Statement in Appendix A, FINANCIAL INFORMATION OF THE DISTRICT and in Appendix D. The District will update and provide this information within six months after the end of each fiscal year. The District may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12, as amended (the Rule ). The updated information will include audited financial statements, if the District commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the District will provide unaudited financial statements by the required time and audited financial statements when and if the audit report becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix D or such other accounting principles as the District may be required to employ from time to time pursuant to state law or regulation. The District's current fiscal year end has changed from August 31 to June 30, effective for Accordingly, it must provide updated information by the last day of December in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The District will also provide timely notices of certain events to the MSRB. The District will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. Neither the Bonds nor the Order make any provision for debt service reserves, or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under Annual Reports. The District will provide each notice in this paragraph to the MSRB. Availability of Information The SEC has recently adopted amendments to the Rule which approve the establishment by the MSRB of EMMA which, as of its implementation on July 1, 2009, is the sole nationally recognized municipal securities information repository. On and after the EMMA Effective Date all information and documentation filing required to be made by the District will be made with the MSRB in electronic format in accordance with MSRB guidelines. Access to such filings is provided, without charge to the general public, by the MSRB. Limitations and Amendments The District has agreed to update information and to provide notices of material events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders and beneficial owners of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the District (such as nationally recognized bond counsel) determined that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Bonds. If the District amends the agreement, it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under Annual Reports an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. 24

33 Compliance with Prior Undertakings The District became obligated to make annual disclosure of certain financial information by filing with the State Information Depository ( SID ) and each nationally recognized municipal securities information repository ( NRMSIR ) in an offering that took place in Due to an administrative oversight, certain financial information was filed late for fiscal year ending All information has since been filed, as well as a notice of late filing. The District has implemented procedures to ensure timely filing of all future information pursuant to SEC Rule 15c2-12. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2). The Bonds have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of the Official Statement. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any other jurisdiction. The District assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions. FORWARD LOOKING STATEMENTS The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward looking statements included in this Official Statement are based on information available to the District on the date hereof, and the District assumes no obligation to update any such forward-looking statements. It is important to note that the District s actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. CONCLUDING STATEMENT The information set forth herein has been obtained from the District's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Order contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Order. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. The Order authorizing the issuance of the Bonds has approved the form and content of this Official Statement and any addenda, supplement or amendment thereto and will authorize its further use in the re-offering of the Bonds by the Underwriters. This Official Statement was approved by the Board of Trustees of the District for distribution in accordance with the provisions of the Securities and Exchange Commission s rule codified at 17 C.F.R. Section c2-12, as amended. BURLESON INDEPENDENT SCHOOL DISTRICT ATTEST: /s/ Michael Ancy Secretary, Board of Trustees Burleson Independent School District /s/ Staci Eisner President, Board of Trustees Burleson Independent School District 25

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35 Schedule I Schedule of Accreted Values of Capital Appreciation Bonds ("CABs") (Per $5,000 Maturity Value) CABs Delivery Date: September 15, 2009 Accreted Accreted Accreted Accreted Accreted Accreted Accreted Accreted Value of Value of Value of Value of Value of Value of Value of Value of 8/1/2013 8/1/2014 8/1/2015 8/1/2016 8/1/2017 8/1/2018 8/1/2019 8/1/2020 Maturity Maturity Maturity Maturity Maturity Maturity Maturity Maturity Date: 2.45% 2.94% 3.27% 3.66% 3.98% 4.21% 4.48% 4.64% 09/15/2009 $ 4, $ 4, $ 4, $ 3, $ 3, $ 3, $ 3, $ 3, /01/2010 4, , , , , , , , /01/2010 4, , , , , , , , /01/2011 4, , , , , , , , /01/2011 4, , , , , , , , /01/2012 4, , , , , , , , /01/2012 4, , , , , , , , /01/2013 4, , , , , , , , /01/2013 5, , , , , , , , /01/2014 4, , , , , , , /01/2014 5, , , , , , , /01/2015 4, , , , , , /01/2015 5, , , , , , /01/2016 4, , , , , /01/2016 5, , , , , /01/2017 4, , , , /01/2017 5, , , , /01/2018 4, , , /01/2018 5, , , /01/2019 4, , /01/2019 5, , /01/2020 4, /01/2020 5,000.00

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37 APPENDIX A FINANCIAL INFORMATION OF THE DISTRICT

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39 BURLESON INDEPENDENT SCHOOL DISTRICT FINANCIAL INFORMATION OF THE DISTRICT (as of July 1, 2009) ASSESSED VALUATION (1) 2009 Actual Assessed Total Valuation $ 4,141,634,739 Exemption/Deductions Residential Homestead ($15,000) $ 182,558,541 Disabled/Deceased Veterans 6,337,279 Over-65 or Disabled 116,452,435 Productivity Loss 83,640,796 Homestead Cap 7,905,263 HB366/Other 864,413 Pollution Control 21,191 Exempt Values 296,436, % (Total of actual valuation) $ 694,216, Certified Net Taxable Assessed Valuation $ 3,447,418,460 (1) Values shown are certified taxable assessed values report by the Johnson County and Tarrant Central Appraisal Districts to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contest values are resolved and the Appraisal Districts update records. (1) (2) VOTED GENERAL OBLIGATION DEBT PRINCIPAL Total Bonds Outstanding $ 229,452,975 Series 2009 Bonds 66,700,000 Total General Obligation Debt Principal $ 296,152,975 Ratio of GO Debt to 2009 Net Taxable Valuation 8.59% Per Capita Net Valuation $ 67, Population Estimate 51,205 Per Capita Actual Valuation $ 80, /09 Enrollment 9,440 Per Capita Net G.O. Debt $ 5,784 (1) See discussion under "TAX RATE LIMITATIONS" in the Official Statement. (2) Excludes interest accreted on outstanding capital appreciation bonds. PROPERTY TAX RATES AND COLLECTIONS Net % Collections Tax Year Taxable Valuation Tax Rate Current (1) Total (1) F/Y Ended Source 1996/97 $ 797,212,477 $ % 96.85% (2) 1997/98 860,000, % 99.19% (2) 1998/99 929,725, % 99.56% (2) 1999/00 983,587, % 98.17% (2) 2000/01 1,029,490, % 97.93% (2) 2001/02 1,240,106, % 98.70% (2) 2002/03 1,389,738, % % (2) 2003/04 1,572,809, % % (2) 2004/05 1,804,746, % 98.69% (2) 2005/06 2,010,950, % 99.28% (2) 2006/07 2,229,736, % 99.03% (2) 2007/08 2,497,055, % % (2) 2008/09 3,226,387, % 97.66% (partial through 5/31/09) (3) 2009/10 3,447,418, % 0.00% (in process of collection) (3) (1) Excludes Penalty and Interest. (2) District Tax office and Audited Financial Statements. (3) The fiscal year end for the District changed from 8/31 to 6/30, effective for A-1

40 DEBT SERVICE FUND COMPARITIVE STATEMENTS OF REVENUE AND EXPENDITURES Fiscal Year Ending August 31* Beginning Fund Balance $ 2,379,987 $ 2,291,486 $ 1,649,502 Revenues: Local, Intermediate, and Out-of-State 9,121,175 5,096,975 4,803,865 State Program Revenues 2,056,368 1,839,788 2,317,075 Federal Program Revenues - Total Revenues $ 11,177,543 $ 6,936,763 $ 7,120,940 Expenditures Total Expenditures $ 10,215,440 $ 7,654,039 $ 6,478,956 Excess (Deficiency) Revenues over Expenditure $ 962,103 $ (717,276) $ 641,984 Other Resources - 805,777 - Fund Balance - End of Year $ 3,342,090 $ 2,379,987 $ 2,291,486 *The fiscal year end for the District changed from 8/31 to 6/30, effective for With the change in the fiscal year end to June 30 and due to the timing of tax collections, the District now budgets for tax collections on a calendar year basis. TAX RATE DISTRIBUTION Fiscal Years August 31* 2008/ / /2007 Maintenance & Operation $ $ $ Interest & Sinking Fund Total $ $ $ *The fiscal year end for the District changed from 8/31 to 6/30, effective for With the change in the fiscal year end to June 30 and due to the timing of tax collections, the District now budgets for tax collections on a calendar year basis. FUND BALANCES (unaudited, as of May 31, 2009) General Fund $ 27,100,000 Interest & Sinking Fund $ 13,400,000 Captial Projects Fund $ 37,300,000 A-2

41 2008 PRINCIPAL TAXPAYERS (A) Total Name of Taxpayer Principal Line of Business Taxable Value % A.V. XTO Energy Inc. Energy $ 187,092, % Chesapeake Operating Inc. Oil & Gas 84,103, % EOG Resources Inc. Oil & Gas 56,631, % EE Burleson LP Land/Improvements 27,742, % Devon Energy Operating Co., LP Energy 26,950, % Chesapeake Exploration LP Oil & Gas 19,437, % North Texas Llano Operating Co. Land/Improvements 19,007, % Sullivan Hollis R Inc. Land/Improvements 18,783, % Wal-Mart Real Estate Business Real Estate 18,133, % Covington Gateway Acq. Etal Land/Improvements 15,366, % Total $ 473,249, % Based on a Net Taxable Valuation of $ 3,226,387,530 Source: Johnson County and Tarrant County Appraisal Districts (A) The top ten taxpayer list for 2009 is not yet available. CLASSIFICATION OF ASSESSED VALUATION Total Tax Roll for Fiscal Years Property Use Category Real Property Single-Family Residential $ 2,192,854,468 $ 2,099,004,838 $ 1,878,142,434 Multi-Family Residential 38,501,900 38,066,905 42,753,823 Vacant Lots/Tracts 40,524,243 40,414,381 73,824,094 Acreage (Land Only) 106,752, ,038, ,581,133 Farm and Ranch Improvements 57,394,236 55,810,460 60,723,221 Commercial and Industrial 644,080, ,759, ,267,018 Real & Tangible Personal Oil, Gas, and Mineral Reserves 793,064, ,488,797 47,486,860 Utilities 56,450,612 38,591,956 48,706,672 Tangible Personal Commercial & Industrial 268,444, ,290, ,282,115 Other 20,645,525 75,471,971 48,599,132 Exempt Values 127,985, ,304, ,628,081 Cases before ARB/Incomplete Accts. (205,063,134) (86,418,982) - Total Assessed Valuation $ 4,141,634,739 $ 3,853,823,028 $ 3,047,994,583 Less Exemptions: Residential Homestead $ 182,558,541 $ 174,807,743 $ 154,680,110 Disabled/Deceased Veterans 6,337,279 3,618,654 3,384,639 Over-65 or Disabled 116,452, ,840, ,524,666 Homestead Cap Adjustment 7,905,263 10,565,031 8,351,309 Productivity Loss 83,640,796 62,588,151 79,290,582 HB366/Other/Exempt Values 297,321, ,015, ,707,357 Total Exemptions $ 694,216,279 $ 627,435,498 $ 550,938,663 Taxable Assessed Valuation $ 3,447,418,460 $ 3,226,387,530 $ 2,497,055,920 Source: Johnson County and Tarrant County Appraisal Districts A-3

42 COMPARATIVE STATEMENT OF GENERAL FUND REVENUES AND EXPENDITURES Fiscal Years Ending August 31* Beginning Fund Balance $ 14,264,472 $ 8,698,611 $ 6,491,404 Revenues: Local and Intermediate Sources $ 30,170,051 $ 34,496,631 $ 30,469,576 State Sources 30,957,592 23,127,118 17,855,793 Federal Resources 206, , ,700 Total Revenues $ 61,334,452 $ 57,904,319 $ 48,537,069 Expenditures: Instruction & instructional related services $ 36,215,742 $ 30,713,477 $ 27,466,984 Instructional and school leadership 5,086,659 4,331,831 3,681,013 Support services - student (pupil) 7,283,032 5,865,972 4,099,543 Administrative support services 2,773,685 3,657,927 3,027,822 Support Services - nonstudent based 8,156,476 7,011,932 7,204,155 Ancillary services 248, , ,635 Community Services 233, , ,217 Debt services 60, , ,144 Capital outlay 43,241 16,723 - Intergovernmental charges 9,744 22,760 - Total Expenditures $ 60,110,704 $ 52,203,329 $ 46,308,513 Excess (deficiency) of revenues over (under) expenditures $ 1,223,748 $ 5,700,990 $ 2,228,556 Other Resources (Uses): Other Resources 65, Other Uses (291,904) (135,129) - Adjustment - - (21,349) Total Other Resources (Uses) $ (226,284) $ (135,129) $ (21,349) Excess (Deficiency) of Revenues and Other Sources over Expenditures and Other Uses $ 997,464 $ 5,565,861 $ 2,207,207 Ending Fund Balance - August 31 $ 15,261,936 $ 14,264,472 $ 8,698,611 *The fiscal year end for the District changed from 8/31 to 6/30, effective for A-4

43 PRO FORMA DEBT SERVICE REQUIREMENTS Plus: Year Outstanding The Bonds Combined Ending 8/31 (1) Debt Service Principal Interest Total Fiscal Total 2009 $ 14,658, $ - $ - $ - $ 14,658, ,014, ,104, ,104, ,119, ,403, ,229, ,229, ,633, ,898, ,229, ,229, ,128, ,900, , ,714, ,854, ,755, ,903, , ,144, ,304, ,208, ,900, , ,199, ,309, ,210, ,902, , ,234, ,309, ,212, ,903, , ,249, ,304, ,208, ,903, , ,269, ,304, ,208, ,902, , ,289, ,309, ,212, ,904, , ,284, ,304, ,209, ,902, ,080, ,229, ,309, ,212, ,904, ,120, ,188, ,308, ,212, ,905, ,160, ,143, ,303, ,208, ,903, ,210, ,095, ,305, ,208, ,887, ,280, ,043, ,323, ,211, ,869, ,355, ,987, ,342, ,212, ,850, ,435, ,927, ,362, ,212, ,835, ,515, ,861, ,376, ,211, ,194, ,225, ,790, ,015, ,210, ,172, ,350, ,685, ,035, ,207, ,154, ,490, ,567, ,057, ,212, ,136, ,630, ,443, ,073, ,209, ,140, ,760, ,311, ,071, ,211, ,139, ,895, ,173, ,068, ,208, ,138, ,040, ,029, ,069, ,207, ,160, ,170, ,877, ,047, ,207, ,179, ,310, ,718, ,028, ,207, ,202, ,455, ,553, ,008, ,210, ,362, ,470, ,380, ,850, ,212, ,366, ,135, , ,841, ,207, $ 477,601, $ 66,700, $ 91,667, $ 158,367, $ 635,968, (1) The fiscal year end for the District changed from 8/31 to 6/30, effective for With the change in the fiscal year to June 30 and due to the timing of tax collections, the District now budgets for tax collections on a calendar year basis. Note: Does not include any potential funding the district may receive from the State of Texas from either the Instructional Facilities Allotment and/or Existing Debt Allotment Programs. The amount of State funding aid for debt service may substantially differ from year to year, depending on a number of factors, including amounts, if any, appropriated for that purpose by the Texas legislature from time to time (see CURRENT PUBLIC SCHOOL FINANCE SYSTEM State Funding for Local School Districts ). TAX ADEQUACY WITH RESPECT TO THE DISTRICT'S OUTSTANDING BONDS Maximum Principal and Interest Requirements, Year Ending 8/31/2027 $20,212,766 Less indicated combined State Funds available (1) 2,218,156 Net Estimated Maximum Requirements $17,994,610 A $ Interest and Sinking Fund Tax 100% Collections based on 2009/10 Net AV produces: $17,994,628 (2)(3) (1) The amount of State aid for debt service, if any, may vary substantially from year to year, depending on a number of factors, including amounts, if any, appropriated for that purpose by the Texas Legislature and the District's wealth per student. See "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - State Funding for Local School Districts" and 'DEBT LIMITATIONS." (2) Based on 2009/10 Net Taxable Valuation of $3,447,418,460 (3) The District expects to utilize additional state funding available for the $0.50 cent test. See "TAX RATE LIMITATIONS' and "DEBT LIMITATIONS." A-5

44 PRINCIPAL REPAYMENT SCHEDULE Year Bonds Percent of Ending Outstanding Series 2009 Unpaid At Principal 8/31 (1) Bonds Bonds Total Year End Retired ,348, $ - $ 1,348, $ 294,804, % ,660, ,660, ,143, % ,115, ,115, ,027, % ,696, ,696, ,331, % ,809, , ,949, ,381, % ,751, , ,911, ,470, % ,610, , ,720, ,750, % ,845, , ,920, ,830, % ,090, , ,145, ,685, % ,345, , ,380, ,305, % ,610, , ,630, ,675, % ,498, , ,518, ,157, % ,730, ,080, ,810, ,346, % ,967, ,120, ,087, ,258, % ,210, ,160, ,370, ,888, % ,473, ,210, ,683, ,205, % ,125, ,280, ,405, ,800, % ,525, ,355, ,880, ,920, % ,945, ,435, ,380, ,540, % ,390, ,515, ,905, ,635, % ,210, ,225, ,435, ,200, % ,645, ,350, ,995, ,205, % ,110, ,490, ,600, ,605, % ,575, ,630, ,205, ,400, % ,085, ,760, ,845, ,555, % ,615, ,895, ,510, ,045, % ,170, ,040, ,210, ,835, % ,775, ,170, ,945, ,890, % ,405, ,310, ,715, ,175, % ,070, ,455, ,525, ,650, % ,910, ,470, ,380, ,270, % ,135, ,135, ,270, % $ 229,452, $ 66,700, $ 296,152, (1) The fiscal year end for the District changed from 8/31 to 6/30, effective for AUTHORIZED BUT UNISSUED BONDS Following the issuance of the 2008 Bonds, the District will have $22,700,000 of authorized but unissued bonds remaining from the November 7, 2006 election. A-6

45 APPENDIX B GENERAL INFORMATION REGARDING BURLESON INDEPENDENT SCHOOL DISTRICT, CITY OF BURLESON JOHNSON COUNTY, TEXAS

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47 GENERAL INFORMATION REGARDING BURLESON INDEPENDENT SCHOOL DISTRICT, CITY OF BURLESON AND JOHNSON COUNTY, TEXAS LOCATION AND ECONOMY The District contains an area of square miles in the northern portion of Johnson County and the south central portion of Tarrant County. The District encompasses the City of Burleson, a commercial center, which is located seven miles south of the City of Fort Worth at the intersection of Interstate Highway 35W and State Highway 174. Additionally, the District is traversed by Farm-to-Market roads 731 and The District is a suburban and residential area within the Fort Worth-Arlington Metropolitan Statistical Area and the Dallas-Fort Worth Consolidated Metropolitan Statistical Area. Principal manufacturers produce a variety of goods including conveyor equipment, precast products, plastic pipe and storm windows and doors. The District is the leading employer of the City. LEADING EMPLOYERS IN THE DISTRICT Employer Principal Line of Business Approximate Number of Employees Burleson ISD Public Education 1,465 Wal-Mart Retailer 410 City of Burleson Municipal Government 320 Thomas Conveyor Conveyor Equipment 300 Burly Fence & Hardware Farm Products 250 Lowe s Companies, Inc. Home Improvement Center 220 Lynn Smith Chevrolet/GEO Automobile Sales 200 Redman Homes Mobile Home Manufacturing 200 KWS Manufacturing Screw Conveyor Products 200 Palm Harbor Homes Mobile Home Manufacturing 153 *Source: Oncor Economic Development Department, SCHOLASTIC INFORMATION The District offers a fully accredited and comprehensive educational program. The District is accredited by the Accreditation Division of the Texas Education Agency on a K-12 basis. The District s personnel total 1,465. Currently, the District reflects a pupil-teacher ratio of 16:1 for high school, 17:1 for middle school and 15:1 for elementary. PLANT FACILITIES Current plant facilities include two high schools, two middle schools, and nine elementary schools. Cafeterias are located on each campus. PRESENT SCHOOL PLANTS A description of the present school facilities is as follows: No. of Portable Grades School Capacity Buildings Provided Enrollment Teachers Others (a) Aides Admin Bransom Elementary EE Brock Elementary EE Frazier Elementary PK Hajek Elementary PK Mound Elementary EE Norwood Elementary PK Stribling Elementary K Taylor Elementary EE The Academy at Nola Dunn K Hughes Middle School 1, , Kerr Middle School 1, Burleson High School 2, , Crossroads High School Total 6,240 9, (a) Includes counselors, librarians, nurses, diagnosticians and psychologist. B-1

48 STUDENT ENROLLMENT BY GRADES Grade 2008/ / / /2006 E-C Pre-K K Total 9,440 8,898 8,590 7,891 AVERAGE DAILY ATTENDANCE INCREASES/(DECREASES) Increase(Decrease) School Year ADA Actual Percent (%) , , , , , , , , (estimate) 9, SCHOLASTIC ENROLLMENT INCREASE/(DECREASES) Increase(Decrease) School Year Enrollment Amount Percent (%) ,061 (16) (0.263) , , , , , , , , , , B-2

49 STUDENT ENROLLMENT PROJECTIONS Grade 2009/ / /2012 EE-PK K Total 9,833 10,227 10,637 GENERAL INFORMATION REGARDING THE CITY OF BURLESON AND JOHNSON COUNTY, TEXAS Johnson County is located in north central Texas and is a component of the Dallas-Fort Worth Consolidated Metropolitan Statistical Area (CMSA). The County is traversed by Interstate Highway 35, United States Highways 67 and 287 and State Highways 374, 173, 174 and 171. The City of Cleburne is the largest city and county seat. Additional cities in the County include Burleson, Grandview, Joshua and Keene. The County s economy is based on agriculture, manufacturing, distribution and retail. Tourism is important as well, as the area lakes attract thousands of tourists for camping and other recreation. POPULATION TRENDS Johnson County State of Texas 2009 Estimate 153,630 24,326, Census 126,811 20,851, Census 97,165 16,986, Census 67,649 14,228, Census 75,769 11,198, Census 34,720 9,579,677 Source: U.S. Census Bureau and North Central Texas Council of Governments EMPLOYMENT STATISTICS The Texas Work Force Commission reports the following employment statistics for the City of Burleson, Johnson County and the State of Texas. May 2009 City of Burleson Johnson County State of Texas Civilian Labor Force 8,177 75,185 11,920,500 Total Employed 7,652 69,372 11,098,500 Total Unemployed 525 5, ,000 May 2008 City of Burleson Johnson County State of Texas Civilian Labor Force 8,575 74,896 11,639,300 Total Employed 8,281 71,850 11,120,200 Total Unemployed 294 3, ,100 Source: Texas Employment Commission, Austin, Texas B-3

50 UNEMPLOYMENT RATES May 2009 May 2008 May 2007 City of Burleson 6.4% 3.4% 3.2% Johnson County State of Texas United States of America Source: Texas Work Force Commission, Austin, Texas OVERLAPPING DEBT DATA AND INFORMATION Estimated Direct and Overlapping Ad Valorem Tax Supported Gross Debt Statement (As of July 1, 2009) Taxing Body Amount % Overlap Amount Overlap Burleson, City of $ 58,067, $ 13,680,795 Crowley, City of 9,737, ,582 Fort Worth, City of 445,959, ,771,766 Johnson County 26,525,579 (1) $ 4,848,876 Tarrant County 346,495,000 (1) ,291,703 Tarrant County Hospital District 29,585,000 (1) ,058 Tarrant County College District 47,905,000 (1) ,098 Total Net Overlapping Debt $ 27,381,878 Burleson ISD $ 296,152,975 (2) ,152,975 Total Direct and Overlapping Debt $ 323,534,853 Direct and Overlapping Debt to Net Taxable Valuation 10.03% Direct and Overlapping Debt to Actual Total Valuation 8.40% Per Capita Direct and Overlapping Debt $ 6,318 (1) Excludes self-supporting debt. (2) Includes the Series 2009 Bonds. Preliminary, subject to change. Source: Texas Municipal Advisory Council Reports B-4

51 APPENDIX C FORM OF LEGAL OPINION OF BOND COUNSEL

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53 Proposed Form of Opinion of Bond Counsel An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law. LAW OFFICES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 1800 ONE AMERICAN CENTER NINTH FLOOR 1525 ONE RIVERWALK PLACE AUSTIN, TEXAS DALLAS, TEXAS SAN ANTONIO, TEXAS Telephone: Telephone: Telephone: Facsimile: Facsimile: Facsimile: BURLESON INDEPENDENT SCHOOL DISTRICT UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2009, DATED AUGUST 15, 2009, IN THE AGGREGATE PRINCIPAL AMOUNT OF $66,700,000 AS BOND COUNSEL FOR THE ISSUER (the "Issuer") of the Bonds described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the dates specified in the text of the Bonds, until maturity or redemption, at the rates and payable on the dates as stated in the text of the Bonds, and maturing in serial installments on August 1 in each of the years 2013 through 2029, inclusive, 2034, 2039 and 2040, with the Bonds being subject to redemption prior to maturity, all in accordance with the terms and conditions stated in the text of the Bonds. WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the Issuer and other documents authorizing and relating to the issuance of said Bonds, including two of the executed Bonds (Bonds Number R-1 and CR-1). BASED ON SAID EXAMINATION, IT IS OUR OPINION that said Bonds have been authorized, issued and duly delivered in accordance with law; and that except as may be limited by laws applicable to the Issuer relating to federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, which rights may be limited by general principles of equity which permit the exercise of judicial discretion, the Bonds constitute valid and legally binding obligations of the Issuer; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Bonds have been levied and pledged for such purpose, without legal limit as to rate or amount. IN EXPRESSING SUCH OPINION, we have considered the effect of the November 22, 2005 decision by the Texas Supreme Court in West Orange-Cove Consolidated Independent School District, et al. v. Neeley, et al., upholding, in part, a lower court judgment concluding that the local ad valorem maintenance and operation tax authorized under the school finance system then in effect had become a State property tax in violation of article VIII, section 1-e of the Texas Constitution, in that school districts did not have meaningful discretion in levying the tax. The Court's opinion further noted that the court "...remain convinced...that defects in the structure of the public school finance system expose the system to constitutional challenge.... [Such challenges] will repeat until the system is overhauled." Subsequent to such decision, legislation was enacted by the Texas Legislature to address the constitutional issues raised in the court's ruling. Reference is made to the Official Statement for the Bonds for a further description of the rulings and the legislation enacted by the Texas Legislature. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Bonds is excludable from the gross income of the owners thereof for federal income tax purposes under the statutes,

54 regulations, published rulings and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds are obligations described in section 1503 of The American Recovery and Reinvestment Act of 2009 and that, accordingly, interest on the Bonds will not be included in an owner's alternative minimum taxable income under Section 55 of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, and assume compliance by the Issuer with, certain covenants regarding the use and investment of the proceeds of the Bonds and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon failure by the Issuer to comply with such covenants, interest on the Bonds may become includable in gross income retroactively to the date of issuance of the Bonds. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local tax consequences of acquiring, carrying, owning or disposing of the Bonds. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Bonds, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for the Issuer, and, in that capacity, we have been engaged by the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes, and for no other reason or purpose. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the disclosure thereof in connection with the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the Issuer as to the current outstanding indebtedness of, and assessed valuation of taxable property within the Issuer. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of a result and are not binding on the Internal Revenue Service (the "Service"). Rather, our opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, might result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. Respectfully,

55 APPENDIX D The information contained in this Appendix has been reproduced from the Burleson Independent School District Annual Financial Report (the "Report") for the Fiscal Year Ended August 31, 2008 as prepared by Hankins, Eastup, Deaton, Tonn & Seay, Denton, Texas. THE INFORMATION PRESENTED REPRESENTS ONLY A PART OF THE REPORT AND DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE DISTRICT'S FINANCIAL CONDITION. REFERENCE IS MADE TO THE COMPLETE REPORT FOR ADDITIONAL INFORMATION.

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57 BURLESON INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2008

58 BURLESON INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2008 TABLE OF CONTENTS Page Exhibit CERTIFICATE OF BOARD 2 Independent Auditors' Report 3 Management s Discussion and Analysis 5 Basic Financial Statements Government Wide Statements: Statement of Net Assets 13 A-1 Statement of Activities 15 B-1 Governmental Fund Financial Statements: Balance Sheet 16 C-1 Reconciliation for C-1 18 C-2 Statement of Revenues, Expenditures, and Changes in Fund Balance 20 C-3 Reconciliation for C-3 22 C-4 Budgetary Comparison Schedule-General Fund 23 C-5 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets 24 E-1 Notes to the Financial Statements 25 Combining Schedules Nonmajor Governmental Funds: Combining Balance Sheet 42 H-1 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 46 H-2 Required TEA Schedules Schedule of Delinquent Taxes Receivable 52 J-1 Schedule of Expenditures for Computations of Indirect Cost for General and Special Revenue Funds 54 J-2 Fund Balance and Cash Flow Calculation Worksheet 55 J-3 Budgetary Comparison Schedule Child Nutrition Program 56 J-4 Budgetary Comparison Schedule Debt Service Fund 57 J-5 Federal Awards Section Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 61 Independent Auditors Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 65 Schedule of Status of Prior Findings 66 Corrective Action Plan 67 Schedule of Expenditures of Federal Awards 68 K-1 Notes on Accounting Policies for Federal Awards 69 1

59 CERTIFICATE OF BOARD Burleson Independent School District Johnson Name of School District County Co. - Dist. Number We, the undersigned, certify that the attached annual financial reports of the above-named school district were reviewed and (check one) approved disapproved for the year ended August 31, 2008, at a meeting of the Board of Trustees of such school district on the 26 th day of January, Signature of Board Secretary Signature of Board President 2

60 Independent Auditor s Report Board of Trustees Burleson Independent School District Burleson, Texas Members of the Board: We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Burleson Independent School District (the District), as of and for the year ended August 31, 2008, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District s management. Our responsibility is to express an opinion on them based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Burleson Independent School District as of August 31, 2008, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2009, on our consideration of the District s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 3

61 The management s discussion and analysis and budgetary comparison information on pages 5 through 10 and 23 are not a required part of the basic financial statements, but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The combining nonmajor fund financial statements and the required TEA schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of the District. The combining nonmajor fund financial statements, the required TEA schedules, excluding the Fund Balance and Cash Flow Calculation Worksheet - General Fund (Exhibit J-3) which is marked unaudited and on which we express no opinion, and the schedule of expenditures of federal awards, have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Authorized signatures available on the reports filed with TEA January 15, 2009 Hankins, Eastup, Deaton, Tonn & Seay A Professional Corporation Certified Public Accountants 4

62 BURLESON INDEPENDENT SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED AUGUST 31, 2008 (UNAUDITED) As management of Burleson Independent School District, we offer readers of the District s financial statement this narrative overview and analysis of the financial activities of the District for the year ended August 31, Please read this narrative in conjunction with the independent auditors' report on page 3, and the District's Basic Financial Statements that begin on page 13. FINANCIAL HIGHLIGHTS On a government-wide basis, the assets of Burleson Independent School District exceeded its liabilities at the close of the most recent fiscal period by $5,527,330 (net assets). Unrestricted net assets were $142,950 as of August 31, The District s total net assets increased by $1,339,257. As of the close of the current fiscal period, the District s governmental funds reported combined ending fund balances of $31,415,231. Over 51% of this total amount ($16,070,659) is unreserved and available for use within the District s designations and policies. At the end of the current fiscal period, unreserved fund balance of the general fund was $15,020,575 or 25.0% of the total general fund expenditures. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities (on pages 13 and 15). These provide information about the activities of the District as a whole and present a longer-term view of the District's property and debt obligations and other financial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. Fund financial statements (starting on page 16) report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds. For governmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. The remaining statements, fiduciary statements, provide financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside of the District. The notes to the financial statements (starting on page 25) provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements. The combining statements for nonmajor funds contain even more information about the District's individual funds. The sections labeled TEA Required Schedules and Federal Awards Section contain data used by monitoring or regulatory agencies for assurance that the District is using funds supplied in compliance with the terms of grants. 5

63 Reporting the District as a Whole The Statement of Net Assets and the Statement of Activities The analysis of the District's overall financial condition and operations begins on page 13. Its primary purpose is to show whether the District is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the District's assets and liabilities at the end of the year while the Statement of Activities includes all revenues and expenses generated by the District's operations during the year. These apply the accrual basis of accounting (the basis used by private sector companies). All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. The District's revenues are divided into those provided by outside parties who share the costs of some programs, such as tuition received from students from outside the district and grants provided by the U.S. Department of Education to assist children with disabilities or from disadvantaged backgrounds (program revenues), and revenues provided by the taxpayers or by TEA in equalization funding processes (general revenues). All the District's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the District's net assets and changes in them. The District's net assets (the difference between assets and liabilities) provide one measure of the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the District, however, you should consider nonfinancial factors as well, such as changes in the District's average daily attendance or its property tax base and the condition of the District's facilities. In the Statement of Net Assets and the Statement of Activities, we divide the District into two kinds of activities: Governmental activities Most of the District's basic services are reported here, including the instruction, counseling, co-curricular activities, food services, transportation, maintenance, community services, and general administration. Property taxes, tuition, fees, and state and federal grants finance most of these activities. Business-type activities The District does not have any programs in which it charges a fee to customers to help it cover all or most of the cost of services it provides. Thus, the District had no business-type activities during the current fiscal year. Reporting the District's Most Significant Funds Fund Financial Statements The fund financial statements begin on page 16 and provide detailed information about the most significant funds not the District as a whole. Laws and contracts require the District to establish some funds, such as grants received under the No Child Left Behind Act from the U.S. Department of Education. The District's administration establishes many other funds to help it control and manage money for particular purposes (like campus activities). Governmental funds Most of the District's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future spending. The governmental fund statements provide a detailed short-term view of the District's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation schedules following each of the fund financial statements. 6

64 The District as Trustee Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for money raised by student activities. The District's fiduciary activity is reported in a separate Statement of Fiduciary Net Assets on page 24. We exclude these resources from the District's other financial statements because the District cannot use these assets to finance its operations. The District is only responsible for ensuring that the assets reported in this fund are used for their intended purposes. GOVERNMENT-WIDE FINANCIAL ANALYSIS The analysis below presents both current and prior year data and discusses significant changes in the accounts. Our analysis focuses on the net assets (Table I) and changes in net assets (Table II) of the District's governmental activities. Net assets of the District's governmental activities increased from a $4,188,073 to $5,527,330. Unrestricted net assets the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements was $142,950 at August 31, This increase in government-wide net assets was primarily the result of growth in average daily attendance and an increase in the District s taxable value. Table I Burleson Independent School District NET ASSETS Governmental Activities 2008 Governmental Activities 2007 Current and other assets $ 47,650,323 $103,876,123 Capital assets 138,280,513 73,882,657 Total assets 185,930, ,758,780 Long-term liabilities 165,713, ,064,494 Other liabilities 14,690,483 5,506,213 Total liabilities 180,403, ,570,707 Net Assets: Invested in capital assets net of related debt 1,576,441 3,471,057 Restricted 3,807,939 2,576,408 Unrestricted 142,950 (1,859,392) Total net assets $ 5,527,330 $ 4,188,073 7

65 Table II Burleson Independent School District CHANGES IN NET ASSETS Governmental Activities 2008 Governmental Activities 2007 Revenues: Program Revenues: Charges for Services $ 4,391,849 $ 2,816,623 Operating grants and contributions 10,258,182 8,413,624 General Revenues: Maintenance and operations taxes 25,612,070 29,668,873 Debt service taxes 8,947,708 4,762,569 State aid 27,578,651 21,072,527 Investment Earnings 3,041,204 2,898,884 Miscellaneous 3,268,926 3,470,564 Total Revenue 83,098,590 73,103,664 Expenses: Instruction, curriculum and media 43,206,200 36,921,001 services Instructional and school leadership 5,626,470 4,718,950 Student support services 5,510,671 4,241,601 Child nutrition 3,381,141 2,977,910 Cocurricular activities 3,453,731 1,962,699 General administration 2,834,436 2,500,607 Plant maintenance, security & data 8,456,834 7,705,331 processing Community Services 904, ,220 Debt service 7,888,955 5,882,344 Facilities acquisition, construction 486, ,423 Intergovernmental charges 9,744 22,760 Total Expenses 81,759,333 67,810,846 Change in net assets before transfers and 1,339,257 5,292,818 special items Transfers - - Special Items - - Net assets at beginning of year 4,188,073 (1,104,745) Net assets at end of year $ 5,527,330 $ 4,188,073 8

66 A number of adjustments were necessary in the preparation of the Budget to enable the District to maintain a sound financial position. At the end of the school year, the enrollment for the District was 8,898, an increase of 394 from the prior year. The average daily attendance (ADA) was 8,493, which was an increase of 4.9% over the prior year. District personnel received a pay increase averaging 3.0%. The District s Maintenance & Operations (M&O) tax rate decreased to $1.04 per $100 of valuation as required by the State of Texas new school finance plan. Because of an $87 million bond sale in 2007, the Debt Service tax rate increased from $ to $ Taxable values in the District increased 13%. Because of the new State funding formula and the increase in student attendance, state aid increased approximately $6.5 million. The cost of all governmental activities for the current fiscal year was $81,759,333. However, as shown in the Statement of Activities on page 15, the amount that our taxpayers ultimately financed for these activities through District taxes was only $34,559,778 because some of the costs were paid by those who directly benefited from the programs ($4,391,849) or by other governments and organizations that subsidized certain programs with grants and contributions ($10,258,182) or by State equalization funding ($27,578,651). THE DISTRICT'S FUNDS As the District completed the year, its governmental funds (as presented in the balance sheet on page 16) reported a combined fund balance of $31,415,231, which is $65,269,629 less than last year's total of $96,684,860. Included in this year's total change in fund balance is an increase of $997,464 in the District's General Fund and a decrease of $67,448,303 in the District s Capital Projects Fund. Over the course of the year, the Board of Trustees revised the District's budget several times. These budget amendments fall into three categories. The first category includes amendments and supplemental appropriations that were approved shortly after the beginning of the year and reflect the actual beginning balances (versus the amounts we estimated in August 2007). The second category includes changes that the Board made during the year to reflect new information regarding revenue sources and expenditure needs. The principal amendments in this case were increases in virtually all areas due to growth in the District. The third category involves amendments moving funds from programs that did not need all the resources originally appropriated to them to programs with resource needs. The District's General Fund balance of $15,261,936 reported on pages 20 and 23 differs from the General Fund's budgetary fund balance of $14,264,472 reported in the budgetary comparison schedule on page 23. This is principally due to local revenues in excess of budgeted amounts and cost savings throughout most functions. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At August 31, 2008, the District had $138,280,513 invested in a broad range of capital assets, including facilities and equipment for instruction, transportation, athletics, administration, and maintenance. This amount represents an increase of $64,397,856, or 87.2 percent, above last year. The capital asset additions included $5.5 million of land purchases and construction costs on three elementary schools, a new high school, and renovation projects throughout the District. More detailed information about the District's capital assets is presented in Note 3 to the financial statements. 9

67 Debt Administration At year-end, the District had $165,713,023 in bonds, capital leases, and other long-term liabilities outstanding (including accreted interest on bonds) versus $168,064,494 last year a decrease of $2,351,471. The District s general obligation bond rating is AAA (as a result of guarantees of the Texas Permanent School Fund) according to national rating agencies. More detailed information about the District's long-term liabilities is presented in Note 4 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The General Operating budget increased by 8.7% for the year to a total of $65,926,674, due to continued student growth in the District. Salaries were increased an average of 3.5% for the fiscal year. The District had an increase in the local tax base of 28.6% to a total of $2,970,637,108 in taxable value. The District maintained the maintenance and operations property tax rate at $1.04 per $100 valuation. The debt service rate was increased to $ per $100 valuation. The increase in the debt service rate was due to increased debt service resulting from the 2008 bond issue. Based on this information and rates, budgeted local tax revenues increased by approximately $5.2 million and budgeted State funding decreased by $3.7 million as a result of the State s new funding formula. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District s finances and to show the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the District s business office, at Burleson Independent School District, 1160 SW Wilshire Blvd., Burleson, Texas (817)

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69 BASIC FINANCIAL STATEMENTS 11

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71 BURLESON INDEPENDENT SCHOOL DISTRICT STATEMENT OF NET ASSETS AUGUST 31, 2008 EXHIBIT A-1 Data Control Codes Primary Government Governmental Activities ASSETS 1110 Cash and Cash Equivalents $ 1220 Property Taxes Receivable (Delinquent) 1230 Allowance for Uncollectible Taxes 1240 Due from Other Governments 1290 Other Receivables, net 1300 Inventories 1410 Deferred Expenses 1420 Capitalized Bond and Other Debt Issuance Costs Capital Assets: 1510 Land 1520 Buildings, Net 1530 Furniture and Equipment, Net 1580 Construction in Progress 38,610,533 1,374,619 (206,193) 6,681,342 17, , , ,096 9,443,011 99,909,857 3,681,844 25,245, Total Assets 185,930,836 LIABILITIES 2110 Accounts Payable 2140 Accrued Interest Payable 2160 Accrued Wages Payable 2300 Unearned Revenues Noncurrent Liabilities 2501 Due Within One Year 2502 Due in More Than One Year 11,955, ,913 2,127,736 48,680 2,947, ,765, Total Liabilities 180,403,506 NET ASSETS 3200 Invested in Capital Assets, Net of Related Debt 3820 Restricted for Federal and State Programs 3850 Restricted for Debt Service 3900 Unrestricted Net Assets 1,576, ,799 3,012, , Total Net Assets $ 5,527,330 The notes to the financial statements are an integral part of this statement. 13

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73 Data Control Codes Primary Government: BURLESON INDEPENDENT SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2008 Program Revenues EXHIBIT B-1 Net (Expense) Revenue and Changes in Net Assets Expenses Charges for Services Operating Grants and Contributions Primary Gov. Governmental Activities GOVERNMENTAL ACTIVITIES: 11 Instruction $ 40,733,241 $ 221,394 $ 3,939,709 $ (36,572,138) 12 Instructional Resources and Media Services 867,896-28,723 (839,173) 13 Curriculum and Instructional Staff Development 1,605, ,912 (1,026,151) 21 Instructional Leadership 1,427, ,183 (1,121,406) 23 School Leadership 4,198, ,020 (3,889,861) 31 Guidance, Counseling and Evaluation Services 2,677, ,573 (2,230,700) 32 Social Work Services 185,244-11,580 (173,664) 33 Health Services 699,838-38,425 (661,413) 34 Student (Pupil) Transportation 1,948, ,244 (1,510,072) 35 Food Services 3,381,141 2,244,002 1,372, , Extracurricular Activities 3,453,731 1,530,042 88,561 (1,835,128) 41 General Administration 2,834, ,664 (2,685,772) 51 Plant Maintenance and Operations 6,915,557 39, ,594 (6,530,827) 52 Security and Monitoring Services 251,279-3,473 (247,806) 53 Data Processing Services 1,289,998-76,780 (1,213,218) 61 Community Services 904, ,275 64,629 (482,482) 72 Debt Service - Interest on Long Term Debt 7,884,567-2,056,368 (5,828,199) 73 Debt Service - Bond Issuance Cost and Fees 4, (4,388) 81 Facilities Acquisition and Construction 486,765-4,344 (482,421) 95 Payments to Juvenile Justice Alternative Ed. Prg. 9, (9,744) [TP] TOTAL PRIMARY GOVERNMENT: $ 81,759,333 $ 4,391,849 $ 10,258,182 (67,109,302) Data Control Codes MT DT SF IE MI TR General Revenues: Taxes: Property Taxes, Levied for General Purposes Property Taxes, Levied for Debt Service State Aid - Formula Grants Investment Earnings Miscellaneous Local and Intermediate Revenue Total General Revenues 25,612,070 8,947,708 27,578,651 3,041,204 3,268,926 68,448,559 CN NB Net Assets--Beginning Change in Net Assets 1,339,257 4,188,073 NE Net Assets--Ending $ 5,527,330 The notes to the financial statements are an integral part of this statement. 15

74 BURLESON INDEPENDENT SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS AUGUST 31, 2008 Data Control Codes 10 General Fund 50 Debt Service Fund 60 Capital Projects ASSETS Cash and Cash Equivalents $ 11,879,140 $ 2,772,833 $ 22,742,162 Property Taxes - Delinquent 1,105, ,368 - Allowance for Uncollectible Taxes (Credit) (165,788) (40,405) - Due from Other Governments 5,733, ,257 - Due from Other Funds Other Receivables 17, Inventories 33, Deferred Expenditures 113, Total Assets $ 18,716,513 $ 3,571,053 $ 22,742, LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 484,133 $ - $ 11,296,025 Accrued Wages Payable 1,967, Due to Other Funds 17, Deferred Revenues 984, , Total Liabilities $ 3,454,577 $ 228,963 $ 11,296, Fund Balances: Reserved For: Investments in Inventory $ 33,624 $ - $ - Retirement of Long Term Debt - 3,342,090 - Prepaid Items 113, Outstanding Encumbrances 93,782-11,446,137 Food Service Unreserved Designated For: Other Designated Fund Balance 5,000, Unreserved and Undesignated: Reported in the General Fund 10,020, Reported in Special Revenue Funds Total Fund Balances $ 15,261,936 $ 3,342,090 $ 11,446, Total Liabilities and Fund Balances $ 18,716,513 $ 3,571,053 $ 22,742,162 The notes to the financial statements are an integral part of this statement. 16

75 EXHIBIT C-1 Other Funds Total Governmental Funds $ 1,216,398 $ 38,610,533-1,374,619 - (206,193) 378,809 6,681,342 17,869 17,869-17,055 83, ,616 6, ,255 $ 1,703,368 $ 46,733,096 $ 174,996 $ 11,955, ,024 2,127,736-17,869 3,280 1,217,106 $ 338,300 $ 15,317,865 $ 83,992 $ 117,616-3,342, ,955-11,539, , ,992-5,000,000-10,020,575 1,050,084 1,050,084 $ 1,365,068 $ 31,415,231 $ 1,703,368 $ 46,733,096 17

76 BURLESON INDEPENDENT SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS AUGUST 31, 2008 EXHIBIT C-2 Total Fund Balances - Governmental Funds 1 Capital assets used in governmental activities are not financial resources, and therefore, are not reported in the fund financial statements. $ 31,415, ,349,119 2 Accumulated depreciation is not reported in the fund financial statements. 3 Bonds payable, leases payable and other long-term debt are not reported in the fund financial statements. (19,068,606) (147,630,294) 4 Accreted interest on capital appreciation bonds is not reported in the fund financial statements. (16,785,496) 5 Bond issuance cost is not capitalized in the fund financial statements. 6 Bond premiums on outstanding bonds payable are not recorded in the fund financial statements. 935,096 (1,297,233) 7 Property tax revenue reported as deferred revenue in the fund financial statements is recognized as revenue in the government-wide financial statements. 1,168,426 8 Interest is accrued on outstanding debt in the government-wide financial statements, whereas in the fund financial statements interest expenditures are reported when due. (558,913) 19 Net Assets of Governmental Activities $ 5,527,330 The notes to the financial statements are an integral part of this statement. 18

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78 Data Control Codes BURLESON INDEPENDENT SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, General Fund 50 Debt Service Fund 60 Capital Projects REVENUES: Total Local and Intermediate Sources $ 30,170,051 $ 9,121,175 $ 2,152,768 State Program Revenues 30,957,592 2,056,368 4,344 Federal Program Revenues 206, Total Revenues 61,334,452 11,177,543 2,157,112 EXPENDITURES: Current: 0011 Instruction 0012 Instructional Resources and Media Services 0013 Curriculum and Instructional Staff Development 0021 Instructional Leadership 0023 School Leadership 0031 Guidance, Counseling and Evaluation Services 0032 Social Work Services 0033 Health Services 0034 Student (Pupil) Transportation 0035 Food Services 0036 Extracurricular Activities 0041 General Administration 0051 Facilities Maintenance and Operations 0052 Security and Monitoring Services 0053 Data Processing Services 0061 Community Services Debt Service: 0071 Debt Service - Principal on Long Term Debt 0072 Debt Service - Interest on Long Term Debt 0073 Debt Service - Bond Issuance Cost and Fees Capital Outlay: 0081 Facilities Acquisition and Construction Intergovernmental: 0095 Payments to Juvenile Justice Alternative Ed. Prg. 34,594,157-3,012, , ,991 1,061, ,131, ,955, ,278, , , ,943, ,206, ,773, ,899, , ,955 1,257,348-30, , ,236 1,057,055-2,324 9,153, ,388-43,241-65,753,674 9, Total Expenditures 60,110,704 10,215,440 69,605, Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): 7915 Transfers In 8911 Transfers Out (Use) 1,223, ,103 (67,448,303) 65, (291,904) Total Other Financing Sources (Uses) (226,284) Net Change in Fund Balances 997, ,103 (67,448,303) 0100 Fund Balance - September 1 (Beginning) 14,264,472 2,379,987 78,894, Fund Balance - August 31 (Ending) $ 15,261,936 $ 3,342,090 $ 11,446,137 The notes to the financial statements are an integral part of this statement. 20

79 EXHIBIT C-3 Other Funds Total Governmental Funds $ 3,902,007 $ 45,346,001 1,155,519 34,173,823 3,487,684 8,545,210 3,694,493 83,214,317 2,013, , ,459 97, , ,328,198 1,224,740 3, ,508-6, , ,620, ,130 1,591,399 1,391,757 4,053,084 2,594, , ,910 1,943,241 3,328,198 3,431,739 2,776,922 7,006, ,330 1,293, ,874 1,115,291 9,156,321 4,388 65,796,915-9,744 8,552, ,483,946 (7,177) (65,269,629) 291, ,524 (65,620) (357,524) 226, ,107 (65,269,629) 1,145,961 96,684,860 $ 1,365,068 $ 31,415,231 21

80 EXHIBIT C-4 BURLESON INDEPENDENT SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2008 Total Net Change in Fund Balances - Governmental Funds Current year capital asset additions are expenditures in the fund financial statements, but they are shown as increases in capital assets in the government-wide financial statements. The effect of reclassifying the 2008 capital asset additions is to increase net assets. $ (65,269,629) 66,296,290 Depreciation is not recognized as an expense in the governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets in the government-wide financial statements. (1,898,434) Current year long-term debt principal payments on capital leases payable and bonds payable and payments of accreted interest on capital appreciation bonds are expenditures in the fund financial statements, but are shown as reductions in long-term debt in the government-wide financial statements. 3,508,236 Current year interest accretion on capital appreciation bonds is not reflected in the fund financial statements, but is shown as an increase in long-term liabilities in the government-wide financial statements. (1,137,016) Interest is accrued on outstanding debt in the government-wide financial statements, whereas in the fund financial statements interest expenditures are reported when due. 4,508 The increase in other long-term liabilities for local leave payable is not recognized in the fund financial statements. (60,288) Revenues from property taxes are deferred in the fund financial statements until they are considered available to finance current expenditures, but such revenues are recognized when assessed, net of an allowance for uncollectible amounts, in the government-wide financial statements. (115,727) Current year amortization of bond issuance costs is not reflected in the fund financial statements, but is shown as a reduction in the bond isssuance costs asset in the government-wide financial statements. (29,222) Current year amortization of the premium on bonds payable is not recorded in the fund financial statements, but is shown as a decrease in long-term debt in the governmentwide financial statements. 40,539 Change in Net Assets of Governmental Activities $ 1,339,257 The notes to the financial statements are an integral part of this statement. 22

81 Data Control Codes BURLESON INDEPENDENT SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED AUGUST 31, 2008 Original Budgeted Amounts Final Actual Amounts (GAAP BASIS) EXHIBIT C-5 Variance With Final Budget Positive or (Negative) REVENUES: 5700 Total Local and Intermediate Sources $ 27,078,355 $ 28,680,250 $ 30,170,051 $ 1,489, State Program Revenues 31,854,562 31,854,562 30,957,592 (896,970) 5900 Federal Program Revenues 109, , ,809 97, Total Revenues 59,041,917 60,643,812 61,334, ,640 EXPENDITURES: Current: 0011 Instruction 0012 Instructional Resources and Media Services 0013 Curriculum and Instructional Staff Development 0021 Instructional Leadership 0023 School Leadership 0031 Guidance, Counseling and Evaluation Services 0032 Social Work Services 0033 Health Services 0034 Student (Pupil) Transportation 0036 Extracurricular Activities 0041 General Administration 0051 Facilities Maintenance and Operations 0052 Security and Monitoring Services 0053 Data Processing Services 0061 Community Services Debt Service: 0071 Debt Service - Principal on Long Term Debt 0072 Debt Service - Interest on Long Term Debt Capital Outlay: 0081 Facilities Acquisition and Construction Intergovernmental: 0095 Payments to Juvenile Justice Alternative Ed. Prg. 34,309,566 34,494,183 34,594,157 (99,974) 557, , ,139 28, ,131 1,110,960 1,061,446 49,514 1,016,413 1,157,515 1,131,298 26,217 3,722,504 3,955,528 3,955, ,226,971 2,266,554 2,278,341 (11,787) 186, , ,541 13, , , ,910 18,352 1,893,096 2,004,197 1,943,241 60,956 2,191,643 2,255,176 2,206,999 48,177 2,728,763 2,878,910 2,773, ,225 6,891,279 7,028,875 6,899, , , , ,375 43,513 1,256,561 1,290,061 1,257,348 32, , , ,190 16,389 60,561 58,237 58, ,324 2, , ,000 43,241 61,759 30,000 20,000 9,744 10, Total Expenditures 59,041,917 60,643,812 60,110, , Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): 7915 Transfers In 8911 Transfers Out (Use) - - 1,223,748 1,223, ,620 65, (291,904) (291,904) 7080 Total Other Financing Sources (Uses) - - (226,284) (226,284) 1200 Net Change in Fund Balances , , Fund Balance - September 1 (Beginning) 14,264,472 14,264,472 14,264, Fund Balance - August 31 (Ending) $ 14,264,472 $ 14,264,472 $ 15,261,936 $ 997,464 The notes to the financial statements are an integral part of this statement. 23

82 BURLESON INDEPENDENT SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2008 EXHIBIT E-1 Agency Fund ASSETS Cash and Cash Equivalents $ Investments - Current 367,967 30,000 Total Assets $ 397,967 LIABILITIES Due to Student Groups $ 397,967 Total Liabilities $ 397,967 The notes to the financial statements are an integral part of this statement. 24

83 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Burleson Independent School District's (the "District") combined financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units in conjunction with the Texas Education Agency's Financial Accountability System Resource Guide (FAR). The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant accounting policies of the District are described below. A. REPORTING ENTITY The Board of Trustees, a seven member group, has fiscal accountability over all activities related to public elementary and secondary education within the jurisdiction of the District. The board of trustees is elected by the public. The trustees as a body corporate have the exclusive power and duty to govern and oversee the management of the public schools of the District. All powers and duties not specifically delegated by statute to the Texas Education Agency (Agency) or to the State Board of Education are reserved for the trustees, and the Agency may not substitute its judgment for the lawful exercise of those powers and duties by the trustees. The District is not included in any other governmental "reporting entity" as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards. The District s basic financial statements include the accounts of all District operations. The criteria for including organizations as component units within the District s reporting entity, as set forth in Section 2100 of GASB s Codification of Governmental Accounting and Financial Reporting Standards, include whether: the organization is legally separate (can sue and be sued in their own name) the District holds the corporate powers of the organization the District appoints a voting majority of the organization s board the District is able to impose its will on the organization the organization has the potential to impose a financial benefit/burden on the District there is fiscal dependency by the organization on the District Based on the aforementioned criteria, Burleson Independent School District has no component units. B. BASIS OF PRESENTATION The government-wide financial statements (the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the District. The effect of interfund activity, within the governmental and business-type activities columns, has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent on fees and charges for support. The District had no business-type activities. The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program and 2) operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues. 25

84 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 Fund Financial Statements: The District segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. These statements present each major fund as a separate column on the fund financial statements; all non-major funds are aggregated and presented in a single column. Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The District has presented the following major governmental funds: 1. General Fund - This fund is established to account for resources financing the fundamental operations of the District, in partnership with the community, in enabling and motivating students to reach their full potential. All revenues and expenditures not required to be accounted for in other funds are included here. This is a budgeted fund and any fund balances are considered resources available for current operations. Fund balances may be appropriated by the Board of Trustees to implement its responsibilities. 2. Debt Service Fund - This fund is established to account for payment of principal and interest on long-term general obligation debt and other long-term debts for which a tax has been dedicated. This is a budgeted fund. Any unused debt service fund balances are transferred to the General Fund after all of the related debt obligations have been met. 3. Capital Projects Fund - This fund is established to account for proceeds, from the sale of bonds and other resources to be used for Board authorized acquisition, construction, or renovation, as well as, furnishings and equipping of major capital facilities. Upon completion of a project, any unused bond proceeds are transferred to the Debt Service Fund and are used to retire related bond principal. Additionally, the District reports the following fund types: 1. Special Revenue Funds - These funds are established to account for federally financed or expenditures legally restricted for specified purposes. In many special revenue funds, any unused balances are returned to the grantor at the close of specified project periods. For funds in this fund type, project accounting is employed to maintain integrity for the various sources of funds. 2. Agency Funds - These custodial funds are used to account for activities of student groups and other organizational activities requiring clearing accounts. Financial resources for the Agency funds are recorded as assets and liabilities; therefore, these funds do not include revenues and expenditures and have no fund equity. If any unused resources are declared surplus by the student groups, they are transferred to the General Fund with a recommendation to the Board for an appropriate utilization through a budgeted program. C. MEASUREMENT FOCUS/BASIS OF ACCOUNTING Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. 26

85 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 The government-wide statements and fund financial statements for proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or noncurrent) are included on the statement of net assets and the operating statements present increases (revenues) and decreases (expenses) in net total assets. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized at the time the liability is incurred. Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The District considers property taxes as available if they are collected within 60 days after year-end. A one-year availability period is used for recognition of all other Governmental Fund revenues. Expenditures are recorded when the related fund liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences are recorded only when payment is due. The revenues susceptible to accrual are property taxes, charges for services, interest income and intergovernmental revenues. All other Governmental Fund Type revenues are recognized when received. Revenues from state and federal grants are recognized as earned when the related program expenditures are incurred. Funds received but unearned are reflected as deferred revenues, and funds expended but not yet received are shown as receivables. Revenue from investments, including governmental external investment pools, is based upon fair value. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Most investments are reported at amortized cost when the investments have remaining maturities of one year of less at time of purchase. External investment pools are permitted to report short-term debt investments at amortized cost, provided that the fair value of those investments is not significantly affected by the impairment of the credit standing of the issuer, or other factors. For that purpose, a pool s shortterm investments are those with remaining maturities of up to ninety days. In accordance with the FAR, the District has adopted and installed an accounting system which exceeds the minimum requirements prescribed by the State Board of Education and approved by the State Auditor. Specifically, the District's accounting system uses codes and the code structure presented in the Accounting Code Section of the FAR. D. BUDGETARY CONTROL Formal budgetary accounting is employed for all required Governmental Fund Types, as outlined in TEA's FAR module, and is presented on the modified accrual basis of accounting consistent with generally accepted accounting principles. The budget is prepared and controlled at the function level within each organization to which responsibility for controlling operations is assigned. 27

86 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 The official school budget is prepared for adoption for required Governmental Fund Types prior to August 20 of the preceding fiscal year for the subsequent fiscal year beginning September 1. The budget is formally adopted by the Board of Trustees at a public meeting held at least ten days after public notice has been given. The budget is prepared by fund, function, object, and organization. The budget is controlled at the organizational level by the appropriate department head or campus principal within Board allocations. Therefore, organizations may transfer appropriations as necessary without the approval of the board unless the intent is to cross fund, function or increase the overall budget allocations. Control of appropriations by the Board of Trustees is maintained within Fund Groups at the function code level and revenue object code level. Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund, the Debt Service Fund and the Food Service Fund. The other special revenue funds and the Capital Projects Fund adopt project-length budgets which do not correspond to the District's fiscal year. Each annual budget is presented on the modified accrual basis of accounting. The budget is amended throughout the year by the Board of Trustees. Such amendments are reflected in the official minutes of the Board. A reconciliation of fund balances for both appropriated budget and nonappropriated budget special revenue funds is as follows: August 31, 2008 Fund Balance Appropriated Budget Funds - Food Service Special Revenue Fund $ 314,984 Nonappropriated Budget Funds 1,050,084 All Special Revenue Funds $1,365,068 E. ENCUMBRANCE ACCOUNTING The District employs encumbrance accounting, whereby encumbrances for goods or purchased services are documented by purchase orders and contracts. An encumbrance represents a commitment of Board appropriation related to unperformed contracts for goods and services. The issuance of a purchase order or the signing of a contract creates an encumbrance but does not represent an expenditure for the period, only a commitment to expend resources. Appropriations lapse at August 31 and encumbrances outstanding at that time are either canceled or appropriately provided for in the subsequent year's budget. At August 31, 2008 there were $93,782 of encumbrances outstanding in the General Fund and $11,446,137 of encumbrances outstanding in the Capital Projects Fund. These encumbrances have been recorded as a reservation of fund balance. F. PREPAID ITEMS Prepaid balances are for payments made by the District in the current year to provide services occurring in the subsequent fiscal year, and the reserve for prepaid items has been recognized to signify that a portion of fund balance is not available for other subsequent expenditures. G. INVENTORIES The consumption method is used to account for inventories of food products and school supplies. Under this method, these items are carried in an inventory account of the respective fund at cost, using the first-in, first-out method of accounting and are subsequently charged to expenditures when consumed. Reported inventories are offset by a fund balance reserve indicating that they are unavailable as current expendable financial resources. 28

87 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 H. INTERFUND RECEIVABLES AND PAYABLES Short-term amounts owed between funds are classified as Due to/from other funds. Interfund loans are classified as Advances to/from other funds and are offset by a fund balance reserve account. I. CAPITAL ASSETS Capital assets, which includes property, plant, equipment, and infrastructure assets, are reported in the applicable governmental activities columns in the government-wide financial statements. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. Interest has not been capitalized during the construction period on property, plant and equipment. Assets capitalized have an original cost of $5,000 or more and over one-year of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line method. Estimated useful lives are as follows: Buildings Furniture and Equipment Years 10 Years J. NATURE AND PURPOSE OF RESERVATIONS AND DESIGNATIONS OF FUND BALANCES The District classifies fund balances as follows: A. Reserves Used to denote that portion of fund balance, which is not appropriable for expenditure or is legally segregated for specific future use. 1. Reserve for investments in inventory represents that portion of fund balance already expended on supplies held for consumption in a future period. 2. Reserve for retirement of long-term debt represents that portion of fund balance legally restricted to debt service. 3. Reserve for prepaid items represents that portion of fund balance already disbursed on items which are expenditures of a future period. 4. Reserve for outstanding encumbrances represents fund balance that is reserved for outstanding purchase orders reissued in the subsequent fiscal year. B. Designations Used to indicate tentative plans for financial resource utilization: 1. Other designated fund balance represents that portion of fund balance designated for future programs and projects based on growth in student enrollment. C. Undesignated Used to denote that portion of fund balance which is available for appropriation. K. CASH EQUIVALENTS For purposes of the statement of cash flows, investments are considered to be cash equivalents if they are highly liquid with maturity within three months or less. 29

88 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 L. NET ASSETS Net assets represents the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. When both restricted and unrestricted net assets are available, restricted net assets are expended before unrestricted net assets if such use is consistent with the restricted purpose. M. LONG-TERM OBLIGATIONS In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. N. RISK MANAGEMENT The District is exposed to various risks of loss related to torts theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During fiscal 2008, the District purchased commercial insurance to cover general liabilities. There were no significant reductions in coverage in the past fiscal year, and there were no settlements exceeding insurance coverage for each of the past three fiscal years. O. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 30

89 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 2. DEPOSITS AND INVESTMENTS The District s funds are required to be deposited and invested under the terms of a depository contract. The depository bank deposits for safekeeping and trust, with the District s agent bank, approved pledged securities in an amount sufficient to protect District funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank s dollar amount of Federal Deposit Insurance Corporation ( FDIC ) insurance. 1. Cash Deposits: At August 31, 2008, the carrying amount of the District s deposits (checking accounts and interest-bearing demand accounts) was $(1,322,227) and the bank balance was $444,513. The District s cash deposits at August 31, 2008 were entirely covered by FDIC insurance or by pledged collateral held by the District s agent bank in the District s name. 2. Investments: The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the District to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the District to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas; (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) Mutual Funds, (8) Investment pools, (9) guaranteed investment contracts, (10) and common trust funds. The Act also requires the District to have independent auditors perform test procedures related to investment practices as provided by the Act. The District is in substantial compliance with the requirements of the Act and with local policies. In compliance with the Public Funds Investment Act, the District has adopted a deposit and investment policy. That policy addresses the following risks: a. Custodial Credit Risk Deposits: In the case of deposits, this is the risk that, in the event of a bank failure, the District s deposits may not be returned to it. As of August 31, 2007, the District s cash deposits totaled $444,513. This entire amount was either collateralized with securities held by the District s agent or covered by FDIC insurance. Thus, the District s deposits are not exposed to custodial credit risk as of August 31, b. Custodial Credit Risk - Investments: For an investment, this is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. At August 31, 2008, the District held investments in two public funds investment pools. Investments in external investment pools are considered unclassified as to custodial credit risk because they are not evidenced by securities that exist in physical or book entry form. c. Credit Risk: This is the risk that an issuer or other counterparty to an investment will be unable to fulfill its obligations. The rating of securities by nationally recognized rating agencies is designed to give an indication of credit risk. The credit quality rating for Lone Star Investment Pool at year-end was AAAf (Standard & Poor s). The credit quality rating for TexPool Investment Pool at year-end was AAAm (Standard & Poor s). 31

90 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 d. Interest Rate Risk: This is the risk that changes in interest rates will adversely affect the fair value of an investment. The District manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio to less than one year from the time of purchase. The weighted average maturity for the District s investment in external investment pools is less than 60 days. e. Foreign Currency Risk: This is the risk that exchange rates will adversely affect the fair value of an investment. At August 31, 2008, the District was not exposed to foreign currency risk. f. Concentration of Credit Risk: This is the risk of loss attributed to the magnitude of the District s investment in a single issuer (i.e., lack of diversification). Concentration risk is defined as positions of 5 percent or more in the securities of a single issuer. Investment pools are excluded from the 5 percent disclosure requirement. Public funds investment pools in Texas ( Pools ) are established under the authority of the Interlocal Cooperation Act, Chapter 79 of the Texas Government Code, and are subject to the provisions of the Public Funds Investment Act (the Act ), Chapter 2256 of the Texas Government Code. In addition to other provisions of the Act designed to promote liquidity and safety of principal, the Act requires Pools to: 1) have an advisory board composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool; 2) maintain a continuous rating of no lower than AAA or AAA-m or an equivalent rating by at least one nationally recognized rating service; and 3) maintain the market value of its underlying investment portfolio within one half of one percent of the value of its shares. The District s investments in Pools are reported at an amount determined by the fair value per share of the pool s underlying portfolio, unless the pool is 2a7-like, in which case they are reported at share value. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ( SEC ) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC s Rule 2a7 of the Investment Company Act of The District s investments at August 31, 2008, are shown below: Carrying Market Name Amount Value Lone Star Investment Pool $ 1,495,425 $ 1,495,425 TexPool Investment Pool 38,757,396 38,757,396 $40,252,821 $40,252,821 32

91 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 3. CAPITAL ASSETS Capital asset activity for the year ended August 31, 2008, was as follows: Balance Additions/ Retirement/ Balance September 1 Completions Adjustments August 31 Governmental Activities: Capital assets not being depreciated Land $ 3,927,230 $ 5,515,781 $ - $ 9,443,011 Construction in Progress 6,466,561 23,629,337 4,850,097 25,245,801 Total Capital assets not being depreciated 10,393,791 29,145,118 4,850,097 34,688,812 Capital assets, being depreciated Buildings 75,685,375 41,687, ,372,969 Furniture and Equipment 4,973, ,675-5,287,338 Total capital assets being depreciated 80,659,038 42,001, ,660,307 Less accumulated depreciation for: Buildings (15,953,890) (1,509,222) - (17,463,112) Furniture and Equipment (1,216,282) (389,212) - (1,605,494) Total accumulated depreciation (17,170,172) (1,898,434) - (19,068,606) Total capital assets, being depreciated, net 63,488,866 40,102, ,591,701 Governmental activities capital assets, net $ 73,882,657 $69,247,953 $ 4,850,097 $138,280,513 Depreciation expense was charged as direct expense to programs of the District as follows: Governmental activities: Instruction $1,236,524 Instructional Resources & Media Services 16,766 Curriculum & Staff Development 13,664 Instructional Leadership 35,832 School Leadership 145,797 Guidance, Counseling & Evaluation Services 82,972 Social Work Services 6,703 Health Services 23,928 Student (Pupil) Transportation 5,075 Food Services 52,943 Cocurricular/Extracurricular Activities 32,039 General Administration 57,514 Plant Maintenance and Operations 139,929 Data Processing 39,332 Security and Monitoring 2,904 Community Services 6,512 Total depreciation expense-governmental activities $1,898,434 33

92 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 4. LONG-TERM DEBT Long-term debt includes par bonds, capital appreciation (deep discount) serial bonds, capital leases, and accumulated sick-leave benefits. All long-term debt represents transactions in the District s governmental activities. The District has entered into a continuing disclosure undertaking to provide Annual Reports and Material Event Notices to the State Information Depository of Texas (SID), which is the Municipal Advisory Council. This information is required under SEC Rule 15c2-12 to enable investors to analyze the financial condition and operations of the District. The following is a summary of the changes in the District's Long-term Debt for the year ended August 31, 2008: Interest Amounts Issued Amounts Due Rate Outstanding Current Interest Retired/ Outstanding Within Description Payable 9/1/07 Year Accretion Refunded 8/31/08 One Year Bonded Indebtedness: 1994 School Bldg. & Refunding Bonds % $ 29,895 $ - $ - $ 9,839 $ 20,056 $ 6, Refunding Bonds % 65, , School Bldg. Bonds % 4,955, ,000 4,635, , School Bldg. & Refunding Bonds % 25,259, ,217 25,232,068 17, School Bldg. Bonds % 8,655, ,000 8,575,000 90, School Bldg. Bonds % 840, , ,000 40, School Bldg. & Refunding Bonds % 108,105, , ,525, ,000 Total Bonded Indebtedness: 147,910, ,057, ,852,976 1,348,967 Other Direct Obligations: Accreted Interest Capital Appreciation Bonds 18,041,424-1,137,016 2,392,944 16,785,496 1,598,243 Capital Leases Payable 3.99% 58, , Premium on Bonds 1,337, ,539 1,297,233 - Accumulated Sick-Leave Benefits 717, ,302-48, ,318 - Total Other Obligations: 20,154, ,302 1,137,016 2,539,733 18,860,047 1,598,243 Total Obligations of District $168,064,494 $ 108,302 $1,137,016 $3,596,789 $165,713,023 $2,947,210 34

93 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 Presented below is a summary of general obligation bond requirements to maturity: General Obligation Year Ended Total August 31, Principal Interest Requirements 2009 $ 1,348,967 $ 9,112,986 $ 10,461, ,555,809 9,157,536 10,713, ,795,257 9,096,238 10,891, ,121,667 9,022,748 11,144, ,454,333 8,934,507 11,388, ,006,091 31,208,448 58,214, ,227,314 32,979,931 58,207, ,968,538 19,323,862 49,292, ,715,000 10,006,744 33,721, ,615,000 5,207,406 26,822, ,045, ,100 10,728,100 $146,852,976 $144,733,506 $291,586,482 The 1994, 1995, and 2001 bond series include Capital Appreciation Bonds. No interest is paid on these bonds prior to maturity. The bonds mature variously in 2009 through Interest accrues on these bonds each February 1 and August 1 even though the interest is not paid until maturity. General Obligation Bonds are direct obligations issued on a pledge of the general taxing power for the payment of the debt obligations of the District. General Obligation Bonds require the District to compute, at the time taxes are levied, the rate of tax required to provide (in each year bonds are outstanding) a fund to pay interest and principal at maturity. The District is in compliance with this requirement. There are a number of limitations and restrictions contained in the various general obligation bonds indentures. The District is in compliance with all significant limitation and restrictions at August 31, NOTE 5. PROPERTY TAXES Property taxes are considered available when collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period. The District levies its taxes on October 1 on the assessed (appraised) value listed as of the prior January 1 for all real and business personal property located in the District in conformity with Subtitle E, Texas Property Tax Code. Taxes are due upon receipt of the tax bill and are past due and subject to interest if not paid by February 1 of the year following the October 1 levy date. The assessed value of the property tax roll upon which the levy for the fiscal year was based was $2,309,911,650. Taxes are delinquent if not paid by June 30. Delinquent taxes are subject to both penalty and interest charges plus 15 % delinquent collection fees for attorney costs. The tax rates assessed for the year ended August 31, 2008, to finance General Fund operations and the payment of principal and interest on general obligation long-term debt were $1.04 and $ per $100 valuation, respectively, for a total of $ per $100 valuation. Current tax collections for the year ended August 31, 2008 were 98.4% of the year-end adjusted tax levy. Delinquent taxes are prorated between maintenance and debt service based on rates adopted for the year of the levy. Allowances for uncollectible taxes within the General and Debt Service Funds are based on historical experience in collecting taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the District is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. As of August 31, 2008, property taxes receivable, net of estimated uncollectible taxes, totaled $939,463 and $228,963 for the General and Debt Service Funds, respectively. 35

94 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 Property taxes are recorded as receivables and deferred revenues at the time the taxes are assessed. Revenues are recognized as the related ad valorem taxes are collected. NOTE 6. PENSION PLAN OBLIGATIONS Plan Description - The District contributes to the Teacher Retirement System of Texas (the System), a public employee retirement system. It is a cost-sharing, multiple-employer defined benefit pension plan with one exception; all risks and costs are not shared by the District, but are the liability of the State of Texas. The System provides service retirement and disability retirement benefits, and death benefits to plan members and beneficiaries. The System operates under the authority of provisions contained primarily in Texas Government code, Title 8, Public Retirement Systems, Subtitle C, Teacher Retirement System of Texas, which is subject to amendment by the Texas Legislature. The System's annual financial report and other required disclosure information are available by writing the Teacher Retirement System of Texas, 1000 Red River, Austin, Texas or by calling (800) Funding Policy - Under provisions in State law, plan members are required to contribute 6.4% of their annual covered salary and the State of Texas contributes an amount equal to 6.58% of the District's covered payroll. In certain instances the District is required to make all or a portion of the state s 6.0% contribution. Contribution requirements are not actuarially determined but are legally established each biennium pursuant to the following state funding policy: (1) The state constitution requires the legislature to establish a member contribution rate of not less that 6.0% of the member s annual compensation and a state contribution of not less than 6.0% and not more than 10.0% of the aggregate annual compensation of all members of the system during that fiscal year; (2) A state statute prohibits benefit improvements or contribution reductions if, as a result of the particular action, the time required to amortize TRS s unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, the period would be increased by such action. The District's employees' contributions to the System for the years ending August 31, 2006, 2007, and 2008 were $2,123,483, $2,510,304 and $2,878,795, respectively, equal to the required contributions for each year. Other contributions made from federal and private grants and from the District for salaries above the statutory minimum for the years ending August 31, 2006, 2007, and 2008 were $315,535, $394,377 and $479,747, respectively, equal to the required contributions for each year. The amounts contributed by the State, for the years ended August 31, 2006, 2007, and 2008 were $1,905,646, $2,211,823 and $2,480,015, respectively, and are reflected in the financial statements in the General Fund by respective function, in accordance with Governmental Accounting Standards Board Statement No. 24. NOTE 7. SCHOOL DISTRICT RETIREE HEALTH PLAN Plan Description. Burleson Independent School District contributes to the Texas Public School Retired Employees Group Insurance Program (TRS-Care), a cost-sharing multiple-employer defined benefit postemployment health care plan administered by the Teacher Retirement System of Texas. TRS-Care Retired Plan provides health care coverage for certain persons (and their dependents) who retired under the Teacher Retirement System of Texas. The statutory authority for the program is Texas Insurance Code, Chapter Section grants the TRS Board of Trustees authority to establish and amend the basic and optional group insurance coverage for participants. The TRS issues a publicly available financial report that includes financial statements and required supplementary information for TRS-Care. That report may be obtained by visiting the TRS Web site at by writing to the Communications Department of the Teacher Retirement System of Texas at 1000 Red River Street, Austin, Texas 78701, or by calling

95 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 Funding Policy. Contribution requirements are not actuarially determined but are legally established each biennium by the Texas Legislature. Texas Insurance Code, Sections , 203, and 204 establish state, active employee, and public school contributions, respectively. The State of Texas and active public school employee contribution rates were 1.0% and 0.65% of public school payroll, respectively, with school districts contributing a percentage of payroll set at 0.55% for fiscal years 2008, 2007 and Per Texas Insurance Code, Chapter 1575, the public school contribution may not be less than 0.25% or greater than 0.75% of the salary of each active employee of the public school. For the years ended August 31, 2008, 2007, and 2006, the State s contributions to TRS-Care were $432,946, $392,235, and $331,794, respectively, the active member contributions were $292,378, $254,953, and $215,666, respectively, and the school district s contribution were $264,262, $215,729, and $182,487, respectively, which equaled the required contributions each year. NOTE 8. ACCUMULATED UNPAID SICK LEAVE BENEFITS Upon retirement of certain employees, with ten years or more service and other requirements, the District pays any accrued, unused local sick leave in a lump sum cash payment, at one-half of the employee s daily rate. A summary of changes in the accumulated local sick leave liability follows: Balance at September 1, 2007 $717,030 Additions-new entrants, days earned, and salary increments 108,302 Deductions-payments to participants 48,014 Balance at August 31, 2008 $777,318 The liability for unpaid sick leave benefits is reported in the District s government wide financial statements as Long-Term Debt. NOTE 9. INTERFUND RECEIVABLES AND PAYABLES Interfund receivables and payables at August 31, 2008 represented short-term advances between funds. These amounts are expected to be repaid in less than one year from August 31, Due from Due to Fund Other Funds Other Funds Major Governmental Funds: General Fund: Special Revenue Funds: National Lunch & Breakfast Program $ - $ 15,879 Campus Activity Funds - 1,990 Total Major Governmental Funds - 17,869 Nonmajor Governmental Funds: Special Revenue Funds: General Fund 17,869 - Total Nonmajor Governmental Funds 17,869 - Total $ 17,869 $ 17,869 During the year ended August 31, 2008, $291,904 was transferred from the General Fund to the District Child Care Center (a special revenue fund) to cover an operating deficit. In addition, $65,620 was transferred to the General Fund from the Campus Activity Funds (a special revenue fund) as a cost reimbursement. 37

96 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 10. HEALTH CARE Employees of the District are covered under the State of Texas statewide health insurance plan (TRS Active- Care). TRS Active-Care is a fully insured plan. During , the District contributed $260 per month per employee to the Plan and employees at their option authorized payroll withholdings to pay any additional contributions and contributions for dependents. NOTE 11. DUE FROM OTHER GOVERNMENTS The District participates in a variety of federal and state programs from which it receives grants to partially or fully finance certain activities. In addition, the District receives entitlements from the State through the School Foundation, Per Capita, Existing Debt Allotment, and Instruction Facilities Allotment Programs. Amounts due from federal and state governments as of August 31, 2008, are summarized below. State Federal Local Fund Entitlements Grants Governments Total General Fund $5,733,276 $ - $ - $5,733,276 Debt Service Fund 569, ,257 Special Revenue Funds 22, , ,809 Total $6,325,403 $ 355,939 $ - $6,681,342 NOTE 12. LITIGATION AND CONTINGENCIES The District participates in numerous state and Federal grant programs which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the District has not complied with the rules and regulations governing the grants, if any, refunds of any money received may be required and the collectability of any related receivable at August 31, 2008 may be impaired. In the opinion of the District, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying combined financial statements for such contingencies. NOTE 13. REVENUES FROM LOCAL AND INTERMEDIATE SOURCES During the current year, revenues from local and intermediate sources consisted of the following: General Special Debt Capital Fund Revenue Funds Service Fund Projects Fund Total Property Taxes $25,413,793 $ - $8,823,902 $ - $34,237,695 Food Sales - 2,233, ,233,492 Investment Income 658,786 15, ,010 2,152,768 3,041,205 Penalties, interest and other tax related income 354,546-83, ,809 Co-curricular student activities 305,302 1,285, ,590,391 Other 3,437, , ,805,409 Total $30,170,051 $3,902,007 $9,121,175 $2,152,768 $45,346,001 38

97 BURLESON INDEPENDENT SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2008 NOTE 14. DEFERRED REVENUE Deferred revenue at year-end consisted of the following: Special Debt General Revenue Service Fund Fund Fund Total Net Tax Revenue $ 939,463 $ - $228,963 $1,168,426 Other 45, ,400 Grant Revenue - 3,280-3,280 $ 984,863 $ 3,280 $228,963 $1,217,106 NOTE 15. CONSTRUCTION COMMITMENTS The District has entered into several construction contracts for the construction of four new elementary schools, a new high school as well as other renovation projects of existing facilities. The total contract amount of these contracts is $79,663,887. As of August 31, 2008, $30,193,072 remains to be completed on these contracts. These projects are being funded by the District s Capital Projects Fund. NOTE 16. EXCESS OF EXPENDITURES OVER APPROPRIATIONS BY FUNCTION The Texas Education Agency requires the budgets for certain Governmental fund types to be filed with the Texas Education Agency. The budget should not be exceeded in any functional category under TEA requirements. Expenditures exceeded appropriations in two functional categories in the General Fund for the year ended August 31, NOTE 17. SUBSEQUENT EVENT On September 3, 2008, the District issued $82.6 million (par value) of Series 2008 Unlimited Tax School Building Bonds. These proceeds were deposited to the District s Capital Projects Fund to fund ongoing and future construction projects. The new bond series will increase the District s debt service payments by $4.2 million for the year ended August 31,

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99 APPENDIX E SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

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104 Financial Advisory Services Provided By: INVESTMENT BANKERS