AMENDED REMARKETING CIRCULAR

Transcription

1 (See Continuing Disclosure of Information herein) REMARKETING/NOT NEW ISSUES: BOOK ENTRY ONLY AMENDED REMARKETING CIRCULAR Dated June 20, 2008 District Ratings: Fitch: BBB Moody s: Baa3 S&P: BBB+ Ambac Insured Ambac Ratings: Fitch: AA Moody s: Aa3 S&P: AA (see BOND INSURANCE and APPENDIX A" herein) On the original date of delivery of the Bonds, Co-Bond Counsel each delivered its separate opinion to the effect that as of such date, interest on the Bonds was excludable from gross income for federal income tax purposes under existing law prior to the first change of interest rate modes for which an opinion of nationally recognized Co-Bond Counsel is required under the Resolutions and the Bonds are not private activity bonds. In connection with the remarketing of the outstanding Bonds, as described herein, Co-Bond Counsel will each deliver its separate opinion to the effect that such remarketing does not in and of itself have an adverse effect on the exclusion from federal income tax of the interest on the Bonds. See "TAX MATTERS" for a discussion of the opinions of Co-Bond Counsel including a description of alternative minimum tax consequences for corporations. DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds $94,950,000 $94,950,000 Series 2005A Series 2005B Interest accrues from Date of Conversion Due: See Inside Cover The Dallas County Utility and Reclamation District Unlimited Tax Refunding Bonds, Series 2005A (the Series 2005A Bonds ) and the Dallas County Utility and Reclamation District Unlimited Tax Refunding Bonds, Series 2005B (the Series 2005B Bonds and together with the Series 2005A Bonds, the Bonds ) will bear interest at a fixed rate commencing on the date of conversion and will be payable on each August 15 and February 15, commencing August 15, 2008, until maturity or prior redemption. The Bonds are subject to redemption prior to their respective maturities as described herein. The initial Paying Agent/Registrar is The Bank of New York Trust Company, National Association. The Bonds will be delivered as fully registered bonds to, and registered in the name of, Cede & Co., as nominee for The Depository Trust Company (DTC), which will act as securities depository for the Bonds. Purchases of beneficial ownership interests in the Bonds will be made only by book-entry credit to the accounts of participating broker-dealers and other DTC participants on the books of DTC. Purchasers will not receive certificates representing their beneficial interest. Principal of and interest on the Bonds will be payable to DTC for the account of DTC participants, which will credit the accounts of the beneficial owners. The Bonds will be payable from the proceeds of an annual ad valorem tax levied, without legal limit as to rate or amount, against taxable property within the District. The payment of principal of and interest on the Bonds when due will be insured by separate financial guaranty insurance policies issued by Ambac Assurance Corporation ( Ambac ) on the date of original issuance of the Bonds. As described under TAX MATTERS, Vinson & Elkins L.L.P. and Boyle & Lowry, L.L.P., Co-Bond Counsel, have previously rendered opinions with respect to the treatment of interest on the Bonds under the Internal Revenue Code. In connection with the remarketing of the Bonds, Co-Bond Counsel has not undertaken to affirm, repeat or otherwise republish such prior opinions. The Bonds are delivered subject to the opinion of Co-Bond Counsel that the conversion to a fixed rate will not, in and of itself, adversely effect the exclusion of interest on the Bonds from federal income tax purposes. Certain legal matters will be passed on for the District by its counsel, Boyle & Lowry, L.L.P., and for the Remarketing Agents by their counsel, Fulbright & Jaworski L.L.P., Dallas, Texas. It is expected that the Bonds will be delivered through the facilities of DTC on or about June 25, 2008 subject to the satisfaction of certain conditions. RBC CAPITAL MARKETS MERRILL LYNCH & CO. LEHMAN BROTHERS BANC OF AMERICA SECURITIES

2 MATURITY SCHEDULE Series 2005A Bonds Series 2005B Bonds Maturity CUSIP Maturity CUSIP Amount 15-Feb Rate Yield Suffix (1) Amount 15-Feb Rate Yield Suffix (1) $ 1,080, % 2.900% LV(8) $ 1,080, % 2.900% MP(0) 960, % 3.450% LW(6) 960, % 3.450% MQ(8) 835, % 3.800% LX(4) 835, % 3.800% MR(6) *** *** *** *** *** *** *** *** *** *** 145, % 4.200% LY(2) 145, % 4.200% MS(4) 395, % 4.350% LZ(9) 395, % 4.350% MT(2) 670, % 4.500% MA(3) 670, % 4.500% MU(9) 615, % 4.625% MB(1) 615, % 4.625% MV(7) 1,260, % 4.750% MC(9) 1,260, % 4.750% MW(5) 2,035, (2) 5.000% 4.875% MD(7) 2,035, (2) 5.000% 4.875% MX(3) 2,425, (2) 5.000% 5.000% ME(5) 2,425, (2) 5.000% 5.000% MY(1) 1,220, (2) 5.100% 5.100% MF(2) 1,220, (2) 5.100% 5.100% MZ(8) 8,025, (2) 5.150% 5.150% MG(0) 8,025, (2) 5.150% 5.150% NA(2) 8,715, (2) 5.150% 5.200% MH(8) 8,715, (2) 5.150% 5.200% NB(0) *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 11,245, (2) 5.250% 5.250% MJ(4) 11,245, (2) 5.250% 5.250% NC(8) $55,325,000 Series 2005A Term Bond due February 15, 5.375%, priced to yield 5.375%, CUSIP Suffix: MN(5) $55,325, Series 2005B Term Bond due February 15, 5.375%, priced to yield 5.375%, CUSIP Suffix: NG(9) (1) 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. Neither the District, the Financial Advisor nor the Remarketing Agents shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. (2) The District reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2018 in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2017, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see THE BONDS Optional Redemption of Bonds ). MANDATORY SINKING FUND REDEMPTION... The Series 2005A Bonds and Series 2005B Bonds maturing on February 15, 2029 (the Term Bonds are subject to mandatory sinking fund redemption in the amounts and at a price of par plus accrued interest to the redemption date on February 15 in the following years: * Maturity. Series 2005A Bonds Maturing Series 2005B Bonds Maturing February 15, 2029 February 15, 2029 Year Amount Year Amount 2026 $ 12,425, $ 12,425, ,350, ,350, ,310, ,310, * 15,240, * 15,240,000 The particular Term Bond to be redeemed shall be chosen by the Paying Agent/Registrar at random by lot or other customary method; provided, however, that the principal amount of the Term Bond required to be redeemed pursuant to the operation of the mandatory sinking fund redemption provisions shall be reduced, at the option of the District, by the principal amount of said Term Bond of the respective maturity which, at least 45 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 Bond plus accrued interest to the date of purchase thereof and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement (see THE BONDS Mandatory Sinking Fund Redemption ) ii

3 No dealer, broker, salesperson, or other person has been authorized by the Remarketing Agents, the District, or Ambac to give any information or to make any representations with respect to the Bonds other than those in this Remarketing Circular, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Remarketing Circular does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds, by any person in any state in which it is unlawful for such person to make such offer, solicitation, or sale. The information set forth herein has been obtained from the District, Ambac, and other sources that are believed to be reliable, but the Remarketing Agents do not guarantee the accuracy or completeness of such information, and such information is not to be construed as a representation or warranty by the Remarketing Agents. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Remarketing Circular 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 Ambac since the dates as of which information is provided herein. This Remarketing Circular has been prepared for use in connection with the offering and sale of the Bonds and may not be used for any other purpose. None of the District, the Remarketing Agents or Ambac makes any representation or warranty with respect to the information contained in this Remarketing Circular regarding The Depository Trust Company or its book-entry-only system. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE BONDS HAVE BEEN REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Remarketing Circular 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 the other matters described herein since the date hereof. This Remarketing Circular includes descriptions and summaries of certain events, matters and documents. Such descriptions and summaries do not purport to be complete and all such descriptions, summaries and references thereto are qualified in their entirety by reference to this Remarketing Circular in its entirety and to each such document, copies of which may be obtained from the District. Any statements made in this Remarketing Circular or the appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized. The Remarketing Agents have provided the following sentence for inclusion in this Remarketing Circular: The Remarketing Agents have reviewed the information in this Remarketing Circular in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing Agents do not guarantee the accuracy or completeness of such information. See "CONTINUING DISCLOSURE" for a description of the District s undertaking to provide certain information on a continuing basis. This Remarketing Circular is delivered in connection with the sale of securities referred to herein and may not be reproduced or used, in whole or in part, for any other purposes. This Remarketing Circular does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson, or other person has been authorized by the District to give any information or to make any representation other than those contained herein, and, if given or made, such other information or representation must not be relied upon as having been authorized by the District, the Remarketing Agents, or any other person. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Remarketing Circular nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the matters described herein since the date hereof. Neither the District, its Financial Advisor nor the Remarketing Agents make any representation as to the accuracy, completeness, or adequacy of the information supplied by The Depository Trust Company for use in this Remarketing Circular. CUSIP numbers have been assigned to these issues by the CUSIP Service Bureau and are included solely for the convenience of the owners of the Bonds. Neither the District, its Financial Advisor nor the Remarketing Agents shall be responsible for the selection or correctness of the CUSIP numbers shown on the inside cover page. THIS REMARKETING CIRCULAR 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. IN CONNECTION WITH THIS REMARKETING, THE REMARKETING AGENTS 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. THE COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY AND IS NOT INTENDED AS A SUMMARY OF THIS OFFERING. INVESTORS SHOULD READ THE ENTIRE REMARKETING CIRCULAR, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. iii

4 TABLE OF CONTENTS INTRODUCTORY STATEMENT... 1 THE BONDS... 1 GENERAL... 1 SECURITY FOR PAYMENT... 2 LEVY OF AD VALOREM TAX... 2 INTEREST AND SINKING FUND AND MANDATORY BOND PREPAYMENT ACCOUNT... 3 EVENTS OF DEFAULT; BONDHOLDER REMEDIES... 3 BOOK-ENTRY-ONLY SYSTEM... 4 PAYING AGENT/REGISTRAR... 5 REGISTRATION, TRANSFER AND EXCHANGE... 6 OWNERSHIP... 6 DISCHARGE... 6 SPECIAL COVENANT REGARDING DISTRICT S AD VALOREM TAX DEBT... 6 GENERAL COVENANTS OF THE DISTRICT... 7 DISCLOSURE STATEMENT... 7 TAX MATTERS... 7 OTHER INFORMATION... 9 LEGAL MATTERS... 9 FINANCIAL ADVISOR... 9 REMARKETING... 9 FINANCIAL GUARANTY INDUSTRY DISCLOSURE... 9 FORWARD REFUNDING BONDS... 9 RATINGS MISCELLANEOUS Appendix A Disclosure Statement Appendix B Audited Financial Statements of the District for the Fiscal Year ended September 30, 2007 Appendix C Bond Insurance Policies Appendix D Form of Original Opinions of Co-Bond Counsel Appendix E Form of Remarketing Opinions of Co-Bond Counsel iv

5 REMARKETING CIRCULAR DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds $94,950,000 $94,950,000 Series 2005A Series 2005B This Remarketing Circular, including the cover page and appendices, is furnished by Dallas County Utility and Reclamation District (the District ) in connection with the remarketing of its Unlimited Tax Refunding Bonds, Series 2005A (the Series 2005A Bonds ) and its Unlimited Tax Refunding Bonds, Series 2005B (the Series 2005B Bonds and together with the Series 2005A Bonds, the Bonds ) to a fixed rate. The District is a political subdivision of the State of Texas authorized by special act pursuant to Article XVI, Section 59 of the Constitution of Texas to provide flood control, water supply, land reclamation, street and road construction, transportation, and water conservation services. The District currently contains approximately 3,636 acres of land located entirely within the City of Irving, Texas, and is located between Dallas/Fort Worth International Airport and Dallas Love Field approximately 11 miles from downtown Dallas, Texas. The Bonds are being remarketed to convert the Bonds into Bonds bearing interest at a fixed interest rate until their maturity date or earlier redemption in accordance with the provisions of resolutions adopted by the Board of Directors of the District on January 19, 2005 and pricing certificates establishing some of the terms of the Series 2005A Bonds and the Series 2005B Bonds (collectively, the Resolutions ). Certain capitalized terms used herein and not otherwise defined shall have the definitions ascribed to them in the Resolutions. Concurrently with the conversion of the interest rate on the Bonds to a fixed rate, the District is issuing its Unlimited Tax Refunding Bonds, Series 2008 to refund certain termination payment obligations of the District related to the termination of interest rate management agreements entered into in connection with the Bonds. The District is also scheduled to deliver its $40,000,000 Unlimited Tax Refunding Bonds, Series 2007 on June 26, (See OTHER INFORMATION Termination of Swaps and Series 2008 Bonds and - Delivery of Forward Refunding Bonds ) The Bonds will be payable from and secured by a pledge of an annual ad valorem tax levied, without legal limit as to rate or amount, on all taxable property within the District. See THE BONDS -- Security for Payment herein. Payment of the principal of and interest on the Bonds will be insured by separate financial guaranty insurance policies issued by Ambac on the date of original issuance of the Bonds. See BOND INSURANCE in APPENDIX A and the financial guaranty insurance policies in APPENDIX C. THE BONDS GENERAL The Series 2005A Bonds are being converted into and remarketed as fixed rate bonds in the aggregate principal amount of $94,950,000, and the Series 2005B are being converted into and remarketed as fixed rate bonds in the aggregate principal amount of $94,950,000. The Bonds will mature on February 15 in the years and in the principal amounts, and bear interest from the date of their conversion at the rates per annum set forth on the inside cover page of this Remarketing Circular. The Bonds will be remarketed in authorized denominations of principal equal to $5,000 and integral multiples thereof. Interest on the Bonds will be payable semiannually on each February 15 and August 15, commencing August 15, 2008 until maturity or prior redemption. The Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. The Bonds will be available to purchasers only in the form of credits on the books of DTC Participants as described herein. The principal of and interest on the Bonds will be payable by The Bank of New York Trust Company, National Association, as Paying Agent/Registrar for the Bonds (the Paying Agent/Registrar ), initially through its designated payment office in Dallas, Texas, to Cede & Co., which will make distribution of the amounts so paid to participating members of DTC for subsequent payment to the beneficial owners of the Bonds. No physical delivery of the Bonds will be made to the beneficial owners of the Bonds. See THE BONDS Book-Entry-Only System. If a date for the payment of debt service on the Bonds is a Saturday, Sunday, legal holiday, or a day on which banking institutions in the District or in the city in which the designated payment/transfer office of the Paying Agent/Registrar is located, are authorized by law or executive order to close, then the date for such payment will be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date payment was due. 1

6 Optional Redemption... The District may, at its option, redeem Bonds, maturing on and after February 15, 2018, in whole or any part, in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2017, or on any date thereafter, at a redemption price equal to the principal amount thereof plus interest accrued thereon to the redemption date. If less than all of the Bonds are to be redeemed, the District will determine the maturity or maturities and the amounts thereof to be redeemed. If less than all of the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. MANDATORY SINKING FUND REDEMPTION... The Series 2005A Bonds and Series 2005B Bonds maturing on February 15, 2029 (the Term Bonds are subject to mandatory sinking fund redemption in the amounts and at a price of par plus accrued interest to the redemption date on February 15 in the following years: * Maturity. Series 2005A Bonds Maturing Series 2005B Bonds Maturing February 15, 2029 February 15, 2029 Year Amount Year Amount 2026 $ 12,425, $ 12,425, ,350, ,350, ,310, ,310, * 15,240, * 15,240,000 The particular Term Bond to be redeemed shall be chosen by the Paying Agent/Registrar at random by lot or other customary method; provided, however, that the principal amount of the Term Bond required to be redeemed pursuant to the operation of the mandatory sinking fund redemption provisions shall be reduced, at the option of the District, by the principal amount of said Term Bond of the respective maturity which, at least 45 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 Bond plus accrued interest to the date of purchase thereof and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. Notice of Redemption... The Paying Agent/Registrar will give notice of any redemption of Bonds by sending notice by first class United States mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the registered owner of each Bond (or part thereof) to be redeemed, at the address shown on the Register and shall give notice to the Insurer, the Information Services and DTC. Any notice given as provided in the Resolutions shall be conclusively presumed to have been duly given, whether or not the registered owner receives such notice. While the Bonds remain subject to the DTC book-entry system, such notices will only be sent to DTC or its nominee. Notice of redemption having been given, the Bonds or portions thereof called for redemption will be due and payable on the date fixed for redemption and, unless the District defaults in its obligation to make provision for the payment of the principal thereof, or accrued interest thereon, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date. SECURITY FOR PAYMENT... The Bonds will be payable from and secured by a pledge of the proceeds from an ad valorem tax (the "Debt Service Tax") on each one hundred dollars valuation of taxable property within the District levied without limit as to rate or amount and the amounts on deposit in the Interest and Sinking Fund. If at any time there are insufficient moneys to pay the amounts then due and payable on the Bonds, and on any other District bonds or obligations payable from ad valorem taxes, the District will apply all such then available moneys on a pro rata basis based on the respective amounts then due and payable on the Bonds, and on any such other District bonds or obligations. Payment of the regularly scheduled principal of and interest on the Bonds will be insured by separate financial guaranty insurance policies issued by Ambac on the date of original issuance of the Bonds. See BOND INSURANCE in APPENDIX A and the financial guaranty insurance policies in APPENDIX C. LEVY OF AD VALOREM TAX... Under the Resolutions, the District will levy, and assess and collect, for the current year and for each succeeding year thereafter while any of the Bonds are outstanding and unpaid, the Debt Service Tax at a rate sufficient, without limit as to rate or amount, to pay, when due and payable, the principal of and interest on the Bonds, full allowances being made for delinquencies and costs of collection. The ad valorem tax so levied will be assessed and collected each year against all property appearing on the tax rolls of the District as taxable property in accordance with applicable law, and the money thus collected shall be a part of the security for the Bonds and, as collected, shall be deposited to the Interest and Sinking Fund. The Debt Service Tax and all collections therefrom are irrevocably pledged to the payment of the principal of and interest on the Bonds when and as due and payable in accordance with the terms and provisions of the Resolutions. For so long as any Bonds are outstanding and remain unpaid, the District covenants, agrees and warrants to take and pursue all action permissible under applicable law to cause the Debt Service Tax to be assessed and collected annually, in the manner and to the maximum extent permitted by applicable law. 2

7 The Resolutions provide that if, during any Fiscal Year, the District shall receive funds from any Person that are applied to a reduction in the rate of the District s maintenance tax (the Maintenance Tax ) that, as conclusively determined by the District, would otherwise be levied without regard to such funds, the District will increase the rate of the Debt Service Tax to be assessed and collected for that Fiscal Year (such increased portion referred to as the Special Debt Reduction Tax ) by the lesser of (i) the exact rate of such reduction, or (ii) the actual rate of the Maintenance Tax for that Fiscal Year, and shall deposit the amount of taxes allocable to that portion of the Debt Service Tax, after deducting applicable amounts for the costs of collection, to the Mandatory Bond Prepayment Account to be used and applied as required by the Resolutions. The District will have the right to modify or eliminate such requirements in any Fiscal Year with the written consent of Ambac and MBIA Insurance Corporation ( MBIA ) or their respective successors as insurers of the District s unlimited tax bonds. The Special Debt Reduction Tax need not be assessed and collected in any Fiscal Year to the extent a similar tax is assessed and collected with respect to, and the proceeds thereof are used, to redeem, defease, or purchase and cancel mandatorily, bonds or debt securities of the District other than the Bonds. The District reserves the right to grant tax abatements to property taxpayers within the District to the extent permitted by applicable law, subject to the requirement that all tax-abatement programs, policies, and contracts with specific property owners regarding taxable property within the District shall be made expressly subject to the prior rights of the registered owners of the Bonds to enforce the requirements of the Resolutions to levy, and to assess and collect annually, the Debt Service Tax, without limit as to rate or amount, against all taxable property within the District upon the occurrence of an Event of Default (or the likelihood of an occurrence of an Event of Default but for the levy against all taxable property within the District) that results (or would likely result) in the failure to pay in full all principal and interest that is due on any payment date. See APPENDIX A DISCUSSION AND ANALYSIS OF FINANCIAL POSITION Tax Abatements for New Development. INTEREST AND SINKING FUND AND MANDATORY BOND PREPAYMENT ACCOUNT... The respective Resolutions establish a special fund designated the Dallas County Utility and Reclamation District Unlimited Tax Refunding Bonds, Series 2005A Interest and Sinking Fund for the Series 2005A Bonds and the Dallas County Utility and Reclamation District Unlimited Tax Refunding Bonds, Series 2005B Interest and Sinking Fund (each an Interest and Sinking Fund ), said funds to be maintained at an official depository bank of the District separate and apart from all other funds and accounts of the District. Money on deposit in or required to be deposited to the Interest and Sinking Funds will be used solely for the purpose of paying the interest on and principal of the Bonds related to each such Interest and Sinking Fund when due in accordance with their terms and the applicable Resolution. The Resolutions each create a special account (the Mandatory Bond Prepayment Account ) within the respective Interest and Sinking Fund for the purpose of receiving, holding, and paying out Acquisition Payments, if any, and the revenues received by the District from the assessment and collection of the Special Debt Reduction Tax, if any, with the amounts accounted for therein to be used and applied as directed in the Resolutions. Acquisition Payments represent payments received by the District in connection with the sale by the District of any part of its public infrastructure or assets. Moneys deposited to the Mandatory Bond Prepayment Account will be applied in whole or in part, as necessary, (1) to purchase for cancellation the District s bonds at a price not to exceed the principal amount thereof plus accrued interest; (2) to the payment of the redemption price of the District s bonds; and/or (3) to discharge by defeasance, in any manner permitted by applicable law, outstanding bonds that are not subject to redemption. Funds deposited to the Mandatory Bond Prepayment Accounts will be allocated among the issues or series of the District s outstanding bonds on a pro rata basis (based on total debt service outstanding) in increments of $50,000 or more. EVENTS OF DEFAULT; BONDHOLDER REMEDIES The Resolutions provide that each of the following occurrences or events will be an Event of Default: (1) the failure to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable; (2) default in the performance or observance of any other covenant, agreement or obligation of the District and the continuation thereof for a period of 30 days after notice of such default is given by any owner or the Insurer to the District; or (3) the filing by the District with a court of competent jurisdiction of a proceeding seeking reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking the appointment of a bankruptcy trustee or other custodian or official for all or any substantial part of its property, or the declaration in writing of a moratorium with respect to its debts. Upon the happening of any Event of Default, then any owner of Bonds or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the District for the purpose of protecting and enforcing the rights of the owners under the associated Resolution, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained in the Resolutions, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Bond owners under the Resolutions or any combination of such remedies. All such proceedings shall be instituted and maintained for the equal benefit of all registered owners of Series 2005A Bonds or Series 2005B Bonds, as applicable, then outstanding. 3

8 Notwithstanding any provision to the contrary, if an Event of Default occurs, the Insurer, acting alone, shall have the right to direct all remedies which may be exercised by an owner of Bonds under the applicable Resolution. The Insurer shall be recognized as the owner of each Bond for the purpose of exercising all rights and privileges available to owners of Bonds. The Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as an owner of the Bonds in accordance with the terms of the Resolutions. The Resolutions provide that no remedy therein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that acceleration of the debt evidenced by the Bonds is not available as a remedy under the Resolutions. The exercise of any remedy conferred or reserved by the Resolutions will not be deemed a waiver of any other available remedy. BOOK-ENTRY-ONLY SYSTEM... This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Remarketing Circular. The District believes the source of such information to be reliable, but takes 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 Remarketing Circular. 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 and series of the Bonds in the aggregate principal amount of such maturity and series, 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 2.2 million issues of U.S. and non U.S. equity, corporate and municipal debt issues, and money market instrument 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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 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. 4

9 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 transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security 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 the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of Bonds within a series are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such series to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the District 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], Paying Agent/Registrar, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the District or 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 securities depository with respect to the Bonds at any time by giving reasonable notice to the District or Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates are required to be printed and delivered. Use of Certain Terms in Other Sections of this Remarketing Circular... In reading this Remarketing Circular it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Remarketing Circular 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, notices that are to be given to registered owners under the Resolutions will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the District or the Remarketing Agents. Effect of Termination of Book-Entry-Only System... In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the District, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Resolutions and summarized under "THE BONDS Registration, Transfer and Exchange" below. PAYING AGENT/REGISTRAR... At all times while any Bonds are outstanding, the District will maintain a Paying Agent/Registrar that is qualified under the Resolutions. Each Paying Agent/Registrar must be a commercial bank, a trust company organized under the laws of the State of Texas, or any other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Bonds. The Bank of New York Trust Company, National Association, is the initial Paying Agent/Registrar for the Bonds. The District, upon not less than 60 days notice, reserves the right to terminate the appointment of any Paying Agent/Registrar by delivering to the entity whose appointment is to be terminated written notice of such termination. Promptly upon each change in the entity serving as Paying Agent/Registrar, the District will cause notice of the change to be sent to each registered owner by first class United States mail, postage prepaid, at the address in the register, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. 5

10 REGISTRATION, TRANSFER AND EXCHANGE... So long as any Bonds will cause the Paying Agent/Registrar to Cede & Co., or such other nominee as may prescribe, the Paying Agent/Registrar will provide for the registration and transfer of Bonds. Ownership of any Bond may be transferred in the Register only upon the presentation and surrender thereof at the designated payment/transfer office of the Paying Agent/Registrar with such endorsement or other instrument of transfer and assignment satisfactory to the Paying Agent/Registrar. No transfer of any Bond shall be effective until entered in the Register. Any Bond may be exchanged only upon the presentation and surrender thereof at the designated payment/transfer office of the Paying Agent/Registrar initially, Dallas, Texas for a Bond or Bonds of the same maturity and interest rate and in any authorized denomination and in an aggregate principal amount equal to the unpaid principal amount of the Bonds presented for exchange. If a portion of any Bond is redeemed prior to its scheduled maturity as provided herein, a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in Authorized Denominations at the request of the registered owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender thereof for cancellation. The District will pay the Paying Agent/Registrar s reasonable and customary charge for the initial registration or any subsequent transfer or exchange of Bonds, but the Paying Agent/Registrar will require the owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer or exchange of a Bond. Neither the District nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Bond called for redemption, in whole or in part, where such redemption is scheduled to occur within 45 calendar days after the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the owner of the uncalled principal balance of a Bond. While the Bonds are held in the book-entry-only system of DTC, DTC or its nominee will be the sole registered owner of Bonds and transfer of a beneficial owner s interest in the Bonds will be through the DTC book-entry-only system. See THE BONDS Book-Entry- Only System. OWNERSHIP... The District, the Paying Agent/Registrar and any other Person may treat the Person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and redemption premium, if any, thereon, for the further purpose of making and receiving payment of the interest thereon, and for all other purposes, whether or not such Bond is overdue, and neither the District nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the registered owner of a Bond shall be valid and effectual and shall discharge the liability of the District and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. The Bonds will initially be registered in the name of the nominee of DTC through the DTC book-entry-only system. See THE BONDS Book-Entry-Only System. DISCHARGE... The Resolutions provide that the Bonds may be refunded, defeased or discharged in any manner permitted by law. SPECIAL COVENANT REGARDING DISTRICT S AD VALOREM TAX DEBT... The District has covenanted and agreed with Ambac and MBIA that the District will not issue any bonds, notes or other obligations (including without limitation, tax anticipation notes) payable in whole or in part from ad valorem taxes, nor will the District issue any bond anticipation notes, if either (i) such issuance would result in the principal amount of all outstanding bonds, notes or other obligations of the District, net of any amount then in an interest and sinking fund of the District which is to be used to pay principal of such obligations, being in excess of 15% of the then current taxable assessed valuation of property in the District, adjusted for any annexations or additions or deannexations or deletions which will be reflected on the next succeeding tax-roll, or (ii) such issuance would result in total debt service through final maturity of all bonds, notes or other obligations of the District, net of any amount then in an interest and sinking fund of the District, being in excess of 50% of the then current taxable assessed valuation of property in the District, adjusted for any annexations or additions or deannexations or deletions which will be reflected on the next succeeding tax-roll; provided, however, such agreement and covenant may be waived, modified or terminated in writing by Ambac and MBIA. The termination, waiver or modification of such covenant will not require the consent of, nor give rise to any right to consent by the owners or holders of the outstanding bonds of the District or of the Bonds. For purposes of clause (i) above, the principal amount outstanding of any capital appreciation bonds will be based upon the original principal amount of such bonds. For purposes of clause (ii) above, the accreted value at maturity of any capital appreciation bonds will be used to determine total debt service on such bonds. In addition, for purposes of clause (ii) above, interest on any variable rate obligations will be calculated using the maximum interest rate for such obligations. For purposes of both clause (i) and clause (ii) above in determining the taxable assessed valuation of property in the District, the assessed value of the property abated pursuant to tax abatement agreements to arrive at the effective tax rate when such agreements in each year shall be deducted from the then current taxable assessed valuation for such year. Thus, for example, if the District s tax rate in a particular year is $1.50 per $100 taxable assessed value and the effective tax rate with respect to property under an abatement agreement is $0.75 per $100 taxable assessed value, then 50% of the assessed value of such property for such year shall be excluded in arriving at the current taxable assessed value of property in the District for such year. Under the terms of the Resolutions, the consents of Ambac and MBIA are required to convert the interest rate on the Bonds to a fixed interest rate. The District has received such consents from Ambac and MBIA. 6

11 In addition to the right of the District to issue its unlimited ad valorem tax bonds that are subject to the terms of the preceding paragraphs, the District reserves the right to issue bonds, notes or other obligations for any purpose permitted by applicable law that are secured by revenues of the District other than revenues received from the levy and collection of ad valorem taxes within the District. GENERAL COVENANTS OF THE DISTRICT Budget... The District has covenanted in the Resolutions that it will prepare an annual operating budget in accordance with applicable law and will therein establish and include the amounts of Operating and Maintenance Expenses the District expects to expend during the ensuing Fiscal Year, plus reasonable and necessary operating reserves. For the purpose of paying its annual Operating and Maintenance Expenses, the District reserves the right to levy, assess, and collect annually the Maintenance Tax in accordance with applicable law. Tax Abatement Limitations... The District has reserved the right to grant tax abatements to property taxpayers within the District to the extent permitted by applicable law, subject to the requirement that all tax-abatement programs, policies, and contracts with specific property owners regarding taxable property within the District shall be made expressly subject to the prior rights of the owners of the Bonds to enforce the requirements of the District to levy, and to assess and collect annually, the Debt Service Tax, without limit as to rate or amount, against all taxable property within the District upon the occurrence of an Event of Default (or the likelihood of an occurrence of an Event of Default but for the levy against all taxable property within the District) that results (or would likely result)in the failure to pay in full all principal and interest that is due on any interest payment date, principal payment date, maturity date or mandatory redemption date, as the case may be. Books of Record... The District covenants in the Resolutions that it will keep or cause to be kept proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the funds and accounts established by the Resolutions and which, together with all other books and papers of the District, shall at all times be subject to inspection by the registered owner or owners of not less than 5% in principal amount of the Bonds then outstanding or their representatives duly authorized in writing. Disposition of Assets; Acquisition Payments... The District reserves the right, but does not bind itself, to sell and transfer all or any part of its public infrastructure and/or other public assets to any Person, and the District agrees that the proceeds (the Acquisition Payments ), if any, received from any such transaction, less the costs and expenses incurred by the District in connection with such transactions, shall be deposited to the Mandatory Bond Prepayment Account. Such agreement will not apply in any Fiscal Year to the extent Acquisition Payments are used to redeem, defease, or purchase and cancel mandatorily, bonds or debt securities of the District other than the Bonds. DISCLOSURE STATEMENT For a description of other terms of the Bonds as well as information relevant to a decision to invest in the Bonds, see the Disclosure Statement appended as APPENDIX A, including particularly the section entitled INVESTMENT CONSIDERATIONS. TAX MATTERS Co-Bond Counsel stated in separately delivered opinions (collectively, the Original Opinion ) dated February 10, 2005, that, as of such date, (i) interest on the Bonds was excludable from gross income for federal income tax purposes under existing law and (ii) the Bonds were not private activity bonds under the Internal Revenue Code of 1986, as amended (the Code ), and interest on the Bonds was not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. Delivery of the remarketed Bonds is subject to the receipt of each of the opinions of Co- Bond Counsel to the effect that the conversion of the interest rate on the Bonds pursuant to the Resolutions does not in and of itself adversely affect the exclusion from gross income for federal income tax purposes of interest on any Bond under existing law. Except as stated above, Co-Bond Counsel has expressed in the Original Opinion and will express in connection with the conversion, no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds. Co-Bond Counsel s Original Opinion assumed continuing compliance with the covenants of the Resolutions pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, relied on representations by the District, the District s Financial Advisor and the underwriters with respect to matters solely within the knowledge of the District, the District s Financial Advisor and the underwriters, respectively, which Co-Bond Counsel has not independently verified. If the District failed or fails to comply with the covenants in the Resolutions or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. 7

12 Co-Bond Counsel has not been asked to undertake and has not undertaken any review or investigation of, and has not been asked to express and does not express any opinion concerning, the original or continuing treatment of the interest on the Bonds as excludable from gross income for federal income tax purposes except insofar as the conversion of the interest rate on the Bonds may affect the excludability of interest on the Bonds. Thus, in providing the separately-delivered opinions set forth above, each Co-Bond Counsel has assumed without investigation that interest on the Bonds was excludable from gross income for federal income tax purposes immediately prior to the conversion of the interest rate on the Bonds. Prospective purchasers of the Bonds should be aware that the Code imposes a 20% alternative minimum tax on the alternative minimum taxable income of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation s regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its adjusted current earnings exceeds its other alternative minimum taxable income. Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation s adjusted current earnings, ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Furthermore, under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year. Prospective purchasers of the Bonds should also be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the branch profits tax on their effectively connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Co-Bond Counsel s opinions are based on existing law, which is subject to change. Such opinions are further based on Co-Bond Counsel s knowledge of facts as of the date thereof. Co-Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Co-Bond Counsel s attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Co-Bond Counsel s opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the Service ); rather, such opinions represent Co-Bond Counsel s legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems 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 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 District as the taxpayer and the owners may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 8

13 OTHER INFORMATION LEGAL MATTERS The Bonds have been approved by the Attorney General of Texas and by Vinson & Elkins L.L.P., Dallas, Texas, and Boyle & Lowry, L.L.P., Irving, Texas, Co-Bond Counsel. As a condition to the remarketing of the Bonds described herein, Co-Bond Counsel will render an opinion to the effect that the conversion of the Bonds to a fixed rate mode will not, in and of itself, adversely effect the exclusion of the interest on the Bonds for the holders thereof for federal income tax purposes. The fees of Co-Bond Counsel are contingent on the remarketing of the Bonds. Certain legal matters will be passed on for the District by its counsel, Boyle & Lowry, L.L.P., and for the Remarketing Agents by their counsel, Fulbright & Jaworski L.L.P., Dallas, Texas. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the District in connection with the remarketing of the Bonds. The fee for services rendered by the Financial Advisor with respect to the remarketing of the Bonds is contingent upon the remarketing of the Bonds. First Southwest Company has agreed, in its Financial Advisory contract, not to participate either directly or indirectly in the remarketing of the Bonds. First Southwest Company has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. REMARKETING The Remarketing Agents have agreed, subject to certain conditions, to purchase the Bonds for a remarketing fee of $1,185, The Remarketing Agents will be obligated to purchase and remarket all of the respective Bonds if any respective Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Remarketing Agents and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds and such public offering prices may be changed, from time to time, by the Remarketing Agents. The Remarketing Agents have reviewed the information in this Remarketing Circular in accordance with, and part of their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing Agents do not guarantee the accuracy or completeness of such information. TERMINATION OF SWAPS AND SERIES 2008 BONDS In connection with the issuance of the Series 2005A Bonds and the Series 2005B Bonds the District entered into a Master Agreement, a Schedule and a Confirmation for each series of bonds (collectively, the Swap Agreements ) with Ambac Financial Services, LLC. Upon the conversion of the interest rate on the Bonds to a fixed rate, the District will terminate the Swap Agreements. The District has authorized the issuance of its Unlimited Tax Refunding Bonds, Series 2008 scheduled to be delivered on June 25, 2006 in the principal amount of $4,125,000 payable from its unlimited tax authority to refund any termination payment obligations due Ambac Financial Services, LLC related to terminating the Swap Agreements. DELIVERY OF FORWARD REFUNDING BONDS The District has authorized the issuance of $40,000,000 Unlimited Tax Refunding Bonds, Series 2007 (the Forward Refunding Bonds ) scheduled to be delivered on June 26, The Forward Refunding Bonds will refund $41,185,000 of the District s Unlimited Tax Refunding Bonds, Series 1999-C, which are scheduled to be redeemed on August 15, The Forward Refunding Bonds mature on February 15, 2023 and February 15, 2024 in the principal amounts of $18,605,000 and $21,395,000, respectively. FINANCIAL GUARANTY INDUSTRY DISCLOSURE Fitch, Moody s Investor s Services and Standard and Poor s, a division of The McGraw-Hill Companies, Inc. (collectively referred to herein as the Rating Agencies ) have each released statements on the health of the financial guaranty industry that cite financial guarantors exposure to subprime mortgage risk as an area of stress for the financial guaranty industry. In various releases, the Rating Agencies have each outlined the processes that they intend to follow in evaluating the effect of this risk on their respective ratings of financial guarantors. For some financial guarantors, the result of such evaluations could be a rating affirmation, a change in rating outlook, a review for downgrade, or a downgrade. For certain financial guarantors the result of such evaluations has been a ratings downgrade. Potential investors are directed to the Rating Agencies and the individual financial guarantors for additional information on their respective evaluations of the financial guaranty industry and individual financial guarantors. 9

14 RATINGS Based upon the financial guaranty insurance policy issued by Ambac, the Bonds have been rated AA by Fitch, Inc. ( Fitch ), Aa3 by Moody s Investors Service, Inc. ( Moody s ) and AA by Standard & Poor s, a division of The McGraw-Hill Companies, Inc ( S&P ). Relying solely on the credit of the District without consideration of the financial guaranty insurance policy issued by Ambac, the Bonds have received an underlying rating of BBB by Fitch, Inc., Baa3 by Moody s Investors Service, Inc. and BBB+ by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. An explanation of the significance of these ratings may be obtained from the rating agencies furnishing the ratings. Such ratings reflect only the respective views of the rating agencies. The District and Ambac have furnished such rating agencies with certain information and materials relating to the Bonds, the District, and Ambac that have not been included in this Remarketing Circular. Generally, rating agencies base their ratings on the information and materials furnished and on investigations, studies, and assumptions by the ratings agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. None of the District, the Remarketing Agents, or Ambac has undertaken any responsibility to bring to the attention of the owners of the Bonds any proposed revision or withdrawal of the rating of the Bonds, except, with respect to the District, as described under Continuing Disclosure in APPENDIX A, or to oppose any such proposed revision or withdrawal. Any such change in or withdrawal of such rating could have an adverse effect on the market price of the Bonds. The above ratings are not recommendation to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Each of the rating agencies has recently issued press releases of reports stating that they are examining the potential effects of downturns in the market for structured finance ( SF ) instruments, including collateralized debt obligations ( CDOs ) and residential mortgage backed securities ( RMBS ), on the claims-paying ability of the bond insurance companies, including Ambac. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. On June 5, 2008, S&P downgraded the rating of Ambac to AA on CreditWatch with negative implications. In a March 12, 2008 press release, Fitch affirmed the AA rating of Ambac and continued the negative rating outlook. The release is available on the Fitch website at On June 19, 2008, Moody s downgraded the rating of Ambac to Aa3 with a negative outlook. There can be no assurance that the views expressed in those documents and announcements represented the current views of the rating agencies or that those views will not change in the future. MISCELLANEOUS The references herein or in the appendices to the Bonds and other agreements are brief descriptions of certain portions thereof. Such descriptions do not purport to be complete, and reference is made to such documents for full and complete statements of the provisions thereof. All such references are further qualified in their entirety by reference to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors rights and the possible exercise of judicial discretion in enforcing such rights. The agreements of the District for the benefit of the owners of the Bonds are fully set forth in the Resolutions, and neither any advertisement of the Bonds nor this Remarketing Circular, including the appendices, is to be construed as constituting an agreement with the purchasers of the Bonds. Any statements made in this Remarketing Circular involving matters of opinion or estimates, whether or not expressly so stated, are intended merely as such and not as representations of fact, and no representation is made that such opinions or estimates will be realized. The attached APPENDICES A, B, C, and D are integral parts of this Remarketing Circular and should be read together with all of the foregoing statements. This Remarketing Circular and its distribution have been duly authorized and approved by the District. This Remarketing Circular amends the Remarketing Circular dated June 10, 2008 previously circulated. DANNY C. OPITZ President, Board of Directors Dallas County Utility and Reclamation District KENNETH R. HEFFLEY Chief Financial Officer Dallas County Utility and Reclamation District 10

15 APPENDIX A DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds Series 2005A Series 2005B DISCLOSURE STATEMENT

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17 TABLE OF CONTENTS DISCLOSURE STATEMENT... 1 PLAN OF FINANCING... 1 DISCUSSION AND ANALYSIS OF FINANCIAL POSITION... 1 TAX ABATEMENTS FOR NEW DEVELOPMENT... 1 CREATION OF A TAX INCREMENT REINVESTMENT ZONE... 2 BOND INSURANCE... 3 THE DISTRICT... 5 GENERAL... 5 BOARD OF DIRECTORS... 5 DISTRICT STAFF... 6 CONSULTANTS AND ADVISORS... 6 EMPLOYEES; PENSION OBLIGATION... 6 FINANCIAL ADMINISTRATION... 6 TAX PROCEDURES... 7 AUTHORITY TO LEVY TAXES... 7 APPRAISAL DISTRICT PROPERTY SUBJECT TO TAXATION BY THE DISTRICT... 7 VALUATION OF PROPERTY FOR TAXATION... 7 DISTRICT AND TAXPAYER REMEDIES... 7 LEVY OF TAXES... 8 COLLECTION OF TAXES... 8 TAX INFORMATION... 9 VALUATION AND DEBT HISTORY... 9 TAX RATE AND COLLECTION EXPERIENCE OVERLAPPING TAXES FOR TEN LARGEST TAXPAYERS OF TAX RATE LIMITATIONS )DEBT INFORMATION DEBT INFORMATION OUTSTANDING BONDS ESTIMATED DIRECT AND OVERLAPPING FUNDED DEBT PAYABLE FROM AD VALOREM TAXES ANNUAL DEBT SERVICE REQUIREMENTS AUTHORIZED BUT UNISSUED BONDS TAXES REQUIRED FOR DEBT SERVICE FINANCIAL INFORMATION FINANCIAL POLICIES STATEMENT OF REVENUES AND EXPENDITURES - SPECIAL REVENUE FUND STATEMENT OF REVENUES AND EXPENDITURES - GENERAL FUND DEVELOPMENT OF THE DISTRICT DEVELOPMENT HISTORY LANDOWNERS AND DEVELOPMENT PLANS DISTRICT FACILITIES GENERAL DRINKING WATER SUPPLY, SANITARY SEWER COLLECTION RAW WATER SUPPLY DRAINAGE AND FLOOD CONTROL APT SYSTEM ROADWAYS CAPITAL IMPROVEMENT REQUIREMENTS ENERGY AGGREGATION SERVICE ii

18 INVESTMENT CONSIDERATIONS DEPENDENCE ON DEVELOPMENT OF TAX BASE FUTURE DEBT TAX COLLECTION RISKS LIMITS ON BONDHOLDER REMEDIES MARKETABILITY CONTINUING DISCLOSURE CONTINUING DISCLOSURE UNDERTAKING ANNUAL REPORTS MATERIAL EVENT NOTICES AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID LIMITATIONS AND AMENDMENTS COMPLIANCE WITH PRIOR UNDERTAKINGS LEGAL MATTERS LEGAL OPINIONS LITIGATION LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS MISCELLANEOUS iii

19 APPENDIX A DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds $94,950,000 $94,950,000 Series 2005A Series 2005B DISCLOSURE STATEMENT This Disclosure Statement is furnished by the Dallas County Utility and Reclamation District (the District ) in connection with the conversion and remarketing of its Unlimited Tax Refunding Bonds, Series 2005A and its Unlimited Tax Refunding Bonds, Series 2005B (collectively, the Bonds ) to fixed rate bonds and is intended for use in connection with the Remarketing Circular related to the Bonds. Prospective investors should consult the Remarketing Circular before making an investment decision. PLAN OF FINANCING The Bonds are being remarketed into fixed rate bonds. The remarketing of the Bonds will convert the interest rate on the Bonds from an auction rate to a fixed rate to the maturity or prior redemption of the Bonds. DISCUSSION AND ANALYSIS OF FINANCIAL POSITION The District is dependent upon ad valorem taxes for substantially all of its financial resources, including the payment of debt service on the Bonds. TAX ABATEMENTS FOR NEW DEVELOPMENT The District expects that the principal source of future increases in taxable values within the District will be from construction of additional improvements on unimproved land. The District believes that to encourage construction of improvements on unimproved land and to be competitive with other similarly situated land in the Dallas/Fort Worth Metropolitan Area, the District must provide tax incentives through a tax abatement program to construct improvements within the District. In 1995, the Texas Legislature authorized the District to enter into tax abatement agreements with owners and lessees of real property located within the District, subject to certain criteria. On July 23, 1996, the District approved a tax abatement policy that authorized the Board of Directors of the District to grant a partial exemption from ad valorem taxes on the increase in value of certain property above the assessed market value of such property as determined by the Dallas Central Appraisal District on January 1 of the calendar year in which the applicable tax abatement agreement became effective and was executed. A substantial amount of the commercial improvements in the District since 1995 have been constructed subject to an abatement agreement between the owner of the improvements and the District. As of January 1, 2007, the taxable value of improvements subject to abatements within the District was approximately $873 million. Pursuant to 17 separate agreements with the owners of such property, the District levied taxes with net effective tax rates ranging from $.40 to $.90 per $100 taxable value. The District effectively levied a rate of operations and maintenance tax and debt tax against the combined taxable value of property subject to abatements of $ per $100 of taxable value, producing approximately $4.9 million in tax levy in The effective rate of $ was substantially lower than the combined debt and operations and maintenance tax of the District for the 2006 tax year of $2.0967, which was the rate imposed on the remaining taxable value in the District. See APPENDIX A DEVELOPMENT OF THE DISTRICT Status of Development. The net effective tax rate granted under each abatement agreement remains the same from year to year under the agreement. The calculated percentage of abatement from the actual market value of the property subject to abatement will vary from year to year depending on the total value of the certified tax roll, the market value of the property subject to tax abatement agreements, and the actual ad valorem tax rate levied by the District. In 1997, in response to concerns from owners of improved property not subject to a tax abatement agreement within the District that the granting of abatements gave those owners a competitive advantage, the District commissioned a study as to the effectiveness of the abatement program by KPMG Peat Marwick LLP. The District adopted new Tax Abatement Policy Guidelines in response to the KPMG Peat Marwick LLP study in July A-1

20 In 1999, as part of the general financial plan for the District, the Texas legislature enacted additional legislation governing abatements by the District. Under such legislation, the governing body of the District may designate as a reinvestment zone an area within its boundaries that satisfies the requirements of section , Texas Tax Code. The District is required to enter into tax abatement agreements for single-family residential property, as defined by the District, for periods of 50 years, and for property other than single-family residential property for periods not to exceed 25 years if the notice for the project was submitted in 1999, decreasing one year annually to a period of 20 years if the notice for the project is submitted in 2004 or later. A tax abatement agreement is subject to the rights of credit providers of the District, including holders of tax-supported bonds of the District, regardless of when the bonds were issued. A tax abatement agreement is required to provide that the portion of the taxable value of the property subject to the agreement that exceeds the taxable value of the property for the year in which notice for the project to which the agreement pertains is submitted is subject to an effective tax rate of 60 cents for each $100 of taxable value of property if the property is residential real property other than single-family residential property; 50 cents for each $100 of taxable value of property if the property is nonresidential real property; and exempt from taxation if the property is single-family residential property (provided, however, tax abatement agreements may be entered into by agreement of the parties with respect to single-family residential property to provide an effective tax rate not to exceed 60 cents for each $100 of taxable value). For tax abatement agreements for a project for which notice was submitted in 2001 or later (but not single-family residential property), the applicable effective tax rate will be increased by the amount that the District's debt tax rate exceeds 90 cents for each $100 of taxable value of property at the time the notice for the project to which the tax abatement agreement pertains is submitted but may not exceed 75 cents for each $100 of taxable value of property. The District may enter into tax abatement agreements with owners of real and personal property within the District for proposed projects. The District is required to adopt guidelines and criteria governing tax abatement agreements by the District. The guidelines and criteria must specify the criteria for an eligible project. The District s current criteria, adopted in 1998 and amended in 1999, provide that the Board will enter into abatement agreements which are reasonably likely to attract major investment that will benefit the District, contribute to the economic development of the District; or increase the taxable assessed valuation of property on the District s tax roll, and which is located in an approved reinvestment zone, is within and subject to the building, construction and operation protective covenants of The Las Colinas Association or which proposes equivalent deed restrictions, and has not commenced construction. The District may amend its guidelines and criteria from time to time. CREATION OF A TAX INCREMENT REINVESTMENT ZONE Under Texas law, a city may designate an area within its boundaries as a Tax Increment Reinvestment Zone (a TIRZ ), and by Ordinance adopted December 22, 1998, the City of Irving, Texas (the City ) has so designated 3,390 acres of land generally coterminous with the boundaries of the District, including land developed or expected to be developed for commercial improvements, as Tax Increment Reinvestment Zone Number One, City of Irving (the Irving TIRZ ). The Irving TIRZ is governed by a board of directors (the Zone Board ) comprised of five members appointed by the City Council of the City, and one additional member appointed by each of Irving Independent School District, Carrollton-Farmers Branch Independent School District, and Dallas Community College District (together with the City, the Irving TIRZ Taxing Units ). Dallas County, Texas, the Dallas County Hospital District and the District do not participate in the Irving TIRZ. The Irving TIRZ will remain in effect until the earlier of December 31, 2018, an earlier date designated by the City, or the date on which all proposed project costs have been paid, whichever comes first. In general, after adoption of a project and financing plan, an amount of property taxes levied by each participating taxing unit in each future year on the captured taxable value in the TIRZ is deposited to the tax increment fund for the TIRZ for use on projects within the TIRZ. The captured taxable value is the taxable value of real property for that year less the tax increment base of the taxing unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in a TIRZ in the year in which the TIRZ is designated. As of August 31, 1999, the City and the Zone Board approved the final project plan and the final financing plan (the Final TIRZ Plans ) for the Irving TIRZ in accordance with applicable law and with the concurrence of and agreements to participate by the Irving TIRZ Taxing Units. The Final TIRZ Plans call for the investment of most of the TIRZ funds in new infrastructure within the boundaries of the Irving TIRZ in pursuit of a goal of increasing and encouraging new development and higher values of taxable property in the Irving TIRZ and, hence, in the District. The Final TIRZ Plans include amounts, as permissible expenditures, that can be spent on project costs which would otherwise constitute operations and maintenance costs of the District. The Resolutions provide that for each expenditure of TIRZ revenues expended for District operations and maintenance costs, the District will adopt a corresponding decrease in its operations and maintenance budget, which will be reflected in a reduction of the District s operations and maintenance tax rate (currently $.2178). The District is required to increase its debt service tax rate (currently $1.4102) for each cent reduction in the maintenance and operations tax (such increase being the Special Debt Reduction Tax ), and deposit the Special Debt Reduction Tax to the Mandatory Bond Prepayment Account to be used (1) to purchase Bonds or other securities of the District for cancellation at a price not to exceed the principal amount thereof plus accrued interest or accreted value thereof, as applicable; (2) to the payment of the registered owners entitled thereto, on or as of redemption dates, the redemption price of any Bonds called for redemption; and (3) to discharge outstanding Bonds by defeasance that are not otherwise scheduled for redemption by their terms, in any manner permitted by applicable law. As of March 1, 2008, the TIRZ has not authorized any expenditures that would require the District to levy a Special Debt Reduction Tax. A-2

21 BOND INSURANCE The information contained or referred to in this Remarketing Circular under the heading, BOND INSURANCE has been provided by Ambac. Such information has not been independently verified by the District or the Remarketing Agents and is not guaranteed as to completeness or accuracy by the District or the Remarketing Agents and is not to be construed as a representation of the District or the Remarketing Agents. Reference is made to the copies of the Ambac s policies attached hereto. Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance Corporation ("Ambac") has issued separate financial guaranty insurance policies (each, a "Financial Guaranty Insurance Policy") relating to the Bonds, effective as of the date of original issuance of the Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac will pay to The Bank of New York, in New York, New York, or any successor thereto (the "Insurance Trustee"), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac shall have received notice of Nonpayment from the Paying Agent/Registrar. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac will remain obligated to pay the principal of and interest on outstanding Bonds on the originally scheduled interest and principal payment dates, including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac s obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the Paying Agent/Registrar has notice that any payment of principal of or interest on a Bond that has become Due for Payment and that is made to a holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, non-appealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment (as set forth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; 2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency or negligence of the Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of the Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder's right to payment to Ambac. Upon payment of the insurance benefits, Ambac will become the owner of the Bond, appurtenant coupon, if any, or right to payment of the principal of or interest on such Bond and will be fully subrogated to the surrendering holder's rights to payment. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $12,282,000,000 (unaudited) and statutory capital of approximately $6,806,000,000 (unaudited) as of March 31, Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory contingency reserve. Ambac Assurance has been assigned the following financial strength ratings by the following rating agencies: Aa3, with a negative outlook, by Moody s Investors Service, Inc.; AA, on CreditWatch with negative implications, by Standard and Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc.; and AA, with negative outlook, by Fitch Ratings. A-3

22 Ambac has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac under policy provisions substantially identical to those contained in the Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor. Ambac makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, this Preliminary Remarketing Circular other than the information supplied by Ambac and presented under the heading "BOND INSURANCE". Available Information The parent company of Ambac, Ambac Financial Group, Inc. (the "Company"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. The SEC maintains an internet site at that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at Ambac s internet website at and at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York Copies of Ambac 's financial statements prepared on the basis of accounting practices prescribed or permitted by the State of Wisconsin Office of the Commissioner of Insurance are available without charge from Ambac. The address of Ambac 's administrative offices is One State Street Plaza, 19th Floor, New York, New York 10004, and its telephone number is (212) Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No ) are incorporated by reference in this Preliminary Remarketing Circular: 1. The Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and filed on February 29, 2008; 2. The Company s Current Report on Form 8-K dated and filed on March 7, 2008; 3. The Company s Current Reports on Form 8-K dated and filed on March 12, 2008; 4. The Company s Current Report on Form 8-K dated and filed on April 23, 2008; and 5. The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2008 and filed on May 12, The Company s Current Report on Form 8-K dated and filed on May 9, 2008; 7. The Company s Current Report on Form 8-K dated and filed on May 28, 2008; 8. The Company s Current Report on Form 8-K dated and filed on June 4, 2008; 9. The Company s Current Report on Form 8-K dated and filed on June 5, 2008; 10. The Company s Current Report on Form 8-K dated and filed on June 19, 2008; and 11. The Company s Current Report on Form 8-K dated and filed on June 20, Ambac s consolidated financial statements and all other information relating to Ambac and subsidiaries included in the Company s periodic reports filed with the SEC subsequent to the date of this Preliminary Remarketing Circular and prior to the date of closing of the Bonds shall, to the extent filed (rather than furnished pursuant to Item 9 of Form 8-K), be deemed to be incorporated by reference into this Preliminary Remarketing Circular and to be a part hereof from the respective dates of filing of such reports. Any statement contained in a document incorporated in this Preliminary Remarketing Circular by reference shall be modified or superseded for the purposes of this Preliminary Remarketing Circular to the extent that a statement contained in a subsequently filed document incorporated by reference herein 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 Preliminary Remarketing Circular. Copies of all information regarding Ambac that is incorporated by reference in this Preliminary Remarketing Circular are available for inspection in the same manner as described above in "Available Information". A-4

23 All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Preliminary Remarketing Circular will be available for inspection in the same manner as described above in "Available Information". THE DISTRICT GENERAL The District was created June 27, 1972 as Dallas County Municipal Utility District No. 1 to provide control, storage, and restoration of the purity and sanitary condition of water within the District. The District originally comprised approximately 1,429 acres. Effective February 1, 1984, the District was reorganized, converted, and confirmed as a conservation, utility, and reclamation district operating article XVI, section 59, Texas Constitution. As part of the reorganization, the District was renamed the Dallas County Utility and Reclamation District. In 1985, the District was further reorganized to have road powers under article III, section 52, Texas Constitution. The District currently operates under Texas Water Code chapter 49 and 68 th Leg., R.S., ch.628, 1983 Tex. Gen. & Spec. Laws 4028; 69 th Leg., R.S., ch. 475, 1985 Tex. Gen. & Spec. Laws. 1648; 70 th Leg., R.S., ch. 648, 1987 Tex. Gen. & Spec. Laws. 2449; 71 st Leg., R.S., ch. 175, 1989 Tex. Gen. & Spec. Laws. 585; 72d Leg., R.S., ch. 154, 1991 Tex. Gen. & Spec. Laws. 752; 74 th Leg., R.S., ch. 27, 1995 Tex. Gen. & Spec. Laws. 288; S.B. 1770, 75 th Leg., R.S., ch. 1309, 1999 Tex. Gen. & Spec. Laws.4457; and 75 th Leg., R.S., ch. 1310, 1999 Tex. Gen. & Spec. Laws.4459 (effective September 1, 1999) (collectively, the Authorizing Legislation ). Under the Authorizing Legislation, the District has the powers of a conservation and reclamation district under chapter 54, Texas Water Code, which include the power to finance, purchase, construct, own, operate, and maintain all works, improvements, facilities, and plants necessary for the supply of water; the collection, transportation, and treatment of wastewater; and the control and diversion of storm water. The District also has authority to purchase, construct, acquire, own, operate, maintain, repair, and improve a landbased transportation system within the District. The District is also authorized to provide for the construction, maintenance, and operation of roads. All of the District is located within the City. After various annexations and disannexations, the District currently contains approximately 3,636 acres of land. The District is not generally subject to administrative supervision by the Texas Commission on Environmental Quality (formerly Texas Natural Resource Conservation Commission) (the TCEQ ) as are other similar conservation and reclamation districts, but the District s water, sewer and drainage operations are regulated by various federal, state, and local authorities, including the Environmental Protection Agency, the TCEQ, Dallas County, Texas, and the City. BOARD OF DIRECTORS... The District is governed by a five-member board of directors (the Board ) appointed by the City Council of the City, three directors for a four-year term and two directors for a two-year term. Successor directors and vacancies on the Board are filled by the City Council of the City. Members of the Board, appointed by the City, are as follows: Date First Term Name/Title Occupation Appointed Expires Danny C. Opitz Senior Construction Manager 11/20/ /1/2011 President Hines Interests Limited Partnership Charles Cotten CSE Commercial Real Estate 10/1/ /1/2009 Secretary/Treasurer Robert H. Power Attorney 10/1/ /1/2009 Vice President Robert Power & Associates Jeff Courtwright Senior Vice President 10/1/ /1/2011 Director Lincoln Property Company Stephen Bronner Managing Principal 10/1/ /1/2011 Director Parmenter Realty Partners A-5

24 DISTRICT STAFF... The District s affairs are managed and administered by two officers who serve in the following positions: Name Appointed Position Jacky L. Knox November 3, 1986 General Manager Kenneth R. Heffley September 7, 1982 Chief Financial Officer and Tax Collector CONSULTANTS AND ADVISORS... The District has engaged the following independent consultants to assist it in the following capacities: Co-Bond Counsel... Co-Bond Counsel and General Counsel... Independent Auditors... Financial Advisor... Vinson & Elkins L.L.P. Dallas, Texas Boyle & Lowry, L.L.P. Irving, Texas Deloitte & Touche Fort Worth, Texas First Southwest Company Dallas, Texas EMPLOYEES; PENSION OBLIGATION... As of March 1, 2008, the District had 33 employees divided into the following categories: Management 4 Clerical 3 Supervisory 4 Labor 22 Total 33 Payroll for District employees for fiscal year 2008 is budgeted to be $1,555,800. The District provides pension benefits for substantially all of the employees of the District through a single-employer, noncontributory defined benefit retirement plan (the Retirement Plan ). The Retirement Plan is administered by the Board of Directors, and hires an outside trustee to manage the investments and make the benefit payments related to the plan. The District contributes to the retirement plan at an actuarially determined rate, currently 3.80% of annual covered payroll. As of January 1, 2008, the District had overfunded its pension obligation in the amount of $ Employees of the District are not employed under a collective bargaining agreement. FINANCIAL ADMINISTRATION... The financial administration of the District is vested in the finance department. The finance department operates under the direction of the Chief Financial Officer, who is appointed by the president of the Board subject to approval by the Board of Directors. Activities under the supervision of the finance department are control, custody and disbursement of District funds, data processing, utility billing and collection, tax collection, fixed asset control, and investments. For additional information regarding the District, please contact: Kenneth R. Heffley W. Boyd London, Jr. Chief Financial Officer Rick Fox Dallas County Utility and Reclamation District Or Jason L. Hughes 850 East Las Colinas Blvd. First Southwest Company Post Office Box N. St. Paul St. Irving, Texas Suite 800 (972) Dallas, Texas (214) A-6

25 TAX PROCEDURES AUTHORITY TO LEVY TAXES... The Board is authorized to levy an annual ad valorem tax on all taxable property within the District in an amount sufficient to pay the principal of and interest on the Bonds, its other remaining outstanding obligations payable from taxes, and any additional obligations payable from taxes which the District may hereafter issue, and to pay the expenses of assessing and collecting such taxes. In the Resolutions the District covenants to levy such a tax from year to year as described more fully in APPENDIX A-THE BONDS Security for Payment. Under Texas law, the Board is also authorized to levy and collect an ad valorem tax for the operation and maintenance of the District and its water and wastewater system and for the payment of certain contractual obligations, if authorized by its voters. See APPENDIX A TAX INFORMATION Tax Rate, Levy and Collection History herein. APPRAISAL DISTRICT... The District is included in the Dallas Central Appraisal District (the "Appraisal District"). The Appraisal District is responsible for appraising property within the District, subject to review by the Dallas Central Appraisal Review Board. The District must use the appraisal roll as approved by the Dallas Central Appraisal Review Board (the Appraisal Review Board ) to establish its tax roll and tax rate. PROPERTY SUBJECT TO TAXATION BY THE DISTRICT GENERAL... Except for certain exempt property, all property with a tax situs in the District is subject to taxation by the District; however, no effort is made by the District to collect taxes on tangible or intangible personal property not devoted to commercial or industrial use. Principal categories of exempt property include: property owned by the State of Texas or its political subdivisions used for public purposes; property exempt from ad valorem taxation by federal law; certain non-profit cemeteries; farm products owned by the producer; and certain property owned by qualified charitable, religious, veterans, youth or fraternal organizations. Goods, wares, stores and merchandise (other than oil, gas or petroleum products) that are acquired in or imported into the state and forwarded out of state within 175 days thereafter are also exempt. Property owned by a disabled veteran or by the spouse or certain children of a deceased disabled veteran or a veteran who died while on active duty has been granted an exemption up to $3,000 of assessed value. RESIDENTIAL HOMESTEAD EXEMPTIONS... The Board may exempt up to 20% of the market value of residential homesteads from ad valorem taxation. Such exemptions are in addition to any other applicable exemptions provided by law. However, if ad valorem taxes have previously been pledged for the payment of debt, then the Board may continue to levy and collect taxes against the exempted value of the homesteads until the debt is discharged if the cessation of the levy would impair the obligation of the contract by which the debt was created. The Board has not granted any residential homestead exemptions from ad valorem taxation. Also exempt, if approved by the Board or through a process of petition and referendum by the District's voters, are residential homesteads of certain persons who are disabled or at least 65 years old, to the extent of $3,000 of appraised value or more. The District is authorized by statute to disregard such exemptions for the elderly and disabled if granting the exemptions would impair the District's obligation to pay tax supported debt incurred prior to adoption of the exemptions by the District. The Board has not granted such elderly and disabled exemptions. TAX ABATEMENT... The District may designate all or part of the area within the District as a reinvestment zone, and has so designated certain areas for development within the District. The District may enter into tax abatement agreements with owners of real property within the District for up to 20 years. Such agreements may exempt all or any part of any increase in the assessed valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is executed, on the condition that the property owner make specified improvements or repairs to the property in conformity with a comprehensive plan. See DISCUSSION AND ANALYSIS OF FINANCIAL POSITION - Tax Abatements for New Development and TAX INFORMATION Taxable Assessed Valuations by Category" herein. VALUATION OF PROPERTY FOR TAXATION... Generally, all taxable property in the District must be appraised by the Appraisal District at 100% of market value as of January 1 of each year, subject to review and approval by the Appraisal Review Board. In certain instances, however, land may be appraised at less than market value. The Texas Constitution limits increases in the appraised value of residence homesteads to 10% annually regardless of the market value of the property. Upon application of a landowner, land which qualifies as open-space land or timberland may be appraised based on income capitalization methods. There are also special appraisal methods for agricultural land owned by individuals whose primary occupation and income are farming and for recreational, park, and scenic land. Also, houses or lots held for sale by a developer or builder which remain unoccupied, are not leased or rented and produce no income are required, upon application of the owner, to be assessed at the price for which they would sell as a unit to a purchaser who would continue the owner s business. Once an appraisal roll is prepared and approved by the Appraisal Review Board, it is used by the District in establishing its tax rate. The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update appraised values at least once every three years. DISTRICT AND TAXPAYER REMEDIES... Any owner who timely files notice with the Appraisal Review Board may appeal the final determination by the Appraisal Review Board by filing suit in Texas district court. Prior to such appeal, the owner must pay the tax due on the amount of value of the property involved which is not in dispute or the amount of tax paid in the prior year, whichever is greater, but not to exceed the amount of tax due under the order from which the appeal is taken. A-7

26 Additionally, the District is entitled to challenge certain matters before the Appraisal Review Board, including the level of appraisal of certain categories of property, the exclusion of property from the appraisal records, or the grant in whole or in part of a partial exemption, or a determination that land qualifies for a special use appraisal (agricultural or timber classification, for example). The District may not, however, protest a valuation of individual property. LEVY OF TAXES... By the later of September 30 of each year or 60 days after the date the certified appraisal roll is received by the District, the rate of taxation is set by the Board based upon the valuation of property within the District as of the preceding January 1 and the amount required to be raised for debt service, maintenance purposes, and authorized contractual obligations. If the tax rate adopted exceeds by more than eight percent the rate needed to pay debt service and certain contractual obligations, and to produce, when applied to the property that was on the prior year's roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations, such excess portion of the levy may be repealed at an election within the District held upon petition of 10% of the District's qualified voters. COLLECTION OF TAXES... Taxes are due on receipt of the tax bill and become delinquent after January 31 of the following year. However, a person over 65 is entitled by law to pay current taxes on his residential homestead in installments or to defer taxes without penalty during the time he owns and occupies the property as his residential homestead. The date of the delinquency may be postponed if the tax bills are mailed after January 10 of any year. Delinquent taxes are subject to a 6% penalty for the first month of delinquency, one percent (1%) for each month thereafter to July 1, and 12% total if any taxes are unpaid on July 1. Delinquent taxes also accrue interest at the rate of 1% per month during the period they remain outstanding. In addition, where the District engages an attorney for collection of delinquent taxes, the Board may impose a further penalty not to exceed 20% on all taxes unpaid on July 1. In prior years the District has engaged a delinquent tax attorney and imposed such a penalty. The District may be prohibited from collection of penalties and interest on real property owned by the Federal Depository Insurance Corporation. Taxes levied by the District are a personal obligation of the owner of the property on January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of each state and local taxing unit, including the District, having power to tax the property. The District's tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes priority over the claim 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; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the District is determined by applicable federal law. 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 (a taxpayer may redeem property within two years of foreclosure) or by bankruptcy proceedings which restrict the collection of taxpayer debts. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) A-8

27 VALUATION AND DEBT HISTORY TAX INFORMATION Taxable Funded Debt Ratio of Funded Fiscal Assessed Outstanding at Debt to Taxable Year Valuation (1) Fiscal Year End (3) Assessed Valuation 2000 $ 1,512,155,079 $ 268,466, % ,553,165, ,877, % ,628,181, ,126, % ,457,033,794 (2) 291,478, % ,241,041,792 (2) 299,912, % ,143,723,665 (2) 315,720, % ,202,666, ,428, % ,559,243, ,662, % ,023,883, ,504,830 (4) 15.39% (1) As determined by Dallas Central Appraisal District, which could differ from market values. To encourage development in the District, the District has granted tax abatements on property within the District. For tax year 2007, the value of property subject to abatements is $873,402,190, and the included taxable assessed values are not net of such abatements. The agreements with the owners of property subject to abatements provide that the tax rates charged for such property will be lower than the rates charged to other property owners per $100 assessed value, and for tax year 2007 the effective rate per $100 assessed value charged against abated property was approximately $ See APPENDIX A DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Tax Abatements for New Development. (2) The reduction in Taxable Assessed Valuation for the Tax Years is primarily the result of lower taxable values on commercial office property based on a decrease in commercial office occupancy levels. The occupancy rate for commercial property, which comprised approximately 70% of the District s tax base, declined from approximately 90% for Tax Year 2001 to approximately 67% for Tax Year As of December 31, 2007, the occupancy rate for commercial property was 79%. (3) Includes the principal of all outstanding bonds and compounded interest to fiscal year end on outstanding capital appreciation bonds. (4) Projected, includes the refunded bonds which are being refunded with the District s Unlimited Tax Refunding Bonds, Series 2007 (the Forward Refunding Bonds ) scheduled to be delivered on June 26, 2008 and the District s Unlimited Tax Refunding Bonds, Series 2008 (the 2008 Bonds ). Based upon sale and delivery of such refunding bonds, the projected funded debt outstanding at fiscal year end September 30, 2008 is $310,319,830. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) A-9

28 TAXABLE ASSESSED VALUATIONS BY CATEGORY (1) A-10 Unabated Abated Land Improvements Personal Land Improvements Personal Total Fiscal % of % of % of % of % of % of Taxable Year Amount Total Amount Total Amount Total Amount Total Amount Total Amount Total Valuation 2000 $ 247,708, % $ 783,542, % $ 281,716, % $ 13,040, % $ 154,683, % $ 31,463, % $ 1,512,155, ,147, % 796,075, % 259,079, % 27,283, % 198,454, % 29,125, % 1,553,165, ,001, % 722,678, % 269,189, % 55,664, % 319,573, % 31,074, % 1,628,181, ,597, % 540,020, % 229,566, % 55,644, % 341,380, % 63,824, % 1,457,033, ,182, % 447,479, % 137,976, % 62,002, % 296,299, % 68,101, % 1,241,041, ,989, % 342,351, % 140,061, % 63,575, % 283,393, % 67,352, % 1,143,723, ,652, % 348,122, % 153,172, % 68,140, % 347,433, % 62,144, % 1,202,666, ,166, % 458,555, % 175,038, % 100,645, % 496,400, % 64,438, % 1,559,243, ,629, % 562,490, % 226,361, % 130,141, % 668,133, % 75,127, % 2,023,883,960 (1) As determined by Dallas Central Appraisal District, which could differ from market values. To encourage development in the District, the District has granted tax abatements on property within the District. For tax year 2007, the value of property subject to abatements was $873,402,190, and the included taxable assessed values are not net of such abatements. The agreements with the owners of property subject to abatements provide that the tax rates charged for such property will be lower than the rates charged to other property owners per $100 assessed value, and in the tax year 2007 the effective rate per $100 assessed value charged against abated property was approximately $ See APPENDIX A DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Tax Abatements for New Development.

29 TAX RATE AND COLLECTION EXPERIENCE Total Operation Fiscal Tax Rate and Interest and Current Year per $100 (1) Maintenance Sinking Fund Tax Levy % Collected 2000 $ $ $ $ 17,028, ,172, ,263, ,504, ,506, ,360, ,595, ,478, (1) Because of tax abatements, the tax rate is not evenly applied to all taxable value within the District. In 2007, the value of property subject to abatements was $873,402,190. The agreements with the owners of property subject to abatements provide that the tax rates charged against such property will be lower than the rates charged to other property owners per $100 assessed value, and in 2007 the effective rate per $100 assessed value charged against abated property was approximately $ See APPENDIX A DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Tax Abatements for New Development. OVERLAPPING TAXES FOR Tax Overlapping Taxing Jurisdiction Assessed Valuation Rate Per $100 The District $ 2,023,883,960 $ City of Irving 17,172,274, Dallas County 161,248,084, Carrollton-Farmers Branch Independent School District 14,655,250, Irving Independent School District 9,694,537, Dallas County Community College District 167,951,236, Dallas County Hospital District 161,248,084, Total (with Carrollton-Farmers $ Branch Independent School District) Total (with Irving Independent School District) $ As of January 1, 2007, Irving Independent School District included approximately $990,349,110 in assessed value, or approximately 48.9% of the total value in the District. Carrollton-Farmers Branch Independent School District included approximately $1,033,534,850 in assessed value, or approximately 51.1% of the total value in the District. Α 11

30 TEN LARGEST TAXPAYERS OF 2007 The following represents the ten largest taxpayers in the District by assessed value as set forth on the rolls of the Dallas Central Appraisal District, as of January 1, % of Total Taxable Taxable Name of Taxpayer Valuation Valuation (1) TIAA Realty Inc $ 150,000, % Associates Bancorp Inc. 77,352, % SP Millennium Center LP 63,175, % Net 1 Las Colinas of Texas 61,893, % Artlake Chateau Inc. 56,000, % WM Las Colinas of Texas 53,900, % LPC La Villita Apts. LP 50,225, % Hines Las Colinas Land Development 49,724, % OMNI Hotels Corp. 49,361, % Wells REIT Las Colinas 47,319, % $ 658,952, % (1) Based on FYE 2008 taxable assessed value of $2,023,883,960. TAX RATE LIMITATIONS Debt Service Tax. The District's tax rate for debt service on the Bonds and other outstanding tax-supported indebtedness is legally unlimited as to rate and amount. Maintenance Tax. The District has the statutory authority to levy and collect an annual ad valorem tax for maintaining, repairing and operating the District's facilities and for paying administrative expenses of the District, if such maintenance tax is authorized by the District's voters. Such tax is in addition to taxes which the District is authorized to levy for paying principal of and interest on the outstanding bonds, the Bonds and any tax bonds which may be issued in the future, or on any contracts the payment of which are secured by taxes. The District s voters have authorized an operations and maintenance tax for the District in an unlimited amount. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ) Α 12

31 DEBT INFORMATION OUTSTANDING BONDS Outstanding Bonds Payable from Ad Valorem Taxes (as of 5/1/08) Series 1986A $ 25,324,648 (1) Series 1999C 41,185,000 Series ,965,000 Series 2005A 94,950,000 Series 2005B 94,950,000 Outstanding Bonds Payable from Ad Valorem Taxes $ 306,374,648 (1) Includes the accreted value through February 15, 2008, of any capital appreciation bonds. Outstanding Bonds Payable from Ad Valorem Taxes (as of 9/30/08) Series 1986A $ 26,329,830 (1) Series ,965,000 Series 2005A 94,950,000 Series 2005B 94,950,000 Series ,000,000 (2) Series ,125,000 Outstanding Bonds Payable from Ad Valorem Taxes (2) $ 310,319,830 (1) Includes the accreted value through August 15, 2008, of any capital appreciation bonds. (2) Based upon delivery of the Forward Refunding Bonds. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) Α 13

32 ESTIMATED DIRECT AND OVERLAPPING FUNDED DEBT PAYABLE FROM AD VALOREM TAXES In addition to the District, other taxing authorities have issued obligations payable from taxes levied on property located within the District. The following statement of direct and estimated overlapping ad valorem tax bonds was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the taxing authorities listed below may have issued additional bonds since the date of such information and such taxing authorities may have programs requiring the issuance of substantial amounts of additional bonds the amount of which cannot be determined. The following table reflects the estimated share of overlapping ad valorem tax funded debt of these various taxing authorities, allocated in proportion to the taxable value of property within the District compared to the taxing jurisdiction as a whole. Funded District's Outstanding Estimated Overlapping Debt % Funded Debt Taxing Jurisdiction as of 5/1/08 Applicable as of 5/1/08 The District $ 306,374,648 (1) % $ 306,374,648 Carrollton-Farmers Branch ISD 382,358, % 23,553,297 Coppell ISD 142,872, % 114,298 Dallas County 186,401, % 2,050,417 Dallas County Community College District 86,210, % 948,310 Dallas County Hospital District % - City of Irving 377,561, % 40,361,336 Irving ISD 185,720, % 16,937,664 (1) Total Estimated Overlapping Debt $ 390,339,970 Estimated Overlapping Debt to 2008 Taxable Valuation 19.29% Source: "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. (1) Includes accreted value through February 15, 2008, of any capital appreciation bonds. Funded District's Outstanding Estimated Overlapping Debt % Funded Debt Taxing Jurisdiction as of 9/30/08 Applicable as of 9/30/08 The District $ 310,319,830 (1) (2) % $ 310,319,830 Carrollton-Farmers Branch ISD 382,358, % 23,553,297 Coppell ISD 133,117, % 106,494 Dallas County 158,486, % 1,743,352 Dallas County Community College District 86,210, % 948,310 Dallas County Hospital District % - City of Irving 377,561, % 40,361,336 Irving ISD 174,165, % 15,883,848 (1) (2) Total Estimated Overlapping Debt $ 392,916,467 Estimated Overlapping Debt to 2008 Taxable Valuation 19.41% Source: "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. (1) Includes accreted value through August 15, 2008, of any capital appreciation bonds. (2) Based upon sale and delivery of the Forward Refunding Bonds and the 2008 Bonds. Α 14

33 ANNUAL DEBT SERVICE REQUIREMENTS A-15 Outstanding Bonds (1) The Bonds (2) Year Capital Less: Plus: Grand Ending Appreciation Current Debt Series 2008 Series 2005A Series 2005B Issuer Total 12/31 Principal Interest Bonds (3) Total on the Bonds (4) Bonds Principal Interest Principal Interest Contribution (5) Requirements 2008 $ 5,235,000 $ 13,926,844 $ - $ 19,161,844 $ 6,525,386 $ - $ - $ 690,137 $ - $ 690,137 $ 7,730,398 $ 21,747, ,835,000 13,681,688-19,516,688 10,555, ,551 1,080,000 4,947,386 1,080,000 4,947,386-21,469, ,550,000 13,384,404-19,934,404 10,228, , ,000 4,906, ,000 4,906,586-21,893, ,305,000 13,048,904-20,353,904 9,903, , ,000 4,870, ,000 4,870,686-22,314, ,877,902 8,035,000 20,912,902 8,226, ,938-4,853,986-4,853,986-22,848, ,000 12,870,286 8,035,000 21,195,286 8,504, , ,000 4,851, ,000 4,851,086-23,137, ,000 12,844,297 8,035,000 21,669,297 8,971, , ,000 4,839, ,000 4,839,793-23,622, ,340,000 12,794,794 8,030,000 22,164,794 9,464, , ,000 4,816, ,000 4,816,743-24,128, ,230,000 12,737,948 8,030,000 21,997,948 9,919, , ,000 4,788, ,000 4,788,249-23,338, ,760,000 12,433,918-23,193,918 10,475, ,130 1,260,000 4,742,911 1,260,000 4,742,911-25,175, ,900,000 11,860,253-23,760,253 11,846, ,600 2,035,000 4,660,536 2,035,000 4,660,536-25,757, ,075,000 11,237,684-24,312,684 12,412, ,500 2,425,000 4,549,036 2,425,000 4,549,036-26,301, ,190,000 10,558,208-24,748,208 9,888, ,000 1,220,000 4,457,301 1,220,000 4,457,301-26,665, ,050,000 9,800,641-25,850,641 22,815,490-8,025,000 4,219,548 8,025,000 4,219,548-27,524, ,430,000 9,051,264-26,481,264 23,422,402-8,715,000 3,788,493 8,715,000 3,788,493-28,065, ,745,000 8,078,920-26,823,920 5,947, ,564,081-3,564,081-28,004, ,900,000 6,717,312-28,617,312 5,947, ,564,081-3,564,081-29,797, ,030,000 5,796,546-28,826,546 27,501,834-11,245,000 3,268,900 11,245,000 3,268,900-30,352, ,850,000 4,253,614-29,103,614 28,762,053-12,425,000 2,639,797 12,425,000 2,639,797-30,471, ,700,000 3,095,509-29,795,509 29,428,520-13,350,000 1,947,094 13,350,000 1,947,094-30,961, ,620,000 1,853,292-30,473,292 30,079,913-14,310,000 1,203,731 14,310,000 1,203,731-31,420, ,480, ,161-31,011,161 30,592,217-15,240, ,575 15,240, ,575-31,718,094 $ 286,305,000 $ 213,435,386 $ 40,165,000 $ 539,905,386 $ 331,419,124 $ 5,440,386 $ 94,950,000 $ 82,579,737 $ 94,950,000 $ 82,579,737 $ 7,730,398 $ 576,716,519 (1) Includes the bonds that are being refunded with the Forward Refunding Bonds. (2) Average life of the Bonds is years. (3) Reflects maturity value of the capital appreciation bonds. (4) Assumes that prior to conversion, the Bonds bear interest at 4.418% (the District s fixed rate obligation under interest rate swaps with respect to all of the Bonds). (5) Cash contributed by District on the Settlement Date of the Bonds and the 2008 Bonds.

34 AUTHORIZED BUT UNISSUED BONDS The District s voters have authorized the issuance of the following amounts of bonds for the following purposes, of which the amounts indicated below remain unissued, and may authorize the District to issue additional bonds in the future: Date Amount Amount Amount Unissued Purpose Authorized Authorized Issued Being Issued Balance Water Projects 04/13/85 Water Projects 08/26/85 Transit System 06/14/86 Streets 08/26/85 (1) (1) (1) (1) $ 10,000,000 $ 9,170,000 $ - $ 830,000 18,000,000 2,850,000-15,150,000 20,000,000 18,062,000-1,938,000 76,150,000 13,698,000-62,452,000 Refunding 11/03/98 490,000, ,544, ,455,050 $ 279,825,050 (1) Due to the age of the authorization, the District does not anticipate issuing bonds from the remaining authorization. TAXES REQUIRED FOR DEBT SERVICE The calculations shown below assume, solely for purposes of illustration, no increase or decrease in taxable valuation, and reflect the District tax rates required to service the District's total average and maximum annual debt service requirements following the issuance of the 2008 Bonds, Forward Refunding Bonds and the conversion of the Bonds to bonds bearing interest at fixed rates. The calculations assume no application of debt service reserves and no tax rate subsidy. Average Annual Debt Service Requirements ( ) $ 26,214,387 Effective $ Tax Rate on 2008 Taxable Valuation of $873,402,190 subject to 100% collections produces.. $ 4,905,027 $ Tax Rate on 2008 Taxable Valuation of 99.5% collections produces. $ 21,309,361 Total $ 26,214,387 Maximum Annual Debt Service Requirements (2029) $ 31,718,094 Effective $ Tax Rate on 2008 Taxable Valuation of $873,402,190 subject to 100% collections produces.. $ 4,905,027 $ Tax Rate on 2008 Taxable Valuation of 99.5% collections produces. $ 26,813,068 Total.. $ 31,718,094 Α 16

35 FINANCIAL INFORMATION FINANCIAL POLICIES Basis of Accounting. The District's accounting records of the governmental fund revenues and expenditures are recognized on the modified accrual basis. Revenues are recognized in the accounting period in which they are available and measurable. Expenditures are recognized in the accounting period in which the fund liability occurred, if measurable, except for unmatured interest on general long-term debt. Proprietary Fund revenues and expenses are recognized on the full accrual basis. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the accounting period in which they are incurred. Fund Balances. Fund balances are expected to be maintained in an amount adequate to assure that any legal requirements are met and that adequate funds are available to meet cash flow requirements. Use of Bond Proceeds. The District's policy is to use bond proceeds for capital expenditures only. Such revenues are never to be used to fund normal District operations. Budgetary Procedures. The Bylaws of the District establish the fiscal year as of the 12-month period beginning each October 1. Each year by the middle of June the departments submit to the President of the Board a budget of estimated expenditures for the ensuing fiscal year. After review by the Controller, the President, and the Board, a budget of estimated revenues and expenditures is submitted to the Board. Subsequently, the Board will hold work sessions to discuss and amend the budget. Various public hearings may be held to comply with state statutes. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year. Therefore, funds that were budgeted and not used by the departments during the fiscal year are not available for their use unless appropriated in the ensuing fiscal year's budget. Fund Investments. The District has adopted an Investment Policy, last amended on January 30, 2008, the investment objectives of which include safety of principal as the primary objective, followed by liquidity and yield. The District s investment portfolio is to remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated, and the Investment Policy prescribes maturity guidelines for funds including a weighted average days to maturity for the District s Operating Fund of 185 days and so as not to exceed an unfunded debt service date for debt service funds. The investment portfolio is to be designed to attain a market average rate of return throughout budgeting and economic cycles, and to regularly exceed the average return (bond equivalent basis) on three-month U.S. Treasury Bills. The District is to attempt to diversify its investments to avoid incurring unreasonable and avoidable risks regarding specific security types of individual financial institutions. A quarterly investment report is to be submitted to the Board by the Assistant Secretary that, among other matters, describes the investment portfolio in terms of investment securities, maturities, fund type (if necessary), financial institutions from whom securities were purchased, investment return, average yield, and market value of the portfolio. The following investment instruments are authorized under the Investment Policy: 1. Obligations of the United States or its agencies and instrumentalities. 2. Direct obligations of the State of Texas or its agencies. 3. Other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities. 4. Obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent. 5. Fully collateralized repurchase agreements having a defined termination date, placed through a primary government security dealer, as defined by the Federal Reserve, or a bank domiciled in Texas, and secured by obligations described by 1-4 above, pledged with a third party selected or approved by the District, and having a market value of not less than the principal amount of the funds disbursed. The term does not include reverse security repurchase agreements. All transactions shall be governed by a signed Master Repurchase Agreement. Α 17

36 6. Certificates of deposit issued by State and national banks domiciled in Texas that are (a) guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or, secured by obligations that are described by 1-4 above, which are intended to include all direct Federal agency or instrumentality issued mortgage backed securities that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposits of the District; or (b) governed by a Depository Contract that complies with Federal and State regulation to properly secure a pledged security interest. 7. SEC-registered money market mutual funds with a dollar-weighted average portfolio maturity of 90 days or less; that fully invest dollar-for-dollar all District funds without sales commissions or loads; and, whose investment objectives include seeking to maintain a stable net asset value of $1 per share. The District may not invest funds under its control in an amount that exceeds 10% of the total assets of any individual money market mutual fund. 8. Local government investment pools organized in accordance with the Interlocal Cooperation Act, as amended, whose assets consist exclusively of the obligations that are described by 1-4 above and whose investment philosophy and strategy are consistent with this Policy and the District s ongoing investment strategy. Current Investments. The District s investments met the requirements of the District s Investment Policy. As of March 31, 2008, the District held $7,369,816 in discount notes issued by agencies of the Federal Government, (i.e. Fannie Mae and FHLM). In addition, the District held $2,519,665 in U.S. Treasury Bills, $5,820,167 in a local government investment pool, $2,934,742 in money market mutual funds and $7,221,337 in commercial paper. STATEMENT OF REVENUES AND EXPENDITURES - SPECIAL REVENUE FUND (1) For Fiscal Year Ended September 30, Beginning Fund Balance $ 2,284,299 $ 2,086,517 $ 2,231,506 $ 2,310,393 $ 1,848,679 Revenues Taxes $ 16,269,965 $ 17,316,640 $ 19,342,433 $ 22,872,134 $ 22,788,999 Interest on Deposit 26,857 28,431 86,169 73, ,461 Contribution and Other 82,067 60,478 51, ,140 2,919,020 Total $ 16,378,889 $ 17,405,549 $ 19,480,002 $ 23,066,923 $ 25,889,480 Expenditures and Other Uses General, Administrative and Capital $ 107,628 $ 105,387 $ 116,906 $ 2,729,288 $ 140,032 Operating Transfers to Debt Service Fund 13,613,340 14,628,750 17,174,163 18,530,000 19,185,755 Operating Transfers to General Fund 2,762,450 2,378,171 2,019,856 2,236,349 2,743,038 Operating Transfer to Other Funds 93, ,252 90,190 33,000 38,200 Total Expenditures and Other Uses $ 16,576,671 $ 17,260,560 $ 19,401,115 $ 23,528,637 $ 22,107,025 Excess (deficiency) of Revenue over Expenditures and Other Uses $ (197,782) $ 144,989 $ 78,887 $ (461,714) $ 3,782,455 Ending Fund Balance $ 2,086,517 $ 2,231,506 $ 2,310,393 $ 1,848,679 $ 5,631,134 (1) This fund is used to account for property tax receipts and other revenue sources restricted to expenditures for specified purposes. Α 18

37 STATEMENT OF REVENUES AND EXPENDITURES - GENERAL FUND (1) For Fiscal Year Ended September 30, Beginning Fund Balance $ 1,433,289 $ 1,937,340 $ 2,286,886 $ 2,132,762 $ 1,809,664 Revenues Interest on Deposits $ 35,809 $ 28,531 $ 72,635 $ 117,936 $ 139,959 Contribution and Other 1,473,706 1,932,906 1,694,711 1,600,510 1,922,754 Total $ 1,509,515 $ 1,961,437 $ 1,767,346 $ 1,718,446 $ 2,062,713 Other Souces Contribution and Other $ - $ 358,659 $ 6,220 $ - $ - Operating Transfers from Tax Fund 2,762,450 2,365,614 2,013,636 2,236,349 2,743,038 Total Revenue and Other Sources $ 4,271,965 $ 4,685,710 $ 3,787,202 $ 3,954,795 $ 4,805,751 Expenditures and Other Uses General Administrative $ 778,942 $ 778,690 $ 752,451 $ 792,199 $ 958,843 Capital Outlays 19, ,088 5,424 81,131 13,547 Other Uses 2,968,976 3,277,386 3,183,451 3,404,563 3,448,342 Total Expenditures and Other Uses $ 3,767,914 $ 4,336,164 $ 3,941,326 $ 4,277,893 $ 4,420,732 Excess (deficiency) of Revenues over Expenditures and Other Uses $ 504,051 $ 349,546 $ (154,124) $ (323,098) $ 385,019 Ending Fund Balance $ 1,937,340 $ 2,286,886 $ 2,132,762 $ 1,809,664 $ 2,194,683 (1) This fund is the general operating fund of the District and accounts for all financial resources except those accounted for in another fund. See " Statement of Revenues and Expenditures Special Revenue Fund" above. DEVELOPMENT OF THE DISTRICT DEVELOPMENT HISTORY The 3,636 acres in the District have been developed as part of the approximately 12,000 acre Las Colinas project which is being developed primarily for office, commercial, retail, restaurant, and residential use. The District is centrally located between the Dallas- Fort Worth International Airport and Love Field in Dallas. Texas Highway 161, Texas Highway 114 (Carpenter Freeway), and Interstate Highway 635 (LBJ Freeway) provide access to the District. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) Α 19

38 Since its creation the following development has occurred in the following years within the District: DALLAS COUNTY UTILITY AND RECLAMATION DIS TRICT LAND ABS ORPTION DEVELOPED ACREAGE TAX TOTAL CURRENT YEAR ACREAGE YEAR AGGREGATE USE OF CURRENT YEAR DEVELOPMENT , Las Colinas Towers Office Bldg. Complex , Service Center (now owned by DCURD & City) , Mandalay Hotel - 7 acres VHA Tower Office Bldg - 3 acres , Waterway Tower Office Bldg - 4 acres Equestrian Ctr (42 Acres now owned by DCURD) Canal Plaza Office Bldg - 3 acres 511 Carpenter Office Bldg - 2 acres Caltex House Office Bldg - 6 acres Williams Square Office Bldg Complex - 15 acres , Cana Retail - 1 acre Cigna Tower Office Bldg - 10 acres M illenium Centre Office Bldg - 11 acres , No Development , Chase Bank Office Bldg - 4 acres , Waterside commons Office Bldg Complex - 13 acres Teleport - 4 acres Post Office - 1 acre , No Development , Computer Associates Office Bldg - 8 acres Neiman-Marcus Distribution - 23 acres , No Development , Homewood Suites Hotel , No Development , Bloomingdales Academy Day Care , No Development , Villas at the Sports Club , Neiman-Marcus Dist Expansion - 27 acres , No Development , Columbia HCA Hospital - 29 acres - with abatement Hampton Inn Hotel - 2 acres - with abatement Wingate Inn Hotel - 2 acres - with abatement The Associates - 30 acres - with abatement , Cottonwood Gardens Office Complex - 10 acres - with abatement Fairfield Inn Hotel - 2 acres - with abatement Archon Office Bldg - 10 acres - with abatement Homegate Studios and Suites Hotel - 3 acres - with abatement Amerisuites Hotel - 5 acres - with abatement Candlewood Hotel - 3 acres Studio Plus Hotel - 3 acres , Archon Office Bldg - 7 acres - with abatement Archon Office Bldg - 9 acres - with abatement Pacific Retail Trust - 10 acres - with abatement M arriott Hotel - 7 acres - with abatement Tenaya Restaurant - 2 acres Budget Suites Hotel - 7 acres Α 20

39 DALLAS COUNTY UTILITY AND RECLAMATION DIS TRICT LAND ABS ORPTION (Continued) DEVELOPED ACREAGE TAX TOTAL CURRENT YEAR ACREAGE YEAR AGGREGATE USE OF CURRENT YEAR DEVELOPMENT , Archon Office Bldg - 15 acres - with abatement Archon Office Building - 11 acres - with abatement Trademark Retail - 14 acres - with abatement Pacific Retail Trust - 29 acres - with abatement , Benihanas Restaurant - 2 acres Pacific Retail Trust - 20 acres - with abatement Tuscan Residentail - 6 acres - with abatement , No Development , Colonial Bank - 1 acre - with abatement HCA Hospital - 7 acres - with abatement Primrose School Day Care - 1 acre - with abatement , MacArthur Park Retail - 8 acres - with abatement Hanover M ultifamily - 5 acres - with abatement Lincoln Multifamily - 16 acres - with abatement Kinwest Office Park - 14 acres - with abatement , Kinwest Office Park - 4 acres - with abatement UDR M ultifamily - 5 acres - with abatement AMLI Multifamily - 16 acres - with abatement Tuscan Retail - 3 acres - with abatement Tuscan Pro Office - 4 acres - with abatement , MacArthur Park Retail - 2 acres - with abatement Kinwest Office Park - 9 acres - with abatement Springhill Suites Hotel - 3 acres - with abatement Portrait Townhomes - 8 acres - with abatement La Vallita Single Family - 19 acres - with abatement Ashton Woods Condominiums - 20 acres - with abatement Flour Office Building - 27 acres - with abatement , Lincoln Multifamily - 13 acres - with abatement AMLI Multifamily - 11 acres - with abatement Tuscan Retail - 8 acres - with abatement Positano Condominiums - 15 acres - with abatement M ontera M ultifamily - 7 acres - with abatement Delano M ultifamily - 4 acres - with abatement Bella Casita M ultifamily - 5 acres - with abatement Citigroup Office Building - 30 acres - with abatement Α 21

40 STATUS OF DEVELOPMENT The following is a summary of land use by acreage in the District: Land Use Approximate Acres Office and Other Commercial Development 479 M ulti Family Improvements 116 Single Family Improvements 34 Hotel Improvements 39 Golf Courses 495 Unimproved but Developed with Road, Water, Sewer (1) 1,075 Improved Property Owned by District or City 20 Lakes, Channels, Waterways, Parks, Schools 788 Road Right of Way 590 TOTAL 3,636 (1) May need additional private internal roadways and utility lines. LANDOWNERS AND DEVELOPMENT PLANS Approximately 235 acres of unimproved land within the District are owned by Hines Las Colinas Interests ( Hines ). Other substantial unimproved acreage within the District is owned by a variety of potential developers, including B.H. O Connor Partners, Ltd. with approximately 50 acres of land. The remaining approximately 790 acres of unimproved land in the District is owned by a variety of owners, some of which may be holding such land for construction of improvements, and some of which may be holding such land for investment. DISTRICT FACILITIES GENERAL The District has broad authority to construct improvements within its boundaries, including water supply, wastewater collection, stormwater collection and drainage facilities, roads, and grade separated transit systems. See APPENDIX A THE DISTRICT General. The following is a description of facilities constructed by the District and operation of those facilities. DRINKING WATER SUPPLY, SANITARY SEWER COLLECTION The District has constructed drinking water supply distribution lines and sanitary sewer collection lines and sewage bypass stations for the developed portions of the District, and has conveyed the system to the City as of May The City is responsible for operations and maintenance of such collection and distribution facilities located within the Las Colinas Urban Center. The City supplies drinking water and wastewater treatment, maintains and operates all facilities, and handles all customer matters. The City sets rates for water and wastewater, and receives all water and wastewater revenues. In addition to the sanitary sewer collection system, the District has constructed and conveyed to the City two sewage bypass stations in the District. The bypass stations are designed and operated to control sewage backflow problems arising when infiltration in City collection lines outside the Urban Center causes back-ups due to Trinity River flooding. The City maintains and operates these bypass stations. Α 22

41 RAW WATER SUPPLY In 1983, the District contracted with the Trinity River Authority of Texas ( TRA ) to purchase tertiary treated sewage effluent for use in the District s waterways and for resale for irrigation purposes. The District is obligated under the contract to pay on a take-or-pay basis for a portion of TRA debt service for the facilities which TRA constructed to deliver water to the District. The scheduled debt service component under the contract with TRA is as follows: Year Amount 2008 $ 330, , , , , , , , ,023 Total outstanding principal $ 2,221,752 In addition, the District is required to pay a commodity charge (take-or-pay based) on the actual volume of water delivered to the District, and a commodity charge (standby based) of the effective take or pay commodity rate. Historically, because of resale to customers within the District for irrigation and lake evaporation make-up of, the cost the District s raw water supply system has been self-supporting. DRAINAGE AND FLOOD CONTROL The District has constructed a series of lakes and other impoundments valued as of September 30, 2006, at $21,996,854 to provide flood control, raw water supply, and recreational facilities. The District maintains lake levels, drainage facilities, and desiltation of the lakes. In addition, in constructing roadways, the District has constructed stormwater drainage facilities. These facilities are maintained by the City in connection with the roadways. APT SYSTEM The APT opened for passenger service June 18, Passenger service was suspended on July 31, 1993 then resumed on December 2, Approximately 1,218,000 riders have utilized the APT passenger service since its opening in The current APT passenger service is from 10:30 a.m. to 2:30 p.m. on Monday thru Friday, except for designated holidays. There is no fare charged for passenger service. The current weekly ridership averages approximately 750. DART Light Rail Transit (LRT) is scheduled to provide service to the Las Colinas Urban Center (Urban Center) in 2011 and then to Dallas Fort-Worth International Airport (DFWIA) in A connection between DART LRT and the APT is planned on the east side of the Urban Center at 909 Lake Carolyn Parkway. The City of Irving plans a convention center and hotel complex between Fuller Drive and SH 348 in the northern portion of the existing Urban Center area of development. The connection with DART LRT with its service to DFWIA and APT service expansion to the Convention Center and Hotel Site will greatly increase the APT s function as a collector and circulator transportation system for this area of Irving. The developer of a mixed use site, south of Williams Square is proposing an APT station on that site. It is a major concern of the District that the APT equipment and facilities remain viable in order to function in the most economical manner for facilitating the connection with DART LRT and additional service requirements generated by development and DART service to DFWIA. The District, with the support of the City of Irving, is actively pursuing funding sources and programs of North Central Texas Council of Governments and the Federal Government s Small Starts Program for the purposes of the APT System Expansion and connection to the regional transportation system. The District has budgeted for the continuation of the existing passenger service at a cost of $357,000 for fiscal year ROADWAYS Roads constructed by the District have been transferred to and are maintained by the City of Irving. Additional roadways are being and will be constructed by the City of Irving. Α 23

42 CAPITAL IMPROVEMENT REQUIREMENTS With the creation of the Irving TIRZ, the District does not plan to finance any future capital improvements through the issuance of additional District tax supported bonds. Any such future improvements will be constructed by the City, the Irving TIRZ, or by the owners of land within the District. See APPENDIX A DISCUSSION AND ANALYSIS OF FINANCIAL POSITION Creation of a Tax Increment Reinvestment Zone. ENERGY AGGREGATION SERVICE The Texas Legislature deregulated the electric power and energy industry, S.B.7, 73 rd Regular Session. The District reviewed this legislation and obtained an amendment to S.B.7 in 2001, 74 th Regular Session, which amendment defined the District as a municipal corporation. Pursuant to this authorization, the District devised a plan (the Plan ) that would enable its taxpayers to receive lower prices for their electricity usage and receive annual sums from the District from its fee for aggregation work. The District created a nonprofit corporation, North Central Texas Energy Aggregation, Inc. (NCTEA). NCTEA was approved by the Texas Public Utility Commission in 2001 as a Power Aggregator, Registration No The District s staff, after meeting with major electrical providers and assembling a group of nine (9) major users of power in the District (the aggregate taxpayers ), entered into various contracts with Reliant Energy and the aggregate taxpayers, which contracts went into effect in January Implementation of the Plan resulted in all of the aggregated taxpayers and the District receiving substantially reduced electric bills and the District being entitled to receive fees for its work as an aggregator. As of February 2007, all contracts with NCTEA had terminated. NCTEA sold over 527 billion kwhs of energy throughout the duration of the contracts. The District does not take title to the power and does not incur any liability as a result of the Plan. The Plan provides benefits to the District s taxpayers. INVESTMENT CONSIDERATIONS An investment in the Bonds involves certain investment considerations (including the special considerations described below) which affect the District s ability to pay principal of and interest on the Bonds without resort to the bond insurance policy insuring the Bonds. DEPENDENCE ON DEVELOPMENT OF TAX BASE Even if the District completes its intended debt refinancing through the issuance of the Forward Refunding Bonds and issues no additional parity bonds, other than the 2008 Bonds, the District would be required to levy a projected tax rate of approximately $2.45 per $100 assessed value at 99.5% collections in later years to pay average debt service on its bonds, and $2.90 per $100 assessed value at 99.5% collections to pay its maximum debt service of $31,699,044 in 2029, unless the value of taxable property in the District increases above its current level. See DEBT INFORMATION - Taxes Required For Debt Service. To maintain the District s current tax rate, the value of taxable property within the District must grow as a result of construction of new property or increase in the value of existing property, and if growth is by new construction, the likelihood that abatements will be granted in connection with such growth will increase the amount of additional value which would otherwise be required. The extent and rate of construction of additional taxable property within the District will depend on a number of factors, most of which are beyond the District s control. Among other factors, construction of additional property could be adversely affected by possible increases in lending rates or adverse changes in the availability of capital; a downturn in the Texas, U.S., and world economies; continued or accelerated weakness in oil exploration and production (which is an important part of the Texas economy); possible changes in land use controls or other regulatory requirements; possible changes in tax laws that adversely affect capital investment in real property; high District tax rates; competition from competing land developments; and other factors that cannot be predicted. No person has made any commitment to the District to construct additional taxable property within the District. Accordingly, the District makes no representation that additional taxable property will be constructed in the District at the required pace or at all. The value of taxable property within the District also could be adversely affected by possible catastrophic events that could damage or destroy existing property in the District s relatively small area. Possible events could include hurricanes, tornadoes, explosions, earthquake, fire, floods, and other natural calamities. If property within the District were substantially damaged, the District s tax base could be adversely affected unless property owners choose and are able (through insurance awards, if any, or otherwise) to rebuild within the District. Α 24

43 FUTURE DEBT The District may issue additional tax-supported debt subject to certain limitations provided in the Resolutions. Issuance of additional tax-supported debt could be required to replace damaged or worn out facilities, to meet possible new regulatory requirements, to provide facilities required to develop the District s currently undeveloped acreage, and for other possible reasons. Any increase in the amount of tax supported bonds outstanding could require higher District taxes and result in further reduced tax base development and tax collections, unless accompanied by a proportionate additional increase in the value of taxable property within the District. TAX COLLECTION RISKS The District s ability to make debt service payments may be adversely affected by its possible inability to collect delinquent ad valorem taxes. Under Texas law, the District s taxes are secured by a statutory lien on the assessed property on a parity with the liens securing all other state and local taxes. The District s ability to collect ad valorem taxes through judicial foreclosure of its lien may be impaired by (a) cumbersome, time-consuming, and expensive collection procedures, (b) possible bankruptcy court stays of tax collection procedures against insolvent taxpayers, or (c) market conditions affecting the marketability of taxable property within the District and limiting the proceeds from a foreclosure sale. Moreover, the proceeds of a foreclosure sale may be limited by the existence of other tax liens on the property, by the current aggregate tax rate being levied against the property, and by other factors (including the taxpayers right to redeem residential and agricultural property within two years after foreclosure and other property within six months after foreclosure). Additionally, if the assessed property is owned by the Federal Deposit Insurance Corporation, collection of taxes could be delayed and collection of penalties and interest would be precluded. LIMITS ON BONDHOLDER REMEDIES In the event the District defaults in the payment of principal of or interest on the Bonds or in any other obligation under the Resolutions, the registered owners of the Bonds have the right to seek a writ of mandamus requiring the District to observe and perform its obligations, including the levy of adequate taxes each year to make such payments. Their right is in addition to any other rights and remedies provided by law. Except for mandamus, the Resolutions do not specifically provide for remedies to protect and enforce the interests of bondholders except as specifically described in this Remarketing Circular (including this Appendix A). There is no right to accelerate the maturity of the Bonds in the event of default. Consequently, the remedy of mandamus may have to be relied upon from year to year. Furthermore, there is no trust indenture or trustee, and all legal actions to enforce bondholder remedies would have to be undertaken at the initiative of, and be financed by, the bondholders. Although the registered owners of the Bonds could obtain a judgment against the District, such a judgment could not be enforced by direct levy and execution against the District s property. Bondholders cannot themselves foreclose on property within the District or sell property within the District in order to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the bondholders may further be limited by laws relating to bankruptcy, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. Subject to the requirements of Texas law, the District may petition for an adjustment of its debts under Chapter 9 of the U.S. Bankruptcy Code if the District is insolvent or unable to meet its debts as they mature and has negotiated in good faith to obtain the agreement of its creditors or negotiations are impracticable. Under Texas law to make such a filing, the District must obtain the approval of the Texas Commission on Environmental Quality, which may be granted only if the District has fully exercised its rights and powers under Texas law and remains unable to meet its debts and other obligations as they mature. MARKETABILITY There is no assurance that a secondary market will be made in the Bonds. If there is a secondary market, the difference between the bid and asked price of the Bonds may be greater than the difference between the bid and asked price of bonds of comparable maturity and quality issued by more traditional municipal entities. Α 25

44 CONTINUING DISCLOSURE CONTINUING DISCLOSURE UNDERTAKING In the Resolutions, 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 certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS The District will provide certain updated financial information and operating data to certain information vendors annually. 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 Appendix A of this Remarketing Circular under the headings "TAX INFORMATION," "DEBT INFORMATION and "FINANCIAL INFORMATION" and in Appendix B. The District will update and provide this information within six months after the end of each fiscal year ending in or after The District will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). 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. 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 such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B 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 is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas , and its telephone number is 512/ MATERIAL EVENT NOTICES The District will also provide timely notices of certain events to certain information vendors. 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 the 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. 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 described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ( MSRB ). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID The District has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of the Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. Α 26

45 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 the 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 of the Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing 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, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The District may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the District so amends the agreement, it has agreed to include with the next financial information and operating data 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. COMPLIANCE WITH PRIOR UNDERTAKINGS During the last five years, the District has complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. LEGAL MATTERS LEGAL OPINIONS As a condition to conversion of the Bonds to a fixed rate mode, Co-Bond Counsel will render an opinion to the effect that the conversion will not, in and of itself, adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes. Except for its limited no adverse effect opinion, Co-Bond Counsel has not updated or undertaken any investigation to verify their initial opinions. In addition to serving as Co-Bond Counsel, Boyle & Lowry, L.L.P. also acts as counsel to the District on matters not related to the issuance of bonds. Certain matters will be passed on for the Remarketing Agents by their counsel, Fulbright & Jaworski L.L.P., Dallas, Texas. 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 operations of the District. Α 27

46 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS The Bonds are legal and authorized investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees, and for the sinking fund of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. The Bonds are eligible to secure deposits of any public funds of the State of Texas, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the District has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. MISCELLANEOUS 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. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Remarketing Circular 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. The District has not obtained nor did it seek the consent of its auditors for inclusion of excerpts from the District s most recent audited financial report as an appendix to this Remarketing Circular. Α 28

47 APPENDIX B EXCEPTS FROM THE DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007

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91 APPENDIX C DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds, Series 2005A and Series 2005B BOND INSURANCE POLICIES

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99 APPENDIX D DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT Unlimited Tax Refunding Bonds, Series 2005A and Series 2005B FORM OF ORIGINAL OPINIONS OF CO-BOND COUNSEL Rendered on February 10, 2005 with Respect to the Series 2005 Bonds

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