NEW ISSUE BOOK-ENTRY-ONLY RATINGS: Underlying BBB+ (stable outlook) S&P / Insured AA (stable outlook) S&P CUSIP No C

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1 OFFICIAL STATEMENT DATED JUNE 17, 2015 IN THE OPINION OF BOND COUNSEL, SUBJECT TO THE MATTERS DESCRIBED IN TAX MATTERS HEREIN, INTEREST ON THE BONDS FOR FEDERAL INCOME TAX PURPOSES IS EXCLUDABLE FROM GROSS INCOME UNDER EXISTING LAW, AND IS NOT INCLUDED IN COMPUTING THE ALTERNATIVE MINIMUM TAXABLE INCOME OF THE OWNERS THEREOF WHO ARE INDIVIDUALS OR, EXCEPT AS DESCRIBED HEREIN, CORPORATIONS. SEE TAX MATTERS HEREIN, INCLUDING A DISCUSSION OF THE ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. The District has designated the Bonds as Qualified Tax-Exempt Obligations for purposes of the calculation of interest expense by financial institutions. See TAX MATTERS Qualified Tax Exempt Obligations for Financial Institutions herein. NEW ISSUE BOOK-ENTRY-ONLY RATINGS: Underlying BBB+ (stable outlook) S&P / Insured AA (stable outlook) S&P CUSIP No C See BOND INSURANCE and MUNICIPAL BOND RATINGS herein $7,490,000 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT (A political subdivision of the State of Texas, located in Harris County, Texas) UNLIMITED TAX BONDS SERIES 2015 Dated: July 1, 2015 Due: February 1 (as shown below) Interest on the Bonds (the Bonds or the Series 2015 Bonds ) will accrue from July 1, 2015, and will be payable on February 1 and August 1 of each year, commencing February 1, The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ( DTC ) pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See BOOK-ENTRY-ONLY SYSTEM herein. The initial Paying Agent/Registrar is Amegy Bank National Association. See THE BONDS Paying Agent/Registrar. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. MATURITIES, AMOUNTS, INTEREST RATES AND PRICES Principal Amount Maturity Interest Rate Yield to Maturity(a) Principal Amount Maturity Interest Rate Yield to Maturity(a) $175, % 1.15% $250, (b) 3.125% 3.35% $175, % 1.55% $250, (b) 3.250% 3.45% $175, % 1.80% $275, (b) 3.250% 3.55% $200, % 2.05% $275, (b) 3.500% 3.65% $200, % 2.25% $300, (b) 3.500% 3.70% $200, (b) 2.250% 2.45% $300, (b) 3.625% 3.75% $200, (b) 2.500% 2.65% $300, (b) 3.625% 3.80% $200, (b) 2.750% 2.90% $350, (b) 3.750% 3.85% $225, (b) 3.000% 3.00% $350, (b) 3.750% 3.90% $225, (b) 3.000% 3.20% $350, (b) 3.750% 3.95% (a) (b) (c) $775, % Term Bond Due February 1, 2038 to Yield 4.00% (a) (b) (c) $825, % Term Bond Due February 1, 2040 to Yield 4.07% (a) (b) (c) $915, % Term Bond Due February 1, 2042 to Yield 4.10% (a) (b) (c) The initial reoffering yields are established by and are the sole responsibility of the Underwriters (hereinafter defined) and may be subsequently changed. The Bonds maturing on or after February 1, 2022, are subject to redemption in whole or from time to time in part, at the option of the District (hereinafter defined), on February 1, 2021, or on any date thereafter, at a price equal to the par value thereof plus accrued interest from the most recent interest payment date to the date fixed for redemption. If fewer than all of the Bonds are redeemed, the Bonds to be redeemed shall be selected, on behalf of the District, by the Paying Agent/Registrar, in its capacity as Registrar, by lot or other customary method, in integral multiples of $5,000 in any one maturity. See THE BONDS Optional Redemption. Subject to mandatory redemption as described herein. See THE BONDS Mandatory Redemption. The proceeds of the Bonds will be used by Clear Brook City Municipal Utility District (the District ) to finance certain District water, sewer, and drainage facilities and to pay issuance and administrative expenses associated with the sale of the Bonds. See USE OF BOND PROCEEDS. The Bonds, when issued, will constitute valid and binding obligations of the District and will be payable from the proceeds of a continuing, direct, annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property within the District. See THE BONDS Source of and Security for Payment. The Bonds are obligations solely of the District and are not obligations of the State of Texas, Harris County, the City of Houston, or any entity other than the District. Neither the faith and credit nor the taxing power of the State of Texas, Harris County, or the City of Houston, is pledged to the payment of the principal of or interest on the Bonds. The Bonds are subject to certain investment considerations described under the caption INVESTMENT CONSIDERATIONS. The Bonds are offered when, as and if issued by the District, subject to approval by the Attorney General of Texas and the approval of certain legal matters by Norton Rose Fulbright US LLP, Houston, Texas, Bond Counsel. Delivery of the Bonds is expected through the facilities of DTC on or about July 14, 2015.

2 TABLE OF CONTENTS USE OF INFORMATION IN OFFICIAL STATEMENT... 1 UNDERWRITING... 1 SALE AND DISTRIBUTION OF THE BONDS... 1 MUNICIPAL BOND RATING... 2 BOND INSURANCE... 2 OFFICIAL STATEMENT SUMMARY... 4 INTRODUCTION... 9 INVESTMENT CONSIDERATIONS... 9 USE OF BOND PROCEEDS THE BONDS BOOK-ENTRY-ONLY SYSTEM THE DISTRICT THE SYSTEM TAX DATA TAX PROCEDURES LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS LEGAL MATTERS TAX MATTERS CONTINUING DISCLOSURE OF INFORMATION OFFICIAL STATEMENT ANNUAL FINANCIAL REPORT... A SPECIMEN MUNICIPAL BOND INSURANCE POLICY... B

3 USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesperson or other individual has been authorized to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the District. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not registered or qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Any information and expressions of opinion herein contained are subject to change, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or other matters described herein since the date hereof. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading Bond Insurance and Appendix B - Specimen Municipal Bond Insurance Policy. UNDERWRITING After requesting competitive bids for the Bonds, the District has accepted the bid producing the lowest net interest cost to the District, which was tendered by SAMCO Capital Markets, Inc. (the "Underwriter"), to purchase the Bonds bearing the rates shown on the cover page of this Official Statement at a price of % of par plus accrued interest to the date of delivery, which resulted in a net effective interest rate of % as calculated pursuant to Chapter 1204 of the Texas Government Code, as amended. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into unit investment trusts) and others at prices lower than the public offering price stated on the cover page hereof. The initial offering price may be changed from time to time by the Underwriter. Prices and Marketability: SALE AND DISTRIBUTION OF THE BONDS The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Underwriter on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is a bond house, broker or similar person acting in the capacity of underwriter or wholesaler. Otherwise, the District has no understanding with the Underwriter regarding the reoffering yields or prices of the Bonds. Information concerning reoffering yields or prices is the responsibility of the Underwriter. THE PRICES AND OTHER TERMS RESPECTING THE OFFERING AND SALE OF THE BONDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER AFTER THE BONDS ARE RELEASED FOR SALE, AND THE BONDS MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO DEALERS WHO MAY SELL THE BONDS INTO INVESTMENT ACCOUNTS. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The District has no control over trading of the Bonds in the secondary market. Moreover, there is no guarantee that a secondary market will be made in the Bonds. In such a secondary market, the difference between the bid and asked price of utility district bonds may be greater than the bid and asked price of bonds of comparable maturity and quality issued by more traditional municipal entities, as bonds of such entities are more generally bought, sold or traded in the secondary market. Securities Laws: No registration statement relating to the offer and sale of the Bonds has been filed with the Securities Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The District assumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdiction. 1

4 MUNICIPAL BOND RATING In connection with the sale of the Bonds the District has made application to Standard and Poor s Ratings Group ( S&P ) which has assigned the underlying rating of BBB+ (stable outlook) on the Bonds based upon the District s underlying credit without bond insurance. S&P is expected to assign its insured municipal bond rating of AA (stable outlook) based upon the issuance of the policy by Build America Mutual Assurance Company ( BAM ) at the time of delivery of the Bonds. The underlying rating to be released by S&P of the District will be maintained by S&P in addition to the rating by virtue of the bond insurance. See BOND INSURANCE. An explanation of the significance of such rating may be obtained from S&P. The rating reflects only the view of S&P and the District makes no representation as to the appropriateness of such rating. The District can make no assurance that S&P rating will continue for any period of time or that such rating will not be revised downward or withdrawn entirely by S&P if in the judgment of S&P circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27 th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of March 31, 2015 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $466.5 million, $22.2 million and $444.3 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. 2

5 Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Bonds. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon; sector designation (e.g. general obligation, sales tax); a summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM's website at Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM and have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and they assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. 3

6 OFFICIAL STATEMENT SUMMARY The following information is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. THE BONDS Description: The Clear Brook City Municipal Utility District Unlimited Tax Bonds, Series 2015 (the "Series 2015 Bonds" or the Bonds ), are dated July 1, 2015, and issued pursuant to an order (the "Bond Order") of the Board of Directors of Clear Brook City Municipal Utility District (the "District"). The Bonds mature on February 1 in the years and in the principal amounts set forth on the cover page of this Official Statement. Interest on the Bonds is payable on February 1, 2016 and each August 1 and February 1 thereafter until maturity or prior redemption. Redemption Provisions: Book-Entry-Only System: Investment Considerations: Sources of Payment: Use of Proceeds: Tax Exemption: Qualified Tax Exempt Obligations: The Bonds maturing on or after February 1, 2022 are callable in whole or in part, at the option of the District, on February 1, 2021, or on any date thereafter, at a price equal to par plus accrued interest from the most recent interest payment date to the date fixed for redemption. The Bonds maturing on February 1, 2038, 2040, and 2042 are Term Bonds and are subject to annual mandatory sinking redemptions beginning in the years 2037, 2039, and 2041 respectively. See THE BONDS. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "BOOK-ENTRY-ONLY SYSTEM." The Bonds are subject to certain investment considerations as set forth in this Official Statement. Prospective purchasers should carefully examine this Official Statement with respect to the investment security of the Bonds particularly the sections captioned "INVESTMENT CONSIDERATIONS." The Bonds are payable from a continuing, direct, annual ad valorem tax upon all taxable property within the District which, under Texas law, is not limited as to rate or amount. See "TAX PROCEDURES." With respect to payment from taxes, the Bonds are further payable equally and ratably with outstanding bonds of the District and with bonds expected to be issued in the future by the District. See "THE BONDS -- Sources of and Security for Payment." The Bonds are obligations of the District, and are not obligations of the State of Texas, Harris County, Texas, the City of Houston, Texas, or any other political subdivision or agency. See "THE BONDS -- Sources of and Security for Payment." Proceeds from the sale of the Bonds will be used to: (1) reimburse two developers for certain development costs associated with the Ashley Pointe subdivision and the College Place subdivision; (2) for certain water plant and water supply improvements; (3) for certain lift station improvements; (4) for BAN issuance costs; (5) for BAN interest costs; (6) for developer interest as approved by the TCEQ; and (7) to pay certain administrative costs and costs incurred in connection with the issuance of the Bonds. See USE OF BOND PROCEEDS. In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income of the owners thereof for federal income tax purposes under existing law on the date thereof, subject to the matters described under TAX MATTERS herein, including the alternative minimum tax consequences for corporations. The District has designated the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b) of the Internal Revenue Code of 1986, as amended, and the District will represent that the total amount of tax-exempt bonds (including the Bonds) issued by it during calendar year 2015 is not reasonably expected to exceed $10,000,000. See "TAX MATTERS - Qualified Tax Exempt Obligations for Financial Institutions." 4

7 Municipal Bond Rating: Municipal Bond Insurance and Rating: Underlying Rating: In connection with the sale of the Bonds, the District has made an application to Standard and Poor s Ratings Group ( S&P ), which has assigned its municipal bond rating of BBB+ (stable outlook) to the Bonds based upon the District s underlying credit without bond insurance. See "MUNICIPAL BOND RATING." S&P is expected to assign its municipal bond rating of AA (stable outlook) to the Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the timely payment of the principal of and interest on the Bonds will be issued by BAM. See "BOND INSURANCE." The Bonds have received an underlying rating of BBB+ (stable outlook) by S&P based upon the District s rating without bond insurance. See MUNICIPAL BOND RATING. Outstanding Bonds: The District has previously issued 24 series of unlimited tax bonds of which $55,360,000 principal amount of bonds remain outstanding (the Outstanding Bonds ) prior to the issuance of the Series 2015 Bonds. Paying Agent/Registrar: Amegy Bank National Association, Houston, Texas. Payment Record: Legal Opinion: The District has never defaulted in the payment of principal of or interest on its bonds. Norton Rose Fulbright US LLP, Houston, Texas, Bond Counsel. THE DISTRICT Description: Development of the District: Clear Brook City Municipal Utility District, a political subdivision of the State of Texas, was created by the Texas Water Rights Commission on March 15, 1972, and operates pursuant to Chapters 49 and 54 of the Texas Water Code. The District was originally created and named Harris County Municipal Utility District No. 13. On February 1, 1991, the official name of the District was changed to Clear Brook City Municipal Utility District. The District is located entirely within Harris County, approximately 15 miles southeast of the central business district of the City of Houston. The District is partially bounded by the city limits of the City of Houston and lies ¾ mile south of the intersection of Interstate Highway 45 (IH-45) and Beltway 8 (South Sam Houston Toll Road, South Belt). The District currently contains approximately 1,918 acres. The District is wholly within the exclusive extraterritorial jurisdiction of the City of Houston (the City ). The District is party to a Strategic Partnership Agreement with the City effective May 9, 2002, as amended, pursuant to which the City has annexed a portion of the District for limited purposes and has agreed for a 30-year period not to annex the District for full purposes without the District s consent. See "THE DISTRICT -- Authority, Purpose, and Functions -- Description and Location." As of March 1, 2015, the District contained approximately 5,398 completed homes (approximately 5,340 of those homes were occupied), 4 homes under construction, 6 vacant developed lots, 725 apartment units in 5 apartment complexes, and approximately 138 commercial retail/office connections. For an expanded description of development in the District, see THE DISTRICT." 5

8 Summary of Land Use: A summary of the approximate land use in the District appears in the following table: Type of Land Use Approximate Acres Fully Developed Acres 1,424 Developed Commercial Acres 107 Acres Currently Being Developed 84 (a) Additional Developable Acreage 271 Other Undevelopable Acres 32 (b) Total Approximate Acres 1,918 (a) (b) Includes acres located in Ashley Pointe, Sections 8, 11, and 12 that are currently under design or under development and approximately 33 acres in the Stillwater Cove Subdivision that is currently under design for 100 lots to be developed by Meritage Homes ( Meritage ) with homes to be built by Meritage. Includes undevelopable acres for Homeowner s Association recreation facilities, detention ponds, drainage ponds, drainage rights-of-way, flood plain, and District plant sites. Estimated Population: The District s population as of March 1, 2015 was approximately 19,000 (assuming approximately 2.2 persons per apartment unit and approximately 3.3 persons per home in the District). 6

9 SELECTED FINANCIAL INFORMATION (Unaudited) 2014 Certified Taxable Value $716,736,983 (a) (b) Direct Debt (See DISTRICT DEBT ) Outstanding Bonds (As of March 1, 2015) $55,360,000 Plus The Bonds $7,490,000 Total Direct Debt $62,850,000 Estimated Overlapping Debt $51,890,570 Direct and Estimated Overlapping Debt $114,740,570 Percentage of Direct Debt to: 2014 Taxable Value 8.77% See DISTRICT DEBT Percentage of Direct and Estimated Overlapping Debt to: 2014 Taxable Value 16.01% See DISTRICT DEBT 2014 Tax Rate Per $100 of Assessed Value Debt Service $0.58 Maintenance Tax $0.09 Total 2014 Tax Rate $0.67 Approximate General Fund Cash and Investment Balance as of 2/28/2015 $10,721,797 Approximate Debt Service Fund Cash and Investment Balance as of 2/28/2015 $3,268,914 (c) (a) (b) As certified by the Harris County Appraisal District ( HCAD ) as of January 1, See TAX DATA and TAX PROCEDURES. The District s Taxable Valuation reflects the total assessed valuation per HCAD less exemptions. Substantially all of the exemptions are accounted for by the Homestead Exemptions, which the District granted in 2014 and for the past 27 years. See "TAX DATA -- Analysis of Tax Base" and "TAX PROCEDURES." (c) Reflects the approximate balances in the Debt Service Fund after the payment of the District s February 1, 2015 debt service payment. 7

10 DEBT SERVICE REQUIREMENTS The following sets forth the debt service requirements for the Bonds plus the debt service on the Series 2015 Bonds. Existing Debt Service Plus: Debt Service on the Bonds Total Debt Service Year Requirements Principal Interest Requirements 2015 $4,275,586 $4,275, $4,403,472 $292,405 $4,695, $4,348,985 $175,000 $265,975 $4,789, $4,344,676 $175,000 $258,100 $4,777, $4,156,850 $175,000 $250,225 $4,582, $4,124,761 $200,000 $241,787 $4,566, $4,145,646 $200,000 $235,287 $4,580, $4,189,120 $200,000 $231,037 $4,620, $4,212,411 $200,000 $226,287 $4,638, $4,229,826 $200,000 $221,037 $4,650, $4,246,115 $225,000 $214,912 $4,686, $4,257,426 $225,000 $208,162 $4,690, $4,337,565 $250,000 $200,881 $4,788, $4,380,427 $250,000 $192,912 $4,823, $4,484,702 $275,000 $184,381 $4,944, $4,495,237 $275,000 $175,100 $4,945, $2,502,700 $300,000 $165,037 $2,967, $2,508,790 $300,000 $154,350 $2,963, $2,524,983 $300,000 $143,475 $2,968, $2,535,411 $350,000 $131,475 $3,016, $2,594,935 $350,000 $118,350 $3,063, $1,708,957 $350,000 $105,225 $2,164, $634,075 $375,000 $91,631 $1,100, $631,870 $400,000 $77,100 $1,108, $637,670 $400,000 $61,600 $1,099, $425,000 $45,100 $470, $450,000 $27,600 $477, $465,000 $9,300 $474,300 TOTALS $84,912,196 $7,490,000 $4,528,731 $96,930,927 Maximum Annual Debt Service Requirements (2030)... $4,945,337 $0.73 Tax Rate on 2014 Taxable Value of 95% collections produces... $4,970,571 8

11 $7,490,000 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT (A political subdivision of the State of Texas, located within Harris County, Texas) UNLIMITED TAX BONDS, SERIES 2015 INTRODUCTION This Official Statement provides certain information in connection with the issuance of Clear Brook City Municipal Utility District Unlimited Tax Bonds, Series 2015 (the "Bonds" or the Series 2015 Bonds ). The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, and pursuant to an order (the "Bond Order") adopted by the Board of Directors of Clear Brook City Municipal Utility District (the "District"), a political subdivision of the State of Texas located within Harris County, Texas. This Official Statement includes descriptions of the Bonds, the Bond Order and certain information about the District and its financial condition. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the District's Bond Counsel upon payment of costs of duplication thereof. General: INVESTMENT CONSIDERATIONS The security for payment of the Bonds depends on the District's ability to collect taxes levied against property within the District in an amount sufficient to pay debt service on the Bonds when due. The District makes no representation that over the term of the Bonds taxable property within the District will maintain values sufficient to justify continued payment of taxes by property owners or that there will be a market for the property if the District forecloses on property subject to the District's tax lien. Further, the collection of delinquent taxes due the District, and the enforcement by a bondholder of the District's obligation to collect sufficient taxes may be costly and lengthy processes. See Tax Collections and Registered Owners' Remedies herein and THE BONDS Sources of and Security for Payment. Tax Collections: The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem taxes. Under Texas law, the ad valorem tax levy constitutes a lien on the property against which taxes are levied in favor of the District. Such lien is on a parity with the liens of all other state and local taxing authorities on such property and may be enforced by foreclosure. However, ad valorem tax collection through foreclosure may be impaired by (a) cumbersome, time-consuming, and expensive collection procedures, (b) a bankruptcy court's stay of tax collection procedures, (c) market conditions affecting the marketability of taxable property within the District at foreclosure sale of such property, (d) adverse effects on marketability from a taxpayer's limited right to redeem its foreclosed property, (e) sale or transfer of personal property to bona fide purchasers, or insufficient foreclosure proceeds to satisfy the tax liens of all state and local taxing authorities with parity liens on the property. The District's lien on taxable property can be foreclosed only in a judicial proceeding. Attorneys' fees and other costs of collecting delinquent taxes could substantially reduce the net proceeds to the District from a tax foreclosure sale. Finally, if proceedings are initiated by or against a District taxpayer pursuant to the Federal Bankruptcy Code, a bankruptcy court with jurisdiction over such bankruptcy could stay the District's collection of delinquent ad valorem taxes assessed against such taxpayer. Registered Owners' Remedies: If the District defaults in the payment of principal of, interest on, or redemption price on the Bonds when due, or if it fails to make payments into any fund or funds created in the Bond Order, or defaults in the observation or performance of any other covenants, conditions, or obligations set forth in the Bond Resolution, the Registered Owners have the right of a writ of mandamus issued by a court of competent jurisdiction requiring the District and its officials to observe and perform the covenants, obligations, or conditions prescribed in the Bond Order. Except for mandamus, the Bond Order does not specifically provide for remedies to protect and enforce the interests of the Registered Owners. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. Further, there is no trust indenture or trustee, and all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the Registered Owners. Statutory language authorizing local governments such as the District to sue and be sued does not waive the local government s sovereign immunity from suits for money damages. Even if such sovereign immunity were waived and a judgment against the District for money damages were obtained, the judgment could not be enforced by direct levy and execution against the District's property. Further, the Registered Owners cannot themselves foreclose on property within the District or sell property within the District to enforce the tax lien on taxable property to pay the principal of, and interest on, the Bonds. The enforceability of the rights and remedies of the Registered Owners may further be limited by a State of Texas statute reasonably required to attain an important public purpose or 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. 9

12 Economic Factors: The continued growth of taxable values in the District is directly related to the housing and building industry. The housing and building industry has historically been a cyclical industry, affected by both short-term and long-term interest rates, availability of mortgage and development funds, labor conditions, and general economic conditions. A return to relatively high mortgage interest rates similar to those experienced in the past may adversely affect the availability and desirability of mortgage financing for new homes, hence reducing demand by homebuilders for lots within the District. Interest rates and the availability of mortgage and development funds have a direct impact on construction activity, particularly the short-term interest rates at which developers and builders are able to obtain financing for development or building costs. Interest rate levels may affect the developers' or builders' ability to complete development or building plans. Long-term interest rates affect home purchasers' ability to qualify for and afford the total financing costs of a new home. The continuation of long-term interest rates at higher levels may negatively affect home sales and the rate of growth of taxable values in the District. The Houston metropolitan area has, in the past, experienced increased unemployment, business failures and slow absorption of office space (especially during times of relatively low oil and natural gas prices). These factors, if they recur, could affect the demand for new residential home construction and commercial development and hence the growth of property values in the District. An oversupply of homes, along with a decreased demand in new housing because of general economic conditions or relatively high interest rates, may have an adverse impact on sale prices for homes and, consequently, may materially adversely affect property values or, in some instances, cause builders to abandon home-building plans altogether. The housing industry in the Houston area is competitive and the District can give no assurance that current building programs will be completed. The competitive position of the Developers in the sale of its developed lots or, respectively, that of present and prospective builders in the construction of single-family residential houses is affected by most of the factors discussed herein. Such a competitive position is directly related to tax revenues to be received by the District and the growth and maintenance of taxable values in the District. Nationally, there has been a significant downturn in new housing construction caused in part by increasing foreclosures, reduced builder financing, the unavailability of mortgage funds and slower growth, and contraction in the national economy, resulting in a decline in the market value of homes. In fact, the District did experience a decrease in the value of homes located in the District according to HCAD s data. The Houston area did experience reduced levels of annual new home construction during 2009, 2010, 2011 and 2012 versus similar periods in prior years, i.e The District cannot predict what impact, if any, the factors noted above may have on the Houston-area housing market and the market for homes in the District in future years. Alternative sites are available for the construction of single-family residential improvements and commercial development within the market area in which the District is located. Such sites could pose competition to the continued homebuilding development and commercial development on comparable sites within the District. Dependence on Construction of Future Improvements: The District levied a 2014 debt service tax of $0.58 per $100 of assessed valuation and an operation and maintenance tax of $0.09 for a total tax rate of $0.67 per $100 of assessed valuation. Tax rates in future years may be higher. At the present time, tax rates in excess of $1.50 per $100 of assessed valuation are uncommon among the majority of utility districts in the Harris County area, although many newly activated districts are presently projecting tax rates in the range of $1.20 to $1.35 per $100 of assessed value. Consequently, an increase in the District's tax rate to above such level could have an adverse impact on future building development in the District and on the District's ability to collect its taxes. See Future Debt herein. Should no development occur in the District beyond that reflected by its 2014 Taxable Value, a tax rate of $0.73 at 95% collections, would be required to pay the District s maximum annual Debt Service Requirements including the Bonds. See "TAX DATA -- Tax Adequacy for Debt Service." Matters Related to the Developers: The developers have, from time to time, informed the Board of their plans for the future development of their land within the District; however, the developers have made no commitment to the District that they will carry out their current plans or any other plans of development. Thus, the furnishing of information related to proposed development provided by the developers should not be interpreted as such a commitment. The District has no assurance and makes no representation about the probability of future development or the ability of the developers or any other subsequent land owners to whom the developers may sell all or a portion of their holdings within the District to implement any plan of development. See "THE DISTRICT Summary of Developers and Homebuilders." Accordingly, there is no assurance that the developers will be willing or able to accomplish the proposed development of the District. Furthermore, there is no restriction on the developers' right to sell their land. The District can make no prediction as to the effects that availability of credit, inflation, potential high interest rates, potential transportation problems or other factors, whether economic or governmental, may have on any plans of the developers. 10

13 Future Debt: The District has reserved in the Bond Order the right to issue the remaining $33,121,036 authorized but unissued unlimited tax bonds. All of the remaining $33,121,036 unlimited tax bonds, which have heretofore been authorized by the voters of the District for construction of facilities or for refunding purposes, may be issued by the District from time to time for qualified purposes, as determined by the Board, subject to the approval of the Attorney General of the State of Texas and the Texas Commission on Environmental Quality ("TCEQ ). No additional water, sewer, drainage bonds are planned at this time. According to the District's engineer, it will be necessary for the District to issue additional bonds to acquire and construct water distribution, sanitary sewer, and storm drainage facilities to serve land currently within the District based upon presently anticipated development. As more fully described in this Official Statement, the District is contingently obligated to finance its share of remaining acres to be developed within the District with future bond issues. See THE DISTRICT. The Engineer has advised the District that the amount of authorized but unissued bonds should be adequate to finance the District s share of the development costs within the remaining undeveloped acreage. The District has also reserved the right to issue certain other additional bonds, special project bonds, and other obligations described in the Bond Order. All of the remaining bonds described above, which have heretofore been authorized by the voters of the District, may be issued by the District from time to time as needed. If additional bonds are issued in the future and property values have not increased proportionately, such issuance might increase gross debt/property valuation ratios and thereby adversely affect the investment quality or security of the Bonds. See "THE BONDS -- Issuance of Additional Debt." Financing Parks and Recreational Facilities: The District is authorized by statute to develop parks and recreational facilities, including the issuing of bonds payable from taxes for such purpose. Before the District could issue park bonds payable from taxes, the following actions would be required: (a) preparation of a detailed park plan; (b) authorization of park bonds by the qualified voters in the District; (c) approval of the park project and bonds by the TCEQ; and (d) approval of the bonds by the Attorney General of Texas. If the District does issue park bonds, the outstanding principal amount of such bonds may not exceed an amount equal to one percent of the value of the taxable property in the District. Continuing Compliance with Certain Covenants: Failure of the District to comply with certain covenants contained in the Bond Order on a continuing basis prior to the maturity of the Bonds could result in interest on the Bonds becoming taxable retroactively to the date of original issuance. See TAX MATTERS Tax Exemption. 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 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, as such bonds are generally bought, sold or traded in the secondary market. Annexation and Consolidation Strategic Partnership Agreement with the City of Houston: The District entered into a Strategic Partnership Agreement with the City of Houston effective May 9, 2002 pursuant to which the City dis-annexed an approximately 180-acre undeveloped tract of land on the easterly side of Beamer Road south of the San Jacinto Junior College (the Tract ). The District then annexed the Tract, which was subsequently annexed by the City of Houston for limited purposes. Pursuant to the Strategic Partnership Agreement, the City has levied city sales tax (currently $0.01) on qualifying retail sales from any establishment which may be developed on the Tract in the future. The City will also impose certain planning, zoning, health, and safety ordinances on the Tract. The City will provide police, fire suppression, and emergency medical services to the Tract and the District will continue to provide water, sewer, and drainage services in the same manner it provides such services to other properties in the District. Pursuant to the Strategic Partnership Agreement, the City has agreed not to annex the District for full purposes without the consent of the District for at least thirty years from the effective date of the Strategic Partnership Agreement. The Strategic Partnership Agreement was amended on December 2, 2002 ( Amendment ) to provide for limited purpose annexation by the City of various retail and commercial properties in the District. The City pays to the District 50% of all sales tax revenue collected in the area annexed for limited purposes, pursuant to the Amendment. The Bond Order reserves the right for the District to consolidate with other districts and, in connection therewith, to provide for the consolidation of the System (as defined herein) with the water and sewer systems of the district or districts with which it is consolidating. No representation is made that the District will ever consolidate with another district or consolidate the System (as defined herein) with other systems. 11

14 Bankruptcy Limitation to Registered Owners' Rights: The enforceability of the rights and remedies of the Registered Owners may 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. Specifically, the District may voluntarily file a petition for protection from creditors under the federal bankruptcy laws. During the pendency of the bankruptcy proceedings, the remedy of mandamus would not be available to the Registered Owners unless authorized by a federal bankruptcy judge. Subject to the requirements of Texas law, the District may voluntarily proceed under Chapter 9 of the Federal Bankruptcy Code, 11 U.S.C. Section , if the District: (a) is generally authorized to file for federal bankruptcy protection by the State law; (b) is insolvent or unable to meet its debts as they mature; (c) desires to effect a plan to adjust such debts; and (d) has either obtained the agreement of, or negotiated in good faith with, its creditors or is unable to negotiate with its creditors because negotiation is impracticable. Under Texas law, the District must obtain the approval of the TCEQ prior to filing bankruptcy. Such law requires that the TCEQ investigate the financial condition of the District and authorize the District to proceed 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. Notwithstanding noncompliance by a district with Texas law requirements, a district could file a voluntary bankruptcy petition under Chapter 9, thereby invoking the protection of the automatic stay until the bankruptcy court, after a hearing, dismisses the petition. A federal bankruptcy court is a court of equity and federal bankruptcy judges have considerable discretion in the conduct of bankruptcy proceedings and in making the decision of whether to grant the petitioning district relief from its creditors. While such a decision might be appealable, the concomitant delay and loss of remedies to the Registered Owners could potentially and adversely impair the value of the Registered Owners' claim. If a petitioning district were allowed to proceed voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other things, affect Registered Owners by reducing or eliminating the amount of indebtedness, deferring or rearranging the debt service schedule, reducing or eliminating the interest rate, modifying or abrogating collateral or security arrangements, substituting (in whole or in part) other securities, and otherwise compromising and modifying the rights and remedies of the Registered Owners' claims against the district. Toxic Waste Site: The District is in close proximity to the Brio Refinery site, a toxic waste site which was identified and selected for cleanup pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act commonly known as the "Superfund" law. The containment cleanup of the waste dump site was complete on November 13, The containment includes a subsurface barrier wall encircling the site, a multi-layered cap over the site preventing infiltration of rainwater and the capture of any emissions, and ground water recovery and treatment programs. The Brio Task Force, responsible for the clean up and formed under the Superfund law, includes Allied Waste Industries, Atofina Petrochemicals, BP, ChevronTexaco, CNA Holdings, GE Petrochemicals, Huntsman Polymer Corp., Solutia and Union Carbide. The Brio Task Force will continue operation and maintenance of the toxic waste site indefinitely. The Brio Refinery site was removed from the United States Environmental Protection Agency National Priority List in December Failure to continue remediation and clean up at the Brio Refinery site could affect property values in the District and the District s ability to generate property tax revenues to pay principal and interest on the Bonds. Environmental and Air Quality Regulations: Wastewater treatment, water supply, storm sewer facilities and construction activities within the District are subject to complex environmental laws and regulations at the federal, state and local levels that may require or prohibit certain activities that affect the environment, such as: Requiring permits for construction and operation of water supply wells, wastewater treatment, and other facilities; Restricting the manner in which wastes are treated and released into the air, water, and soils; Restricting or regulating the use of wetlands or other properties; Requiring remedial action to prevent or mitigate pollution. Sanctions against a municipal utility district for failure to comply with environmental laws and regulations may include a variety of civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements, and issuance of injunctions to ensure future compliance. Environmental laws and compliance with environmental laws and regulations can increase the cost of planning, designing, constructing, and operating water production and wastewater treatment facilities. Environmental laws can also inhibit growth and development within the District. Further, changes in regulations occur frequently, and any changes that result in more stringent and costly requirements could materially impact the District. 12

15 Air Quality Issues Air quality control measures required by the United States Environmental Protection Agency (the EPA ) and the Commission may impact new industrial, commercial and residential development in Houston and adjacent areas. Under the Clean Air Act ( CAA ) Amendments of 1990, the eight-county Houston-Galveston area ( HGB area ) Harris, Galveston, Brazoria, Chambers, Fort Bend, Waller, Montgomery and Liberty counties was originally designated by the EPA as a moderate ozone nonattainment area for the 8-hour ozone standard. Such areas are required to demonstrate progress in reducing ozone concentrations each year until the EPA s 8-hour ozone standards are met. To provide for reductions in ozone concentrations, the EPA and the Commission have imposed increasingly stringent limits on sources of air emissions and require any new source of significant air emissions to provide for a net reduction of air emissions. If the HGB area fails to demonstrate progress in reducing ozone concentrations or fails to meet EPA s standards, EPA may impose a moratorium on the awarding of federal highway construction grants and other federal grants for certain public works construction projects as well as severe emissions offset requirements on new major sources of air emissions for which construction has not already commenced. In order to comply with the EPA s standards for the HGB area, the Commission has established a state implementation plan ( SIP ) setting emission control requirements, some of which regulate the inspection and use of automobiles. These types of measures could impact how people travel, what distances people are willing to travel, where people choose to live and work, and what jobs are available in the HGB area. The EPA has designated the HBG area to be a severe ozone nonattainment area for the 8-hour ozone standard, with an attainment date of June 15, It is possible that additional controls will be necessary to allow the HGB area to reach attainment by June 15, These additional controls could have a negative impact on the HBG area s economic growth and development. Water Supply & Discharge Issues Water supply and discharge regulations that Utility Districts, including the District, may be required to comply with involve: (1) public water supply systems, (2) wastewater discharges from treatment facilities, (3) storm water discharges, and (4) wetlands dredge and fill activities. Each of these is addressed below: Pursuant to the Safe Drinking Water Act ( SDWA ), potable (drinking) water provided by a district to more than 25 people or 15 service connections will be subject to extensive federal and state regulation as a public water supply system, which include, among other requirements, frequent sampling and analyses. Additional or more stringent regulations or requirements pertaining to these and other drinking water contaminants in the future could require installation of more costly treatment facilities. Operations of Utility Districts are also potentially subject to numerous storm water discharge permitting requirements under the Clean Water Act and EPA and TCEQ regulations. The TCEQ reissued the Texas Pollutant Discharge Elimination System Construction General Permit (TXR150000) on February 19, The permit became effective on March 5, 2013, and is a general permit authorizing the discharge of storm water runoff associated with small and large construction sites and certain non-storm water discharges into surface water in the state. The TCEQ renewed the General Permit for Phase II (Small) Municipal Separate Storm Sewer Systems (the MS4 Permit ) on December 13, The MS4 Permit authorizes the discharge of stormwater to surface water in the state from small municipal separate storm sewer systems ( MS4 ). The renewed MS4 Permit impacts a much greater number of MS4s that were not previously subject to the MS4 Permit and contains more stringent requirements that the standards contained in the previous MS4 Permit. The District applied for authorization under the renewed MS4 Permit in accordance with the June 11, 2014 deadline, and the District s Notice of Intent and draft plan is currently under review by the TCEQ. It is anticipated that the District could incur substantial costs to develop and implement the required plans as well as to install or implement best management practices to minimize or eliminate unauthorized pollutants that may otherwise be found in stormwater runoff in order to comply with the renewed MS4 Permit. Operations of utility districts, including the District, are also potentially subject to requirements and restrictions under the Clean Water Act regarding the use and alteration of wetland areas that are within the waters of the United States. The District must obtain a permit from the U.S. Army Corps of Engineers if operations of the District require that wetlands be filled, dredged, or otherwise altered. Bond Insurance Investment Considerations: In the event of default of the payment of principal or interest with respect to the Bonds when all or some becomes due, any owner of the Bonds shall have a claim under the applicable Bond Insurance Policy (the Policy ) for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional prepayment of the Bonds by the issuer which is recovered by the issuer from the bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the Insurer at such time and in such amounts as would have been due absent such prepayment by the Issuer unless the Bond Insurer chooses to pay such amounts at an earlier date. 13

16 Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may direct and must consent to any remedies and the Bond Insurer s consent may be required in connection with amendments to any applicable bond documents. In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the Bond Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. The long-term ratings on the Bonds are dependent in part on the financial strength of the Bond Insurer and its claim paying ability. The Bond Insurer s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See BOND INSURANCE herein. The obligations of the Bond Insurer are contractual obligations and in an event of default by the Bond Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. Neither the Issuer or Underwriters have made independent investigations into the claims paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Issuer to pay principal and interest on the Bonds and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See BOND INSURANCE for further instructions for obtaining current financial information concerning the Bond Insurer. 14

17 USE OF BOND PROCEEDS Proceeds from the sale of the Bonds will be used to: (1) reimburse two developers for certain development costs associated with the Ashley Pointe subdivision and the College Place subdivision; (2) for certain water plant and water supply improvements; (3) for certain lift station improvements; (4) for BAN issuance costs; (5) for BAN interest costs; (6) for developer interest as approved by the TCEQ; and (7) to pay certain administrative costs and costs incurred in connection with the issuance of the Bonds. The Engineer has advised the District that the proceeds listed below should be sufficient for the acquisition of such facilities. The District s present estimate of the use of proceeds of the Bonds as approved by the TCEQ is as follows: CONSTRUCTION COSTS: District s Share (a) Developer Contribution Items Ashley Pointe Sections 9 and 10 $610,206 College Place Sections 4 and 5 $333,539 Collect Place Section 6 - Phase II Drainage & Utility Adjustments $30,315 College Place Clearing, Grubbing & Fill $548,243 Engineering Fees $353,866 TOTAL DEVELOPER CONTRIBUTION ITEMS $1,876,169 District Items Olivewood Water Plant Modifications $2,365,410 Sageking Water Plant Modifications $1,521,790 Pressure Reduction Valve $273,425 Christy Glen Lift Station Modifications $331,667 Contingencies $565,899 Engineering $663,703 TOTAL DISTRICT ITEMS $5,721,894 $7,598,063 Estimated Remaining Construction Funds from District Surplus ($1,000,000) TOTAL CONSTRUCTION COSTS $6,598,063 NON-CONSTRUCTION COSTS: Legal Fees $149,800 Fiscal Agent Fees $149,800 Developer Interest $190,907 BAN Interest Cost $30,983 Bond Discount (3%) $223,956 BAN Issuance Expense $26,000 Bond Issuance Expense $43,532 Bond Application Report Costs $50,000 Attorney General Fee $7,490 TCEQ Bond Issuance Fee $18,725 Contingency $744 (b) TOTAL NON-CONSTRUCTION COSTS $891,937 TOTAL BOND ISSUE REQUIREMENT $7,490,000 (a) (b) TCEQ rules require, with certain exceptions, that developers contribute to the District s construction program a minimum of 30% of the construction costs of certain system facilities. The District was granted a waiver of such rules. See THE SYSTEM Description of the System. The TCEQ Order requires the District to designate any surplus bond proceeds resulting from the sale of the bonds at a lower interest rate than the rate initially projected in the District's Bond Application to the TCEQ as a contingency line item in the Official Statement. Such funds may be used by the District only upon approval by the TCEQ. 15

18 THE BONDS General: The Bonds will bear interest at the per annum rates and are scheduled to mature on February 1 in the years and as to the principal amounts shown on the cover page hereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Bonds accrues from July 1, 2015 and will be payable February 1 and August 1 of each year commencing February 1, 2016 until maturity or earlier redemption. Such interest on the Bonds due on each interest payment date will be payable to the persons in whose names such Bonds are registered (the Registered Owner ) as of the 15th day (whether or not a business day) of the calendar month prior to each interest payment date (the Record Date ). Principal and redemption price of the Bonds are payable at the principal payment office of Amegy Bank National Association, in Houston, Texas (the Paying Agent/Registrar ) upon presentation and surrender of the Bonds. The Bonds of each maturity will be issued in fully registered form in the denominations of principal equal to $5,000 or any integral multiple thereof. The Bond Order authorizes the issuance and sale of the Bonds and prescribes terms, conditions, and provisions for the payment of the principal of and interest on the Bonds by the District. The Bonds will be issued only in fully registered form in any integral multiple of $5,000 of principal amount for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of the Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See "BOOK-ENTRY-ONLY SYSTEM. In the event that the Book-Entry-Only System is discontinued, interest on the Bonds shall be payable by check on or before each interest payment date, mailed by the Paying Agent/Registrar to the registered owners ("Registered Owners") as shown on the bond register (the "Register") kept by the Paying Agent/Registrar at the close of business on the 15th calendar day of the month immediately preceding each interest payment date to the address of such Registered Owner as shown on the Register, or by such other customary banking arrangements as may be agreed upon by the Paying Agent/Registrar and a Registered Owner at the risk and expense of such Registered Owner. Authority for Issuance: The Bonds constitute the District s twenty-fourth (24th) issuance of bonds. The Bonds were authorized at elections held within the District on January 20, 2001 and November 7, Subsequent to the sale and delivery of the Bonds, the District will have $33,121,036 authorized but unissued bonds from all prior bond elections. The voters in the District approved two bond propositions on November 7, One bond proposition authorized $1,900,000 principal amount of Fire Protection Unlimited Tax Bonds (which were sold in October 2011). The other bond proposition authorized $40,500,000 principal amount of Water & Sanitary Sewer Improvement Unlimited Tax Bonds. It is currently anticipated that such bond authorization will be adequate to fund the District s share of utility costs to complete the development of the District. The Bonds are issued by the District pursuant to the refunding provisions of the November 7, 2006 election and to the terms and provisions of the Bond Order; Article XVI, Section 59 of the Texas Constitution; and Chapters 49 and 54 of the Texas Water Code, as amended. Optional Redemption: The Bonds maturing on or after February 1, 2022 may be redeemed, at the option of the District on notice mailed to the Registered Owners thereof, not less than 30 days prior to the Redemption Date, as provided in the Bond Order, as a whole, or from time to time in part, on any date prior to their maturity date but not before February 1, 2021; upon payment of the Redemption Price which will be the principal amount thereof together with interest, if any, accrued thereon from the most recent Interest Payment Date to the Redemption Date. Bonds of a denomination larger than $5,000 may be redeemed in part ($5,000 or any integral multiple thereof) and upon any partial redemption of any such Bond the same shall be surrendered in exchange for one or more new Bonds of the same Stated Maturity in authorized denominations for the unredeemed portion of principal. Bonds (or portions thereof as aforesaid) for whose redemption and payment provision is made in accordance with the Bond Order will cease to bear interest from and after the Redemption Date. 16

19 Mandatory Redemption: The Bonds maturing in the years 2038, 2040, and 2042 (the "Term Bonds") shall be subject to mandatory redemption as shown on the tables below. $775,000 Term Bonds, due February 1, 2038 Mandatory Redemption Date Principal Amount February 1, 2037 $375,000 February 1, 2038 (maturity) $400,000 $825,000 Term Bonds, due February 1, 2040 Mandatory Redemption Date Principal Amount February 1, 2039 $400,000 February 1, 2040 (maturity) $425,000 $915,000 Term Bonds, due February 1, 2042 Mandatory Redemption Date Principal Amount February 1, 2041 $450,000 February 1, 2042 (maturity) $465,000 Notice of Redemption; Partial Redemption: While the Bonds are in book-entry only form, pursuant to the Bond Resolution, Term Bonds will be scheduled for mandatory redemption by DTC in accordance with its procedures. If the book-entry only system is discontinued, the Paying Agent/Registrar shall select by lot the Term Bonds, if any, to be redeemed and issue a notice of redemption in the manner provided below. The principal amount of the Term Bonds of a maturity required to be redeemed pursuant to the operation of such mandatory redemption requirements shall be reduced, at the option of and as determined by the District, by the principal amount of any Term Bonds of such maturity which, prior to the date of the mailing of notice of such mandatory redemption, (1) shall have been acquired by the District and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the District, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. Notice of each exercise of the right of redemption will be given at least 30 calendar days prior to the date fixed for redemption by the mailing of a notice by the Paying Agent/Registrar to each of the registered owners of the Bonds to be redeemed at the address shown on the records of the Paying Agent/Registrar on the date which is 45 calendar days prior to the redemption date. When Bonds have been called for redemption, the right of the registered owners of such Bonds to collect interest which would otherwise accrue after the date for redemption will be terminated. The Bonds of a denomination larger than $5,000 in principal amount may be redeemed in part ($5,000 in principal or any integral multiple thereof). Any Bond to be partially redeemed must be surrendered in exchange for one or more new Bonds of the same maturity for the unredeemed portion of the principal. Sources of and Security for Payment: The Bonds are payable from the proceeds of a continuing, annual ad valorem tax levied, without legal limitation as to rate or amount, against taxable property located within the District. In the Bond Order, the District covenants to levy a tax sufficient in an amount to pay the principal of and interest on the Bonds when due, full allowance being made for delinquencies and costs of collection and to collect such tax. The net proceeds from taxes levied for debt service purposes will then be deposited in the District's Bond Fund and used solely to pay principal of and interest on the Bonds, the District's outstanding bonds, and on any additional bonds payable from taxes which the District may hereafter issue. Defeasance: Any Bond is deemed to be paid and is no longer be considered to be a Bond, within the meaning of the Bond Order, when payment of the principal of and interest on such Bond to the maturity date thereof or (if notice of redemption shall have been duly given, irrevocably provided for, or waived as provided herein) to the Redemption Date which has been made, or provided for, by deposit with the Paying Agent/Registrar (or with any other bank or trust company which has agreed to hold the same for such purpose) for such payment of: (1) money sufficient to make such payment, (2) Governmental Obligations certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (3) a combination of money and Governmental Obligations together so certified sufficient to make such payment. 17

20 If such deposit is made for some but not all of the Bonds then Outstanding, the District will designate the maturities of Bonds for which such deposit is made. If such deposit is sufficient to provide for the payment of the principal of and interest on some but not all Outstanding Bonds of a particular maturity so designated, the Paying Agent/Registrar will select the Outstanding Bonds of such maturity with respect to which such deposit is made by such random method as the Paying Agent/Registrar deems fair and appropriate and which may provide for the selection of portions (equal to $5,000 or any integral multiple thereof) of the principal amount of Bonds of a denomination larger than $5,000. When a Bond is deemed paid under the Bond Order, it is no longer entitled to the benefits of the Bond Order, except for the purposes of any such payment from such money or Governmental Obligations, and for certain provisions relating to transfer, exchange, and replacement of Bonds and certain covenants of the District. Governmental Obligations means: (1) direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America, or (2) obligations authorized under Texas law from time to time for discharge and final payment of political or governmental subdivisions which, at the time of deposit have been assigned ratings in the highest rating category of either Moody s Investors Service or Standard & Poor s Corporation, or any successor to the bond operations of either of such corporations, but in the case of both Clauses (1) and (2) only if such obligations may not be called for redemption prior to maturity. Funds: The Bond Order confirms the previous establishment of the District's Bond Fund. The Bond Fund is to be kept separate from all other funds of the District and used for payment of debt service on the Bonds. Amounts on deposit in the Bond Fund may also be used to pay the fees and expenses of the Paying Agent/Registrar. Issuance of Additional Debt: If authorized by the District's voters and by the Board, and with the approval of the TCEQ, the District may issue bonds necessary to provide and maintain improvements for which the District was created. See "THE DISTRICT." The District's voters have authorized the issuance of $115,835,000 principal amount of bonds at elections held within the District (of which $33,121,036 will remain unissued after the sale of the Bonds) for the purpose of providing waterworks, sanitary sewer, and drainage facilities to land within the District, and for the purpose of refunding such previously issued bonds. The District may authorize additional amounts in future elections. On November 7, 2006, the voters in the District approved $1,900,000 of fire protection unlimited tax bonds which the District issued for construction of a new fire station in October 2010, and $40,500,000 of water, sanitary sewer, and drainage facility unlimited tax bonds for future additions, improvements and renovations of District facilities. It is currently anticipated that such bond authorization will be adequate to fund the District s share of utility costs to complete the development of the District. The Bond Order imposes no limitation on the amount of additional parity bonds which may be issued by the District. In the Bond Order the District further reserves the right to issue revenue bonds, inferior lien bonds, refunding bonds and other obligations. Paying Agent/Registrar: The District agrees in the Bond Order to at all times maintain an agency, meeting the qualifications therein described, for the performance of the duties of the Paying Agent/Registrar. The Paying Agent/Registrar may be removed from its duties at any time with or without cause by action of the Board of Directors of the District with not less than 30 days notice to each Bond Registered Owner specifying the substitution of another Paying Agent/Registrar, the effective date thereof, and the address of such successor Paying Agent/Registrar. No such removal is effective until such successor has accepted the duties of the Paying Agent/Registrar hereunder by written instrument. The Bond Order requires that every Paying Agent/Registrar will, at all times, be a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000, subject to supervision or examination by federal or state authority, and registered as a transfer agent with the Securities and Exchange Commission. Registration, Transfer, and Exchange: If the Bonds are not held in a Book-Entry-Only System upon surrender for transfer of any Bond with the Paying Agent/Registrar, the District shall execute and the Paying Agent/Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new fully registered Bonds of the same Stated Maturity of any authorized denominations and of a like aggregate principal amount. At the option of the Registered Owner, Bonds may be exchanged for other Bonds of the same Stated Maturity, of any authorized denominations, and of like aggregate principal amount, upon surrender of the Bonds to be exchanged at the Place of Payment. Every Bond presented or surrendered for transfer or exchange, must be duly endorsed (or be accompanied by a written instrument of transfer in form satisfactory to the District and the Paying Agent/Registrar) and duly executed by the Registered Owner thereof or his attorney duly authorized in writing. 18

21 No service charge will be made to the Registered Owner for any registration, transfer, or exchange of Bonds, but the District or the Paying Agent/Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Bonds. Neither the District nor the Paying Agent/Registrar will be required to: (1) transfer or exchange any Bond during a period beginning at the opening of business 15 days before the day of the first mailing of a notice of redemption of Bonds hereunder and ending at the close of business on the day of such mailing, or (2) thereafter to transfer or exchange in whole or in part any Bond so selected for redemption. Replacement of Mutilated, Lost, or Stolen Bonds: If any mutilated Bond is surrendered to the Paying Agent/Registrar or the District, and the Paying Agent/Registrar receives evidence to their satisfaction of the destruction, loss, or theft of any Bond and is delivered to the District or the Paying Agent/Registrar; such security or indemnity (as may be required by them to save each of them harmless) then, in the absence of notice to the District or the Paying Agent/Registrar that such Bond has been acquired by a bona fide purchaser; the District will execute, and upon its request, the Paying Agent/Registrar shall authenticate and deliver (in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond) a new Bond of the same Stated Maturity and of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost, or stolen Bond has become or is about to become due and payable, the District in its discretion may pay such Bond instead of issuing a new Bond. Upon the issuance of any new Bond, the District or the Paying Agent/Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Approval of the Bonds: As required by law, the Attorney General of Texas must approve the legality of the Bonds prior to its delivery. The Attorney General of Texas does not pass upon, nor does he guarantee, the safety or appropriateness of the Bonds as an investment, nor does he pass upon the adequacy or accuracy of the information contained in this Official Statement. Amendments: The District may, without the consent of or notice to any Registered Owner, from time to time and at any time amend the Bond Order in any manner not detrimental to the interests of the Registered Owners of the Bonds, including the curing of any ambiguity, inconsistency, or formal defect or omission herein or therein. In addition, the District may, with the written consent of the Registered Owners of a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of the Bond Order except that, notwithstanding the foregoing, without the consent of the Registered Owners of all of the affected Outstanding Bonds, no such amendment, addition, or rescission may (1) change the Stated Maturity of the Bonds or any installment of interest thereon, reduce the principal amount thereof, the Redemption Price therefor, or the rate of interest thereon, change the place or places at, or the coin or currency in, which any Bond or the interest thereon is payable, or in any other way modify the terms or sources of payment of the principal of or interest on the Bonds, (2) give any preference to any Bond over any other Bond, (3) modify the provisions of the proviso to the definition of the term Outstanding, or (4) modify any of the provisions governing amendments, except to increase the percentage provided hereby or to provide that certain other provisions of the Bond Order cannot be modified or waived. BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of the Securities is to be transferred and how the principal of, premium, if any, Maturity Value and interest on the Securities are to be paid to and credited by DTC while the Securities are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District, the Financial Advisor, and the Underwriters believe the source of such information to be reliable but take no responsibility for the accuracy or completeness thereof. The District and the Underwriters cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Securities, 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 Securities), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Securities. The Securities 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 certificate will be issued for each maturity of the Securities, each in the aggregate principal amount or Maturity Value, as the case may be, of such maturity, and will be deposited with DTC. 19

22 DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Certificate ( 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 Securities 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 securities representing their ownership interests in Securities except in the event that use of the book-entry system for the Securities is discontinued. To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If fewer than all of the Securities within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). All payments on the Securities 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 the 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, the Paying Agent/Registrar, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. All 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 the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the District or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, securities are required to be printed and delivered. 20

23 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, securities will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry-only system has been obtained from sources that the District believes to be reliable, but none of the District, the Financial Advisor or the Underwriters take any responsibility for the accuracy thereof. Termination by the District of the DTC Book-Entry-Only System may require consent of DTC Participants under DTC Operational Arrangements. Authority, Purpose, and Functions: THE DISTRICT The District is a municipal utility district created by the Texas Water Rights Commission, predecessor of the TCEQ, on March 15, The creation of the District was confirmed at an election held within the District on August 19, 1972, by vote of 3 for to 0 against. On February 1, 1991, the TCEQ issued an order approving change of the name of the District from Harris County Municipal Utility District No. 13 (as originally created) to Clear Brook City Municipal Utility District. The rights, powers, privileges, authority and functions of the District are established by the general laws of the State of Texas pertaining to municipal utility districts, particularly Chapters 49 and 54 of the Texas Water Code, as amended. The principal functions of the District are to finance, construct, own and operate waterworks, wastewater and drainage facilities and to provide such facilities and services to the customers of the District. The District also provides fire protection and security services inside its boundaries. The District is subject to the continuing supervision of the TCEQ. Description and Location: The District is located in southeast Harris County, approximately 15 miles from Houston's central business district. The District is wholly within the exclusive extraterritorial jurisdiction of the City of Houston (the City ). The District is approximately 10 miles north of the Johnson Space Center and 11 miles south of the Houston Ship Channel industrial area. At creation, the District contained acres; subsequent annexations in 1972, 1974, 1992, 1997, 1999, 2000, 2001 and 2003 have resulted in the District containing approximately 1,918 acres. The District is bounded by the City of Houston and Sagemeadow Municipal Utility District to the northwest, the City of Houston to the east, generally by Dixie Farm Road to the south, and the City of Pearland to the southwest. The District is immediately accessible via Beltway 8 and Blackhawk Boulevard and Interstate Highway 45 (Gulf Freeway) and Scarsdale Boulevard. The District is located partly within the Pasadena Independent School District and partly within the Clear Creek Independent School District. The south campus of The San Jacinto College District and the Memorial Southeast Hospital are adjacent to the District. Land within the District is flat coastal plain, sloping gradually down from west to east, with elevations ranging from 28.0 feet above mean sea level ("msl") to 35.0 feet msl. To qualify for participation in the National Flood Insurance program of 1968, as amended by the Flood Disaster Protection Act of 1973, Harris County adopted regulations for Flood Plain Management on September 6, These regulations apply to development and construction in the 100-year flood plain, or that area with 1% per year probability of flooding. Within the 100-year flood plain, residential construction is permitted if the lowest floor is elevated to or above the level of the 100-year flood plain. The effects of subsidence in future years could conceivably cause ground elevation in the area to drop, resulting in an expansion of boundaries of the 100-year flood plain. According to Flood Insurance Map No C1035L and 1055L, effective date June 18, 2007, there are no significant areas of the District in the official flood plain. Strategic Partnership Agreement: Utilizing a provision of Texas law, the City of Houston ( City ) and the District entered into a Strategic Partnership Agreement ( SPA ) with the City initially effective on May 9, 2002 and later amended on December 2, The SPA provides for the limited purpose annexation of certain developed commercial tracts within the District into the City for the limited purposes of imposition of the City s Sales and Use Tax voting in City elections, certain municipal court jurisdictions, and health inspection services and enforcement. No other City services are provided. The properties made subject to the SPA may not be taxed for ad valorem purposes by the City. Additional properties may become subject to the SPA by amending the SPA upon the consent of the City and the District. The City pays the District an amount equal to 50 percent of all Sales and Use Tax revenues generated from the properties subject to the SPA. The term of the SPA is 30 years. During the term of the SPA, the City has agreed not to annex all or part of the District or commence any action to annex all or part of the District for full purposes. 21

24 Summary of Land Use: A summary of the approximate land use in the District appears in the following table: Type of Land Use Approximate Acres Fully Developed Acres 1,424 Developed Commercial Acres 107 Acres Currently Being Developed 84 (a) Additional Developable Acreage 271 Other Undevelopable Acres 32 (b) Total Approximate Acres 1,918 (a) (b) Includes acres located in Ashley Pointe, Sections 8, 11, and 12 that are currently under design or under development and approximately 33 acres in the Stillwater Cove Subdivision that is currently under design for 100 lots to be developed by Meritage with homes to be built by Meritage. Includes undevelopable acres for Homeowner s Association recreation facilities, detention ponds, drainage ponds, drainage rights-of-way, flood plain, and District plant sites. Development of Meadows of Clear Creek and Ashley Pointe: Ayrshire Corporation ( Ayrshire ) was the developer of the approximately 176 acres annexed in 1992 located within the District known as the Meadows of Clear Creek Subdivision. The land development work in this subdivision began in July 1998; the Meadows of Clear Creek was substantially built out during The District completed the annexation of approximately 248 acres that is in the process of being developed by Ashley Pointe Development, L.P. (which includes persons involved with Ayrshire and is herein referred to as Ayrshire ) for both single family residential purposes (approximately 228 acres to be known as Ashley Pointe) and commercial purposes (approximately 20 acres). Additionally, approximately 8 acres will be utilized for onsite detention purposes. Ayrshire currently has lot sale option contracts with J. Patrick Homes and Brighton Homes. Neither of the lot sale option contracts includes specific performance provisions and therefore the existence of such lot sale contracts is in no way a guarantee that homes will ever be constructed on such lots. Homes are currently being marketed in the Ashley Pointe subdivision in the $315,000 - $370,000 price range. Development of Stillwater Cove: Meritage is currently under design with approximately 33 acres to be developed into approximately 100 lots. Meritage plans to construct and market homes on these lots in the $200,000 - $300,000 price range. Development of Riverstone Ranch: The Developer of Riverstone Ranch, Sections 1-8 is Riverstone Ranch Partners, Ltd., a Texas Limited Partnership; the Developer of Riverstone Ranch, Section 9 and 10 is Nine B Corporation, a Texas Corporation. The Riverstone Ranch Developments include 243 acres of land; such acreage was annexed into the District during calendar year The land development in Riverstone Ranch began in April As of October 1, 2007, the development of Riverstone Ranch, Sections 1-10 is substantially built out. Ryland Homes and Pioneer Homes marketed homes in Riverstone Ranch Sections 6, 7 and 8 in two different price ranges with the larger homes being marketed currently at an average price of approximately $180,000 and the smaller homes being marketed with an average price of approximately $155,000. Additionally, Ryland marketed homes in The Lakes of Riverstone (Section 5) with an average price of $215,000. The Development of Clear Brook Crossing: Clear Brook Crossing Development, L.P. was the developer in the Clear Brook Crossing subdivision. Clear Brook Crossing Development, L.P. sold all of the lots that it developed within the Clear Brook Crossing subdivision to KB Home Lone Star LP, which built homes for sale to individual homeowners. Both the developer of the land within Clear Brook Crossing and the homebuilder include entities that are related to KB Homes, Inc and are referred to herein collectively as KB Homes. KB Homes began the development work in the Clear Brook Crossing subdivision during The subdivision was built out during calendar year

25 The Development of Clear Brook Landing: The developer of Clear Brook Landing, Sections 1 and 2 was Astoria-Beamer Development 42, L.L.C. ( Astoria- Beamer ). Astoria-Beamer is a special purpose corporation established solely for the purpose of developing its land located in the District. The Clear Brook Landing development includes a total of 39 acres developed for single family purposes with 192 single family homes that were constructed by Lennar Homes. The subdivision was built out during the first half of calendar year 2007; Lennar marketed homes in Clear Brook Landing with an average price of $140,000. Development of College Place and The Villages of College Place: Lennar Homes of Texas Land and Construction Ltd. ( Lennar ) is the current developer of both College Place and the Villages of College Place. College Place is being developed for single family detached homes and will ultimately include approximately 360 single family lots. According to Lennar, the single family detached homes are being marketed with an average price of approximately $150,000. The Villages of College Place was developed as a town home community and includes approximately 178 town home lots. According to Lennar, the townhomes were marketed with an average price of approximately $116,000 per home. All of the single family construction in both College Place and the townhome development in The Villages of College Place will be done by Lennar Homes and its affiliated home builders. Lennar does not own any of the 16 acres (currently being marketed for potential commercial uses) that is located adjacent to the residential building in the College Place subdivision. Neither the District nor Lennar make any representations as to the ultimate use of this property. Summary of Developers and Homebuilders: At the present time land development and home building is only occurring in the Ashley Pointe subdivision. following table is included to illustrate what developers and homebuilders in each of the respective sections in the District. The Subdivision Developer Homebuilder/Home Prices Clear Brook Meadows (built-out) Cresco Ashton Woods Homes originally priced $135,000 - $155,000 Hammond Homes originally priced $135,000 - $155,000 Meadows of Clear Creek Ashley Pointe (built-out) Ayrshire J. Patrick Homes average price $350,000 Brighton Homes average price $300,000 Riverstone Ranch Lakes of Riverstone (built-out) Riverstone Ranch Partners, Ltd. Ryland Homes Average Price $110,000 - $170,000 Pioneer Homes Average Price $110,000 - $170,000 Lakes of Riverstone Average Price (Ryland) $200,000 - $230,000 Clear Brook Crossing (built-out) KB Homes KB Homes Average Price $120,000 Clear Brook Landing (built-out) Astoria-Beamer Lennar Homes Average Price $145,000 College Place Lennar Homes and Village Builders Average Price $150,000 (built-out) Lennar Villages of College Place (built-out) Lennar Lennar Homes (Town Homes) Average Price $116,000 23

26 Status of Residential Development: The following is a tabulation of homes and developed lots in the District as of March 1, Single Family Homes Approx. Under Vacant Total Section (Acres) Complete Construction Developed Lots Lots Sageglen, Sections , ,163 Wood Meadow, Sections Highland Meadow, Sections 1-2 & Estates of Green Tee, Section Green Tee Terrace, Section Meadows of Clear Creek, Sections Clear Brook Meadows, Sections Clear Brook Crossing, Sections Riverstone Ranch, Sections Clear Brook Landing, Sections Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Section Ashley Pointe, Sections 8,11, 12 (a) College Place, Sections Village of College Place, Sections Total Residential 1,469 5,398 (b) 4 6 5,548 (a) Homebuilding began in Ashley Pointe in September Ashley Pointe, Sections 8, 11, and 12 (approximately 51 acres) are sections that are anticipated to be developed into approximately 129 total lots pending the rate of build out of the vacant developed lots in Ashley Pointe. (b) As of March 1, 2015, there were approximately 5,340 occupied homes in the District. Status of Commercial Development: The commercial development in the District as of March 1, 2015 consists of approximately 138 commercial connections that provide service to the following types of users: 5 apartment complexes (725 units); 2 nursing homes; 4 medical office buildings; 2 service stations with related food mart facilities; 1 personal storage facility; 1 funeral home; 2 pharmacies; 2 large grocery stores; approximately 110 retail/restaurants/fast food establishments that are served on a stand alone basis or as a part of one of the 5 shopping centers located within the District; a nursing home; a pediatric clinic; and 2 automotive aftermarket establishments. 24

27 Management of the District: The District is governed by the Board, which has control over and management supervision of all affairs of the District. All of the Directors own property within the District and four Directors reside within the District. A directors' election is held within the District on the first Saturday in May in even numbered years. Directors are elected to serve four-year, staggered terms. The current members and officers of the Board are listed below: Name Title Expires May Jim Bishop President 2018 Steve Buckman Vice President 2016 David Flickinger Secretary 2016 Chuck Tylka Assistant Secretary 2016 James Joseph Towey Assistant Secretary 2018 The District employs a general manager, two Class C operators, one office manager and two billing clerks. The District has contracted for bookkeeping, tax assessing and collecting services and annual auditing of its books as follows: Tax Assessor/Collector - The District's Tax Assessor/Collector is Bob Leared, who is employed under a one-year contract and represents approximately 150 other utility districts. Bookkeeper - The District provides in-house bookkeeping on a day to day basis. DRDA, PLLC has been hired as a supervisory oversight accountant. Auditor - The District's annual financial statements as of December 31, 2014, have been prepared by McCall Gibson Swedlund Barfoot PLLC, Certified Public Accountants. See "APPENDIX A" for a copy of the District's December 31, 2014 audited financial statement. Engineer - The consulting engineer for the District is Blackline Engineering, LLC (the "Engineer"); the Engineer serves approximately 6 other utility districts in the area. Financial Advisor - The GMS Group, L.L.C., serves as Financial Advisor to the District and is paid an hourly consulting fee for certain services rendered from time to time. The GMS Group, L.L.C., has served in the capacity as Financial Advisor relative to the issuance of the Bonds and will be paid a fee from Bond proceeds contingent upon the sale and delivery of the Bonds. Bond Counsel - The District has employed Norton Rose Fulbright US LLP, Houston, Texas, as general counsel and as counsel in connection with the issuance of the Bonds. The legal fee to be paid bond counsel for service rendered in connection with the issuance of the Bonds is based on a percentage of the Bonds actually issued, sold and delivered and, therefore, such fee is contingent on the sale and delivery of the Bonds. Investments of the District: The District had adopted an Investment Policy as required by the Public Funds Investment Act, Chapter 2256, Texas Government Code. The District s goal is to preserve principal and maintain liquidity while securing a competitive yield on its portfolio. Funds of the District may be invested in short-term obligations of the U.S. Treasury and federal agencies, certificates of deposit insured by the Federal Deposit Insurance Corporation ("FDIC") or secured by collateral evidenced by perfected safekeeping receipts held by a third party bank, and public funds investment pools rated in the highest rating category by a nationally recognized rating service. The District does not currently own or intend to purchase long-term securities or derivative products. 25

28 NORTH PLOTTED BY ASIM TUFAIL 9/29/ :54 PM DWG NAME B:\PROJECT DIRECTORY\00100-CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT\ BOND ISSSUE\DOCS\ATTACHMENTS\EXHIBITS\LOCATION MAP EXHIBIT.DWG LAST SAVED 9/29/ :50 PM LOCATION MAP N.T.S. ATTACHMENT III LOCATION MAP BLACKLINE

29 THE SYSTEM Regulation: The District's water, wastewater, and storm drainage facilities have been designed in accordance with accepted engineering practices and the recommendations of certain governmental agencies having regulatory or supervisory jurisdiction over the construction and operation of such facilities, including, among others, the TCEQ, the Texas Department of Health, the City of Houston, Harris County, Harris County Flood Control District and the Harris-Galveston Coastal Subsidence District ( HGCSD ). According to the Engineer, the designs of all such facilities have been approved by all required governmental agencies and by the TCEQ. Operation of the District's waterworks and wastewater facilities is subject to regulation by, among others, the Environmental Protection Agency, the TCEQ, the Texas Department of Health and the Harris-Galveston Coastal Subsidence District. In many cases, regulations promulgated by these agencies have become effective only recently and are subject to further development and revision. Description of the System: The water, wastewater and storm drainage facilities of the District and the accompanying rights of use therein are described below, based upon information obtained from the District's records. - Water, Sanitary Sewer and Drainage Lines - Water, sanitary sewer and drainage facilities have been constructed to serve approximately 1,906 acres - Waste Treatment - The District is served by the City of Houston Sagemont Sewer Treatment Plant pursuant to contracts between the District and the City of Houston dated June 5, 1986, December 29, 1987 and May 23, Pursuant to the contracts, the District has 9,673 connections of wastewater capacity in the plant which is sufficient to serve the District at full development. - Water Supply - Proceeds of previous bond issues were used in part to finance construction costs relating to (a) four water wells with a total pumping capacity of 4,000 gallons per minute ("gpm") in combination with surface water obtained from the City s Southeast Water Purification Plant; (b) an emergency water supply interconnect with nearby Sagemeadow Municipal Utility District; (c) ground storage tanks with capacity of 1,260,000 gallons; (d) booster pumps, hydropneumatic tanks and various appurtenances. The District has converted to 80% surface water use and 20% ground water use as required by Harris-Galveston Coastal Subsidence District. The District acquired 2,500,000 gallons per day surface water capacity and is one of eleven owners of the Southeast Water Purification Plant. This surface water capacity allows the District to satisfy substantially all of the HGCSD requirements based on currently existing and anticipated building development in the District. According to the Engineer the District s combined ground water and surface water supply facilities are capable of serving approximately 7,743 equivalent single family connections. The District has an emergency interconnect agreement with Sagemeadow Utility District. This agreement allows each district to provide water service to the other district when an emergency exists, causing a partial or total failure of a district s water supply. The contract provides for billing and payment by the district receiving water through the interconnect for the actual cost of production of the water. The contract will remain in effect for a 40 year period from the date of execution. Contract with the City of Pearland: By agreement dated December 12, 1996, the District contracted to sell water and sewer service to the City of Pearland in the amount of 300,000 gallons per day water service and sufficient sewer service to serve 114 equivalent single family connections. The contract provides for a monthly charge of $7,500 for water service and an amount equal to two times the District s minimum residential sewer charge for sewer service. The contract will remain in effect for a 20-year term and provides for 5 year rolling extensions of the term by mutual agreement of the parties. 27

30 General Fund Operating History: The Bonds are payable solely from the levy of an ad valorem tax, without legal limitation as to rate or amount, upon all taxable property in the District and are not secured by a pledge of the System s net revenues. The information included in the table below relating to the District's water and sewer system operations is provided for information purposes only. Fiscal Year Ended December 31 (a) REVENUES Property Taxes $599,040 $592,854 $597,386 $613,937 $634,662 Water Service $2,116,950 $2,084,543 $2,145,135 $2,433,721 $2,058,586 Waste Water Service $2,514,945 $2,473,209 $2,464,002 $2,391,314 $2,353,678 Tap Connection and Inspection Fees $220,823 $93,671 $359,217 $76,499 $60,432 Penalty and Interest $130,874 $88,117 $137,949 $94,015 $93,805 Sales Tax Revenue $96,777 $127,707 $117,226 $119,739 $116,634 Investment Revenues $61,613 $60,499 $52,901 $42,327 $23,160 Miscellaneous Revenues $361,351 $491,510 $349,417 $498,926 $1,360,765 TOTAL REVENUES $6,102,373 $6,012,110 $6,223,233 $6,270,478 $6,701,722 EXPENDITURES Personnel $572,791 $509,403 $526,687 $487,966 $459,912 Professional Services $197,419 $200,857 $239,173 $250,427 $761,725 Contract Services $1,784,863 $1,425,790 $1,432,622 $1,412,612 $1,391,219 Purchased Water and Wastewater $1,443,963 $1,458,236 $1,435,906 $1,299,161 Services $219,623 Repairs and Maintenance $1,105,147 $707,528 $865,125 $763,789 $615,638 Fire Protection $178,655 $382,813 $367,093 $367,093 $357,357 Utilities $558,587 $151,702 $141,096 $151,831 $147,763 Other $457,407 $277,776 $266,511 $227,457 $229,479 Capital Outlay $767,694 $412,837 $206,605 $1,432,613 $1,586,416 TOTAL EXPENDITURES $5,842,186 $5,512,669 $5,503,148 $6,529,694 $6,848,670 EXCESS REVENUES OVER (UNDER) EXPENDITURES $260,187 $499,441 (b) $720,085 ($259,216) (c) ($146,948) (a) (b) (c) Source: District's audited financial statements for each year. See "APPENDIX A." The cash balance in the District s General Fund as of February 28, 2015 was approximately $10,721,797. The District currently anticipates that approximately $700,000 of Bond proceeds will be used to reimburse the General Fund for capital improvements previously paid for from cash on hand. For the fiscal year ending December 31, 2015 the District is budgeting General Fund revenues of approximately $5,850,000 and operating expenditures of approximately $4,240,000. Additionally, the District has budgeted approximately $1,076,000 of capital expenditures that may be paid for from General Funds during Additionally, the General Fund received a $1,911,208 transfer from the District s Construction Fund during fiscal year 2010; such amount represented reimbursement for certain capital expenditures previously paid for from the General Fund during fiscal years 2009 and The $1,911,208 is not reflected in the 2010 operating revenues above. 28

31 DISTRICT DEBT (Unaudited) 2014 Certified Taxable Value $716,736,983 (a) (b) Direct Debt Outstanding Bonds (As of March 1, 2015) $55,360,000 Plus The Bonds $7,490,000 Total Direct Debt $62,850,000 Estimated Overlapping Debt $51,890,570 Direct and Estimated Overlapping Debt $114,740,570 Percentage of Direct Debt to: 2014 Taxable Value 8.77% Percentage of Direct and Estimated Overlapping Debt to: 2014 Taxable Value 16.01% 2014 Tax Rate Per $100 of Assessed Value Debt Service $0.58 Maintenance Tax $0.09 Total 2014 Tax Rate $0.67 Approximate General Fund Cash and Investment Balance as of 2/28/2015 $10,721,797 Approximate Debt Service Fund Cash and Investment Balance as of 2/28/2015 $3,268,914 (c) (a) (b) As certified by the Harris County Appraisal District ( HCAD ) as of January 1, See TAX DATA and TAX PROCEDURES. The District s Taxable Valuation reflects the total assessed valuation per HCAD less exemptions. Substantially all of the exemptions are accounted for by the Homestead Exemptions, which the District granted in 2014 and for the past 27 years. See "TAX DATA -- Analysis of Tax Base" and "TAX PROCEDURES." (c) Reflects the approximate balances in the Debt Service Fund after the payment of the District s February 1, 2015 debt service payment. 29

32 Estimated Overlapping Debt: Other governmental entities whose boundaries overlap the District have outstanding bonds payable from ad valorem taxes. The following statement of direct and estimated overlapping ad valorem tax debt was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council or other available information. Except for the amount relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person is entitled to rely upon such information as being accurate or complete. Political subdivisions overlapping the District are authorized by Texas law to levy and collect ad valorem taxes for operation, maintenance, and/or general revenue purpose in addition to taxes for payment of their debt, and some are presently levying and collecting such taxes. Overlapping Debt Taxing Jurisdiction Outstanding Bonds Percent Amount Harris County $2,396,117,860 (a) 0.20% $4,906,833 Harris County Flood Control District $87,400, % $184,701 Harris County Department of Education $7,210, % $14,695 Port of Houston Authority $702,379, % $1,484,589 Clear Creek ISD $833,450, % $18,373,544 Pasadena ISD $732,530, % $22,458,939 San Jacinto Community College District $278,989, % $2,552,269 Harris County Road Improvement District No. 1 $1,915,000 (b) % $1,915,000 Total Estimated Overlapping Debt $51,890,570 The District's Direct Debt $62,850,000 (c) Total Direct and Estimated Overlapping Debt $114,740,570 (a) (b) (c) Excludes Harris County Toll Road Tax and Revenue Bonds that have been paid from toll revenues. See footnote c TAX DATA Estimated Overlapping Taxes. Includes the Bonds. TAX DATA Tax Collections: The following table sets forth the historical tax collection experience of the District for the tax years 2010 through Such table has been prepared based upon information from District records. Reference is made to such records and statements for further and complete information. Collection Year End Year Taxable Valuation Tax Rate Tax Levy Current Years Prior Years 09/ $716,736,983 $0.67 $4,802,138 98% 99% (a) 2013 $665,510,486 $0.67 $4,458,920 99% 99% $659,735,525 $0.67 $4,420,228 99% 100% $662,360,831 $0.67 $4,437,818 99% 100% $683,206,605 $0.67 $4,577,484 99% 100% 2010 (a) The 2014 tax levy was due on January 31, 2015; the figure above represents tax collection data as of April 30,

33 Tax Rate Distribution: The following table sets forth the tax rate distribution of the District for the years 2010 through and including Debt Service $0.58 $0.58 $0.58 $0.58 $0.58 Maintenance/Operation $0.09 $0.09 $0.09 $0.09 $0.09 Total $0.67 $0.67 $0.67 $0.67 $0.67 Maintenance Tax: The District has the statutory authority to levy and collect an annual ad valorem tax for maintenance of the District's improvements: such maintenance tax was authorized by vote of the District's electors on November 8, The District is authorized to levy such a maintenance tax in an amount not to exceed $0.25 per $100 assessed valuation. Such tax is in addition to taxes which the District is authorized to levy for paying principal of and interest on the Bonds, the Outstanding Bonds, and any tax bonds which may be issued in the future. The District levied a 2014 maintenance tax of $0.09 per $100 assessed valuation. Analysis of Tax Base: Based on information provided to the District by its Tax Assessor/Collector, the following represents the composition of property comprising the tax roll valuations for 2010 through Type of Property Year Land Improvements Personal Property Gross Valuation Exemption Taxable Valuation (a) 2014 $204,798,331 $750,129,334 $19,142,948 $974,070,613 $257,333,630 $716,736, $197,762,730 $682,128,420 $23,463,024 $903,354,174 $237,843,688 $665,510, $194,377,787 $676,878,567 $22,439,915 $893,696,269 $233,960,744 $659,735, $192,341,101 $679,686,409 $19,711,047 $891,738,557 $229,377,726 $662,360, $189,425,918 $683,737,274 $18,711,652 $891,874,844 $208,668,239 $683,206,605 (a) Reflects the Gross Valuations data supplied by HCAD less exemptions. 31

34 Estimated Overlapping Taxes: The following table sets forth all 2014 taxes levied by overlapping taxing jurisdictions on property within the District. No recognition is given to local assessments for civic association dues, fire department contributions, solid waste disposal charges, or any other levy by entities other than political subdivisions. Taxing Jurisdictions 2014 Tax Rate per $100 Assessed Valuation Pasadena Independent School District (a) $ San Jacinto Community College District $ Harris County (b) $ Overlapping Taxes (c) $ The District $ Total $ (a) (b) (c) A portion of the District is within the Clear Creek Independent School District. Such portion of the District is not subject to taxation by San Jacinto Community College District. The overlapping taxes levied within this portion of the District totals $ as opposed to the $ figure shown above. Includes taxes levied by Harris County, Port of Houston, and the Harris County Flood Control District, Harris County Hospital District, and Harris County Department of Education. The College Place subdivision and Village of College Place Subdivision and the Stillwater Cove Subdivision are located within Harris County Road Improvement District No. 1 ( HC RID No. 1 ) and the Clear Creek Independent School District. HC RID No. 1 has levied a total tax rate of $0.30 each year for the past several years. The overlapping tax rate for those portions of the District within HC RID No. 1 is $ as opposed to the $ figure noted above. Principal Taxpayers: The following table, sets forth the District's principal taxpayers, was provided by the District's Tax Assessor/Collector based upon the 2014 certified tax roll (which reflects ownership of property as of January 1, 2014) according to the records of the Harris County Appraisal District. Property Owner Type of Property Net Value Percentage TCR Highland Meadow Ltd P Land & Improvements $9,564, % Clearlake Healthcare Real Land & Improvements $7,240, % Salitex I Limited Land & Improvements $5,335, % Scarsdale Investment Ltd Land & Improvements $4,629, % Beamer Scarsdale LP Land & Improvements $4,589, % Scarsdale Village Land & Improvements $4,271, % Centerpoint Energy Hou El Personal Property $3,937, % Southtom Realty LLC Land & Improvements $3,823, % Kirkglen Corporation Land & Improvements $2,547, % AAA AAAN LLC Land & Improvements $2,422, % $48,361, % Tax Adequacy for Debt Service: The calculations shown below are solely for the purpose of illustration and assume no increase in assessed valuation over the 2014 Taxable Value provided by HCAD, and use a tax rate adequate to service the District's total debt service requirements following issuance of the Bonds. Surplus balances in the debt service fund, the capital projects fund, and the general fund are not reflected in these computations. Maximum annual debt service requirements (2030) $4,945,337 $0.73 Tax Rate on 2014 Taxable Value at 95% collections produces $4,970,571 32

35 Property Tax Code and County-Wide Appraisal District: TAX PROCEDURES Under Texas law, including the Texas Property Tax Code (the "Property Tax Code"), there is established in each county in the State a single appraisal district with responsibility for recording and appraising property for all taxing units within the county and a single appraisal review board with responsibility for reviewing and equalizing the values established by the appraisal district. By May 15 of each year or as soon thereafter as is practicable, the appraisal district is required to prepare appraisal records of property to be appraised as of January 1 of each year. The Property Tax Code generally requires appraisals at 100% of market value. A residence homestead is to be appraised solely on the basis of its value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. Property tax appraisals in the District are subject to review by the Harris County Appraisal Review Board (the "Appraisal Review Board"). Taxpayers and, under certain circumstances, taxing units (such as the District) may appeal the orders of the Appraisal Review Board by filing a petition for review in state district court. Such review or appeals may delay the certification of taxable values and hence delay the levy and collection of taxes by the District. In the event of such an appeal, the value of the property in question will be determined by the court, or by a jury if requested by any party. Absent any such appeal, the appraisal roll prepared by the Harris County Appraisal District ("HCAD") and approved by the Appraisal Review Board must be used by each taxing jurisdiction within Harris County to establish its tax rolls and tax rate. The Texas Comptroller of Public Accounts may provide for the administration and enforcement of uniform standards and procedures for appraisal of property. Although the District is responsible for establishing tax rates and levying and collecting its taxes each year, under the system of county-wide tax appraisal implemented by the Property Tax Code, the District cannot establish appraisal standards or determine the frequency of revaluation or reappraisal. The Property Tax Code requires HCAD to implement a plan for periodic reappraisal of property to update appraised values, and the plan must provide for reappraisal of all real property in the appraisal district at least once every three years. The District recently became eligible, along with all other conservation and reclamation districts within Harris County, to participate in the nomination of and vote for a member of the Board of Directors of HCAD. Property Subject to Taxation by the District: Except for certain exemptions provided by Texas law, all real and tangible personal property in the District is subject to taxation by the District. However, the District makes no effort to collect taxes on personal property, other than on personal property rendered for taxation, business inventories, and the property of privately-owned utilities. Principal categories of exempt property include: property owned by the State of Texas or its political subdivisions, if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects; farm products owned by the producer; all oil, gas, and mineral interests owned by an institution of higher education; certain property owned and used for qualified purposes by certain charitable religious, education and other organizations, designated historical sites; solar and wind-powered energy devices; and most individually-owned automobiles. In addition, the District, either by action of its Board or through a process of petition and referendum initiated by its residents, may grant exemptions for residential homesteads of persons 65 years of age or older and of certain disabled persons, to the extent deemed advisable by the Board. Furthermore, the District must grant exemptions to disabled veterans or certain surviving dependents of disabled veterans, if requested, but only to the maximum extent of $3,000 of taxable valuation. The District has granted an exemption for persons 65 years of age and older or for disabled persons of $75,000 of taxable valuation. A "freeport" exemption applies to goods, wares, ores, and merchandise other than oil, gas, and petroleum products (defined as liquid and gaseous materials immediately derived from refining petroleum or natural gas), and to aircraft or repair parts used by a certified air carrier. The items qualify if they leave the State of Texas within 175 days after the person who sent them out of state acquires them. The chief appraiser determines the amount of exemption by: (1) determining the percentage of the owner's inventory that left the state within six months of acquisition in the preceding year, and (2) reducing the current year's inventory by that percentage. Residential Homestead Exemption: The governing body of each political subdivision in the State may exempt up to 20% of the market value of residential homesteads from ad valorem taxes. However, where ad valorem taxes have previously been pledged for the payment of debt, the governing body of a political subdivision may continue to levy and collect taxes against the exempt 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 District has granted a 20% residential homestead exemption from ad valorem taxes during Notice and Hearing Procedures: The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers if the District proposes to increase taxes, and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. 33

36 Levy and Collection of Taxes: The District is responsible for the levy and collection of its taxes unless it elects to transfer such functions to another governmental entity. The rate of taxation is set by the Board of Directors, after the legally required notice has been given to owners of property within the District, based upon: a) the valuation of property within the District as of the preceding January 1, and b) the amount required to be raised for debt service, maintenance purposes and authorized contractual obligations. Taxes are due October 1, or when billed, whichever comes later, and become delinquent if not paid before February 1 of the year following the year in which imposed. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent and incurs an additional penalty for collection costs of an amount established by the District and a delinquent tax attorney. For those taxes billed at a later date and that become delinquent on or after June 1, they will also incur an additional penalty for collection costs of an amount established by the District and a delinquent tax attorney. The delinquent tax accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. The Property Tax Code makes provisions for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances which, at the option of the District, may be rejected. Rollback of Operation and Maintenance Tax Rate: The qualified voters of the District have the right to petition for a rollback of the District s operation and maintenance tax rate if the total tax bill on the average residence homestead increases by more than eight percent. If a rollback election is called and passes, the rollback tax rate is the current year s debt service tax rate plus 1.08 times the previous year s operation and maintenance tax rate. Collection of Delinquent Taxes: Taxes levied by the District are a personal obligation of the owner of the taxed property as of January 1 of the year in which the taxes are levied. On January 1 of each year, a tax lien attaches to property in the District to secure the payment of all taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the District, having the power to tax the property. The District's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax, whether or not the debt or lien existed before the attachment of the tax lien. Further, as a general rule, the District's tax lien and a federal tax lien are on par with ultimate priority being determined by applicable federal law. Under certain circumstances, personal property is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. 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. The ability of the District to collect delinquent taxes by judicial foreclosure may be adversely affected by the amount of taxes owed to other taxing units, adverse market conditions affecting the market value of the property at the time of any tax foreclosure sale, taxpayer redemption rights, or bankruptcy proceedings which restrain the collection of a taxpayer's debt. Further, the District's ability to foreclose its tax lien or collect penalties and interest may be limited on property owned by a financial institution which is under receivership by the Federal Deposit Insurance Corporation pursuant to the Federal Deposit Insurance Act, 12 United States Code Section 1825, as amended. The District has the right to consolidate with other districts and, in connection therewith to consolidate its System with the water and sewer systems of the district or districts with which it is consolidating. No representations are made that the District will ever consolidate its System with other systems. LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS The following is quoted from Section of the Texas Water Code, and is applicable to the District: (a) All bonds, notes, and other obligations issued by a district shall be legal and authorized investments for all banks, trust companies, building and loan associations, savings and loan associations, insurance companies of all kinds and types, fiduciaries, and trustees, and for all interest and sinking funds and other public funds of the state, and all agencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns, villages, school districts, and all other kinds and types of authorities, public agencies, and bodies politic. (b) A district s bonds, notes, and other obligations are eligible and lawful security for all deposits of public funds of the state, and all agencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns, villages, school districts, and all other kinds and types of authorities, public agencies, and bodies politic, to the extent of the market value of the bonds, notes, and other obligations when accompanied by any un-matured interest coupons attached to them. The Public Funds Collateral Act (Chapter 2257, Texas Government Code) also provides that bonds of the District (including the Bonds) are eligible as collateral for public funds. 34

37 LEGAL MATTERS Legal Proceedings: Delivery of the Bonds will be subject to and accompanied by the unqualified approving legal opinion of the Attorney General of Texas to the effect that the Bonds are valid and legally binding obligations of the City under the Constitution and laws of the State of Texas payable from the tax revenue, based upon his examination of a transcript of certified proceedings relating to the issuance and sale of the Bonds, the approving legal opinion of Bond Counsel, to a like effect and to the effect that, subject to the matters described in TAX MATTERS below, interest on the Bonds is excludable from gross income of the holders for federal tax purposes under existing law, and interest on the Bonds will not be subject to the federal alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustments for corporations. Before the Bonds can be issued, the Attorney General of Texas must pass upon the legality of certain related matters. The Attorney General of Texas does not guarantee or pass upon the safety of the Bonds as an investment or upon the adequacy of the information contained in this Official Statement. Bond Counsel has reviewed the information appearing in this Official Statement under THE BONDS, THE DISTRICT Authority, Purpose, and Functions, TAX PROCEDURES, LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS, LEGAL MATTERS (as it describes the opinion of Bond Counsel), TAX MATTERS, and CONTINUING DISCLOSURE OF INFORMATION (except for Compliance with Prior Undertakings ) solely to determine whether such information in all material respects fairly and accurately summarizes matters of law and the provisions of the documents referred to therein. Bond Counsel has not, however, independently verified any of the factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the City or any developer for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon the limited participation of Bond Counsel as an assumption of responsibility for or an expression of opinion of any kind with regard to the accuracy or completeness of any information contained herein, except as stated above. The legal fees paid to Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent upon the sale and delivery of the Bonds. No-Litigation Certificate: The District will furnish the Underwriter a certificate dated as of the date of delivery of the Bonds, to the effect that there is not pending, and to the knowledge of the officers executing the certificate, there is not threatened, any litigation affecting the validity of the Bonds, or the levy and/or collection of taxes for the payment thereof, or the organization or boundaries of the District, or the title of the officers thereof to their respective offices, and that no additional bonds or other indebtedness have been issued since the date of the statement of indebtedness or non-encumbrance certificate submitted to the Attorney General of Texas in connection with approval of the Bonds. Tax Exemption: TAX MATTERS The delivery of the Bonds is subject to an opinion of Norton Rose Fulbright US LLP, Bond Counsel, to the effect that, pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the Code ) and existing regulations, published rulings, and court decisions thereunder, interest on the Bonds for federal income tax purposes (1) will be excludable from the gross income, as defined in Section 61 of the Code, of the owners thereof, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. The statutes, regulations, rulings, and court decisions on which such opinion is based are subject to change. Interest on the Bonds owned by a corporation will be included in such corporation s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust ( FASIT ). A corporation s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the District made in a certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the District with the provisions of the Bond Order subsequent to the issuance of the Bonds. The Bond Order contains covenants by the District with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage profits from the investment of the proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds. 35

38 Except as described above, Bond Counsel will express no other opinion with respect to any other federal, state or local tax consequences under present law or proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, S corporations with subchapter C earnings and profits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the IRS ) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel s opinion is not binding on the IRS. The IRS has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the IRS is likely to treat the District as the taxpayer, and the owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interests from the owners of the Bonds. 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 its ultimate outcome. Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law. Tax Accounting Treatment of Discount and Premium on Certain Bonds: The initial public offering price of Bonds maturing in the years , , 2038, 2040, and 2042 (the "Discount Bonds") is less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial offering price of Bonds maturing in the years (the Premium Bonds ) is greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser s yield to maturity. Purchasers of Premium 36

39 Bonds should consult with their own tax advisors to determine the amortizable bond premium on the Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. Qualified Tax-Exempt Obligations for Financial Institutions: Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible from the gross income of the owner of such obligations. In addition, section 265 of the Code generally disallows 100% of any deduction for interest expense which is incurred by financial institutions described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after August 7, Section 265(b) of the Code provides an exception to this interest disallowance rule for interest expense allocable to tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) bonds) which are designated by an issuer as qualified tax-exempt obligations. An issuer may designate obligations as qualified tax-exempt obligations only if the amount of the issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) obligations and other than certain refunding bonds) issued or reasonably anticipated to be issued by the issuer during the same calendar year, does not exceed $10,000,000. The District has designated the Bonds as "qualified tax-exempt obligations" and certified its expectation that the abovedescribed $10,000,000 ceiling will not be exceeded. Accordingly, it is anticipated that financial institutions which purchase the Bonds will not be subject to the 100% disallowance of interest expense allocable to interest on the Bonds under section 265(b) of the Code. However, 20% of the interest expense incurred by a financial institution which is allocable to the interest on the Bonds will not be deductible pursuant to section 291 of the Code. Annual Reports CONTINUING DISCLOSURE OF INFORMATION The District will provide certain financial information and operating data which is customarily prepared by the District and is publicly available, annually. The financial information and operating data which will be provided with respect to the District is found in the section entitled TAX DATA (except for Maintenance Tax, Estimated Overlapping Taxes, and Tax Adequacy for Debt Service ) and APPENDIX A (the District s Audited Financial Statements). The District will update and provide this information to the Municipal Securities Rulemaking Board (the MSRB ) or any successor to its functions as a repository through its Electronic Municipal Market Access ( EMMA ) system within six months after the end of each of its fiscal years ending in or after Any information so provided shall be prepared in accordance with generally accepted auditing standards or other such principles as the District may be required to employ from time to time pursuant to state law or regulation, and audited if the audit report is completed within the period during which it must be provided. If the audit report is not complete within such period, then the District shall provide unaudited financial statements for the applicable fiscal year to the MSRB within such six month period, and audited financial statements when the audit report becomes available. The District s current fiscal year end is December 31. Accordingly, it must provide updated information by June 30 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The District will provide timely notices of certain events to the MRSB, but in no event will such notices be provided to the MSRB in excess of ten business days after the occurrence of an event. The District will provide notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other events affecting the tax-exempt status of the Bonds; (7) modifications to rights of beneficial owners of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the District or other obligated person within the meaning of CFR c2-12 (the Rule ); (13) consummation of a merger, consolidation, or acquisition involving the District or other obligated person within the meaning of the Rule or the sale of all or substantially all of the assets of the District or other obligated person within the meaning of the Rule, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of an definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. The term material when used in this paragraph shall have the meaning ascribed to it under federal securities laws. Neither the Bonds nor the Bond Order makes any provision for debt service reserves or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under Annual Reports. 37

40 Availability of Information The District has agreed to provide the foregoing updated information only to the MSRB. Investors will be able to access, without charge from the MSRB, continuing disclosure information filed with the MSRB at Limitations and Amendments The District has agreed to update information and to provide notices of material events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of 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 the 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 but only if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering made hereby 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 either the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or 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 amend or repeal the agreement in the Bond Order if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid or unenforceable, but only to the extent that its right to do so would not prevent the Underwriter from lawfully purchasing the Bonds in the initial offering. If the District so amends the agreement, it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under Annual Reports an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Compliance with Prior Undertakings: For the past five years, the District has substantially complied with its continuing disclosure agreements entered into to satisfy SEC Rule 15c2-12. Sources of Information: OFFICIAL STATEMENT The information contained in this Official Statement has been obtained primarily from the District's records, the Engineer, the Tax Assessor/Collector, HCAD, and other sources which are believed reliable, but the District makes no representation as to the accuracy or completeness of the information derived from such other sources. The summaries of the statutes, resolutions, and engineering and other related reports set forth in this Official Statement are included herein subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions, and reference is made to such documents for further information. All estimates, statements, and assumptions in this Official Statement and the Appendices hereto have been made on the basis of the best information available and are believed to be reliable and accurate. Any statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are intended as such and not as representations of fact, and no representation is made that any such statements will be realized. Financial Advisor: The Official Statement was compiled and edited under the supervision of The GMS Group, L.L.C., (the "Financial Advisor"). The fees paid the Financial Advisor for services rendered in connection with the issuance and sale of the Bonds are based on a percentage of the Bonds actually issued, sold and delivered, and therefore, such fees are contingent on the sale and delivery of the Bonds. 38

41 Consultants: In approving this Official Statement, the District has relied upon the following: Engineer: The information contained in this Official Statement relating to engineering matters generally, to the description of the System, and, in particular, that information included in the sections entitled "INVESTMENT CONSIDERATIONS -- Future Debt," "THE DISTRICT -- Description and Location Summary of Land Use Status of Residential Homebuilding (as it relates to acreage figures and total number of lots), and "THE SYSTEM" has been provided by Blackline Engineering LLC and has been included in reliance upon the authority of such firm as an expert in the field of civil engineering. Tax Collector: The information contained in this Official Statement relating to the assessed valuation of property and, in particular, such information contained in the section captioned "TAX DATA," has been provided by the Harris County Appraisal District and by Mr. Bob Leared, Tax Assessor/Collector, in reliance upon their authority as experts in the field of tax assessing and appraising. Auditors: The financial statements of the District and the accompanying report by McCall Gibson Swedlund Barfoot PLLC, Certified Public Accountants, as shown in Appendix A, have been published with the consent of McCall Gibson Swedlund Barfoot PLLC, Certified Public Accountants. Updating of Official Statement: For the period beginning on the date of the award of the sale of the Bonds to the Underwriter and ending on the ninetyfirst (91st) day after the "end of the underwriting period" as defined in SEC Rule 15c2-12(e)(2), if any event shall occur of which the District has knowledge and as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein, in light of the circumstances when the Official Statement is delivered to a prospective purchaser, not misleading, the District will promptly notify the Underwriter of the occurrence of such event and will cooperate in the preparation of a revised Official Statement, or amendments or supplements thereto, so that the statements in the Official Statement, as revised, amended or supplemented, will not, in light of the circumstances when such Official Statement is delivered to a prospective purchaser, be misleading. Certification of Official Statement: The District, acting by and through its Board of Directors in its official capacity and in reliance upon the experts listed above, hereby certifies, as of the date hereof, that to the best of its knowledge and belief, the information, statements, and descriptions pertaining to the District and its affairs herein contain no untrue statements of a material fact and do not omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading. The information, descriptions and statements concerning entities other than the District, including particularly other governmental entities, have been obtained from sources believed to be reliable, but the District has made no independent investigation of such matters and makes no representation as to the accuracy or completeness thereof. This Official Statement was approved by the Board of Directors of Clear Brook City Municipal Utility District as of the date shown on the cover page. 39

42 APPENDIX A CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT HARRIS COUNTY, TEXAS ANNUAL FINANCIAL REPORT DECEMBER 31, 2014

43 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT HARRIS COUNTY, TEXAS ANNUAL FINANCIAL REPORT DECEMBER 31, 2014 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants

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45 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT HARRIS COUNTY, TEXAS ANNUAL FINANCIAL REPORT DECEMBER 31, 2014

46

47 T A B L E O F C O N T E N T S PAGE INDEPENDENT AUDITOR S REPORT 1-2 MANAGEMENT S DISCUSSION AND ANALYSIS 3-8 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET 9-12 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION 13 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 16 NOTES TO FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND 36 SUPPLEMENTARY INFORMATION - REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE NOTES REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE (Included in the notes to financial statements) SERVICES AND RATES GENERAL FUND EXPENDITURES INVESTMENTS 43 TAXES LEVIED AND RECEIVABLE LONG-TERM DEBT SERVICE REQUIREMENTS CHANGE IN LONG-TERM BOND DEBT COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND AND DEBT SERVICE FUND - FIVE YEARS BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS 65-66

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49 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants Wortham Center Drive Suite Congress Avenue Houston, Texas Suite 400 (713) Austin, Texas Fax (713) (512) INDEPENDENT AUDITOR S REPORT Board of Directors Clear Brook City Municipal Utility District Harris County, Texas We have audited the accompanying financial statements of the governmental activities and each major fund of Clear Brook City Municipal Utility District (the District ), as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Member of American Institute of Certified Public Accountants Texas Society of Certified Public Accountants

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51 Board of Directors Clear Brook City Municipal Utility District Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of December 31, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis on pages 3 through 8 and the Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund on page 36 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The supplementary information required by the Texas Commission on Environmental Quality as published in the Water District Financial Management Guide is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The supplementary information, excluding that portion marked Unaudited on which we express no opinion or provide any assurance, has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants Houston, Texas April 15,

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53 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 Management s discussion and analysis of Clear Brook City Municipal Utility District s (the District ) financial performance provides an overview of the District s financial activities for the fiscal year ended December 31, Please read it in conjunction with the District s financial statements, which begin on page 9. USING THIS REPORT This annual report consists of a series of financial statements. The basic financial statements include: (1) combined fund financial statements and government-wide financial statements and (2) notes to the financial statements. The combined fund financial statements and governmentwide financial statements combine both: (1) the Statement of Net Position and Governmental Funds Balance Sheet and (2) the Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balances. This report also includes other supplementary information in addition to the basic financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS The District s annual report includes two financial statements combining the government-wide financial statements and the fund financial statements. The government-wide portion of these statements provides both long-term and short-term information about the District s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of the government-wide statements is the Statement of Net Position. This information is found in the Statement of Net Position column on pages 9 through 12. The Statement of Net Position is the District-wide statement of its financial position presenting information that includes all of the District s assets, liabilities and deferred inflows and outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District as a whole is improving or deteriorating. Evaluation of the overall health of the District would extend to other non-financial factors. The government-wide portion of the Statement of Activities on pages 14 and 15 reports how the District s net position changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. FUND FINANCIAL STATEMENTS The combined statements also include fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District has three governmental fund types. The General Fund accounts for resources not accounted for in another fund, customer service revenues, costs and general expenditures. The Debt Service Fund accounts for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. The Capital Projects Fund accounts for financial resources restricted, committed or assigned for acquisition or construction of facilities and related costs

54 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 FUND FINANCIAL STATEMENTS (Continued) Governmental funds are reported in each of the financial statements. The focus in the fund statements provides a distinctive view of the District s governmental funds. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of the District and the commitment of spendable resources for the nearterm. Since the government-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. The adjustments columns, the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position on page 13 and the Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities on page 16 explain the differences between the two presentations and assist in understanding the differences between these two perspectives. NOTES TO THE FINANCIAL STATEMENTS The accompanying notes to the financial statements provide information essential to a full understanding of the government-wide and fund financial statements. The notes to the financial statements can be found on pages 17 through 34 in this report. OTHER INFORMATION In addition to the financial statements and accompanying notes, this report also presents certain required supplementary information ( RSI ). A budgetary comparison schedule is included as RSI for the General Fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of the District s financial position. In the case of the District, liabilities and deferred inflows of resources exceeded assets by $1,524,164 as of December 31, This compares with liabilities and deferred inflows of resources exceeding assets by $2,170,407 as of December 31, A portion of the District s net position reflects its net investment in capital assets (e.g. water, wastewater and drainage facilities, less any debt used to acquire those assets that is still outstanding). The District uses these assets to provide water and wastewater services

55 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 FUND FINANCIAL STATEMENTS (Continued) The following is a comparative analysis of government-wide changes in net position: Summary of Changes in the Statement of Net Position Change Positive (Negative) Current and Other Assets $ 19,713,848 $ 20,596,824 $ (882,976) Capital Assets (Net of Accumulated Depreciation) 45,213,686 43,650,879 1,562,807 Total Assets $ 64,927,534 $ 64,247,703 $ 679,831 Due to Developer $ 1,088,119 $ $ (1,088,119) Long -Term Liabilities 55,735,766 57,622,533 1,886,767 Other Liabilities 4,822,412 4,308,661 (513,751) Total Liabilities $ 61,646,297 $ 61,931,194 $ 284,897 Deferred Inflows of Resources $ 4,805,401 $ 4,486,916 $ (318,485) Net Position: Net Investment in Capital Assets $ (12,712,973) $ (13,685,698) $ 972,725 Restricted 1,507,773 2,067,492 (559,719) Unrestricted 9,681,036 9,447, ,237 Total Net Position $ (1,524,164) $ (2,170,407) $ 646,243 The following table provides a summary of the District s operations for the years ended December 31, 2014 and December 31, The District increased its net position by $646,243. Summary of Changes in the Statement of Activities Change Positive (Negative) Revenues: Property Taxes $ 4,433,907 $ 4,422,671 $ 11,236 Charges for Services 5,114,352 4,651, ,929 Other Revenues 490, ,913 (336,493) Total Revenues $ 10,038,679 $ 9,901,007 $ 137,672 Expenses for Services 9,392,436 9,754, ,578 Change in Net Position $ 646,243 $ 146,993 $ 499,250 Net Position, Beginning of Year (2,170,407) (2,317,400) 146,993 Net Position, End of Year $ (1,524,164) $ (2,170,407) $ 646,

56 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 FINANCIAL ANALYSIS OF THE DISTRICT S GOVERNMENTAL FUNDS The District s combined fund balances as of ended December 31, 2014, were $12,771,068 a decrease of $1,655,583 from the prior year. The General Fund fund balance increased by $260,187, primarily due to service revenues exceeding current year operating costs. The Debt Service Fund fund balance decreased by $607,040, primarily due to the structure of the District s outstanding debt. The Capital Projects Fund fund balance decreased by $1,308,730. This decrease was primarily due to the District paying capital outlay costs from bond proceeds received in a prior fiscal year. GENERAL FUND BUDGETARY HIGHLIGHTS The Board of Directors did not amend the budget during the current fiscal year. Actual revenue was $213,452 less than budgeted revenue. Actual expenditures were $54,212 more than budgeted. See page 36. CAPITAL ASSETS AND INTANGIBLE ASSETS The District s capital assets and intangible assets as of December 31, 2014, amount to $45,213,686 (net of accumulated depreciation). These capital assets include land, buildings and equipment as well as the water, wastewater and drainage systems. Capital asset events during the current fiscal year included the following: Capital Assets At Year-End, Net of Accumulated Depreciation Change Positive (Negative) Capital Assets Not Being Depreciated: Land and Land Improvements $ 2,373,562 $ 2,373,562 $ Construction in Progress 969, , ,063 Capital Assets, Net of Accumulated Depreciation: Buildings and Improvements 4,271,675 4,438,812 (167,137) Water System 11,959,942 11,956,592 3,350 Wastewater System 13,552,178 12,649, ,409 Drainage System 10,276,823 9,908, ,668 Total Net Capital Assets $ 43,403,242 $ 41,729,889 $ 1,673,

57 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 CAPITAL ASSETS AND INTANGIBLE ASSETS (Continued) There were no changes to the capacity interest cost during the current fiscal year. Intangible Assets At Year-End, Net of Accumulated Amortization Change Positive (Negative) Water Purification Plant $ 1,068,417 $ 1,129,581 $ (61,164) Wastewater Treatment Plant 742, ,409 (49,382) Total Net Intangible Assets $ 1,810,444 $ 1,920,990 $ (110,546) Additional information on the District s capital assets and intangible assets can be found in Note 6 of this report. LONG-TERM DEBT ACTIVITY At the end of the current fiscal year, the District had total bond debt payable of $57,435,000. The changes in the debt position of the District during the fiscal year ended December 31, 2014, is summarized as follows: Bond Debt Payable, January 1, 2014 $ 59,190,000 Add: Bond Sale - Series 2014 Refunding 8,310,000 Less: Bond Principal Refunded 8,070,000 Less: Bond Principal Paid 1,995,000 Bond Debt Payable, December 31, 2014 $ 57,435,000 The Series 2005 Bonds carry a AA- rating by virtue of bond insurance issued by National Public Finance Guaranty Corp. The Series 2006 refunding bonds carry a AA rating by virtue of bond insurance issued by Assured Guaranty Corp. The Series 2003 and 2009 bonds carry an insured rating of A2 and the Series 2010 bonds, 2010-A refunding and 2012 refunding bonds carry an insured rating of AA by virtue of bond insurance issued by Assured Guaranty Municipal. The Series 2013 refunding bonds carry an insured rating of AA by virtue of bond insurance issued by BAM. The Series 2003, 2004, 2005, 2006, 2007, and 2009 Bonds carry an underlying rating of A1. The Series 2010 bonds, 2010-A refunding bonds, 2012 refunding bonds, 2013 refunding bonds and Series 2014 refunding bonds carry an underlying rating of BBB+. The above reflects all rating changes through December 31,

58 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2014 CONTACTING THE DISTRICT S MANAGEMENT This financial report is designed to provide a general overview of the District s finances for anyone with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Clear Brook City Municipal Utility District, c/o Norton Rose Fulbright US LLP, 1301 McKinney Street, Suite 5100, Houston, TX

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60 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31, 2014 Debt General Fund Service Fund ASSETS Cash, Note 5 $ 6,991,631 $ 4,538,867 Investments, Note 5 3,136,357 1,087,751 Receivables: Property Taxes 226,894 1,462,669 Penalty and Interest on Delinquent Taxes 32,113 Service Accounts (Net of Allowance for Doubtful Accounts of $3,000) 444,510 Other 33,231 Due from Other Funds 285,886 Prepaid Costs 12,075 Land, Note 6 Construction in Progress, Note 6 Unamortized Capacity Interest Costs, Note 6 Capital Assets (Net of Accumulated Depreciation), Note 6 TOTAL ASSETS $ 11,130,584 $ 7,121,400 The accompanying notes to the financial statements are an integral part of this report

61 Capital Statement of Projects Fund Total Adjustments Net Position $ 1,421,574 $ 12,952,072 $ $ 12,952,072 89,961 4,314,069 4,314,069 1,689,563 1,689,563 32,113 32, , ,510 33,231 33, , ,965 (496,965) 12, , ,290 2,373,562 2,373, , ,062 1,810,444 1,810,444 40,060,618 40,060,618 $ 1,722,614 $ 19,974,598 $ 44,952,936 $ 64,927,534 The accompanying notes to the financial statements are an integral part of this report

62 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31, 2014 Debt General Fund Service Fund LIABILITIES Accounts Payable $ 588,627 $ 393 Accrued Interest Payable Due to Developers, Note 17 Due to Other Funds 496,965 Due to Taxpayers 14,957 Security Deposits 451,635 Bond Anticipation Note Payable, Note 16 Long Term Liabilities: Bonds Payable, Due Within One Year, Note 3 Bonds Payable, Due After One Year, Note 3 TOTAL LIABILITIES $ 1,040,262 $ 512,315 DEFERRED INFLOWS OF RESOURCES Property Taxes $ 653,909 $ 4,214,543 Penalty and Interest on Delinquent Taxes 32,113 TOTAL DEFERRED INFLOWS OF RESOURCES $ 653,909 $ 4,246,656 FUND BALANCES Nonspendable: Prepaid Costs $ 12,075 $ Restricted for Authorized Construction Restricted for Debt Service 2,362,429 Unassigned 9,424,338 TOTAL FUND BALANCES $ 9,436,413 $ 2,362,429 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 11,130,584 $ 7,121,400 NET POSITION Net Investment in Capital Assets Restricted for Debt Service Unrestricted TOTAL NET POSITION The accompanying notes to the financial statements are an integral part of this report

63 Capital Statement of Projects Fund Total Adjustments Net Position $ $ 589,020 $ $ 589, , ,412 1,088,119 1,088, ,965 (496,965) 14,957 14, , , , , ,388 2,075,000 2,075,000 55,735,766 55,735,766 $ 750,388 $ 2,302,965 $ 59,343,332 $ 61,646,297 $ $ 4,868,452 $ (63,051) $ 4,805,401 32,113 (32,113) $ -0- $ 4,900,565 $ (95,164) $ 4,805,401 $ $ 12,075 $ (12,075) $ 972, ,226 (972,226) 2,362,429 (2,362,429) 9,424,338 (9,424,338) $ 972,226 $ 12,771,068 $ (12,771,068) $ $ 1,722,614 $ 19,974,598 $ (12,712,973) $ (12,712,973) 1,507,773 1,507,773 9,681,036 9,681,036 $ (1,524,164) $ (1,524,164) The accompanying notes to the financial statements are an integral part of this report

64 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2014 Total Fund Balances - Governmental Funds $ 12,771,068 Amounts reported for governmental activities in the Statement of Net Position are different because: Prepaid bond insurance is amortized over the repayment period of the related bonds in governmental activities. Land, construction in progress, capital investments and capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in the governmental funds. Deferred tax revenues and deferred penalty and interest revenues on delinquent taxes for the 2013 and prior tax levies became part of recognized revenue in the governmental activities of the District. 236,215 45,213,686 95,164 Certain liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. These liabilities at year end consist of: Due to Developer $ (1,088,119) Accrued Interest Payable (941,412) Bonds Payable Within One Year (2,075,000) Bonds Payable After One Year (55,735,766) (59,840,297) Total Net Position - Governmental Activities $ (1,524,164) The accompanying notes to the financial statements are an integral part of this report

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66 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2014 Debt General Fund Service Fund REVENUES Property Taxes $ 599,040 $ 3,860,484 Water Service 2,116,950 Wastewater Service 2,514,945 Tap Connection and Inspection Fees 220,823 Sales Tax Revenue 130,874 Penalty and Interest 96,777 42,309 Investment Revenues 61,613 23,906 Miscellaneous Revenues 361, TOTAL REVENUES $ 6,102,373 $ 3,926,742 EXPENDITURES/EXPENSES Service Operations: Personnel $ 572,791 $ Professional Fees 197,419 11,070 Contracted Services 1,784, ,743 Purchased Water Service, Note 8 219,623 Purchased Wastewater Service, Note 9 1,105,147 Utilities 178,655 Repairs and Maintenance 558,587 Depreciation and Amortization, Note 6 Other 457,407 11,289 Capital Outlay 767,694 Debt Service: Bond Principal 1,995,000 Bond Interest 2,417,460 Bond and BAN Issuance Costs 207,900 TOTAL EXPENDITURES/EXPENSES $ 5,842,186 $ 4,749,462 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES/EXPENSES $ 260,187 $ (822,720) OTHER FINANCING SOURCES (USES) Long-Term Debt Issued, Note 11 $ $ 8,310,000 Payment to Refunded Bond Escrow Agent, Note 11 (8,094,320) TOTAL OTHER FINANCING SOURCES (USES) $ -0- $ 215,680 NET CHANGE IN FUND BALANCES $ 260,187 $ (607,040) CHANGE IN NET POSITION FUND BALANCES/NET POSITION - JANUARY 1, ,176,226 2,969,469 FUND BALANCES/NET POSITION - DECEMBER 31, 2014 $ 9,436,413 $ 2,362,429 The accompanying notes to the financial statements are an integral part of this report

67 Capital Statement of Projects Fund Total Adjustments Activities $ $ 4,459,524 $ (25,617) $ 4,433,907 2,116,950 2,116,950 2,514,945 2,514, , , , , ,086 (8,326) 130,760 7,207 92,726 92,726 36, , ,694 $ 43,507 $ 10,072,622 $ (33,943) $ 10,038,679 $ $ 572,791 $ $ 572, , ,489 1,891,606 1,891, , ,623 1,105,147 1,105, , , , ,587 1,620,758 1,620, , ,696 1,327,752 2,095,446 (2,095,446) 1,995,000 (1,995,000) 2,417,460 (81,761) 2,335,699 24, , ,385 $ 1,352,237 $ 11,943,885 $ (2,551,449) $ 9,392,436 $ (1,308,730) $ (1,871,263) $ 2,517,506 $ 646,243 $ $ 8,310,000 $ (8,310,000) $ (8,094,320) 8,094,320 $ -0- $ 215,680 $ (215,680) $ -0- $ (1,308,730) $ (1,655,583) $ 1,655,583 $ 646, ,243 2,280,956 14,426,651 (16,597,058) (2,170,407) $ 972,226 $ 12,771,068 $ (14,295,232) $ (1,524,164) The accompanying notes to the financial statements are an integral part of this report

68 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2014 Net Change in Fund Balances - Governmental Funds $ (1,655,583) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report tax revenues when collected. However, in the Statement of Activities, revenue is recorded in the accounting period for which the taxes are levied. (25,617) Governmental funds report penalty and interest revenue on property taxes when collected. However, in the Statement of Activities, revenue is recorded when penalties and interest are assessed. (8,326) Governmental funds do not account for depreciation and amortization. However, in the Statement of Net Position, capital assets are depreciated and depreciation and amortization expense is recorded in the Statement of Activities. (1,620,758) Governmental funds report capital expenditures as expenditures in the period purchased. However, in the Statement of Net Position, capital assets are increased by new purchases and the Statement of Activities is not affected. 2,095,446 Governmental funds report bond principal payments as expenditures. However, in the Statement of Net Position, bond principal payments are reported as decreases in long-term liabilities. 1,995,000 Governmental funds report interest expenditures on long-term debt as expenditures in the year paid. However, in the Statement of Net Position, interest is accrued on the long-term debt through fiscal year-end. 81,761 Governmental funds report bond proceeds as other financing sources. Issued bonds increase long-term liabilities in the Statement of Net Position. (8,310,000) Governmental funds report the payment to the refunded bond escrow agent as an other financing use. However, the refunding of outstanding bonds decreases longterm liabilities in the Statement of Net Positon. 8,094,320 Change in Net Position - Governmental Activities $ 646,243 The accompanying notes to the financial statements are an integral part of this report

69 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. CREATION OF DISTRICT Harris County Municipal Utility District No. 13 (the District ) was created effective September 1, 1972 by an order of the Texas Water Rights Commission (later reorganized as the Texas Water Commission), presently known as the Texas Commission on Environmental Quality (the Commission ), in accordance with Texas Water Code Chapter 54. Pursuant to the provisions of Chapters 49 and 54 of the Texas Water Code, the District is empowered to purchase, operate and maintain all facilities, plants and improvements necessary to provide water, sanitary sewer service, storm sewer drainage, irrigation, solid waste collection and disposal, including recycling, and to construct parks and recreational facilities for the residents of the District. The District is also empowered to contract for or employ its own peace officers with powers to make arrests and to establish, operate and maintain a fire department to perform all fire-fighting activities within the District. The Board of Directors held its first meeting on March 28, 1972, and the first bonds were sold on March 14, On February 7, 1991, the District received approval to change its name from Harris County Municipal Utility District No. 13 to Clear Brook City Municipal Utility District. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board ( GASB ). In addition, the accounting records of the District are maintained generally in accordance with the Water District Financial Management Guide published by the Commission. The District is a political subdivision of the State of Texas governed by an elected board. GASB has established the criteria for determining whether or not an entity is a primary government or a component unit of a primary government. The primary criteria are that it has a separately elected governing body, it is legally separate, and it is fiscally independent of other state and local governments. Under these criteria, the District is considered a primary government and is not a component unit of any other government. Additionally, no other entities meet the criteria for inclusion in the District s financial statement as component units. Financial Statement Presentation These financial statements have been prepared in accordance with GASB Codification of Governmental Accounting and Financial Reporting Standards Part II, Financial Reporting. GASB Codification set forth standards for external financial reporting for all state and local government entities, which include a requirement for a Statement of Net Position and a Statement of Activities. It requires the classification of net position into three components: Net Investment in Capital Assets; Restricted; and Unrestricted. These classifications are defined as follows:

70 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Statement Presentation (Continued) Net Investment in Capital Assets This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. Restricted Net Position This component of net position consists of external constraints placed on the use of assets imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of assets that do not meet the definition of Restricted or Net Investment in Capital Assets. When both restricted and unrestricted resources are available for use, generally it is the District s policy to use restricted resources first. Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the District as a whole. The District s Statement of Net Position and Statement of Activities are combined with the governmental fund financial statements. The District is viewed as a specialpurpose government and has the option of combining these financial statements. The Statement of Net Position is reported by adjusting the governmental fund types to report on the full accrual basis, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. Any amounts recorded due to and due from other funds are eliminated in the Statement of Net Position. The Statement of Activities is reported by adjusting the governmental fund types to report only items related to current year revenues and expenditures. Items such as capital outlay are allocated over their estimated useful lives as depreciation expense. Internal activities between governmental funds, if any, are eliminated by adjustment to obtain net total revenue and expense of the government-wide Statement of Activities. Fund Financial Statements As discussed above, the District s fund financial statements are combined with the governmentwide statements. The fund statements include a Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances

71 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Governmental Funds The District has three governmental funds and considers them to be major funds. General Fund - To account for resources not required to be accounted for in another fund, customer service revenues, costs and general expenditures. Debt Service Fund - To account for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. Capital Projects Fund - To account for financial resources restricted, committed or assigned for acquisition or construction of facilities and related costs. Basis of Accounting The District uses the modified accrual basis of accounting for governmental fund types. The modified accrual basis of accounting recognizes revenues when both measurable and available. Measurable means the amount can be determined. Available means collectible within the current period or soon enough thereafter to pay current liabilities. The District considers revenue reported in governmental funds to be available if they are collectible within 60 days after year end. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, which are recognized as expenditures when payment is due. Property taxes considered available by the District and included in revenue include 2013 taxes collected during the period October 1, 2013 to December 31, In addition, taxes collected from January 1, 2014 to December 31, 2014 for the 2012 and prior tax levies are included in revenue. The 2014 tax levy has been fully deferred to fund the 2015 calendar year expenditures. Amounts transferred from one fund to another fund are reported as another financing sources or uses. Loans by one fund to another fund and amounts paid by one fund for another fund are reported as interfund receivables and payables in the Governmental Funds Balance Sheet if there is intent to repay the amount and if the debtor fund has the ability to repay the advance on a timely basis. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the government-wide Statement of Net Position. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenditures in the governmental fund incurred and as an expense in the government-wide Statement of Activities. Capital asset additions, improvements and preservation costs that extend

72 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets (Continued) the life of an asset are capitalized and depreciated over the estimated useful life of the asset. Interest costs, including developer interest, engineering fees and certain other costs are capitalized as part of the asset. Assets are capitalized, including infrastructure assets, if they have an original cost greater than $20,000 and a useful life over two years. Depreciation is calculated on each class of depreciable property using the straight-line method of depreciation. Estimated useful lives are as follows: Budgeting Years Buildings 40 Water System Wastewater System Drainage System All Other Equipment 3-20 In compliance with governmental accounting principles, the Board of Directors annually adopts an unappropriated budget for the General Fund. The budget was not amended during the current fiscal year. Pensions The District has eight full-time employees. Payments are made into the social security system for them. The District also has made available an IRC Section 457 plan for its employees to make contributions. The District also makes contribution into a simplified employee pension plan for its employees. See Note 13 for additional disclosure. The Internal Revenue Service has determined that directors are considered to be employees for federal payroll tax purposes only. Measurement Focus Measurement focus is a term used to describe which transactions are recognized within the various financial statements. In the government-wide Statement of Net Position and Statement of Activities, the governmental activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position, financial position, and cash flows. All assets and liabilities associated with the activities are reported. Fund equity is classified as net position

73 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus (Continued) Governmental fund types are accounted for on a spending or financial flow measurement focus. Accordingly, only current assets and current liabilities are included on the Balance Sheet, and the reported fund balances provide an indication of available spendable or appropriable resources. Operating statements of governmental fund types report increases and decreases in available spendable resources. Fund balances in governmental funds are classified using the following hierarchy: Nonspendable: amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted: amounts that can be spent only for specific purposes because of constitutional provisions, or enabling legislation, or because of constraints that are imposed externally. Committed: amounts that can be spent only for purposes determined by a formal action of the Board of Directors. The Board is the highest level of decision-making authority for the District. This action must be made no later than the end of the fiscal year. Commitments may be established, modified, or rescinded only through ordinances or resolutions approved by the Board. The District does not have any committed fund balances. Assigned: amounts that do not meet the criteria to be classified as restricted or committed, but that are intended to be used for specific purposes. The District has not adopted a formal policy regarding the assignment of fund balances and does not have any assigned fund balances. Unassigned: all other spendable amounts in the General Fund. When expenditures are incurred for which restricted, committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of restricted funds, then committed funds, then assigned funds, and finally unassigned funds. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates

74 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 3. LONG-TERM DEBT Refunding Series 2003 Series 2004 Series 2005 Amount Outstanding - December 31, 2014 $810,000 $ 100,000 $ 1,070,000 Interest Rates 4.00% 3.70% 4.50% Maturity Dates - Serially Beginning/Ending February 1, 2015/2016 February 1, 2015 February 1, 2015/2035 Interest Payment Dates February 1, August 1 February 1, August 1 February 1, August 1 Callable Dates February 1, 2012* February 1, 2012* February 1, 2014** Refunding Series 2006 Series 2007 Series 2009 Amount Outstanding - December 31, 2014 $1,105,000 $ 11,265,000 $ 8,100,000 Interest Rates 3.70%-3.75% 4.00%-4.65% 5.30%-5.70% Maturity Dates - Serially Beginning/Ending February 1, 2015/2016 February 1, 2015/2036 February 1, 2016/2039 Interest Payment Dates February 1, August 1 February 1, August 1 February 1, August 1 Callable Dates February 1, 2014* February 1, 2016* February 1, 2016* * Or any interest payment date thereafter, callable at par plus unpaid accrued interest in whole or in part at the option of the District. Series 2007 term bonds maturing February 1, 2030 and February 1, 2036 are subject to mandatory redemption beginning February 1, 2028 and February 1, 2031 respectively. Series 2009 term bonds maturing February 1, 2030 and February 1, 2036 are subject to mandatory redemption beginning February 1, 2029 and February 1, 2031 respectively. ** At a price equal to the par value thereof plus accrued interest from the most recent interest payment date to the date fixed for redemption

75 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 3. LONG-TERM DEBT (Continued) Fire Protection Series 2010 Refunding Series 2010A Refunding Series 2012 Amount Outstanding - December 31, 2014 $1,850,000 $ 5,750,000 $ 9,480,000 Interest Rates 3.125%-5.00% 4.00% 2.00%-4.00% Maturity Dates - Serially Beginning/Ending February 1, 2015/2036 February 1, 2015/2022 February 1, 2015/2030 Interest Payment Dates February 1, August 1 February 1, August 1 February 1, August 1 Callable Dates February 1, 2017* February 1, 2020* February 1, 2019* Refunding Series 2013 Refunding Series 2014 Amount Outstanding - December 31, 2014 $ 9,595,000 $ 8,310,000 Interest Rates 2.00%-3.50% 2.84% Maturity Dates - Serially Beginning/Ending February 1, 2015/2034 February 1, 2015/2028 Interest Payment Dates February 1, August 1 February 1, August 1 Callable Dates February 1, 2023* February 1, 2024* * At a price equal to the par value thereof plus accrued interest from the most recent interest payment date to the date fixed for redemption. Series 2010 term bonds maturing February 1, 2020, February 1, 2022, February 1, 2024, February 1, 2026, February 1, 2028, February 1, 2030 and February 1, 2036 are subject to mandatory redemption beginning February 1, 2019, February 1, 2021, February 1, 2023, February 1, 2025, February 1, 2027, February 1, 2029 and February 1, 2031 respectively. As of December 31, 2014, the District had authorized but unissued utility bonds in the amount of $41,221,

76 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 3. LONG-TERM DEBT (Continued) The following is a summary of transactions regarding bonds payable for the year ended December 31, 2014: January 1, December 31, 2014 Additions Retirements 2014 Bonds Payable $ 59,190,000 $ 8,310,000 $ 10,065,000 $ 57,435,000 Unamortized Discounts (254,332) (10,490) (243,842) Unamortized Premiums 681,865 62, ,608 Bonds Payable, Net $ 59,617,533 $ 8,310,000 $ 10,116,767 $ 57,810,766 Amount Due Within One Year $ 2,075,000 Amount Due After One Year 55,735,766 Bonds Payable, Net $ 57,810,766 As of December 31, 2014, the debt service requirements on the bonds outstanding were as follows: Fiscal Year Principal Interest Total 2015 $ 2,075,000 $ 2,237,391 $ 4,312, ,230,000 2,172,195 4,402, ,260,000 2,087,708 4,347, ,340,000 2,003,399 4,343, ,235,000 1,920,574 4,155, ,625,000 8,255,732 20,880, ,055,000 5,619,819 21,674, ,935,000 2,632,125 14,567, ,680, ,507 6,207,507 $ 57,435,000 $ 27,456,450 $ 84,891,450 The bonds are payable from the proceeds of an ad valorem tax levied upon all property subject to taxation within the District, without limitation as to rate or amount

77 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 3. LONG-TERM DEBT (Continued) During the year ended December 31, 2014, the District levied an ad valorem debt service tax at the rate of $0.58 per $100 of assessed valuation, which resulted in a tax levy of $4,159,900 on the adjusted taxable valuation of $717,224,047 for the 2014 tax year. The bond orders require the District to levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due and the cost of assessing and collecting taxes. See Note 7 for the maintenance tax levy. The District s tax calendar is as follows: Levy Date - October 1 or as soon thereafter as practicable. Lien Date - January 1. Due Date - Not later than January 31. Delinquent Date - February 1, at which time the taxpayer is liable for penalty and interest. NOTE 4. SIGNIFICANT BOND RESOLUTION AND LEGAL REQUIREMENTS A. The bond orders state that so long as any of the bonds are outstanding, the District covenants to maintain insurance on such parts of the system as are usually insured by municipal corporations and political subdivisions in Texas operating like properties in similar locations under the same circumstances with a responsible insurance company or companies against risk, accidents or casualties against which and to the extent insurance is usually carried by such municipal corporations and political subdivisions; provided, however, that at any time while any contractor engaged in construction work shall be fully responsible therefore, the District shall not be required to carry such insurance. At the Balance Sheet date, the District had general liability coverage with a maximum limit of $5,000,000, physical damage coverage with a maximum limit of $16,717,269. In addition, the District had boiler and machinery coverage of $16,717,269, automobile liability coverage of $5,000,000 and aggregate pollution liability coverage of $2,000,000. B. The bond orders state that the District is required to provide continuing disclosure of certain general financial information and operating data to each nationally recognized municipal securities information depository and the state information depository. This information, along with the audited annual financial statements, is to be provided within six months after the end of each fiscal year and shall continue to be provided through the life of the bonds

78 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 5. DEPOSITS AND INVESTMENTS Deposits Custodial Credit Risk is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District s deposit policy for custodial credit risk requires compliance with the provisions of Texas statutes. Texas statutes require that any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of the District, having an aggregate market value, including accrued interest, at all times equal to the uninsured cash balance in the fund to which such securities are pledged. At fiscal year end, the carrying amount of the District s deposits was $17,059,792 and the bank balance was $15,820,454. Of the bank balance, $1,989,986 was covered by federal depository insurance and the balance was collateralized with securities held in a third party depository in the District s name. The carrying values of the deposits are included in the Governmental Funds Balance Sheet and the Statement of Net Position at December 31, 2014, as listed below: Certificates Cash of Deposit Total GENERAL FUND $ 6,991,631 $ 3,060,884 $ 10,052,515 DEBT SERVICE FUND 4,538,867 1,046,836 5,585,703 CAPITAL PROJECTS FUND 1,421,574 1,421,574 TOTAL DEPOSITS $ 12,952,072 $ 4,107,720 $ 17,059,792 Investments Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity and that address investment diversification, yield, maturity, and the quality and capability of investment management, and all District funds must be invested in accordance with the following investment objectives: understanding the suitability of the investment to the District s financial requirements, first; preservation and safety of principal, second; liquidity, third; marketability of the investments if the need arises to liquidate the investment before maturity, fourth; diversification of the investment portfolio, fifth; and yield, sixth. The District s investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. No person may invest District funds without express written authority from the Board of Directors

79 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 5. DEPOSITS AND INVESTMENTS (Continued) Investments (Continued) Texas statutes include specifications for and limitations applicable to the District and its authority to purchase investments as defined in the Public Funds Investment Act. Authorized investments are summarized as follows: (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) certain collateralized mortgage obligations, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States, (5) certain A rated or higher obligations of states, agencies, counties, cities, and other political subdivisions of any state, (6) bonds issued, assumed or guaranteed by the State of Israel, (7) insured or collateralized certificates of deposit, (8) certain fully collateralized repurchase agreements secured by delivery, (9) certain bankers acceptances with limitations, (10) commercial paper rated A-1 or P-1 or higher and a maturity of 270 days or less, (11) no-load money market mutual funds and no-load mutual funds with limitations, (12) certain guaranteed investment contracts, (13) certain qualified governmental investment pools and (14) a qualified securities lending program. All investments are recorded at cost, which the District considers to be fair value. The District invests in TexPool, an external investment pool that is not SEC-registered. The State Comptroller of Public Accounts of the State of Texas has oversight of the pool. Federated Investors, Inc. manages the daily operations of the pool under a contract with the Comptroller. The fair value of the District s position in the pool is the same as the value of pool shares. As of December 31, 2014, the District had the following investments and maturities: Maturities in Years Fund and Less Than More Than Investment Type Fair Value GENERAL FUND TexPool $ 65,473 $ 65,473 $ $ $ US Saving Bond Series EE 10,000 10,000 Certificates of Deposit 3,060,884 3,060,884 DEBT SERVICE FUND TexPool 40,915 40,915 Certificate of Deposit 1,046,836 1,046,836 CAPITAL PROJECTS FUND TexPool 89,961 89,961 TOTAL INVESTMENTS $ 4,314,069 $ 4,314,069 $ $ $

80 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 5. DEPOSITS AND INVESTMENTS (Continued) Credit Risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. At December 31, 2014, the District s investment in TexPool was rated AAA, by Standard and Poor s. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District considers the investments in TexPool to have a maturity of less than one year due to the fact the share position can usually be redeemed each day at the discretion of the District, unless there has been a significant change in value. NOTE 6. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2014: January 1, December 31, 2014 Increases Decreases 2014 Capital Assets Not Being Depreciated Land and Land Improvements $ 2,373,562 $ $ $ 2,373,562 Construction in Progress 402,999 2,417,041 1,850, ,062 Total Capital Assets Not Being Depreciated $ 2,776,561 $ 2,417,041 $ 1,850,978 $ 3,342,624 Capital Assets Subject to Depreciation Buildings and Improvements $ 5,686,998 $ $ $ 5,686,998 Water System 15,676, ,698 16,172,855 Wastewater System 16,980,060 1,413,593 18,393,653 Drainage System 11,905, ,211 12,612,497 Total Capital Assets Subject to Depreciation $ 50,248,501 $ 2,617,502 $ $ 52,866,003 Accumulated Depreciation Buildings and Improvements $ 1,248,186 $ 167,137 $ $ 1,415,323 Water System 3,719, ,348 4,212,913 Wastewater System 4,330, ,184 4,841,475 Drainage System 1,997, ,543 2,335,674 Total Accumulated Depreciation $ 11,295,173 $ 1,510,212 $ $ 12,805,385 Total Depreciable Capital Assets, Net of Accumulated Depreciation $ 38,953,328 $ 1,107,290 $ $ 40,060,618 Total Capital Assets, Net of Accumulated Depreciation $ 41,729,889 $ 3,524,331 $ 1,850,978 $ 43,403,242 The District has financed drainage facilities which have been conveyed to other entities for maintenance. As a result, the District s long-term debt is greater than its net capital assets

81 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 6. CAPITAL ASSETS (Continued) Capacity interest costs for the year ended December 31, 2014: January 1, December 31, 2014 Increases Decreases 2014 Capacity Interest Costs Water Purification Plant $ 2,446,547 $ $ $ 2,446,547 Wastewater Treatment Plant 1,975,263 1,975,263 Total Capacity Interest Costs $ 4,421,810 $ $ $ 4,421,810 Less Accumulated Amortization Water Purification Plant $ 1,316,966 $ 61,164 $ $ 1,378,130 Wastewater Treatment Plant 1,183,854 49,382 1,233,236 Total Accumulated Amortization $ 2,500,820 $ 110,546 $ $ 2,611,366 Total Unamortized Capacity Interest Costs $ 1,920,990 $ (110,546) $ $ 1,810,444 NOTE 7. MAINTENANCE TAX On November 8, 1983, the voters of the District approved the levy and collection of a maintenance tax not to exceed $0.25 per $100 of assessed valuation of taxable property within the District. During the year ended December 31, 2014, the District levied an ad valorem maintenance tax at the rate of $0.09 per $100 of assessed valuation, which resulted in a tax levy of $645,501 on the adjusted taxable valuation of $717,224,047 for the 2014 tax year. This maintenance tax is to be used by the General Fund to pay expenditures of operating the District s waterworks and sanitary sewer system. NOTE 8. WATER SUPPLY AGREEMENT On April 2, 1992, the District executed an agreement providing for the general procedures for annexation of Harris County Municipal Utility District No. 192, the transfer of 1,000,000 gallons per day surface water capacity in the City of Houston s Southeast Water Purification Plant (the Plant ) to the District, and the bond financing of improvements to serve the property within the annexed District No The District applied to and received approval from the Commission to use a total of $1,100,000 to purchase the above, $581,833 were bond proceeds released from escrow and the capacity rights from three developers from within the annexed District No. 192 and the remaining balance of $518,167 was from surplus funds held in the Capital Projects Fund. During a prior fiscal year, the City provided a final accounting on this project and the District paid an additional $73,661 for its share of the surface water treatment plant, and the District started receiving surface water from the City. During a prior year, the District purchased an additional 500,000 gallons per day capacity in the Plant for $445,110. As of December 31, 2014,

82 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 8. WATER SUPPLY AGREEMENT (Continued) the District has acquired a total of 1,500,000 gallons per day capacity in the Plant. All amounts paid for the purchase of capacity have been capitalized as an investment in an intangible asset and are being amortized over the life of the agreement with the City of Houston, which is 40 years. During the current year, the District incurred $219,623 in costs relating to the terms of this agreement. NOTE 9. WASTE DISPOSAL AGREEMENT On June 5, 1986, the District entered into a waste disposal contract with the City of Houston, Texas (the City ) providing for the District to receive sewage treatment services at a wholesale rate. In return the District made capital contributions to the City in the total amount of $899,000. With this contribution, the District was able to acquire 1,627,150 gallons per day sewage treatment capacity in the Sagemont Regional Sewage Treatment Plant. In addition, upon annexation of Harris County Municipal Utility District No. 192, the District inherited a wastewater treatment agreement with the City for 1,000,000 gallons per day of capacity. At a later date the City gave consent to the assignment of the agreement to the District. As of the year end, the District is charged a rate for sewage treatment calculated as follows: 0.35 multiplied by $1.368, multiplied by the number of days in the month, multiplied by residential equivalent units. The term of the agreement is 40 years. During the current year, the District incurred a cost of $1,105,147 for sewage treatment in the Sagemont Plant. NOTE 10. RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past three years

83 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 11. REFUNDING BOND SALE August 21, 2014, the District closed on the sale of its $8,310,000 Series 2014 Unlimited Tax Refunding Bonds to refund a portion of the District s Series 2006 Refunding Bonds. The net proceeds of $8,094,320 were used to retire a portion of the Series 2006 Refunding Bonds in the amount of $8,070,000. As a result, the refunded bonds are considered to be defeased and the liability for those bonds has been removed from the Statement of Net Positon. The effect of the refunding decreased total debt service by $702,258 and obtain net present value savings of $563,673. Series Interest Rates Maturities Callable Date Callable at December 31, Refunding 3.80%-4.10% /01/2014 $ -0- NOTE 12. FIRE PROTECTION On August 10, 2000, the District entered into an agreement with the South East Volunteer Fire Department (the SEVFD ), whereby the SEVFD will provide fire protection to persons, buildings, and property located within the boundaries of the District. This agreement became effective on February 1, 2001, after the District declared the favorable results of the voter election to approve the fire plan. Under the terms of the agreement, the District will make monthly payments to the SEVFD. The monthly charge will remain effective until the District s regular January meeting, at which time, the District may consider adjusting the monthly charges. The District may increase, decrease, or leave unchanged the amount of the monthly charges based upon its review of the SEVFD s most recent budget. Any adjustment to the monthly charge shall be solely in the District s discretion. As of December 31, 2014, the monthly payment was $31,901. The term of the agreement is one year (the Initial Term ) and shall be automatically renewed thereafter for successive one-year terms. After the Initial Term, either party may elect not to renew this agreement by giving written notice to the other party at least 60 days before the expiration of the current term. Under the District s current rate order, each residential connection and homeowners association is charged $5.26 per month, each apartment is charged $5.26 per unit plus $0.50 per 1,000 gallons of used water used in excess of 7,000 gallons of water per month times the number of units, and each commercial connection is charged $5.26 for the first 7,000 gallons of water used plus $0.50 per 1,000 gallons of water used thereafter. During the current fiscal year, the District recorded fire protection service expenditures of $382,

84 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 13. PENSION PLANS Employees of the District may participate in a deferred compensation plan adopted under the provisions of Internal Revenue Code Section 457. The District established this plan effective June 15, 2001, under the name of Deferred Compensation Plan for Employees of the District, to enable employees who become covered under the plan to enhance their retirement security by permitting them to enter into agreements with the employer to defer compensation and receive benefits. It is the District s intent that this plan be an Eligible Deferred Compensation Plan in the meaning of Section 457 of the Internal Revenue Code of 1986, as amended, and that it be administered in a manner which is consistent with the requirements of that statute so that the federal income taxation of compensation deferred may be deferred until the compensation and any income attributable thereto is paid or otherwise made available under the terms of this Plan. An individual is eligible to participate in this Plan at any time he or she is an employee of the District. During each employment period in which the employee is a participant in the plan, the District shall defer payment of such part of his compensation as is specified by the employee in his Participation Agreement provided that the maximum that each participant may defer under this plan for any taxable year shall not exceed the lesser of: 1. $15,000 or /3% of the Participant s Includible compensation. All amounts of deferred compensation, whether or not invested by the employer, shall at all times be and remain an asset of the employer. Any and all dividends, capital gains distributions, interest or other income payable on any of the employer s investments of deferred compensation also shall be an asset of the employer. Amounts shall be made available and become payable under this plan to participants or beneficiaries only if the participant ceases to be an employee by reason of termination, retirement, disability or death or if the participant experiences an Unforeseeable Emergency. Distributions from the plan must be made primarily for the benefit of participants. The District also participates in a Simplified Employee Pension Plan. The District contributes 6.5% of each eligible employee s salary into the plan. Each employee can designate the specific mutual funds which receive the contribution. To be eligible for participation in the plan, the employee must have been employed by the District during at least three (3) of the immediately preceding five years. As of April 1, 2007, employees are eligible to participate in the plan upon employment with the District

85 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 14 STRATEGIC PARTNERSHIP AGREEMENT Effective May 9, 2002, the District entered into a Strategic Partnership Agreement with the City of Houston, Texas (the City ). The agreement provides that in accordance with Subchapter F of Chapter 43 of the Local Government Code and Act, the City shall annex a tract of land defined as the Subject Tract for the limited purposes of applying the City s Fire Ordinances within the Subject Tract within the boundaries of the District. This limited purpose annexation will occur upon the City s disannexation of the Subject Tract and the District s annexation of the Subject Tract. The District will continue to develop, to own, and to operate and maintain a water, wastewater, and drainage system in the District. On November 12, 2002, and on May 12, 2005, the District execution first and second amendments to the agreement, respectively. These amendments added properties to the limited purpose annexations. All taxable property within the District shall not be liable for any present or future debts of the City, and current and future taxes levied by the City shall not be levied on taxable property within the District. Upon the limited-purpose annexation of the Subject Tract, the City s municipal courts shall have jurisdiction to adjudicate criminal cases filed under the Fire Ordinances and State laws. Provisions of the Regulatory Plan adopted by the City will be applicable to the Subject Tract of land within the District. The District s assets, liabilities, indebtedness, and obligations will remain the responsibility of the District during the period preceding full-purpose annexation. The City is responsible for notifying the voters within the Subject Tract. The City shall impose a Sales and Use Tax within the boundaries of the Subject Tract upon the limited-purpose annexation of the Subject Tract. The Sales and Use Tax shall be imposed on the receipts from the sale and use at retail of taxable items at the rate of one percent or the rate specified under the future amendments to Chapter 321 of the Tax Code. As consideration for the utility services to be provided by the District, the City will provide police, fire suppression and emergency medical services in the Subject Tract. In consideration for the municipal services to be provided by the City as listed above, the District agrees to make a payment of $100 per year on the anniversary of the Implementation Date of this agreement. The City agrees that it will not annex the District for full purposes or commence any action to annex the District for full purposes during the term of this Agreement. The term of this Agreement is 30 years from the effective date of the agreement. On December 2, 2002, the Amendment to Strategic Partnership Agreement became effective. This amendment allows the City to annex a tract of land defined as the Amendment Tract for the limited purposes of applying the City s Fire Ordinances within the Amendment Tract

86 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 14 STRATEGIC PARTNERSHIP AGREEMENT (Continued) The City shall impose a Sales and Use Tax within the boundaries of the Amendment Tract upon the limited-purpose annexation of the Amendment Tract. The Sales and Use Tax shall be imposed on the receipts from the sale and use at retail of taxable items at the rate of one percent or the rate specified under future amendments to Chapter 321 of the Tax Code. The City agrees to pay the District an amount equal to one-half of all Sales and Use Tax revenues generated within the boundaries of the Amendment Tract. The City agrees to deliver to the District its share of the sales tax receipts within 30 days of the City receiving the funds from the State Controller s office. During the current fiscal year, the District received $130,874 from the City in accordance with this agreement. NOTE 15. AGREEMENT FOR CONVEYANCE OF DRAINAGE CAPACITY On January 7, 2002, the District entered into an Agreement for Conveyance of Drainage Capacity with the Pasadena Independent School District ( PISD ). PISD agreed to pay the District $380,000 for 82 cubic feet per second of drainage capacity in a drainage channel previously constructed by the District to serve the Clear Brook Meadows subdivision within the District. The District remains responsible for maintenance of the channel. The contract shall remain in effect for a perpetual term. NOTE 16. BOND ANTICIPATION NOTE On December 16, 2014, the District closed on Series 2014 Bond Anticipation Note ( BAN ) in the amount of $750,388 to reimburse the Developer for the cost of facilities to serve College Place, Sections 4, 5 and 6 and clearing and grubbing of undeveloped acres for College Place. NOTE 17. DUE TO DEVELOPERS AND UNREIMBURSED COSTS The District has executed developer financing agreements with Developers within the District. The agreements call for the Developers to fund costs associated with water, sewer, and drainage facilities until such time as the District can sell bonds. As reflected in the Statement of Net Position, $1,088,119 has been recorded as a liability for facilities financed by Developers which the District now operates and maintains. Reimbursement to the Developers will come from future bond sales

87 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2014

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89 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2014 Variance Original and Positive Final Budget Actual (Negative) REVENUES Property Taxes $ 591,246 $ 599,040 $ 7,794 Water Service 2,111,752 2,116,950 5,198 Wastewater Service 2,494,060 2,514,945 20,885 Sales Tax Revenue 120, ,874 10,874 Penalty and Interest 93,808 96,777 2,969 Tap Connection and Inspection Fees 621, ,823 (400,300) Investment Revenues 25,000 61,613 36,613 Miscellaneous Revenues 258, , ,515 TOTAL REVENUES $ 6,315,825 $ 6,102,373 $ (213,452) EXPENDITURES Services Operations: Personnel $ 623,655 $ 572,791 $ 50,864 Professional Fees 172, ,419 (25,419) Contracted Services 1,807,053 1,784,863 22,190 Purchased Water Service 404, , ,425 Purchased Wastewater Service 1,071,048 1,105,147 (34,099) Utilities 179, , Repairs and Maintenance 829, , ,913 Other 556, ,407 98,963 Capital Outlay 145, ,694 (622,694) TOTAL EXPENDITURES $ 5,787,974 $ 5,842,186 $ (54,212) NET CHANGE IN FUND BALANCE $ 527,851 $ 260,187 $ (267,664) FUND BALANCE - JANUARY 1, ,176,226 9,176,226 FUND BALANCE - DECEMBER 31, 2014 $ 9,704,077 $ 9,436,413 $ (267,664) See accompanying independent auditor s report

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91 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SUPPLEMENTARY INFORMATION REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE DECEMBER 31, 2014

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93 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SERVICES AND RATES FOR THE YEAR ENDED DECEMBER 31, SERVICES PROVIDED BY THE DISTRICT DURING THE FISCAL YEAR: X Retail Water X Wholesale Water X Drainage X Retail Wastewater X Wholesale Wastewater Irrigation X Parks/Recreation X Fire Protection X Security X Solid Waste/Garbage Flood Control Roads Participates in joint venture, regional system and/or wastewater service (other than emergency X interconnect) Other (specify): 2. RETAIL SERVICE PROVIDERS a. RETAIL RATES FOR A 3/4 METER (OR EQUIVALENT): Based on the rate order approved December 17, Minimum Charge Minimum Usage Flat Rate Y/N Rate per 1,000 Gallons over Minimum Use Usage Levels WATER: $ ,000 N $ 1.25 $ 1.75 $ 2.50 $ ,001 to 10,000 10,001 to 15,000 15,001 to 25,000 25,001 and up WASTEWATER: $37.71 Y SURCHARGE: Solid Waste/ Garbage Commission Regulatory Assessments Fire Protection Services Regional Water Authority Fees Other (Name) Cost of service included above $5.26 Y District employs winter averaging for wastewater usage? Total monthly charges per 10,000 gallons usage: Water: $20.78 Wastewater: $37.71 Surcharge: $5.26 Yes X No See accompanying independent auditor s report

94 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SERVICES AND RATES FOR THE YEAR ENDED DECEMBER 31, RETAIL SERVICE PROVIDERS (Continued) b. WATER AND WASTEWATER RETAIL CONNECTIONS: (Unaudited) Meter Size Total Connections Active Connections ESFC Factor Active ESFCs Unmetered x 1.0 <¾ 5,466 5,353 x 1.0 5, x ½ x x x x x x x Total Water Connections 5,668 5,552 6,904 Total Wastewater Connections 5,416 5,313 x 1.0 5, TOTAL WATER CONSUMPTION DURING THE FISCAL YEAR ROUNDED TO THE NEAREST THOUSAND: (Unaudited) Gallons pumped into system: 149,450,000 Water Accountability Ratio: 85.5% (Gallons billed and sold/gallons pumped and purchased) Gallons billed to customers: 545,440,000 Gallons purchased: 489,046,000 From: City of Houston See accompanying independent auditor s report

95 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SERVICES AND RATES FOR THE YEAR ENDED DECEMBER 31, STANDBY FEES (authorized only under TWC Section ): Does the District have Debt Service standby fees? Yes No X Does the District have Operation and Maintenance standby fees? Yes No X 5. LOCATION OF DISTRICT: Is the District located entirely within one county? Yes X No County in which District is located: Harris County, Texas Is the District located within a city? Entirely Partly Not at all X Is the District located within a city s extra territorial jurisdiction (ETJ)? Entirely X Partly Not at all ETJ in which District is located: City of Houston, Texas Are Board Members appointed by an office outside the District? Yes No X See accompanying independent auditor s report

96 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SCHEDULE OF GENERAL FUND EXPENDITURES FOR THE YEAR ENDED DECEMBER 31, 2014 PERSONNEL EXPENDITURES (Including Benefits) $ 572,791 PROFESSIONAL FEES: Auditing $ 34,000 Engineering 69,862 Legal 91,457 Financial Advisor 2,100 TOTAL PROFESSIONAL FEES $ 197,419 PURCHASED SERVICES FOR RESALE: Purchased Water Service $ 219,623 Purchased Wastewater Service 1,105,147 TOTAL PURCHASED SERVICES FOR RESALE $ 1,324,770 CONTRACTED SERVICES: Bookkeeping $ 19,397 UTILITIES: Electricity $ 167,694 Telephone 10,961 TOTAL UTILITIES $ 178,655 REPAIRS AND MAINTENANCE $ 558,587 ADMINISTRATIVE EXPENDITURES: Director Fees $ 34,200 Dues 1,884 Election Costs 13,705 Insurance 44,441 Meeting Expense 10,988 Office Supplies and Postage 28,934 Software 80,547 Travel and Meetings 7,694 Website 6,436 Other 25,043 TOTAL ADMINISTRATIVE EXPENDITURES $ 253,872 See accompanying independent auditor s report

97 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT SCHEDULE OF GENERAL FUND EXPENDITURES FOR THE YEAR ENDED DECEMBER 31, 2014 CAPITAL OUTLAY: Capitalized Assets $ 767,694 Expenditures Not Capitalized TOTAL CAPITAL OUTLAY $ 767,694 TAP CONNECTIONS $ 77,569 SOLID WASTE DISPOSAL $ 734,830 SECURITY $ 647,823 FIRE FIGHTING $ 382,813 OTHER EXPENDITURES: Chemicals $ 15,502 Laboratory Fees 14,347 Meter Reading 25,870 Permit Fees 7,685 Regulatory Assessment 36,355 Other 26,207 TOTAL OTHER EXPENDITURES $ 125,966 TOTAL EXPENDITURES $ 5,842,186 Number of persons employed by the District 8 Full-Time -0- Part-Time See accompanying independent auditor s report

98 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 Accrued Interest Identification or Interest Maturity Balance at Receivable at Funds Certificate Number Rate Date End of Year End of Year GENERAL FUND TexPool XXXX0001 Varies Daily $ 65,473 $ US Saving Bond Series EE N/A 4.00% 09/01/24 10,000 Certificate of Deposit XXXX % 01/08/15 47,000 Certificate of Deposit XXXX % 01/08/15 99,000 Certificate of Deposit XXXX % 01/08/15 99,000 Certificate of Deposit XXXX % 12/09/15 1,276,811 Certificate of Deposit XXXX % 07/08/15 244,986 Certificate of Deposit XXXX % 06/30/15 1,046,836 Certificate of Deposit XXXX % 06/21/15 247,251 TOTAL GENERAL FUND $ 3,136,357 $ DEBT SERVICE FUND TexPool XXXX00003 Varies Daily $ 40,915 $ Certificate of Deposit XXXX % 06/30/15 1,046,836 TOTAL DEBT SERVICE FUND $ 1,087,751 $ CAPITAL PROJECTS FUND TexPool XXXX00002 Varies Daily $ 89,961 $ TOTAL - ALL FUNDS $ 4,314,069 $ See accompanying independent auditor s report

99 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED DECEMBER 31, 2014 Maintenance Taxes Debt Service Taxes TAXES RECEIVABLE - JANUARY 1, 2014 $ 229,997 $ 1,484,509 Adjustments to Beginning Balance (6,874) $ 223,123 (46,137) $ 1,438,372 Original 2014 Tax Levy $ 564,325 $ 3,636,763 Adjustment to 2014 Tax Levy 81, , ,137 4,159,900 TOTAL TO BE ACCOUNTED FOR $ 868,624 $ 5,598,272 TAX COLLECTIONS: Prior Years $ 214,715 $ 1,383,729 Current Year 427, ,730 2,751,874 4,135,603 TAXES RECEIVABLE - DECEMBER 31, 2014 $ 226,894 $ 1,462,669 TAXES RECEIVABLE BY YEAR: 2014 $ 218,486 $ 1,408, ,509 22, ,237 7, , ,172 7, , , , and Prior 255 1,906 TOTAL $ 226,894 $ 1,462,669 See accompanying independent auditor s report

100 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED DECEMBER 31, PROPERTY VALUATIONS: Land Improvements Personal Property Exemptions TOTAL PROPERTY VALUATIONS $ 204,386, ,570,360 18,769,836 (255,503,084) $ 717,224,047 $ 197,740, ,521,372 20,199,186 (231,718,445) $ 669,742,484 $ 190,324, ,337,060 18,483,461 (222,951,851) $ 663,192,747 $ $ 188,886, ,979,622 18,695,725 (220,986,625) 666,574,820 TAX RATES PER $100 VALUATION: Debt Service Maintenance $ $ $ $ TOTAL TAX RATES PER $100 VALUATION $ 0.67 $ 0.67 $ 0.67 $ 0.67 ADJUSTED TAX LEVY* $ 4,805,401 $ 4,486,916 $ 4,443,392 $ 4,466,052 PERCENTAGE OF TAXES COLLECTED TO TAXES LEVIED % % % % * Based upon the adjusted tax levy at the time of the audit for the fiscal year in which the tax was levied. Maintenance Tax Maximum tax rate of $0.25 per $100 of assessed valuation approved by voters on November 8, See accompanying independent auditor s report

101 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 410,000 $ 24,200 $ 434, ,000 8, , $ 810,000 $ 32,200 $ 842,200 See accompanying independent auditor s report

102 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 100,000 $ 1,850 $ 101, $ 100,000 $ 1,850 $ 101,850 See accompanying independent auditor s report

103 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 100,000 $ 45,900 $ 145, ,000 41, , ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,150 39, ,000 19, , $ 1,070,000 $ 811,575 $ 1,881,575 See accompanying independent auditor s report

104 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 555,000 $ 30,893 $ 585, ,000 10, , $ 1,105,000 $ 41,205 $ 1,146,205 See accompanying independent auditor s report

105 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 125,000 $ 499,105 $ 624, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 62, , ,000 21, , $ 11,265,000 $ 7,158,652 $ 18,423,652 See accompanying independent auditor s report

106 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ $ 443,976 $ 443, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 84, , ,000 51, , ,000 17, ,670 $ 8,100,000 $ 7,083,451 $ 15,183,451 See accompanying independent auditor s report

107 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 50,000 $ 78,875 $ 128, ,000 76, , ,000 74, , ,000 72, , ,000 71, , ,000 69, , ,000 67, , ,000 65, , ,000 62, , ,000 60, , ,000 57, , ,000 54, , ,000 51, , ,000 47, , ,000 43, , ,000 39, , ,000 34, , ,000 29, , ,000 23, , ,000 16, , ,000 10, , ,000 3, , $ 1,850,000 $ 1,111,914 $ 2,961,914 See accompanying independent auditor s report

108 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S A Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 605,000 $ 217,900 $ 822, , , , , , , , , , , , , ,000 81, , ,000 49, , ,000 16, , $ 5,750,000 $ 977,400 $ 6,727,400 See accompanying independent auditor s report

109 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 15,000 $ 376,450 $ 391, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,895, ,900 2,011, ,975,000 39,500 2,014, $ 9,480,000 $ 4,137,800 $ 13,617,800 See accompanying independent auditor s report

110 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 60,000 $ 300,719 $ 360, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 87, , ,000 64, , ,000 40, , ,000 13, , $ 9,595,000 $ 3,924,203 $ 13,519,203 See accompanying independent auditor s report

111 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 R E F U N D I N G S E R I E S Due During Fiscal Principal Interest Due Years Ending Due February 1/ December 31 February 1 August 1 Total 2015 $ 55,000 $ 217,523 $ 272, , , , , , , , , , , , , , , , , , , , , , , ,146 1,135, , ,243 1,132, ,030, ,488 1,138, ,060,000 78,810 1,138, ,105,000 48,067 1,153, ,140,000 16,188 1,156, $ 8,310,000 $ 2,176,200 $ 10,486,200 See accompanying independent auditor s report

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113 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT LONG-TERM DEBT SERVICE REQUIREMENTS DECEMBER 31, 2014 A N N U A L R E Q U I R E M E N T S F O R A L L S E R I E S Due During Fiscal Total Years Ending Total Total Principal and December 31 Principal Due Interest Due Interest Due 2015 $ 2,075,000 $ 2,237,391 $ 4,312, ,230,000 2,172,195 4,402, ,260,000 2,087,708 4,347, ,340,000 2,003,399 4,343, ,235,000 1,920,574 4,155, ,285,000 1,838,482 4,123, ,395,000 1,749,369 4,144, ,535,000 1,652,844 4,187, ,650,000 1,556,205 4,206, ,760,000 1,458,832 4,218, ,880,000 1,355,405 4,235, ,000,000 1,247,000 4,247, ,200,000 1,132,353 4,332, ,365,000 1,010,357 4,375, ,610, ,704 4,484, ,770, ,238 4,495, ,895, ,700 2,502, ,985, ,791 2,508, ,090, ,984 2,524, ,195, ,412 2,535, ,360, ,935 2,594, ,570, ,957 1,708, ,000 84, , ,000 51, , ,000 17, ,670 $ 57,435,000 $ 27,456,450 $ 84,891,450 See accompanying independent auditor s report

114 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT CHANGE IN LONG-TERM BOND DEBT FOR THE YEAR ENDED DECEMBER 31, 2014 Bonds Original Outstanding Description Bonds Issued January 1, 2014 Clear Brook City Municipal Utility District Unlimited Refunding Tax Bonds - Series 2003 $ 4,265,000 $ 1,200,000 Clear Brook City Municipal Utility District Unlimited Tax Bonds - Series ,600, ,000 Clear Brook City Municipal Utility District Unlimited Tax Bonds - Series ,690,000 1,170,000 Clear Brook City Municipal Utility District Unlimited Refunding Tax Bonds - Series ,845,000 9,230,000 Clear Brook City Municipal Utility District Unlimited Tax Bonds - Series ,890,000 11,390,000 Clear Brook City Municipal Utility District Unlimited Tax Bonds - Series ,100,000 8,100,000 Clear Brook City Municipal Utility District Unlimited Tax Fire Protection Bonds - Series ,900,000 1,900,000 Clear Brook City Municipal Utility District Unlimited Refunding Tax Bonds - Series 2010A 8,080,000 6,825,000 Clear Brook City Municipal Utility District Unlimited Refunding Tax Bonds - Series ,570,000 9,495,000 Clear Brook City Municipal Utility District Unlimited Refunding Tax Bonds - Series ,680,000 9,680,000 Clear Brook City Municipal Utility District Unlimited Tax Refunding Bonds - Series ,310,000 TOTAL $ 88,930,000 $ 59,190,000 * Includes all bonds secured with tax revenues. Bonds in this category may also be secured with other revenues in combination with taxes. See accompanying independent auditor s report

115 Current Year Transactions Retirements Bonds Outstanding Bonds Sold Principal Interest December 31, 2014 Paying Agent Wells Fargo Bank N.A. $ $ 390,000 $ 39,810 $ 810,000 Houston, TX Wells Fargo Bank N.A. 100,000 5, ,000 Houston, TX Wells Fargo Bank N.A. 100,000 51,650 1,070,000 Houston, TX Wells Fargo Bank N.A. 8,125, ,525 1,105,000 Houston, TX Wells Fargo Bank N.A. 125, ,105 11,265,000 Houston, TX Wells Fargo Bank N.A. 443,976 8,100,000 Houston, TX Wells Fargo Bank N.A. 50,000 80,875 1,850,000 Houston, TX Wells Fargo Bank N.A. 1,075, ,125 5,750,000 Houston, TX Wells Fargo Bank N.A. 15, ,750 9,480,000 Houston, TX Wells Fargo Bank N.A. 85, ,169 9,595,000 Houston, TX Bank of Texas, N.A. 8,310,000 8,310,000 Houston, TX $ 8,310,000 $ 10,065,000 $ 2,417,460 $ 57,435,000 See accompanying independent auditor s report

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117 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT CHANGE IN LONG-TERM BOND DEBT FOR THE YEAR ENDED DECEMBER 31, 2014 Fire Bond Authority: Tax Bonds* Protection Bonds Amount Authorized by Voters $ 115,835,000 $ 1,900,000 Amount Issued 74,613,964 1,900,000 Remaining to be Issued $ 41,221,036 $ Debt Service Fund cash and investment balances as of December 31, 2014: $ 5,626,618 Average annual debt service payment (principal and interest) for remaining term of all debt: $ 3,395,658 See Note 3 for interest rate, interest payment dates and maturity dates. * Includes all bonds secured with tax revenues. Bonds in this category may also be secured with other revenues in combination with taxes. See accompanying independent auditor s report

118 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND-FIVE YEARS REVENUES Property Taxes $ 599,040 $ 592,854 $ 597,386 Water Service 2,116,950 2,084,543 2,145,135 Wastewater Service 2,514,945 2,473,209 2,464,002 Tap Connection and Inspection Fees 220,823 93, ,217 Sales Tax Revenue 130, , ,226 Penalty and Interest 96,777 88, ,949 Investment Revenues 61,613 60,499 52,901 Miscellaneous Revenues 361, , ,417 TOTAL REVENUES $ 6,102,373 $ 6,012,110 $ 6,223,233 EXPENDITURES Personnel $ 572,791 $ 509,403 $ 526,687 Professional Fees 197, , ,173 Contracted Services 1,784,863 1,808,603 1,799,715 Purchased Water Service 219, ,206 1,044,125 Purchased Wastewater Service 1,105,147 1,065, ,111 Utilities 178, , ,096 Repairs and Maintenance 558, , ,125 Other 457, , ,511 Capital Outlay 767, , ,605 TOTAL EXPENDITURES $ 5,842,186 $ 5,512,669 $ 5,503,148 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 260,187 $ 499,441 $ 720,085 OTHER FINANCING SOURCES (USES) Transfers In(Out) $ $ $ Amounts NET CHANGE IN FUND BALANCE $ 260,187 $ 499,441 $ 720,085 BEGINNING FUND BALANCE 9,176,226 8,676,785 7,956,700 ENDING FUND BALANCE $ 9,436,413 $ 9,176,226 $ 8,676,785 See accompanying independent auditor s report

119 Percentage of Total Revenue $ 613,937 $ 634, % 9.9 % 9.5 % 9.8 % 9.5 % 2,433,721 2,058, ,391,314 2,353, ,499 60, , , ,015 93, ,327 23, ,926 1,360, $ 6,270,478 $ 6,701, % % % % % $ 487,966 $ 459, % 8.5 % 8.5 % 7.8 % 6.9 % 250, , ,779,705 1,748, , , , , , , , , , , ,432,613 1,586, $ 6,529,694 $ 6,848, % 91.7 % 88.5 % % % $ (259,216) $ (146,948) 4.3 % 8.3 % 11.5 % (4.1) % (2.3) % $ $ 1,911,208 $ (259,216) $ 1,764,260 8,215,916 6,451,656 $ 7,956,700 $ 8,215,916 See accompanying independent auditor s report

120 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES DEBT SERVICE FUND-FIVE YEARS Amounts REVENUES Property Taxes $ 3,860,484 $ 3,821,543 $ 3,851,235 Penalty and Interest 42,309 38,276 44,358 Investment Revenues 23,906 19,123 24,230 Miscellaneous Revenues 43 TOTAL REVENUES $ 3,926,742 $ 3,878,942 $ 3,919,823 EXPENDITURES Tax Collection Expenditures $ 125,552 $ 129,248 $ 126,876 Debt Service Principal 1,995,000 1,920,000 1,630,000 Debt Service Interest and Fees 2,421,010 2,500,017 2,596,985 Bond Issuance Costs 207, , ,308 TOTAL EXPENDITURES $ 4,749,462 $ 4,933,069 $ 4,824,169 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (822,720) $ (1,054,127) $ (904,346) OTHER FINANCING SOURCES (USES) Transfers In (Out) $ $ $ Long-Term Debt Issued 8,310,000 9,680,000 9,570,000 Payment to Refunded Bond Escrow Agent (8,094,320) (9,415,215) (9,433,495) Bond Discount (Premium) 121, ,495 TOTAL OTHER FINANCING SOURCES (USES) $ 215,680 $ 386,309 $ 464,000 NET CHANGE IN FUND BALANCE $ (607,040) $ (667,818) $ (440,346) BEGINNING FUND BALANCE 2,969,469 3,637,287 4,077,633 ENDING FUND BALANCE $ 2,362,429 $ 2,969,469 $ 3,637,287 TOTAL ACTIVE RETAIL WATER CONNECTIONS 5,552 5,495 5,456 TOTAL ACTIVE RETAIL WASTEWATER CONNECTIONS 5,313 5,256 5,217 See accompanying independent auditor s report

121 ` Percentage of Total Revenue $ 3,956,890 $ 4,090, % 98.5 % 98.3 % 97.6 % 97.8 % 49,745 61, ,711 27, $ 4,057,974 $ 4,179, % % % % % $ 151,180 $ 126, % 3.3 % 3.2 % 3.7 % 3.0 % 1,660,000 1,385, ,630,618 2,936, , $ 4,441,798 $ 4,775, % % % % % $ (383,824) $ (595,125) (21.0) % (27.2) % (23.1) % (9.4) % (14.2) % $ $ (184,308) 8,080,000 (8,013,614) 242,028 $ $ 124,106 $ (383,824) $ (471,019) 4,461,457 4,932,476 $ 4,077,633 $ 4,461,457 5,428 5,402 5,197 5,301 See accompanying independent auditor s report

122 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS DECEMBER 31, 2014 District Mailing Address - Clear Brook City Municipal Utility District c/o Norton Rose Fulbright US LLP 1301 McKinney Street, Suite 5100 Houston, TX District Telephone Number - (409) Board Members Term of Office (Elected or Appointed) Fees of Office for the year ended December 31, 2014 Reimbursements for the year ended December 31, 2014 Title Jim B. Bishop 05/14 05/18 (Elected) Stephen Buckman 05/12 05/16 (Elected) David E. Flickinger 05/12 05/16 (Elected) Charles T. Tylka 05/12 05/16 (Elected) James Towey 05/14 05/18 (Elected) $ 7,200 $ -0- President/ Investment Officer $ 5,400 $ -0- Vice President $ 7,200 $ -0- Secretary $ 7,200 $ 549 Assistant Secretary $ 4,200 $ 960 Assistant Secretary Notes: No Director has any business or family relationships (as defined by the Texas Water Code) with majors landowners in the District, with the District s developers or with any of the District s consultants. Submission date of most recent District Registration Form (TWC Sections and ): May 23, 2014 The limit on Fees of Office that a Director may receive during a fiscal year is $7,200 as set by Board Resolution (TWC Section ) on October 2, Fees of Office are the amounts actually paid to a Director during the District s current fiscal year. See accompanying independent auditor s report

123 CLEAR BROOK CITY MUNICIPAL UTILITY DISTRICT BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS DECEMBER 31, 2014 Consultants: Date Hired Fees for the year ended December 31, 2014 Title Norton Rose Fulbright US LLP 03/09/06 $ 101,844 $ 91,800 Attorney/ Bond Counsel McCall Gibson Swedlund Barfoot PLLC 12/03/92 $ 25,750 Auditor DRDA, PLLC 07/01/10 $ 33,896 Bookkeeper Linebarger, Grogan, Blair and Sampson 04/13/06 $ 11,070 Delinquent Tax Attorney Blackline Engineering 03/21/12 $ 284,457 Engineer The GMS Group 01/18/96 $ 85,700 Financial Advisor Chris Clark 11/02/00 $ 110,395 General Manager Bob Leared, RTA 03/06/86 $ 68,853 Tax Assessor/ Collector See accompanying independent auditor s report

124 APPENDIX B SPECIMEN MUNICIPAL BOND INSURANCE POLICY

125 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), 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 Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.