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Item 07 - Bonds
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: BRUNO RUMBELOW, ACTING CITY MANAGER'--\�)�— MEETING DATE: JUNE 21, 2005 SUBJECT: ORDINANCE AUTHORIZING THE SALE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 AND COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A RECOMMENDATION: City Council to consider approving an ordinance for the sale of $11,510,000 of General Obligation Refunding Bonds, Series 2005 and $24,125,000 Combination Tax and Tax Increment Reinvestment Zone Refunding Revenue Bonds, Series 2005A. BACKGROUND: At the June 21, 2005 City Council meeting, a representative of the First Southwest Company, the City Financial Advisor, will present bids for the sale of $35,635,000 of General Obligation Refunding Bonds in order to refinance $33,820,000 of Bonds. This is being done in order to lower the City's overall debt service requirements. The bonds to be refinanced are listed below: Series Combination Tax and Revenue Certificates Of Obligation, Series 2000 General Obligation Bond, Series 2000 General Obligation Bond, Series 2000A Combination Tax and Revenue Certificates Of Obligation, Series 2000A Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000 Total of bonds to be refinanced Amount Interest Rate $ 880,000 5.23% $3,485,000 5.70% $3,880,000 " 5.44% $3,020,000 5.38% $11,265,000 $22,555,000 5.88% $33,820.000 4.45% TIC The various Bond Series were originally issued for the purpose of constructing capital improvements. The Certificates of Obligation were issued for TIF No. 2. June 15, 2005 (3:12PM) c - •o s u N J - F � r PRELINIINARY OFFICIAL STATEMENT Dated June_, 2005 NEW ISSUE - Book -Entry -Only Ratings: Moody's: Applied For S&P: Applied For (see "Other Information — Ratings" herein) In the opinion of Bond Counsel, interest on the Series 2005 Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE SERIES 2005 BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $11,510,000* CITY OF GRAPEVINE, TEXAS (Tarrant County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 Dated Date: June 1, 2005 Due: February 15, as shown below PAYMENT TERMS ... Interest on the $11,510,000* City of Grapevine, Texas General Obligation Refunding Bonds, Series 2005 (the "Series 2005 Bonds") will accrue from June 1, 2005 (the "Dated Date"), will be payable February 15 and August 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Series 2005 Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and are direct obligations of the City of Grapevine (the "City"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Series 2005 Bonds (the "Series 2005 Bond Ordinance") (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Series 2005 Bonds will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Series 2005 Bonds will be used for to pay the costs of issuance related to the sale of the Series 2005 Bonds. Amount Maturity Rate 65,000 2007 65,000 2008 70,000 2009 70,000 2010 75,000 2011 80,000 2012 85,000 2013 1,290,000 2014 NIATURITY SCHEDULE* CUSIP Yield Suffix" Amount Maturity $ 1,355,000 2015 1,430,000 2016 1,500,000 2017 1,590,000 2018 1,675,000 2019 1,050,000 2020 1,110,000 2021 (Accrued Interest from June 1, 2005 to be added) CUSIP Prefix(": 388622 CUSIP Rate Yield Suffix," OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005 Bonds having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). SEPARATE ISSUES ... The Series 2005 Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, Combination Tax and Tar Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A" (the "Series 2005A Bonds"), under a common Preliminary Official Statement, and such Series 2005 Bonds and Series 2005A Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Series 2005 Bonds and Series 2005A Bonds are separate and distinct securities offerings being issued and sold independently except for the common Preliminary Official Statement, and while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. LEGALITY ... The Series 2005 Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain legal matters will be passed upon for the Underwriters by , Dallas, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Series 2005 Bonds will be available for delivery through The Depository Trust Company on July 13, 2005. * Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY r, — o � PRELIMINARY OFFICIAL STATEMENT Ratings: Moody's: Applied For Dated June _, 2005 S&P: Applied For (see "Other Information — NEW ISSUE - Book -Entry -Only Ratings" herein) In the opinion of Bond Counsel, interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005A Bonds are not private activity bonds. See "Tax Exemption' herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE SERIES 2005A BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $24,125,000" CITY OF GRAPEVINE, TEXAS (Tarrant County) COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A Dated Date: June 1, 2005 Due: August 15, as shown below PAYMENT TERMS ... Interest on the $24,125,000' City of Grapevine, Texas Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A (the "Series 2005A Bonds") will accrue from June 1, 2005 (the "Dated Date"), will be payable August 15 and February 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005A 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 Series 2005A Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series 2005A Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005A 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 Series 2005A Bonds. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Series 2005A Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter and constitute direct Obligation of the City of Grapevine, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a subordinate lien on and pledge of the Tax Increments deposited into the Tax Increment Fund established for the City's Reinvestment Zone Number Two (the "Zone"), as provided in the ordinance authorizing the Series 2005A Bonds (the "Series 2005A Bond Ordinance") (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Series 2005A Bonds will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Series 2005A Bonds will be used for to pay the costs of issuance related to the sale of the Series 2005A Bonds. Amount Maturity Rate $ 145,000 2008 150,000 2009 155,000 2010 160,000 2011 165,000 2012 175,000 2013 185,000 2014 195,000 2015 1,585,000 2016 1,675,000 2017 MATURITY SCHEDULE" CUSIP Yield suffix", Amount Maturity $ 1,755,000 2018 1,850,000 2019 1,950,000 2020 2,050,000 2021 2,155,000 2022 2,260,000 2023 2,380,000 2024 2,505,000 2025 2,630,000 2026 (Accrued Interest from June 1, 2005 to be added) CUSIP Prefix t..: 388622 CUSIP Rate Yield Suffix", OPnONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005A Bonds having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). SEPARATE ISSUES ... The Series 2005A Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2005" (the "Series 2005 Bonds"), and such Series 2005A Bonds and Series 2005 Bonds are hereinafter sometimes referred to collectively as the "Obligation". The Series 2005A Bonds and Series 2005 Bonds are separate and distinct securities offerings being issued and sold independently except for the common Preliminary Official Statement, and, while the Obligation share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. LEGALITY ... The Series 2005A Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain legal matters will be passed upon for the Underwriters by , Dallas, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Series 2005A Bonds will be available for delivery through The Depository Trust Company on July 13, 2005. • Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation ofan offer to buy in arty jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, ifgiven or made, such other information or representations must not be relied upon. For purposes of compliance with Rule I5c2-12 of the Securities and Exchange Commission (the "Rule'), this document constitutes an Official Statement of the City with respect to the Bonds that has been "deemed final" by the City as of its date except for the omission of no more than the information permitted by the Rule. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Preliminary Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness ofsuch estimates and opinions, or that they will be realized. The Underwriters have provided the following sentence for inclusion in this Preliminary Official Statement. The Underwriters have reviewed the information in this Preliminary Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Preliminary 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 City or other matters described. NEITHER THE CITY, ITS FINANCIAL ADVISOR, NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK - ENTRY ONLY SYSTEM. LV CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS ATA LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCHSTABILIZING, IF COMMENCED, MAYBE DISCONTINUED ATANY TIME. TABLE OF CONTENTS PRELIMINARY OFFICIAL STATEMENT SUMMARY ....... 6 CITY OFFICIALS, STAFF AND CONSULTANTS ................. 8 ELECTED OFFICIALS.............................................................. 8 SELECTED ADMINISTRATIVE STAFF ...................................... 8 CONSULTANTS AND ADVISORS ............................................. 8 INTRODUCTION.......................................................................... 9 PLAN OF FINANCING................................................................9 THE SERIES 2005 BONDS AND SERIES 2005A BONDS ....10 TAX INCREMENT REINVESTMENT ZONE ....................... 15 TAX INFORMATION.................................................................16 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .................................................... 19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY................................................................ 20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY.................................................................... 21 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY. 21 TABLE 5 - TEN LARGEST TAXPAYERS...............................21 TABLE 6 - TAX ADEQUACY................................................22 TABLE 7 - ESTIMATED OVERLAPPING DEBT......................22 DEBT INFORMATION.............................................................23 TABLE 8 - GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS......................................................... 23 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION.............................................................. 24 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT .... 24 TABLE 11 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS ................................................. 24 TABLE 12 - OTHER OBLIGATIONS........................................24 FINANCIAL INFORMATION..................................................25 TABLE 13 — CHANGES IN NET ASSETS ................................ 25 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY................................................................... 26 TABLE 14 - MUNICIPAL SALES TAX HISTORY .................... 26 TABLE 15 - CURRENT INVESTMENTS ................................... 29 TAXMATTERS.......................................................................... 30 OTHER INFORMATION.......................................................... 32 RATINGS.............................................................................. 32 LITIGATION.......................................................................... 32 REGISTRATION AND QUALIFICATION OF SERIES 2005 BONDS AND SERIES 2005A BONDS FOR SALE ...................... 32 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ....................................................... 32 LEGAL MATTERS................................................................. 32 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION........................................................... 33 CONTINUING DISCLOSURE OF INFORMATION ..................... 33 FINANCIAL ADVISOR........................................................... 34 FORWARD-LOOKING STATEMENTS DISCLAIMER ................ 34 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS........................................................ 35 UNDERWRITING................................................................... 35 APPROVAL OF PRELIMINARY OFFICIAL STATEMENT.......... 35 SCHEDULE OF REFUNDED OBLIGATIONS......... Schedule I APPENDICES GENERAL INFORMATION REGARDING THE CITY ................. A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .......... B FORM OF BOND COUNSEL'S OPINIONS ................................ C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. PRELIMINARY OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Series 2005 Bonds and Series 2005A Bonds to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 38 square miles (see "Introduction - Description of City"). THE SERIES 2005 BONDS ............. The $11,510,000* General Obligation Refunding Bonds, Series 2005 are to mature on February 15 in the years 2007 through 2021 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 A Bonds"). THE SERIES 2005A BONDS .......... The $24,125,000* Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A are to mature on August 15 in the years 2008 through 2026 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005A Bonds"). PAYMENT OF INTEREST .............. Interest on the Obligations accrues from June 1, 2005, and is payable February 15, 2006, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 Bonds and Series 2005A Bonds"). AUTHORITY FOR ISSUANCE.......... The Obligations are issued pursuant to the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, Section 9.26 of the City's Home Rule Charter, and the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance passed by the City Council of the City (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). SECURITY FOR THE SERIES 2005 BONDS ................... The Series 2005 Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limit prescribed by law, on all taxable property located within the City (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). SECURITY FOR THE SERIES 2005A BONDS ................ The Series 2005A Bonds constitute direct obligations of the City, payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a subordinate lien on and pledge of the Tax Increments of the City's Reinvestment Zone Number Two (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Obligations having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). TAx EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Series 2005 Bonds and Series 2005A Bonds will be excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds and Series 2005A Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. USE OF PROCEEDS ........................ Proceeds from the sale of the Obligations will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Obligations will be used for to pay the costs of issuance related to the sale of the Obligations. * Preliminary, subject to change. RATINGS ...................................... The presently outstanding tax supported debt of the City is rated "A1" by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Obligations have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM...... The definitive Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series 2005 Bonds and Series 2005A Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds (see "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System"). PAYMENT RECORD ..................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. SELECTED FINANCIAL INFORMATION 7 % of Total Tax Collections 99.10% 99.20% 99.40% 99.70% 00.00%14) Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable Ended City Assessed Assessed Tax Tax Assessed 9/30 Population (1) Valuation (Z) Valuation Debt Debt Valuation 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 $ 3,533 3.59% 2002 45,500 4,773,863,018 104,920 157,940,000 3,471 3.31% 2003 46,400 4,766,361,580 102,723 157,645,000 3,398 3.31% 2004 46,684 4,880,107,595 104,535 148,300,000 3,177 3.04% 2005 47,036 5,352,933,433 113,805 144,645,000 (3) 3,075 2.70% (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. (4) Collections for part year only, through April 1, 2005. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance or Laura Alexander City of Grapevine First Southwest Company 200 South Main 777 Main Street, Suite 1200 Grapevine, Texas 76051 Fort Worth, Texas 76102 (817)410-3111 (817)332-9710 7 % of Total Tax Collections 99.10% 99.20% 99.40% 99.70% 00.00%14) CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Fort Worth, Texas 8 Length of Term City Council Service Expires Occupation William D. Tate 17 Years ��� May, 2006 Attomey-at-Law Mayor Ted R. Ware 26 Years May, 2008 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 20 Years May, 2006 Personnel Director Councilmember, Place 1 Sharron Spencer 20 Years May, 2006 Retired Sales Representative Councilmember, Place 2 Clydene Johnson 10 Years May, 2007 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 7 Years May, 2007 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 9 Years May, 2008 Construction Company Owner Councilmember, Place 6 (1) Previously served 13 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 8 Years Bruno Rumbelow Assistant City Manager 7 Years Bill Gaither Administrative Services Director 9 Years Fred Werner Director of Finance 8 Years Linda Huff City Secretary 18 Years (z) (1) 10 years with City; 8 years in present position. Mr. Nelson announced his resignation which will got into effect June 2005. (2) 23 years with City; 18 years in present position. CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas BondCounsel................................................................................................................................................ Vinson & Elkins L.L.P. Dallas, Texas FinancialAdvisor...................................................................................................................................... First Southwest Company Fort Worth, Texas 8 PRELIMINARY OFFICIAL STATEMENT RELATING TO $11,510,000* $24,125,000* CITY OF GRAPEVINE, TEXAS CIT k' OF GRAPEVINE, TEXAS GENERAL OBLIGATION COMBINATION TAX AND TAX INCREMENT REFUNDING BONDS, SERIES 2005 REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $11,510,000* City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2005 (the "Series 2005 Bonds") and $24,125,000* City of Grapevine, Texas, Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A (the "Series 2005A Bonds" and collectively, the "Obligations"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance to be adopted on the date of sale of the Series 2005 Bonds and Series 2005A Bonds (collectively, "the Ordinances") which will authorize the issuance of the Series 2005 Bonds and Series 2005A Bonds, respectively, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Series 2005 Bonds and Series 2005A Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Dallas, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State of Texas (the "State"), duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City first adopted its Home Rule Charter in 1965. The City operates under the Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, health and social services, culture -recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 42,059, and the 2005 estimated population is 47,036. The City covers approximately 35.8 square miles. PLAN OF FINANCING PURPOSE .... Proceeds from the sale of the Obligation will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Obligations will be used for to pay the costs of issuance related to the sale of the Obligations. REFUNDED OBLIGATIONS ... The principal and interest due on the Refunded Obligations are to be paid on the scheduled interest payment dates and the respective redemption dates of such Refunded Obligations, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and JPMorgan Chase Bank, National Association (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Underwriters, together with other funds of the City, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Obligations on their respective redemption dates. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Federal Securities"). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. Grant Thornton LLP, certified public accountants, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Federal Securities will not be available to pay the Bonds (see "Other Information — Verification of Arithmetical and Mathematical Computations"). By deposit of the Federal Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of all the Refunded Obligations in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, certified public accountants, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding bonds of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt. * Preliminary, subject to change. The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payment. SOURCES AND USE OF PROCEEDS ... The proceeds from the sale of the Series 2005 Bonds and Series 2005A Bonds, together with funds contributed by the City, will be applied as follows: Sources: Par Amount Original Issue Premium Accrued Interest Uses: Deposit to Escrow Fund Deposit to Interest and Sinking Fund Costs of Issuance (1) Total Uses of Funds (1) Including Underwriters' Discount and Insurance Premium. Series 2005 Series 2005A Bonds Bonds $ - $ THE SERIES 2005 BONDS AND SERIES 2005A BONDS DESCRIPTION OF THE SERIES 2005 BONDS AND SERIES 2005A BONDS ... The Series 2005 Bonds are dated June 1, 2005, and mature on February 15 in each of the years and in the amounts shown on the cover page hereof. Interest on the Series 2005 Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing August 15, 2005 until maturity or prior redemption. The Series 2005A Bonds are dated June 1, 2005, and mature on August 15 in each of the years and in the amounts shown on page 3 hereof. Interest on the Series 2005A Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing August 15, 2005 until maturity or prior redemption. The definitive Series 2005 Bonds and Series 2005A Bonds will be issued only in fully registered form in any integral multiple of $5,000 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 Series 2005 Bonds and Series 2005A Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Obligations are being issued pursuant to the Constitution and general laws of the State of Texas, particularly, Texas Government Code, Chapter 1207, Section 9.26 of the City's Home Rule Charter, and the Ordinances passed by the City Council. SECURITY AND SOURCE OF PAYMENT ... The Series 2005 Bonds ... The principal of and interest on the Series 2005 Bonds is payable from a continuing direct annual ad valorem tax levied by the City, within the limits prescribed by law, upon all taxable property in the City. The Series 2005A Bonds ... The principal of and interest on the Series 2005A Bonds is payable from a continuing direct annual ad valorem tax levied by the City, within the limits prescribed by law, upon all taxable property in the City. Additionally, the Series 2005A Bonds are payable from and secured by a pledge of (a) a pledge of the Tax Increments on deposit in the Tax Increment Fund, such pledge being subordinate to: (i) any future bonds or obligations issued by the City that by the express terms thereof have a prior lien on and pledge of the Tax Increment Fund; and (ii) any bonds or other obligations heretofore or hereafter issued by the Taxing Units and secured by a levy of ad valorem tares upon all taxable property in the Taxing Units for which the levy and collection of ad valorem taxes has been insufficient for the payment thereof. See "REINVESTMENT ZONE.". 10 TAx RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Obligations having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at a price equal to the principal amount of the Obligations called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Obligations are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Obligations of any maturity are to be redeemed, the City shall direct the Paying Agent/Registrar (or DTC while the Obligations are in Book -Entry -Only form) to call by lot the Obligations, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Obligation (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Obligation (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. The City reserves the right, at its option, to redeem Obligations having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at a price equal to the principal amount of the Obligations called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Obligations are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Obligations of any maturity are to be redeemed, the City shall direct the Paying Agent/Registrar (or DTC while the Obligations are in Book -Entry -Only form) to call by lot the Obligations, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Obligation (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Obligation (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE of REDEMPTION ... Not less than 30 days prior to a redemption date for the Obligations, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Obligations to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE OBLIGATIONS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TO ACCRUE. DEFEASANCE ... The Ordinances provides that the City may discharge its obligations to the registered owners of any or all of the Obligations to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Obligations to maturity or date of redemption or (ii) by depositing with an eligible place of payment (paying agent) for obligations of the City amounts sufficient to provide for the payment and/or redemption of the Obligations; provided that such deposits may be invested and reinvested only in (a) direct noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Obligations. If any of such Obligations are to be redeemed prior to their date of maturity, provision must have been made for giving notice of redemption as provided in the Ordinances. Boots -ENTRY -ONLY SYSTEM ... This section describes how ownership of the Obligations are to be transferred and how the principal of and interest on the Obligations are to be paid to and credited by DTC while the Obligations 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 City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. L[ The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Obligations, 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 Obligations), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Obligations. The Obligations 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 Obligation will be issued for each maturity of the Obligations, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC's records. The ownership interest of each actual purchaser of each Obligation ("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 Obligations are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Obligations, except in the event that use of the book -entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations 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 Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Obligations 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 Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the bond documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Obligations within an issue are being redeemed, DTC's practice is to determine by lot the amount of interest of each Direct Participant in such issue to be redeemed. 12 Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Obligations unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Obligations 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 Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS OFFICIAL STATEMENT. In reading this Official Statement it should be understood that while the Obligations are in the Book -Entry -Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Obligations, but (i) all rights of ownership must be exercised through DTC and the Book -Entry -Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinances will be given only to DTC. Information concerning DTC and the Book -Entry -Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City or the Financial Advisor. EFFECT OF TERMINATION OF BOOK -ENTRY -ONLY SYSTEM. In the event that the Book -Entry -Only System is discontinued by DTC or the use of the Book -Entry -Only System is discontinued by the City, printed Obligations will be issued to the respective holders and the Obligations will be subject to transfer, exchange and registration provisions as set forth in the Ordinances and summarized under "The Series 2005 Bonds and Series 2005A Bonds - Transfer, Exchange and Registration" below. PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas. In the Ordinances, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Obligations are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon any change in the Paying Agent/Registrar for the Obligations, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Obligations by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. PAYMENT ... Interest on the Obligations shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Obligations will be paid to the registered owner at their stated maturity upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Obligations shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book -Entry -Only System should be discontinued, printed Obligations will be delivered to the registered owners and thereafter the Obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Obligations may be assigned by the execution of an assignment form on the respective Obligations or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Obligations will be delivered by the Paying Agent/Registrar, in lieu of the Obligations being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Obligations to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Obligations registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate designated amount as the Obligations surrendered for exchange or transfer. See "The Series 2005 Bonds 13 and Series 2005A Bonds - Book -Entry -Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Obligations. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Obligation. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Obligations on any interest payment date means the close of business on the last business day of the month preceding such interest payment date. In the event of a non payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Obligation appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. OBLIGATIONHOLDERS' REMEDIES ... The Ordinances establishes as "Event of Default" (i) the failure to make payment of principal of or interest on the Obligations when due, and (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, the failure of which materially, adversely affects the rights of the Owner, including but limited to, their prospect or ability to be repaid in accordance with the Ordinances, and the continuation thereof for a period of 60 days after notice of such default is given by any Owner to the City. Under State law there is no right to the acceleration of maturity of the Obligations. Although a registered owner of Obligations could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Obligations, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Obligations as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinances does not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinances, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinances and the Obligations are qualified with respect to the customary rights of debtors relative to their creditors. 14 TAX INCREMENT REINVESTMENT ZONE Article VIII, Section 1-g of the Texas Constitution and the Tax Increment Financing Act, Chapter 311, V.T.C.A. Tax Code (the "TIF Act") authorize municipalities in the State to establish one or more tax increment financing reinvestment zones for development or redevelopment of the territory within the zones. The TIF Act provides that the municipality may appoint a board of directors for a reinvestment zone to develop a project plan and financing plan for the zone and may delegate to the board certain management duties relating to the zone. Project costs, including financing costs, within the zone may be paid from tax increments collected by each of the taxing units in the zone. The amount of a taxing unit's tax increment ("Tax Increment") for a year is the amount of property taxes levied by the unit for that year on the captured appraised value of real property taxable by the unit (the "Captured Appraised Value") and located in the zone. The Captured Appraised Value is the total appraised value of the property for a year, less the tax increment base of the unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in the zone in the year in which the City created the zone. Participation by a taxing unit in a reinvestment is discretionary with such taxing unit, and it may decide to deposit all or none, or a portion, of its tax increments into the fund and retain for its own purposes the remainder. A taxing unit cannot reduce the amount of its participation once the financing plan has been implemented. On December 8, 1998, the Grapevine City Council adopted an ordinance (the "Zone Ordinance") creating Tax Increment Financing Reinvestment Zone Number Two, City of Grapevine, Texas (the "Zone") by designating a contiguous geographic area in the jurisdiction of the City as a reinvestment zone to promote development or redevelopment in the Zone. The Zone Ordinance described the boundaries of the Zone, created a board of directors for the Zone, established a tax increment fund (the "Tax Increment Fund") for the Zone and found that public works and improvements to be undertaken in the Zone would significantly enhance the value of all taxable real property in the Zone and would be of general benefit to the City. The Board of Directors of the Zone (the "Board") is comprised of nine members, who serve two year terms. The City appoints five members and the chairman of the Board. Each of the other Taxing Units may appoint one member of the Board, or may waive its right to make such appointment. The Board serves to present non-binding recommendations to the City Council for its review. The recommendations pertain to development and redevelopment in the Zone pursuant to a project plan and reinvestment zone financing plan (the "Plans") prepared for the Zone. The project plan shows existing uses and conditions of real property in the Zone and provides a map of proposed improvements to and uses of such property. The reinvestment zone financing plan describes the estimated project costs of the Zone and lists the type, number and location of all proposed public works and improvements in the Zone. The Board has prepared the Plans and submitted them to the City Council for its review. The City Council has approved the Plans. The public improvements to be constructed with the proceeds of the Certificates are part of the public improvements described in the Plans (the "TIF Two Project"). The Zone is comprised of approximately 122 acres of undeveloped land in the northeast area of the City and is located on what is referred to as the "Peninsula Tract" on Grapevine Lake, north of State Highway 26 between Ruth Wall Road and Fairway. As part of the TIF Two Project, the City has entered into an agreement with Opryland Hotel -Texas Limited Partnership whereby the City will provide certain public improvements within the Zone (as described in the project plan for the zone) and Opryland Hotel -Texas Limited Partnership will develop and construct a destination convention center hotel complex (the "Opryland USA Development"). In addition to the proposed convention center development, land and infrastructure will be available for other retail development within the Zone. The Opryland USA Development is expected to be a 1,500 room destination convention center with approximately 400,000 square feet of convention, meeting rooms and banquet facilities, parking facilities and related amenities. A 30,000 square foot country and western entertainment facility is also planned which will feature a large dance floor, restaurant and entertainment venues. Additionally, the Grapevine Middle School is located wholly within the Zone. As part of the TIF Two Project, the Grapevine- Colleyville Independent School District will be reimbursed from the Tax Increment Fund in amount equal to approximately $27,000,000 for its debt service, including principal and interest, on bonds issued by the School District for the Grapevine Middle School. Tarrant County, Tarrant County Junior College District, Tarrant County Hospital District and Grapevine-Colleyville Independent School District levy taxes on real property within the Zone. Only the School District has agreed to deposit 100% of its Tax Increments into the Tax Increment Fund; provided, however, that the amount deposited by the School District will be reduced by the amount necessary to offset any negative impact on the School District, as a result of its participation in the Zone, under school finance laws. The Tax Increments of the School District, and any other Taxing Unit which elects to participate in the future, will be paid into the Tax Increment Fund and used to pay project costs within the Zone, including debt service on the Certificates and any other obligations issued to finance project costs. The Zone Ordinance provides that the tax increment base for each Taxing Unit in the Zone shall be the total appraised value of all taxable real property in the Zone as of January 1, 1998. The Zone Ordinance further provides that the Zone shall take effect on January 1, 1999, and shall expire on December 31, 2030, or such earlier date that Grapevine determines that the Zone should be terminated due to insufficient private investment, accelerated private investment or other good cause, or such time as all project costs and obligations secured by Tax Increments, such as the Certificates, and the interest thereon, have been paid in full. 15 TAX INFORMATION AD VALOREM TAx LAW ... The appraisal of property within the City is the responsibility of the Tarrant Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 101/o of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the Texas Property Tax Code (the 'Property Tax Code"), for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Article VIII, Section 1-b, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; the minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under, Article VIII, Section 1-b, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Article VIII, Section 2, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Sections 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-J, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. IR The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The difference between any increase in the assessed valuation of taxable real property in the TIF in excess of the base value of taxable real property in the TIF is known as the "Incremental Value," and during the existence of the TIFs, taxes levied by the City against the Incremental Value in the TIFs are restricted to paying project and financing costs within the TIFs and are not available for the payment of other obligations of the City, including the Series 2005A Bonds. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAx RATE AND ROLLBACK TAx RATE ... Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60,' day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Furthermore, Section 26.05 provides that the City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, 17 Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, 17 taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION of TAx CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads with a minimum exemption of $5,000. See Table I for a listing of the amounts of the exemptions described above. The City has not adopted the tax freeze for citizens who are disabled or are 65 years of age or older, which became a local option and subject to local referendum on January 1, 2004. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; does not tax lease value on personal use vehicles; and the City contracts with the Grapevine-Colleyville Independent School District for the collection of its taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAx ABATEMENT POLICY ... The City does not have a tax abatement policy. TAx INCREMENT FINANCE ZONES ... The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. As of September 30, 2004, the Reinvestment Zone Number One Taxable Assessed Value is $200,573,412. The project for which the Zone was created was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 121.817 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. As of September 30, 2004, the Reinvestment Zone Number Two Taxable Assessed Value is $257,214,332. As of September 30, 2004, approximately 100% of permanent improvements have been made to Reinvestment Zone Number Two. 18 TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2004/05 Market Valuation Established by Tarrant Appraisal District Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Years of Age Disabled Exemptions Veterans Exemptions Pollution Control Exemptions Solar/Wind Power Exemptions Freeport Exemptions Open -Space Land Use Reductions Prorated Absolutes Nominal Value Reductions $ 6,382,715,129 $ 361,762,592 59,272,871 902,500 1,174,800 61,488 9,774 550,697,849 55,759,683 116,736 23,403 1,029,781,696 2004/05 Taxable Assessed Valuation $ 5,352,933,433 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number One (194,333,372) 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number Two (256,469,466) 2004/05 Taxable Assessed Valuation available for General Fund Obligations and Debt of City $ 4,902,130,595 City Funded Debt Payable from Ad Valorem Taxes General Obligation Bonds (as of 5-1-05) $ 55,955,000 (2) Certificates of Obligation (as of 5-1-05) 53,195,000 cz� Equipment Acquisition Notes (as of 5-1-05) 1,490,000 The Series 2005A Bonds 24,125,000 c3� The Series 2005 Bonds 11,510,000 cs> Funded Debt Payable from Ad Valorem Taxes $ 146,275,000 Less Self -Supporting Debt: Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation (as of 5-1-05) (4) 54,300,000 Lake Enterprise Notes and Certificates of Obligation (as of 5-1-05) (5) 5,256,818 Net Funded Debt Payable From Ad Valorem Taxes $ 86,718,182 Interest and Sinking Fund as of Mayl 1, 2005 Ratio Total Funded Debt to Taxable Assessed Valuation .................................................. 2.73% 2005 Estimated Population - 47,036 Per Capita Taxable Assessed Valuation - $113,805 Per Capita Total Funded Debt - $3,110 (1) This statement of indebtedness does not include currently outstanding $26,299,660 Waterworks and Sewer System (the "System") revenue bonds, as these bonds are payable solely from the net revenues of the System, as defined in the ordinances authorizing such bonds. (2) Excludes the Refunded Obligations. Preliminary, subject to change. (3) Preliminary, subject to change. (4) The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Funds. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid with ad valorem taxes. Includes the 2005A Bonds. Preliminary, subject to change. (5) Certificate and Note debt in the amounts shown for which repayment is provided from revenues of the Lake Enterprise Fund. The amount of self-supporting debt is based on the percentages of revenue support as shown in Table 10. It is the City's current policy to provide these payments from Fund revenues; this policy is subject to change in the future. In the event the payments are not made from Fund revenues, the City will be required to levy an ad valorem tax in an amount sufficient to make such payments. 19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant County Appraisal District to the State Controller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 20 Taxable Appraised Value for Fiscal Year Ended September 30, 2005 2004 2003 % of % of % of Category Amount Total Amount Total Amount Total Real, Residential, Single -Family $ 2,052,562,907 32.16% $ 1,964,374,887 33.09% $ 1,848,342,618 31.72% Real, Residential, Multi -Family 280,451,216 4.39% 287,029,406 4.83% 252,912,480 4.34% Real, Vacant Lots Tracts 105,098,629 1.65% 106,298,853 1.79% 100,697,189 1.73% Real, Acreage (Land Only) 115,957,997 1.82% 126,583,447 2.13% 138,891,577 2.38% Real, Farm and Ranch Improvements 2,417,897 0.04% 2,382,927 0.04% 2,353,699 0.04% Real, Commercial 1,439,927,013 22.56% 1,254,791,876 21.14% 1,198,547,815 20.57% Real, Industrial 40,705,402 0.64% 14,652,926 0.25% 14,825,922 0.25% Real and Tangible Personal, Utilities 237,407,049 3.72% 166,164,616 2.80% 147,113,035 2.52% Real, Mobile Homes 7,817,281 0.12% 8,176,799 0.14% 8,173,982 0.14% Tangible Personal, Business - 0.00% - 0.00% - 0.00% Tangible Personal, Commercial 1,939,745,844 30.39% 1,849,545,899 31.15% 1,966,523,825 33.75% Tangible Personal, Industrial 143,245,651 2.24% 136,629,168 2.30% 138,115,671 2.37% Tangible Personal, Mobile Homes - 0.00% - 0.00% - 0.00% Tangible Personal, Other 165,093 0.00% 1,000,000 0.02% - 0.00% Real Property, Inventory 17,213,150 0.27% 19,338,550 0.33% 10,141,975 0.17% Total Appraised Value Before Exemptions $ 6,382,715,129 100.00% $ 5,936,969,354 100.00% $ 5,826,639,788 100.00% Adjustments (52,543,460) (52,070,988) Less: Total Exemption/Reductions (1,029,781,696) (1,004,318,299) (1,008,207,220) Taxable Assessed Value $ 5,352,933,433 $ 4,880,107,595 $ 4,766,361,580 Taxable Appraised Value for Fiscal Year Ended September 30, 2002 2001 % of % of Category Amount Total Amount Total Real, Residential, Single -Family $ 1,673,214,512 30.17% $ 1,522,401,913 29.49% Real, Residential, Multi -Family 200,728,832 3.62% 151,579,484 2.94% Real, Vacant Lots Tracts 104,297,996 1.88% 109,952,787 2.13% Real, Acreage (Land Only) 171,706,596 3.10% 165,569,051 3.21% Real, Farm and Ranch Improvements 2,160,035 0.04% 2,441,498 0.05% Real, Commercial 1,086,095,366 19.59% 932,109,580 18.06% Real, Industrial 14,530,371 0.26% 10,891,084 0.21% Real and Tangible Personal, Utilities 102,859,092 1.85% 88,123,888 1.71% Real, Mobile Homes 9,059,623 0.16% 4,239,290 0.08% Tangible Personal, Business - 0.00% - 0.00% Tangible Personal, Commercial 2,126,886,729 38.35% 2,127,859,776 41.22% Tangible Personal, Industrial 46,334,087 0.84% 40,389,885 0.78% Tangible Personal, Mobile Homes - 0.00% - 0.00% Tangible Personal, Other 111,976 0.00% 146,674 0.00% Real Property, Inventory 7,290,582 0.13% 6,679,162 0.13% Total Appraised Value Before Exemptions $ 5,545,275,797 100.00% $ 5,162,384,072 100.00% Adjustments (86,019,171) Less: Total Exemption/Reductions (685,393,608) (789,839,701) Taxable Assessed Value $ 4,773,863,018 $ 4,372,544,371 NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant County Appraisal District to the State Controller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District. (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year 2004/05 Distribution Taxable Ratio Ended Fiscal General Interest and Taxable Tax Debt Tax Debt Funded Year Fund Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 Population (1) Valuation (2) Per Capita of Year Valuation Capita 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 3.59% $ 3,533 2002 45,500 4,773,863,018 104,920 157,940,000 3.31% 3,471 2003 46,400 4,766,361,580 102,723 157,645,000 3.31% 3,398 2004 46,684 4,880,107,595 104,535 148,300,000 3.04% 3,177 2005 47,036 5,352,933,433 113,805 144,645,000 (3) 2.70% 3,075 (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District. (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year 2004/05 Distribution Taxable Taxable Ended Tax General Interest and Valuation % Current % Total 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 2001 $ 0.37500 $ 0.189641 $ 0.185359 $ 16,333,571 98.80% 99.10% 2002 0.36600 0.135924 0.230076 17,431,826 98.39% 99.20% 2003 0.36600 0.148900 0.217100 17,662,726 98.60% 99.40% 2004 0.36600 0.123700 0.242300 18,043,645 99.00% 99.70% 2005 0.36350 0.141560 0.221940 19,251,256 (1) (1) (1) Collections for part year only, through May 1, 2005. TABLE 5 - TEN LARGEST TAXPAYERS Name of TaxDaver American Airlines Inc. Grapevine Mills Ltd. Partnership Delta Airlines/Atlantic Southeast Airlines Verizon/GTE Gaylord Texan Resort & Conv. Ctr. CAE Simuflite General Electric Capital Corp Quest Communications Corp. Oncor Electric Delivery Co. United Parcel Services Co. GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Series 2005 Bonds and Series 2005A Bonds — Tax Rate Limitation"). 21 2004/05 % of Total Taxable Taxable Assessed Assessed Nature of Property Valuation Valuation Commercial Airline $ 313,758,237 5.86% Regional Shopping Mall 185,084,296 3.46% Commercial Airline 151,545,340 2.83% Telecommunication 149,230,493 2.79% Hotel 113,083,186 2.11% Simuflite Training School 88,525,738 1.65% Financial Service Corp 57,844,570 1.08% Telecommunication 42,721,429 0.80% Electric Service 40,395,043 0.75% Parcel Service 40,357,279 0.75% $ 1,182,545,611 22.09% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Series 2005 Bonds and Series 2005A Bonds — Tax Rate Limitation"). 21 TABLE 6 - TAx ADEQUACY (t) 2005 Principal and Interest Requirements $ 10,673,423 $0.2015 Tax Rate at 99.00% Collection Produces $ 10,678,299 Average Annual Principal and Interest Requirements, 2005 - 2026 $ 5,603,633 $0.1058 Tax Rate at 99.00% Collection Produces $ 5,606,770 Maximum Principal and Interest Requirements, 2007 $ 10,673,423 $0.2015 Tax Rate at 99.00% Collection Produces $ 10,678,299 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Total Direct and Overlapping Funded Debt $ 265,236,740 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 4.95% Per Capita Overlapping Funded Debt................................................................................ $ 5,639.02 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 22 2004/05 City's Taxable 2004/05 Total Estimated Overlapping Assessed Tax Funded % Funded Debt Taxing Jurisdiction Value Rate Debt Applicable 4/1/2005 City of Grapevine $ 5,352,933,433 $ 0.3635 $ 86,718,182 100.00% $ 86,718,182 Carroll Independent School District 4,411,336,158 1.9030 161,484,219 5.38% 8,687,851 Coppell Independent School District 5,751,081,057 1.7350 119,534,548 0.48% 573,766 Dallas County 129,617,491,048 0.2039 202,247,395 0.01% 20,225 Dallas County Community College District 134,404,944,574 0.0778 106,935,000 0.01% 10,694 Dallas County Hospital District 129,617,491,048 0.2540 - 0.01% - Grapevine-Colleyville Independent School District 13,159,000,737 1.7010 231,900,813 67.47% 156,463,479 Tarrant County 111,228,762,367 0.2725 175,615,000 5.24% 9,202,226 Tarrant County Hospital District 111,228,762,367 0.2353 1,190,000 5.24% 62,356 Tarrant County Junior College District 111,228,762,367 0.1394 66,755,000 5.24% 3,497,962 Total Direct and Overlapping Funded Debt $ 265,236,740 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 4.95% Per Capita Overlapping Funded Debt................................................................................ $ 5,639.02 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 22 DEBT INFORMATION +N+ M N O` N n N �o O\ 00O, n O 7 'o 'o h N O N 01 M in 00 O r- 7 M O N h Vl 00 7 Wl O N R l- O v1 O� ^ �o I� N O M N 7 V1 v7 O� .• O Q O N r �0 M Vl �O �0 O �o ON 10 �O O\ 0000 00 O\ o0 r- ' O` y i1. .� n00 N C� o0 l- O lO 00 oM 00 M N O_ O O O O Q\ 00 [- �o �O �D �D M0 M M N N N cr 6A Q` V1 - M 00 O Vl O 00 00 7 Vl kn - , Vl 00 00 T M N O� M 00 Vl N p, N W% vi Ol M o l- W M N 4 'o N N rn y Q. 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O � L Q Q U TABLE 9 - INTEREST AND SINIQNG FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2005 .............................. $ 10,673,423 (1) Interest and Sinking Fund Balance as of 9/30/2004 ................................. $ 1,512,789 Interest and Sinking Fund Tax Levy ........................................... 9,946,675 Penalty and Interest........................................................ 65,000 Budgeted Transfers........................................................... 1,225,976 Estimated Investment Income .................................................. 65,000 12,815,440 Estimated Balance, 9/30/2005................................................................. $ 2,142,017 (1) Excludes TIF self-supporting debt service and Lake Enterprise self-supporting debt service. TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT Tax Increment Reinvestment Zone Beginning Fund Balance, 9-30-04....................................................................... $ 10,203,293 Projected Net Tax Increment Reinvestment Zone Revenue Available for Debt Service ........................ 9,465,976 Requirements for Tax Increment Reinvestment Zone Obligations ........................................ 4,378,082 Projected Fund Balance, 9-30-05 ................................................................. $ 15,291,187 Percentage of Tax Increment Reinvestment Zone Revenue Certificates Self -Supporting ....................... 100.00% Lake Enterprise Fund Revenue Available for Debt Service from Lake Enterprise Fund, Fiscal Year Ended 9-30-04 ................. $ 521,634 Less: Revenue Bond Requirements, 2004 Fiscal Year ................................................. - Balance Available for Other Purposes............................................................ $ 521,634 System General Obligation Bond Requirements, 2005 Fiscal Year ....................................... 595,996 Balance.................................................................................... $ (74,362) Percentage of Lake Enterprise Certificates, Self -Supporting ......................................... 100.00%(21 (1) Preliminary, subject to change. (2) While Net Lake Enterprise Revenue Available September 30, 2004 is not sufficient to pay all of the Fiscal Year 2005 debt service requirements, sufficient revenues from the Lake Enterprise Fund have been budgeted for Fiscal Year 2005 such that the System Bond Requirements are expected to be 100% self-supporting. TABLE 11 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Date Purpose Authorized Street Improvements 12/5/1998 Amount Amount Previously Unissued Authorized Issued Balance $ 30,245,000 $ 24,997,314 $5,247,686 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City anticipates the issuance of approximately $2,300,000 Certificates of Obligation in the summer 2005 and anticipates issuing the remaining balance of voted general obligation debt in the first quarter of Fiscal Year 2006. TABLE 12 - OTHER OBLIGATIONS The City has no unfunded debt outstanding as of September 30, 2004. PENSION FUND ... The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see Appendix B, "Excerpts from the City's Annual Financial Report".) 24 FINANCIAL INFORMATION TABLE 13 - CHANGES IN NET ASSETS (1) Revenues: Program Revenues Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues Property Taxes Hotel Occupancy Taxes Sales Taxes Mixed Beverage Taxes Franchise Fees Investment Earnings Miscellaneous Gain (Loss) on Sale/Retirement of Fixed Assets Total Revenues Expenses: General Government Public Safety Culture and Recreation Public Works Interest on Long -Term Debt Total Expenses Increase in Net Assets before Transfers Transfers Changes in Net Assets Net Assets - October 1 Net Assets - September 30 Fiscal Year Ended September 30, $ 13,266,501 $ 13,518,121 1,813,067 1,893,118 597,366 1,108,954 23,599,775 22,768,284 4,931,201 3,380,659 17,975,926 16,040, 397 685,801 578,218 5,210,589 4,944,789 619,869 1,106,609 28,788 155,158 - (58,080) $ 68,728,883 $ 65,436,227 $ 12,382,413 $ 13,062,473 17,597,695 16,366,353 16,090,083 14,069, 760 10,363,172 14,342,030 7,682,256 7,603,547 $ 64,115,619 $ 65,444,163 $ 4,613,264 $ (7,936) 27,856,441 27,864,377 $ 32,469,705 $ 27,856,441 (1) In fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 25 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, Texas Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Obligations. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Fiscal Year Ended September 30, Revenues 2004 2003 2002 2001 2000 Taxes $ 29,941,926 $ 28,715,417 $ 27,165,580 $ 29,239,672 $ 27,051,303 Licenses and Permits 1,263,663 1,482,165 1,536,786 1,146,428 1,494,428 Intergovernmental 112,859 129,428 217,614 4,381,910 182,863 Charges for Services 5,593,257 5,784,270 5,009,819 2,984,179 3,003,353 Fines and Forfeitures 1,961,990 2,046,991 2,101,526 2,149,638 2,360,028 Interest and Miscellaneous 902,365 1,119,469 809,259 876,507 776,140 Total Revenues $ 39,776,060 $ 39,277,740 $ 36,840,584 $ 40,778,334 $ 34,868,115 Expenditures General Government $ 12,897,174 $ 12,168,352 $ 11,686,622 $ 10,510,527 $ 5,683,237 Public Safety 16,167,628 15,846,568 15,532,602 17,640,884 15,404,767 Culture and Recreation 5,991,741 5,673,980 5,184,010 5,737,648 5,183,727 Capital Outlay 60,881 80,649 - - - Public Works 5,101,265 4,770,722 4,772,777 6,067,277 5,657,648 Total Expenditures $ 40,218,689 $ 38,540,271 $ 37,176,011 $ 39,956,336 $ 31,929,379 Excess (Deficiency) of Revenues Over Expenditures $ (442,629) $ 737,469 $ (335,427) $ 821,998 $ 2,938,736 Other Financing Sources Budgeted Transfers In $ - $ 304,000 $ 300,000 $ 400,000 $ - Budgeted Transfers Out (1,101,261) (1,068,765) (1,753,450) (1,295,979) (2,098,598) Total Transfers $ (1,101,261) $ (764,765) $ (1,453,450) $ (895,979) $ (2,098,598) Net Increase (Decrease) $ (1,543,890) $ (27,296) $ (1,788,877) $ (73,981) $ 840,138 Other Miscellaneous Adjustments - - Residual Equity Transfer - - 262,087 - 1,172 Beginning Fund Balance 6,104,579 6,131,875 7,658,665 7,732,646 6,891,336 Ending Fund Balance $ 4,560,689 $ 6,104,579 $ 6,131,875 $ 7,658,665 $ 7,732,646 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, Texas Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Obligations. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9/30 Collected Tax Levy Tax Rate Capita 2001 $ 16,048,266 98.25% $ 0.3670 $ 362 2002 14,939,771 85.70% 0.3129 328 2003 16,040,397 90.81% 0.3365 346 2004 17,975,926 99.62% 0.3684 385 2005 �'� 00.00% 0.0000 0 (1) Earned through May 1, 2005. 26 FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City conform to generally accepted accounting principles for governmental entities as promulgated by the Government Accounting Standards Board. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the combined balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the combined balance sheet. Fund equity is segregated into contributed capital and retained earnings components. Proprietary fund -type operating statements present increases (revenues) and decreases (expenses) in net total assets. The modified accrual basis of accounting is used by all governmental funds types, expendable trust funds and agency funds. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means collectible within the current period of soon enough thereafter to be used to pay liabilities of the current period. Expenditures are generally recorded when the related fund liability is incurred. However, principal of and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Major revenue sources which have been treated as susceptible to accrual under the modified basis of accounting include property taxes, charges for services, intergovernmental revenues, and investment of idle funds. The accrual basis of accounting is utilities by proprietary funds types. Under this method, revenue is recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meeting both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualified expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Fund Balances ... It is the City's policy regarding the General Fund and Enterprise Funds that working capital resources should be maintained at a minimum of 60 days of the Fund's operating expenditure budget. The City maintains its various debt service funds in accordance with the covenants of the Ordinance. Use of Bond Proceeds... The City's policy is to use bond proceeds for capital expenditures only. Such revenues are never to be used to fund normal City operations. Budgetary Procedures ... The City Charter establishes the fiscal year as the twelve-month period beginning each October 1. Each year between May and July, the City Manager analyzes and then after review, submits a budget of estimated revenues and expenditures to the City Council. Subsequently, the City Council will hold work sessions to discuss and amend the budget to coincide with their direction of the City. Various public hearings may be held to comply with state and local statutes. The City Council will adopt a budget prior to September 30. If the Council fails to adopt a budget then the budget presented to the Council by the City Manager becomes the adopted budget. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year. Therefore, funds that were budgeted and not used by the departments during the fiscal year are not available for their use unless appropriated in the ensuing fiscal year's budget. 27 INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS. Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than "A" or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least "A-1" or "P- 1" or the equivalent by at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least "A-1" or "P-1" or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no -loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than "AAA" or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 806-1 et. seq.) or with the State Security Board to provide for the investment and management of its public funds or other funds under its control for a term of up to two years but the City retains ultimate responsibility as fiduciary of its assets. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds pursuant to written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers 28 jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISIONS ... Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt an order or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the said order or resolution, (3) require any investment officers' with personal business relationships or relatives with funis seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (8) restrict the investment in mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt services, and to invest no portion of bond proceeds, reserves and funds held for debt service in mutual funds; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. TABLE 15 - CURRENT INVESTMENTS As of May 1, 2005, the City's investable funds were invested in the categories listed above. As of such date, 38% of the City's portfolio will mature within six months. The market value of the investment portfolio was approximately 99.5% of its purchase price. Book Market Description Percent Value Value Government Securities #DIV/0! $ 0 $ TexPool/Logic #DIV/0! 0 #DIV/0! $ 0 $ 29 TAX MATTERS TAX EXEMPTION ... In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Obligations is excludable from gross income for federal income tax purposes under existing law and (ii) the Obligations are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Obligations will not be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Obligations, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceeds be paid periodically to the United States, and requirement that the issuer file an information report with the Internal Revenue Service. The City has covenanted in the respective Ordinances that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinances pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Obligations for federal income tax purposes and, in addition, will rely on representations by the City, the City's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the respective Ordinances or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Obligations could become taxable from the date of delivery of the Obligations, regardless of the date on which the event causing such taxability occurs. The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation, if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax-exempt obligations, such as the Obligations, is included in a corporation's "adjusted current earnings," ownership of the Obligations could subject a corporation to alternative minimum tax consequences. Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Obligations, received or accrued during the year. Except as stated above, and as stated below in "Tax Accounting Treatment of Original Issue Discount Obligations", Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of, the Obligations. Prospective purchasers of the Obligations should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be subject to the "branch profits tax" on their effectively -connected earnings and profits including tax-exempt interest such as interest on the Obligations. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date hereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent Bond Counsel's legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Obligations. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer and the Owners of the Obligations may not have a right to participate in such audit. Public awareness of any future audit of the Obligations could adversely affect the value and liquidity of the Obligations during the pendency of the audit regardless of the ultimate outcome of the audit. 30 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT OBLIGATIONS ... The initial public offering price for certain of the respective Obligations may be less than the principal amount thereof (the "Original Issue Discount Obligations"). In such case, Bond Counsel, under existing law and based upon the assumptions hereinafter stated, will render an opinion to the effect that: (a) The difference between (i) the amount payable at the maturity of each Original Issue Discount Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Obligation constitutes original issue discount with respect to such Original Issue Discount Obligation in the hands of any owner who has purchased such Original Issue Discount Obligation in the initial public offering of the Obligations; and (b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Obligation equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Obligation continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. (Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Obligations under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Obligation held by an owner who purchased such Obligation at the initial offering price in the initial public offering of the Obligations, and should be considered in connection with the discussion in this portion of the Preliminary Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriters, that (a) the Underwriters have purchased the Obligations for contemporaneous sale to the public and (b) all of the Original Issue Discount Obligations have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Obligations will be offered and sold in accordance with such assumptions. Certain of the representations of the initial purchaser, upon which Bond Counsel will rely in rendering the foregoing opinion, will be based on records or facts the initial purchaser had no reason to believe were not correct. Under existing law, the original issue discount on each Original Issue Discount Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Obligations and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Obligation. The federal income tar consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Obligations should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Obligations. tr OTHER INFORMATION RATINGS The presently outstanding tax supported debt of the City is rated "Al" by Moody's and "AA-" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Obligations have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organization and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Obligations. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending litigation against the City that would have a material adverse financial impact upon the City or its operations. REGISTRATION AND QUALIFICATION OF SERIES 2005 BONDS AND SERIES 2005A BONDS FOR SALE The sale of the Series 2005 Bonds and Series 2005A Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Series 2005 Bonds and Series 2005A Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds or Series 2005A Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds or Series 2005A Bonds under the securities laws of any jurisdiction in which the Series 2005 Bonds and Series 2005A Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Series 2005 Bonds and Series 2005A Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Obligations are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Obligations by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Obligations be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Obligations are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Obligations are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Obligations are legal investments for various institutions in those states. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Series 2005 Bonds and Series 2005A Bonds, including the approving legal opinion of the Attorney General of the State of Texas to the effect that each Initial Obligation is a valid and binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel to the effect that the Series 2005 Bonds and Series 2005A Bonds issued in compliance with the provisions of the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance are valid and legally binding obligations of the City and the interest on such Series 2005 Bonds and Series 2005A Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds and Series 2005A Bonds are not private activity bonds, subject to the matters described under "Tax Matters" herein. A form of such opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Series 2005 Bonds and Series 2005A Bonds in the Preliminary Official Statement under the captions "Plan of Financing" (except under the subcaption "Sources and Uses of Proceeds"), 'The Series 2005 Bonds and Series 2005A Bonds" (except for the subcaption "Book -Entry - Only System"), "Tax Matters" and "Continuing Disclosure of Information" (except for under the subcaption "Compliance with Prior Undertakings") and the subcaptions "Legal Investments and Eligibility to Secure Public Fund in Texas", and "Legal Matters" under the caption "Other Information" and is of the opinion that the information relating to the Series 2005 Bonds and Series 2005A Bonds and the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance contained therein fairly and accurately describe the provisions thereof. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Series 2005 Bonds and Series 2005A Bonds are contingent on the sale and delivery of the Series 2005 Bonds and Series 2005A Bonds. The legal opinion will accompany the Series 2005 Bonds and Series 2005A Bonds deposited with DTC or will be printed on the Series 2005 Bonds and Series 2005A Bonds in the event of the discontinuance of the Book -Entry -Only System. Certain legal matters will be passed upon for the Underwriters by Dallas, Texas, Counsel to the Underwriters. 32 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources, which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION In the Ordinances, the City has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2005. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State and approved by and approved by the staff of the United States Securities and Exchange Commission (the "SEC,,). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas ("MAC") has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. The MAC has also received SEC approval to operate, and has begun to operate, a "central post office" for information filings made by municipal issuers, such as the City. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filings. The central post office can be accessed and utilized at www.DisclosureUSEA.com ("DisclosureUSA"). The City may utilize DisclosureUSA for the filing of information relating to the Obligations. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Obligations, if such event is material to a decision to purchase or sell Obligations: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Obligations; (7) modifications to rights of holders of the Obligations; (8) Obligation calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Obligations; and (11) rating changes. In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of Obligations only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS ... The City has agreed to update information and to provide notices of material events only as described above. The City 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 City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Obligations at any future date. The City disclaims any contractual or tort liability for 33 damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Obligations may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Obligations in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Obligations consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Obligations. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City has compiled with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Obligations. The Financial Advisor's fee for services rendered with respect to the sale of the Obligations is contingent upon the issuance and delivery of the Obligations. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Obligations, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Preliminary Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City' expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Preliminary Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City' actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Preliminary Official Statement will prove to be accurate. 34 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the forecasted payments of principal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunding Bonds and the restricted Federal Securities were verified by Grant Thornton, LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton, LLP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Series 2005 Bonds from the City, at an underwriting discount of $ . The Underwriters will be obligated to purchase all of the Series 2005 Bonds if any Series 2005 Bonds are purchased. The Series 2005 Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Series 2005 Bonds into investment trusts) at prices lower than the public offering prices of such Obligations, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have agreed, subject to certain conditions, to purchase the Series 2005A Bonds from the City, at an underwriting discount of $ . The Underwriters will be obligated to purchase all of the Series 2005A Bonds if any Series 2005A Bonds are purchased. The Series 2005A Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Series 2005A Bonds into investment trusts) at prices lower than the public offering prices of such Obligations, and such public offering prices may be changed, from time to time, by the Underwriters. APPROVAL OF PRELIMINARY OFFICIAL STATEMENT The Ordinances will also approve the form and content of this Preliminary Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Series 2005 Bonds and Series 2005A Bonds by the Underwriters. ATTEST: /s/ LINDA HUFF City Secretary 35 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas Schedule I SCHEDULE OF REFUNDED OBLIGATIONS Combination Tax and Revenue Certificates of Obligation, Series 2000 Original Maturity Interest Principal Principal Dated Date Date Rate Amount Amount 3/1/2000 8/15/2005 5.250% $ 550,000 $ 300,000 8/15/2006 5.250% 580,000 580,000 2/15/2016 5.700% $ 1,130,000 $ 880,000 The 2005- 2006 maturities will be redeemed at maturity. General Obligation Bonds, Series 2000 Original Maturity Interest Principal Principal Dated Date Date Rate Amount Amount 3/1/2000 2/15/2014 5.600% $ 500,000 $ 500,000 2/15/2015 5.650% 530,000 530,000 2/15/2016 5.700% 560,000 560,000 2/15/2017 5.750% 595,000 595,000 2/15/2018 5.800% 630,000 630,000 2/15/2019 5.850% 670,000 670,000 $ 3,485,000 $ 3,485,000 The 2014 — 2019 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000 $ 23,000,000 $ 22,555,000 The 2005- 2007 maturities will be redeemed at maturity. The 2016 — 2026 maturities will be redeemed prior to original maturity on August 15, 2010 at par, plus accrued interest, if any. Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 6/1/2000 8/15/2005 7.000% $ 730,000 $ 285,000 8/15/2006 7.000% 770,000 770,000 8/15/2007 7.000% 820,000 820,000 8/15/2016 5.700% 1,380,000 1,380,000 8/15/2017 5.750% 1,465,000 1,465,000 8/15/2018 5.750% 1,550,000 1,550,000 8/15/2019 5.800% 1,645,000 1,645,000 8/15/2020 5.800% 1,745,000 1,745,000 8/15/2021 5.800% 1,850,000 1,850,000 8/15/2022 5.875% 1,960,000 1,960,000 8/15/2023 5.875% 2,075,000 2,075,000 8/15/2024 5.875% 2,200,000 2,200,000 8/15/2025 5.875% 2,335,000 2,335,000 8/15/2026 5.875% 2,475,000 2,475,000 $ 23,000,000 $ 22,555,000 The 2005- 2007 maturities will be redeemed at maturity. The 2016 — 2026 maturities will be redeemed prior to original maturity on August 15, 2010 at par, plus accrued interest, if any. General Obligation Bonds, Series 2000A $ 3,880,000 $ 3,880,000 The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Combination Tax and Revenue Certificates of Obligation, Series 2000A Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 11/1/2000 2/15/2014 5.200% $ 395,000 $ 395,000 2/15/2015 5.300% 415,000 415,000 2/15/2016 5.375% 440,000 440,000 2/15/2017 5.400% 465,000 465,000 2/15/2018 5.500% 495,000 495,000 2/15/2019 5.500% 525,000 525,000 2/15/2020 5.500% 555,000 555,000 2/15/2021 5.500% 590,000 590,000 $ 3,880,000 $ 3,880,000 The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Combination Tax and Revenue Certificates of Obligation, Series 2000A $ 3,020,000 $ 3,020,000 The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 11/1/2000 2/15/2014 5.200% $ 310,000 $ 310,000 2/15/2015 5.300% 325,000 325,000 2/15/2016 5.375% 345,000 345,000 2/15/2017 5.400% 360,000 360,000 2/15/2018 5.500% 385,000 385,000 2/15/2019 5.500% 410,000 410,000 2/15/2020 5.500% 430,000 430,000 2/15/2021 5.500% 455,000 455,000 $ 3,020,000 $ 3,020,000 The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. APPENDIX A GENERAL INFORMATION REGARDING THE CITY THE CITY ... The City is a political subdivision of the State incorporated in 1907 and operates as a home -rule City under the general laws of the State and a charter approved by the voters in 1965. The City has a Council/Manager form of government in which the mayor and six council members are elected for staggered three-year terms with elections held annually in May. Policy making is the responsibility of, and is vested in, the City Council. The Council delegates the operational authority of the City to the City Manager, who is the chief administrative officer of the City. The City provides all the functions normally associated with a municipality including, but not limited to, public safety (i.e., police and fire personnel and equipment), health inspection and enforcement, water and sewer facilities, streets and drainage facilities and parks and recreational facilities. The City presently employs approximately 497 full-time staff members. POPULATION ... The City has had significant population growth during the past several years. These population estimates are as follows: Year Population Source Year Population Source 1970 7,023 U.S. Census 1993 31,902 City Estimate 1980 11,801 U.S. Census 1994 32,727 City Estimate 1981 15,245 Grapevine Community Profile 1995 33,211 City Estimate 1982 16,183 Grapevine Community Profile 1996 34,950 City Estimate 1983 18,121 Grapevine Community Profile 1997 36,000 City Estimate 1984 19,405 Grapevine Community Profile 1998 37,946 City Estimate 1985 22,002 Grapevine Community Profile 1999 39,190 City Estimate 1986 24,493 Grapevine Community Profile 2000 39,523 U.S. Census 1987 25,853 Grapevine Community Profile 2001 44,390 City Estimate 1988 27,132 City Estimate 2002 45,524 City Estimate 1989 27,257 City Estimate 2003 46,188 City Estimate 1990 29,202 U.S. Census 2004 46,684 City Estimate 1991 30,300 City Estimate 2005 47,036 City Estimate 1992 31,400 City Estimate EcoNoNncs ... The proximity of the Dallas/Fort Worth International Airport ("DFW") greatly influences both industrial and residential growth of the City. DFW has been and is expected to continue to be an economic generator of employment, spin-off businesses and tax base, all of which benefit the City and the surrounding area. Approximately 65% of the airport is within the city limits of Grapevine. Several large business operations owe their genesis to DFW including air cargo services, flight kitchens, rent/lease car operations and SimuFlite Training International, a company which provides jet pilot flight training in advanced flight simulators. Seven of the ten largest taxpayers of the City are directly related to DFW either by location or primary business sources. DFW contains approximately 18,000 acres and directly employs some 33,000 personnel. These employees have skills ranging from custodial level to highly trained jet aircraft pilots. A number of these people have purchased homes in the City and conduct their daily business here. DFW has approximately 19,400 parking spaces and is currently expanding parking facilities. Sales tax from parking fees generate about $330,000 in annual income for the City and hotels providing service for travelers at DFW and seminar space for business meetings generate approximately $2 million in annual hotel/motel tax revenue. EMPLOYMENT ... Employment figures furnished by Texas Employment Commission are: A - I Annual Annual Annual Annual Annual Annual 2004 2003 2002 2001 2000 1999 Labor Force 22,598 22,478 22,219 22,001 21,757 21,309 Employed 21,925 21,692 21,476 21,509 21,393 20,956 Unemployed 673 786 743 492 364 353 Percent of Unemployed 2.98% 3.50% 3.34% 2.24% 1.67% 1.66% A - I MAJOR EMPLOYERS Company Dallas/Fort Worth International Airport Gaylord Texan Resort & Convention Center G rap evine/Colley ville Independent School District United Parcel Service Baylor Medical Center Gamestop City of Grapevine D/FW Hilton Hotel SimuFlite Training International Apollo Paper/John Harland Source: City of Grapevine, Department of Development Services. BANKING AND FINANCIAL ... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMrrs ... The number and value of building permits issued by the City are: Fiscal Estimated Residential Permits Number of Product Employees A irp ort 16,420 Hotel/Convention 1,800 School District 1,576 Parcel Service 1,200 Health Services 1,000 Electronic/Software Distribution 600 City Government 540 Hotel 400 Pilot Training 300 Paper Products 200 BANKING AND FINANCIAL ... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMrrs ... The number and value of building permits issued by the City are: Fiscal Commercial Permits Residential Permits Total Year Number Number Number Total Ended of Dollar of Dollar of Dollar 9/30 Permits Value Permits Value Permits Value 2000 56 $ 84,742,336 211 $ 56,040,989 267 $ 140,783,325 2001 53 364,294,642 89 12,445,025 142 376,739,667 2002 23 21,888,714 183 48,911,056 206 70,799,770 2003 28 34,396,654 158 43,615,909 186 78,012,563 2004 23 32,790,990 186 40,969,517 209 73,760,507 Source: City of Grapevine records. RECREATION ... Located approximately two miles north of the downtown area of the City lies Grapevine Lake. The lake serves as the City reservoir and supplies approximately 50% of the water supply of the City. The lake covers a surface area of approximately 12,740 acres and has a shore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S. Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swimming pool and picnic areas. The City also owns and operates an 27 -hole golf course. TRANSPORTATION... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth, with major highway systems both north/south and east/west. There are 43 motor freight lines providing service to the City and the City is within the Dallas and Fort Worth Commercial Zone for deliveries. Railroad service is offered by the Cotton Belt Railroad and the Southern Pacific Railroad, both with daily switching service. Greyhound/Trailways Bus Lines provides the City with surface bus transportation. HOTEL AND CONVENTION FACILITIES... There are four major hotels in the City and several other hotels and motels adjacent to the City near DFW. The Hyatt Regency DFW is located on the airport and provides 1,450 rooms, one of the largest hotels in Texas. The Hyatt provides more than 130,000 square feet of meeting and convention facilities, five dining facilities, availability to two 18 -hole championship golf courses, tennis courts, heated swimming pool and health spa and jogging trails. A-2 The D/FW Airport Hilton and Executive Conference Center is a 400 -room hotel located 2.5 miles north of DFW offering a 14,400 square foot exhibit hall and ballroom that can accommodate 900 banquet guests. Also provided are three restaurants, tennis courts, racquetball courts, indoor and outdoor swimming pools, steam room, health club and lighted jogging trails. Adjacent to the hotel is the Austin Ranch where horseback riding and other western events are available to hotel guests. The Embassy Suites Conference Center is a 12 -story, 329 -room hotel located just north of DFW Airport. The Embassy Suites offers a 12,640 square foot conference center and ballroom, a 3,432 square foot junior ballroom and 14 other meeting rooms. Also provided is a state-of-the-art fitness center, a heated indoor swimming pool, complimentary, cooked -to -order breakfast and 24-hour in -room dining. The Gaylord Texan on Lake Grapevine is a 1,511 room resort and convention center located just 6 minutes north of D/FW Airport. The Gaylord Texan provides 400,000 square feet of convention, meeting, exhibit and pre -function space featuring 70 breakout rooms, three ballrooms, 180,000 square -feet of dedicated exhibit space, an 80,000 square foot outdoor event lawn and a 2,500 square foot amphitheater. Other amenities include seven restaurants, the Dallas Cowboys Golf Club, a contemporary Southwestern -style outdoor pool, a 25,000 square foot European spa, salon and fitness center with 13 treatment rooms and a 20 - meter indoor lap pool, outdoor tennis courts and marina access for recreational water -craft. EDUCATION ... Elementary and secondary education is provided to the City by the Grapevine-Colleyville Independent School District (the "District"). The District provides seventeen campuses, all air conditioned, as follows: 2 High schools 4 Middle schools 11 Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1983 3,732 1994 10,878 1984 4,037 1995 11,363 1985 4,675 1996 11,655 1986 5,617 1997 12,398 1987 6,107 1998 12,928 1988 6,604 1999 13,299 1989 7,156 2000 13,369 1990 7,984 2001 13,534 1991 8,710 2002 13,677 1992 9,435 2003 13,619 1993 10,236 2004 13,851 Source: Grapevine-Colleyville Independent School District. Educational opportunities beyond the secondary level are numerous and within easy driving distance of the City. Some of the colleges and universities within a 50 mile radius of the City are as follows: College/University Locat ion Texas Christian University Fort Worth, Texas Texas Wesleyan University Fort Worth, Texas Tarrant County College Fort Worth, Texas University of Texas at Arlington Arlington, Texas University of North Texas Denton, Texas Texas Women's University Denton, Texas Southern Methodist University Dallas, Texas Dallas Baptist University Dallas, Texas Dallas Community College Dallas, Texas University of Dallas Irving, Texas University of Texas at Dallas Richardson, Texas A-3 APPENDIX B EXCERPTS FROM THE CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2004 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30, 2004, and is not intended to be a complete statement of the City's fmancial condition. Reference is made to the complete Report for further information. APPENDIX C FORM OF BOND COUNSEL'S OPMONS Sheila Tanner Practice The ABC Method Page 1 From: newsletter@briantracyintl.com To: <stanner@ci.grapevine.tx.us> Date: 6/13/2005 7:16:32 AM Subject: Practice The ABC Method Practice The ABC Method By: Brian Tracy "The first law of success is concentration - to bend all the energies to one point, and to go directly to that point, looking neither to the right or to the left." -William Mathews The more thought you invest in planning and setting priorities before you begin, the more important things you will do and the faster you will get them done once you get started. The more important and valuable the task is to you, the more you will be motivated to overcome procrastination and launch yourself into the job. A Simple and Powerful Technique The ABCDE Method is a powerful priority setting technique that you can use every single day. This technique is so simple and effective that it can, all by itself, make you one of the most efficient and effective people in your field. The power of this technique lies in its simplicity. Here's how it works: You start with a list of everything you have to do for the coming day. Think on paper. You then place an A, B, C, D or E before each item on your list before you begin the first task. Determine Your Top Priorities An "A" item is defined as something that is very important. This is something that you must do. This is a task for which there can be serious consequences if you do it or fail to do it, like visiting a key customer or finishing a report for your boss that she needs for an upcoming board meeting. These are the frogs of your life. If you have more than one "A" task, you prioritize these tasks by writing A-1, A-2, A-3, and so on in front of each item. Your A-1 task is your biggest, ugliest frog of all. <http://www.briantracy.com/r.asp?LID=1365> Time Management Series: <http://www.briantracy.com/r.asp?LID=1365> Achieve your goals with the most powerful system ever developed! This combination of programs contains the best-selling programs on time management, How to Master Your Time, Eat That Frog! and 21 Great Ways to Manage Your Time and Double Your Productivity. Save 33% Learn More <http://www.briantracy.com/r.asp?LID=1365> Decide On Your Secondary Tasks A "B" item is defined as a task that you should do. But it only has mild [ Sheila Tanner - Practice The ABC Method page 2 consequences. These are the tadpoles of your work life. This means that someone may be unhappy or inconvenienced if you don't do it, but it is nowhere as important as an "A" task. Returning an unimportant telephone message or reviewing your email would be a "B" task. The rule is that you should never do a "B" task when there is an "A" task left undone. You should never be distracted by a tadpole when there is a big frog sitting there waiting to be eaten. Analyze The Consequences of Doing It A "C" task is defined as something that would be nice to do, but for which there are no consequences at all, whether you do it or not. "C" tasks include phoning a friend, having coffee or lunch with a coworker or completing some personal business during work hours. This sort of activity has no affect at all on your work life. After you have applied the ABC Method to your list, you will now be completely organized and ready to get more important things done faster. Start On Your A-1 Task The key to making this ABC Method work is for you to now discipline yourself to start immediately on your "A-1" task and then stay at it until it is complete. Use your willpower to get going and stay going on this one job, the most important single task you could possibly be doing. Eat the whole frog and don't stop until its finished completely. Your ability to think through, analyze your work list and determine your "A-1" task is the springboard to higher levels of accomplishment, and greater self-esteem, self-respect and personal pride. When you develop the habit of concentrating on your "A-1," most important activity, you will start getting more done than any two or three people around you. Action Exercises Review your work list right now and put an A, B, or C next to each task or activity. Select your A-1 job or project and begin on it immediately. Discipline yourself to do nothing else until this one job is complete. Practice this ABC Method every day and on every work or project list, before you begin work, for the next month. By that time, you will have developed the habit of setting and working on your highest priority tasks and your future will be assured! <hftp://www.briantracy.com/r.asp?LID=2204> Regular Price: $79.95 Your Price: $74.95 The Psychology of Achievement <hftp://www.briantracy.com/r.asp?LID=2204> (Six session CD program) Learn how to achieve all your goals. This is the world-wide best-selling Sheila Tanner - Practice The ABC Method Page 3 program on success and achievement (1,000,000 sold in 20 languages) Session One: Building a Positive Self Concept Session Two: Accepting Responsibility and Taking Charge Session Three: Programming for Success Session Four: Goals and Goal Achieving Session Five: Creative Problem Solving and Decision Making Session Six: Superior Human Relations <http://www.briantracy.com/r.asp?LID=2204> Brian Tracy International values your Security & Privacy Upcoming Events: Boston, MA • June 14, 2005 - For more information, call 800-817-5737 or e-mail <mailto:ppgrh1@cox.net?subject=Please send Boston seminar information - here is my contact info> . Portland, OR • June 21, 2005 - For more information, call 800-817-5737 or e-mail <mailto:ppgrh1 @cox.net?subject=Please send Portland seminar information - here is my contact info> . Philadelphia, PA • August 9, 2005 - For more information, call 800-874-8990 or e-mail <mailto:%201ive-event-info@aweber.com?subject=Please send Philadelphia seminar information - here is my contact info> . Vancouver, BC • August 15, 2005 - For more information, call 281-280-8769 or e-mail <mailto:info@mastersalesskills.com?subject=Please send Vancouver seminar information - here is my contact info> . Norfolk, VA • September 12, 2005 - For more information, call 800-817-5737 or e-mail <mailto:ppgrh1 @cox.net?subject=Please send Norfolk seminar information - here is my contact info> . New York, NY • September 15, 2005 - For more information, call 281-280-8769 or e-mail <mailto:info@mastersalesskills.com?subject=Please send New York seminar information - here is my contact info> . Milwaukee, WI • September 23, 2005 - For more information, call 800-874-8990 or e-mail <mailto:%201ive-event-info@aweber.com?subject=Please send Milwaukee seminar information - here is my contact info> . Brian Tracy International 462 Stevens Ave Suite 202, Solana Beach, Ca 92075 BEG IN-ANTISPAM-VOTING-LINKS Teach Canit if this mail (ID 760357) is spam: Spam: http:\\mailfilter.ci.grapevine.tx.us/b.php?c=s&i=760357&m=259f037daa9d Not spam: http:\\mailfilter.ci.grapevine.tx.us/b.php?c=n&i=760357&m=259f037daa9d Forget vote: http:\\mailfilter.ci.grapevine.tx.us/b.php?c=f&i=760357&m=259f037daa9d END-ANTISPAM-VOTING-LINKS i Sheila Tanner - Practice The ABC Method Page 4 �qLAP "Tr wE V I - �)� $1199209000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 AND $2397559000 COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A Tuesday, June 21, 2005 The following ratings have been assigned: Underlying MBIA Credit Insured Rating Moody's Investors Service, Inc. "Aaa" "Al" Standard & Poor's Rating Group "AAA" "AA-" A Division of McGraw-Hill, Inc. PREPARED BY: ter- First Southwest Company Investment Bankers Since 1946 New Issue: Grapevine (City of) TX Global Credit Research New Issue 16 JUN 2005 MOODY'S ASSIGNS Al RATING TO CITY OF GRAPEVINE (TX) SERIES 2005 GENERAL OBLIGATION REFUNDING BONDS AND SERIES 2005A COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS Al AFFIRMATION AFFECTS $147.1 MILLION IN PARITY DEBT, INCLUDING CURRENT SALE Municipality TX Moody's Rating ISSUE Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A Sale Amount Expected Sale Date Rating Description General Obligation Bonds Sale Amount Expected Sale Date Rating Description Opinion $24,125,000 06/20/05 General Obligation Limited Tax $11,510,000 06/20/05 General Obligation Limited Tax '3�I�I:Lr7 Al Al NEW YORK, Jun 16, 2005 -- Moody's Investors Service has assigned an Al rating to the City of Grapevine's $11.5 million General Obligation Refunding Bonds, Series 2005; and to the City's $24.1 Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A. Concurrently, Moody's has affirmed the Al rating on the remaining general obligation debt, affecting $147.1 million including the current sale. Bond proceeds will be used to refund a portion of the City's outstanding general obligation debt to lower overall debt service requirements. Both issues are secured by an ad valorem tax levied on all taxable property within the City within the limits prescribed by law. The Series 2005A bonds are further secured by a subordinate lien on and pledge of the tax increments of the City's Reinvestment Zone Number Two. Factors contributing to the assignment and affirmation include a sizable tax base that continues to expand despite financial hardship experienced by major taxpayers, a manageable debt position, and a history of deficit spending that has diminished reserves. DIVERSIFICATION OF TAXBASE FAVORS GROWTH Situated in northeast Tarrant County (general obligation rating Aaa), the City of Grapevine is a suburban community located within the Dallas/Ft. Worth metropolitan area. Two-thirds of the Dallas/Fort Worth International Airport, including all terminal buildings, is located within the City. Assessed values (AV) in the City experienced some softness in the past two years as growth was tempered by losses at major airlines including America Airlines and Delta following the events of September 11th. After growing at an annual average rate of 8.1 % between fiscal years 2000 and 2002, the AV reflected a 0.2% decline in FY 2003 and a modest 2.4% increase in FY 2004. The tax base has rebounded significantly in fiscal 2005, expanding 9.7% to a sizable $5.35 billion. This increase in taxable values is mainly attributable to the recovery of the airline industry and new development in the proximity of the $300 million Gaylord Texan Resort and Convention Center that opened in April 2004. The resort and convention center reports 67% occupancy rates since opening, indicating the viability of the hotel despite competition from downtown Ft. Worth and Dallas. Other commercial properties recently added to the tax base include a Walmart Super Center and Sam's Wholesale Club. City officials report new residential construction has slowed down, but reappraisal of existing single- family homes remains healthy. For fiscal year 2006, officials project a $200 million increase in taxable values. Moody's believes diversification of the tax base through new commercial construction and ongoing reappraisal of existing residential properties offsets uncertainty in assessed valuation growth provided by airline operations. DECLINING RESERVES WITH SOLID GROWTH IN SALES TAX RECEIPTS As a result of consecutive operational deficits, the City has reduced its General Fund balance from $7.7 million or 20.8% of revenues in fiscal 2001 to $4.5 million or 11.5% of revenues in fiscal 2004. While the City did plan on reducing general fund reserves between fiscal years 2001 and 2003, the subsequent 25% reduction in fund balance at the end of fiscal 2004 was not anticipated. Additionally, the undesignated reserve decreased from $5.4 million in fiscal 2003 or 13.7% of revenues to a narrow $3 million or 7.6% of revenues in fiscal 2004. This level of reserve is well below the City's goal of maintaining 60 days of operations in undesignated general fund reserve. Officials attribute the $1.5 million deficit in fiscal 2004 to overspending in both health insurance claims and overtime expenses in the Fire Department, as well as to unanticipated maintenance and repairs in Lake Grapevine Park and lower than projected revenue collections. Although officials plan to align expenditures to revenue in the next budget cycle and to increase reserves by approximately $200,000 by fiscal year-end 2005, the use of reserves in fiscal 2004 to fund operating expenditures remains an issue of concern. Furthermore, the City heavily relies on sales tax collections, an economically cyclical revenue source, to finance operations. In fiscal 2004, sales tax receipts provided 35% of the City's operating funds while property tax revenues contributed 33%. After a 6.9% decline in sales tax collections in fiscal 2002, receipts rebounded in fiscal 2003, increasing 7.4% to $16 million. The increase was even larger in fiscal 2004 with sales tax receipts climbing 12.1 % to almost $18 million due to the expansion of the City's base of retail offerings and favorable activity at the Gaylord Texan Resort. For fiscal year-end 2005, officials anticipate a slight increase to $18.9 million due to a $300,000 audit adjustment reported by the State's Comptroller. Moody's considers the narrow level of reserves to be inadequate given the City's heavy reliance on sales tax as the primary operating revenue. In addition, Moody's believes consecutive declines in reserves and the use of them to finance operating losses is not consistent with prudent financial management. If these practices continue in place, Moody's may consider taking a downward action on the Al rating. HIGH DEBT LEVEL WITH RAPID PAYOUT Including this issue, the City's direct and overall debt ratios are somewhat elevated at 2.8% and 6.1 % respectively, both expressed as a percent of assessed valuation. However, the City's debt profile benefits from an above-average rate of principal repayment with 66.4% retired in ten years. Officials anticipate issuing approximately $2.3 million in Certificates of Obligations in June 2005 to fund the construction of cabins and docks on the shores of Grapevine Lake. Additionally, the City has $5.2 million in authorized but unissued general obligation debt for street improvements that officials anticipate issuing in November 2005. Moody's believes the City's debt profile will remain moderately high over the medium term; however, projected assessed valuation growth and rapid retirement of principal will mitigate further upward pressure on the debt ratios. KEY STATISTICS: 2004 Estimated Population: 47,036 2005 Full Valuation: $5.35 billion 2005 Full Valuation per Capita: $113,805 Direct Debt Burden: 2.8% Overall Debt Burden: 6.1 % Payout of Principal (10 years): 66.4% FY 2004 General Fund balance: $4.5 million (11.5% of General Fund revenues) Post -Sale Parity Debt Outstanding: $147.1 million City of Grapevine Per Capita Income as % of State (2000 Census): 160.8% Analysts Maria Erickson Analyst Public Finance Group Moody's Investors Service Nora Wittstruck Backup Analyst Public Finance Group Moody's Investors Service STANDARD PATI NGS DIRECT &POO S Grapevine, Texas; Tax Secured, General Oblkjatior Publication date: 10 -Jun -2005 Primary Credit Analyst(s): Wendy Wipperman, Dallas (1) 214-871-1421; wendy_wipperman@standardandpoors.com Secondary Credit Analyst(s): Theodore Chapman, Dallas (1) 214-871-1401; theodore_Chapman@standardandpoors.com Credit Profile US$11.51 mil GO rfdg bnds ser 2005 dtd 06/01/2005 due 02/15/2021 AA - Sale date: 21 -JUN -2005 US$24.125 mil comb tax & incre reinvestment zone rev rfdg bnds ser 2005A dtd 06/01/2005 due 08/15/2026 AA - Sale date: 21 -JUN -2005 AFFIRMED $121.905 mil. Grapevine GO (FGIC) AAA/AA-(SPUR) $22.830 mil. Grapevine GO (FSA) AAA/AA-(SPUR) $151.875 mil. Grapevine go bnds AA - OUTLOOK: STABLE Standard & Poor's Ratings Services assigned its 'AA-' rating, and stable outlook, to Grapevine, Texas' series 2005 GO refunding bonds and series 2005A combination tax and tax increment reinvestment zone revenue refunding bonds. The rating reflects the city's: Expanding, diversifying substantial property tax base, coupled with a competitive property tax rate; • Moderating overall debt burden, coupled with limited future capital needs; • Historically strong financial performance and adequate financial position; and • High wealth and income levels, which are boosted by its participation in the Dallas -Fort Worth MSA. The city's moderately concentrated economic base, which, while deep, is heavily dependent on Dallas - Fort Worth International Airport and related industries, is an offsetting factor. The city's full faith and credit pledge secures the series 2005 bonds. The city's limited -tax pledge and a subordinate -lien pledge of the tax increments of the city's Reinvestment Zone No. 2 secure the series 2005A bonds. Officials will use bond proceeds to refund a portion of the city's GO debt outstanding and combination -tax and tax increment reinvestment zone revenue certificates of obligation outstanding. Grapevine, with an estimated population of 47,036, is centrally located between Dallas, Texas and Fort Worth, Texas. City residents have easy transportation access throughout the entire MSA. Dallas -Fort Worth International Airport -- two-thirds of which is within Grapevine's corporate city limits -- has greatly influenced the city's development. The airport's presence contributes substantial direct and indirect employment, sales and hotel tax revenues, and industrial and commercial real property taxes. While the nationwide economic downturn and the events of Sept. 11, 2001, affected most of these revenue sources, airport volume has stabilized. Assessed value (AV) declined by a nominal 0.2% in fiscal 2003 but has since rebounded; AV increased by 2.4% and 9.7% in fiscals 2004 and 2005, respectively, to a substantial $5.353 billion. The construction of the Gaylord Texan resort, a 1,500 -room destination hotel and convention center on Lake Grapevine with an AV of $113 million, contributed to an increase in commercial real estate values in fiscal 2005. Other significant commercial development includes Grapevine Mills Mall, a regional outlet mall, and Bass Pro Shop, a sporting goods store. Tax base concentration is moderate: The 10 leading taxpayers account for 22% of total AV. American Airlines Inc., the leading taxpayer, accounts for 5.9% of total AV. Grapevine Mills L.P., a regional shopping mall, is the second leading taxpayer, accounting for 3.5% of taxable AV. Delta Airlines, the city's third leading taxpayer with 2.8% of taxable AV, recently announced plans to make significant reductions to its flight operations from Dallas -Fort Worth International Airport. Airport officials expect American Airlines and other carriers to pick up some of Delta's former routes. Property tax base concentration in the airline industry has declined to 8.7% of total AV in fiscal 2005 from 19.0% in fiscal 2002. The city's median household income levels are high and exceed state and national levels by 66% and 64%, respectively. Property wealth levels are a high $113,805 per capita. Per capita retail sales are an above-average 133% of the national average due, in part, to Dallas -Fort Worth International Airport's presence within Grapevine's corporate city limits. City unemployment rates, which are low, averaged 3% in 2004, well below state and national rates. Outlook The stable outlook reflects the expectation that despite recent airline industry reductions in operations, the economic and property tax bases will remain stable. The stable outlook also reflects Standard & Poor's expectation that the city will rebuild its general fund reserves within the parameters of management's minimum fund balance policy and that the city's long-term capital requirements will remain moderate. Finances Grapevine closed fiscal 2003 at essentially a break-even position while it maintained a stable 36 cents per $100 of AV property tax rate, which was among Tarrant County's and the Dallas -Fort Worth consolidated MSA's lowest rates, providing the city with significant revenue -raising flexibility. The city closed fiscal 2004 with a $443,000 operating deficit before transfers due to revenue shortfalls in fines and interest earnings and increased insurance claims. City officials transferred $1.10 million into the street maintenance and capital replacement fund from the general fund, which decreased the general fund balance to $4.56 million, or 11.5% of expenditures, at fiscal year-end 2004, which was below the minimum fund balance policy. The unreserved general fund balance totaled $3.02 million, or an adequate 7.6% of expenditures, at fiscal year-end 2004. City officials have adopted a policy of maintaining a minimum general fund balance of 16.4% of expenditures, or 60 days' operations. In fiscal 2004, the city council amended the parks department budget due to the city's lease of U.S. Army Corps of Engineers parkland at Lake Grapevine and its assumption of operating and maintenance of the park facilities. Consequently, parks department fiscal 2004 expenditures increased by roughly $543,000 over the original budget. Fiscal 2004 sales tax revenues exceeded fiscal 2003 collections by $1.9 million, representing a substantial 12% increase. The October 2003 opening of a Wal-Mart Stores Inc. supercenter and a Sam's Club in Grapevine contributed to the healthy sales tax growth. The city council levied a low 36.35 cents per $100 of AV property tax rate in the fiscal 2005 adopted budget, including a $341,000 contribution to the general fund balance. Management budgeted a 7.9% increase in sales tax revenues in fiscal 2005 over the fiscal 2004 budget, which was supported by the recent addition of several large retailers and the opening of the 1,500 -room Gaylord Texan hotel and conference center in April 2004. Fiscal year-to-date sales tax revenues through May 2005 are $231,000, or 2.4%, below budget; and city officials are projecting to close the year with a $200,000-$300,000 shortfall in sales tax revenues. Management believes expenditure savings should offset the projected sales tax budget shortfall. Debt Overall net debt is a high $5,634 per capita; but it has decreased to a moderate 5% of market value. The debt burden is almost entirely attributable to Grapevine -Col leyvilie Independent School District ('AA-' SPUR GO debt rating); net direct debt, however, accounted for a low 1.6% of market value. Debt levels should moderate since both the city and school district are approaching buildout. Debt service costs are a high 25.3% of fiscal 2004 total expenditures, which is in-line with historical levels; self- supporting revenue streams, however, somewhat offset the high carrying charges. The city's manageable five-year capital plan consists almost entirely of street and quality -of -life projects. The city has $5.3 million of authorized, but unissued, GO bonds remaining, which it plans to issue in early fiscal 2006. Copyright © 1994-2005 Standard & Poor's, a division of The McGraw-Hill Companies. All Rights Reserved. Privacy Policy '«'` Final $11,920,000 City of Grapevine, Texas General Obligation Refunding Bonds, Series 2005 Date Principal Coupon Interest Total P+I 09/30/2005 91,349.17 91,349.17 09/30/2006 - - 548,095.00 548,095.00 09/30/2007 100,000.00 3.000% 546,595.00 646,595.00 09/30/2008 105,000.00 3.000% 543,520.00 648,520.00 09,`30:2009 105,000.00 3.100% 540,317.50 645,317.50 09/30/2010 110,000.00 3.250% 536,902.50 646,902.50 09/30/2011 115,000.00 3.350% 533,188.75 648,188.75 09/30/2012 120,000.00 3.500% 529,162.50 649,162.50 09.+30/2013 125,000.00 3.500% 524,875.00 649,875.00 09/30/2014 1,325,000.00 4.000% 496,187.50 1,821,187.50 09.'30/2015 1,375,000.00 4.000% 442,187.50 1,817,187.50 09/30'2016 1,445,000.00 5.000% 378,562.50 1,823,562.50 09/30/2017 1,515,000.00 5.000% 304,562.50 1,819,562.50 09/301,°2018 1,600,000.00 5.000% 226,687.50 1,826,687.50 09/30;2019 1,690,000.00 5.000% 144,437.50 1,834,437.50 09/3012020 1,065,000.00 5.000% 75,562.50 1,140,562.50 09/30/2021 1,125,000.00 4.350% 24,468.75 1,149,468.75 Total $11,920,000.00 - $6,486,661.67 $18,406,661.67 Yield Statistics True Interest Cost (TIC) 4.2064392% Savings Statistics Net Present Value Benefit $408,204.94 Net PV Benefit/ $11,265,000 Refunded Principal 3.624% 2005 Ref GO Pricing File 1 6121 i2005 1 2:31 PM Final $11,920,000 City of Grapevine, Texas General Obligation Refunding Bonds, Series 2005 1 11 .1 1r r•� of Maturity Issue Maturity Type Bond Coupon Value Call Date Call Price Dated 3/01/2000 ( Delivered 3/01/2000 00 co 00 co 08/1512005 08:`15/2006 Serial Serial Coupon Coupon 5.250% 5.250% 300,000 580,000 OOA go 100.0000/; 100.000% Subtotal - 5.200% 395,000 - $880,000 - - Serial Coupon 5300% 415,000 02115/2010 100.000% OOA go 02/15/2016 Dated 3/01/2000 1 Delivered 3/01/2000 Coupon 5.375% 440,000 02/15/2010 100.000% 00 go 00 go 00 go OO go 00 go 00 go 0215/2014 02 1 5120 1 5 02/15/2016 02/15/2017 02/15/2018 02/15/2019 Serial Serial Serial Serial Serial Serial Coupon Coupon Coupon Coupon Coupon Coupon 5.600% 5.650% 5.700% 5.750% 5.800% 5.850% 500,000 530,000 560,000 595,000 630,000 670,000 02/15/2010 02!15/2010 02./15/2010 02/15/2010 02/15/2010 02/15/2010 100.000% 100.000% 100.000% 100.000% 100.000% 100.000% Subtotal - Serial Coupon - $3,485,000 - - OOA go 02/15.12019 Serial Coupon 5.500% 525,000 02/15,2010 100.000% Dated 11/01/2000 1 Delivered 12/0.5/2000 OOA go 02/15/2014 Serial Coupon 5.200% 395,000 02/15/2010 100.000% OOA go 02/15/2015 Serial Coupon 5300% 415,000 02115/2010 100.000% OOA go 02/15/2016 Serial Coupon 5.375% 440,000 02/15/2010 100.000% OOA go 02152017 Serial Coupon 5.400% 465,000 02/15/2010 100.000% OOA go 02/15/2018 Serial Coupon 5.500% 495,000 02/15/2010 100.000% OOA go 02/15.12019 Serial Coupon 5.500% 525,000 02/15,2010 100.000% OOA go 02;15/2020 Serial Coupon 5.500% 555,000 02/15.2010 100.000% OOA go 0215=2021 Serial Coupon 5.500% 590,000 02,/15;2010 100.000% Subtotal - - $3,880,000 - - Dated 11/01/2000 Delivered 12/05/2000 OOA co 02115;2014 Serial Coupon 5.200% 310,000 02/15/2010 100.000% OOA co 02,/15/2015 Serial Coupon 5.300% 325,000 021512010 100.000% OOA co 02/15/2016 Serial Coupon 5.375% 345,000 0215/2010 100.000% OOA co 02/15/2017 Serial Coupon 5.400% 360,000 02/15/2010 100.000% OOA co 0215/2018 Serial Coupon 5.500% 385,000 02/15;'2010 100.000% OOA co 0215/2019 Serial Coupon 5.500% 410,000 02/15'2010 100.000% OOA co 02,15/2020 Serial Coupon 5.500% 430,000 02,'15x'2010 100.000% OOA co 02/15/2021 Serial Coupon 5.500% 455,000 02/15/2010 100.000% Subtotal - - $3,020,000 - - Total - $11,265,000 2005 Ref GO Pricing File 1 6/21/2005 1 2:31 PM City of Grapevine, Texas Combination Tax & Revenue Reinvestment Zone Revenue Refunding Bonds, Series 2005A Debt Service Schedule Date Principal Coupon Interest Total P+1 09/30/2005 195,005.00 195,005.00 09/30/2006 1,170,030.00 1,170,030.00 09/302007 - - 1,170,030.00 1,170,030.00 09/30/2008 140,000.00 3.250% 1,170,030.00 1,310,030.00 09/30/2009 145,000.00 3.250% 1,165,480.00 1,310,480.00 09!30/2010 150,000.00 3.250% 1,160,767.50 1,310,767.50 09/30/2011 155,000.00 3.350% 1,155,892.50 1,310,892.50 09/'3012012 160,000.00 3.500% 1,150,700.00 1,310,700.00 09/30/2013 165,000.00 4.000% 1,145,100.00 1,310,100.00 09/30:12014 170,000.00 4.000% 1,138,500.00 1,308,500.00 09/3012015 180,000.00 4.000% 1,131,700.00 1,311,700.00 09/30/2016 1,565,000.00 5.000% 1,124,500.00 2,689,500.00 09/302017 1,650,000.00 5.000% 1,046,250.00 2,696,250.00 09/30/2018 1,735,000.00 5.000% 963,750.00 2,698,750.00 09!30/2019 1,825,000.00 5.000% 877,000.00 2,702,000.00 09/30/2020 1,925,000.00 5.000% 785,750.00 2,710,750.00 09/30/2021 2,025,000.00 5.000% 689,500.00 2,714,500.00 0930/2022 2,125,000.00 5.000% 588,250.00 2,713,250.00 09/3012023 2,230,000.00 5.000% 482,000.00 2,712,000.00 09;'30/2024 2,345,000.00 5.000% 370,500.00 2,715,500.00 09/30/2025 2,470,000.00 5.000% 253,250.00 2,723,250.00 09130,2026 2,595,000.00 5.000% 129,750.00 2,724,750.00 Total $23,755,000.00 - $19,063,735.00 $42,818,735.00 Yield Statistics True Interest Cost (TIC) 4.4925889% Savings Statistics Net Present Value Benefit $1,408,961.34 Net PV Benefit 1'$22,555,000 Refunded Principal 6.247% 2005A Pricing File REVISE 1 6121/2005 1 3:39 PM Final $23,755,000 City of Grapevine, Texas Combination Tax & Revenue Reinvestment Zone Revenue Refunding Bonds, Series 2005A Summary Of Bonds • d•l of Maturity Issue Maturity Type Bond Coupon Value Call Date Call Price Dated 6/01/2000 ( Delivered 6/01/2000 00 co tirz 08;15:2005 Serial Coupon 7.000% 285,000 - 00 co tirz 08/152006 Serial Coupon 7.000% 770,000 - - 00 co tirz 08/15/2007 Serial Coupon 7.000% 820,000 - 00 co tirz 08/15/2016 Serial Coupon 5.700% 1,380,000 08/15/2010 100.000% 00 co tirz 08/15./2017 Serial Coupon 5.750% 1,465,000 08/15/2010 100.000% 00 co tirz 08/152018 Serial Coupon 5.750% 1,550,000 08/15;2010 100.000% 00 co tirz 08/15/2019 Serial Coupon 5.800% 1,645,000 08:152010 100.000% 00 co tirz 08/15/2020 Serial Coupon 5.800% 1,745,000 08115,/2010 100.000% 00 co tirz 08.1'15/2021 Serial Coupon 5.800% 1,850,000 08/152010 100.000% 00 co tirz 08115=`2022 Serial Coupon 5.875% 1,960,000 08,1512010 100.000% 00 co tirz 08/15/2023 Serial Coupon 5.875% 2,075,000 08'1512010 100.000% 00 co tirz 08115;2024 Serial Coupon 5.875% 2,200,000 08/1512010 100.000% 00 co tirz 08/15.`2025 Serial Coupon 5.875% 2,335,000 08/15/2010 100.000% 00 co tirz 0815/2026 Serial Coupon 5.875% 2,475,000 08/15;2010 100.000% Subtotal - - $22,.555,000 - - Total - $22,555,000 - - w 0 0 v � v 00 v 00 v m a C� a1 M �O O CO 00 00 M d. O M a1 01 N 06 400 W 0000 '- - _M d O 0 m O M H tl N O N 00 � M N tn all Zt N 00 C1 N 00 "Zt 00 m 00 p � d• M M M M d' M � � � � H kn in W N cz Q 1•V � vl �.�..� `i -•i O � y O `i• -V Cj CD U W U U v U v U to to cn o N N c,F+ N "d N O Cq r= p Gd bi —Ct O O QO on N C7 U �S U L7 U U, E� U C7 U YS YC Ci n a! cn ai >C ,n cc3 R3 >C cd rn cd cn c� cc3 cd v >C rn cd GO cd 'j� N N CJ ti Cyi E••+ E-+ O E-+ O F'' H F-� H � v E-� H C/] �-'� �r C!t 1'1+ 6i CC r7 ✓ v ' N N N ,�•, '�".� � N N N S�, ' �,' r> N � v � N � N� Nom-+ � v � N � N Ua CJ 00 n M v OF cd, c", W s cn (�� (�j O () CJ O 4 L7 O O O C 4-i N 4 O '� 4 N O C.. 4- " 41 (4 �p�1 O 4-4N cn O 0 0 0 0 O o O 0 0 O p O N �h v O .y O O p 0 '� O N O p O •� O p O '� O H y N b�q 0 0 O 00 cd oo bA O � O O � 00 c� 00 bA ''= O O O a3 oD bb 00 v� Vl > "O ori aS eel •i: M '� N MSO M O O � O0 ^" O_ S�, •-� M O o0 osO .q � 6O CA, E:.ry j Moody's: Applied For Dated June 10, 2005 S&P: Applied For y s (see "Other Information — r NEW ISSUE - Book -Entry -Only Ratings" herein) E . In the opinion of Bond Counsel, interest on the Series 2005 Bonds is excludable from gross income for federal income tax purposes under existing law and the Series O 2005 Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of y alternative minimum tax consequences for corporations. w THE SERIES 2005 BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS E, $11,510,000* CITY OF GRAPEVINE, TEXAS (Tarrant County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 o Dated Date: June 15, 2005 Due: February 15, as shown below PAYMENT TERMS ... Interest on the $11,510,000" City of Grapevine, Texas General Obligation Refunding Bonds, Series 2005 (the "Series 2005 Bonds") will O accrue from June 15, 2005 (the "Dated Date"), will be payable February 15 and August 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. See "The Series 2005 Bonds and Series 2005A c p Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying Agent/Registrar"). c AUTHORITY FOR ISSUANCE ... The Series 2005 Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, and Section 9.26 of the City's Home Rule Charter, and are direct obligations of the City of — % Grapevine (the "City"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Series 2005 Bonds (the "Series 2005 Bond Ordinance" and together with the Series 2005A Ordinance, the "Ordinances") (see "The E c Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Series 2005 Bonds will be used to (i) refund a portion of the City's outstanding general obligation debt (the Combination ,w n Tax and Revenue Certificates of Obligation, Series 2000, General Obligation Bonds, Series 2000; General Obligation Bonds, Series 2000A; and Combination Tax and Revenue Certificates of Obligation, Series 2000A (collectively, the "Series 2005 Refunded Obligations"), and together with the Series 2005A Refunded ❑ Obligations, the "Refunded Obligations') in order to lower the overall debt service requirements of the City, and (ii) to pay the costs of issuance related to the sale of the Series 2005 Bonds. See "Schedule I- Schedule of Refunded Obligations". MATURITY SCHEDULE* CUSIP Prefix n): 388622 r J CUSIP CUSIP m Amount Maturity Rate Yield Suffix", Amount Maturity Rate Yield Suffix", j U G.. $ 65,000 2007 $ 1,355,000 2015 o s 65,000 2008 1,430,000 2016 ~8 70,000 2009 1,500,000 2017 J �y O E v a 70,000 2010 1,590,000 2018 U u 75,000 2011 1,675,000 2019 o .E ', 80,000 2012 1,050,000 2020 ' f 85,000 2013 1,110,000 2021 $ 1,290,000 2014 75 (Accrued Interest from June 15, 2005 to be added) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in anyway as a substitute for the CUSIP Services. r 3 a a OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005 Bonds having stated maturities on and after February 15, 2016, in whole n o or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to s the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds — Series 2005 Bonds Optional Redemption"). SEPARATE ISSUES ... The Series 2005 Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, Combination Tax and Tax Increment .�' Reinvestment Zone Revenue Refunding Bonds, Series 2005A" (the "Series 2005A Bonds"), under a common Preliminary Official Statement, and such Series 2005 `D o Bonds and Series 2005A Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Series 2005 Bonds and Series 2005A Bonds are separate and distinct securities offerings. being issued and sold independently except for the common Preliminary Official Statement, and while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms m o for payment, the security for its payment, the rights of the holders, and other features. z T, LEGALITY ...The Series 2005 Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions'). Certain R 1 legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY. It is expected that the Series 2005 Bonds will be available for delivery through The Depository Trust Company on July 27, 2005. ?� P O c SOUTHWEST SECURITIES o s ' SAMCO CAPITAL MARKETS A.G. EDWARDS & SONS y�- ',� * Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY 2 PRELIMINARY OFFICIAL STATFNIFNI Ratings: Moody's: Applied For Dated June 10, 2005 S&P: Applied For (see "Other Information — NEW ISSUE - Book -Entry -Only Ratings" herein) In the opinion of Bond Counsel, interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005A Bonds are not private activity bonds. See "Tax Matters -Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE SERIES 2005A BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $24,125,000* CITY OF GRAPEVINE, TEXAS (Tarrant County) COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A Dated Date: June 15, 2005 Due: August 15, as shown below PAYMENT TERMS... Interest on the $24,125,000* City of Grapevine, Texas Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A (the "Series 2005A Bonds") will accrue from June 15, 2005 (the "Dated Date"), will be payable August 15 and February 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005A 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 Series 2005A Bonds maybe acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series 2005A Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005A 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 Series 2005A Bonds. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein. The initial Paying AgenURegistrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying AgenvRegistrar"). AUTHORITY FOR ISSUANCE ... The Series 2005A Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, and Section 9.26 of the City's Home Rule Charter and constitute direct obligations of the City of Grapevine, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax levied on all taxable property within the City, levied within the limits prescribed by law, and (ii) a subordinate lien on and pledge of the Tax Increments deposited into the Tax Increment Fund established for the City's Reinvestment Zone Number Two (the "Zone"), as provided in the ordinance authorizing the Series 2005A Bonds (the "Series 2005A Bond Ordinance" and together with the Series 2005 Ordinance the "Ordinance") (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Series 2005A Bonds will be used to (i) refund a portion of the City's outstanding general obligation debt (the Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000, (the "Series 2005A Refunded Obligations"), and together with the Series 2005 Refunded Obligations, the "Refunded Obligations") in order to lower the overall debt service requirements of the City, (see "Schedule 11- Schedule of Refunded Obligations"), and (ii) to pay the costs of issuance related to the sale of the Series 2005A Bonds. (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005A Bonds having stated maturities on and after August 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds — Series 2005A Bonds Optional Redemption"). SEPARATE ISSUES ... The Series 2005A Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2005" (the "Series 2005 Bonds"), and such Series 2005A Bonds and Series 2005 Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Series 2005A Bonds and Series 2005 Bonds are separate and distinct securities offerings being issued and sold independent; except for the common Preliminary Official Statement, and, while the Obligations share certain centurion attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. LEGALITY ... The Series 2005A Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Series 2005A Bonds will be available for delivery through The Depository Trust Company on July 27, 2005. SOUTHWEST SECURITIES SAMCO CAPITAL MARKETS A.G. EDWARDS & SONS * Preliminary, subject to change. MATURITY SCHEDULE* CUSIP Prefix 388622 CUSIP CUSIP Amount Maturity Rate Yield Suffixt l Amount Maturity Rate Yield suffix") $ 145,000 2008 $ 1,755,000 2018 150,000 2009 1,850,000 2019 155,000 2010 1,950,000 2020 160,000 2011 2,050,000 2021 165,000 2012 2,155,000 2022 175,000 2013 2,260,000 2023 185,000 2014 2,380,000 2024 195,000 2015 2,505,000 2025 1,585,000 2016 2,630,000 2026 1,675,000 2017 (Accrued Interest from June 15, 2005 to be added) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005A Bonds having stated maturities on and after August 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds — Series 2005A Bonds Optional Redemption"). SEPARATE ISSUES ... The Series 2005A Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2005" (the "Series 2005 Bonds"), and such Series 2005A Bonds and Series 2005 Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Series 2005A Bonds and Series 2005 Bonds are separate and distinct securities offerings being issued and sold independent; except for the common Preliminary Official Statement, and, while the Obligations share certain centurion attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. LEGALITY ... The Series 2005A Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Series 2005A Bonds will be available for delivery through The Depository Trust Company on July 27, 2005. SOUTHWEST SECURITIES SAMCO CAPITAL MARKETS A.G. EDWARDS & SONS * Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY 4 This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buv in any jurisdiction to anv person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or otherperson has been authorized to give information or to make anv representation other than those contained in this Preliminary Official Statement, and, ifgiven or made, such other information or representations must not be relied upon. For purposes of compliance with Rule l5c2-12 of the Securities and Exchange Commission (the "Rule'), this document constitutes an Official Statement ofthe Citv with respect to the Bonds that has been "deemed final" by the City as of its date except for the omission of no more than the information permitted by the Rule. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Preliminary Official Statement contains, in part, estimates and matters of opinion which are not intended as statements offact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The Underwriters have provided the following sentence for inclusion in this Preliminary Official Stalement. The Underwriters have reviewed the information in this Preliminary Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Preliminary Official Statement nor anv sale made hereunder shall, under anv circumstances, create anv implication that there has been no change in the affairs of the City or other matters described. See "Other Information — Continuing Disclosure oflnformation "fora description of the City's undertaking to provide certain information on a continuing basis. NEITHER THE CITY, ITS FINANCIAL ADVISOR, NOR THE UNDERWRITERS MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IV THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK -ENTRY ONLY SYSTEM THIS OFFICIAL STATEMENT CONTAINS "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOid'N AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS, PERFORMANCE AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLYFROM THOSE SET FORTHIN THE FORWARD-LOOKING STATEMENTS, IN CONNECTION WiTH THE OFFERING OF THE BO.SDS THE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TiME. The Bonds are exempt from registration with the Securities and Exchange Commission and consequentTv have not been registered therewith. The registration, qualification, or exemption of the Bonds in accordance with applicable securities law provisions of the jurisdiction in which these securities have been registered or exempted should not be regarded as a recommendation thereof. TABLE OF CONTENTS 12121111 [E► tiY1aT�EiT/frl�ll7ll�l alTui t 371u' u'I CITY OFFICIALS, STAFF AND CONSULTANTS ................................. 8 ELECTED OFFICIALS............................................................................. 8 SELECTED ADMINISTRATIVE STAFF.....................................................8 CONSULTANTS AND ADVISORS............................................................8 INTRODUCTION, ........... - .......... -- ............ 9 PLAN OF FINANCING...............................................................................9 THE SERIES 2005 BONDS AND SERIES 2005A BONDS ...................10 TAX INCREMENT REINVESTMENT ZONE.......................................15 TAX INFORMATION................................................................................16 TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT.....................................................................................19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY.......... .20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY 21 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY ................. 21 TABLE5 - TEN LARGEST TAXPAYERS...............................................21 TABLE6 - TAXADEQUACY............................................................... 22 TABLET - ESTIMATED OVERLAPPING DEBT ..................................... 22 DEBT INFORMATION............................................................................23 TABLE 8 - GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS... 23 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION......... 24 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT .................... 24 TABLE 1 1 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS................................................................................ -.24 TABLE 12 - OTHER OBLIGATIONS....................................................... 24 FINANCIAL INFORMATION.................................................................25 ......30 TABLE 13 — CHANGES IN NET ASSETS ................................................ 25 TABLE 13A - GENERAL FUND REVENUES AND 30 EXPENDITURE HISTORY.............................................................. 26 TABLE 14 - MUNICIPAL SALES TAX HISTORY .................................... 26 TABLE 15 - CURRENT INVESTMENTS...._ ............................................ 29 TAXMATTERS............-- ..................... .................... .......................... ......30 TAX EXEMPTION................................................................................30 33 ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS ..................... 30 '�-^--^ TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMNM.......... 30 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT 33 OBLIGATIONS... ............................................................ 31 CK17.`il W1111J�[e77 04minqAreja 1001311V wo [elm OTHER INFORMATION..........................................................................33 RATINGS... ............. ............................. -- ....... 33 LITIGATION........................................................................................33 REGISTRATION AND QUALIFICATION OF SERIES 2005 BONDS AND SERIES 2005A BONDS FOR SALE ............................................ 33 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS................................................................................ --33 LEGAL MATTERS................................................................................ 34 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION .......34 FINANCIAL ADVISOR .............--- ............. ............................. ............. 34 FORWARD-LOOKING STATEMENTS DISCLAIMER ................................ 34 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS.....................................................................35 UNDERWRITING ..................................................................................3 5 APPROVAL OF PRELIMINARY OFFICIAL STATEMENT......-- ............... 35 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 - SCHEDULE OF REFUNDED OBLIGATIONS ............Schedule I COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A - SCHEDULE OF REFUNDED OBLIGATIONS .......... Schedule II APPENDICES GENERAL INFORMATION REGARDING THE CITY ................................ A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT ................... B FORM OF BOND COUNSEL'S OPINIONS.. C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. ' PRELIMINARY OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Series 2005 Bonds and Series 2005A Bonds to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 35.8 square miles (see "Introduction - Description of City"). THE SERIES 2005 BONDS.. ........... The $11,510,000* General Obligation Refunding Bonds, Series 2005 are to mature on February 15 in the years 2007 through 2021 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 Bonds and the Series 2005A Bonds"). THE SERIES 2005A BONDS .......... The $24,125,000* Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A are to mature on August 15 in the years 2008 through 2026 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 Bonds and the Series 2005A Bonds"). PAYMENT OF INTEREST .............. Interest on the Obligations accrues from June 15, 2005, and is payable August 15, 2005, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 Bonds and Series 2005A Bonds"). AUTHORITY FOR ISSUANCE.......... The Obligations are issued pursuant to the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, and Section 9.26 of the City's Home Rule Charter, and the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance passed by the City Council of the City (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). SECURITY FOR THE SERIES 2005 BONDS. ....... .......... The Series 2005 Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limit prescribed by law, on all taxable property located within the City (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). SECURITY FOR THE SERIES 2005A BONDS... ......... ... The Series 2005A Bonds constitute direct obligations of the City, payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, levied within the limits prescribed by law, on all taxable property within the City, and (ii) a subordinate lien on and pledge of the Tax Increments of the City's Reinvestment Zone Number Two (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). SERIES 2005 BONDS REDEMPTION ............................. The City reserves the right, at its option, to redeem Series 2005 Bonds having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds — Series 2005 Bonds Optional Redemption"). SERIES 2005A BONDS REDEMPTION ............................. The City reserves the right, at its option, to redeem the Series 2005A Bonds having stated maturities on and after August 15, 2015 in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at a price equal to the principal amount of the Series 2005A bonds called for redemption plus accrued interest to the fixed date for redemption. (see "The Series 2005 Bonds and Series 2005A Bonds — Series 2005A Bonds Optional Redemption") TAX EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Series 2005 Bonds and Series 2005A Bonds will be excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds and Series 2005A Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. * Preliminary, subject to change. USE OF PROCEEDS ......................... Proceeds from the sale of the Series 2005 Bonds will be used to (i) refund a portion of the City's outstanding general obligation debt (the Combination Tax and Revenue Certificates of Obligation; Series 2000, General Obligation Bonds, Series 2000; General Obligation Bonds, Series 2000A; and Combination Tax and Revenue Certificates of Obligation, Series 2000A (collectively, the "Series 2005 Refunded Obligations"), and together with the Series 2005A Refunded Obligations, the "Refunded Obligations")in order to lower the overall debt service requirements of the City, and (ii) to pay the costs of issuance related to the sale of the Series 2005 Bonds. See "Schedule I - Schedule of Refunded Obligations". Proceeds from the sale of the Series 2005A Bonds will be used to (i) refund a portion of the City's outstanding general obligation debt (the Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000, (the "Series 2005A Refunded Obligations"), and together with the Series 2005 Refunded Obligations, the "Refunded Obligations") in order to lower the overall debt service requirements of the City, (see "Schedule II - Schedule of Refunded Obligations"), and (ii) to pay the costs of issuance related to the sale of the Series 2005A Bonds. RATINGS ...................................... The presently outstanding tax supported debt of the City is rated "AI" by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Obligations have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM...... The definitive Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds may be acquired in denominations of $5,000 or integral multiples thereof No physical delivery of the Series 2005 Bonds and Series 2005A Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds (see "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System"). PAYMENT RECORD ..................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. SELECTED FINANCIAL INFORMATION 7 Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable % of Ended City Assessed Assessed Tax Tax Assessed Total Tax 9130 Population (1) Valuation (z) Valuation Debt Debt Valuation Collections 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 $ 3,533 3.59% 99.10% 2002 45,500 4,773,863,018 104,920 157,940,000 3,471 3.31% 99.20% 2003 46,400 4,766,361,580 102,723 157,645,000 3,398 3.31% 99.40% 2004 46,684 4,880,107,595 104,535 148,300,000 3,177 3.04% 99.70% 2005 47,036 5,352,933,433 113,805 144,645,000 (3) 3,075 2.70% 96.67% (4) (1) Source: The City of Grapevine. (2) Source: Tarrant Appraisal District (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. (4) Collections for part year only, through April 1, 2005. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance or Laura Alexander City of Grapevine First Southwest Company 200 South Main 777 Main Street, Suite 1200 Grapevine, Texas 76051 Fort Worth, Texas 76102 (817)410-3111 (817)332-9710 7 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Councilmember, Place 4 Roy Stewart 9 Years May, 2008 Construction Company Owner Councilmember, Place 6 (1) Previously served 13 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Length of Term Roger Nelson City Council Service Expires Occupation William D. Tate 17 Years � May, 2006 Attomey-at-Law Mayor Director of Finance 8 Years Linda Huff Ted R. Ware 26 Years May, 2008 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 20 Years May, 2006 Personnel Director Councilmember, Place 1 Sharron Spencer 20 Years May, 2006 Retired Sales Representative Councilmember, Place 2 Clydene Johnson 10 Years May, 2007 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 7 Years May, 2007 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 9 Years May, 2008 Construction Company Owner Councilmember, Place 6 (1) Previously served 13 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 8 Years Bruno Rumbelow Assistant City Manager 7 Years Bill Gaither Administrative Services Director 9 Years Fred Werner Director of Finance 8 Years Linda Huff City Secretary 18 Years (2) (1) 10 years with City; 8 years in present position. Mr. Nelson announced his resignation which will go into effect June 17, 2005. Mr. Bruno Rumbelow will be the City's acting City Manager until City Council appoints a City Manager to replace Mr. Nelson. (2) 23 years with City; 18 years in present position. CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas Bond Counsel..... ... .......... .................. ........................................ ........ ............................... ........... Vinson & Elkins L.L.P. Dallas, Texas Financial Advisor...................................................................................................................................... First Southwest Company Fort Worth, Texas 8 PRELIMINARY OFFICIAL STATEMENT RELATING TO $11,510,000* $24,125,000* CITY OF GRAPEVINE, TEXAS CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION COMBINATION TAX AND TAX INCREMENT REFUNDING BONDS, SERIES 2005 REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $11,510,000* City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2005 (the "Series 2005 Bonds") and $24,125,000* City of Grapevine, Texas, Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A (the "Series 2005A Bonds" and together with the Series 2005 Bonds, the "Obligations"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance (collectively, "the Ordinances") to be adopted on the date of sale of the Series 2005 Bonds and Series 2005A Bonds which will authorize the issuance of the Series 2005 Bonds and Series 2005A Bonds, respectively, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Series 2005 Bonds and Series 2005A Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Dallas, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State of Texas (the "State"), duly organized and existing under the laws of the State., including the City's Home Rule Charter. The City first adopted its Home Rule Charter in 1965. The City operates under the Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, health and social services, culture -recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 42,059, and the 2005 estimated population is 47,036. The City covers approximately 35.8 square miles. PLAN OF FINANCING PURPOSE .... Proceeds from the sale of the Obligations will be used to (i) refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City (see "Schedule I and Schedule II - Schedule of Refunded Obligations") and (ii) to pay the costs of issuance related to the sale of the Obligations. REFUNDED OBLIGATIONS ... The principal and interest due on the Refunded Obligations are to be paid on the scheduled interest payment dates and the respective maturity dates or redemption dates of such Refunded Obligations, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and JPMorgan Chase Bank, National Association (the "Escrow Agent"). The Ordinances provide that from the proceeds of the sale of the Series 2005 Bonds and the Series 2005A Bonds received from the Underwriters, together with other funds of the City, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Obligations on their respective maturity dates or redemption dates. Such funds will be held by the Escrow Agent in a special escrow accounts (the "Escrow Funds") and used to purchase direct obligations of the United States of America (the "Federal Securities"). Under the Escrow Agreement, the Escrow Funds are irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. Grant Thornton LLP, certified public accountants, a nationally recognized accounting firm, will verify at the time of delivery of the Obligations to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Funds, will be sufficient to pay, when due, the principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Federal Securities will not be available to pay the Obligations (see "Other Information — Verification of Arithmetical and Mathematical Computations"). By deposit of the Federal Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of all the Refunded Obligations in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, certified public accountants, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding obligations of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt. * Preliminary, subject to change 9 The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Funds, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Funds be insufficient to make such payment. SOURCES AND USES OF PROCEEDS ... The proceeds from the sale of the Series 2005 Bonds and Series 2005A Bonds will be applied as follows: Sources: Par Amount Original Issue Premium Accrued Interest Uses: Deposit to Escrow Fund Deposit to Interest and Sinking Fund Costs of Issuance (1) Total Uses of Funds (1) Including Underwriters' Discount and Insurance Premium. Series 2005 Series 2005A Bonds Bonds THE SERIES 2005 BONDS AND SERIES 2005A BONDS DESCRIPTION OF THE SERIES 2005 BONDS AND SERIES 2005A BONDS ... The Series 2005 Bonds are dated June 15, 2005, and mature on February 15 in each of the years and in the amounts shown on the cover page hereof. Interest on the Series 2005 Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing August 15, 2005 until maturity or prior redemption. The Series 2005A Bonds are dated June 15, 2005, and mature on August 15 in each of the years and in the amounts shown on page 3 hereof. Interest on the Series 2005A Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing August 15, 2005 until maturity or prior redemption. The definitive Series 2005 Bonds and Series 2005A Bonds will be issued only in fully registered form in any integral multiple of $5,000 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 Series 2005 Bonds and Series 2005A Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Obligations are being issued pursuant to the Constitution and general laws of the State of Texas, particularly, Texas Government Code, Chapter 1207, and Section 9.26 of the City's Home Rule Charter, and the Ordinances passed by the City Council. SECURITY AND SOURCE OF PAYMENT ... The Series 2005 Bonds ... The principal of and interest on the Series 2005 Bonds is payable from a continuing direct annual ad valorem tax levied by the City, levied within the limits prescribed by law, upon all taxable property in the City. The Series 2005A Bonds ... The principal of and interest on the Series 2005A Bonds is payable from a continuing direct annual ad valorem tax levied by the City, levied within the limits prescribed by law, upon all taxable property in the City. Additionally, the Series 2005A Bonds are payable from and secured by a pledge of the Tax Increments on deposit in the Tax Increment Fund, such pledge being subordinate to: (i) any future bonds or obligations issued by the City that by the express terms thereof have a prior lien on and pledge of the Tax Increment Fund; and (ii) any bonds or other obligations heretofore or hereafter issued by the Taxing Units and secured by a levy of ad valorem taxes upon all taxable property in the Taxing Units for which the levy and collection of ad valorem taxes has been insufficient for the payment thereof. See "REINVESTMENT ZONE". TAx RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. - SERIES 2005 BONDS OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem the Series 2005 Bonds having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at a price equal to the principal amount of the Series 2005 Bonds called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Series 2005 Bonds are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Series 2005 Bonds of any maturity are to be redeemed, the City shall direct the Paying Agent/Registrar (or DTC while the Series 2005 Bonds are in Book -Entry -Only form) to call by lot the Series 2005 Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Series 2005 Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Series 2005 Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. SERIES 2005A BONDS OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005A Bonds having stated maturities on and after August 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2015, or any date thereafter, at a price equal to the principal amount of the Series 2005A Bonds called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Series 2005A Bonds are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Series 2005A Bonds of any maturity are to be redeemed, the City shall direct the Paying Agent/Registrar (or DTC while the Series 2005A Bonds are in Book -Entry -Only form) to call by lot the Series 2005A Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Series 2005A Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Series 2005A Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE of REDEMPTION ... Not less than 30 days prior to a redemption date for the Obligations, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Obligations to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying uxW Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE OBLIGATIONS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TO ACCRUE. DEFEASANCE ... The Ordinances provide that the City may discharge its obligations to the registered owners of any or all of the Obligations to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Obligations to maturity or date of redemption or (ii) by depositing with an eligible place of payment (paying agent) for obligations of the City amounts sufficient to provide for the payment and/or redemption of the Obligations; provided that such deposits may be invested and reinvested only in (a) direct noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature andi`or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Obligations. If any of such Obligations are to be redeemed prior to their date of maturity, provision must have been made for giving notice of redemption as provided in the Ordinances. Boox-ENTRY-ONLY SYSTEM ... This section describes how ownership of the Obligations are to be transferred and how the principal of and interest on the Obligations are to be paid to and credited by DTC while the Obligations 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 City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Obligations, 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 Obligations), or redemption or other notices, to the Beneficial Owners, or that 11 they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Obligations. The Obligations 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 Obligation will be issued for each maturity of the Obligations, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency' registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC's records. The ownership interest of each actual purchaser of each Obligation ("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 Obligations are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Obligations, except in the event that use of the book -entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations 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 Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Obligations 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 Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the bond documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Obligations within an issue are being redeemed, DTC's practice is to determine by lot the amount of interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Obligations unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy). 12 Principal and interest payments on the Obligations 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 Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS OFFICIAL STATEMENT. In reading this Official Statement it should be understood that while the Obligations are in the Book -Entry -Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Obligations, but (i) all rights of ownership must be exercised through DTC and the Book -Entry -Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinances will be given only to DTC. Information concerning DTC and the Book -Entry -Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City or the Financial Advisor. EFFECT OF TERMINATION OF BOOK -ENTRY -ONLY SYSTEM. In the event that the Book -Entry -Only System is discontinued by DTC or the use of the Book -Entry -Only System is discontinued by the City, printed Obligations will be issued to the respective holders and the Obligations will be subject to transfer, exchange and registration provisions as set forth in the Ordinances and summarized under "The Series 2005 Bonds and Series 2005A Bonds - Transfer, Exchange and Registration" below. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas. In the Ordinances, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Obligations are duly paid and any successor Paying Agent'Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon any change in the Paying Agent/Registrar for the Obligations, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Obligations by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. PAYMENT ... Interest on the Obligations shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent'Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Obligations will be paid to the registered owner at their stated maturity upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Obligations shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book -Entry -Only System should be discontinued, printed Obligations will be delivered to the registered owners and thereafter the Obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Obligations may be assigned by the execution of an assignment form on the respective Obligations or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Obligations will be delivered by the Paying Agent/Registrar, in lieu of the Obligations being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Obligations to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent'Registrar. New Obligations registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate designated amount as the Obligations surrendered for exchange or transfer. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Obligations. Neither the City nor the Paying Agentaegistrar shall be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Obligation. 13 RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Obligations on any interest payment date means the close of business on the last business day of the month preceding such interest payment date. In the event of a non payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent'Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Obligation appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. OBLICATIONxoLDERs' REMEDIES ... The Ordinances establish as "Event of Default" (i) the failure to make payment of principal of or interest on the Obligations when due, and (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, the failure of which materially, adversely affects the rights of the Owner, including but limited to, their prospect or ability to be repaid in accordance with the Ordinances, and the continuation thereof for a period of 60 days after notice of such default is given by any Owner to the City. Under State law there is no right to the acceleration of maturity of the Obligations. Although a registered owner of Obligations could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Obligations, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Obligations as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinances do not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinances, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9, Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinances and the Obligations are qualified with respect to the customary rights of debtors relative to their creditors. 14 TAX INCREMENT REINVESTMENT ZONE Article VIII, Section I -g of the Texas Constitution and the Tax Increment Financing Act, Chapter 311, V.T.C.A. Tax Code (the "TIF Act") authorize municipalities in the State to establish one or more tax increment financing reinvestment zones for development or redevelopment of the territory within the zones. The TIF Act provides that the municipality may appoint a board of directors for a reinvestment zone to develop a project plan and financing plan for the zone and may delegate to the board certain management duties relating to the zone. Project costs, including financing costs, within the zone may be paid from tax increments collected by each of the taxing units in the zone. The amount of a taxing unit's tax increment ("Tax Increment") for a year is the amount of property taxes levied by the unit for that year on the captured appraised value of real property taxable by the unit (the "Captured Appraised Value") and located in the zone. The Captured Appraised Value is the total appraised value of the property for a year, less the tax increment base of the unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in the zone in the year in which the City created the zone. Participation by a taxing unit in a reinvestment is discretionary with such taxing unit, and it may decide to deposit all or none, or a portion, of its tax increments into the fund and retain for its own purposes the remainder. A taxing unit cannot reduce the amount of its participation once the financing plan has been implemented. On December 8, 1998, the Grapevine City Council adopted an ordinance (the "Zone Ordinance") creating Tax Increment Financing Reinvestment Zone Number Two, City of Grapevine, Texas (the "Zone") by designating a contiguous geographic area in the jurisdiction of the City as a reinvestment zone to promote development or redevelopment in the Zone. The Zone Ordinance described the boundaries of the Zone, created a board of directors for the Zone, established a tax increment fund (the "Tax Increment Fund") for the Zone and found that public works and improvements to be undertaken in the Zone would significantly enhance the value of all taxable real property in the Zone and would be of general benefit to the City. The Board of Directors of the Zone (the 'Board") is comprised of nine members, who serve two year terms. The City appoints five members and the chairman of the Board. Each of the other Taxing Units may appoint one member of the Board, or may waive its right to make such appointment. The Board serves to present non-binding recommendations to the City Council for its review. The recommendations pertain to development and redevelopment in the Zone pursuant to a project plan and reinvestment zone financing plan (the "Plans") prepared for the Zone. The project plan shows existing uses and conditions of real property in the Zone and provides a map of proposed improvements to and uses of such property. The reinvestment zone financing plan describes the estimated project costs of the Zone and lists the type, number and location of all proposed public works and improvements in the Zone. The public improvements in the Zone were constructed with the proceeds of the Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000 and are part of the public improvements described in the Plans (the "TIF Two Project"). The Zone is comprised of approximately 122 acres of land in the northeast area of the City and is located on what is referred to as the "Peninsula Tract" on Grapevine Lake, north of State Highway 26 between Ruth Wall Road and Fairway. As part of the TIF Two Project, the City entered into an agreement with Opryland Hotel -Texas Limited Partnership whereby the City provided certain public improvements within the Zone (as described in the project plan for the zone) and Opryland Hotel -Texas Limited Partnership developed and constructed a destination convention center hotel complex (the "Gaylord Opryland Development"). In addition to the convention center development, land and infrastructure was made available for other retail development within the Zone. The Gaylord Opryland Development is a 1,511 room destination convention center with approximately 400,000 square feet of convention, meeting rooms and banquet facilities, parking facilities and related amenities. Construction is scheduled to begin summer of 2005 for a 26,000 square foot combination restaurant and meeting facility. Additionally, the Grapevine Middle School is located wholly within the Zone. As part of the TIF Two Project, the Grapevine- Colleyville Independent School District will be reimbursed from the Tax Increment Fund for its debt service, including principal and interest, on bonds issued by the School District for the Grapevine Middle School. Tarrant County, Tarrant County Junior College District, Tarrant County Hospital District and Grapevine-Colleyville Independent School District levy taxes on real property within the Zone. Only the School District has agreed to deposit 100% of its Tax Increments into the Tax Increment Fund; provided, however, that the amount deposited by the School District will be reduced by the amount necessary to offset any negative impact on the School District, as a result of its participation in the Zone, under school finance laws. The Tax Increments of the School District, and any other Taxing Unit which elects to participate in the future, will be paid into the Tax Increment Fund and used to pay project costs within the Zone, including debt service on the Series 2005A Bonds and any other obligations issued to finance project costs. The Zone Ordinance provides that the tax increment base for each Taxing Unit in the Zone shall be the total appraised value of all taxable real property in the Zone as of January 1, 1998. The Zone Ordinance further provides that the Zone shall take effect on January 1, 1999, and shall expire on December 31, 2030, or such earlier date that Grapevine determines that the Zone should be terminated due to insufficient private investment, accelerated private investment or other good cause, or such time as all project costs and obligations secured by Tax Increments, such as the Series 2005A Bonds, and the interest thereon, have been paid in full. The Gaylord Opryland Hotel ("Gaylord") has entered into litigation with the Tarrant Appraisal District concerning the appraised value of their property. The appraisal district has assessed the value of the Gaylord property at $266,892,918. Gaylord disputes this valuation and asserts that $130,892,918 should be the correct valuation number. Under Section 42.08 of the Texas Tax Code, Gaylord made a partial payment of their 2004 tax liability based on a $168,550,996 appraised market value. At this time, there is no resolution to the lawsuit and the case is scheduled for trial in March, 2006. The final resolution of the pending litigation with the appraisal district will determine the taxable value of the property, the amount of taxes paid by Gaylord to the City and other taxing jurisdictions, and the amount of the TIF Increment available in Tax Increment Reinvestment Zone No. 2. 15 TAX INrFORMATION An VALOREM TAx LAW ... The appraisal of property within the City is the responsibility of the Tarrant Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the Texas Property Tax Code (the "Property Tax Code"), for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Article VIII, Section 1-b, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; the minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under, Article VIII, Section 1-b, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Article VIII, Section 2, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to fame or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Sections 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-J, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. 16 The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The difference between any increase in the assessed valuation of taxable real property in the TIF in excess of the base value of taxable real property in the TIF is known as the "Incremental Value," and during the existence of the TIFs, taxes levied by the City against the Incremental Value in the TIFs are restricted to paying project and financing costs within the TIFs and are not available for the payment of other obligations of the City, including the Series 2005 Bonds. The Tax Increments of the Tax Increment Financing Reinvestment Zone Number Two, City of Grapevine, Texas, are pledged to the payment of the Series 2005A Bonds. For a discussion of the Tax Increment Financing Zones and the City's participation in the Tax Increment Financing Reinvestment Zone Number Two, see "Tax Increment Reinvestment Zone" herein. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAx RATE AND ROLLBACK TAx RATE ... Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60`h day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Furthermore, Section 26.05 provides that the City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAx PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February I of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: 17 Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 17 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads with a minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. The City has not adopted the tax freeze for citizens who are disabled or are 65 years of age or older, which became a local option and subject to local referendum on January 1, 2004. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; does not tax lease value on personal use vehicles; and the City contracts with the Grapevine-Colleyville Independent School District for the collection of its taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAX ABATEMENT POLICY ... The City currently has no tax abatement agreements outstanding. TAX INCREMENT FINANCE ZONES ... The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. As of September 30,2004, the Reinvestment Zone Number One Taxable Assessed Value is $200,573,412. The project for which the Zone was created was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 122 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. As of September 30, 2004, the Reinvestment Zone Number Two Taxable Assessed Value is $257,214,332. As of September 30, 2004, approximately 100% of permanent improvements have been made to Reinvestment Zone Number Two. 18 TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2004/05 Market Valuation Established by Tarrant Appraisal District (as of August 23, 2004) Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Years of Age Disabled Exemptions Veterans Exemptions Pollution Control Exemptions Solar/Wind Power Exemptions Freeport Exemptions Open -Space Land Use Reductions Prorated Absolutes Nominal Value Reductions 2004/05 Taxable Assessed Valuation $ 361,762,592 59,272,871 902,500 1,174,800 61,488 9,774 550,697,849 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number One 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number Two 2004/05 Taxable Assessed Valuation available for General Fund Obligations and Debt of City City Funded Debt Payable from Ad Valorem Taxes (2) General Obligation Bonds (as of 5-1-05) Certificates of Obligation (as of 5-1-05) Equipment Acquisition Notes (as of 5-1-05) The Series 2005A Bonds The Series 2005 Bonds Funded Debt Payable from Ad Valorem Taxes Less Self -Supporting Debt: Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation (as of 5-1-05) (5111) Lake Enterprise Notes and Certificates of Obligation (as of 5-1-05) (6) Net Funded Debt Payable From Ad Valorem Taxes Interest and Sinking Fund as of May 1, 2005 $ 6,382,715,129 55,759,683 116,736 23,403 1,029,781,696 $ 5,352,933;433 $ 55,955,000 53,195,000 1,490,000 24,125,000 11,510,000 Ratio Total Funded Debt to Taxable Assessed Valuation ................................................. . (6) 2005 Estimated Population - 47,036 Per Capita Taxable Assessed Valuation - $113,805 Per Capita Total Funded Debt - $3,110 (194,333,372) (256,469,466) (i) $ 4,902,130,595 (3) (3) (4) (4) $ 146,275,000 54,300,000 5,256,818 S 86,718,182 $ 6,325,835 2.73% The Gaylord Opryland Hotel ("Gaylord") has entered into litigation with the Tarrant Appraisal District concerning the appraised value of their property located in Tax Increment Reinvestment Zone No. 2. The appraisal district has assessed the value of the Gaylord property at $266,892,918. Gaylord disputes this valuation and asserts that $130,892,918 should be the correct valuation number. Gaylord has made a partial payment of their 2004 tax liability based on a $168,550,996 appraised market value. At this time, there is no resolution to the lawsuit and the case is scheduled for trial in March, 2006. The final resolution of the pending litigation will determine the taxable value of the property and the amount of the available TIF Increment in that reinvestment zone. This statement of indebtedness does not include currently outstanding $26,299,660 Waterworks and Sewer System (the "System") revenue bonds, as these bonds are payable solely from the net revenues of the System, as defined in the ordinances authorizing such bonds. Excludes the Refunded Obligations. Preliminary, subject to change. Preliminary, subject to change. The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Funds. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid with ad valorem taxes. Includes the 2005A Bonds. Preliminary, subject to change. Certificate and Note debt in the amounts shown for which repayment is provided from revenues of the Lake Enterprise Fund. The amount of self-supporting debt is based on the percentages of revenue support as shown in Table 10. It is the City's current policy to provide these payments from Fund revenues; this policy is subject to change in the future. In the event the payments are not made from Fund revenues, the City will be required to levy an ad valorem tax in an amount sufficient to make such payments. 19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY Category Real, Residential, Single -Family Real, Residential, Multi -Family Real, Vacant Lots Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real and Tangible Personal, Utilities Real, Mobile Homes Tangible Personal, Business Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Homes Tangible Personal, Other Real Property, Inventory Total Appraised Value Before Exemptions Adjustments Less: Total Exemption/Reductions Taxable Assessed Value Taxable Appraised Value for Fiscal Year Ended September 30, 2002 Taxable Appraised Value for Fiscal Year Ended September 30, 2005 2004 Amount 2003 Amount Total $ 1,673,214,512 °/ of $ 1,522,401,913 % of 200,728,832 % of Category Amount Total Amount Total Amount Total Real, Residential, Single -Family $ 2,052,562,907 32.16% $ 1,964,374,887 33.09% $ 1,848,342,618 31.72% Real, Residential, Multi -Family 280,45I,216 4.39% 287,029,406 4.83% 252,912,480 4,34% Real, Vacant Lots Tracts 105,098,629 1.65% 106,298,853 1.79% 100,697,189 1.73% Real, Acreage (Land Only) 115,957,997 1.82% 126,583,447 2.13% 138,891,577 2.38% Real, Farm and Ranch Improvements 2,417,897 0.04% 2,382,927 0.04% 2,353,699 0.04% Real, Commercial 1,439,927,013 22.56% 1,254,791,876 21.14% 1,198,547,815 20.57% Real, Industrial 40,705,402 0.64% 14,652,926 0.25% 14,825,922 0.25% Real and Tangible Personal, Utilities 237,407,049 3.72% 166,164,616 2.80% 147,113,035 2.52% Real, Mobile Homes 7,817,281 0.12% 8,176,799 O. 14% 8,173,982 0.14% Tangible Personal, Business - 0.00% - 0.00% - 0.00% Tangible Personal, Commercial 1,939,745,844 30.39% 1,849,545,899 31.15% 1,966,523,825 33.75% Tangible Personal, Industrial 143,245,651 2.24% 136,629,168 2.30% 138,115,671 2.37% Tangible Personal, Mobile Homes - 0.00% - 0.00% - 0.00% Tangible Personal, Other 165,093 0.00% 1,000,000 0.02% - 0.00% Real Property, Inventory 17,213,150 0.27% 19,338.550 0.33% 10,141.975 0.17% Total Appraised Value Before Exemptions $ 6,382,715,129 100.00% $ 5,936,969,354 100.00% $ 5,826,639,788 100.00% Adjustments (52,543,460) (52,070,988) Less: Total Exemption/Reductions (1,029,781,696) (1,004,318,299) (1,008,207,220) Taxable Assessed Value $ 5,352,933,433 $ 4,880,107,595 $ 4,766,361,580 Category Real, Residential, Single -Family Real, Residential, Multi -Family Real, Vacant Lots Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real and Tangible Personal, Utilities Real, Mobile Homes Tangible Personal, Business Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Homes Tangible Personal, Other Real Property, Inventory Total Appraised Value Before Exemptions Adjustments Less: Total Exemption/Reductions Taxable Assessed Value Taxable Appraised Value for Fiscal Year Ended September 30, 2002 2001 % of % of Amount Total Amount Total $ 1,673,214,512 3017% $ 1,522,401,913 29.49% 200,728,832 3.62% 151,579,484 2.94% 104,297,996 1.88% 109,952,787 2.13% 171,706,596 3.10% 165,569,051 3.21% 2,160,035 0.04% 2,441,498 0.05% 1,086,095,366 19.59% 932,109,580 18.06% I4,530,371 0.26% 10,891,084 0.21% 102,859,092 1.85% 88,123,888 1.71% 9,059,623 0.16% 4,239,290 0.08% - 0.00% - 0.00% 2,126,886,729 38.35% 2,127,859,776 41.22% 46,334,087 0.84% 40,389,885 0.78% - 0.00% - 0.00% 111,976 0.00% 146,674 0.00% 7,290,582 0.13% 6,679,162 0.13% $ 5,545,275,797 100.00% $ 5,162,384,072 100.00% (86,019,171) (685,393,608) (789,839,701) $ 4,773,863,018 S 4,372,544,371 NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant Appraisal District to the State Controller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District. (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal 2004/05 % of Total Taxable Ratio Fiscal Assessed Distribution Taxable Tax Debt Tax Debt Funded Year General Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9.'30 Population (1) Valuation (Z) Per Capita of Year Valuation Capita 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 3.59% $ 3,533 2002 45,500 4,773,863,018 104,920 157,940,000 3.31% 3,471 2003 46,400 4,766,361,580 102,723 157,645,000 3.31% 3,398 2004 46,684 4,880,107,595 104,535 148,300,000 3.04% 3,177 2005 47,036 5,352,933,433 113,805 144,645,000 c3� 2.70% 3,075 t3) (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District. (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal 2004/05 % of Total Taxable Taxable Year Assessed Distribution Valuation Valuation Commercial Airline Ended Tax General Interest and 3.46% % Current % Total 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 2001 $ 0.37500 $ 0.189641 $ 0.185359 $ 16,333,571 98.80% 99.10% 2002 0.36600 0.135924 0.230076 17,431,826 98.39% 99.20% 2003 0.36600 0.148900 0.217100 17,662,726 98.60% 99.40% 2004 0.36600 0.123700 0.242300 18,043,645 99.00% 99.70% 2005 0.36350 0.141560 0.221940 19,246,410 96.53% � 96.67% h� (1) Collections for part year only, through May 1, 2005. TABLE 5 - TEN LARGEST TAXPAYERS Name of Taxpayer American Airlines Inc. Grapevine Mills Ltd. Partnership Delta Airlines/Atlantic Southeast Airlines Verizon/GTE Gaylord Texan Resort & Conv. Ctr. CAE Simuflite General Electric Capital Corp Quest Communications Corp. Oncor Electric Delivery Co. United Parcel Services Co. GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Series 2005 Bonds and Series 2005A Bonds — Tax Rate Limitation"). 21 2004/05 % of Total Taxable Taxable Assessed Assessed Nature of Property Valuation Valuation Commercial Airline $ 313,758,237 5.86% Regional Shopping Mall 185,084,296 3.46% Commercial Airline 151,545,340 2.83% Telecommunication 149,230,493 2.79% Hotel 113,083,186 2.11% Simuflite Training School 88,525,738 1.65% Financial Service Corp 57,844,570 1.08% Telecommunication 42,721,429 0.80% Electric Service 40,395,043 0.75% Parcel Service 40,357,279 0.75% $ 1,182,545,611 22.09% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Series 2005 Bonds and Series 2005A Bonds — Tax Rate Limitation"). 21 TABLE 6 - TAX ADEQUACY p) 2005 Principal and Interest Requirements $ 10,673,423 $0.2015 Tax Rate at 99.00% Collection Produces $ 10,678,299 Average Annual Principal and Interest Requirements, 2005 - 2026 $ 5,603,633 $0.1058 Tax Rate at 99,00% Collection Produces $ 5,606,770 Maximum Principal and Interest Requirements, 2007 $ 10,673,423 $0.2015 Tax Rate at 99.00% Collection Produces $ 10,678,299 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Total Direct and Overlapping Funded Debt $ 265,236,740 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 4.95% Per Capita Overlapping Funded Debt................................................................................ $ 5,639.02 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 22 2004/05 City's Taxable 2004'05 Total Estimated Overlapping Assessed Tax Funded % Funded Debt Taxing Jurisdiction Value Rate Debt Applicable 5/1/2005 City of Grapevine $ 5,352,933,433 $ 0.3635 $ 86,718,182 Ot 100.00% $ 86,718,182 Carroll Independent School District 4,411,336,158 1.9030 161,484,219 5.38% 8,687,851 Coppell Independent School District 5,751,081,057 1.7350 119,534,548 0.48% 573,766 Dallas County 129,617,491,048 0.2039 202,247,395 0.01% 20,225 Dallas County Community College District 134,404,944,574 0.0778 106,935,000 0.01% 10,694 Dallas County Hospital District 129,617,491,048 0.2540 - 0.01% - Grapevine-Colleyville Independent School District 13,159,000,737 1.7010 231,900,813 67.47% 156,463,479 Tarrant County 111,228,762,367 0.2725 175,615,000 5.24% 9,202,226 Tarrant County Hospital District 111,228,762,367 0.2353 1,190,000 5.24% 62,356 Tarrant County Junior College District 111,228,762,367 0.1394 66,755,000 5.24% 3,497,962 Total Direct and Overlapping Funded Debt $ 265,236,740 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 4.95% Per Capita Overlapping Funded Debt................................................................................ $ 5,639.02 (1) Includes the Series 2005 Bonds and Series 2005A Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 22 23 DEBT INFORMATION 0 ici o 0 0 0 0 o0q V O 00 �D O • � � 07 a, a\ -C� O V Cd M 00 .� uti a � � v M N U N h N \D O, 00 b0 N O, M 'n oo c� h V M - O N N V) o0 7 tn O N A ' N O M N 4 r �D v-� q O\ - aJ ,_., E M Z m� N h- h 01 0o O W N N N N 00 V �L'f p h AD m O a O, 07 W W ao t--CIL -1 N d, do h O \O W M M oo M O O O O O O` 00 r- \o \o \D .o ch Mm N N N m o 69 N c3 V bA 1p l0 00 01 V1 -+ M a7 O V) O 00 00 -'Y kn 00 D1 M N h 00 A N O o0 h \D �t - '- - N V) Lr) N N N \o U al O\ M x) o0 M 7 \D 0, O v') V) V) V) \D \D \D \D h h h O p N N E \ In .Q o .°s4 4 aoi Y M w b0 v, ty oo d' \o h rh O, h� 0\ � O O O O O O O Cl O O O m m .- b M� h O\ O m Z d' N O v1 O O O O� W) m O h O v"i l v? 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V M oo \D o1 ^ N O1 r h o0 00 \D 7 m V) 0\ M N O In \o N t n N oc 7 O \o V' M N^ O 00 v r" 1p V) t} M M N N- - ^-' M y ) N d Q 69 tfs p : � Cl to 0 0 0 0 0 Cl 0 0 0 0 0 0 0 0 0 0 0 0 Cl p N, O O O O O O O O O O O Cl O O O O O O O y 0 0 0 0 0 0 0 0 0 0 C C C C 0 0 0 0 cc::" Q4" O O O V) O O V) V7 v> h O m O1 0) V) V) \D p O b0 O U ul o M \O 'n D\ rh V) M O V) O\ 00 0 h \D 00 O M \p oo ^' N O 00 M 0cn 400 w_ 0 O 06 aO\ 00 O\ O O O O, 00 00 00 00 \o N N N - • 0 tD N V V G > 9 V O p 0 N m h \D h o0 O\ ON N N N d d V O O O o 0 N N O O O O O O O O O O O O N O N O 0 0 0 0 CI WW N N v_ 23 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2005 .............................. $ 10,673,423 (" Interest and Sinking Fund Balance as of 9/30/2004 ............... . ................. $ 1,512,789 Interest and Sinking Fund Tax Levy ........................................... 9,946,675 Penalty and Interest........................................................ 65,000 Budgeted Transfers........................................................... 1,225,976 Estimated Investment Income ............................................. . .... 65,000 12,815,440 Estimated Balance, 9/30`2005................................................................. $ 2,142,017 (1) Excludes TIF self-supporting debt service and Lake Enterprise self-supporting debt service. TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT Tax Increment Reinvestment Zone Beginning Fund Balance, 9-30-04 ....................................................................... $ 10,203,293 Net Tax Increment Reinvestment Zone Revenue Available for Debt Service. . ..................... ........ 9,686,275 } Requirements for Tax Increment Reinvestment Zone Obligations ........................................ 4,378,082 Projected Fund Balance, 9-30-05 ................................................................. $ 15,511,486 Percentage of Tax Increment Reinvestment Zone Revenue Debt Self -Supporting ............................ 100.00% Lake Enterprise Fund Revenue Available for Debt Service from Lake Enterprise Fund, Fiscal Year Ended 9-30-04 ................. $ 521,634 Less: Revenue Bond Requirements, 2004 Fiscal Year ................................................. - Balance Available for Other Purposes............................................................ $ 521,634 System General Obligation Bond Requirements, 2005 Fiscal Year ....................................... 595,996 Balance.................................................................................... $ (74,362) Percentage of Lake Enterprise Certificates, Self -Supporting ° (3) g rp PP g ......................................... 100.00 % (1) The Gaylord Opryland Hotel ("Gaylord") has entered into litigation with the Tarrant Appraisal District concerning the appraised value of their property located in Tax Increment Reinvestment Zone No. 2. The appraisal district has assessed the value of the Gaylord property at $266,892,918. Gaylord disputes this valuation and asserts that $130,892,918 should be the correct valuation number. Gaylord has made a partial payment of their 2004 tax liability based on a $168,550,996 appraised market value. At this time, there is no resolution to the lawsuit and the case is scheduled for trial in March, 2006. The final resolution of the pending litigation will determine the taxable value of the property and the amount of the available TIF Increment in that reinvestment zone. (2) Preliminary, subject to change. (3) While Net Lake Enterprise Revenue Available September 30, 2004 is not sufficient to pay all of the Fiscal Year 2005 debt service requirements, sufficient revenues from the Lake Enterprise Fund have been budgeted for Fiscal Year 2005 such that the System Bond Requirements are expected to be 100% self-supporting. TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Date Purpose Authorized Street Improvements 12/5/1998 Amount Amount Previously Unissued Authorized Issued Balance $ 30,245,000 $ 24,997,314 $5,247,686 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT . . . The City anticipates the issuance of approximately $1,880,000 Certificates of Obligation in the summer of 2005 and anticipates issuing the remaining balance of voted general obligation debt in the first quarter of Fiscal Year 2006. TABLE 12 - OTHER OBLIGATIONS The City has no unfunded debt outstanding as of September 30, 2004. PENSION FUND ... The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see Appendix B, "Excerpts from the City's Annual Financial Report".) 24 FINANCIAL INFORMATION TABLE 13 - CHANGES IN NET ASSETS (1) (1) In fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 25 Fiscal Year Ended September 30, Revenues: 2004 2003 Program Revenues Charges for Services $ 13,266,501 $ 13,518,121 Operating Grants and Contributions 1,813,067 1,893,118 Capital Grants and Contributions 597,366 1,108,954 General Revenues Property Taxes 23,599,775 22,768,284 Hotel Occupancy Taxes 4,931,201 3,380,659 Sales Taxes 17,975,926 16,040,397 Mixed Beverage Taxes 685,801 578,218 Franchise Fees 5,210,589 4,944,789 Investment Earnings 619,869 1,106,609 Miscellaneous 28,788 155,158 Gain (Loss) on Sale/Retirement of Fixed Assets - (58,080) Total Revenues $ 68,728,883 $ 65,436,227 Expenses: General Government $ 12,382,413 $ 13,062,473 Public Safety 17,597,695 16,366,353 Culture and Recreation 16,090,083 14,069,760 Public Works 10,363,172 14,342,030 Interest on Long -Term Debt 7,682,256 7,603,547 Total Expenses $ 64,115,619 $ 65,444,163 Increase in Net Assets before Transfers $ 4,613,264 $ (7,936) Transfers - - Changes in Net Assets $ 4,613,264 $ (7,936) Net Assets - October 1 27,856,441 27,864,377 Net Assets - September 30 $ 32,469,705 $ 27,856,441 (1) In fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 25 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY (1) Earned through May 1, 2005. 26 Fiscal Year Ended September 30, Revenues 2004 2003 2002 2001 2000 Taxes $ 29,941,926 $ 28,715,417 $ 27,165,580 $ 29,239,672 $ 27,051,303 Licenses and Permits 1,263,663 1,482,165 1,536,786 1,146,428 1,494,428 Intergovernmental 112,859 129,428 217,614 4,381,910 182,863 Charges for Services 5,593,257 5,784,270 5,009,819 2,984,179 3,003,353 Fines and Forfeitures 1,961,990 2,046,991 2,101,526 2,149,638 2,360,028 Interest and Miscellaneous 902,365 1,119,469 809,259 876,507 776,140 Total Revenues $ 39,776,060 $ 39,277,740 $ 36,840,584 $ 40,778,334 $ 34,868,115 Expenditures General Government $ 12,897,174 $ 12,168,352 $ 11,686,622 $ 10,510,527 $ 5,683,237 Public Safety 16,167,628 15,846,568 15,532,602 17,640,884 15,404,767 Culture and Recreation 5,991,741 5,673,980 5,184,010 5,737,648 5,183,727 Capital Outlay 60,881 80,649 - - - Public Works 5,101,265 4,770,722 4,772,777 6,067,277 5,657,648 Total Expenditures $ 40,218,689 $ 38,540,271 $ 37,176,011 $ 39,956,336 $ 31,929,379 Excess (Deficiency) of Revenues Over Expenditures $ (442,629) $ 737,469 $ (335,427) $ 821,998 $ 2,938,736 Other Financing Sources Budgeted Transfers In $ - $ 304,000 $ 300,000 $ 400,000 $ Budgeted Transfers Out (1,101,261) (1,068,765) (1,753,450) (1,295,979) (2,098,598) Total Transfers $ (1,101,261) $ (764,765) $ (1,453,450) $ (895,979) $ (2,098,598) Net Increase (Decrease) $ (1,543,890) $ (27,296) $ (1,788,877) $ (73,981) $ 840,138 Other Miscellaneous Adjustments - - - - Residual Equity Transfer - - 262,087 - 1,172 Beginning Fund Balance 6,104,579 6,131,875 7,658,665 7,732,646 6,891,336 Ending Fund Balance $ 4,560,689 $ 6,104,579 $ 6,131,875 $ 7,658,665 $ 7,732,646 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, Texas Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Obligations. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9130 Collected Tax Levy Tax Rate Capita 2001 $ 16,048,266 98.25% $ 0.3670 $ 362 2002 14,939,771 85.70% 0.3129 328 2003 16,040,397 90.81% 0.3365 346 2004 17,975,926 99.62% 0.3684 385 2005 (11 10,951,739 56.89% 0.2046 233 (1) Earned through May 1, 2005. 26 FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City conform to generally accepted accounting principles for governmental entities as promulgated by the Government Accounting Standards Board. The accounting and financial reporting treatment applied u to a fund is determined by its measurement focus. All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the combined balance sheet, Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the combined balance sheet. Fund equity is segregated into contributed capital and retained earnings components. Proprietary fund -type operating statements present increases (revenues) and decreases (expenses) in net total assets. The modified accrual basis of accounting is used by all governmental funds types, expendable trust funds and agency funds. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means collectible within the current period of soon enough thereafter to be used to pay liabilities of the current period Expenditures are generally recorded when the related fund liability is incurred. However, principal of and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Major revenue sources which have been treated as susceptible to accrual under the modified basis of accounting include property taxes, charges for services, intergovernmental revenues, and investment of idle funds. The accrual basis of accounting is utilities by proprietary funds types. Under this method, revenue is recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meeting both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualified expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Fund Balances ... It is the City's policy regarding the General Fund and Enterprise Funds that reserves should be maintained at a minimum of 60 days of the Fund's operating expenditure budget. The City maintains its various debt service funds in accordance with the covenants of the Ordinance. Use of Bond Proceeds ... The City's policy is to use bond proceeds for capital expenditures only. Such revenues are never to be used to fund normal City operations. Budgetary Procedures ... The City Charter establishes the fiscal year as the twelve-month period beginning each October 1. Each year between May and July, the City Manager analyzes and then after review, submits a budget of estimated revenues and expenditures to the City Council. Subsequently, the City Council will hold work sessions to discuss and amend the budget to coincide with their direction of the City. Various public hearings may be held to comply with state and local statutes. The City Council will adopt a budget prior to September 30. If the Council fails to adopt a budget then the budget presented to the Council by the City Manager becomes the adopted budget. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year. Therefore, funds that were budgeted and not used by the departments during the fiscal year are not available for their use unless appropriated in the ensuing fiscal year's budget. 27 INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the CityCouncil. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS. Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than "A" or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least "A -I" or "P- 1" or the equivalent by at least one nationally recognized credit rating agency, (I1) commercial paper with a stated maturity of 270 days or less that is rated at least "A-1" or "P-1" or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no -loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than "AAA" or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 806-1 et. seq.) or with the State Security Board to provide for the investment and management of its public funds or other funds under its control for a term of up to two years but the City retains ultimate responsibility as fiduciary of its assets. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds pursuant to written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers 28 jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISIONS ... Under Texas law the City= is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt an order or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the said order or resolution, (3) require any investment officers' with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (8) restrict the investment in mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt services, and to invest no portion of bond proceeds, reserves and funds held for debt service in mutual funds; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. TABLE I5- CURRENT INVESTMENTS As of May 1, 2005, the City's investable funds were invested in the categories listed above. As of such date, 38% of the City's portfolio will mature within six months. The market value of the investment portfolio was approximately 99.5% of its purchase price. Book Market Description Percent Value Value Government Securities 37.92% $ 25,813,368 $ 25,693,377 TexPoollLogic 62.08% 42,261,854 42,261,854 100.00% $ 68,075,222 $ 67,955,231 29 TAX MATTERS TAX EXEMPTION In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on Obligations is excludable from gross income for federal income tax purposes under existing and (ii) interest on the Obligations is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Internal Revenue Code of 1986, as amended (the "Code"), imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Obligations, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment of bond proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodically to the United States and a requirement that the issuer file an information report with the Internal Revenue Service. The Issuer has covenanted in the Ordinances that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinances pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Obligations for federal income tax purposes and, in addition, will rely on representations by the Issuer, the Issuer's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer, the Issuer's Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. Bond Counsel will further rely on the report of Grant Thornton, L.L.P., certified public accountants, regarding the mathematical accuracy of certain computations. If the Issuer should fail to comply with the covenants in the Ordinances or if the foregoing representations or report should be determined to be inaccurate or incomplete, interest on the Obligations could become taxable from the date of delivery of the Obligations, regardless of the date on which the event causing such taxability occurs. The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax exempt obligations, such as the Obligations, is included in a corporation's "adjusted current earnings," ownership of the Obligations could subject a corporation to alternative minimum tax consequences. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Obligations. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent Bond Counsel's legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Obligations. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Obligations could adversely affect the value and liquidity of the Obligations during the pendency of the audit regardless of the ultimate outcome of the audit. ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS Collateral Tax Consequences ....Prospective purchasers of the Obligations should be aware that the ownership of tax exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively connected earnings and profits, including tax exempt interest such as interest on the Obligations. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospective purchasers of the Obligations should also be aware that, under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Obligations, received or accrued during the year. TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMIUM The issue price of all or a portion of the Obligations may exceed the stated redemption price payable at maturity of such Obligations. Such Obligations (the 'Premium Obligations") are considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis of a Premium Obligation in the hands of an initial owner is reduced by 30 „ the amount of such excess that is amortized during the period such initial owner holds such Premium Obligation in determining gain or loss for federal income tax purposes. This reduction in basis will increase the amount of any gain or decrease the amount of any loss recognized for federal income tax purposes on the sale or other taxable disposition of a Premium Obligation by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Obligation that is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Obligation) is determined using the yield to maturity on the Premium Obligation based on the initial offering price of such Obligation. The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of Premium Obligations that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Obligations should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Obligation and with respect to the federal, state, local, and foreign tax consequences of the purchase, ownership, and sale, redemption or other disposition of such Premium Obligations. TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT OBLIGATIONS The issue price of all or a portion of the Obligations may be less than the stated redemption price payable at maturity of such Obligations (the "Original Issue Discount Obligations"), In such case, the difference between (i) the amount payable at the maturity of each Original Issue Discount Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Obligation constitutes original issue discount with respect to such Original Issue Discount Obligation in the hands of any owner who has purchased such Original Issue Discount Obligation in the initial public offering of the Obligations. Generally, such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Obligation equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Obligation continues to be owned by such owner. Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Obligations under the caption "Collateral Tax Consequences” generally applies, and should be considered in connection with the discussion in this portion of the Official Statement. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. The foregoing discussion assumes that (a) the Underwriter has purchased the Obligations for contemporaneous sale to the public and (b) all of the Original Issue Discount Obligations have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof stated on the cover page of this Official Statement. Neither the Issuer nor Bond Counsel has made any investigation or offers any comfort that the Original Issue Discount Obligations will be offered and sold in accordance with such assumptions. Under existing law, the original issue discount on each Original Issue Discount Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Obligations and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Obligation. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Obligations should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Obligations. 31 CONTINUING DISCLOSURE OF INFORMATION In the Ordinances, the City has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under Tables numbered I through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2005. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State and approved by and approved by the staff of the United States Securities and Exchange Commission (the "SEC'). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas ("MAC") has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. 0. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. The MAC has also received SEC approval to operate, and has begun to operate, a "central post office" for information filings made by municipal issuers, such as the City. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filings. The central post office can be accessed and utilized at www.DisclosureUSEA.com ("DisclosureUSA"). The City may utilize DisclosureUSA for the filing of information relating to the Obligations. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Obligations, if such event is material to a decision to purchase or sell Obligations: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Obligations; (7) modifications to rights of holders of the Obligations; (8) Obligation calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Obligations; and (11) rating changes. In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of Obligations only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS... The City has agreed to update information and to provide notices of material events only as described above. The City 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 City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Obligations at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Obligations may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Obligations in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the 32 outstanding Obligations consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Obligations. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of Y the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City has compiled with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. OTHER INFORMATION RATINGS The presently outstanding tax supported debt of the City is rated "AI" by Moody's and "AA-" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Obligations have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organization and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Obligations. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending or, to its knowledge, threatened litigation or other proceeding against the City that would have a material adverse financial impact upon the City, its operations or its financial statements. REGISTRATION AND QUALIFICATION OF SERIES 2005 BONDS AND SERIES 2005A BONDS FOR SALE The sales of the Series 2005 Bonds and Series 2005A Bonds have not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Series 2005 Bonds and Series 2005A Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Series 2005 Bonds or Series 2005A Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Series 2005 Bonds or Series 2005A Bonds under the securities laws of any jurisdiction in which the Series 2005 Bonds and Series 2005A Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Series 2005 Bonds and Series 2005A Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Obligations are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Obligations by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Obligations be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Obligations are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Obligations are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Obligations are legal investments for various institutions in those states. 33 LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Series 2005 Bonds and Series 2005A Bonds, including the approving legal opinions of the Attorney General of the State of Texas to the effect that each Initial Obligation is a valid and binding obligation of the City, and based upon examination of such transcript of proceedings, the approving legal opinions of Bond Counsel to the effect that the Series 2005 Bonds and Series 2005A Bonds issued in compliance with the provisions of the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance are valid and legally binding obligations of the City and the interest on such Series 2005 Bonds and Series 2005A Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds and Series 2005A Bonds are not private activity bonds, subject to the matters described under "Tax Matters" herein. A form of each opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Series 2005 Bonds and Series 2005A Bonds in the Preliminary Official Statement under the captions "Plan of Financing" (except under the subcaption "Sources and Uses of Proceeds"), "The Series 2005 Bonds and Series 2005A Bonds" (except for the subcaption "Book -Entry - Only System" and "Obligationholder's Remedies"), "Tax Matters" and "Continuing Disclosure of Information' (except for under the subcaption "Compliance with Prior Undertakings") and the subcaption "Registration and Qualification of Series 2005 Bonds and Series 2005A Bonds for Sale", "Legal Investments and Eligibility to Secure Public Fund in Texas", and "Legal Matters" under the caption "Other Information" and is of the opinion that the information relating to the Series 2005 Bonds and Series 2005A Bonds and the Ordinances contained therein fairly and accurately describe the provisions thereof. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Series 2005 Bonds and Series 2005A Bonds are contingent on the sale and delivery of the Series 2005 Bonds and Series 2005A Bonds. The legal opinion will accompany the Series 2005 Bonds and Series 2005A Bonds deposited with DTC or will be printed on the Series 2005 Bonds and Series 2005A Bonds in the event of the discontinuance of the Book - Entry -Only System. Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel to the Underwriters. The legal fees to be paid Counsel to the Underwriters for services rendered in connections with the issuance of the Series 2005 Bonds and Series 2005A Bonds are contingent on the sale and delivery of the Series 2005 Bonds and Series 2005A Bonds. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources, which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Obligations. The Financial Advisor's fee for services rendered with respect to the sale of the Obligations is contingent upon the issuance and delivery of the Obligations. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Obligations, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Preliminary Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City' expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Preliminary Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City' actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, 34 business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Preliminary Official Statement will prove to be accurate. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the forecasted payments of principal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunded Obligations and the restricted Federal Securities were verified by Grant Thornton LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton LLP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Series 2005 Bonds from the City, at an underwriting discount of $ . The Underwriters will be obligated to purchase all of the Series 2005 Bonds if any Series 2005 Bonds are purchased. The Series 2005 Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Series 2005 Bonds into investment trusts) at prices lower than the public offering prices of such Obligations, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have agreed, subject to certain conditions, to purchase the Series 2005A Bonds from the City, at an underwriting discount of $ . The Underwriters will be obligated to purchase all of the Series 2005A Bonds if any Series 2005A Bonds are purchased. The Series 2005A Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Series 2005A Bonds into investment trusts) at prices lower than the public offering prices of such Obligations, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of their responsibilities to investors under the Federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. APPROVAL OF PRELIMINARY OFFICIAL STATEMENT The Ordinances will also approve the form and content of this Preliminary Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Series 2005 Bonds and Series 2005A Bonds by the Underwriters. ATTEST: /s/ LINDA HUFF City Secretary 35 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas THIS PAGE LEFT BLANK INTENTIONALLY Schedule I GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 SCHEDULE OF REFUNDED OBLIGATIONS Combination Tax and Revenue Certificates of Obligation, Series 2000 Original Maturity Interest Principal Principal Dated Date Date Rate Amount Amount 3/1/2000 8/15/2005 5.250% $ 550,000 $ 300,000 8/15/2006 5.250% 580,000 580,000 $ 1,130,000 $ 880,000 The 2005- 2006 maturities will be redeemed at maturity. General Obligation Bonds, Series 2000 Original Maturity Interest Principal Principal Dated Date Date Rate Amount Amount 3/1/2000 2/15/2014 5.600% $ 500,000 $ 500,000 2/15/2015 5.650% 530,000 530,000 2/15/2016 5.700% 560,000 560,000 2/15/2017 5.750% 595,000 595,000 2/15/2018 5.800% 630,000 630,000 2/15;/2019 5.850% 670,000 670,000 2,/15/2019 5.500% $ 3,485,000 $ 3,485,000 The 2014 - 2019 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. General Obligation Bonds, Series 2000A The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 11/1/2000 2/15/2014 5.200% $ 395,000 $ 395,000 2/15/2015 5.300% 415,000 415,000 2/15/2016 5.375% 440,000 440,000 2/15/2017 5.400% 465,000 465,000 2/15/2018 5.500% 495,000 495,000 2,/15/2019 5.500% 525,000 525,000 2/15/2020 5.500% 555,000 555,000 2/15/2021 5.500% 590,000 590,000 $ 3,880,000 $ 3,880,000 The 2014 - 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Combination Tax and Revenue Certificates of Obligation, Series 2000A Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 11/1/2000 2/15/2014 5.200% $ 310,000 $ 310,000 2/15/2015 5.300% 325,000 325,000 2/15/2016 5.375% 345,000 345,000 2/15/2017 5.400% 360,000 360,000 2/15/2018 5.500% 385,000 385,000 2/15/2019 5.500% 410,000 410,000 2/15/2020 5.500% 430,000 430,000 2/15/2021 5.500% 455,000 455,000 $ 3,020,000 $ 3,020,000 The 2014 — 2021 maturities will be redeemed prior to original maturity on February 15, 2010 at par, plus accrued interest, if any. Schedule II COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A SCHEDULE OF REFUNDED OBLIGATIONS Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 2000 Principal Principal Original Maturity Interest Amount Amount Dated Date Date Rate Outstanding Refunded 6/1/2000 8/15/2005 7.000% $ 730,000 $ 285,000 8/15/2006 7.000% 770,000 770,000 8/15/2007 7.000% 820,000 820,000 8/15/2016 5.700% 1,380,000 1,380,000 8/15/2017 5.750% 1,465,000 1,465,000 8/15/2018 5.750% 1,550,000 1,550,000 8/15/2019 5.800% 1,645,000 1,645,000 8/15/2020 5.800% 1,745,000 1,745,000 Y 8/15/2021 5.800% 1,850,000 1,850,000 8/15/2022 5.875% 1,960,000 1,960,000 8/15/2023 5.875% 2,075,000 2,075,000 8/15/2024 5.875% 2,200,000 2,200,000 8/15/2025 5.875% 2,335,000 2,335,000 8/15/2026 5.875% 2,475,000 2,475,000 $ 23,000,000 $ 22,555,000 The 2005- 2007 maturities will be redeemed at maturity. The 2016 — 2026 maturities will be redeemed prior to original maturity on August 15, 2010 at par, plus accrued interest, if any. THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX A GENERAL INFORMATION REGARDING THE CITY THIS PAGE LEFT BLANK INTENTIONALLY THE CITY ... The City is a political subdivision of the State incorporated in 1907 and operates as a home -rule City under the general laws of the State and a charter approved by the voters in 1965. The City has a Council/Manager form of government in which the mayor and six council members are elected for staggered three-year terms with elections held annually in May. Policy making is the responsibility of, and is vested in, the City Council. The Council delegates the operational authority of the City to the City Manager, who is the chief administrative officer of the City. The City provides all the functions normally associated with a municipality including, but not limited to, public safety (i.e., police and fire personnel and equipment), health inspection and enforcement, water and sewer facilities, streets and drainage facilities and parks and recreational facilities. The City presently employs approximately 528 full-time staff members. POPULATION ... The City has had significant population growth during the past several years. These population estimates are as follows: Year Population Source Year Population Source 1970 7,023 U.S. Census 1993 31,902 City Estimate 1980 11,801 U.S. Census 1994 32,727 City Estimate 1981 15,245 Grapevine Community Profile 1995 33,211 City Estimate 1982 16,183 Grapevine Community Profile 1996 34,950 City Estimate 1983 18,121 Grapevine Community Profile 1997 36,000 City Estimate 1984 19,405 Grapevine Community Profile 1998 37,946 City Estimate 1985 22,002 Grapevine Community Profile 1999 39,190 City Estimate 1986 24,493 Grapevine Community Profile 2000 39,523 U.S. Census 1987 25,853 Grapevine Community Profile 2001 44,390 City Estimate 1988 27,132 City Estimate 2002 45,524 City Estimate 1989 27,257 City Estimate 2003 46,188 City Estimate 1990 29,202 U.S. Census 2004 46,684 City Estimate 1991 30,300 City Estimate 2005 47,036 City Estimate 1992 31,400 City Estimate ECONOMICS ... The proximity of the Dallas/Fort Worth International Airport ("DFW") greatly influences both industrial and residential growth of the City. DFW has been and is expected to continue to be an economic generator of employment, spin-off businesses and tax base, all of which benefit the City and the surrounding area. Approximately 65% of the airport is within the city limits of Grapevine. Several large business operations owe their genesis to DFW including air cargo services, flight kitchens, rent/lease car operations and SimuFlite Training International, a company which provides jet pilot flight training in advanced flight simulators. Seven of the ten largest taxpayers of the City are directly related to DFW either by location or primary business sources. DFW contains approximately 18,000 acres and directly employs some 33,000 personnel. These employees have skills ranging from custodial level to highly trained jet aircraft pilots. A number of these people have purchased homes in the City and conduct their daily business here. DFW has approximately 19,400 parking spaces and is currently expanding parking facilities. Sales tax from parking fees generate about $330,000 in annual income for the City and hotels providing service for travelers at DFW and seminar space for business meetings generate approximately $2 million in annual hotel/motel tax revenue. EMPLOYMENT... Employment figures furnished by Texas Employment Commission are: A-1 Annual Annual Annual Annual Annual Annual 2004 2003 2002 2001 2000 1999 Labor Force 22,598 22,478 22,219 22,001 21,757 21,309 Employed 21,925 21,692 21,476 21,509 21,393 20,956 Unemployed 673 786 743 492 364 353 Percent of Unemployed 2.98% 3.50% 3.34% 2.24% 1.67% 1.66% A-1 MAJOR EMPLOYERS Company Dallas/Fort Worth International Airport Gaylord Texan Resort & Convention Center Grapevine/ColleyvilleIndependent School District United Parcel Service Baylor M edical Center Gamestop City of Grapevine D/FW Hilton Hotel SimuFlite Training International Apollo Paper/John Harland Source: City of Grapevine, Department of Development Services. BANKING AND FINANCIAL ... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS ... The number and value of building permits issued by the City are: Fiscal Estimated Residential Permits Number of Product Employees A irp ort 16,420 Hotel/Convention 1,800 School District 1,576 Parcel Service 1,200 Health Services 1,000 Electronic/Software Distribution 600 City Government 540 Hotel 400 Pilot Training 300 Paper Products 200 BANKING AND FINANCIAL ... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS ... The number and value of building permits issued by the City are: Fiscal Commercial Permits Residential Permits Total Year Number Number Number Total Ended of Dollar of Dollar of Dollar 9/30 Permits Value Permits Value Permits Value 2000 56 $ 84,742,336 211 $ 56,040,989 267 $ 140,783,325 2001 53 364,294,642 89 12,445,025 142 376,739,667 2002 23 21,888,714 183 48,911,056 206 70,799,770 2003 28 34,396,654 158 43,615,909 186 78,012,563 2004 23 32,790,990 186 40,969,517 209 73,760,507 Source: City of Grapevine records. RECREATION ... Located approximately two miles north of the downtown area of the City lies Grapevine Lake. The lake serves as the City reservoir and supplies approximately 50% of the water supply of the City. The lake covers a surface area of approximately 12,740 acres and has a shore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S. Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swimming pool and picnic areas. The City also owns and operates an 27 -hole golf course. TRANSPORTATION... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth, with major highway systems both north/south and east/west. There are 43 motor freight lines providing service to the City and the City is within the Dallas and Fort Worth Commercial Zone for deliveries. Railroad service is offered by the Cotton Belt Railroad and the Southern Pacific Railroad, both with daily switching service. Greyhound/Trailways Bus Lines provides the City with surface bus transportation. HOTEL AND CONVENTION FACILITIES... There are four major hotels in the City and several other hotels and motels adjacent to the City near DFW. The Hyatt Regency DFW is located on the airport and provides 1,450 rooms, one of the largest hotels in Texas. The Hyatt provides more than 130,000 square feet of meeting and convention facilities, five dining facilities, availability to two 18 -hole championship golf courses, tennis courts, heated swimming pool and health spa and jogging trails. A-2 The D/FW Airport Hilton and Executive Conference Center is a 400 -room hotel located 2.5 miles north of DFW offering a 14,400 square foot exhibit hall and ballroom that can accommodate 900 banquet guests. Also provided are three restaurants, tennis courts, racquetball courts, indoor and outdoor swimming pools, steam room, health club and lighted jogging trails. Adjacent to the hotel is the Austin Ranch where horseback riding and other western events are available to hotel guests. The Embassy Suites Conference Center is a 12 -story, 329 -room hotel located just north of DFW Airport. The Embassy Suites offers a 12,640 square foot conference center and ballroom, a 3,432 square foot junior ballroom and 14 other meeting rooms. Also provided is a state-of-the-art fitness center, a heated indoor swimming pool, complimentary, cooked -to -order breakfast and 24-hour in -room dining. The Gaylord Texan on Lake Grapevine is a 1,511 room resort and convention center located just 6 minutes north of D/FW Airport. The Gaylord Texan provides 400,000 square feet of convention, meeting, exhibit and pre -function space featuring 70 breakout rooms, three ballrooms, 180,000 square -feet of dedicated exhibit space, an 80,000 square foot outdoor event lawn and a 2,500 square foot amphitheater. Other amenities include seven restaurants, the Dallas Cowboys Golf Club, a contemporary Southwestern -style outdoor pool, a 25,000 square foot European spa, salon and fitness center with 13 treatment rooms and a 20 - meter indoor lap pool, outdoor tennis courts and marina access for recreational water -craft. EDUCATION ... Elementary and secondary education is provided to the City by the Grapevine-Colleyville Independent School District (the "District"). The District provides seventeen campuses, all air conditioned, as follows: 2 High schools 4 Middle schools 11 Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1983 3,732 1994 10,878 1984 4,037 1995 11,363 1985 4,675 1996 11,655 1986 5,617 1997 12,398 1987 6,107 1998 12,928 1988 6,604 1999 13,299 1989 7,156 2000 13,369 1990 7,984 2001 13,534 1991 8,710 2002 13,677 1992 9,435 2003 13,619 1993 10,236 2004 13,851 Source: Grapevine-ColleyviIle Independent School District. Educational opportunities beyond the secondary level are numerous and within easy driving distance of the City. Some of the colleges and universities within a 50 mile radius of the City are as follows: College/University Location Texas Christian University Fort Worth, Texas Texas Wesleyan University Fort Worth, Texas Tarrant County College Fort Worth, Texas University of Texas at Arlington Arlington, Texas University of North Texas Denton, Texas Texas Women's University Denton, Texas Southern Methodist University Dallas, Texas Dallas Baptist University Dallas, Texas Dallas Community College Dallas, Texas University of Dallas Irving, Texas University of Texas at Dallas Richardson, Texas A-3 THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX B EXCERPTS FROM THE CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2004 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30, 2004, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX C FORM OF BOND COUNSEL'S OPfMONS THIS PAGE LEFT BLANK INTENTIONALLY inson &EI kin s [Form of Bond Counsel Opinion] [Closing Date] CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2005 WE HAVE represented the City of Grapevine, Texas (the "Issuer"), as its bond counsel in connection with an issue of bonds (the "Bonds") described as follows: CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005, dated June 1, 2005, in the principal amount of The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the Ordinance adopted by the City Council of the Issuer authorizing their issuance (the "Ordinance"). WE HAVE represented the Issuer as its bond counsel for the purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the Issuer or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dubai Houston London Moscow New York Tokyo Washington Dallas, TX 75201-2975 Tel 214.220.7700 Fax 214.220.7716 www.velaw.com MRS Page 2 proceedings of the Issuer; an escrow agreement (the "Escrow Agreement") between the Issuer and JPMorgan Chase Bank, National Association, as escrow agent (the "Escrow Agent"); a report (the "Report") of Grant Thornton LLP, Certified Public Accountants (the "Verification Agent"), verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the "Refunded Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; and customary certificates of officers, agents and representatives of the Issuer, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the Issuer; (B) A continuing ad valorem tax upon all taxable property within the City of Grapevine, Texas, necessary to pay the principal of and interest on the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the Issuer, including the Bonds, does not exceed any constitutional, statutory or other limitations; and (C) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Obligations pursuant to the Escrow Agreement, and therefore, the Refunded Obligations are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. Dallas 974146_1.DOC 1 &E Page 3 creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; and (2) The Bonds are not "private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax. In providing such opinions, we have relied on representations of the Issuer, the Issuer's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer, the Issuer's Financial Advisor and the Underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. We have further relied on the Report of the Verification Agent regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the Issuer fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be Dallas 9741701.130C YL— E Page 4 omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. Dallas 974146_1.DOC The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. Dallas 974146_1.DOC linson&EIkins [Form of Bond Counsel Opinion] [Closing Date] CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A WE HAVE represented the City of Grapevine, Texas (the "Issuer"), as its bond counsel in connection with an issue of bonds (the "Bonds") described as follows: CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A, dated June 1, 2005, in the principal amount of $ The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the Ordinance adopted by the City Council of the Issuer authorizing their issuance (the "Ordinance"). WE HAVE represented the Issuer as its bond counsel for the purpose of rendering an 1 opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original ' proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the Issuer or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dubai Houston London Moscow New York Tokyo Washington Dallas, TX 75201-2975 Tel 214.220.7700 Fax 214.220.7716 www.velaw.com V E Page 2 proceedings of the Issuer; an escrow agreement (the "Escrow Agreement") between the Issuer and JPMorgan Chase Bank, National Association, as escrow agent (the "Escrow Agent"); a report (the "Report") of Grant Thornton LLP, Certified Public Accountants (the "Verification Agent"), verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the "Refunded Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; and customary certificates of officers, agents and representatives of the Issuer, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the Issuer; (B) A continuing ad valorem tax upon all taxable property within the City of Grapevine, Texas, necessary to pay the principal of and interest on the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the Issuer, including the Bonds, does not exceed any constitutional, statutory or other limitations; and the Bonds are further secured by a pledge of the tax increments deposited into the tax increment fund established for the City's Tax Increment Reinvestment Zone Number Two, such pledge being subordinate to any prior lien obligations that the City has reserved the right to issue, and any bonds or other obligations issued by a taxing unit participating in such zone and secured by a levy of ad valorem taxes within such taxing unit for which the levy and collection of ad valorem taxes has been insufficient for the payment thereof; and (C) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Obligations pursuant to the Escrow Agreement, and therefore, the Refunded Obligations are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of Dallas 974170_1.130C Page 3 creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; and (2) The Bonds are not "private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax. In providing such opinions, we have relied on representations of the Issuer, the Issuer's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer, the Issuer's Financial Advisor and the Underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. We have further relied on the Report of the Verification Agent regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the Issuer fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be Dallas 974170_1.DOC Page 4 subject to the "branch profits tax" on their effectively -connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. Dallas 974170_1 .DOC It is anticipated that the new financing rate will be approximately 4.45% TIC. This results in a net present value savings of approximately $1,215,126 over the remaining life of the bonds. This refunding is possible due to current market conditions which allow for a financing rate which is lower than the original issue rates and which would result in a significant savings to the City. City staff, working with the First Southwest Company, continually reviews the City's outstanding debt structure and will recommend taking advantage of market conditions and opportunities for refinancing any time they are available. A summary of the Official Statement prepared for this sale is in your packet. The complete Official Statement along with the draft sale ordinance is available in the City Secretary's Office. Staff recommends acceptance of the First Southwest Company's recommendation and approval of the ordinance authorizing the sale. WAG/cjc H:AGMSaleGORefundingBonds6-21-05 June 15, 2005 (3:12PM) i" c PRELIMINARY OFFICIAL STATEMENT Ratings: Moody's: Applied For Dated June_, 2005 S&P: Applied For ^' NEW ISSUE - Book -Entry -Only (s ation— Ratiings" hereinee "Other ) `c In the opinion of Bond Counsel, interest on the Series 2005 Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE SERIES 2005 BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS 9 $11,510,000* � r CITY OF GRAPEVINE, TEXAS m (Tarrant County) .e o GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 oDated Date: June 1, 2005 Due: February 15, as shown below c .3 PAYMENT TERMS ... Interest on the $11,510,000* City of Grapevine, Texas General Obligation Refunding Bonds, Series 2005 (the "Series 2005 Bonds") w ,0 will accrue from June 1, 2005 (the "Dated Date"), will be payable February 15 and August 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005 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 g c o ownership of the Series 2005 Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be T '? .5� made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds will be payable by the Paying Agent/Registrar to Cede o .y & 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 o . Series 2005 Bonds. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is .; JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying Agent/Registrar"). n AUTHORITY FOR ISSUANCE ... The Series 2005 Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and are direct obligations of the 0 3 City of Grapevine (the "City"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Series 2005 Bonds (the "Series 2005 Bond Ordinance") (see "The Series 2005 Bonds and Series 2005A Bonds v Q .. Authority for Issuance" ). r PURPOSE ... Proceeds from the sale of the Series 2005 Bonds will be used to refund a portion of the City's outstanding general obligation debt (the E= "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Series 2005 Bonds will be used for to pay the costs of issuance related to the sale of the Series 2005 Bonds. J 7 � c � d U MATURITY SCHEDULE* CUSIP Prefix tri: 388622 ti CUSIP CUSIP Amount Maturity Rate Yield Suffix", Amount Maturity Rate Yield Suffix", . —15 o- $ 65,000 2007 $ 1,355,000 2015 S 65,000 2008 1,430,000 2016 70,000 2009 1,500,000 2017 70,000 2010 1,590,000 2018 75,000 2011 1,675,000 2019 0 80,000 2012 1,050,000 2020 ] 85,000 2013 1,110,000 2021 m = 1,290,000 2014 Lp N s v a Q 5 (Accrued Interest from June 1, 2005 to be added) C c E - OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005 Bonds having stated maturities on and after February 15, 0 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value 0 3 thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). N 0 7 SEPARATE ISSUES ... The Series 2005 Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A" (the "Series 2005A Bonds"), under a common Preliminary Official Statement, 2 and such Series 2005 Bonds and Series 2005A Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Series 2005 Bonds and . Series 2005A Bonds are separate and distinct securities offerings being issued and sold independently except for the common Preliminary Official c = Statement, and while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed h independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. 0 LEGALITY ... The Series 2005 Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion n > of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain legal matters will be passed upon for the Underwriters by Dallas, Texas, Counsel for the Underwriters. DELIVERY. It is expected that the Series 2005 Bonds will be available for delivery through The Depository Trust Company on July 13, 2005. � M U ti 2 * Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY c 4 PRELIMINARY OFFICIAL STATEMENT Ratings: Moody's: Applied For v Dated June _, 2005 S&P: Applied For (see "Other Information— u NEW ISSUE - Book -Entry -Only Ratings" herein) N In the opinion of Bond Counsel, interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes under existing law and the Series 2005A Bonds are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. a � o y THE SERIES 2005A BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS o s $24,125,000" P CITY OF GRAPEVINE, TEXAS cz (Tarrant County) COMBINATION TAX AND TAX INCREMENT REINVESTMENT ZONE REVENUE REFUNDING BONDS, SERIES 2005A `o Dated Date: June 1, 2005 >, Due: August 15, as shown below oQ PAYMENT TERMS ... Interest on the $24,125,000' City of Grapevine, Texas Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, y Series 2005A (the "Series 2005A Bonds") will accrue from June 1, 2005 (the "Dated Date"), will be payable August 15 and February 15 of each year, commencing August 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Series 2005A 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 Series 2005A Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series E 2005A Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Series 2005A Bonds will be payable by the Paying o •o 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 c owners of the Series 2005A Bonds. See "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is ? o JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Series 2005 Bonds and Series 2005A Bonds - Paying AgentJR4strar"). V1 O a n AUTHORITY FOR ISSUANCE ... The Series 2005A Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Y particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter and constitute direct Obligation of the City of c Grapevine, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by NJ law, on all taxable property within the City, and (ii) a subordinate lien on and pledge of the Tax Increments deposited into the Tax Increment Fund established for the City's Reinvestment Zone Number Two (the "Zone"), as provided in the ordinance authorizing the Series 2005A Bonds (the "Series 2005A Bond Ordinance") (see 3 - "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Series 2005A Bonds will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Ne v Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds u from the sale of the Series 2005A Bonds will be used for to pay the costs of issuance related to the sale of the Series 2005A Bonds. y MATURITY SCHEDULE'* CUSIP PreWu: 388622 o v c c CUSII' CUS1P G Amount Maturity Rate Yield SuffixtttAmount MaturityRate Yield SuffixtD a ° $ 145,000 2008 $ 1,755,000 2018 F 150,000 2009 1,850,000 2019 155,000 2010 1,950,000 2020 F, 160,000 2011 2,050,000 2021 o E 165,000 2012 2,155,000 2022 a 175,000 2013 2,260,000 2023 185,000 2014 2,380,000 2024 195,000 2015 2,505,000 2025 1,585,000 2016 2,630,000 2026 G a 1,675,000 2017 V c b (Accrued Interest from June 1, 2005 to be added) Y � o 2 y OPTIONAL. REDEMPTION ... The City reserves the right, at its option, to redeem Series 2005A Bonds having stated maturities on and after February 15, 2016, in c u whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued a a interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). 5 y SEPARATE ISSUES ...The Series 2005A Bonds are being offered by the City concurrently with the "City of Grapevine, Texas, General Obligation Refunding Bonds, r Series 2005" (the "Series 2005 Bonds"), and such Series 2005A Bonds and Series 2005 Bonds are hereinafter sometimes referred to collectively as the "Obligation". The Series 2005A Bonds and Series 2005 Bonds are separate and distinct securities offerings being issued and sold independently except for the common c: c Preliminary Official Statement, and, while the Obligation share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, and other features. a c LEGALITY.. . The Series 2005A Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the E ,q Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinions"). Certain o legal matters will be passed upon for the Underwriters by Dallas, Texas, Counsel for the Underwriters. 3 . DELIVERY.. . It is expected that the Series 2005A Bonds will be available for delivery through The Depository Trust Company on July 13, 2005. r C _ r > S ' Preliminary, subject to change. E c He THIS PAGE LEFT BLANK INTENTIONALLY This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation ofan offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Oficial Statement, and, if given or made, such other information or representations must not be relied upon. For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule'g, this document constitutes an Oficial Statement of the City with respect to the Bonds that has been "deemed final" by the City as of its date except for the omission of no more than the information permitted by the Rude. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Preliminary Ojfzcial Statement contains, in part, estimates and matters of opinion which are not intended as statements offact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The Underwriters have provided the following sentence for inclusion in this Preliminary Oficial Statement. The Underwriters have reviewed the information in this Preliminary Oficial Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Preliminary 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 City or other matters described. NEITHER THE CITY, ITS FINANCIAL ADVISOR, NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK- ENTRYONLYSYSTEM. !N CONNECTION WITH THE OFFERbVG OF THE BONDS, THE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKETPRICES OF THE BONDS ATA LEVEL ABOVE THA T WHICHMIGHT OTHER WISE PREVAIL BV THE OPENMARKET. SUCHSTABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. TABLE OF CONTENTS PRELIMINARY OFFICIAL STATEMENT SUMMARY ... ....6 CITY OFFICIALS, STAFF AND CONSULTANTS ................. 8 ELECTED OFFICIALS.............................................................. 8 SELECTED ADMINISTRATIVE STAFF ...................................... 8 CONSULTANTS AND ADVISORS ............................................. 8 INTRODUCTION.......................................................................... 9 PLAN OF FINANCING................................................................9 FUNDS IN TEXAS ....................................................... THE SERIES 2005 BONDS AND SERIES 2005A BONDS ....10 LEGAL MATTERS................................................................. TAX INCREMENT REINVESTMENT ZONE .......................15 24 TAXINFORMA.TION.................................................................16 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT.... ................ ............................... 19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY................................................................ 20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY.................................................................... 21 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY .21 TABLE 5 - TEN LARGEST TAXPAYERS...............................21 TABLE 6 - TAX ADEQUACY................................................22 TABLE 7 - ESTIMATED OVERLAPPING DEBT......................22 DEBT INFORMATION.............................................................23 32 TABLE 8 - GENERAL OBLIGATION DEBT SERVICE 32 REQUIREMENTS......................................................... 23 TABLE 9 - INTEREST AND SINKING FUND BUDGET AND SERIES 2005A BONDS FOR SALE.. .... - .............. PROJECTION.............................................................. 24 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT ....24 FUNDS IN TEXAS ....................................................... TABLE 1 I - AUTHORIZED BUT UNISSUED GENERAL LEGAL MATTERS................................................................. OBLIGATION BONDS ................................................. 24 TABLE 12 -OTHER OBLIGATIONS ........................................ 24 FINANCIAL INFORMATION..................................................25 TABLE 13 — CHANGES IN NET ASSETS ................................ 25 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY................................................................... 26 TABLE 14 - MUNICIPAL SALES TAX HISTORY ....... - ...... ..... 26 TABLE 15 -CURRENT INVESTMENTS ................................... 29 TAXMATTERS.......................................................................... 30 OTHER INFORMATION . ................ .......................... .............. 32 RATINGS.............................................................................. 32 LITIGATION.......................................................................... 32 REGISTRATION AND QUALIFICATION OF SERIES 2005 BONDS AND SERIES 2005A BONDS FOR SALE.. .... - .............. 32 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ....................................................... 32 LEGAL MATTERS................................................................. 32 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION........................................................... 33 CONTINUING DISCLOSURE OF INFORMATION ..................... 33 FINANCIAL ADVISOR ................. ............ ......... ..................... 34 FORWARD-LOOKING STATEMENTS DISCLAIMER ................ 34 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS........................................................ 35 UNDERWRITING................................................................... 35 APPROVAL OF PRELIMINARY OFFICIAL STATEMENT.......... 35 SCHEDULE OF REFUNDED OBLIGATIONS......... Schedule I APPENDICES GENERAL INFORMATION REGARDING THE CITY ................. A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .......... B FORM OF BOND COUNSEL'S OPINIONS ................................ C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. PRELIMINARY OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Series 2005 Bonds and Series 2005A Bonds to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 38 square miles (see "Introduction - Description of City"). THE SERIES 2005 BONDS ............. The $11,510,000* General Obligation Refunding Bonds, Series 2005 are to mature on February 15 in the years 2007 through 2021 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 A Bonds"). THE SERIES 2005A BONDS .......... The $24,125,000* Combination Tax and Tax Increment Reinvestment Zone Revenue Refunding Bonds, Series 2005A are to mature on August 15 in the years 2008 through 2026 (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005A Bonds"). PAYMENT OF INTEREST .............. Interest on the Obligations accrues from June 1, 2005, and is payable February 15, 2006, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Description of the Series 2005 Bonds and Series 2005A Bonds"). AUTHORITY FOR ISSUANCE.......... The Obligations are issued pursuant to the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, Section 9.26 of the City's Home Rule Charter, and the Series 2005 Bond Ordinance and Series 2005A Bond Ordinance passed by the City Council of the City (see "The Series 2005 Bonds and Series 2005A Bonds - Authority for Issuance"). SECURITY FOR THE SERIES 2005 BONDS ................... The Series 2005 Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limit prescribed by law, on all taxable property located within the City (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). SECURITY FOR THE SERIES 2005A BONDS ................ The Series 2005A Bonds constitute direct obligations of the City, payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a subordinate lien on and pledge of the Tax Increments of the City's Reinvestment Zone Number Two (see "The Series 2005 Bonds and Series 2005A Bonds - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Obligations having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Series 2005 Bonds and Series 2005A Bonds - Optional Redemption"). TAx EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Series 2005 Bonds and Series 2005A Bonds will be excludable from gross income for federal income tax purposes under existing law and the Series 2005 Bonds and Series 2005A Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the altemative minimum tax consequences for corporations. USE OF PROCEEDS ........................ Proceeds from the sale of the Obligations will be used to refund a portion of the City's outstanding general obligation debt (the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Obligations will be used for to pay the costs of issuance related to the sale of the Obligations. * Preliminary, subject to change. RATINGS ...................................... The presently outstanding tax supported debt of the City is rated "AI" by Moody's Investors Service, Inc. ("Moody's") and "AA-" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Obligations have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM...... The definitive Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series 2005 Bonds and Series 2005A Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Series 2005 Bonds and Series 2005A 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 Series 2005 Bonds and Series 2005A Bonds (see "The Series 2005 Bonds and Series 2005A Bonds - Book -Entry -Only System"). PAYMENT RECORD ..................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. SELECTED FINANCIAL INFORMATION Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable % of Ended City Assessed Assessed Tax Tax Assessed Total Tax 9130 Population Valuation (2) Valuation Debt Debt Valuation Collections 2001 44,390 $ 4,372,544,371 $ 98,503 5 156,815,000 $ 3,533 3.59% 99.10% 2002 45,500 4,773,863,018 104,920 157,940,000 3,471 3.31% 99.20% 2003 46,400 4,766,361,580 102,723 157,645,000 3,398 3.31% 99.40% 2004 46,684 4,880,107,595 104,535 148,300,000 3,177 3.04% 99.70% 2005 47,036 5,352,933,433 113,805 144,645,000 (3) 3,075 2.70% 00.00%(41 (1) Source: The City of Grapevine. (2) Source: Tarrant County Appraisal District (3) Projected, includes the Series 2005 Bonds and Series 2005A Bonds. Excludes the Refunded Obligations. (4) Collections for part year only, through April 1, 2005. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance or Laura Alexander City of Grapevine First Southwest Company 200 South Main 777 Main Street, Suite 1200 Grapevine, Texas 76051 Fort Worth, Texas 76102 (817)410-3111 (817)332-9710 7 ELECTED OFFICIALS City Council William D. Tate Mayor Ted R. Ware Mayor Pro Tem C. Shane Wilbanks Councilmember, Place 1 Sharron Spencer Councilmember, Place 2 Clydene Johnson Councilmember, Place 3 Darlene Freed Councilmember, Place 4 Roy Stewart Councilmember, Place 6 CITY OFFICIALS, STAFF AND CONSULTANTS Length of Term Service Expires 17 Years May, 2006 26 Years May, 2008 20 Years May, 2006 20 Years 10 Years Occupation Attorney -at -Law Commercial Contractor Personnel Director May, 2006 Retired Sales Representative May, 2007 Independent Insurance Agent 7 Years May, 2007 Commercial Real Estate Agent 9 Years May, 2008 Construction Company Owner (1) Previously served 13 years as Mayor and Councilmember. SELECTED ADMNISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 8 Years Bruno Rumbelow Assistant City Manager 7 Years Bill Gaither Administrative Services Director 9 Years Fred Werner Director of Finance 8 Years Linda Huff City Secretary 18 Years (2) (1) 10 years with City; 8 years in present position. Mr. Nelson announced his resignation which will got into effect June _, 2005. (2) 23 years with City; 18 years in present position. CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas BondCounsel..................................................................................................................................... .... Vinson & Elkins L.L.P. Dallas, Texas FinancialAdvisor...................................................................................................................................... First Southwest Company Fort Worth, Texas 8