OFFICIAL STATEMENT

NEW ISSUE - Book-Entry-Only Dated: August 7, 2008 Ratings: S & P Underlying: “AA+”
Moody’s Underlying: “Aa2”

See “OTHER INFORMATION - RATINGS” herein

In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law
and the 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.

$149,780,000
LONE STAR COLLEGE SYSTEM
(FORMERLY “NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT”)
(HARRIS AND MONTGOMERY COUNTIES, TEXAS)
LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2008

Dated Date: September 1, 2008 Due: August 15, as shown below

PAYMENT TERMS . . . The $149,780,000 Lone Star College System Limited Tax General Obligation Bonds, Series 2008
(the “Bonds”) will be issued as Current Interest Bonds (“CIBs”). Interest on the Bonds will accrue from the dated date as
shown above and will be payable February 15 and August 15 of each year, commencing February 15, 2009, and will be
calculated on the basis of a 360-day year of twelve 30-day months. The definitive Bonds will be initially registered and
delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”) pursuant to the Book-Entry-Only
System described herein. The Bonds will be issued in principal denominations of $5,000 or any integral multiple thereof.
No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and
interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the
amounts so paid to the beneficial owners of the Bonds (see “THE BONDS–BOOK-ENTRY-ONLY SYSTEM”). The initial
Paying Agent/Registrar is Wells Fargo, N.A. (see “THE BONDS–PAYING AGENT/REGISTRAR”).
AUTHORITY FOR ISSUANCE . . . The Lone Star College System (the “System”) is authorized to sell the Bonds pursuant
to the Constitution and the laws of the State of Texas, including particularly Section 130.122, Texas Education Code as
amended, an order (the “Order”) adopted by the Board of Trustees of the System (the “Board”), and an election held on May
10, 2008. The Bonds constitute direct and continuing obligations of the System, payable as to principal and interest from the
proceeds of such ad valorem tax levied, within the limits prescribed by law, on all taxable property located within the
System, as provided in the Order. See “THE BONDS – SECURITY FOR BONDS” herein.
PURPOSE . . . Proceeds from the sale of the Bonds will be used to (i) construct and equip school buildings in the System,
including instructional facilities, academic support facilities, administrative support facilities, plant system replacements and
technology infrastructure, and the purchase of necessary sites therefore, and (ii) pay costs of issuing the Bonds. See “THE
BONDS – USE OF BOND PROCEEDS.”
OPTIONAL REDEMPTION . . . The System reserves the right, at its option, to redeem CIBs maturing on August 15, 2019
and thereafter, on or after August 15, 2018 at the price of par plus accrued interest. See “THE BONDS – OPTIONAL
REDEMPTION.”
DELIVERY . . . The Bonds are offered for delivery when as and if issued and received by the Underwriters and subject to the
approving opinions of the Attorney General of the State of Texas and of Vinson & Elkins L.L.P., Bond Counsel, Houston,
Texas (see Appendix C –“FORM OF BOND COUNSEL’S OPINION”). Certain matters will be passed on for the
Underwriters by Greenberg Traurig, LLP, as counsel to the Underwriters. The Bonds are expected to be available for delivery
through the facilities of the Depository Trust Company on or about September 10, 2008.

MORGAN KEEGAN & CO., INC. FIRST SOUTHWEST COMPANY

SOUTHWEST SECURITIES SIEBERT BRANDFORD SHANK & CO.

RICE FINANCIAL PRODUCTS COMPANY

 $149,780,000
LONE STAR COLLEGE SYSTEM
(HARRIS AND MONTGOMERY COUNTIES, TEXAS)
LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2008
CUSIP Prefix: 542264(c)
Current Interest Bonds
(c) (c)
Price or CUSIP Price or CUSIP
(a)
Amount Maturity Rate Yield(b) Suffix Amount Maturity
(a)
Rate Yield(b) Suffix
$ 10,655,000 8/15/2009 4.000% 2.090% AA4 $ 3,720,000 8/15/2020 5.000% 4.360% AK2
2,665,000 8/15/2010 4.000% 2.300% AB2 3,905,000 8/15/2021 5.000% 4.470% AL0
2,775,000 8/15/2013 3.500% 3.230% AC0 4,100,000 8/15/2022 5.000% 4.550% AM8
2,870,000 8/15/2014 3.750% 3.430% AD8 4,305,000 8/15/2023 5.250% 4.550% AN6
2,975,000 8/15/2015 3.750% 3.610% AE6 4,530,000 8/15/2024 5.250% 4.610% AP1
3,090,000 8/15/2016 4.000% 3.770% AF3 4,770,000 8/15/2025 5.250% 4.660% AQ9
3,210,000 8/15/2017 5.000% 3.930% AG1 5,020,000 8/15/2026 5.250% 4.720% AR7
3,375,000 8/15/2018 5.000% 4.060% AH9 5,285,000 8/15/2027 5.250% 4.770% AS5
3,540,000 8/15/2019 5.000% 4.230% AJ5

(Accrued interest from September 1, 2008 to be added)

$11,400,000 Term Bonds Maturing August 15, 2029 (a) at 5.00% to yield 5.00%(b) CUSIP 542264AU0 (c)

$26,420,000 Term Bonds Maturing August 15, 2033 (a) at 5.00% to yield 5.110%(b) CUSIP 542264AY2 (c)

$41,170,000 Term Bonds Maturing August 15, 2038 (a) at 5.00% to yield 5.150%(b) CUSIP 542264BD7 (c)
(Interest to accrue from September 1, 2008)

_______________________

a) The Bonds maturing on August 15, 2019 and thereafter are subject to redemption, at the option of the System, on or
after August 15, 2018 at the price of par plus accrued interest. (see “BOND INFORMATION – OPTIONAL
REDEMPTION OF BONDS” and “MANDATORY SINKING FUND REDEMPTION OF BONDS”).
b) The price or yield represents the initial offering price or yield to the public which has been established by the
Underwriters for offers to the public, and which may subsequently be changed by the Underwriters in the sole
discretion of the Underwriters.
c) CUSIP numbers have been assigned to the Bonds by Standard & Poor’s CUSIP services Bureau, a Division of the
McGraw Hill Companies, Inc., and are included solely for the convenience of the owners of the Bonds. Neither the
System nor Underwriters are responsible for the selection or correctness of the CUSIP numbers herein. This data is
not intended to create a database and does not serve in any way as a substitute for the CUSIP services numbers
herein.

[The remainder of this page is intentionally left blank.]

 TABLE OF CONTENTS
OFFICIAL STATEMENT SUMMARY ..................vi
Valuation And Tax-Supported Debt History ..........viii
Tax Rate, Levy And Collection History .................viii
SYSTEM ADMINISTRATION...............................ix
Administration of the System ...................................ix
Elected Officials .......................................................ix
Appointed Officials ..................................................ix
Consultants and Advisors .........................................ix
OFFICIAL STATEMENT.........................................1
INTRODUCTION .....................................................1
Description Of The System .......................................1
THE BONDS.............................................................1
Description Of The Bonds .........................................1
Purpose Of The Bonds...............................................2
Authority For Issuance ..............................................2
Security For Bonds ....................................................2
Tax Rate Limitation...................................................2
Optional Redemption.................................................2
Mandatory Sinking Fund Redemption.......................3
Defeasance of Bonds .................................................3
Amendments..............................................................3
Book-Entry-Only System ..........................................3
Paying Agent/Registrar..............................................5
Transfer, Exchange And Registration........................6
Record Date For Interest Payment.............................6
Limitation on Transfer of Bonds ...............................6
Replacement Bonds ...................................................6
Bondholders’ Remedies.............................................7
Use Of Bond Proceeds...............................................7
TAX INFORMATION ..............................................8
Ad Valorem Tax Law ................................................8
Effective Tax Rate and Rollback Tax Rate................9
Property Assessment and Tax Payment...................10
Penalties And Interest..............................................10
FINANCIAL INFORMATION...............................11
Financial Policies.....................................................11
Net Assets................................................................11
Investments..............................................................12
Classification of Revenues ......................................12
Investments..............................................................12
Investment Authority And Investment Practices of
the System ...............................................................12
Additional Provisions ..............................................14
Current Investments.................................................14
EMPLOYEES RETIREMENT SYSTEM...............14
TAX MATTERS .....................................................14
Tax Exemption ........................................................14
ADDITIONAL FEDERAL INCOME TAX
CONSIDERATIONS...............................................15
Collateral Tax Consequences ..................................15
Tax Accounting Treatment of Original Issue
Premium ..................................................................16
Tax Accounting Treatment of Original Issue
Discount Bonds .......................................................16
CONTINUING DISCLOSURE OF INFORMATION
.................................................................................17
Annual Reports ........................................................17
Material Event Notices ............................................17
Availability Of Information From NRMSIRS And
SIDS ........................................................................18
Limitations And Amendments.................................18
Compliance With Prior Undertakings......................18
OTHER INFORMATION .......................................19
Ratings.....................................................................19
Financial Guaranty Industry – Recent Events .........19
Litigation .................................................................19
Registration And Qualification Of Bonds For Sale .19
Legal Investments and Eligibility to Secure Public
Funds in Texas.........................................................19
Legal Matters...........................................................20
Validation ................................................................20
Authenticity Of Financial Data And Other
Information ..............................................................20
Financial Advisor ....................................................21
Underwriting............................................................21
Forward-Looking Statements Disclaimer ................21
Miscellaneous ..........................................................21
APPENDICES
INFORMATION REGARDING THE SYSTEM ........................ A
INFORMATION REGARDING THE SYSTEM’S
STUDENTS, TUITIONS, & FEES .............................................. B
FORM OF BOND COUNSEL’S OPINION ................................ C
EXCERPT FROM THE SYSTEM’S ANNUAL REPORT ........ D
The cover page hereof, this page, the schedules and the appendices
included herein and any addenda, supplement or amendment
hereto, are part of the Official Statement.
THIS OFFICIAL STATEMENT, WHICH THE BONDS HAVE NOT BEEN REGISTERED
INCLUDES THE COVER PAGE AND THE UNDER THE SECURITIES ACT OF 1933, AS
APPENDICES AND SCHEDULES HERETO, AMENDED, INRELIANCE UPON EXEMPTION
DOES NOT CONSTITUTE AN OFFER TO SELL CONTAINED IN SUCH ACT. THE REGISTRATION
OR THE SOLICITATION OF AN OFFER TO OR QUALIFICATION OF THE OBLIGATIONS IN
BUY IN ANY JURISDICTION TO ANY PERSON ACCORDANCE WITH APPLICABLE PROVISIONS
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OF SECURITIES LAW OF THE STATES IN WHICH
OFFER, SOLICITATION OR SALE. THE BONDS HAVE BEEN REGISTERED OR
QUALIFIED AND THE EXEMPTION FROM
No dealer, broker, salesperson or other person has REGISTRATION OR QUALIFICATION IN OTHER
been authorized to give information or to make any STATES CANNOT BE REGARDED AS A
representation other than those contained in this RECOMMENDATION THEROF
Official Statement, and, if given or made, such other
information or representations must not be relied THIS OFFICIAL STATEMENT CONTAINS
upon. “FORWARD-LOOKING” STATEMENTS WITHIN
THE MEANING OF SECTION 21E OF THE
The Underwriters have provided the following SECURITIES AND EXCHANGE ACT OF 1934, AS
sentence for inclusion in this Official Statement: The AMENDED. SUCH STATEMENTS MAY INVOLVE
Underwriters have reviewed the information in this KNOWN AND UNKNOWN RISKS,
Official Statement in accordance with, and as part of, UNCERTAINTIES AND OTHER FACTORS WHICH
their responsibilities to investors under the federal MAY CAUSE THE ACTUAL RESULTS,
securities laws as applied to the facts and PERFORMANCE AND ACHIEVEMENTS TO BE
circumstances of this transaction, but the DIFFERENT FROM THE FUTURE RESULTS,
Underwriters do not guarantee the accuracy or PERFORMANCE AND ACHIEVEMENTS
completeness of such information. EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS. INVESTORS ARE
The information set forth herein has been obtained CAUTIONED THAT THE ACTUAL RESULTS
from the System and other sources believed to be COULD DIFFER MATERIALLY FROM THOSE SET
reliable, but such information is not guaranteed as to FORTH IN THE FORWARD-LOOKING
accuracy or completeness and is not to be construed STATEMENTS.
as the promise or guarantee of the System or the
Financial Advisor. This Official Statement contains,
in part, estimates and matters of opinion which are
not intended as statements of fact, and no
representation is made as to the correctness of such
estimates and opinions, or that they will be realized.

The information and expressions of opinion

contained herein are subject to change without
notice, and neither the delivery of this Official
Statement nor any sale made hereunder shall, under
any circumstances, create any implication that there
has been no change in the affairs of the System or
other matters described. See “CONTINUING
DISCLOSURE OF INFORMATION” for a
description of the System’s undertaking to provide
certain information on a continuing basis.

NEITHER THE SYSTEM, ITS FINANCIAL

ADVISOR, OR THE UNDERWRITERS MAKE ANY
REPRESENTATION OR WARRANTY WITH
RESPECT THE INFORMATION CONTAINED IN
THIS OFFICIAL STATEMENT REGARDING THE
DEPOSITORY TRUST COMPANY OR ITS BOOK-
ENTRY-ONLY SYSTEM OR REGARDING ITS
MUNICIPAL BOND GUARANTEE POLICY IF ANY

-5-
HOU:2418563.2
 OFFICIAL STATEMENT SUMMARY
This summary is subject in all respects to the more complete information and definitions contained or incorporated
in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire
Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use
it without the entire Official Statement.
THE SYSTEM......................................................
THE BONDS .......................................................
PAYMENT OF INTEREST .....................................
AUTHORITY FOR ISSUANCE ...............................
SECURITY FOR THE BONDS ...............................
The Lone Star College System (the “System”) (formerly “North
Harris Montgomery Community College District”) is a junior
college system and political subdivision of the State of Texas.
The System is located in the northern portion of Harris County
and the southern portion of Montgomery County, Texas. The
System encompasses the Aldine, Conroe, Cypress-Fairbanks,
Humble, Klein, Magnolia, New Caney, Splendora, Spring,
Tomball and Willis Independent School Systems. The System is
a comprehensive, public, two-year institution offering academic,
general occupational, developmental, and continuing adult
education programs through a network of colleges. Presently, the
System includes North Harris, Kingwood, Tomball, Montgomery,
the Cypress-Fairbanks colleges and the University Center.
The System is approximately 1,462 square miles in area (see
“Appendix A – Information Regarding the System” and
“Appendix B – General Information Regarding Harris County).
The $149,780,000 Limited Tax General Obligation Bonds, Series
2008 (the “Bonds”) are issued as Current Interest Bonds
(“CIBs”) maturing on August 15 in the years 2009 through 2038
inclusive and paying interest and maturity value at the rates as
shown on the inside cover page of this Official Statement.
Interest on the CIBs will accrue from the dated date shown on the
inside cover page hereof and will be payable February 15 and
August 15 of each year, commencing February 15, 2009, and will
be calculated on the basis of a 360 day year of twelve 30 day
months. See “THE BONDS – DESCRIPTION OF THE
BONDS” herein.
The Bonds are being issued pursuant to the Constitution and
general laws of the State of Texas, including particularly Section
130.122, Texas Education Code, as amended, an order (the
“Order”) adopted by the Board of Trustees of the System (the
“Board), and an election, held on May 10, 2008. (See “THE
BONDS – AUTHORITY FOR ISSUANCE”).
The Bonds are direct obligations of the System and are payable
from a continuing direct annual ad valorem tax levied by the
System, within the limits prescribed by law, on all taxable
property located within the System (see “THE BONDS –
SECURITY FOR BONDS”).
-vi-
OPTIONAL REDEMPTION ....................................
MANDATORY SINKING FUND REDEMPTION .......
TAX EXEMPTION ...............................................
USE OF THE BONDS ..........................................
RATINGS ............................................................
PAYMENT RECORD ............................................
The CIBs maturing on August 15, 2019 and thereafter are subject
to redemption at the option of the System, on or after August 15,
2018 at the price of par plus accrued interest. See “THE BONDS
– OPTIONAL REDEMPTION” herein.
Term Bonds maturing on August 15 in the years 2029, 2033 and
2038 are subject to mandatory sinking fund redemption prior to
maturity at a price of par plus accrued interest to the redemption
date (see “THE BONDS – MANDATORY SINKING FUND
REDEMPTION”).
In the opinion of Bond Counsel, interest on the Bonds is
excludable from gross income for federal income tax purposes
under existing law, and the Bonds are not private activity bonds.
See “TAX MATTERS – TAX EXEMPTION” herein.
Proceeds from the sale of the Bonds will be used to (i) construct
and equip school buildings in the System, including instructional
facilities, academic support facilities, administrative support
facilities, plant system replacements and technology
infrastructure, and the purchase of necessary sites therefore, and
(ii) pay costs of issuing the Bonds. See “THE BONDS – USE
OF BOND PROCEEDS” herein.
The Bonds are rated “Aa2” by Moody’s Investors Service, Inc.
(“Moody’s”) and “AA+” by Standard & Poor’s Rating
Corporation (“S&P”). The presently outstanding tax supported
uninsured debt of the System is rated “Aa2” by Moody’s and
“AA+” by S&P. The System also has other issues outstanding
which are rated “Aaa” by Moody’s and “AAA” by S&P through
insurance by various commercial insurance companies. (see
“OTHER INFORMATION – RATINGS”).
The System has never defaulted in payment of its general
obligation debt.
-vii-
VALUATION AND TAX-SUPPORTED DEBT HISTORY

Ratio of Tax
Tax Supported Per Tax
Fiscal Supported Debt to Capita Supported
Year Taxable Debt Taxable Estimated Taxable Debt
Ended Assessed Change From Prior Year Outstanding at Assessed System Assessed Per
8/31 Valuation Amount Percent FYE Valuation Population Valuation Capita
1998 $ 20,877,459,329 $ 77,583,759 0.372% 656,111 $ 31,820 $ 118
1999 23,655,850,537 2,778,391,208 13.308% 103,806,436 0.439% 673,774 35,109 154
2000 29,318,674,811 5,662,824,274 23.938% 103,198,089 0.352% 844,839 34,703 122
2001 31,297,100,802 1,978,425,991 6.748% 145,613,731 0.465% 867,582 36,074 168
2002 58,509,951,482 27,212,850,680 86.950% 232,747,123 0.398% 1,298,518 45,059 179
2003 63,838,636,037 5,328,684,555 9.107% 231,339,997 0.362% 1,333,474 47,874 173
2004 69,598,292,568 5,759,656,531 9.022% 234,403,656 0.337% 1,369,371 50,825 171
2005 75,289,889,250 5,691,596,682 8.178% 213,294,083 0.283% 1,406,234 53,540 152
2006 75,969,405,661 679,516,411 0.903% 190,336,613 0.251% 1,440,000 52,757 132
2007 87,674,701,064 11,705,295,403 15.408% 173,001,413 0.197% 1,480,000 59,240 117
(a)
2008 102,375,607,090 14,700,906,026 16.768% 298,820,000 0.292% 1,500,000 68,250 199

Source: The System & Harris County and Montgomery County Appraisal Districts
(a) Includes "The Bonds.”

TAX RATE, LEVY AND COLLECTION HISTORY

Distribution
Fiscal Year Local Interest & Current Total
(1)(2)
Ended 8/31 Tax Rate Maintenance Sinking Fund Tax Levy Collections Collections
1998 $ 0.11980 $ 0.06800 $ 0.05180 $ 26,544,907 97.5% 101.3%
1999 0.11980 0.08070 0.03910 28,539,979 97.3% 101.5%
2000 0.11740 0.07770 0.03970 36,343,512 97.0% 101.1%
2001 0.11000 0.07500 0.03500 38,098,610 96.3% 100.0%
2002 0.11000 0.07600 0.03400 64,360,946 95.6% 100.0%
2003 0.10550 0.07420 0.03130 67,349,761 97.2% 100.0%
2004 0.11450 0.07980 0.03470 79,690,045 97.0% 102.0%
2005 0.11450 0.07980 0.03470 85,862,441 97.0% 100.0%
2006 0.12070 0.08600 0.03470 91,695,013 96.7% 100.0%
2007 0.11670 0.08200 0.03470 102,316,376 96.6% 102.2%
2008 0.11440 0.08090 0.03350 - In Process of Collection

(1) Excludes Penalty & Interest.

(2) Based on taxable value as of January 1.

For additional information regarding the System, please contact:

Cynthia Gilliam, CPA, Vice David Tiffin

Chancellor for Business Clarence Grier
Affairs and Chief Financial Officer RBC Capital Markets
Lone Star College System 2411 N Haskell Ave Suite 2500
5000 Research Forest Drive or Dallas, TX 75204
The Woodlands, TX 77381 (214) 989-1777 Phone
(832) 813-6500 Phone (214) 989-1650 Fax
(832) 813-6618 Fax

-viii-
 SYSTEM ADMINISTRATION

ADMINISTRATION OF THE SYSTEM

Policy making functions are the responsibility of, and are vested in, a nine-member board of trustees who serve six-
year staggered terms with elections being held in May of even-numbered years. The Board delegates administrative
responsibilities to the chancellor who is the Chief Executive Officer of the System. Independent consultants and
advisors provide various supporting services.

ELECTED OFFICIALS

Length Term
Board of Trustees of Service Expires Occupation
Randy Bates, J.D., Chair 17 Years 2012 Attorney, Bates & Coleman, P.C.
David Holsey, D.D.S., Vice Chair 1 1/2 Years 2012 Dentist
Priscilla Kelly, Secretary 13 Years 2014 Counselor, Klein Intermediate School
Chris Daniel, Assistant Secretary 1 1/2 Years 2012 Kellogg Brown & Root
David Vogt, Member 11 Years 2010 President, Vogt Engineering, Inc
Stephanie Marquard, Member 13 Years 2014 Owner, Kingwood Air Conditioning & Heating
Richard Campbell, Ph.D., Member 4 Years 2010 Retired Minister
Robert J. Adam, Member 3 Months 2014 Attorney
Robert Wolfe, Member 3 Months 2010 Attorney, CPA

APPOINTED OFFICIALS

Name Position Length of Service at System

Richard Carpenter, Ed.D. Chancellor 1 Year
Rand W. Key, J.D., M.B.A. Senior Vice Chancellor & Chief Operating Officer 8 Months
Cynthia Gilliam, CPA Vice Chancellor for Administration & Finance & Chief Financial Officer 7 1/2 Years
Ray Laughter, M.B.A. Vice Chancellor for External Affairs 20 1/2 Years
Penny Westerfeld President, Lone Star College Interim
Katherine Persson, Ph.D. President, Kingwood College 21 1/2 Years
Raymond Hawkins, Ph.D. President, Tomball College 9 1/2 Years
Open Position President, Montgomery College
Diane K. Troyer, Ph.D. President, Cy-Fair College 12 Years

CONSULTANTS AND ADVISORS

Bond Counsel ..............................................................................................................................................Vinson & Elkins L.L.P.

Houston, Texas

Auditors ....................................................................................................................................................McConnell & Jones, LLP

Houston, Texas

Financial Advisor........................................................................................................................ RBC Capital Markets Corporation

Dallas, Texas

-ix-
 OFFICIAL STATEMENT

RELATING TO

$149,780,000
LONE STAR COLLEGE SYSTEM
LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2008

INTRODUCTION

This Official Statement provides certain information regarding the issuance by the Lone Star College System (the
“System”) of its $149,780,000 Limited Tax General Obligation Bonds, Series 2008 (the “Bonds”). Capitalized
terms used in this Official Statement have the same meanings assigned to such terms in the order adopted by the
Board of Trustees of the System (the “Board”) which authorizes the issuance of the Bonds (the “Order”), except as
otherwise indicated herein.

There follows in this Official Statement descriptions of the Bonds and certain information regarding the System 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 System’s Financial
Advisor, RBC Capital Markets Corporation, Dallas, Texas.

All financial and other information presented in this Official Statement has been provided by the System from its
records, except for information expressly attributed to other sources. The presentation of information, including
tables of receipts from taxes and other sources, is intended to show recent historic information and is not intended to
indicate future or continuing trends in the financial position or other affairs of the System. No representation is
made that past experience, as is shown by that financial and other information, will necessarily continue or be
repeated in the future (see “FORWARD LOOKING STATEMENTS”).

This Official Statement speaks only as of the date and the information contained herein is subject to change. Copies
of the Official Statement will be deposited with the Municipal Securities Rulemaking Board, 1900 Duke Street,
Suite 600, Alexandria, Virginia 22314. See “CONTINUING DISCLOSURE OF INFORMATION” for a
description of the System’s undertaking to provide certain information on a continuing basis.

DESCRIPTION OF THE SYSTEM

The System is a junior college system and political subdivision of the State of Texas located in Harris and
Montgomery Counties, Texas. The System is governed by a nine-member Board of Trustees who serve staggered
six-year terms with elections being held in May of each even-numbered year. Policy-making and supervisory
functions are the responsibility of, and are vested in, the Board. The Board delegates administrative responsibilities
to the Chancellor who is the chief executive officer of the System (see “SYSTEM ADMINISTRATION”). The
System is approximately 1,462 square miles in area. (For more information regarding the System, see “Appendix A
– Information Regarding the System” and “Appendix B – General Information Regarding Harris County”).

THE BONDS

DESCRIPTION OF THE BONDS

The Bonds will be issued as Current Interest Bonds (the “CIBs). Interest on the CIBs will accrue from the dated
date and will be payable February 15 and August 15 of each year, commencing February 15, 2009, and will be
calculated on the basis of a 360 day year of twelve 30-day months. The CIBs will mature on the dates and in the
principal amounts set forth on the inside front cover page of this Official Statement. The Bonds will be issued only
in fully registered form. The CIBs will be issued in denominations of $5,000 of principal amount or in any integral
multiple of $5,000 within a maturity. The 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.

1
No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any,
maturity value accrued interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which
will make distribution of the amounts so paid to the beneficial owners of the Bonds. See “THE BONDS – BOOK-
ENTRY-ONLY SYSTEM” herein.

PURPOSE OF THE BONDS

The Bonds are being issued to construct and equip school buildings in the System, including instructional facilities,
academic support facilities, administrative support facilities, plant system replacements and technology
infrastructure, and the purchase of necessary sites therefore and to pay costs of issuing the Bonds. See “THE
BONDS – USE OF BOND PROCEEDS.”

AUTHORITY FOR ISSUANCE

The Bonds are issued pursuant to the Constitution and the laws of the State of Texas, including particularly Section
130.122, Texas Education Code, as amended, the Order and the Election.

SECURITY FOR BONDS

The Bonds are direct obligations of the System and are payable from a continuing direct annual ad valorem tax
levied by the System, within the limits prescribed by law, on all taxable property located within the System, as
provided in the Order. See “–TAX RATE LIMITATION” below.

TAX RATE LIMITATION

Pursuant to Chapter 130, Texas Education Code, as amended, and an election held within the System, the System is
authorized to levy annual ad valorem taxes for maintenance and operations at a rate not to exceed $0.30 per $100
assessed valuation of taxable property in the System and the annual ad valorem taxes for debt service purposes,
including payment of principal and interest on the Bonds, may not exceed $0.50 per $100 assessed valuation of
taxable property in the System. (Total tax rate is limited to $0.80 per $100.) Currently the System levies
maintenance taxes at $0.0809 per $100 valuation and $0.03350 per $100 assessed value for debt service.

OPTIONAL REDEMPTION

The Bonds maturing on or after August 15, 2019 are subject to optional redemption in whole or in part on August
15, 2018 or any date thereafter, at a price equal to the principal amount thereof, plus accrued interest to the date of
redemption. If less than all of the CIBs are to be redeemed, the System shall determine the amounts and maturities
thereof to be redeemed. Not less than 30 days prior to a redemption date for the CIBs, the System shall cause a
notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a CIB
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
IRRESPECTIVE OF WHETHER RECEIVED BY THE BONDHOLDER, AND, SUBJECT TO PROVISION FOR
PAYMENT OF THE REDEMPTION PRICE HAVING BEEN MADE, INTEREST ON THE REDEEMED
BONDS SHALL CEASE TO ACCRUE FROM AND AFTER SUCH REDEMPTION DATE
NOTHWITHSTANDING THAT A BOND HAS NOT BEEN PRESENTED FOR PAYMENT. If a CIB is subject
by its terms to redemption and has been called for redemption and notice of redemption thereof has been duly given,
such CIBs (or the principal amount thereof to be redeemed) so called for redemption shall become due and payable,
and on the redemption date designated in such notice, interest on said CIBs (or the principal amount thereof to be
redeemed) so called for redemption shall become due and payable and on the redemption date designated in such
notice, interest on said CIBs (or principal amount thereof to be redeemed) called for redemption shall cease to
accrue and such CIBs shall not be deemed to be Outstanding.

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MANDATORY SINKING FUND REDEMPTION

The Bonds maturing on August 15 in the years 2029, 2033 and 2038 (the “Term Bonds”) are subject to mandatory
redemption in part prior to maturity at a price of par plus accrued interest to the redemption date as follows:

Bonds Maturing August 15, 2029 Bonds Maturing August 15, 2033 Bonds Maturing August 15, 2038
Redemption Redemption Redemption
Date Amount Date Amount Date Amount
8/15/2028 $ 5,560,000 8/15/2030 $ 6,130,000 8/15/2034 $ 7,450,000
8/15/2029* 5,840,000 8/15/2031 6,435,000 8/15/2035 7,825,000
8/15/2032 6,760,000 8/15/2036 8,215,000
8/15/2033* 7,095,000 8/15/2037 8,625,000
8/15/2038* 9,055,000
*Maturity Date

The particular Term Bonds to be redeemed shall be chosen by the Paying Agent/Registrar (or DTC while the Bonds
are in Book-Entry-Only form) at random by lot or other customary method; provided, however, that the principal
amount of the Term Bonds required to be redeemed pursuant to the operation of the mandatory redemption
provisions shall be reduced, at the option of the District, by the principal amount of said Term Bonds which, at least
45 days prior to the mandatory redemption date, (1) shall have been acquired by the District and delivered to the
Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption
provisions and not theretofore credited against a mandatory redemption requirement.

DEFEASANCE OF BONDS

The System reserves the right to defease the Bonds in any manner now or hereafter permitted by law.

AMENDMENTS

The System may amend the Order without the consent of or notice to any registered owner in any manner not
detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal
defector omission therein. In addition, the System may with the written consent of the holders of a majority of
aggregate principal amount of the Bonds then outstanding affected thereby, amend, add to, or rescind any of the
provisions of the Order; except that, without the consent of the registered owners of the Bonds affected, no such
amendment, addition or rescission may (1) extend the time or times of payment of the principal of, premium, if any,
and interest on the Bonds, reduce the principal amount thereof, the redemption price, or the rate of interest thereon,
or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2)
give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of the Bonds
required to be held by holders for consent to any such amendment, addition, or rescission.

BOOK-ENTRY-ONLY SYSTEM

This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any,
and interest on the Bonds are to be paid to and credited by The Depository Trust Company (“DTC”), New York,
New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and
the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official
Statement. The System believes the source of such information to be reliable, but takes no responsibility for the
accuracy or completeness thereof.

The System cannot and does not give any assurance that (1) DTC will distribute payment of debt service on the
Bonds, or redemption or other notices to DTC Participants, (2) DTC Participants or others will distribute debt
service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices,
to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner
described in this Official Statement. The current rules applicable to DTC are on file with the Securities and

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Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on
file with DTC.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities in the
name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized
representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal
amount of such issue, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code,
and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and
municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct
Issues Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, the National
Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing
agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to
others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing
companies 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 and www.dtc.org.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a
credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial
Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive
written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written
confirmation providing details of the transaction, as well as periodic statements of their holdings from the Direct or
Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive physical certificates representing their
ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of
DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of
DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee,
do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the
Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,
which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for
keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the
Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the
Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial
Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of
notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within
an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.

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Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless
authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an
Omnibus Proxy to the System as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s
consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date
(identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, principal, and interest payments on the Bonds will be made to Cede & Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the System or the
Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and
will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the
System, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, 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 System or the Paying Agent/Registrar.
Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving
reasonable notice to the System or the Paying Agent/Registrar. Under such circumstances, in the event that a
successor depository is not obtained, Bond certificates are required to be printed and delivered. Discontinuance by
the District of use of the system of book-entry transfers through DTC may require compliance with DTC operational
arrangements.

The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor
securities depository). Discontinuance of the system of book-entry transfers by the District may require the consent
of Participants under DTC’s Operational Arrangements. In that event, Bond certificates will be printed and
delivered.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that
the District believes to be reliable, but neither the District, the Financial Advisor nor the Underwriters take
responsibility for the accuracy thereof.

Use of Certain Terms in Other Sections of this Official Statement.

In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System,
references in other sections of this Official Statement to registered owners should be read to include the person for
which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through
DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered
owners under the Order 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 System,
the Financial Advisor or the Underwriters.

PAYING AGENT/REGISTRAR

The initial Paying Agent/Registrar is Wells Fargo, N.A. In the Order, the System retains the right to replace the
Paying Agent/Registrar. The System covenants to maintain and provide a Paying Agent/Registrar at all times while
the Bonds are outstanding and any successor Paying Agent/Registrar shall be a commercial bank or trust company
organized under the laws of the United States or any State duly qualified and legally authorized to serve as and
perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying
Agent/Registrar for the Bonds, the System agrees to promptly cause a written notice thereof to be sent to each
registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the
address of the new Paying Agent/Registrar.

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TRANSFER, EXCHANGE AND REGISTRATION

In the event that the Book-Entry-Only System should be discontinued, printed certificates will be issued to the
holders, or owners of the Bonds and thereafter, the Bonds may be transferred and exchanged on the registration
books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar and
such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or
other governmental charges required to be paid with respect to such registration, exchange and transfer. A Bond
may be assigned by the execution of an assignment form on the Bond or by other instrument of transfer and
assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying
Agent/Registrar, in lieu of the Bond being transferred or exchanged, at the principal 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 Bonds issued in an exchange or transfer of Bonds 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
Bonds 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 Bonds registered and
delivered in an exchange or transfer shall be in any integral multiple of $5,000 of principal amount for the Bonds for
any one maturity and for a like aggregate principal as the Bond or Bonds surrendered for exchange or transfer. See
“THE BONDS-BOOK-ENTRY-ONLY SYSTEM” herein for a description of the System to be utilized initially in
regard to ownership and transferability of the Bonds.

RECORD DATE FOR INTEREST PAYMENT

The record date (“Record Date”) for the interest payable on any interest payment date means the close of business
on the last business day of the preceding month.

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 by or on behalf of the System. 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 Bond 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.

LIMITATION ON TRANSFER OF BONDS

Neither the System nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond during
the period beginning at the close of business on any Record Date and ending with the next interest payment date, or
with respect to any Bonds or portion thereof called for redemption prior to maturity, within 45 days prior to its
redemption date.

REPLACEMENT BONDS

If any Bond is mutilated, destroyed, stolen or lost, a new Bond in the same principal amount or Maturity Value, as
the case may be, as the Bond so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Bond,
such new Bond will be delivered only upon surrender and cancellation of such mutilated Bond. In the case of any
Bond issued in lieu of an substitution for a Bond which has been destroyed, stolen or lost, such new Bond will be
delivered only (a) upon filing with the System and the Paying Agent/Registrar a certificate to the effect that such
Bond has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the System and
the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and
delivery of a new Bond must pay such expenses as the Paying Agent/Registrar may incur in connection therewith.

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BONDHOLDERS’ REMEDIES

The Order does not provide for the appointment of a trustee to represent the interests of the Bond holders upon any
failure of the System to perform in accordance with the terms of the Order or upon any other condition and, in the
event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any
legal action to enforce performance of the Order. Furthermore, the Order does not establish specific events of
default with respect to the Bonds and, under State law, there is no right to the acceleration of maturity of the Bonds
upon the failure of the System to observe any covenant under the Order. A registered owner of Bonds could seek a
judgment against the System if a default occurred in the payment of principal of or interest on any such Bonds;
however, such judgment could not be satisfied by execution against any property of the System and a suit for
monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner’s only practical
remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the System to levy, assess
and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as it becomes due or
perform other material terms and covenants contained in the Order. In general, Texas courts have held that a writ of
mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the
performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and
issuance, the Bonds are valid and binding obligations for all purposes according to their terms. However, 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 System is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter
9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged
source of revenues, the pledge of 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 Bond holders
of an entity which has sought protection under Chapter 9. Therefore, should the System 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 Order
and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors, including rights
afforded to creditors under the Bankruptcy Code.

USE OF BOND PROCEEDS

Sources Of Funds
Par Amount of Bonds 149,780,000.00
Reoffering Premium 181,749.69
Accrued Interest 1,409,377.55

Total Sources 151,371,127.24

Uses Of Funds
Total Underwriter's Discount 748,849.36
Costs of Issuance 440,000.00
Deposit to Debt Service Fund 182,277.88
Deposit to Project Fund 150,000,000.00

Total Uses 151,371,127.24

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 TAX INFORMATION

AD VALOREM TAX LAW

The appraisal of property within the System is the responsibility of the Harris and Montgomery County Appraisal
Systems (the “Appraisal Systems”). Excluding agricultural and open-space land, which may be taxed on the basis of
productive capacity, the Appraisal System is required under the Property Tax Code to appraise all property within
the Appraisal System 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) 110% of the appraised value of the residence homestead for the preceding tax year plus the market value of all
new improvements to the property. The value placed upon property within the Appraisal System is subject to review
by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal
System. The Appraisal System is required to review the value of property within the Appraisal System at least every
three years. The System may require annual review at its own expense, and is entitled to challenge the determination
of appraised value of property within the System by petition filed with the Appraisal Review Board.

Reference is made to the Property Tax Code, for identification of property subject to taxation; property exempt or
which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and
the procedures and limitations applicable to the levy and collection of ad valorem taxes.

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 Section 1-b, Article VIII, 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.

State law and Section 2, Article VIII, 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.

Effective January 1, 2004, 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 person 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 repeated 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 Section 1-d and 1-d-1.

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Nonbusiness personal property, such as automobiles or light trucks, is 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.

Article VIII, section 1-n of the Texas Constitution provides for the exemption from taxation of “goods-in-transit.”
“Goods-in-transit” is defined by a provision of the Tax Code, which is effective for tax years 2008 and thereafter, as
personal property acquired or imported into Texas and transported to another location in the State or outside of the
State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil,
natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor,
heavy equipment and manufactured housing inventory. The Tax Code provision permits local governmental entities,
on a local option basis, to take official action by January 1 of the year preceding a tax year, after holding a public
hearing, to tax goods-in- transit during the following tax year. A taxpayer may receive only one of the freeport
exemptions or the goods-in-transit exemptions for items of personal property. The System does not grant the
Freeport exemption.

A city or county may create a tax increment financing district (“TIF”) within the city or county with defined
boundaries and establish a base value of taxable property in the TIF at the time of its creation. Overlapping taxing
units, including the System, may agree with the city or county to contribute all or part of future ad valorem taxes
levied and collected against the “incremental value” (taxable value in excess of the base value) of taxable real
property in the TIF to pay or finance the costs of certain public improvements in the TIF. Depending on the
System’s level of participation in a tax increment reinvestment zone, if any, the system’s ability to retain ad valorem
taxes collected on the increased assessed valuation of real property in the tax increment reinvestment zone in excess
of the tax increment base value established for the zone would be limited by the provisions of its participation in the
zone.

The System may also enter into tax abatement agreement to encourage economic development. Under the
agreements, a property owner agrees to construct certain improvements on its property. The System in tern agrees
not to levy a tax on all or pert 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

By each September 1 or as soon thereafter as practicable, the Board of Trustees adopts a tax rate per $100 taxable
value for the current year. 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 System must annually calculate and publicize its “effective tax rate” and “rollback
tax rate”. The Board of Trustees may not adopt a tax rate that exceeds the prior year’s levy until it has held two
public hearings on the proposed increase following notice to the taxpayers and otherwise complied with the Property
Tax Code. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the System 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.

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“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 System 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:

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 11% 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, a 15% attorney’s collection fee is added to the total tax penalty and interest charge.

Taxes levied by the System are a personal obligation of the owner of the property. On January 1 of each year, a tax
lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on
the property. The lien exists in favor of the State and each taxing unit, including the System, having the power to
tax the property. The System’s tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real
property has priority over the claim of most creditors and other holders of liens on the property encumbered by the
tax lien, whether or not the debt or lien existed before the attachment of the tax lien. Personal property under certain
circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty and interest. At any time
after taxes on property become delinquent, the System may file suit to foreclose the lien securing payment of the tax,
to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the System
must join other taxing units that have claims for delinquent taxes against all or part of the same property. The ability
of the System to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to
other taxing units, adverse market conditions, taxpayer redemption rights, or bankruptcy proceedings which restrain
the collection of a taxpayer’s debt. Federal bankruptcy law provides that an automatic stay of actions 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.

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Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem
taxes. For more particular tax information regarding the System, see “Appendix A –Information Regarding the
System.”

FINANCIAL INFORMATION

FINANCIAL POLICIES

The following description of financial and accounting policies is based on implementation of accounting standards
under Governmental Accounting Standards Board (“GASB”) Statement No. 34 and No. 35, and is applicable to
financial reports for fiscal year 2002 and thereafter (as reflected in Changes in Net Assets General Fund
Consolidated Statement Summary in Appendix E of the System’s 2004 Audit).

The significant accounting policies followed by the System in preparing financial statements are in accordance with
the Texas Higher Education Coordinating Board’s Annual Financial Reporting Requirements for Texas Public
Community and Junior Colleges. These requirements are in substantial conformity with the AICPA Industry Audit
Guide, Audits of Colleges and Universities, 1973 and as modified by applicable FASB pronouncements issued
through November 1989 and as modified by all applicable GASB pronouncements cited in Codification Section
Co5, “Colleges and Universities.” In June 1999, GASB issued Statement No. 34, “Basic Financial Statements - and
Management Discussion and Analysis - for State and Local Governments.” This was followed in November 1999
by GASB Statement No. 35, “Basic Financial Statements - and Management’s Discussion and Analysis - for Public
Colleges and Universities.” The financial statement presentation required by GASB No. 34 and No. 35 provides a
comprehensive, entity-wide perspective of the System’s assets, liabilities, net assets, revenues, expenses, changes in
net assets, cash flows, and replaces the fund-group perspective previously required. For financial statement
purposes, the System is considered a special-purpose government engaged only in business-type activities.
Accordingly, the financial statements of the System are presented using the economic measurement focus and the
accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned, and
expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been
eliminated. Encumbrance accounting, under which purchase order, contracts, and other commitments for
expenditures of funds are recorded in order to reserve that portion of the applicable appropriation, is employed as an
extension of formal budgetary integration in the financial statements. Under Texas law, appropriations lapse at
August 31, and encumbrances outstanding at that time are to be either canceled or appropriately provided for in the
subsequent year’s budget. Encumbrances outstanding at year-end that were provided for in the subsequent year’s
budget are reported as reservations of net assets since they do not constitute expenditures or liabilities.

NET ASSETS

The System’s net assets are classified as follows:

Investment in Capital Assets, Net of Related Debt. This represents the System’s total investment in
capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred
but not yet expended for capital assets, such amounts are not included as a component of investment in capital
assets, net of related debt.

Restricted Net Assets - Expendable. Restricted expendable net assets include resources in which
the System is legally or contractually obligated to spend resources in accordance with restrictions imposed by
external third parties.

Restricted Net Assets - Nonexpendable. Nonexpendable restricted net assets consist of endowment
and similar type funds in which donors or other outside sources have stipulated, as condition of the gift instrument,
that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present
and future income, which may either be expended or added to principal.

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 Unrestricted Net Assets. Unrestricted net assets represent resources derived from student tuition
and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These
resources are used for transactions relating to the educational and general operations of the System, and may be used
at the discretion of the governing board to meet the current expenses for any purpose. These resources also include
auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and
staff.

INVESTMENTS

The System accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and
Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on
the carrying values of investments are reported as a component of investment income in the statements of revenue,
expenses, and changes in net assets.

CLASSIFICATION OF REVENUES

The System has classified its revenues as either operating or non-operating revenues according to the following
criteria:

Operating Revenues: Operating revenues include activities that have the characteristics of exchange transactions,
such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary
enterprises, net of scholarship discounts and allowances, (3) most federal, state and local grants and contracts and
federal appropriations, and (4) interest on institutional student loans.

Nonoperating Revenues: Nonoperating revenues include activities that have the characteristics of nonexchange
transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues
under GASB No. 9, Reporting Cash Flows of Propriety and Nonexpendable Trust Funds and Governmental Entities
That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenue from students,
are reported net scholarship discounts and allowances in the statements of revenues, expenses, and changes in net
assets. Scholarship discounts and allowances are the difference between the stated charge for goods and services
provided by the System, and the amount that is paid by students and/or third parties making payments on the
students’ behalf. Certain governmental grants, such as Pell grants, and other federal, state or nongovernmental
programs, are recorded as either operating or nonoperating revenues in the System’s financial statements. To the
extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the System
has recorded a scholarship discount and allowance.

INVESTMENTS

The System invests its investable funds in investments authorized by Texas law in accordance with investment
policies approved by the Board of Trustees of the System. Both state law and the System’s investment policies are
subject to change.

INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE SYSTEM

Under Texas law, the System 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 or through an institution that either has
its main office or a branch in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or

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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 System 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
System, held in the System's name and deposited at the time the investment is made with the System or a third party
designated by the System; (iii) a loan made under the program is placed through either a primary government
securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend
securities has a term of one year or less, (10) certain bankers' acceptances with the remaining term of 270 days or
less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by
at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or
less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or
(b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit
issued by a U.S. or state bank, (12) no-load money market mutual funds registered with and regulated by the
Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and
include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (13) no-
load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity
of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as
to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its
equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined
termination date and are secured by obligations, including letters of credit, of the United States or its agencies and
instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than
the prohibited obligations described in the next succeeding paragraph.

The System 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 Aaa or an equivalent by at least one
nationally recognized rating service. The System may also contract with an investment management firm registered
under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to
provide for the investment and management of its public funds or other funds under its control for a term up to two
years, but the System retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a
contract, the System must do so by order, ordinance, or resolution. The System is specifically prohibited from
investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of
the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents
the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3)
collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized
mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a
market index.

Under Texas law, the System is required to invest its funds under written investment policies that primarily
emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality
and capability of investment management; and that include a list of authorized investments for System funds, the
maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted
maturity allowed for pooled fund groups. All System funds must be invested consistent with a formally adopted
"Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy
Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of
principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield.

Under Texas law, the System's investments must be made "with judgment and care, under prevailing circumstances,
that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs,
not for speculation, but for investment considering the probable safety of capital and the probable income to be
derived." At least quarterly the System's investment officers must submit an investment report to the Board of

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Trustees detailing: (1) the investment position of the System, (2) that all investment officers jointly prepared and
signed the report, (3) the beginning market value, and any additions and changes to market value and the ending
value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning
and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or
pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment
portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest System funds
without express written authority from the Board of Trustees.

ADDITIONAL PROVISIONS

Under Texas law, the System is additionally required to: (1) annually review its adopted policies and strategies, (2)
require any investment officers with personal business relationships or family relationships with firms seeking to sell
securities to the System to disclose the relationship and file a statement with the Texas Ethics Commission and the
System, (3) require the registered principal of firms seeking to sell securities to the System to: (a) receive and review
the System’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to
preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in
conjunction with its annual financial audit, perform a compliance audit of the management controls on investments
and adherence to the System’s investment policy, (5) restrict reverse repurchase agreements to not more than 90
days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse
repurchase agreement, (6) restrict the investment in nonmoney market mutual funds in the aggregate to no more than
15% of the System’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for
debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value,
yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the
chief financial officer (if not the Treasurer) and the investment officer.

CURRENT INVESTMENTS

See “APPENDIX A –Information Regarding the System - Current Investments” for information concerning the
composition of the System’s investment portfolio as of the date indicated therein.

EMPLOYEES RETIREMENT SYSTEM

The System employees are required by State law to participate in either the Teacher Retirement System of Texas or
an optional retirement program. In both systems the State of Texas sets contribution levels for employees and the
State. The System has no pension fund expenditures or liabilities, however, the System contributes funds on a
statutory basis on its employee’s behalf through the State or directly to carriers for matching Optional Retirement
Plan contributions.

For more information regarding the System’s retirement plan, see the System’s audited financial statements, notes to
the financial statements, Note 13.

TAX MATTERS

TAX EXEMPTION

In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on Bonds is excludable from gross income for
federal income tax purposes under existing law and (ii) the Bonds are not “private activity bonds” under 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 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 Bonds, 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

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periodically to the United States and a requirement that the issuer file an information report with the Internal
Revenue Service (the “Service”). The System has covenanted in the Order that it will comply with these
requirements.

Bond Counsel’s opinion will assume continuing compliance with the covenants of the Order pertaining to those
sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax
purposes and, in addition, will rely on representations by the System, the System’s Financial Advisor and the
Underwriters with respect to matters solely within the knowledge of the System, the System’s Financial Advisor and
the Underwriters, respectively, which Bond Counsel has not independently verified. If the System should fail to
comply with the covenants in the Order or if the foregoing representations or report should be determined to be
inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds,
regardless of the date on which the event causing such taxability occurs.

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 Bonds, is included in a corporation’s “adjusted current earnings,” ownership of the Bonds
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 Bonds.

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 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 Bonds. If an
audit is commenced, in accordance with its current published procedures, the Service is likely to treat the System as
the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit
of the Bonds could adversely affect the value and liquidity of the Bonds regardless of the ultimate outcome of the
audit.

ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS

COLLATERAL TAX CONSEQUENCES

Prospective purchasers 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 United States may be subject to the “branch profits tax” on their effectively
connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of
prospective purchasers should consult their own tax advisors as to the applicability of these consequences.
Prospective purchasers of the Bonds 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 Bonds, received or accrued during the year.

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TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMIUM

The issue price of all or a portion of the Bonds may exceed the stated redemption price payable at maturity of such
Bonds. Such Bonds (the "Premium Bonds") are considered for federal income tax purposes to have "bond
premium" equal to the amount of such excess. The basis of a Premium Bond in the hands of an initial owner is
reduced by the amount of such excess that is amortized during the period such initial owner holds such Premium
Bond 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 Bond 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 Bond that is amortizable each year (or shorter period in the event of a sale or disposition of
a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price
of such Bond.

The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of
Premium Bonds 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 Bonds 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 Bond 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 Bonds.

TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS

The issue price of all or a portion of the Bonds may be less than the stated redemption price payable at maturity of
such Bonds (the "Original Issue Discount Bonds"). In such case, the difference between (i) the amount payable at
the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original
Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the
hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the
Bonds. 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 Bond equal to that portion of the amount of such
original issue discount allocable to the period that such Original Issue Discount Bond 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 Bonds 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 Bond prior to stated
maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond
in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for
which such Original Issue Discount Bond was held by such initial owner) is includable in gross income.

The foregoing discussion assumes that (i) the Underwriters have purchased the Bonds for contemporaneous sale to
the public and (ii) all of the Original Issue Discount Bonds 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 System nor Bond Counsel has made any investigation or offers any comfort that the
Original Issue Discount Bonds will be offered and sold in accordance with such assumptions.

Under existing law, the original issue discount on each Original Issue Discount Bond accrues daily to the stated
maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the
semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the
accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of
determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition
thereof. The amount to be added to basis for each accrual period is equal to (i) 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

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the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual
period) less (ii) the amounts payable as current interest during such accrual period on such Bond.

The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of
Original Issue Discount Bonds 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 Original Issue Discount Bonds
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 Bonds and
with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or
other disposition of such Original Issue Discount Bonds.

CONTINUING DISCLOSURE OF INFORMATION

In the Order, the System has made the following agreement for the benefit of the holders and beneficial owners of
the Bonds. The System is required to observe the agreement for so long as it remains obligated to advance funds to
pay the Bonds. Under the agreement, the System 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 System 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 System of the general type included in this Official Statement in Appendix A and in Appendix D. The
System will update and provide this information within six months after the end of each fiscal year. The System
will provide the updated information to each nationally recognized municipal securities information repository
(“NRMSIR”) and to any state information depository (“SID”) that is designated by the State of Texas and approved
by the staff of the United States Securities and Exchange Commission (the “SEC”).

The System 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 System commissions an audit and it is completed by the required time. If audited financial
statements are not available by the required time, the System will provide unaudited financial statements until the
audit becomes available and audited financial statements when and if the audit report becomes available. Any such
financial statements will be prepared in accordance with the accounting principles described in Appendix D or such
other accounting principles as the System may be required to employ from time to time pursuant to state law or
regulation.

The System’s current fiscal year end is August 31. Accordingly, it must provide updated information by the last day
of February in each year, unless the System changes its fiscal year. If the System changes its fiscal year, it will
notify each NRMSIR and any SID of the change.

MATERIAL EVENT NOTICES

The System will also provide timely notices of certain events to certain information vendors. The System will
provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to
purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3)
unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit
enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to
perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights
of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing
repayment of the Bonds; and (11) rating changes. Neither the Bonds nor the Order make any provision for debt
service reserves, or liquidity enhancement. In addition, the System will provide timely notice of any failure by the
System to provide information, data, or financial statements in accordance with its agreement described above under

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“Annual Reports.” The System will provide each notice described in this paragraph to any SID and to either each
NRMSIR or the Municipal Securities Rulemaking Board (“MSRB”).

AVAILABILITY OF INFORMATION FROM NRMSIRS AND SIDS

The System has agreed to provide the foregoing information only to NRMSIRs and any SID. The information will
be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by
such information vendors or obtain the information through securities brokers who do so.

The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff
as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin,
Texas 78768-2177, and its telephone number is 512/476-6947.

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 filing. This central post office can be accessed and utilized
at www.DisclosureUSA.org (“DisclosureUSA”). The System may utilize DisclosureUSA for the filing of
information relating to the Bonds.

The MAC has also received SEC approval to operate, and has begun to operate as a “Central Post Office” for
information filings made by municipal issuers, such as the System. A municipal issuer may submit its information
filings with the central post office, which then transmits such information to NRMSIRs and the appropriate SID for
filing. This central post office can be accessed and utilized at www.DisclosureUSA.org (“Disclosure USA”). The
System may utilize Disclosure USA for the filing of information relating to the Bonds, unless the SEC has
withdrawn its interpretive advice stated in its letter to the MAC dated September 7, 2004.

LIMITATIONS AND AMENDMENTS

The System has agreed to update information and to provide notices of material events only as described above.
The System 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 System makes no representation or warranty concerning such information or
concerning its usefulness to a decision to invest in or sell Bonds at any future date. The System 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 Bonds may seek a writ of
mandamus to compel the System to comply with its agreement.

The System 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 System, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell
Bonds in the initial primary offering in compliance with SEC Rule 15c 2-12, taking into account any amendments or
interpretations of SEC Rule 15c 2-12 to the date of such amendment, as well as such changed circumstances, and (ii)
either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the
amendment or (b) any person unaffiliated with the System (such as nationally recognized bond counsel) determines
that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. If the
System 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

For the past five years, the System has complied in all material respects with its previous continuing disclosure
agreements made pursuant to SEC Rule 15c2-12.

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 OTHER INFORMATION

RATINGS

The Bonds are rated “Aa2” by Moody’s Investors Service, Inc. (“Moody’s”) and “AA+” by Standard & Poor’s
Ratings Services (“S&P”). The System also has other issues outstanding, which are rated “Aaa” by Moody’s and
“AAA” by S&P through insurance by various commercial insurance companies. 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 System 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 such rating company, if in the judgment of such company, 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 Bonds.

FINANCIAL GUARANTY INDUSTRY – RECENT EVENTS

Fitch, Moody’s Investors Service (“Moody’s”), and Standard and Poor’s (collectively referred to herein as the
“Rating Agencies”) have each released statements on the health of the financial guaranty industry that cite financial
guarantors’ exposure to subprime mortgage risk as an area of stress for the financial guaranty industry. In various
releases, the Ratings Agencies have each outlined the processes that they intend to follow in evaluating the effect of
this risk on their respective ratings of financial guarantors. For some financial guarantors, the result of such
evaluations has been a ratings downgrade. Potential investors are directed to the Rating Agencies for additional
information on their respective evaluations of the financial guaranty industry and individual financial guarantors,
including the Bond Insurer.

LITIGATION

The System is not a party to any litigation or other proceeding pending or to its knowledge, threatened, in any court,
agency or other administrative body (either state or federal) contesting or attacking the Bonds; restraining or
enjoining the issuance, execution or delivery of the Bonds; affecting the provisions made for the payment of or
security for the Bonds; in any manner questioning the authority or proceedings for the issuance, execution or
delivery of the Bonds; affecting the validity of the Bonds, or which, if decided adversely to the System, would have
a material adverse effect on the financial condition or operations of the System.

REGISTRATION AND QUALIFICATION OF BONDS FOR SALE

The sale of the 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 Bonds have not been qualified under the Securities
Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the
securities acts of any jurisdiction. The System assumes no responsibility for qualification of the Bonds under the
securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise
transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be
construed as an interpretation of any kind with regard to the availability of any exemption from securities
registration 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, as amended)
provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code,
and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds
of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment
in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public
Funds Investment Act, Chapter 2256, Texas Government Code, as amended, requires that the Bonds be assigned a
rating of “A” or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION -

-19-
Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor
standard, the Bonds are legal investments for state banks, savings banks, trust companies with capital of one million
dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of
the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their
market value. No review by the System has been made of the laws in other states to determine whether the Bonds
are legal investments for various institutions in those states.

LEGAL MATTERS

The System will furnish a complete transcript of proceedings had incident to the authorization and issuance of the
Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the initial
Bond and to the effect that the Bonds are valid and legally binding obligations of the System, and based upon
examination of such transcript of proceedings, the approving opinion of Vinson & Elkins L.L.P., Bond Counsel, to
like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal tax
purposes under existing law and the Bonds are not private activity bonds, a copy of the proposed form of which is
attached hereto as Appendix C. Bond Counsel was not requested to participate, and did not take part, in the
preparation of Official Statement, and such firm has not assumed any responsibility with respect hereto or
undertaken independently to verify any of the information contained herein.

Bond Counsel has reviewed the statements and information contained in the Official Statement under the captions
and sub-captions “THE BONDS” (except for the information under the sub-captions “Book-Entry-Only System,”
and “Use of Bond Proceeds,” as to which no opinion is expressed) and “CONTINUING DISCLOSURE OF
INFORMATION” (except for the information under the sub-caption “Compliance With Prior Undertakings,” as to
which no opinion is expressed), and Bond Counsel is of the opinion that the statements and information contained
therein fairly and accurately reflect the provisions of the Bond Order; further, Bond Counsel has reviewed the
statements and information contained in the Official Statement under the captions and sub-captions “TAX
MATTERS,” “ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS,” “OTHER INFORMATION –
Legal Matters,” “OTHER INFORMATION – Registration and Qualification of Bonds for Sale” and “OTHER
INFORMATION – Legal Investments and Eligibility to Secure Public Funds in Texas” and Bond Counsel is of the
opinion that the statements and information contained therein are correct as to matters of law.

VALIDATION

The System filed a bond validation suit on May 28, 2008 under the Public Securities Declaratory Judgment Act,
Chapter 1205, Texas Government Code (the “PSDJA”). On June 16, 2008, the District Court of Travis County,
Texas found for the System and held that the Bonds and the Bond Election were valid under Texas law. Under the
PSDJA, there are no further rights to appeal and the judgment is final.

The District filed a bond validation suit on May 28 , 2008 under the Public Securities Declaratory Judgment Act,
Chapter 1205, Texas Government Code (the “PSDJA”). On June 16 , 2008, the District Court of Travis County,
Texas found for the District and held that the Bonds and the Bond Election were valid under Texas law. Under the
PSDJA, the judgment is final and non-appealable.

On June 16, 2008, a plaintiff filed suit challenging the bond election. However, on July 22, 2008, the plaintiff filed
a nonsuit against the District on all claims against the District. The nonsuit was effective on filing.

AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION

The financial data and other information contained herein have been obtained from the System’s records, audited
financial statements and other sources which are believed to be reliable. There is no guarantee that any of the
assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents, orders
and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes,
documents, orders and resolutions. These summaries do not purport to be complete statements of such provisions

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and reference is made to such documents for further information. Reference is made to original documents in all
respects.

FINANCIAL ADVISOR

RBC Capital Markets Corporation is employed as Financial Advisor to the System in connection with the issuance
of the Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Bonds is contingent
upon the issuance and delivery of the Bonds. RBC Capital Markets Corporation, in its capacity as Financial Advisor
has not verified and does not assume any responsibility for the information, covenants and representations contained
in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of
any present, pending or future actions taken by any legislative or judicial bodies.

UNDERWRITING

The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the System at an
underwriting discount of $748,849.36. The Underwriters will be obligated to purchase all of the Bonds if any Bonds
are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including
underwriters and dealers depositing bonds into investment trusts) at prices lower than the public offering prices of
such Bonds, and such prices may be changed, from time to time, by the Underwriters.

FORWARD-LOOKING STATEMENTS DISCLAIMER

The statements contained in this Official Statement, and in any other information provided by the System, that are
not purely historical, are forward-looking statements, including statements regarding the System's expectations,
hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking
statements. All forward-looking statements included in this Official Statement are based on information available to
the System on the date hereof, and the System assumes no obligation to update any such forward-looking
statements. The System's 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
System. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-
looking statements included in this Official Statement will prove to be accurate.

MISCELLANEOUS

The Order authorizing the issuance of the Bonds approved the form and content of this Official Statement, and any
addenda, supplement or amendment thereto, and authorizes its further use in the reoffering of the Bonds by the
Underwriters.

/s/ Randy Bates, J.D.

Chair, Board of Trustees
Lone Star College System
ATTEST:

/s/ Priscilla Kelly

Secretary, Board of Trustees
Lone Star College System

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Lone Star College System

APPENDIX A
Information Regarding the System

Page 1 of 24
 Lone Star College System

Appendix A Tables
THE PROPERTY TAX CODE AS APPLIED TO THE SYSTEM

The Harris County Appraisal District and Montgomery County Appraisal District ("Appraisal District") has the responsibility for appraising property in
the District as well as other taxing units in the area. The Appraisal District is governed by a board of directors appointed by voters of the governing
bodies of various applicable political subdivisions.

The System's taxes are collected by the Harris County and Montgomery County Tax Assessor-Collector.

The System grants an exemption of $5,000 or 1% of the market value of residence homesteads, whichever is greater.

The System grants an exemption to the residence homestead of persons 65 years of age or older and disabled persons of $75,000.

The System grants a residence homestead exemption for disabled veterans of $75,000.

The System has not granted an Optional Percentage homestead exemption.

Ad valorem taxes are not levied by the System against the exempt value of residence homesteads for the payment of debt.

The System does not tax nonbusiness personal property.

The System does not permit split payments and discounts are not allowed.

The System has not granted the freeport property tax exemption.

The System has not granted the goods-in-transit tax exemption

The System has not entered into tax abatement agreements.

Page 2 of 24
Lone Star College System

Appendix A Tables
Table A-1 - VALUATION, EXEMPTIONS, AND TAX SUPPORTED DEBT

FY 2008 Total Appraised Value (Excludes Fully Exempt Property) $ 108,313,824,627

Less Exemptions/Reductions:
General Homestead $ 1,682,535,286
Over 65 or Disabled 4,109,573,099
Veterans 40,991,210
Polution Control 97,819,690
Deferred Taxes 7,298,252
Total Exemptions $ 5,938,217,537

FY 2008 Net Taxable Assessed Valuation $ 102,375,607,090

System Funded Debt Payable from Ad Valorem Taxes as of 8/31/2008

General Obligation Bonds $ 149,040,000
The Bonds 149,780,000

$ 298,820,000

Interest & Sinking Fund Balance as of 8/31/2007 $ 3,336,716

Net Debt $ 295,483,284

Ratio Net Funded Debt to Taxable Assessed Valuation 0.289%

(1)
2008 Estimated System Population 1,500,000
2008 Estimated System Population Per TAV $68,250
2008 Estimated System Population Per Capita $199

_______________________
(1) Source: The System

Page 3 of 24
 Lone Star College System

Appendix A Tables
Table A-2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY

FY 2008 FY 2007 FY 2006

% of % of % of
Amount Total Amount Total Amount Total
Real, Residential, Single-Family $ 69,933,117,103 64.6% $ 60,999,270,204 65.4% $ 53,401,597,796 66.1%
Real, Residential, Multi-Family - 0.0% - 0.0% - 0.0%
Real, Vacant Lots/Tracts 2,275,722,718 2.1% 941,252,662 1.0% 762,325,743 0.9%
Real, Acreage (Land Only) - 0.0% - 0.0% - 0.0%
Real, Farm and Ranch Improvements - 0.0% - 0.0% - 0.0%
Real, Commercial 17,429,924,767 16.1% 16,908,198,433 18.1% 13,855,446,181 17.2%
Real, Industrial - 0.0% - 0.0% - 0.0%
Real, Oil, Gas and Other Mineral Reserves 189,289,151 0.2% 205,177,002 0.2% 103,311,247 0.1%
Real & Tangible Personal, Utilities 1,709,724,305 1.6% 1,290,681,790 1.4% 191,720,084 0.2%
Tangible Personal, Commercial 15,829,281,117 14.6% 12,487,021,496 13.4% 12,109,668,837 15.0%
Tangible Personal, Industrial - 0.0% - 0.0% - 0.0%
Other Personal, - 0.0% - 0.0% - 0.0%
Real Property, Inventory 946,765,466 0.9% 465,019,204 0.5% 339,941,318 0.4%
Special Inventory - 0.0% - 0.0% - 0.0%
Total Appraised Value $ 108,313,824,627 100.0% $ 93,296,620,791 100.0% $ 80,764,011,206 100.0%
Less: Exemptions/Reductions 5,938,217,537 5,621,919,727 4,794,605,545
Net Taxable Assessed Value $ 102,375,607,090 $ 87,674,701,064 $ 75,969,405,661

FY 2005 FY 2004 FY 2003

% of % of % of
Amount Total Amount Total Amount Total
Real, Residential, Single-Family $ 53,170,225,624 64.4% $ 48,174,865,057 63.5% $ 45,247,714,167 66.6%
Real, Residential, Multi-Family - 0.0% - 0.0% - 0.0%
Real, Vacant Lots/Tracts 1,122,228,843 1.4% 1,096,814,090 1.4% 122,976,392 0.2%
Real, Acreage (Land Only) - 0.0% - 0.0% - 0.0%
Real, Farm and Ranch Improvements - 0.0% - 0.0% - 0.0%
Real, Commercial 14,603,443,083 17.7% 14,133,148,037 18.6% 10,956,692,561 16.1%
Real, Industrial - 0.0% - 0.0% - 0.0%
Real, Oil, Gas and Other Mineral Reserves 140,423,033 0.2% 126,774,470 0.2% 223,362,730 0.3%
Real & Tangible Personal, Utilities 1,265,094,540 1.5% 1,151,939,820 1.5% 1,822,058,840 2.7%
Tangible Personal, Commercial 11,812,104,762 14.3% 10,838,633,373 14.3% 9,227,027,746 13.6%
Tangible Personal, Industrial - 0.0% - 0.0% - 0.0%
Other Personal, - 0.0% - 0.0% - 0.0%
Real Property, Inventory 487,957,830 0.6% 371,783,750 0.5% 302,099,272 0.4%
Special Inventory - 0.0% - 0.0% - 0.0%
Total Appraised Value $ 82,601,477,715 100.0% $ 75,893,958,597 100.0% $ 67,901,931,708 100.0%
Less: Exemptions/Reductions 7,311,588,465 6,295,666,029 4,063,295,691
Net Taxable Assessed Value $ 75,289,889,250 $ 69,598,292,568 $ 63,838,636,017
_______________________
Source: County Appraisal District

Page 4 of 24
 Lone Star College System

Appendix A Tables
Table A-3 – VALUATION AND FUNDED DEBT HISTORY
Ratio of Tax
Tax Supported Per Tax
Fiscal Supported Debt to Capita Supported
Year Taxable Debt Taxable Estimated Taxable Debt
Ended Assessed Change From Prior Year Outstanding at Assessed System Assessed Per
8/31 Valuation Amount Percent FYE Valuation Population Valuation Capita
1998 $ 20,877,459,329 $ 77,583,759 0.372% 656,111 $ 31,820 $ 118
1999 23,655,850,537 2,778,391,208 13.308% 103,806,436 0.439% 673,774 35,109 154
2000 29,318,674,811 5,662,824,274 23.938% 103,198,089 0.352% 844,839 34,703 122
2001 31,297,100,802 1,978,425,991 6.748% 145,613,731 0.465% 867,582 36,074 168
2002 58,509,951,482 27,212,850,680 86.950% 232,747,123 0.398% 1,298,518 45,059 179
2003 63,838,636,037 5,328,684,555 9.107% 231,339,997 0.362% 1,333,474 47,874 173
2004 69,598,292,568 5,759,656,531 9.022% 234,403,656 0.337% 1,369,371 50,825 171
2005 75,289,889,250 5,691,596,682 8.178% 213,294,083 0.283% 1,406,234 53,540 152
2006 75,969,405,661 679,516,411 0.903% 190,336,613 0.251% 1,440,000 52,757 132
2007 87,674,701,064 11,705,295,403 15.408% 173,001,413 0.197% 1,480,000 59,240 117
2008 102,375,607,090 14,700,906,026 16.768% 298,820,000 (1) 0.292% 1,500,000 68,250 199

_______________________
Source: The System & County Appraisal District
(1) Includes the Bonds.

Page 5 of 24
Lone Star College System

Appendix A Tables
Table A-4 - TAX RATE, LEVY AND COLLECTION HISTORY

Distribution
Fiscal Year Local Interest & Current Total
Ended 8/31 Tax Rate Maintenance Sinking Fund Tax Levy(1)(2) Collections Collections
1998 $ 0.11980 $ 0.06800 $ 0.05180 $ 26,544,907 97.5% 101.3%
1999 0.11980 0.08070 0.03910 28,539,979 97.3% 101.5%
2000 0.11740 0.07770 0.03970 36,343,512 97.0% 101.1%
2001 0.11000 0.07500 0.03500 38,098,610 96.3% 100.0%
2002 0.11000 0.07600 0.03400 64,360,946 95.6% 100.0%
2003 0.10550 0.07420 0.03130 67,349,761 97.2% 100.0%
2004 0.11450 0.07980 0.03470 79,690,045 97.0% 102.0%
2005 0.11450 0.07980 0.03470 85,862,441 97.0% 100.0%
2006 0.12070 0.08600 0.03470 91,695,013 96.7% 100.0%
2007 0.11670 0.08200 0.03470 102,316,376 96.6% 102.2%
2008 0.11440 0.08090 0.03350 - In Process of Collection

(1) Excludes Penalty & Interest.

(2) Based on taxable value as of January 1.

Page 6 of 24
Lone Star College System

Appendix A Tables
Table A-5 - TEN LARGEST TAXPAYERS
FYE 06/07
Percent of Total
Taxable Assessed Taxable Assessed
Name of Taxpayer Nature of Property Valuation Valuation
Hewlett Packard Manufacturing $ 717,813,000 0.8%
Centerpoint Energy Inc Utility 669,281,000 0.8%
Houston Pipeline Co LP Utility 525,621,000 0.6%
Walmart Retail 272,154,000 0.3%
Southwestern Bell Utility 254,770,000 0.3%
Hines Interests Ltd Psp Real Estate 226,654,000 0.3%
Wal-Mart Real Estate Bus. Trust Real Estate 220,261,000 0.3%
Continental Airlines Inc Airline 190,101,000 0.2%
Exxon Mobil Corp Oil and Gas 174,024,000 0.2%
HEB Grocery Co LP Retail Grocery 158,170,000 0.2%
FYE 06/07 $ 3,408,849,000 3.9%

FYE 06/07 $87,674,701,064

____________________________
Source: The System

Page 7 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Lone Star College System $ 149,040,000 7/9/2008 100 $149,040,000
Aldine ISD 281,090,577 2/28/2007 100 $281,090,577
Barker-Cypress MUD 16,041,261 4/1/2007 100 16,041,261
Bilma PUD 13,821,173 5/31/2007 100 13,821,173
Charterwood MUD 12,245,426 9/26/2007 100 12,245,426
Chimney Hill MUD 14,674,759 9/30/2007 100 14,674,759
Clay Road MUD 8,273,152 7/31/2007 100 8,273,152
Clovercreek MUD 1,542,465 8/31/2007 100 1,542,465
CNP UD 15,305,000 * 4/30/2008 100 15,305,000
Conroe ISD 689,596,942 * 4/30/2008 100 689,596,942
Conroe, City of 45,466,673 6/30/2007 100 45,466,673
Cy-Champ PUD 14,805,000 * 4/30/2008 100 14,805,000
Cypress Creek UD 1,290,763 9/30/2006 100 1,290,763
Cypress Forest PUD 6,330,000 * 4/30/2008 100 6,330,000
Cypress Hill MUD # 1 33,544,624 8/17/2007 100 33,544,624
Cypress-Fairbanks ISD 1,354,885,993 8/31/2007 100 1,354,885,993
Cypress-Klein UD 3,973,266 12/31/2006 100 3,973,266
Dowdell PUD 15,573,398 9/30/2007 100 15,573,398
E. Montgomery Co MUD #3 5,645,000 * 4/30/2008 100 5,645,000
East Plantation UD 3,763,950 12/31/2006 100 3,763,950
El Dorado UD 3,296,667 9/30/2007 100 3,296,667
Emerald Forest UD 11,065,000 * 4/30/2008 100 11,065,000
Encanto Real UD 3,757,569 6/30/2006 100 3,757,569
Fallbrook UD 3,370,000 * 4/30/2008 100 3,370,000
Far Hills UD 2,705,000 * 4/30/2008 100 2,705,000
Faulkey Gully MUD 15,775,124 3/31/2007 100 15,775,124
Forest Hills MUD 3,217,116 2/28/2007 100 3,217,116
Fountainhead MUD 5,850,000 * 4/30/2008 100 5,850,000
Grant Road PUD 7,131,570 7/31/2006 100 7,131,570
Greens Parkway MUD 4,047,490 4/30/2007 100 4,047,490
Harris Co 2,000,191,354 2/28/2007 32.85 657,062,860
Harris Co Flood Control 100,023,775 2/28/2007 32.85 32,857,810
Harris Co FWSD #61 27,647,333 5/1/2007 100 27,647,333
Harris Co MUD # 1 24,420,706 9/30/2007 100 24,420,706
Harris Co MUD # 5 15,417,638 12/31/2006 100 15,417,638
Harris Co MUD # 11 3,590,000 * 4/30/2008 100 3,590,000
Harris Co MUD # 16 8,545,000 * 4/30/2008 100 8,545,000
Harris Co MUD # 18 550,000 * 4/30/2008 100 550,000
Harris Co MUD # 24 16,230,144 12/31/2006 100 16,230,144
Harris Co MUD # 26 27,910,107 4/30/2007 100 27,910,107
Harris Co MUD # 33 1,580,000 * 4/30/2008 100 1,580,000
Harris Co MUD # 43 4,331,615 12/31/2006 100 4,331,615
Harris Co MUD # 44 2,619,248 7/31/2007 100 2,619,248
Harris Co MUD # 46 5,565,000 * 4/30/2008 100 5,565,000
Harris Co MUD # 49 9,612,288 6/30/2007 100 9,612,288
Harris Co MUD # 58 1,867,486 9/30/2006 100 1,867,486
Harris Co MUD # 70 10,407,543 1/25/2007 100 10,407,543
Harris Co MUD # 82 24,561,140 2/29/2008 100 24,561,140

Page 8 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Harris Co MUD # 86 9,647,517 9/30/2006 100 9,647,517
Harris Co MUD # 96 26,868,217 10/3/2007 100 26,868,217
Harris Co MUD #102 5,620,000 * 4/30/2008 100 5,620,000
Harris Co MUD #105 19,444,323 9/30/2007 99.99 19,442,379
Harris Co MUD #106 25,214,251 9/30/2007 100 25,214,251
Harris Co MUD #109 17,678,347 5/31/2007 100 17,678,347
Harris Co MUD #118 9,386,920 9/18/2007 100 9,386,920
Harris Co MUD #119 4,030,945 12/6/2007 100 4,030,945
Harris Co MUD #127 8,239,449 6/6/2007 100 8,239,449
Harris Co MUD #130 12,837,513 9/30/2006 100 12,837,513
Harris Co MUD #132 8,723,628 5/31/2007 100 8,723,628
Harris Co MUD #136 535,000 * 4/30/2008 100 535,000
Harris Co MUD #144 4,574,937 9/30/2007 100 4,574,937
Harris Co MUD #149 3,161,278 4/1/2007 100 3,161,278
Harris Co MUD #150 16,225,000 * 4/30/2008 100 16,225,000
Harris Co MUD #151 16,755,928 9/30/2007 100 16,755,928
Harris Co MUD #152 15,668,822 9/30/2007 100 15,668,822
Harris Co MUD #153 20,938,442 3/31/2007 100 20,938,442
Harris Co MUD #154 17,099,234 10/31/2007 100 17,099,234
Harris Co MUD #155 6,601,120 8/31/2006 100 6,601,120
Harris Co MUD #157 37,492,277 4/24/2007 100 37,492,277
Harris Co MUD #162 3,010,000 * 4/30/2008 100 3,010,000
Harris Co MUD #163 100,789 * 4/30/2008 100 100,789
Harris Co MUD #165 29,247,382 9/30/2007 100 29,247,382
Harris Co MUD #166 7,334,995 9/30/2006 100 7,334,995
Harris Co MUD #167 15,560,931 10/17/2007 100 15,560,931
Harris Co MUD #168 7,175,000 * 4/30/2008 100 7,175,000
Harris Co MUD #170 2,800,000 * 4/30/2008 100 2,800,000
Harris Co MUD #172 17,625,457 11/5/2007 100 17,625,457
Harris Co MUD #173 15,347,547 2/28/2007 100 15,347,547
Harris Co MUD #180 8,182,074 12/14/2007 100 8,182,074
Harris Co MUD #182 3,300,088 12/31/2006 100 3,300,088
Harris Co MUD #183 2,391,788 6/30/2007 100 2,391,788
Harris Co MUD #185 1,685,000 * 4/30/2008 100 1,685,000
Harris Co MUD #186 6,030,000 * 4/30/2008 100 6,030,000
Harris Co MUD #188 6,995,000 * 4/30/2008 100 6,995,000
Harris Co MUD #189 219,959 6/30/2006 100 219,959
Harris Co MUD #191 7,208,564 9/30/2006 100 7,208,564
Harris Co MUD #196 23,026,177 10/17/2007 100 23,026,177
Harris Co MUD #200 3,429,146 5/31/2007 100 3,429,146
Harris Co MUD #202 1,625,000 * 4/30/2008 100 1,625,000
Harris Co MUD #205 1,498,669 2/28/2007 100 1,498,669
Harris Co MUD #208 6,075,391 2/28/2007 100 6,075,391
Harris Co MUD #211 2,952,450 9/30/2007 100 2,952,450
Harris Co MUD #215 1,620,000 * 4/30/2008 100 1,620,000
Harris Co MUD #217 8,010,942 9/30/2006 100 8,010,942
Harris Co MUD #220 5,605,435 2/28/2008 100 5,605,435
Harris Co MUD #221 8,108,132 10/10/2006 100 8,108,132

Page 9 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Harris Co MUD #222 8,480,000 * 4/30/2008 100 8,480,000
Harris Co MUD #230 11,694,785 6/30/2007 100 11,694,785
Harris Co MUD #233 6,830,000 * 4/30/2008 100 6,830,000
Harris Co MUD #239 14,333,829 9/30/2007 100 14,333,829
Harris Co MUD #248 16,010,250 7/11/2007 100 16,010,250
Harris Co MUD #249 18,866,255 12/31/2006 100 18,866,255
Harris Co MUD #250 2,973,009 8/31/2007 100 2,973,009
Harris Co MUD #255 3,275,000 * 4/30/2008 100 3,275,000
Harris Co MUD #257 5,446,097 8/31/2006 100 5,446,097
Harris Co MUD #261 2,992,954 4/30/2007 100 2,992,954
Harris Co MUD #264 4,535,000 * 4/30/2008 100 4,535,000
Harris Co MUD #275 3,090,000 * 4/30/2008 100 3,090,000
Harris Co MUD #276 16,060,533 9/1/2007 100 16,060,533
Harris Co MUD #278 28,782,965 2/14/2008 100 28,782,965
Harris Co MUD #280 11,121,760 9/30/2006 100 11,121,760
Harris Co MUD #281 14,330,667 10/1/2007 100 14,330,667
Harris Co MUD #284 15,162,918 9/1/2007 100 15,162,918
Harris Co MUD #286 1,460,000 * 4/30/2008 100 1,460,000
Harris Co MUD #290 21,538,524 10/24/2007 100 21,538,524
Harris Co MUD #304 11,892,039 2/19/2008 100 11,892,039
Harris Co MUD #321 7,777,855 11/6/2006 100 7,777,855
Harris Co MUD #322 10,612,549 12/31/2006 100 10,612,549
Harris Co MUD #341 8,330,095 8/31/2007 100 8,330,095
Harris Co MUD #342 10,729,944 1/31/2007 100 10,729,944
Harris Co MUD #354 28,075,451 4/16/2007 100 28,075,451
Harris Co MUD #360 13,240,718 6/6/2007 100 13,240,718
Harris Co MUD #361 12,474,101 11/9/2007 100 12,474,101
Harris Co MUD #364 20,265,367 8/31/2007 100 20,265,367
Harris Co MUD #365 15,072,702 9/1/2007 100 15,072,702
Harris Co MUD #366 1,249,961 6/30/2007 100 1,249,961
Harris Co MUD #368 43,481,362 10/18/2007 100 43,481,362
Harris Co MUD #370 24,588,884 8/31/2007 100 24,588,884
Harris Co MUD #371 12,272,340 9/1/2007 100 12,272,340
Harris Co MUD #374 12,602,613 9/13/2007 100 12,602,613
Harris Co MUD #383 15,830,518 9/30/2007 100 15,830,518
Harris Co MUD #389 4,834,800 11/30/2006 100 4,834,800
Harris Co MUD #391 19,836,403 8/23/2007 100 19,836,403
Harris Co MUD #396 6,179,615 6/13/2007 100 6,179,615
Harris Co MUD #397 13,033,667 7/17/2007 100 13,033,667
Harris Co MUD #399 2,300,000 * 4/30/2008 100 2,300,000
Harris Co MUD #400 21,840,408 9/26/2007 100 21,840,408
Harris Co MUD # 412 6,000,000 * 4/30/2008 100 6,000,000
Harris Co Toll Road 0 2/28/2007 32.85 0
Harris Co UD # 14 0 3/31/2007 100 0
Harris Co UD # 15 1,870,000 * 4/30/2008 100 1,870,000
Harris Co UD # 16 11,606,247 2/8/2008 100 11,606,247
Harris Co WC&ID # 91 1,315,000 * 4/30/2008 100 1,315,000
Harris Co WC&ID # 92 310,000 * 4/30/2008 100 310,000

Page 10 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Harris Co WC&ID # 96 40,802,423 12/4/2007 100 40,802,423
Harris Co WC&ID #109 4,749,315 12/31/2006 100 4,749,315
Harris Co WC&ID #110 17,753,656 7/31/2007 100 17,753,656
Harris Co WC&ID #119 27,865,791 10/18/2007 100 27,865,791
Harris Co WC&ID #145 100,000 * 4/30/2008 100 100,000
Harris Co WC&ID #155 13,745,955 12/31/2006 100 13,745,955
Harris Co WC&ID #157 6,950,000 * 4/30/2008 100 6,950,000
Heatherloch MUD 2,100,000 * 4/30/2008 100 2,100,000
Horsepen Bayou MUD 14,395,000 * 4/30/2008 100 14,395,000
Houston, City of 1,905,320,758 6/30/2007 9.35 178,147,491
Humble ISD 587,294,049 9/30/2007 100 587,294,049
Humble, City of 1,067,176 9/30/2006 100 1,067,176
Hunter's Glen MUD 17,679,591 6/30/2007 100 17,679,591
Inverness Forest ID 528,746 12/31/2006 100 528,746
Jackrabbit Road PUD 2,266,615 7/31/2007 71.97 1,631,283
Jersey Village, City of 22,996,846 5/31/2007 100 22,996,846
Kings Manor MUD 16,011,055 12/31/2006 100 16,011,055
Klein ISD 360,960,870 8/31/2007 100 360,960,870
Klein PUD 865,000 * 4/30/2008 100 865,000
Kleinwood MUD 15,579,686 8/31/2007 100 15,579,686
Langham Creek UD 14,404,585 8/31/2007 100 14,404,585
Lazy River Improvement Dist 1,075,000 * 4/30/2008 100 1,075,000
Louetta North PUD 10,930,000 * 4/30/2008 100 10,930,000
Louetta Road UD 1,620,000 * 4/30/2008 100 1,620,000
Magnolia ISD 178,694,003 8/31/2007 100 178,694,003
Magnolia, City of 2,250,000 * 4/30/2008 100 2,250,000
Malcomson Road UD 18,275,768 6/1/2007 100 18,275,768
Meadowhill Reg MUD 21,940,794 2/18/2008 100 21,940,794
Mills Road MUD 11,432,669 11/21/2006 100 11,432,669
Montgomery Co 285,898,739 * 4/30/2008 88.32 252,505,766
Montgomery Co DD # 6 1,839,990 * 4/30/2008 100 1,839,990
Montgomery Co DD # 10 6,363,523 12/31/2006 100 6,363,523
Montgomery Co MUD # 7 9,005,000 * 4/30/2008 100 9,005,000
Montgomery Co MUD # 15 3,536,588 12/1/2007 100 3,536,588
Montgomery Co MUD # 24 375,000 * 4/30/2008 100 375,000
Montgomery Co MUD # 39 17,589,707 9/30/2007 100 17,589,707
Montgomery Co MUD # 40 4,630,000 * 4/30/2008 100 4,630,000
Montgomery Co MUD # 42 1,750,000 * 4/30/2008 100 1,750,000
Montgomery Co MUD # 46 101,266,498 9/30/2007 100 101,266,498
Montgomery Co MUD # 47 37,905,486 12/31/2007 100 37,905,486
Montgomery Co MUD # 56 2,468,828 9/30/2006 100 2,468,828
Montgomery Co MUD # 60 25,901,244 9/30/2007 100 25,901,244
Montgomery Co MUD # 67 19,198,260 9/30/2007 100 19,198,260
Montgomery Co MUD # 83 15,147,669 7/19/2007 100 15,147,669
Montgomery Co MUD # 89 18,975,007 9/1/2007 100 18,975,007
Montgomery Co MUD # 94 19,708,436 11/2/2007 100 19,708,436
Montgomery Co MUD # 98 2,803,424 2/28/2007 100 2,803,424
Montgomery WC&ID # 1 3,750,000 * 4/30/2008 100 3,750,000

Page 11 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Mount Houston Road MUD 3,481,510 3/31/2007 100 3,481,510
New Caney ISD 150,151,699 8/31/2007 100 150,151,699
New Caney MUD 18,537,934 6/1/2007 100 18,537,934
North Belt UD 5,223,426 8/8/2007 100 5,223,426
North Park PUD 3,015,349 9/30/2006 100 3,015,349
Northampton MUD 13,881,564 12/31/2006 100 13,881,564
Northgate Crossing MUD #1 6,030,994 12/31/2006 100 6,030,994
Northgate Crossing MUD #2 15,376,059 3/22/2007 100 15,376,059
Northgate Crossing RUD 5,689,815 4/12/2006 100 5,689,815
NorthPointe WC&ID 13,988,077 5/17/2007 100 13,988,077
NW Harris Co MUD # 5 77,091,985 12/20/2007 100 77,091,985
NW Harris Co MUD # 6 4,843,765 7/9/2007 100 4,843,765
NW Harris Co MUD # 9 6,345,000 * 4/30/2008 100 6,345,000
NW Harris Co MUD # 10 29,095,220 4/30/2007 100 29,095,220
NW Harris Co MUD # 12 4,671,023 9/30/2006 97.91 4,573,399
NW Harris Co MUD # 15 7,054,606 11/28/2007 100 7,054,606
NW Harris Co MUD # 16 9,293,187 6/30/2007 100 9,293,187
NW Harris Co MUD # 19 8,325,255 12/12/2007 100 8,325,255
NW Harris Co MUD # 20 5,932,839 10/1/2007 100 5,932,839
NW Harris Co MUD # 21 1,004,352 5/31/2007 100 1,004,352
NW Harris Co MUD # 22 5,057,734 5/31/2007 100 5,057,734
NW Harris Co MUD # 23 2,763,495 5/31/2007 100 2,763,495
NW Harris Co MUD # 28 5,303,141 12/31/2006 100 5,303,141
NW Harris Co MUD # 29 9,855,335 10/31/2006 100 9,855,335
NW Harris Co MUD # 30 21,239,704 10/31/2006 100 21,239,704
NW Harris Co MUD # 32 24,661,354 8/9/2007 100 24,661,354
NW Harris Co MUD # 36 17,386,761 8/31/2007 100 17,386,761
NW Park MUD 18,234,617 10/17/2007 100 18,234,617
Northwood MUD # 1 2,255,000 * 4/30/2008 100 2,255,000
Oak Ridge N, City of 3,586,675 9/30/2007 100 3,586,675
Pine Village PUD 2,107,286 9/30/2006 100 2,107,286
Point Aquarius MUD 11,131,312 9/30/2007 100 11,131,312
Pt of Houston Auth 343,965,000 * 4/30/2008 32.85 112,992,503
Porter MUD 12,714,581 10/16/2007 100 12,714,581
Post Wood MUD 2,445,000 * 4/30/2008 100 2,445,000
Rankin Road West MUD 8,475,480 9/30/2006 100 8,475,480
Rayford Rd MUD 30,081,912 5/31/2007 100 30,081,912
Reid Rd MUD # 1 5,030,000 * 4/30/2008 100 5,030,000
Reid Rd MUD # 2 4,745,000 * 4/30/2008 100 4,745,000
Remington MUD #1 59,679,805 10/24/2007 100 59,679,805
River Plantation MUD 630,966 9/30/2006 100 630,966
Rolling Creek UD 10,962,517 1/2/2008 100 10,962,517
Rolling Fork PUD 200,000 * 4/30/2008 100 200,000
Roman Forest Cons MUD 2,025,000 * 4/30/2008 100 2,025,000
Roman Forest PUD # 4 765,000 * 4/30/2008 100 765,000
Shenandoah, City of 12,565,000 * 4/30/2008 100 12,565,000
Southern Montg Co MUD 3,688,561 9/30/2007 100 3,688,561
Spencer Rd PUD 4,252,335 8/16/2007 100 4,252,335

Page 12 of 24
 Lone Star College System

Appendix A Tables

Table A-6 LONE STAR COLLEGE SYSTEM ESTIMATED OVERLAPPING DEBT STMT

Net Debt Amount

Taxing Body Amount As Of %Ovlpg Ovlpg
Splendora ISD 37,875,079 11/30/2007 100 37,875,079
Splendora, City of 0 9/30/2006 100 0
Spring Creek Forest PUD 5,150,000 * 4/30/2008 100 5,150,000
Spring Creek UD 16,105,775 4/30/2007 100 16,105,775
Spring ISD 609,094,637 6/30/2007 100 609,094,637
Spring West MUD 5,230,992 5/30/2007 100 5,230,992
Tattor Rd Municipal Dist 4,270,000 * 4/30/2008 100 4,270,000
Terranova West MUD 1,985,000 * 4/30/2008 100 1,985,000
Texas National MUD 260,000 * 4/30/2008 100 260,000
The Woodlands Metro Ctr MUD 19,860,886 9/30/2007 100 19,860,886
The Woodlands MUD # 2 1,755,000 * 4/30/2008 100 1,755,000
The Woodlands RUD # 1 59,097,862 10/1/2007 100 59,097,862
Timber Lane UD 36,606,273 12/13/2007 100 36,606,273
Timberlake Imp Dist 5,979,173 3/31/2007 100 5,979,173
Tomball ISD 209,205,000 * 4/30/2008 100 209,205,000
Tomball, City of 25,065,000 * 4/30/2008 100 25,065,000
Trail of the Lakes MUD 13,077,198 2/26/2007 100 13,077,198
W Harris Co MUD # 1 2,185,000 * 4/30/2008 100 2,185,000
W Harris Co MUD # 9 12,806,435 12/31/2007 100 12,806,435
W Harris Co MUD # 10 20,798,363 7/31/2007 100 20,798,363
W Harris Co MUD # 11 35,487,589 6/6/2007 100 35,487,589
W Harris Co MUD # 14 7,973,518 9/30/2006 100 7,973,518
W Harris Co MUD # 15 5,080,206 11/8/2006 100 5,080,206
W Harris Co MUD # 21 3,490,000 * 4/30/2008 100 3,490,000
Westador MUD 4,015,000 * 4/30/2008 100 4,015,000
White Oak Bend MUD 2,505,000 * 4/30/2008 100 2,505,000
Willis ISD 84,279,097 * 4/30/2008 1.5 1,264,186
Windfern Forest UD 6,225,000 * 4/30/2008 100 6,225,000
Woodbranch Village, City of 301,000 * 4/30/2008 100 301,000
Woodcreek MUD 2,897,235 5/31/2007 100 2,897,235
Woodloch, Town of 78,719 * 4/30/2008 100 78,719
-----------
Total Net Overlapping Debt : $8,725,479,594
The Bonds 149,780,000
Total Direct and Overlapping Debt $8,875,259,594
Total Direct and Overlapping Debt % of A.V.: 8.67%
Total Direct and Overlapping Debt % of Capita: $5,917

* Gross Debt

Source: The Municipal Advisory Council of Texas

Page 13 of 24
Lone Star College System

Appendix A Tables
Table A-7 - LIMITED TAX - I&S TAX SUPPORTED DEBT SERVICE REQUIREMENTS

Fiscal
Year Grand Total
Ending Outstanding Bonds The Bonds Requirement
8/31 Principal Interest Total Principal Interest Total
2009 11,865,000 6,833,059 18,698,059 10,655,000 6,946,877 17,601,877 36,299,936
2010 12,270,000 6,301,566 18,571,566 2,665,000 6,843,788 9,508,788 28,080,354
2011 12,760,000 5,738,736 18,498,736 - 6,737,188 6,737,188 25,235,924
2012 13,375,000 5,136,581 18,511,581 - 6,737,188 6,737,188 25,248,769
2013 13,805,000 4,461,394 18,266,394 2,775,000 6,737,188 9,512,188 27,778,581
2014 14,170,000 3,759,307 17,929,307 2,870,000 6,640,063 9,510,063 27,439,369
2015 6,055,000 3,261,467 9,316,467 2,975,000 6,532,438 9,507,438 18,823,904
2016 5,020,000 2,990,133 8,010,133 3,090,000 6,420,875 9,510,875 17,521,008
2017 5,350,000 2,737,111 8,087,111 3,210,000 6,297,275 9,507,275 17,594,386
2018 3,885,000 2,514,298 6,399,298 3,375,000 6,136,775 9,511,775 15,911,073
2019 4,160,000 2,321,848 6,481,848 3,540,000 5,968,025 9,508,025 15,989,873
2020 6,620,000 2,060,461 8,680,461 3,720,000 5,791,025 9,511,025 18,191,486
2021 7,165,000 1,734,513 8,899,513 3,905,000 5,605,025 9,510,025 18,409,538
2022 7,360,000 1,397,534 8,757,534 4,100,000 5,409,775 9,509,775 18,267,309
2023 4,955,000 1,112,822 6,067,822 4,305,000 5,204,775 9,509,775 15,577,597
2024 5,415,000 866,375 6,281,375 4,530,000 4,978,763 9,508,763 15,790,138
2025 5,600,000 593,288 6,193,288 4,770,000 4,740,938 9,510,938 15,704,225
2026 5,820,000 310,050 6,130,050 5,020,000 4,490,513 9,510,513 15,640,563
2027 2,760,000 97,800 2,857,800 5,285,000 4,226,963 9,511,963 12,369,763
2028 630,000 14,963 644,963 5,560,000 3,949,500 9,509,500 10,154,463
2029 - - - 5,840,000 3,671,500 9,511,500 9,511,500
2030 - - - 6,130,000 3,379,500 9,509,500 9,509,500
2031 - - - 6,435,000 3,073,000 9,508,000 9,508,000
2032 - - - 6,760,000 2,751,250 9,511,250 9,511,250
2033 - - - 7,095,000 2,413,250 9,508,250 9,508,250
2034 - - - 7,450,000 2,058,500 9,508,500 9,508,500
2035 - - - 7,825,000 1,686,000 9,511,000 9,511,000
2036 - - - 8,215,000 1,294,750 9,509,750 9,509,750
2037 - - - 8,625,000 884,000 9,509,000 9,509,000
2038 - 9,055,000 452,750 9,507,750 9,507,750
$ 149,040,000 $ 54,243,305 $ 203,283,305 $ 149,780,000 $ 138,059,452 $ 287,839,452 $ 491,122,757

Page 14 of 24
Lone Star College System

Appendix A Tables
Table A-8 - INTEREST AND SINKING FUND BUDGET PROJECTION

Total
Interest and Sinking Fund Balance, August 31, 2007 $ 3,336,716
Plus: 2006/07 Tax Collections 32,660,308
Plus: Interest Earnings and Other Revenues 2006/07 320,000
Less: 2006/07 Tax Debt Payments (32,660,308)
Estimated Balance, August 31, 2008 3,656,716

Page 15 of 24
Lone Star College System

Appendix A Tables
Table A-9 - AUTHORIZED BUT UNISSUED UNLIMITED TAX BONDS

Amount Amount
Amount Previously Being Unissued
Authorized Issued Issued Balance

(1)
$ 420,000,000 $ - $ 150,000,000 $ 270,000,000

Total $ 270,000,000

(1) Includes the Bonds.

Page 16 of 24
 Lone Star College System

Appendix A Tables
Table A-10 - OTHER OBLIGATIONS

The System has the following loans and capital leases outstanding:

Fiscal Year Ending 8/31 Loans Leases Total

2008 $ - $ 2,025,453 $ 2,025,453
2009 - 2,024,463 2,024,463
2010 - 1,407,780 1,407,780
2011 - 1,270,511 1,270,511
2012 - 1,102,976 1,102,976
2013 & thereafter - 3,900,000 3,900,000
Totals $ - $ 11,731,183 $ 11,731,183

Page 17 of 24
Lone Star College System

Appendix A Tables
Table A-11 - CURRENT INVESTMENTS

8/31/2007
Weighted Avg
Type of Security Fair Value Maturity (Days)

External Investment Pools $ 65,122,957 1

Money Market 1,874,941 1
U.S. Agency Notes and Bonds 33,826,969 160
Total Fair Value $ 100,824,867 54

Source: The System

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Lone Star College System

Appendix A Tables
Table A-12 - NET ASSETS
Fiscal Year Ended August 31
2007 2006 2005 2004 2003
ASSETS
Current Assets
Cash and Cash Equivalents $ 67,041,364 $ 43,441,318 $ 14,765,630 $ 12,058,978 $ 10,606,742
Deposits Held by Others - - - - -
Short-Term Investments 33,826,969 20,454,027 30,329,778 39,103,675 53,678,151
Accounts Receivable (net) 17,052,766 16,451,842 15,678,425 14,160,155 14,117,162
Deferred Charge 54,967 59,496 52,755 43,856 50,898
Inventories 765,145 325,611 376,883 769,553 419,048
Total Current Assets $ 118,741,211 $ 80,732,294 $ 61,203,471 $ 66,136,217 $ 78,872,001

Noncurrent Assets
Restricted Cash and Equivalents $ - $ 7,840 $ 437,962 $ 1,490,817 $ 222,048
Endowment Investments - - - - -
Other Long Term Investments - - - - -
Bond Issuance Costs - - - - -
Capital Assets (Net) 328,031,973 333,775,179 337,553,138 335,534,016 287,060,167
Total noncurrent assets 328,031,973 333,783,019 337,991,100 337,024,833 287,282,215
Total Assets $ 446,773,184 $ 414,515,313 $ 399,194,571 $ 403,161,050 $ 366,154,216

LIABILITIES
Current Liabilities
Accounts Payable $ 12,731,495 $ 11,809,776 $ 7,064,444 $ 8,186,812 $ 12,262,008
Accrued Liabilities - - - - -
Accrued Compensable
Absences Payable 300,000 300,000 300,000 300,000 280,000
Deferred Compensation - - - - -
Deferred Revenues 22,226,015 20,480,821 18,136,376 16,613,428 16,613,031
Funds held for others 1,739,325 1,610,101 1,474,363 1,435,506 1,131,732
Notes Payable-current portion - - - - -
Bonds Payable-current portion 28,194,020 16,937,427 15,073,550 14,521,850 13,328,802
Total Current Liabilities $ 65,190,855 $ 51,138,125 $ 42,048,733 $ 41,057,596 $ 43,615,573

Noncurrent Liabilities
Accrued Compensation Payable $ 3,420,815 $ 3,296,149 $ 2,931,533 $ 2,582,797 $ 2,198,543
Deferred Compensation - - - - -
Bond Premium Payable - - - - -
Notes Payable - - - - -
Bonds Payable 211,520,767 213,507,401 233,556,601 251,050,370 220,463,938
Other noncurrent liabilities - - - - -
Total Noncurrent Liabilities $ 214,941,582 $ 216,803,550 $ 236,488,134 $ 253,633,167 $ 222,662,481
Total Liabilities $ 280,132,437 $ 267,941,675 $ 278,536,867 $ 294,690,763 $ 266,278,054

NET ASSETS
Invested in capital assets, net
of related debt $ 119,597,719 $ 105,148,483 $ 88,361,983 $ 79,699,181 $ 75,775,142
Restricted for:
Nonexpendable-Student Aid - - - - -
Expendable-Student Aid - - - - -
Expendable-Loans 485,631 485,631 485,631 485,631 365,630
Expendable-Debt Service 6,051,347 3,336,716 2,324,139 1,760,482 2,542,743
Unrestricted 40,506,050 37,602,808 29,485,951 26,524,993 21,282,647
Total Net Assets $ 166,640,747 $ 146,573,638 $ 120,657,704 $ 108,470,287 $ 99,966,162

Total Liabilities and Net Asset $ 446,773,184 $ 414,515,313 $ 399,194,571 $ 403,161,050 $ 366,244,216

Source: The System's Audit

Page 19 of 24
Lone Star College System

Appendix A Tables
Table A-13 - REVENUES, EXPENSES and CHANGES IN NET ASSETS

Fiscal Year Ended August 31

2007 2006 2005 2004 2003
Operating Revenues
Tuition and Fees $ 36,814,548 $ 33,411,958 $ 30,134,103 $ 28,614,676 $ 22,310,874
Federal Grants and Contracts 23,859,077 24,029,031 24,285,218 21,390,361 18,368,060

State Grants and Contracts 4,702,148 8,621,571 4,072,641 3,888,485 6,458,165

Non-Governmental Grants and - - - - -
Contracts
Sales and Services of - - - - -
Educational Activities
Auxiliary Enterprises 5,671,353 5,390,095 4,886,285 5,024,667 3,681,006
Other Operating Revenues 910,264 891,357 1,088,570 429,214 300,167
Total Operating Revenues $ 71,957,390 $ 72,344,012 $ 64,466,817 $ 59,347,403 $ 51,118,272

Operating Expenses
Instruction $ 81,584,567 $ 77,225,194 $ 69,556,778 $ 71,587,224 $ 63,502,941
Public Service 1,474,702 1,475,056 1,324,148 1,407,690 2,145,918
Academic Support 31,411,111 29,009,673 25,892,392 16,269,680 19,318,923
Student Services 16,704,792 15,550,983 13,947,600 12,770,442 13,100,804
Institutional Support 30,898,395 28,571,088 28,727,677 26,468,437 18,687,713
Operation and Maintenance of P 27,361,558 23,665,249 20,842,925 23,261,792 20,704,815
Scholarships and Fellowships 10,391,971 9,340,611 10,716,240 11,059,887 6,795,264

Auxiliary Enterprises 5,304,332 5,132,064 4,795,874 4,345,050 3,325,763

Depreciation 8,825,363 8,702,177 8,458,848 7,388,883 7,995,230
Total Operating Expenses $ 213,956,791 $ 198,672,095 $ 184,262,482 $ 174,559,085 $ 155,577,371

Operating Income (Loss) (141,999,401) (126,328,083) (119,795,665) (115,211,682) (104,459,099)

Non-Operating Revenues
(Expenses)
State Appropriations $ 62,749,843 $ 28,436,732 $ 26,362,355 $ 24,243,159 $ 20,016,153
Taxes for Maintenance & 73,755,839 70,130,332 60,588,753 55,442,037 47,337,155
Operations
Taxes for General Obligation 31,367,850 62,265,831 54,696,754 53,997,443 46,501,004
Bonds
Investment Income (Net of Inv. 4,477,292 2,540,321 1,111,005 1,203,523 2,098,911
Expenses)
Interest on Capital Related (11,359,249) (12,517,976) (11,431,062) (11,728,117) (8,329,984)
Debt
Other Non-Operating 1,074,936 1,388,777 655,277 647,761 (1,151,751)
Revenues (Expenses)
Net Non-Operating Revenues $ 162,066,511 $ 152,244,017 $ 131,983,082 $ 123,805,806 $ 106,471,488
(Expenses)

Increase in Net Assets $ 20,067,110 $ 25,915,934 $ 12,187,417 $ 8,594,124 $ 2,012,389

Net Assets
Net Assets - Beginning of Year
146,573,637 120,657,703 108,470,286 99,876,162 97,863,773

Net Assets - End of Year $ 166,640,747 $ 146,573,637 $ 120,657,703 $ 108,470,286 $ 99,876,162

Source: The System's Audit

Page 20 of 24
Lone Star College System

APPENDIX B
Information Regarding the System's Students, Tuitions & Fees

Page 21 of 24
 Lone Star College System

Appendix B Tables
Table B-1 - PLEDGED REVENUES & COVERAGE ($000s omitted)

Pledged Revenues Debt Service Requirements

Fiscal Community Total

Year Ended Tuition Technology Registration Lab Education Interest Vending Bookstore Pledged Coverage
31-Aug Revenue Fees Fees Fees Fees Income Revenue Revenue Revenue Principal Interest Total Ratio

(a)
1998 $ 690 $ 1,618 $ 643 $ 434 $ 2,619 $ 638 $ 141 $ 497 $ 7,280 $ 770 $ 503 $ 1,273 5.7
(a)
1999 743 1,684 650 476 2,929 591 275 550 7,898 510 1,054 1,564 5.0
(a)
2000 742 1,790 683 468 3,156 580 330 642 8,391 880 199 1,079 7.8
(a)
2001 929 1,984 762 529 3,898 507 350 714 9,673 115 856 971 10.0
(a)
2002 1,021 2,841 877 578 4,466 564 319 842 11,508 1,240 730 1,970 5.8
(b)
2003 3,796 3,172 986 619 4,903 570 192 969 15,207 1,310 666 1,976 7.7
(b)
2004 6,184 4,157 1,061 697 5,012 645 241 1,789 19,786 1,938 995 2,933 6.7
(b)
2005 6,697 4,465 1,157 834 5,933 689 255 1,345 21,375 1,416 1,266 2,682 8.0
(b)
2006 6,160 4,772 1,222 882 5,964 1,415 242 1,507 22,164 1,451 1,222 2,673 8.3
(b)
2007 6,528 5,403 1,269 855 6,322 2,304 293 1,579 24,553 1,346 1,179 2,525 9.7

(a) $15 per student per regular semester. Also, $7.50 per student per summer session.
(b) H.B. 1621 permits college districts to pledge up to 25% of tuition collected from each enrolled student for each semester.

Source: The System's Audit

Page 22 of 24
 Lone Star College System

Appendix B Tables
Table B-2 - Tuition & Fees

Resident Fees per Semester Credit Hour (SCH)

Academic Registration Student
Year Fee In-District Out-of-District Technology Activity Cost For 12 SCH Change From Prior Year
(Fall) (per student) Tuition Tuition Fee Fee In-District Out-of-District In-District Out-of-District

1998 $ 12 $ 22 $ 57 $ 4 $ - $ 324 $ 744 0.0% 0.0%

1999 12 24 64 4 - 348 828 7.4% 11.3%
2000 12 24 64 4 - 348 828 0.0% 0.0%
2001 12 24 64 4 - 348 828 0.0% 0.0%
2002 12 26 66 5 - 384 864 10.3% 4.3%
2003 12 28 68 5 2 432 912 12.5% 5.6%
2004 12 32 72 6 2 492 972 13.9% 6.6%
2005 12 32 72 6 2 492 972 0.0% 0.0%
2006 12 36 76 6 2 540 1,020 9.8% 4.9%
2007

Non-Resident Fees per Semester Credit Hour (SCH)

Academic General Student
Year Services In-District Out-of-State Technology Activity Cost For 12 SCH Change From Prior Year
(Fall) Fee Tuition Tuition Fee Fee Out-of-State International Out-of-State International

1998 $ 12 $ 67 $ 67 $ 4 $ - $ 864 $ 864 0.0% 0.0%

1999 12 69 69 4 - 888 888 2.8% 2.8%
2000 12 69 69 4 - 888 888 0.0% 0.0%
2001 12 69 69 4 - 888 888 0.0% 0.0%
2002 12 81 81 5 - 1,044 1,044 17.6% 17.6%
2003 12 83 83 5 2 1,092 1,092 4.6% 4.6%
2004 12 87 87 6 2 1,152 1,152 5.5% 5.5%
2005 12 87 87 6 2 1,152 1,152 0.0% 0.0%
2006 12 91 91 6 2 1,200 1,200 4.2% 4.2%
2007

Page 23 of 24
 Lone Star College System

Appendix B Tables
Table B-3 - Enrollment Details

Fall 2007 Fall 2006 Fall 2005 Fall 2004 Fall 2003
Student Classification Number Percent Number Percent Number Percent Number Percent Number Percent
0-30 hours 28,394 64.8% 23,372 56.7% 24,543 60.9% 22,752 61.8% 22,907 65.9%
31-61 hours 9,013 20.6% 10,107 24.5% 10,002 24.8% 9,080 24.6% 7,690 22.1%
>60 hours 6,409 14.6% 7,721 18.7% 5,736 14.2% 5,010 13.6% 4,137 11.9%
Total 43,816 100.0% 41,200 100.0% 40,281 100.0% 36,842 100.0% 34,734 100.0%

Fall 2007 Fall 2006 Fall 2005 Fall 2004 Fall 2003
Semester Hour Load Number Percent Number Percent Number Percent Number Percent Number Percent
<3 hours 218 0.5% 223 0.5% 227 0.6% 156 0.4% 381 1.1%
3-5 hours 10,301 23.5% 9,669 23.5% 9,142 22.7% 8,075 21.9% 7,664 22.1%
6-8 hours 11,110 25.4% 10,254 24.9% 10,308 25.6% 9,394 25.5% 8,230 23.7%
9-11 hours 8,309 19.0% 7,716 18.7% 7,589 18.8% 6,889 18.7% 6,075 17.5%
12-14 hours 11,541 26.3% 11,206 27.2% 10,938 27.2% 10,471 28.4% 10,348 29.8%
15-17 hours 2,161 4.9% 1,955 4.7% 1,921 4.8% 1,687 4.6% 1,862 5.4%
18 & more hours 176 0.4% 177 0.4% 156 0.4% 170 0.5% 174 0.5%
Total 43,816 100.0% 41,200 100.0% 40,281 100.0% 36,842 100.0% 34,734 100.0%

Average Course Load 8.4 8.4 8.5 8.6 8.7

Fall 2007 Fall 2006 Fall 2005 Fall 2004 Fall 2003
Tuition Status Number Percent Number Percent Number Percent Number Percent Number Percent
TX Resident (In-District) 38,948 88.9% 36,873 89.5% 36,285 90.1% 33,726 91.5% 32,002 92.1%
TX Resident (Out-of-District) 3,481 7.9% 3,093 7.5% 3,002 7.5% 2,279 6.2% 1,986 5.7%
Non-Resident 1,387 3.2% 1,234 3.0% 994 2.5% 837 2.3% 746 2.1%
Total 43,816 100.0% 41,200 100.0% 40,281 100.0% 36,842 100.0% 34,734 100.0%

Does not include non-credit Continuing and Professional Development enrollment.

Data Source: LSCS OIRE Data Warehouse as of 07/03/2008

Page 24 of 24
 APPENDIX C

FORM OF BOND COUNSEL’S OPINION

-24-
 DRAFT
08/11/08

September 10, 2008

WE HAVE ACTED as bond counsel for Lone Star College System (the “System”), in
connection with an issue of bonds (the “Bonds”) described as follows:

LONE STAR COLLEGE SYSTEM LIMITED TAX GENERAL

OBLIGATION BONDS, SERIES 2008, dated September 1, 2008, in the
aggregate principal amount of $149,780,000.

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 order
adopted by the Board of Trustees of the System authorizing their issuance (the
“Order”).

WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion
with respect to the legality and validity of the Bonds under the Constitution and laws of the
State of Texas, and with respect to the exclusion 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 certified
proceedings described in the following paragraph. We have not assumed any responsibility
with respect to the financial condition or capabilities of the System or the disclosure thereof
in connection with the sale of the Bonds. Our role in connection with the System’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
proceedings of the System and other public officials; and other certified showings relating to
the authorization and issuance of the Bonds. We have also examined executed Bond No. I of
this issue.

Vinson & Elkins LLP Attorneys at Law First City Tower, 1001 Fannin Street, Suite 2500
Austin Beijing Dallas Dubai Hong Kong Houston Houston, TX 77002-6760
London Moscow New York Shanghai Tokyo Washington Tel 713.758.2222 Fax 713.758.2346 www.velaw.com
 BASED ON SUCH EXAMINATION, IT IS OUR OPINION that:

(1) 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 that therefore the Bonds constitute valid and
legally binding obligations of the System; and

(2) Taxable property in the System is subject to the levy of ad

valorem taxes, within the limits prescribed by law, to pay the
Bonds and the interest thereon.

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.

IT IS OUR FURTHER OPINION that:

(1) Interest on the Bonds is excludable from gross income for

federal income tax purposes under existing law.

(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 any S
corporation, regulated investment company, REIT, REMIC or
FASIT) for purposes of computing its alternative minimum tax
liability.

In providing such opinions, we have relied on representations of the System, the

System’s financial advisor, and the Underwriters (as defined in the Order), with respect to
matters solely within the knowledge of the System, the System’s financial advisor, and the
Underwriters, respectively, which we have not independently verified, and have assumed
continuing compliance with the covenants in the Order pertaining to those sections of the
Code which affect the exclusion from gross income of interest on the Bonds for federal
income tax purposes. If such representations are determined to be inaccurate or incomplete
or the System fails to comply with the foregoing provisions of the Order, 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 receipt or accrual of interest on, or acquisition, ownership 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, and individuals otherwise
qualifying for the earned income credit. In addition, certain foreign corporations doing
business in the United States may be subject to the “branch profits tax” on their
effectively-connected earnings and profits (including tax-exempt interest such as interest on
the Bonds).

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 results 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 System as the taxpayer. We observe that the System has
covenanted in the Order 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.
 APPENDIX D

EXCERPT FROM THE SYSTEM’S ANNUAL REPORT

-25-
 COMPREHENSIVE
ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEARS ENDED

AUGUST 31, 2007 and 2006

Prepared By
The Department of Finance & Treasury

5000 Research Forest Drive

The Woodlands, TX 77381
 NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
Comprehensive Annual Financial Report
For the Fiscal Years Ended August 31, 2007 and 2006

TABLE OF CONTENTS
Page

INTRODUCTORY SECTION

Transmittal Letter ……………………………………………………………………………….. 1

Organizational Chart…………………………………………………………………………….. 5

Organizational Data……………………………………………………………………………... 6

2006 GFOA Certificate of Achievement for Excellence in Financial Reporting……………….. 7

FINANCIAL SECTION

Independent Auditors’ Report ………………………...………………………………………… 9

Management’s Discussion and Analysis………………………………………………………… 12

BASIC FINANCIAL STATEMENTS

Exhibit 1 – Statements of Net Assets………………………………………………………… 21

Exhibit 2 – Statements of Revenues, Expenses and Changes in Net Assets…………………. 22

Exhibit 3 – Statements of Cash Flows……………………………………………………….. 23

Notes To The Financial Statements…………………………………………………………... 25

SUPPLEMENTAL SCHEDULES

Schedule A – Schedule of Operating Revenues……………………………………………… 41

Schedule B – Schedule of Operating Expenses by Object…………………………………… 42

Schedule C – Schedule of Non-Operating Revenues and Expenses…………………………. 43

Schedule D – Schedule of Net Assets by Source and Availability…………………………… 44

Schedule E – Schedule of Expenditures of Federal Awards…………………………………. 45

Notes to Schedule of Expenditures of Federal Awards……………………………………… 48

Schedule F – Schedule of Expenditures of State Awards…………………………………… 50

Notes to Schedule of Expenditures of State Awards ………………………………… 52

STATISTICAL SECTION

Net Assets by Component……………………………………………………………………….. 54

Revenues by Source……………………………………………………………………………… 55

Program Expenses by Function………………………………………………………………….. 56

Tuition and Fees…………………………………………………………………………………. 57

Assessed Value and Taxable Assessed Value of Property………………………………………. 58

State Appropriation per FTSE and Contact Hour……………………………………………….. 59

Principal Taxpayers……………………………………………………………………………… 60

Property Tax Levies and Collections……………………………………………………………. 61

Ratios of Outstanding Debt……………………………………………………………………… 62

Legal Debt Margin Information…………………………………………………………………. 63

Pledged Revenue Coverage……………………………………………………………………… 64

Demographic and Economic Statistics…………………………………………………………... 65

Principal Employers……………………………………………………………………………... 66

Faculty, Staff and Administrators Statistics……………………………………………………... 67

Enrollment Details……………………………………………………………………………….. 68

Student Profile…………………………………………………………………………………… 69

Transfers to Senior Institutions………………………………………………………………….. 70

Capital Asset Information………………………………………………………………………... 71

SINGLE AUDIT SECTION

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance
and other matters based on an Audit of Financial Statements performed in Accordance with
the Government Auditing Standards……………………………………………………………. 73

Independent Auditors' Report on Compliance with Requirements Applicable to Each Major

Program and on Internal Control over Compliance in Accordance with OMB Circular A-133
and State of Texas Single Audit Circular……………………………………………………….. 75

Schedule of Findings and Questioned Costs…………………………………………………….. 77

Summary Schedule of Prior Audit Findings……………………………………………………... 79

Introductory Section
December 6, 2007
To the Members of the Board of Trustees, Taxpayers of Harris and Montgomery Counties and to the citizens
of the North Harris Montgomery Community College District service area:
Texas statutes require the Comptroller of Public Accounts and the Texas Higher Education Coordinating
Board to jointly prescribe a system for financial accounting and reporting for institutions of higher education.
Pursuant to that requirement, we have prepared the comprehensive annual report of the North Harris
Montgomery Community College District (the District) for the fiscal years ended August 31, 2007 and 2006.
The report consists of management’s representations concerning the finances of the District. Consequently,
management assumes full responsibility for the completeness and reliability of the information contained in
this report. To provide a reasonable basis for making these representations, management of the District has
established a comprehensive internal control framework that is designed both to protect the District’s assets
from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the District’s
financial statements in conformity with generally accepted accounting principles (GAAP).
The District’s system of internal controls is supported by written policies and procedures and is continually
reviewed, evaluated, and modified to meet current needs. The system is monitored by an Internal Audit
Department whose auditors administer a broad-scope auditing program. Through this program, the adequacy
and effectiveness of the District’s internal control system are reviewed and evaluated. The review scope
ranges from financial/compliance areas to economy and efficiency in the use of resources.

Because the cost of internal controls should not outweigh their benefits, the District’s comprehensive
framework of internal controls has been designed to provide reasonable rather than absolute assurance that
the financial statements will be free from material misstatement. As management, we assert that, to the best
of our knowledge and belief, this financial report is complete and reliable in all material respects.

The District’s financial statements have been audited by McConnell and Jones LLP, a firm of licensed
certified public accountants. The goal of the independent audit is to provide a reasonable assurance that the
financial statements of the District for the year ended August 31, 2007 and 2006 are free from material
misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements; assessing the accounting principles used and significant estimates
made by management; and, evaluating the overall financial statement presentation. The independent auditor
concluded based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that
the District’s financial statements for the years ended August 31, 2007 and 2006 are fairly presented in
conformity with GAAP. The independent auditor’s report is presented as the first component of the financial
section of this report.

GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the
basic financial statements in the form of management’s discussion and analysis (MD&A). This letter of

1
transmittal is designed to complement the MD&A and should be read in conjunction with it. The District’s
MD&A can be found immediately following the report of the independent auditors.

District Profile

The idea of a college campus in the North Houston region was once only a vision in the minds of community
leaders. It began the journey to reality in 1972 when residents in the Aldine, Humble and Spring Independent
School Districts elected to create a junior college district, which became known as North Harris County
College. We opened our doors in the fall of 1973 and our 16-member staff welcomed 613 students to the first
classes held at Aldine High School.

To say that we have grown in the past 35 years is an understatement. The original three school districts have
been joined by eight others: New Caney in 1981, Tomball in 1982, Conroe in 1991, Willis and Splendora in
1996, Klein in 1998, and Cypress-Fairbanks and Magnolia in 2000.

Located in the North Houston metro area of Texas, the District serves 1,400 square miles in Harris and
Montgomery Counties. For the academic year just ended the District served over 62,600 credit students and
34,000 continuing education students. Enrollment is 49,000 this semester in credit classes and 14,000 in
continuing education. Based on certified contact hours reported by the Texas Higher Education Coordinating
Board, the District was the third largest community college district in the state. The District continues to be
one of the largest and fastest growing community college districts in Texas, with five distinct colleges:

• North Harris College

• Kingwood College
• Tomball College
• Montgomery College
• Cy-Fair College

North Harris Montgomery Community College District is a publicly-supported, two-year, comprehensive

community college system that involves diverse individuals, businesses, and the community in quality
educational opportunities for the successful development of knowledge, skills, and attitudes for a rapidly
changing world. Through its colleges and centers, NHMCCD develops learning communities for:
• Technical programs, leading to associate degrees or certificates, designed to develop
marketable skills and support economic development.
• Academic courses in the arts and sciences to transfer to senior institutions.
• Continuing adult education programs for academic, professional, occupational, and cultural
enhancement.
• Developmental education and literacy programs designed to improve the basic skills of
students.
• A program of student support services, including counseling and learning resources,
designed to assist individuals in achieving their educational and career goals.
• Workforce, economic, and community development initiatives designed to meet local and
statewide needs.
• Other purposes as may be directed by the Board of Trustees and/or the laws of the State of
Texas.

The District is governed by a nine member Board of Trustees who are elected to serve 6 year terms. The
Chief Executive Officer of the District is the Chancellor. The Chancellor, through the Executive Council
consisting of the Executive Vice Chancellor, vice chancellors and college presidents, is responsible for
management of the daily operations of the District.

2
Economic and Financial Condition

The information presented in the financial statements is perhaps best understood when it is considered from
the broader perspective of the specific environment within which the District operates.

Local Economy Harris and Montgomery Counties, the geographical area in which the District operates,
enjoy a very robust economy. Harris County is a southeast Texas county and a major component of the
Houston Primary Metropolitan Statistical area. The economy in the county is based on petrochemicals, space
exploration, manufacturing and education. The county is ranked as the 6th largest manufacturing county in the
country. The Texas Almanac lists cattle, rice and forest products as the principal sources of agricultural
income in the county. The county’s population for 2000 was 3,400,578, an increase of 20.6% since 1990. The
total 2000 Effective Buying Income was $66.6 billion with 77.8% of the households having incomes in
excess of $20,000. The County’s median income per household was $41,887 compared to the state median of
$35,942. Retail sales for 2000 totaled $42.4 billion. Mineral production in the county includes oil, gas,
cement, salt, lime, gravel, clay and stone.

Cash Management Practices Cash was invested in obligations of U.S agencies, treasury bills,
commercial paper and local government money market pools. The maturities of the investments range from 1
day to 20 months. The average buy yield of the portfolio at August 31, 2007 was 4.37%. The recent rise in
interest is reflected in shorter maturities of investments as the District attempts to maximize earning
potential. Investment income includes the increase or decrease in the fair value of investments. The fair value
of securities will increase or decrease due to changes in market interest rates during the year. As individual
securities come closer to their maturity date, the fair value of the security moves toward its par value. As the
price moves toward par value, the unrealized gain or loss is reduced proportionally and is eliminated by the
time the security matures. The District generally holds securities to maturity.

Debt Management The District has $55,295,957 of limited tax levy debt and $184,418,830 in general
obligation debt outstanding at August 31, 2007. Limited tax levy debt are special obligations of the District
payable as to principal and interest solely from and secured by a first lien on and a pledge of certain revenues
including tuition, fees, investment income and commissions. For the 2007 fiscal year, the pledged revenues
provided approximately 9.7 times coverage of the debt service on limited tax levy debt. The District’s limited
tax levy debt is currently rated AA- by Standard and Poor’s and Aa3 by Moody’s.

The District is authorized to sell bonds and to levy an ad valorem tax in payment of the debt by the
Constitution and the laws of the State of Texas. At August 31, 2007 the District had $184,418,830 in general
obligation debt outstanding. Ad valorem property taxes to support outstanding debt are limited to a maximum
rate of $0.50 tax per hundred dollars of taxable appraised value. Proceeds from general obligation debt may
be used to purchase land for sites, construct, improve, renovate and equip District facilities; to refund certain
bonds of the District; and to pay the issuance costs of bonds. The District’s general obligation debt is
currently rated AA by Standard and Poor’s and Aa2 by Moody’s.

Facilities Master Plan During the 2005-2006 fiscal year, the District conducted a
comprehensive facilities review and evaluation focused on providing facilities and infrastructure for the
District’s five colleges. Led by the Chancellor and Executive Council, the planning process included a
college leadership group, community advisory committees, architects, demographers, and the Districts’
financial advisors. The master planning process culminated with a recommendation for a $249.6 million
referendum to authorize the issuance of general obligation bonds to provide facilities for growth and to
enhance the District’s education mission. On November 7, 2006 the District conducted an unsuccessful
referendum. District administration is currently considering alternatives to manage growth and provide
adequate facilities.

Awards and Acknowledgements The District was awarded, for the third consecutive year, the GFOA
Certificate of Achievement in Financial Reporting for its comprehensive annual financial report for the fiscal
years ending August 31, 2006, 2005 and 2004. The current year’s comprehensive annual financial report will

3
also be submitted to the program. Management believes that the current year report also meets the criteria of
the Certificate of Achievement Program.

The preparation of this report could not have been accomplished without the services of the entire staff of
Business Affairs. I would like to express my appreciation to all staff that assisted and contributed to the
preparation of this report. Credit must also be given to the Chancellor and Board of Trustees for their
unfailing support in maintaining the highest standards of professionalism of the District’s finances.

Respectfully submitted,

Cynthia F. Gilliam
Vice Chancellor of Business Affairs & CFO

4
5
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
ORGANIZATIONAL DATA
For the Fiscal Year 2007
BOARD OF TRUSTEES
W. Randolph Bates, Jr., Chair
Stephanie Marquard, Vice Chair
John Fox, Secretary
Priscilla Kelly, Assistant Secretary
Dr. Richard Campbell
Chris Daniel
Dr. David Holsey
Alan Quintero
David Vogt
ADMINISTRATION
Dr. Richard Carpenter, Chancellor
Open Position, Executive Vice Chancellor
Dr. Stephen Head, President, North Harris College
Dr. Linda Stegall, President, Kingwood College
Dr. Tom Butler, President, Montgomery College
Dr. Ray Hawkins, President, Tomball College
Dr. Diane Troyer, President, Cy-Fair College
Renee Byas Smith, Vice Chancellor & General Counsel
Cynthia Gilliam, Vice Chancellor for Business Affairs & Chief Financial Officer
Ray Laughter, Vice Chancellor for External Affairs
Tom Hill, Vice Chancellor, Information Technology/CIO

North Harris College Kingwood College Montgomery College

2700 W.W. Thorne Drive 20000 Kingwood Drive 3200 College Park Drive
Houston, TX 77073 Kingwood, TX 77339 Conroe, TX 77384
281.618.5400 281.312.1600 936-321-5161
Tomball College Cy-Fair College
30555 Tomball Parkway 9191 Barker Cypress Road
Tomball, TX 77375 Cypress, TX 77433-1214
281.351.3300 281.290.3200
The University Center
3232 College Park Drive
The Woodlands, TX 77384
281.618.7140
District Services and Training Center
5000 Research Forest Drive
The Woodlands, TX 77381
832.813.6500

6
The Government Finance Officers
Association of the United States and
Canada (GFOA) awarded a Certificate
of Achievement for Excellence in
Financial Reporting to the North
Harris Montgomery Community
College District, Texas for its
Comprehensive Annual Financial
Report for the Fiscal Year Ended
August 31, 2006.

In order to be awarded a Certificate of

Achievement, a governmental unity
must publish an easily readable and
efficiently organized Comprehensive
Annual Financial Report, whose
contents conform to program
standards. Such reports must satisfy
both generally accepted accounting
principles and applicable legal
requirements. A Certificate of
Achievement is valid for a period of
one year only. District management
believes that this 2007 CAFR
conforms to the Certificate of
Achievement Program requirements,
and we are submitting it to the GFOA
for their review.

7
 Financial Section

8
INDEPENDENT AUDITORS’ REPORT

9
 INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees

North Harris Montgomery Community College District

We have audited the accompanying financial statements of the North Harris Montgomery Community
College District (the “District”) as of and for the years ended August 31, 2007 and 2006, as listed in the table
of contents. These financial statements are the responsibility of the District’s management. Our responsibility
is to express opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the District as of August 31, 2007 and 2006, and the changes in financial position and cash flows
thereof for the years then ended in conformity with accounting principles generally accepted in the United
States of America.

In accordance with Government Auditing Standards, we have also issued our report dated November 8, 2007,
on our consideration of the District’s internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is to describe the scope of our testing of internal control over financial reporting
and compliance and the results of that testing, and not to provide an opinion on the internal control over
financial reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and should be considered in assessing the results of our audit.

The management’s discussion and analysis on pages 12 through 19, is not a required part of the basic
financial statements but are supplementary information required by the Governmental Accounting Standards
Board. We have applied certain limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.

Our audits were conducted for the purpose of forming opinion on the District’s financial statements taken as
a whole. The introductory section and statistical section are presented for purposes of additional analysis and
are not a required part of the basic financial statements. The supplemental schedules on pages 41 through 52
are presented for purposes of additional analysis as required by the Texas Higher Education Coordinating
Board, U.S. Office of Budget and Management and Budget Circular A-133, Audits of States Local
Governments, and Non-Profit Organizations, and the State of Texas Single Audit Circular and are also not a

10
required part of the basic financial statements of the District. The information in the supplemental schedules
and the schedule of expenditures of federal and state awards have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections
have not been subjected to the auditing procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on them.

Houston, Texas
November 8, 2007

11
MANAGEMENT’S DISCUSSION AND ANALYSIS

12
 North Harris Montgomery
Community College District
The purpose of the annual report is to provide readers with financial information about the activities and
financial condition of North Harris Montgomery Community College District (the “District”). The report
consists of three basic financial statements that provide information on the District as a whole: the Statement
of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash
Flows. These reports begin on page 21 and should be read in conjunction with the notes to the financial
statements. The following summary and management discussion of the results is intended to provide the
readers with an overview of the District’s financial activities. For purposes of the summary and discussion,
the terms “2007”, “2006”, and “2005” refer to fiscal years ending August 31, 2007, August 31, 2006, and
August 31, 2005, respectively.

Accounting Standards
In June 1999, the Governmental Accounting Standard’s Board (GASB) released Statement No. 34, “Basic
Financial Statements and Management’s Discussion and Analysis for State and Local Governments”, which
established a new reporting format for annual financial statements. In November 1999, GASB released
Statement No. 35, “Basic Financial Statements and Management’s Discussion and Analysis for Public
Colleges and Universities”, which applies the new reporting standards to public colleges and universities.

Financial and Enrollment Highlights - 2007

¾ Net assets increased $20 million, which represents a 14% increase over 2006.
¾ Construction in progress balances decreased to approximately $6,000 reflecting the
substantial completion of all of the construction projects funded with proceeds from the
2003 general obligation bonds.
¾ Revenue bonds of $29.9 million were issued in May 2007 to provide funds for critical
infrastructure and repair needs. Factoring in scheduled principal repayments, the net effect
was to increase total bonds payable by $9.3 million.
¾ Refunding bonds were also issued in August 2007 for $13.4 million.
¾ Operating expenses for educational activities increased $15 million, which represents an
8% increase as compared to a 3% increase in headcount, and a 5 % increase in enrollments.
The increases were primarily direct expenditures for instruction, academic support and
operation and maintenance of plant.
¾ Fundable contact hours, the basis on which community colleges in Texas are appropriated
State funds, increased 3%.

Financial and Enrollment Highlights - 2006

¾ Net assets increased $25.9 million, which represents a 21.5% increase over 2005.
¾ Construction in progress balances remained unchanged at approximately $1 million
reflecting substantial completion of construction projects in 2005.
¾ The District did not issue any new debt during the year, but did issue refunding bonds in
September 2005, for $47.6 million.
¾ Repayment of principal decreased total bonds payable by $17.8 million.
¾ Deferred revenues increased $2.3 million (a 13% increase), primarily due to a $2 per credit
hour tuition increase effective for the Spring 2006 semester.
¾ Revenues from grants and contracts increased $4.3 million (15%), as the District continues
to search for additional funding sources to accommodate the financial consequences of
student growth.

13
 ¾ Operating expenses for educational activities increased $13.8 million, which represents an
8% increase as compared to a 3% increase in headcount, and a 4% increase in enrollments.
The increases were primarily direct expenditures for instruction and academic support,
addressing needs that were previously deferred due to limited funding.
¾ Fundable contact hours, the basis on which community colleges in Texas are appropriated
State funds, increased 2%.

The following chart depicts the growth in student headcount and contact hours for the past ten years:

Historical View of Headcount

and Contact Hour Growth
120,000 18,000,000
16,000,000
100,000
14,000,000

Contact Hours
80,000 12,000,000
Headcount

10,000,000
60,000
8,000,000
40,000 6,000,000
Headcount 4,000,000
20,000 Contact Hours
2,000,000
0 0
97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07

14
The Statement of Net Assets
The Statement of Net Assets includes all assets and liabilities using the accrual basis of accounting, which is
similar to the accounting used by most private-sector institutions. Net assets – the difference between assets
and liabilities – are one way to measure the financial health of the District. Net assets increased 14% for
2007 and 21% for 2006.

August 31
2007 2006 2005
Current Assets:
Cash and short-term investments $ 100,868,333 $ 63,895,345 $ 45,095,408
Receivables 17,052,766 16,451,842 15,678,425
Inventory, prepaid expenses & other 820,112 385,107 429,638
Total current assets 118,741,211 80,732,294 61,203,471

Non-Current Assets:
Restricted cash & cash equivalents 7,840 437,962
Capital assets, net of accumulated
depreciation (Note 8) 328,031,973 333,775,179 337,553,138
Total assets $ 446,773,184 $ 414,515,313 $ 399,194,571

Current Liabilities:
Accounts payable & accrued liabilities $ 14,770,820 $ 13,719,877 $ 8,838,807
Deferred revenues 22,226,015 20,480,821 18,136,377
Bonds payable-current portion 28,194,020 16,937,427 15,073,551
65,190,855 51,138,125 42,048,735

Non-Current Liabilities:
Accrued compensable absences 3,420,815 3,296,149 2,931,533
Bonds payable-noncurrent portion 211,520,767 213,507,401 233,556,601
Total liabilities $ 280,132,437 $ 267,941,675 $ 278,536,869

Net Assets:
Invested in capital assets 119,597,719 105,148,483 88,361,983
Restricted 6,536,978 3,822,347 2,809,770
Unrestricted 40,506,050 37,602,808 29,485,951
Total net assets $ 166,640,747 $ 146,573,638 $ 120,657,704

The increase in total current assets for 2007 ($38 million) reflects the District’s investment philosophy of
positioning assets for maximum investment return in a rising interest rate environment. Net capital assets
declined $5.7 million during 2007 as depreciation expense exceeded purchases of capital assets. The decline
is a result of the completion of construction projects financed with proceeds from the 2003 general obligation
bond authorization.
Total liabilities increased during 2007 by $12 million as a result of the issuance of revenue bonds of $29.9
million.
The increases in total net assets of $20 million for 2007 and $25.9 million for 2006 represent a 38% increase
in the past two years. Of significance is the mix of reserves and the purposes for which they may be used.
The largest increase since 2005 is in the reserves invested in capital assets, $31 million or 35%. As student
enrollment trends continue upward, the District’s physical assets have also grown to support student growth.
Restricted net assets are assets that cannot be used for current operations because they are subject to
restrictions imposed by creditors, grantors or statute. These reserves have grown by $3.7 million (132%)
since 2005. Unrestricted net assets (available to fund current operations) have increased by $11 million
(37%) since 2005. Unrestricted net assets cover 68 days of operating expenses, or 19%, in 2007.

15
Statement of Revenues, Expenses and Changes in Net Assets
August 31
2007 2006 2005
Operating Revenues
Student tuition and fees $ 36,814,548 $ 33,411,958 $ 30,134,103
Grants & contracts 28,561,225 32,650,602 28,357,859
Auxiliary enterprises 5,671,353 5,390,095 4,886,285
Other 910,264 891,357 1,088,570
Total operating revenues 71,957,390 72,344,012 64,466,817

Operating Expenses
Educational Activities 199,827,096 184,837,854 171,007,760
Auxiliary Activities 5,304,332 5,132,064 4,795,874
Depreciation Expense 8,825,363 8,702,177 8,458,848
Total operating expenses 213,956,791 198,672,095 184,262,482

Net Operating Expenses (141,999,401) (126,328,083) (119,795,665)

Non-Operating Revenues
Ad-valorem taxes 105,123,688 98,567,064 86,951,108
State Appropriations 62,749,843 62,265,831 54,696,754
Investment income 4,477,292 2,540,321 1,111,005
Capital appropriations (11,359,249) (12,517,976) (11,431,062)
Other 1,074,936 1,388,777 655,277

Total non-operating revenues-net 162,066,510 152,244,017 131,983,082

Increase in Net Assets 20,067,109 25,915,934 12,187,417

Net Assets, Beginning of Year 146,573,638 120,657,704 108,470,287

Net Assets, End of Year $ 166,640,747 $ 146,573,638 $ 120,657,704

The Statement of Revenues, Expenses and Changes in Net Assets presents the operating results of the
District, as well as the non-operating revenues and expenses. Ad-valorem taxes for maintenance and
operations, and state appropriations, while budgeted for operations, are not considered to be exchange
transactions and are therefore classified as non-operating revenues according to generally accepted
accounting principles.
Student tuition and fees increased by $3.4 million for 2007, which directly correlates to the increase in credit
tuition rates in the spring of 2006, as well as the 5% increase in credit enrollments for 2007. For 2006,
student tuition and fees increased $3.3 million on a 4% increase in credit hours. A $4 per credit hour tuition
increase was effective for the spring 2006 semester. The District’s $36 per credit hour tuition rate remains
below the Texas average tuition rate for community colleges.

State and local grants and contracts revenues decreased by $4 million in 2007 (45.5%) but were relatively the
same as in 2005. In 2006, $4.4 million received from Harris County Public Library for the construction of
the Tomball library was included in local grants and contracts.
Auxiliary enterprise revenues increased 5% for 2007. Food service revenues increased 13%, while bookstore
commissions increased 4%. Other auxiliary revenues declined slightly.
Expenses for educational activities increased $15 million (8%) in 2007 and $13.8 million (8%) in 2006.
Combined increases in the cost of instruction and academic support amounted to $6.7 million (44%) of the

16
increase. Of significance during 2007 is the addition of 25 new full time faculty positions, as the District
continues its efforts to maintain or improve the percentage of class sections taught by full-time faculty.
Operation and maintenance of plant increased $3.7 million (15%) as the District continues to invest in repair
and replacement of facilities to support the effects of increasing enrollment.
Tax revenues increased $6.6 million in 2007 ($11.6 million in 2006) as a result of new properties and
appraised value increases in existing properties. Investment income increased by 76% from $2.5 million in
2006 to $4.4 million in 2007. The increase was the result of both a rising short-term yield curve and the
District’s focus on maintaining a short-term portfolio.
State appropriations for 2007 represent the second year of biennium funding, so no significant change in the
amounts received as compared to 2006 occurred. State appropriations increased $7.5 million in 2006 for both
education and general state support ($4.5 million) and state on-behalf benefits for appropriation eligible
employees ($3.0 million). The increases for 2006 (the first year of the state biennium funding cycle) result
from increases instituted by the 79th Texas Legislature.
Capital appropriations consist of interest and fees on capital asset-related debt. No significant changes
occurred during 2007.
Total Revenues
The District has four main sources of revenue: ad valorem taxes, state appropriations, student tuition and
fees, and grants and contracts. The total revenues for 2007 and 2006 were $245,383,149 and $237,106,005,
respectively.
The following chart illustrates the breakdown of total revenues for the District.

43%
45% 42%

40%
2007

35% 2006

30% 26%
26%

25%

20%
15%
14% 14%
15% 12%

10%
5%
4%
5%

0%
Ad Valorem Taxes State Appropriations Student Tuition/Fees Grants/Contracts Other

The largest source of revenue for both 2007 and 2006 for the District is ad valorem taxes (43% and 42% for
2007 and 2006, respectively). State appropriations are the second largest revenue source at 26% in both 2007
and 2006. These two sources, along with student tuition and fees, and grants and contracts, provide the
majority of funding required for operating expenses. Auxiliary and investment income comprise the majority
of Other Revenues.

17
Total Expenses
Expenses for the District can be grouped into four main categories: educational activities, auxiliary activities,
depreciation expense, and capital appropriations. The total expenses for 2007 and 2006 were $225,316,040
and $211,190,071, respectively.

The following chart illustrates the breakdown of total expenses for the District.

89% 88%
90%

80% Educational Activities

Auxiliary Activities

70% Depreciation Expense

Capital Appropriations
60%

50%

40%

30%

20%

5% 6%
4% 4%
10% 2%
2%

0%
2007 2006

At 89% and 88% of the total expenditures for 2007 and 2006, respectively, educational activities are, by a
sizeable margin, the District’s largest expense category. Capital appropriations will continue to occupy a
position in the chart, as the District continues to invest in physical facilities to support the effects of
burgeoning enrollments. Paralleling this growth in physical facilities, depreciation expense will also
continue to hold a position in the chart. Auxiliary activities support and supplement the District’s
educational activities, but are a relatively minor portion of total expenses.

Capital Assets and Long-Term Debt Activity

As depicted in Footnote 6 to the financial statements, the cost of capital assets remained relatively the same
from 2006 to 2007 at $403 million. The following lists some of the major projects and changes that occurred
during 2007 and 2006:

¾ 2007 Projects - Most of the projects in 2007 were repair and replacement of existing assets.
Furniture for three campuses, additional parking and sidewalk lighting at Cy-Fair College,
and water system and cooling improvements at Cy-Fair College were the major projects
completed in 2007.
¾ 2006 Completed Projects – Expansion of the Student Center at Cy-Fair College and the
Irrigation/Water Filtration project at Cy-Fair College were completed.

18
 ¾ Land Purchases and Sales – A 55 acre tract of land at Montgomery College was purchased
during 2007 to provide for future expansion of the campus. A 1.8 acre tract of land was
purchased for future expansion at Tomball Colleges’ Willow Chase Center during 2006.
¾ Other Assets – Furniture, equipment, library assets, and vehicles decreased by $1.5 million
during 2007. A physical inventory of furniture, equipment and vehicles was completed in
2007. The inventory resulted in the write-off of capital assets that were either sold at
auction, deemed obsolete, or fell below the current capitalization threshold. Purchases of
furniture, equipment, library assets and vehicles increased $3 million during 2006.
¾ Capitalized Interest – Interest paid on debt proceeds to finance the construction of new
facilities was capitalized in the amount of $2 thousand for 2007, and $41 thousand for
2006.

As detailed in Note 7 to the financial statements, financing for the above projects has been achieved through
the issuance of long-term bonds.

Economic Factors and Subsequent Events

Several current economic factors and events subsequent to the close of the 2007 fiscal year are worthy of
note, as explained next:

¾ Enrollments for the fall 2007 semester were 6% greater than the fall 2006 semester.
¾ On November 1, 2007, the North Harris Montgomery Community College District Board
of Trustees voted to change the name of the District to Lone Star College System. The new
name became effective on November 5, 2007.

19
FINANCIAL STATEMENTS

20
 EXHIBIT 1
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
STATEMENTS OF NET ASSETS
AUGUST 31, 2007 AND 2006

ASSETS 2007 2006

Current assets:
Cash and cash equivalents $ 67,041,364 $ 43,441,318
Short term investments 33,826,969 20,454,027
Accounts receivable (See Note 17) 17,052,766 16,451,842
Inventories 54,967 59,496
Prepaid items 765,145 325,611
Total current assets 118,741,211 80,732,294

Noncurrent assets:
Restricted cash and cash equivalents 7,840
Capital assets, net (See Note 6) 328,031,973 333,775,179
Total non-current assets 328,031,973 333,783,019
TOTAL ASSETS $ 446,773,184 $ 414,515,313

LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities (See Note 17) $ 12,731,495 $ 11,809,776
Accrued compensable absences 300,000 300,000
Funds held for others 1,739,325 1,610,101
Deferred revenues 22,226,015 20,480,821
Bonds payable-current portion 28,194,020 16,937,427
Total current liabilities 65,190,855 51,138,125

Noncurrent liabilities:
Accrued compensable absences 3,420,815 3,296,149
Bonds payable-noncurrent portion 211,520,767 213,507,401
Total non-current liabilities 214,941,582 216,803,550
TOTAL LIABILITIES 280,132,437 267,941,675

NET ASSETS
Invested in capital assets, net of related debt 119,597,719 105,148,483
Restricted:
Expendable-
Loans 485,631 485,631
Debt service 6,051,347 3,336,716
Unrestricted 40,506,050 37,602,808
TOTAL NET ASSETS (Schedule D) $ 166,640,747 $ 146,573,638

The Notes to the Financial Statements are an integral part of this statement

21
 EXHIBIT 2
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006

2007 2006
OPERATING REVENUES
Tuition and fees (net of discounts of $10,016,966 in 2007
and $10,161,532 in 2006) $ 36,814,548 $ 33,411,958
Federal grants and contracts 23,859,077 24,029,031
State and local grants and contracts 4,702,148 8,621,571
Auxiliary enterprises 5,671,353 5,390,095
Other operating revenue 910,264 891,357
Total operating revenues (Schedule A) 71,957,390 72,344,012

EXPENSES
Operating expenses
Instruction 81,584,567 77,225,194
Public service 1,474,702 1,475,056
Academic support 31,411,111 29,009,673
Student services 16,704,792 15,550,983
Institutional support 30,898,395 28,571,088
Operation and maintenance of plant 27,361,558 23,665,249
Scholarships and fellowships 10,391,971 9,340,611
Auxiliary enterprises 5,304,332 5,132,064
Depreciation 8,825,363 8,702,177
Total operating expenses (Schedule B) 213,956,791 198,672,095
Operating loss (141,999,401) (126,328,083)
NON-OPERATING REVENUE (EXPENSES)
Ad-Valorem taxes
Maintenance and operations 73,755,838 70,130,332
General obligation bonds 31,367,850 28,436,732
State Appropriations 62,749,843 62,265,831
Gifts 17,000 8,200
Investment income, net 4,477,292 2,540,321
Interest and fees on capital asset-related debt (net of capitalized
interest costs of $2,819 in 2007 and $41,977 in 2006) (11,359,249) (12,517,976)
Gain (Loss) on disposal of capital assets (245,000) (6,106)
Other non-operating revenues 1,302,936 1,386,683
Total non-operating revenue 162,066,510 152,244,017

Increase in net assets 20,067,109 25,915,934

NET ASSETS, BEGINNING OF YEAR 146,573,638 120,657,704
NET ASSETS, END OF YEAR $ 166,640,747 $ 146,573,638

The Notes to the Financial Statements are an integral part of this statement

22
 EXHIBIT 3
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006

2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from students and other customers $ 52,154,798 $ 49,458,575
Receipts from grants and contracts 29,557,243 33,214,108
Payments to suppliers for goods and services (50,008,736) (39,192,031)
Payments to or on behalf of employees (144,330,863) (135,841,222)
Payments for scholarships and fellowships (19,380,147) (18,618,188)
Payments for loans issued to students (10,255,471) (10,303,676)
Receipts from collection of loans to students and employees 10,338,896 10,373,461
Other receipts 1,039,488 891,357
Net cash used by operating activities (130,884,792) (110,017,616)

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES

Receipts from state appropriations 74,701,654 71,206,348
Receipts from ad-valorem taxes 62,749,843 62,265,831
Net cash provided by non-capital financing activities 137,451,497 133,472,179

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Receipts from ad-valorem taxes 31,772,153 28,404,141
Proceeds from capital debt 43,310,000 49,583,248
Paid for acquisition and construction of capital assets (3,893,462) (5,064,659)
Proceeds from sale of capital assets 273,895 560
Principal paid on capital debt and leases (34,560,199) (67,768,572)
Interest paid on capital debt and leases (10,824,438) (12,774,316)
Net cash provided (used) by capital and related financing activities 26,077,949 (7,619,598)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales and maturities of investments 41,450,000 9,888,910
Interest on investments 4,212,552 2,534,841
Purchase of investments and related fees (54,715,000) (13,150)
Net cash provided (used) by investing activities (9,052,448) 12,410,601

Net Increase in Cash and Cash Equivalents 23,592,206 28,245,566

Cash and Cash Equivalents, Beginning of Year 43,449,158 15,203,592
Cash and Cash Equivalents, End of Year $ 67,041,364 $ 43,449,158

The Notes to the Financial Statements are an integral part of this statement

23
 EXHIBIT 3
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006

2007 2006
Reconciliation of Operating Loss to Net Cash Used by Operating Activities
Operating loss $ (141,999,401) $ (126,328,083)

Adjustments to reconcile operating loss to net cash

Used by operating activities
Depreciation expense 8,825,363 8,702,177
Bad debt expense 500,000 -
Changes in assets and liabilities
Receivables, net (563,783) (331,023)
Inventories 4,528 (6,741)
Prepaid items (439,533) 51,271
Accounts payable and accrued liabilities 788,973 5,049,987
Deferred revenue 1,745,171 2,344,442
Funds held for others 129,224 135,738
Accrued compensable absences 124,666 364,616
Total adjustments 11,114,609 16,310,467

Net cash used by operating activities $ (130,884,792) $ (110,017,616)

The Notes to the Financial Statements are an integral part of this statement

24
NOTES TO FINANCIAL STATEMENTS

25
 NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
NOTES TO FINANCIAL STATEMENTS
For the Years Ended August 31, 2007 and 2006

1. REPORTING ENTITY

North Harris Montgomery Community College District (the “District”) was established in 1972 as a Union
Junior College District, in accordance with the laws of the State of Texas, to serve the educational needs of
the north-central part of Harris County and the southern part of Montgomery County, Texas. The District
encompasses the Aldine, Conroe, Cypress-Fairbanks, Humble, Klein, Magnolia, New Caney, Splendora,
Spring, Tomball and Willis Independent School Districts. The District is a comprehensive, public, two-year
institution offering academic, general, occupational, developmental, and continuing adult education programs
through a network of colleges. The colleges of North Harris, Kingwood, Tomball, Montgomery and Cy-Fair
comprise the District.

The District is considered to be a special purpose, primary government according to the definition in
Governmental Accounting Standards Board (GASB) Statement 14, The Financial Reporting Entity. While
the District receives funding from local, state, and federal sources, and must comply with the spending,
reporting, and record keeping requirements of these entities, it is not a component unit of any other
governmental entity.

GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment
of GASB Statement No. 14, provides additional guidance in determining whether certain organizations for
which the District is not financially accountable should be reported as component units based on the nature
and significance of their relationship with the primary government. It requires reporting as a component unit
if the organization raises and holds economic resources for the direct benefit of the governmental unit and the
component unit is significant compared to the primary government. GASB Statement No. 39 has been
applied as required in the preparation of these financial statements and no component unit information is
required to be included.

The North Harris Montgomery Community College District Foundation (the Foundation) is a legally separate
not-for-profit corporation controlled by a separate board of trustees, whose sole purpose is to advance and
assist in the development, growth and operation of the District. The District does not appoint any of the
Foundation’s board members nor does it fund or is it obligated to pay debt related to the Foundation. The
financial position of the Foundation as of August 31, 2007 and 2006 and the cost of services provided by the
District to the Foundation during the years then ended are not significant to the District. The Foundation has
therefore not been included as a component unit in the financial statements of the District.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Guidelines

The significant accounting policies followed by the District in preparing these financial statements are in
accordance with accounting principles generally accepted in the United States of America as prescribed by
the Governmental Accounting Standards Board.

The accompanying financial statements of the District have been prepared in accordance with the Texas
Higher Education Coordinating Board’s Annual Financial Reporting Requirements for Texas Public
Community and Junior Colleges. The accompanying financial statements of the District are presented in
accordance with generally accepted accounting principles.

The District applies all applicable GASB pronouncements and all applicable Financial Accounting Standard
Board (FASB) statements and interpretations issued on or before November 30, 1989, unless they conflict or

26
contradict GASB pronouncements. The District has elected not to apply FASB guidance issued subsequent to
November 30, 1989, unless specifically adopted by the GASB. The District is reported as a special-purpose
government engaged in business-type activities.

Basis of Accounting

The financial statements of the District have been prepared on the accrual basis whereby all revenues are
recorded when earned and all expenses are recorded when they have been reduced to a legal or contractual
obligation to pay.

Tuition Discounting

Texas Public Education Grants:

Certain tuition amounts are required to be set aside for use as scholarships by qualifying students. This set
aside, called the Texas Public Education Grant (TPEG), is shown with tuition and fee revenue amounts as a
separate set aside amount (Texas Education Code § 56.033). When the award is used by the student for
tuition and fees, the amount is recorded as tuition discount. If the amount is disbursed directly to the student,
the amount is recorded as a scholarship expense.

Title IV, Higher Education Act Program Funds:

Certain Title IV HEA Program funds are received by the District to pass through to the student. These funds
are initially received by the District and recorded as revenue. When the award is used by the student for
tuition and fees, the amount is recorded as tuition discount. If the amount is disbursed directly to the student,
the amount is recorded as a scholarship expense.

Other Tuition Discounts:

The District awards tuition and fee scholarships from institutional funds to students who qualify. When these
amounts are used for tuition and fees, the amount is recorded as a tuition discount. If the amount is disbursed
directly to the student, the amount is recorded as a scholarship expense.

Budgetary Data

Each community college in Texas is required by law to prepare an annual operating budget of anticipated
revenues and expenditures for the fiscal year beginning September 1. The District’s Board of Trustees adopts
the budget, which is prepared on the accrual basis of accounting. A copy of the approved budget must be
filed with the Texas Higher Education Coordinating Board, Legislative Budget Board, Legislative Reference
Library, and Governor’s Office of Budget and Planning by December 1.

Cash and Cash Equivalents

The District’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term
investments with original maturities of three months or less from the date of acquisition.

Investments

In accordance with GASB 31, Accounting and Financial Reporting for Certain Investments and External
Investment Pools, investments are reported at fair value. Fair values are based on published market rates.
Short-term investments have an original maturity date greater than three months but less than one year at
time of purchase. The District has designated public funds investment pools comprised of $65,122,957 and
$29,792,223 at 2007 and 2006, respectively, to be short-term investments. Long-term investments have an
original maturity of greater than one year at the time of purchase.

27
Inventories

Inventories consist of food service supplies. Inventories are valued at the lower of cost or market under the
“first-in, first-out” method and are charged to expense as consumed.

Capital Assets

Capital assets are recorded at cost at the date of acquisition, or fair value at the date of donation. For
equipment the District’s capitalization policy includes all items with a unit cost of $5,000 or more and an
estimated useful life in excess of one year. Renovations to buildings and infrastructure and land
improvements that significantly increase the value or extend the useful life of the structure are capitalized.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the
useful life of the asset are charged to operating expense in the year in which the expense is incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets,
generally 50 years for buildings, 50 years for land improvements, 15 years for library books, 10 years for
furniture, machinery, vehicles and other equipment and 5 years for telecommunications and peripheral
equipment.

Deferred Revenues

Tuition and fees of $20,941,384 and $19,685,812 and federal, state, and local grants of $1,284,631 and
$795,009 related to the period after August 31, 2007 and 2006, respectively, have been reported as deferred
revenues at August 31, 2007 and 2006, respectively.

Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.

Operating and Non-Operating Revenue and Expense Policy

The District distinguishes operating revenues and expenses from non-operating items. The District reports as
a BTA and as a single, proprietary fund. Operating revenues and expenses generally result from providing
services in connection with the District’s principal ongoing operations. The principal operating revenues are
tuition and related fees and Federal grants and contracts. The major non-operating revenue sources are State
appropriations and property tax collections. Operating expenses include the cost of sales and services,
administrative expenses, and depreciation on capital assets. The principal non-operating expense is long-
term debt interest and fees. When both restricted and unrestricted resources are available for use, it is the
District’s policy to use restricted resources first, then unrestricted resources as they are needed. The
operation of the bookstore is performed by a third party contracted by the District.

New Accounting Pronouncement

In July 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for
Post-employment Benefit Other Than Pension Plans. Statement No. 45 establishes standards for the
measurement, recognition, and display of other post-employment benefits expenses and related liabilities and
assets, and other related disclosure requirements. The requirements of Statement No. 45 become effective for
fiscal periods beginning after December 15, 2006. The District has not yet determined the effect on the
financial statements for implementation of this statement

In September 2006, the GASB issued Statement No. 48, Sales and Pledges of Receivable and Future
Revenues and Intra-Entity Transfers of Assets and Future Revenues. This statement establishes criteria that
governments will use to ascertain whether certain transactions should be regarded as sales or as collateralized

28
borrowings resulting in a liability. The statement also includes disclosure requirements for future revenues
that are pledged or sold. The requirements of Statement No. 48 become effective for fiscal periods beginning
after December 15, 2006. The District does not expect this statement to have any impacts on the District’s
financial statements.

In November 2006, the GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution
Remediation Obligations. This statement provided guidance on how to calculate and report the costs and
obligations associated with pollution and cleanup efforts. The requirements of Statement No. 49 become
effective for fiscal periods beginning after December 15, 2007. The District is not expected to participate in
pollution remediation activities and, therefore, will not accrue a liability and/or capitalize pollution
remediation costs.

3. AUTHORIZED INVESTMENTS

The District is authorized to invest in obligations and instruments as defined in the Public Funds Investment
Act (“PFIA”) (Sec. 2256.001 Texas Government Code) and as authorized by local policy. The District’s
Board of Trustees has adopted a written investment policy regarding the investment of its funds as defined in
the PFIA. Such investments include (1) obligations of the United States or its agencies, (2) Certificates of
Deposit issued by a bank domiciled in Texas, or a savings bank domiciled in Texas and that is guaranteed or
insured by the Federal Deposit Insurance Corporation or its successor, (3) Fully collateralized repurchase
agreements with a defined termination date secured by obligations of the United States government, its
agencies or instrumentalities, (4) SEC registered Money Market Mutual Funds rated “AAA”, (5) Constant
dollar local government investment pools, and, (6) Commercial paper with a maximum maturity of 120 days
rated A1/P1 or equivalent.

4. DEPOSITS AND INVESTMENTS

At August 31, 2007 and 2006, the carrying amount of the District’s demand deposits was $-0- and $-0-
respectively, and total bank balances equaled $336,736 and $48,883, respectively. Bank balances of
$100,000 in each year are covered by federal depository insurance and $336,736 and $-0- were covered by
collateral pledged in the District’s name for the years ended August 31, 2007 and 2006, respectively. The
collateral was held in the Federal Reserve account of an independent third-party agent.

Cash and cash equivalents included on Exhibit 1, Statements of Net Assets, consist of:
2007 2006
Demand Deposits $ - $ -
Petty Cash on Hand 43,466 41,454
Short-Term Securities 1,874,941 13,615,481
External Investment Pools 65,122,957 29,792,223
Total Cash and Cash Equivalents $ 67,041,364 $ 43,449,158

Reconciliation of Deposits and Investments to Statement of Net Assets (Exhibit 1):

Fair Value at August 31,

2007 2006
U. S. Agency Notes and Bonds $ 33,826,969 $ 20,454,027
Total Cash and Deposits 67,041,364 43,449,158
Total Deposits and Investments $ 100,868,333 $ 63,903,185

Cash and Cash Equivalents (Exhibit 1) $ 67,041,364 $ 43,441,318

Short Term Investments (Exhibit 1) 33,826,969 20,454,027
Restricted Cash and Cash Equivalents (Exhibit 1) - 7,840
Total Deposits and Investments $ 100,868,333 $ 63,903,185

29
As of August 31, 2007 the District had the following investments and maturities:
Weighted
Average
Investment Type Fair Value Maturity (Days)

External Investment Pools $ 65,122,957 1

Money Market 1,874,941 1
U. S. Agency Notes and Bonds 33,826,969 160
Total Fair Value $ 100,824,867 54

Interest Rate Risk - In accordance with State law and District’s policy, the District does not purchase any
investments with maturities greater than three years. The District manages its exposure to declines in fair
value by limiting the weighted average maturity of its investment portfolio to approximately one year or less.

Credit Risk and Concentration of Credit Risk - In accordance with state law and the District’s investment
policy, investments in mutual funds and investment pools must be rated at least “AAA”, commercial paper
must be rated at least “A-1” or “P-1”. To reduce market risk the District has established portfolio
diversification requirements by issuer and/or type of investment. The Districts portfolio is within the stated
parameters at August 31, 2007.

The credit quality (ratings) and concentration of the District’s portfolio as of August 31, 2007 is as follows:

Concentration
Security Credit Rating Actual Limit

Cash and External Investment Pools AAA/AAAm 66% 100%

FHLB (Federal Home Loan Bank) AAA 11% 90%
FNMA (Fede ral National Mortgage Assoc) AAA 7% 90%
FHLMC (Federal Home Loan Mortgage Corporation) AAA 6% 90%
FMCDN (Federal Home Loa n Mortgage Corporation) AAA 5% 90%
FNDN (Federal National Mortgage Assoc Discount Note) AAA 5% 90%

The State Comptroller of Public Accounts exercises oversight responsibility over the Texas Local
Government Investment Pool (TexPool). Oversight includes the ability to significantly influence operations,
designation of management and accountability for fiscal matters. Additionally, the State Comptroller of
Public Accounts has established an advisory board composed of both participants in TexPool and other
persons who do not have a business relationship with TexPool. The Advisory Board members review the
investment policy and management fee structure. TexPool is rated AAAm by Standard & Poor’s. As a
requirement to maintain the rating, weekly portfolio information is submitted to both Standard & Poor’s and
the Office of the State Comptroller of Public Accounts for review.

TexPool operates in a manner consistent with the Securities and Exchange Commission’s Rule 2a7 of the
Investment Company Act of 1940. TexPool uses amortized cost rather than fair value to report net assets to
compute share prices. Accordingly, the fair value of the position in TexPool is the same value as the value in
TexPool shares.

The First Public (Lone Star Investment Pool) is a public funds investment pool established in accordance
with the Interlocal Cooperation Act, Chapter 791, Texas Government Code, and the Public Funds Investment
Act, Chapter 225, Texas Government Code. Lone Star is governed by trustees comprised of active
participants in Lone Star. The board of trustees for Lone Star has the responsibility for adopting and
monitoring compliance with the investment policy, of appointing investment officers, of overseeing the
selection of an investment advisor, custodian, investment consultant, administrator and other service
providers. Lone Star Investment Pool is rated AAA by Standard & Poor’s.

30
5. DERIVATIVES

In September, 2006 the District entered into two constant maturity interest rate swaps in order to assist the
District in managing its interest rate risk exposure. Interest rate swaps are agreements between two parties
where one stream of future interest payments is exchanged for another. The goal of interest rate swaps is to
limit or manage exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than
otherwise available. The constant maturity swap is a variation of a regular interest rate swap in which one of
the interest revenue streams exchanged is reset periodically according to a fixed maturity market rate of a
product with a duration extending beyond the reset period. The contracts are obligations of the District
separate and apart from its’ obligation to pay scheduled principal and interest on outstanding debt
obligations.

The District entered into two contracts for certain of its outstanding general obligation and revenue bonds in
the amount of $41,155,000 and $25,155,000, respectively. The contracts were executed independently of
each other and neither is dependent upon the other with regards to terms, execution or results. Both
transactions were approved by the Attorney General of Texas pursuant to Chapter 1371, Texas Government
Code, as amended.

General Obligation Bonds

On September 12, 2006 the District entered into a constant maturity interest rate swap with Bear Stearns
Financial Products, Inc. (BSFP) for certain of its outstanding general obligation bonds in the notional amount
of $41,155,000 for the initial calculation period and declining annually thereafter as scheduled repayments of
principal occur. The contract was executed on a forward start basis with an effective date of November 15,
2007 and a termination date of February 15, 2028. The District has contractually agreed to a monthly
payment and receipt of funds, beginning December 15, 2007, in which the District will pay the counterparty
the USD-BMA Municipal Swap Index and receive 67% of the 10 year LIBOR index. No options are
embedded in the contract and the District neither received nor paid cash upon execution of the contract.

Fair value – As of August 31, 2007, the swap agreement had a positive fair value of $6,783. The positive
fair value signifies the amount the District would receive from BSFP upon the termination of the agreement
as of that date. The fair value was calculated using a market quotation from BSFP.

Credit risk – The swap agreement’s fair value represented the District’s credit exposure to BSFP as of
August 31, 2007. Should BSFP fail to perform according to the terms of the swap agreement, the possible
loss would be equivalent to the swap agreement’s fair value, if positive. However, should interest rates
change and the fair value becomes negative, the District would not be exposed to credit risk. As of August
31, 2007, BSFP’s Standard and Poor’s (S&P) rating was AAA and Moody’s Investors Service (Moody’s)
rating was Aaa.

Interest rate risk – The swap agreement increases the District’s exposure to interest rate risk. Fluctuations in
interest rates will affect the monthly payment and receipt of funds. As the USD-BMA Municipal Swap
Index increases or the 10 year LIBOR index decreases, the District’s net payment on the swap agreement
increases.

Termination risk – The swap agreement is subject to mandatory redemption in the event of default or if
ratings assigned to either the District’s or BSFP’s long-term unenhanced debt obligations are withdrawn or
reduced to BBB by S&P or Baa2 by Moody’s. The swap agreement is subject to an optional termination by
the District at any time during the term of the agreement at the then prevailing market value.

Revenue Bonds

On September 13, 2006 the District entered into a constant maturity interest rate swap with Citibank, N.A.,
New York (Citibank) for certain of its outstanding revenue bonds in the notional amount of $25,155,000 for
the initial calculation period and declining annually thereafter as scheduled repayments of principal occur.
The contract was executed on a forward start basis with an effective date of November 15, 2007 and a

31
termination date of February 15, 2028. The District has contractually agreed to a monthly payment and
receipt of funds, beginning December 15, 2007, in which the District will pay the counterparty the USD –
BMA Municipal Swap Index and receive 65% of the 10 year LIBOR index. No options are embedded in the
contract and the District neither received nor paid cash upon execution of the contract.

Fair value – As of August 31, 2007, the swap agreement had a positive fair value of $16,203. The positive
fair value signifies the amount the District would receive from Citibank upon the termination of the
agreement as of that date. The fair value was calculated using a market quotation from Citibank.

Credit risk – The swap agreement’s fair value represented the District’s credit exposure to Citibank as of
August 31, 2007. Should CitiBank fail to perform according to the terms of the swap agreement, the possible
loss would be equivalent to the swap agreement’s fair value, if positive. However, should interest rates
change and the fair value becomes negative, the District would not be exposed to credit risk. As of August
31, 2007, CitiBank’s Standard and Poor’s (S&P) rating was AA and Moody’s Investors Service (Moody’s)
rating was Aaa.

Interest rate risk – The swap agreement increases the District’s exposure to interest rate risk. Fluctuations in
interest rates will affect the monthly payment and receipt of funds. As the USD-BMA Municipal Swap
Index increases or the 10 year LIBOR index decreases, the District’s net payment on the swap agreement
increases.

Termination risk – The swap agreement is subject to mandatory redemption in the event of default or if
ratings assigned to either the District’s or Citibank’s long-term unenhanced debt obligations are withdrawn or
reduced to BBB by S&P or Baa2 by Moody’s. The swap agreement is subject to an optional termination by
the District at any time during the term of the agreement at the then prevailing market value.

6. CAPITAL ASSETS

Capital assets activity for the year ended August 31, 2007 was as follows:

Balance Balance
August 31, 2006 Increase Decrease August 31, 2007
Not Depreciated:
Land $ 42,997,872 $ 1,646,343 $ (115,553) $ 44,528,662
Construction in Progress 1,167,760 1,917,992 (3,079,963) 5,789
Subtotal 44,165,632 3,564,335 (3,195,516) 44,534,451

Buildings and Other Capital Assets

Buildings and Building Improvements 320,955,108 686,497 - 321,641,605
Other Real Estate Improvements 5,589,000 - - 5,589,000
Total Buildings & Other Real Estate Impr. 326,544,108 686,497 - 327,230,605

Library Books 11,977,912 510,607 (305,664) 12,182,855

Furniture, Machinery, Vehicles, & Other 20,707,285 1,919,577 (3,688,165) 18,938,697
Total Buildings and Other Capital Assets 359,229,305 3,116,681 (3,993,829) 358,352,157

Accumulated Depreciation
Buildings and Building Improvements 44,091,251 5,793,585 - 49,884,836
Other Real Estate Improvements 3,960,985 756,489 - 4,717,474
Total Buildings & Other Real Estate Impr. 48,052,236 6,550,074 - 54,602,310

Library Books 7,350,938 609,567 (305,664) 7,654,841

Furniture, Machinery, & Equipment 14,216,584 1,665,722 (3,284,822) 12,597,484
Total Buildings and Other Capital Assets 69,619,758 8,825,363 (3,590,486) 74,854,635
Net Capital Assets $ 333,775,179 $ (2,144,347) $ (3,598,859) $ 328,031,973

32
Capital assets activity for the year ended August 31, 2006 was as follows:

Balance Balance
August 31, 2005 Increase Decrease August 31, 2006
Not Depreciated:
Land $ 42,313,684 $ 684,188 $ - $ 42,997,872
Construction in Progress 902,035 1,815,400 (1,549,675) 1,167,760
Subtotal 43,215,719 2,499,587 (1,549,675) 44,165,632

Buildings and Other Capital Assets

Buildings and Building Improvements 320,047,642 907,466 - 320,955,108
Other Real Estate Improvements 5,589,000 - - 5,589,000
Total Buildings & Other Real Estate Impr. 325,636,642 907,466 - 326,544,108

Library Books 11,461,643 516,269 - 11,977,912

Furniture, Machinery, Vehicles, & Other 18,179,649 2,557,236 (29,600) 20,707,285
Total Buildings and Other Capital Assets 355,277,934 3,980,971 (29,600) 359,229,305

Accumulated Depreciation
Buildings and Building Improvements 38,312,046 5,779,205 - 44,091,251
Other Real Estate Improvements 3,255,492 705,493 - 3,960,985
Total Buildings & Other Real Estate Impr. 41,567,538 6,484,698 - 48,052,236

Library Books 6,745,489 605,449 - 7,350,938

Furniture, Machinery, & Equipment 12,627,488 1,612,030 (22,934) 14,216,584
Total Buildings and Other Capital Assets 60,940,515 8,702,177 (22,934) 69,619,758
Net Capital Assets $ 337,553,138 $ (2,221,618) $ (1,556,341) $ 333,775,179

7. LONG-TERM LIABILITIES

Long-term liability activity for the year ended August 31, 2007 was as follows:

Balance Balance
September 1, August 31, Current
2006 Additions Reductions 2007 Position
Bonds
General obligation bonds $ 203,904,611 $ 14,515,307 $ (34,001,088) $ 184,418,830 $ 26,385,870
Revenue Bonds 26,540,217 30,104,336 (1,348,596) 55,295,957 1,808,150
Subtotal 230,444,828 44,619,643 (35,349,684) 239,714,787 28,194,020
Notes
General obligation notes - - - - -
Revenue Bonds - - - - -
Subtotal - - - - -
Leases - - - - -
Accrued compensable absences 3,596,149 902,411 (777,745) 3,720,815 300,000
Total long-term liabilities $ 234,040,977 $ 45,522,054 $ (36,127,429) $ 243,435,602 $ 28,494,020

33
Long-term liability activity for the year ended August 31, 2006 was as follows:

Balance Balance
September 1, August 31, Current
2005 Additions Reductions 2006 Position
Bonds
General obligation bonds $ 220,638,596 $ 49,583,248 $ (66,317,233) $ 203,904,611 $ 15,591,088
Revenue Bonds 27,991,556 - (1,451,339) 26,540,217 1,346,339
Subtotal 248,630,152 49,583,248 (67,768,572) 230,444,828 16,937,427
Notes
General obligation notes - - - - -
Revenue Bonds - - - - -
Subtotal - - - - -
Leases - - - - -
Accrued compensable absences 3,231,533 997,581 (632,965) 3,596,149 300,000
Total long-term liabilities $ 251,861,685 $ 50,580,829 $ (68,401,537) $ 234,040,977 $ 17,237,427

8. BONDS PAYABLES
General information related to bonds payable is summarized below:
Maturity Interest Original Issue Repayment Amount Outstanding
Series Purpose Date Rate Amount Source 8/31/2007 8/31/2006
Revenue Bonds
2000 Rev Constr/Refunding 2001 - 2025 5.12% - 6.50% $ 11,000,000 Pledged Rev $ 9,308,271 $ 9,607,616
2003 Rev Construction 2004 - 2028 2.50% - 5.00% 10,000,000 Pledged Rev 7,886,974 8,340,000
2003A Rev Construction 2004 - 2018 2.00% - 4.25% 10,390,000 Pledged Rev 7,998,634 8,592,601
2007 Rev Construction 2008 - 2038 4.00% - 5.00% 29,900,000 Pledged Rev 30,102,078 -
$ 55,295,957 $ 26,540,217
General Obligation Bonds
1997 Var Construction 2015 - 2016 variable $ 20,000,000 Ad Val Tax $ 2,530,000 $ 7,530,000
1999 Construction 2000 - 2025 4.45% - 5.25% 34,300,000 Ad Val Tax 1,225,000 2,315,000
2001A Construction 2002 - 2026 3.60% - 5.37% 50,000,000 Ad Val Tax 16,453,346 18,772,951
2002A Construction 2003 - 2027 3.26% - 5.37% 95,040,000 Ad Val Tax 72,897,584 91,607,698
2002B Refunding 2004 - 2009 2.22% - 4.50% 3,649,990 Ad Val Tax 560,343 990,631
2003 Constr/Refunding 2004 - 2028 2.50% - 5.00% 36,464,997 Ad Val Tax 21,380,025 27,095,265
2005 Ref Refunding 2006 - 2013 3.00% - 5.00% 6,915,000 Ad Val Tax 4,768,647 5,888,868
2005A Ref Refunding 2006 - 2026 3.00% - 5.00% 50,244,217 Ad Val Tax 49,431,999 49,704,198
2007 Ref Refunding 2008 - 2012 3.44% - 4.00% 13,410,000 Ad Val Tax 15,171,886 -
$ 184,418,830 $ 203,904,611

The revenue pledged as security for the revenue bond debt service includes a portion of tuition and fees,
investment income, and auxiliary revenues. Such pledged revenue amounted to $24,553,000 and
$22,164,000, for the years ended August 31, 2007 and 2006, respectively.

Debt service requirements at August 31, 2007 were as follows:

For the Year

Ended August 31 General Obligation Bonds Revenue Bonds Total Bonds
Principal Interest Principal Interest Principal Interest

2008 $ 26,385,870 $ 9,425,565 $ 1,808,150 $ 2,843,013 $ 28,194,020 $ 12,268,578

2009 12,618,781 6,994,419 2,248,150 2,394,285 14,866,931 9,388,704
2010 12,859,827 6,445,832 2,243,150 2,308,439 15,102,977 8,754,271
2011 13,180,369 5,878,433 2,288,150 2,218,918 15,468,519 8,097,351
2012 13,777,770 5,265,703 2,353,150 2,120,065 16,130,920 7,385,768
2013-2017 48,518,926 17,323,743 12,025,749 9,092,722 60,544,675 26,416,465
2018-2022 30,647,569 10,164,734 9,569,882 6,598,342 40,217,451 16,763,076
2023-2027 25,759,478 2,980,633 8,271,226 4,403,267 34,030,704 7,383,900
Arb2028-
itrage – The Tax Reform
2032 670,240Act of 1986 instituted certain
14,963 arbitrage2,790,125
5,951,552 restrictions with6,621,792
respect to the2,805,088
issuance
of t2033-
ax exem
2037 pt bond proceeds - at an interest - yield 7,117,245
greater than the interest yield7,117,245
1,303,650 paid to bondholder
1,303,650s.
2038 all interest paid to- bondholders ca-n be retroactivel
Generally, 1,419,553 y rendered63,675 1,419,553e rebates are
taxable if applicabl 63,675
not
Total $ 184,418,830 $ 64,494,025 $ 55,295,957 $ 36,136,501 $ 239,714,787 $ 100,630,526

34
reported and paid to the Internal Revenue Service at least every five years. During the current year, The
District performed calculations of excess investment earnings on various bonds and at August 31, 2006 does
not expect to incur a liability.

9. VARIABLE RATE BONDS

At August 31, 2007 and 2006 the District had Series 1997 Variable Rate Bonds (the “Bonds”) outstanding in
the amount of $2,530,000 and $7,530,000, respectively. The Bonds are repriced to the investor periodically
and the interest rate is reset at the same time to the District. The District currently uses a weekly mode for
repricing. The interest rates vary weekly based on yield quotations for issues of tax-exempt bonds having
similar characteristics. At August 31, 2007 and 2006, the Bonds had a rate of 3.98% and 3.41%,
respectively. The Bonds are convertible, at the option of the District, and pursuant to an order by the Board
of Trustees, between Variable Rate Periods, Fixed Rate Periods or Flexible Rate Periods in accordance with
the Order Authorizing issuance of such Bonds. To accomplish a conversion from one rate method to another,
the District must give written notice of the proposed conversion together with an Opinion of Bond Counsel to
the Remarketing Agent not less than 45 days before the proposed conversion date.

10. ADVANCE REFUNDING BONDS

On September 14, 2005 the District issued $47,645,000 of Limited Tax Refunding Bonds, Series 2005A. The
issue consisted solely of Refunding Bonds with a reoffering premium of $2,574,749. The bonds mature
serially through February 15, 2026. Interest on the Bonds ranges from 3.000% to 5.000%. The net refunding
proceeds were applied to refund $23,565,000 of outstanding Limited Tax Refunding Bonds, Series 1999 with
interest rates ranging from 4.45% to 5.25% and $24,125,000 of outstanding Limited Tax Refunding Bonds,
Series 2001 with interest rates ranging from 4.305% to 5.375%. The Series 1999 Bonds are callable on
February 15, 2008 and the Series 2001 Bonds are callable on February 15, 2010. The aggregate debt service
payments of the refunded bonds ($75,439,094) is $2,659,079 less than the aggregate debt service payments
of the refunding bonds ($72,780,015). The net present value savings of the refunding transaction is
$1,779,605. The refunding proceeds were deposited into an irrevocable trust with an escrow agent to provide
all of the debt service payments. The refunded bonds are considered defeased and the liability for those
bonds was removed from the District’s liabilities in fiscal year 2006.

On August 1, 2007 the District issued $13,410,000 of Limited Tax Refunding Bonds, Series 2007. The issue
consisted solely of Refunding Bonds with a reoffering premium of $1,107,839. The bonds mature serially
through February 15, 2012. Interest on the Bonds ranges from 3.443% to 5.000%. The net refunding
proceeds were applied to refund $13,410,000 of outstanding Limited Tax General Obligation Bonds, Series
2002 with interest rates of 5.375%. The Series 2002 Bonds are callable on February 15, 2012. The aggregate
debt service payments of the refunded bonds ($19,419,787) is $4,595,788 less than the aggregate debt service
payments of the refunding bonds ($14,823,999). The net present value savings of the refunding transaction is
$449,887. The refunding proceeds were deposited into an irrevocable trust with an escrow agent to provide
all of the debt service payments. The refunded bonds are considered defeased and the liability for those
bonds was removed from the District’s liabilities in fiscal year 2007.

11. DEFEASED BONDS OUTSTANDING

For the fiscal years ended August 31, 2007 and 2006 the District had the following defeased bonds
outstanding.

Series 2007 2006

1999 $ 23,565,000 $ 23,565,000
2001 24,125,000 24,125,000
2002 13,410,000 -

35
12. OPERATING LEASES

The District leases certain of its educational facilities, offices and other equipment. Future minimum rental
payments under non-cancelable operating leases having remaining terms in excess of one year as of August
31, 2007, for each of the next five years and in the aggregate are as follows:

Year Ended 8/31/07 Total

2008 $ 2,025,453
2009 2,024,463
2010 1,407,780
2011 1,270,511
2012 1,102,976
2013-2016 3,900,000
Total minimum lease payments 11,731,182
Less: Amount representing interest costs -
Present value of minimum lease payments $ 11,731,182

Rent expense for the years ended August 31, 2007 and 2006 was $2,424,454 and $2,252,462, respectively.

13. EMPLOYEES’ RETIREMENT PLAN

The State of Texas has joint contributory retirement plans for almost all its employees. Within the first 90
days of employment higher education employees make an irrevocable choice to be covered by either the
Teacher Retirement System or the Optional Retirement Plan. The total payroll for all District employees was
$122,049,525 and $114,467,450 for fiscal years 2007 and 2006, respectively.

Teacher Retirement System

The District participates in the Teacher Retirement System of Texas (TRS). TRS is a cost-sharing multiple-
employer public employee retirement system except that all risks and costs are not shared by the employer
but are the liability of the State of Texas. Regulations of the State of Texas assign the authority to establish
and amend benefit provisions to the TRS Board of Trustees. Because the TRS bears sole responsibility for
retirement commitments beyond contributions fixed by the Legislature, TRS does not separately account for
each of its component government agencies. Further information regarding actuarial assumptions and
conclusions, as well as audited financial statements, is included in the annual financial report of TRS. That
report may be obtained from the TRS website, www.trs.state.tx.us, under the TRS Publications heading.

The percentages of participant salaries currently contributed by the State and by each participant are 6.0%
and 6.4%, respectively, of annual compensation.

The total payroll of employees covered by the Teacher Retirement System for the years 2007 and 2006 was
$63,637,285 and $58,945,341, respectively. The retirement expense to the State for District employees was
$3,818,237 and $3,536,720 for the fiscal years ended August 31, 2007 and 2006, respectively, and for both
years is 100% of required contributions. This amount represents the portion of expended appropriations made
by the State Legislature on behalf of the District. These amounts are recorded by the District as on-behalf
revenue and expense.

Optional Retirement Plan

The State has also established an optional retirement program for institutions of higher education.
Participation in the optional retirement program is in lieu of participation of the Teacher Retirement System.

36
The optional retirement program provides for the purchase of annuity contracts. The percentages of
participant salaries currently contributed by the State and each participant are 6.0% and 6.65%, respectively.
The District contributes 2.5% for employees who were participating in the optional retirement program prior
to September 1, 1995. Benefits fully vest after one year plus one day of employment. Because these are
individual annuity contracts, the State has no additional or unfunded liability for this program.

The total payroll of employees covered by the Optional Retirement System was $33,201,651 and
$31,657,477 for fiscal years 2007 and 2006, respectively. The retirement expense to the State for the District
was $1,992,099 and $1,899,449 for the fiscal years ended August 31, 2007 and 2006, respectively. This
amount represents the portion of expended appropriations made by the State Legislature on behalf of the
District. These amounts are recorded by the District as on-behalf revenue and expense.

14. DEFERRED COMPENSATION PROGRAM

Certain District employees may elect to defer a portion of their earnings for income tax and investment
purposes pursuant to authority granted in Government Code 609.001. The plan is essentially an unfunded
promise to pay by the employer to each of the plan participants.

As of August 31, 2007, the District has 8 employees participating in the program. There were 4 employees
vested at August 31, 2007. At August 31, 2006 there was $215,029 invested in plan assets. There were net
contributions in the amount of $120,898 invested in the plan during the fiscal year and vested distributions to
employees amounted to $160,967. At August 31, 2007 the total of deferred salaries and accumulated
earnings of current employees is $169,423.

15. COMPENSABLE ABSENCES

Full-time non-faculty employees on a twelve month work schedule are eligible for paid annual leave. Eligible
employees accrue vacation leave at different rates depending on their length of service and position. Accrual
rates range from 8 hours per month to 13.33 hours per month. The District’s policy is to allow employees to
carry their accrued leave forward from one fiscal year to another fiscal year with a maximum number of
hours accrued equal to twice their annual accrual rate. Eligible employees are entitled to payment for all
accumulated annual leave up to the maximum allowed at the time employment with the District is
terminated. The District recognizes an accrued liability for the unpaid compensated absences in the amounts
of $3,720,815 and $3,596,149 for the fiscal years ended August 31, 2007 and 2006, respectively.

Sick leave, which is accumulated to a maximum of 520 hours, is earned at the rate of 8 hours per month. Full
time employees eligible to participate in the sick leave plan are those who work a 12 month schedule and
who work at least 20 hours per week. It is paid to an employee who misses work due to illness. The District’s
policy is to recognize the cost of sick leave when paid. The liability is not shown in the financial statements
because the benefit is budgeted annually and employees are not compensated on termination for accrued sick
leave balances.

16. COMMITMENTS AND CONTINGENCIES

Contingencies – The District has received federal, state, and other financial assistance in the form of
contracts and grants that are subject to review and audit by the grantor agencies. Such audits could result in
requests for reimbursement by the grantor agency for expenditures disallowed under terms and conditions
specified in the contract and grant agreements. In the opinion of the District’s management, such
disallowances, if any, would not be significant in relation to the financial statements of the District.

Pending Lawsuits and Claims – On August 31, 2007, various lawsuits and claims involving the District were
pending. The ultimate liability with respect to litigation and other claims against the District cannot be
reasonably estimated at this time. In the opinion of the District’s management, any liability, to the extent not
provided for by insurance or otherwise, will not have a material effect on the District.

37
17. DISAGGREGATION OF RECEIVABLES AND PAYABLES BALANCES

Receivables at August 31, 2007 and 2006 were as follows:

August 31
2007 2006
Student Receivables $ 5,097,880 $ 4,383,324
Taxes Receivable 6,188,104 6,235,292
Federal Receivable 3,333,929 3,842,020
Accounts Receivable 2,905,685 2,256,743
Interest Receivable 392,146 235,348
Other Receivables 117,445 482,353
Subtotal 18,035,189 17,435,080
Allowance for Doubtful Accounts (982,423) (983,238)

TOTAL RECEIVABLES $ 17,052,766 $ 16,451,842

Payables at August 31, 2007 and 2006, were as follows:

August 31
2007 2006
Vendors Payable 10,838,967 9,499,563
Salaries & Benefits Payable 1,046,100 796,574
Students Payable 345,662 1,032,445
Accrued Interest 471,453 456,796
Other Payable 29,313 24,398

TOTAL PAYABLES $ 12,731,495 $ 11,809,776

18. CONTRACT AND GRANT AWARDS

Contract and grant awards are accounted for in accordance with the generally accepted accounting principles.
Revenues are disclosed on Exhibit 2 and Schedule A. Funds expended, but not collected, are reported as
accounts receivable on Exhibit 1. Collections in excess of funds expended are reported as deferred revenues
on Exhibit 1. Contract and grant awards that are not yet funded and for which the institution has not yet
performed services are not included in the financial statements.

19. RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;
errors and omissions; injuries to employees; and natural disasters. Significant losses for these risks are
covered by commercial insurance. There have been no significant reductions in insurance coverage.
Settlement amounts have not exceeded insurance coverage for the past three prior years. The District did not
maintain or operate a self-insured insurance plan during the years ended August 31, 2007 and 2006.

20. POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

In addition to providing pension benefits, the State provides certain health care and life insurance benefits for
retired employees. Almost all of the employees may become eligible for those benefits if they reach normal
retirement age while working for the state. Those and similar benefits for active employees are provided

38
through an insurance company whose premiums are based on benefits paid during the previous year. The
State recognizes the cost of providing these benefits by expending the annual insurance premiums. The
state’s contribution per full-time employee was $360.54 per month for the year ended August 31, 2007
($343.48 per month for 2006) and totaled $7,826,145 for 2007 ($7,150,831 for the year ended 2006). The
cost of providing those benefits for 217 retirees in the year ended 2007 was $1,035,217 (retiree benefits for
200 retirees cost $956,311 in 2006). For 1,896 active employees, the cost of providing benefits was
$12,258,735 for the year ended 2007 (active employee benefits for 1,907 employees cost $11,543,393 for the
year ended 2006).

21. AD VALOREM TAX

The District’s ad valorem property tax is levied each October 1 on the assessed value listed as of the prior
January 1 for all real and business personal property located in the District at August 31:

2007 2006
Assessed Valuation of the District $96,720,583,927 $ 87,974,128,240
Less: Exemption (6,573,726,290) (6,037,955,445)
Less: Abatements - -
Net Assessed Valuation of the District $ 90,146,857,637 $ 81,936,172,795

2007 2006
Current Debt Current Debt
Operation Service Total Operation Service Total
Authorized
Tax Rate per $100 valuation $0.3000 $0.5000 $0.8000 $0.3000 $0.5000 $0.8000

Assessed
Tax Rate per $100 valuation $0.0820 $0.0347 $0.1167 $0.0860 $0.0347 $0.1207

Taxes levied for the year ended August 31, 2007 and 2006 amounted to $105,201,383 and $98,896,961
respectively (which includes any penalty and interest assessed, if applicable). Taxes are due on receipt of the
tax bill and are delinquent if not paid before February 1st of the year following the year in which imposed.

Current 2007 Current 2006

Operations Debt Service Total Operations Debt Service Total

Current Taxes $ 71,592,439 $ 30,467,272 $ 102,059,711 $ 67,431,512 $ 27,450,839 $ 94,882,351

Delinquent Taxes 2,160,015 927,486 3,087,501 2,362,703 953,302 3,316,005

Penalties & Interest 925,547 373,131 1,298,678 977,390 301,793 1,279,183

Total $ 74,678,001 $ 31,767,889 $ 106,445,890 $ 70,771,605 $ 28,705,934 $ 99,477,539

Tax collections for the year ended August 31, 2007 and 2006 were 97.01% and 95.94%, respectively of the
current tax levy. Taxes assessed are recorded in the District’s financial statements net of the related
allowance for uncollectible taxes, based upon the District’s expected collection experience. The use of tax
proceeds is restricted for the use of maintenance and general obligation debt service.

39
22. INCOME TAXES

The District is exempt from income taxes under Internal Revenue Code Section 115, “Income of States,
Municipalities, Etc.”, although unrelated business income may be subject o income taxes under Internal
Revenue Code Section 511(a)(2)(B), “Imposition of Tax on Unrelated Business Income of Charitable, Etc.
Organizations”. The District had no unrelated business income tax liability for the year ended August 31,
2007 and 2006.

23. RELATED PARTIES

The North Harris Montgomery Community College District Foundation (the “Foundation”) is a nonprofit
organization with the purpose of supporting the educational and other activities of the District. The District
does not appoint board members; does not fund; nor is the District obligated to pay debt related to the
Foundation. However, the District does have the ability to significantly influence the policies of the
Foundation. The Foundation solicits donations and acts as coordinator of gifts made by other parties. It
remitted restricted gifts of $739,920 and $697,513 to the District during the years ended August 31, 2007 and
2006, respectively. The District furnished certain services, such as office space, utilities and some staff
assistance, to the Foundation which totaled $246,696 and $225,816 for 2007 and 2006, respectively. There
were no related receivables as of August 31, 2007 and 2006.

24. SUBSEQUENT EVENT

On November 1, 2007, the North Harris Montgomery Community College District Board of Trustees voted
to change the name of the District to Lone Star College System. The new name became effective on
November 5, 2007.

40
 SCHEDULE A
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF OPERATING REVENUES
YEAR ENDED AUGUST 31, 2007 (With Memorandum Totals for the Year Ended August 31, 2006)

Educational Auxiliary 2006

Unrestricted Restricted Activities Enterprises Total Totals
Tuition
State funded courses
In-district resident tuition $ 26,111,730 $ - $ 26,111,730 $ - $ 26,111,730 $ 24,638,645
Out-of-district resident tuition 4,740,009 - 4,740,009 - 4,740,009 4,216,666
Non-resident tuition 2,615,623 - 2,615,623 - 2,615,623 2,111,057
TPEG -credit (set aside)* (1,904,211) - (1,904,211) - (1,904,211) (1,691,502)
State-funded continuing education 4,522,764 4,522,764 4,522,764 4,313,776
TPEG -non-credit (set aside)* (199,082) - (199,082) - (199,082) (97,745)
Non-state funded continuing education 1,799,690 - 1,799,690 - 1,799,690 1,650,480
Total tuition 37,686,523 - 37,686,523 - 37,686,523 35,141,377
Fees - -
General fee 1,269,538 - 1,269,538 - 1,269,538 1,222,140
Student service fee 1,617,835 - 1,617,835 - 1,617,835 1,556,029
Laboratory fee 854,667 - 854,667 - 854,667 881,734
Other fees 5,402,951 - 5,402,951 - 5,402,951 4,772,210
Total fees 9,144,991 - 9,144,991 - 9,144,991 8,432,113
Scholarship allowances and discounts - -
Scholarship Allowances (2,616,801) - (2,616,801) - (2,616,801) (2,319,480)
Remissions and Exemptions (1,028,790) - (1,028,790) - (1,028,790) (878,692)
TPEG Allowances (572,539) - (572,539) - (572,539) (666,542)
State Grants to Students (601,556) - (601,556) - (601,556) (477,125)
Federal Grants to Students (5,197,280) - (5,197,280) - (5,197,280) (5,819,693)
Other - - - - -
Total scholarship allow and disc (10,016,966) - (10,016,966) - (10,016,966) (10,161,532)
Total net tuition and fees 36,814,548 - 36,814,548 - 36,814,548 33,411,958
Additional operating revenues
Federal grants and contracts - 23,859,077 23,859,077 - 23,859,077 24,029,031
State grants and contracts - 826,569 826,569 - 826,569 523,595
Local grants and contracts 1,560,592 2,314,987 3,875,579 - 3,875,579 8,097,976
Other operating revenues 910,264 910,264 - 910,264 891,357
Total additional operating revenues 2,470,856 27,000,633 29,471,489 - 29,471,489 33,541,959
Auxiliary enterprises
Food Service - - - 2,146,409 2,146,409 1,897,054
Bookstore - - - 1,579,040 1,579,040 1,507,082
Child Care Fees - - - 721,414 721,414 725,821
Special Events - - - 659,601 659,601 688,911
Other - - - 564,889 564,889 571,227
Total net auxiliary enterprises - - - 5,671,353 5,671,353 5,390,095
Total Operating Revenues $ 39,285,404 $ 27,000,633 $ 66,286,037 $ 5,671,353 $ 71,957,390 $ 72,344,012
(Exhibit 2) (Exhibit 2)

*In accordance with the Education code 56.033, $2,103,293 and $1,789,247 was set aside for Texas Public Education Grants in 2007
and 2006, respectively.

41
 SCHEDULE B
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF OPERATING EXPENSES BY OBJECT
YEAR ENDED AUGUST 31, 2007 (with Memorandum Totals for the Year Ended August 31, 2006)

Operating Expenses
Salaries Benefits Other 2007 2006
and Wages State Local Expenses Total Total

Unrestricted Educational Activities

Instruction $ 61,484,394 $ - $ 3,171,368 $ 7,555,287 $ 72,211,049 $ 66,709,904
Public service 549,911 - 45,748 161,513 757,172 826,798
Academic support 21,472,790 - 1,284,565 5,099,172 27,856,527 26,073,905
Student services 10,022,940 - 598,310 2,678,972 13,300,222 12,160,108
Institutional support 14,690,738 - 2,037,030 10,652,226 27,379,994 25,444,565
Operation and maintenance of plant 7,369,427 - 1,893,522 17,747,059 27,010,008 22,571,890
Scholarships and fellowships - - - - - -
Total unrestricted educational activities 115,590,200 - 9,030,543 43,894,229 168,514,972 153,787,170

Restricted Educational Activities

Instruction 2,116,653 $ 5,773,939 301,029 1,181,897 9,373,518 10,515,290
Public service 259,494 72,302 48,931 336,803 717,530 648,258
Academic support 146,678 3,188,283 7,828 211,795 3,554,584 2,935,768
Student services 825,581 1,442,203 100,321 1,036,465 3,404,570 3,390,875
Institutional support 102,350 3,159,754 17,772 238,525 3,518,401 3,126,523
Operation and maintenance of plant 198,562 - 58,852 94,136 351,550 1,093,359
Scholarships and fellowships - - - 10,391,971 10,391,971 9,340,611
Total restricted educational activities 3,649,318 13,636,481 534,733 13,491,592 31,312,124 31,050,684

Total educational activities 119,239,518 13,636,481 9,565,276 57,385,821 199,827,096 184,837,854

Auxiliary enterprises 1,949,807 - 395,316 2,959,209 5,304,332 5,132,064

Depreciation expense - buildings - - - 6,550,074 6,550,074 6,484,698

Depreciation expense - equip & furn - - - 2,275,289 2,275,289 2,217,479

Total Operating Expenses $ 121,189,325 $ 13,636,481 $ 9,960,592 $ 69,170,393 $ 213,956,791 $ 198,672,095

(Exhibit 2) (Exhibit 2)

42
 SCHEDULE C
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF NON-OPERATING REVENUES AND EXPENSES
YEAR ENDED AUGUST 31, 2007 (With Memorandum Totals for the Year Ended August 31, 2006)

Auxiliary August 31,

Unrestricted Restricted Enterprises 2007 2006

NON-OPERATING REVENUES:
State appropriations:
Education and general state support $ 49,113,362 $ - $ - $ 49,113,362 $ 49,113,362
State group insurance - 7,826,145 - 7,826,145 7,490,673
State retirement matching - 5,810,336 - 5,810,336 5,661,796
Developmental education - - - - -
Total state appropriations 49,113,362 13,636,481 - 62,749,843 62,265,831

Maintenance ad valorem taxes 73,755,838 - - 73,755,838 70,130,332

General obligation ad valorem taxes - 31,367,850 - 31,367,850 28,436,732
Gifts 17,000 - - 17,000 8,200
Investment income 4,477,292 - - 4,477,292 2,540,321
Gain on sale of investment - - - - -
Gain on disposal of capital asset - - - - -
Other non-operating revenue 925,547 377,389 - 1,302,936 1,386,683

Total non-operating revenues 128,289,039 45,381,720 - 173,670,759 164,768,099

NON-OPERATING EXPENSES:

Interest on capital related debt - 11,359,249 - 11,359,249 12,517,976

Loss on disposal of capital assets - 245,000 - 245,000 6,106
Other non-operating expense - - - - -

Total non-operating expenses - 11,604,249 - 11,604,249 12,524,082

Net non-operating revenues $ 128,289,039 $ 33,777,471 $ - $ 162,066,510 $ 152,244,017

(Exhibit 2) (Exhibit 2)

43
 SCHEUDLE D
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF NET ASSETS BY SOURCE AND AVAILABILITY
YEAR ENDED AUGUST 31, 2007 (with Memorandum Totals for the Year Ended August 31, 2006)

Detail by Source Available for

Restricted Capital Current Operations
Non- Assets
Unrestricted Expendable Expendable (Net) Total Yes No

Current:
Unrestricted $ 38,799,592 $ - $ - $ - $ 38,799,592 $ 38,799,592 $ -
Board designated - - - - - - -
Restricted - - - - - - -
Auxiliary enterprises 1,706,458 - - - 1,706,458 1,706,458 -
Loan - 485,631 - - 485,631 - 485,631
Endowment:
Quasi:
Unrestricted - - - - - - -
Restricted - - - - - - -
Endowment
True - - - - - - -
Term - - - - - - -
Life income contracts - - - - - - -
Annuities - - - - - - -
Plant:
Unexpended - - - - - - -
Renewals - - - - - - -
Debt service - 6,051,347 - - 6,051,347 - 6,051,347
Investment in Plant - - - 119,597,719 119,597,719 - 119,597,719

Total Net Assets, August 31, 2007 40,506,050 6,536,978 - 119,597,719 166,640,747 40,506,050 126,134,697

Total Net Assets, August 31, 2006 37,602,808 3,822,347 - 105,148,483 146,573,638 37,602,808 108,970,830

Net Increase in Net Assets $ 2,903,242 $ 2,714,631 $ - $ 14,449,236 $ 20,067,109 $ 2,903,242 $ 17,163,867

44
 SCHEDULE E
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED AUGUST 31, 2007

Pass Through
Federal Pass-Through Disbursements
Federal Grantor/Pass Through Grantor/ CFDA Grantor's and
Program Title Number Number Expenditures

U.S. DEPARTMENT OF EDUCATION

Direct Programs:
Federal Supplemental Educational Opportunity Grants-FSEOG (06-07) 84.007 P007A034084 $ 534,401

Institutional Development & Undergraduate Education Service

Higher Education - Institutional Aid-Title V (06-07) 84.031S P031S040052-06 404,374

Federal Work-Study Program (06-07) 84.033 P933A044084 251,782

Federal Work-Study Program (07-08) 84.033 P933A044084 36,137
Total Federal Work-Study Program 287,919

TRIO - Student Support Services (06-07) 84.042A P042A050846 253,587

TRIO - Talent Search (06-07)

NHC's Student Support Services Initiative 84.044A P044A020444-6 283,076

TRIO - Upward Bound (06-07) 84.047A P047A031128-06 385,803

TRIO - Upward Bound (06-07) 84.047A P047A030935-06 245,007
Total TRIO - Upward Bound 630,810

Federal Pell Grant program (02-03) 84.063 P063P033422 98

Federal Pell Grant program (03-04) 84.063 P063P033422 2,025
Federal Pell Grant program (04-05) 84.063 P063P033422 (6)
Federal Pell Grant program (05-06) 84.063 P063P033422 (33,750)
Federal Pell Grant Program (06-07) 84.063 P063P033422 17,150,055
Total Federal Pell Grant Program 17,118,422

Academic Competitiveness (06-07) 84.375 n/a 15,175

Pass-Through From:
Texas Education Agency
Adult Education - State Grant Program (05-06) 84.002A 6410008711053 128,117
Adult Education - State Grant Program (06-07) 84.002A 74100017110153 759,882
Adult Education - State Grant Program (05-06) 84.002A 54100087110053 7,404
Adult Education - State Grant Program (06-07) 84.002A 74100087110163 80,519
Adult Education - State Grant Program (05-06) 84.002A 410005711060004 92,109
Adult Education - State Grant Program (06-07) 84.002A 74100037110023 330,570
Total Adult Basic Education - State Grant Program 1,398,601

Career and Technology Education (06-07)

ATC Professional Development 84.048 1670 134,889

Pass-Through From:
Texas Higher Education Coordinating Board
Vocational Education - Basic Grants to States (05-06) 84.048 61404 2,450
Vocational Education - Basic Grants to States (06-07) 84.048 74233 951,384
Vocational Education - Basic Grants to States (06-07) 84.048 71409 51,058
Vocational Education - Basic Grants to States (06-07) 84.048 71502 77,320
Vocational Education - Basic Grants to States (06-07) 84.048 71104 29,442
Vocational Education - Basic Grants to States (06-07) 84.048 71103 23,931
Vocational Education - Basic Grants to States (06-07) 84.048 71407 93,268
Vocational Education - Basic Grants to States (06-07) 84.048 71501 30,457
Vocational Education - Basic Grants to States (05-06) 84.048 61301 (440)
Vocational Education - Basic Grants to States (06-07) 84.048 71404 84,472
Total Vocational Education - Basic Grants 1,343,342

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this statement

45
 SCHEDULE E
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
YEAR ENDED AUGUST 31, 2007

Pass Through
Federal Pass-Through Disbursements
Federal Grantor/Pass Through Grantor/ CFDA Grantor's and
Program Title Number Number Expenditures

Texas Higher Education Coordinating Board

Southwest Texas Junior College
Career Foundation Core Advanced Manufacturing Grant (06-07) 84.048 71405 4,999

Texas Higher Education Coordinating Board

Alamo Community College District
Technical Degree Program Course Redesign (Math) (06-07) 84.048 74401 14,244

Texas Higher Education Coordinating Board

Austin Community College District
Bridge to Careers Project (06-07) 84.048 74402 27,159

Texas Higher Education Coordinating Board

Leveraging Educational Assistance Partnership (06-07) 84.069A n/a 25,792

Texas Higher Education Coordinating Board

Special Leveraging Educational Assistance Partnership (06-07) 84.069B n/a 43,355

Texas Higher Education Coordinating Board

Robert C. Byrd Honors Scholarship (06-07) 84.185A n/a 3,000

Texas Higher Education Coordinating Board

Tech Prep Education (06-07) 84.243 71713 927,277

Fund for the Improvement of Postsecondary Education

Stephen F. Austin
Articulated Internet Teacher Education Program for Multilingual Classrooms
(06-07) 84.116 P116B060283 3,566

Landmark College
Demonstrations Projects to Ensure Students with Disabilities Receive a Higher
Education (06-07) 84.333A P333A050035-06 17,732

Total U.S. Department of Education 23,471,720

THE DEPARTMENT OF AGRICULTURE

Pass -Through from: Texas Health and Human Services Commission
Child and Adult Care Food Program (06-07) 10.558 75L4003 29,221

DEPARTMENT OF JUSTICE
Direct Program:
Bullet Proof Vest Program (06-07) 16.607 15-0404-01-754 495

DEPARTMENT OF LABOR
Pass-Through from: Houston-Galveston Area Council
WIA Pilots, Demonstrations, and Research Projects 17.261 229-06 2,462

NATIONAL SCIENCE FOUNDATION

Direct Program:
Education and Human Resources (06-07) 47.076 401988 12,863
Pass-Through from: Texas Engineering Experiment Station (TEES)
Education and Human Resources 47.076 ESI-0353377 122,040

Total National Science Foundation 134,903

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this statement

46
 SCHEDULE E
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
YEAR ENDED AUGUST 31, 2007

Pass Through
Federal Pass-Through Disbursements
Federal Grantor/Pass Through Grantor/ CFDA Grantor's and
Program Title Number Number Expenditures

SMALL BUSINESS ADMINISTRATION

Pass-Through from:
University of Houston
Small Business Development Center (06-07)) 59.037 R070104 5,033
Small Business Development Center (06-07)) 59.037 R040213 128,801

Total Small Business Administration 133,834

HEALTH AND HUMAN SERVICES COMMISSION

Pass-Through from:
Texas Education Agency
Temporary Assistance for Needy Families (05-06) 93.558 63625017110124 3,344
Temporary Assistance for Needy Families (06-07) 93.558 73625017110124 72,451

Total Health and Human Service Commission 75,795

CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

Pass-Through from: Maricopa Community College
ASSETS Accent on Student Success Engaged Together in Service 94.005 06LHHAZ001 9,291
Learn & Serve: Higher Ed: HE-Consortia (06-07)

Direct Program:
AACC Community College Broadening Horizon through
Learn and Serve America - Higher Education (06-07) 94.005 03LHHDC001 1,356

Total Corporation for National and Community Service 10,647

TOTAL FEDERAL FINANCIAL ASSISTANCE $ 23,859,077

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this statement.

47
 NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED AUGUST 31, 2007

1 Basis of Presentation

The schedule of expenditures of federal awards presents the federal grant activity of North Harris Montgomery Community College District
(the "District") for the year ended August 31, 2007. The information in this schedule is presented in accordance with the requirements of
OMB Circular A-133, Audits of States, Local Government, and Non-Profit Organizations and includes awards received directly from federal
agencies as well as federal awards passed through other government agencies.

2 Basis of Accounting

The accompanying schedule of expenditures of federal awards is presented using the accrual basis of accounting. Revenue is recognized when
earned and expenditures are recognized when incurred. Revenues are reported only to the extent of expenditures for the current year. Federal
receivables represent amounts expended in excess of that received.

3 Student Loans Processed and Administrative Costs Recovered

Administrative Total Loans

Federal Grantor New Loans Cost Processed & Admin
CFDA Number /Program Name Processed Recovered Cost Recovered

U.S. Department of Education

Federal Family Education Loan Program 84.032 $ 9,893,571 $ - $ 9,893,571

4 Federal Assistance Reconciliation

Federal Grants and Contracts Revenue per Exhibit 2 $ 23,859,077

Reconciling Items -

Total Federal revenues per Schedule of Expenditures of Federal Awards $ 23,859,077

48
 NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED AUGUST 31, 2007

5 Subrecipients

The following amounts were passed-through to the listed subrecipients by the college. These amounts were from the Tech Prep (06-07)
program CFDA 84.243A from U S Department of Education through the Texas Higher Education Coordinating Board.

ISD Name
Aldine ISD $ 11,917
Alief ISD 4,878
Alvin ISD 4,647
Bellville ISD 4,824
Channelview ISD 2,811
Clear Creek ISD 10,957
Columbus ISD 2,020
Cypress-Fairbanks ISD 11,435
Deer Park ISD 21,143
El Campo ISD 1,419
Fort Bend ISD 30,145
Friendswood ISD 6,383
Galena Park ISD 4,659
Goose Creek ISD 865
Hitchcock ISD 1,141
Houston ISD 5,936
Huffman ISD 1,110
Huntsville ISD 1,526
Katy ISD 14,868
Klein ISD 11,080
LaMarque ISD 1,042
Lamar CISD 2,826
Liberty ISD 1,250
New Caney ISD 2,464
Pearland ISD 6,299
Santa Fe ISD 2,056
Sealy ISD 6,576
Spring ISD 13,888
Spring Branch 36,050
Sweeny ISD 160
Tidehaven ISD 424
Van Vleck ISD 988
Waller ISD 553
Willis ISD 1,428

Colleges
Alvin CC 1,775
Brazosport College 3,700
College of the Mainland 95,345
Galveston College 1,608
Houston Community College System 35,435
Lee College 27,723
North Harris Montgomery Comm. College District 57,835
San Jacinto College District 1,105
TOTAL $ 454,294

49
 SCHEDULE F
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF EXPENDITURES OF STATE AWARDS
FOR THE YEAR ENDED AUGUST 31, 2007

State/Federal Pass-Through
CFDA Grantor's
State Grantor/Pass Through Grantor Number Number Expenditures

TEXAS HIGHER EDUCATION COORDINATING BOARD:

Direct Programs:
7800 College Work - Study Program (06-07) N/A N/A $ 33,571
7800 College Work - Study Program (07-08) N/A N/A 3,313
Total College Work - Study Program 36,884

7801 Texas Grant Program (05-06) N/A N/A (3,175)

7801 Texas Grant Program (06-07) N/A N/A 168,988
Total Texas Grant Program 165,813

7804 Texas Grant Renewal Program (06-07) N/A N/A 93,090

7805 Texas II Grant Renewal Program (06-07) N/A N/A 2,364

7803 Texas II Grant Program (06-07) N/A N/A 48,078
Total Texas II Grant Program 50,442

7831 Professional Nursing (06-07) N/A N/A 2,141

7833 Vocational Nursing (06-07) N/A N/A 783

Pass -Through from: University of Texas Medical Branch

7518 NIGP-RPD Category (06-07) N/A N/A 6,908

Pass -Through from: University of Texas

7503 WF Increases Nurses & Nursing Faculty (06-07) N/A N/A 13,423

Total Texas Higher Education Coordinating Board 369,484

See Accompanying Notes to Schedule of Expenditures of State Awards

50
 SCHEDULE F
NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
SCHEDULE OF EXPENDITURES OF STATE AWARDS (continued)
FOR THE YEAR ENDED AUGUST 31, 2007

State/Federal Pass-Through
CFDA Grantor's
State Grantor/Pass Through Grantor Number Number Expenditures
TEXAS WORKFORCE COMMISSION:
Direct Programs:
7514 TWC Skills Development (06-07) N/A 2807SDF001 285,105

TEXAS EDUCATION AGENCY:

Direct Programs:
7508 Temporary Assist. for Needy Families (06-07) N/A 70110017110124 38,938
7509 Adult Basic Education (06-07) N/A 70100017110135 130,090

Pass -Through from: TEA Aldine ISD

7517 Victory Early College High School (06-07) N/A 71045297110001 1,833

Total Texas Education Agency 170,861

TEXAS COMPTROLLER OF PUBLIC ACCOUNTS:

Direct Programs:
7500 LEOSE/Law Enforcement Officer Standards and N/A N/A
Education (06-07) 1,119

TOTAL STATE FINANCIAL ASSISTANCE $ 826,569

See Accompanying Notes to Schedule of Expenditures of State Awards

51
 NORTH HARRIS MONTGOMERY COMMUNITY COLLEGE DISTRICT
NOTES TO SCHEDULE OF EXPENDITURES OF STATE AWARDS
FOR THE YEAR ENDED AUGUST 31, 2007

1 Significant Accounting Policies used in Preparing the Schedule

The expenditures included in the schedule are reported for the District's fiscal year. Expenditure reports to funding
agencies are prepared on the award period basis. The expenditures reported above represent funds which have been
expended by the college district for the purposes of the award. The expenditures reported above may not have been
reimbursed by the funding agencies as of the end of the fiscal year. Some amounts reported in the schedule may differ
from amounts used in the preparation of the basic financial statements. Separate accounts are maintained for the
different awards to aid in the observance of limitations and restrictions imposed by the funding agencies. The District
has followed all applicable guidelines issued by various entities in the preparation of the schedule.

2 State Assistance Reconciliation

Total State Revenues $ 826,569

Reconciling item:
Interest Income -
Total expenditures per Schedule of State Awards $ 826,569

52
 STATISTICAL SECTION

This part of the North Harris Montgomery Community College District’s comprehensive annual
financial report presents detailed information as a context for understanding what the information
in the financial statements, note disclosures, and required supplementary information says about
the government’s overall financial health.

Contents Page

Financial Trends
These schedules contain trend information to help the reader understand how
the District’s financial performance and well-being have changed over time. 54

Revenue Capacity
These schedules contain information to help the reader assess the District’s
most significant local revenue sources - tuition and fees, state appropriations 57
and ad valorem taxes.

Debt Capacity
These schedules present information to help the reader assess the affordability
of the District current levels of outstanding debt and the District’s 62
ability to issue additional debt in the future.

Demographic and Economic Information

These schedules offer demographic and economic indicators to help
the reader understand the environment within which the District’s 65
financial activities take place.

Operating Information
These schedules contain service and infrastructure data to help the reader
understand how the information in the District’s financial report 67
relates to the services the District provides and the activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the
relevant year.

53
North Harris Montgomery Community College District
Net Assets by Component
Fiscal Years 2002 to 2007
(unaudited)

For the Fiscal Year Ended August 31,

(amounts expressed in thousands)

2007 2006 2005 2004 2003 2002

Invested in capital assets, net of related debt $119,598 $105,149 $88,362 $79,699 $81,262 $79,681
Restricted - expendable 6,537 3,822 2,810 2,246 2,818 4,537
Restricted - nonexpendable - - - - - -
Unrestricted 40,506 37,603 29,486 26,525 21,283 19,133
Total net assets $ 166,641 $ 146,574 $ 120,658 $ 108,470 $ 105,363 $ 103,351

Net increase in net assets $ 20,067 $ 25,916 $ 12,188 $ 3,107 $ 2,012

Note: Due to reporting format and definition changes prescribed by GASB Statement 34, only fiscal years 2002-2007 are available.

54
North Harris Montgomery Community College District
Revenues by Source
Fiscal Years 2002 to 2007
(unaudited)

For the Year Ended August 31,

(amounts expressed in thousands)

2007 2006 2005 2004 2003 2002

Tuition and Fees (Net of Discounts) $ 36,815 $ 33,412 $ 30,134 $ 28,615 $ 22,311 $ 19,423
Governmental Grants and Contracts
Federal Grants and Contracts 23,859 24,029 24,285 21,390 18,368 18,547
State Grants and Contracts 826 524 901 910 1,680 1,416
Local Grants and Contracts 3,876 8,098 3,172 2,978 4,778 2,624
Non-Governmental Grants and Contracts - - - - - -
Sales and services of educational activities - - - - - -
Auxiliary enterprises 5,671 5,390 4,886 5,025 3,681 3,765
Other Operating Revenues 910 891 1,089 429 300 131
Total Operating Revenues $ 71,957 $ 72,344 $ 64,467 $ 59,347 $ 51,118 $ 45,906

Ad Valorem Taxes:
Maintenance and Operations 73,756 70,130 60,589 55,442 47,337 45,720
General Obligation Bonds 31,368 28,437 26,362 24,243 20,016 20,517
State Appropriations 62,750 62,266 54,697 53,998 46,501 48,744
Gifts 17 8 32 - - -
Investment income 4,477 2,540 1,111 1,204 2,099 2,538
Other non-operating revenues 1,303 1,387 623 618 539 2,284
Total Non-Operating Revenues 173,671 164,768 143,414 135,505 116,492 119,803
Total Revenues $ 245,628 $ 237,112 $ 207,881 $ 194,852 $ 167,610 $ 165,709

For the Year Ended August 31,

2007 2006 2005 2004 2003 2002

Tuition and Fees (Net of Discounts) 14.99% 14.09% 14.50% 14.69% 13.31% 11.72%
Governmental Grants and Contracts
Federal Grants and Contracts 9.71% 10.13% 11.68% 10.98% 10.96% 11.19%
State Grants and Contracts 0.34% 0.22% 0.43% 0.47% 1.00% 0.85%
Local Grants and Contracts 1.58% 3.42% 1.53% 1.53% 2.85% 1.58%
Non-Governmental Grants and Contracts - - - - - -
Sales and services of educational activities - - - - - -
Auxiliary enterprises 2.31% 2.27% 2.35% 2.58% 2.20% 2.27%
Other Operating Revenues 0.37% 0.38% 0.52% 0.22% 0.18% 0.08%
Total Operating Revenues 29.30% 30.51% 31.01% 30.46% 30.50% 27.70%

Ad Valorem Taxes:
Maintenance and Operations 30.03% 29.58% 29.15% 28.45% 28.24% 27.59%
General Obligation Bonds 12.77% 11.99% 12.68% 12.44% 11.94% 12.38%
State Appropriations 25.55% 26.26% 26.31% 27.71% 27.74% 29.42%
Gifts 0.01% - 0.02% - - -
Investment income 1.82% 1.07% 0.53% 0.62% 1.25% 1.53%
Other non-operating revenues 0.52% 0.58% 0.30% 0.32% 0.32% 1.38%
Total Non-Operating Revenues 70.70% 69.49% 68.99% 69.54% 69.50% 72.30%
Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Note: Due to reporting format and definition changes prescribed by GASB Statement 34, only fiscal years 2002-2007 are available.

55
North Harris Montgomery Community College District
Program Expenses by Function
Note: Due to reporting format and definition changes prescribed by GASB Statement 34, only fiscal years 2002-2007 are available.
Fiscal Years 2002 to 2007
(unaudited)

For the Year Ended August 31,

(amounts expressed in thousands)

2007 2006 2005 2004 2003 2002

Instruction $ 81,585 $ 77,225 $ 69,557 $ 71,587 $ 63,503 $ 54,145

Research - - - - -
Public service 1,475 1,475 1,324 1,408 2,146 2,455
Academic support 31,411 29,010 25,892 16,270 19,319 15,096
Student services 16,705 15,551 13,947 12,770 13,101 11,557
Institutional support 30,898 28,571 28,728 26,468 18,687 19,831
Operation and maintenance of plant 27,362 23,665 20,843 23,262 20,705 8,481
Scholarships and fellowships 10,392 9,341 10,716 11,060 6,795 8,526
Auxiliary enterprises 5,304 5,132 4,796 4,345 3,326 3,726
Depreciation 8,825 8,702 8,459 7,389 7,995 4,613
Total Operating Expenses $ 213,957 $ 198,672 $ 184,262 $ 174,559 $ 155,577 $ 128,430
Interest on capital related debt 11,359 12,518 11,431 11,728 8,330 9,151
Loss on disposal of fixed assets 245 6 - - 1,691 -
Total Non-Operating Expenses 11,604 12,524 11,431 11,728 10,021 9,151
Total Expenses $ 225,561 $ 211,196 $ 195,693 $ 186,287 $ 165,598 $ 137,581

For the Year Ended August 31,

2007 2006 2005 2004 2003 2002

Instruction 36.16% 36.57% 35.54% 38.43% 38.35% 39.35%

Research 0.00% - - - - -
Public service 0.65% 0.70% 0.68% 0.76% 1.30% 1.78%
Academic support 13.93% 13.74% 13.23% 8.73% 11.67% 10.97%
Student services 7.41% 7.36% 7.13% 6.86% 7.91% 8.40%
Institutional support 13.70% 13.53% 14.68% 14.21% 11.28% 14.41%
Operation and maintenance of plant 12.13% 11.21% 10.65% 12.49% 12.50% 6.16%
Scholarships and fellowships 4.61% 4.42% 5.48% 5.94% 4.10% 6.20%
Auxiliary enterprises 2.35% 2.43% 2.45% 2.33% 2.01% 2.71%
Depreciation 3.91% 4.12% 4.32% 3.97% 4.83% 3.35%
Total Operating Expenses 94.85% 94.07% 94.16% 93.70% 93.95% 93.35%
Interest on capital related debt 5.04% 5.93% 5.84% 6.30% 5.03% 6.65%
Loss on disposal of fixed assets 0.11% - - - 1.02% -
Total Non-Operating Expenses 5.15% 5.93% 5.84% 6.30% 6.05% 6.65%
Total Expenses 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Note: Due to reporting format and definition changes prescribed by GASB Statement 34, only fiscal years 2002-2007 are available.

56
North Harris Montgomery Community College District
Tuition and Fees
Last Ten Academic Years
(unaudited)

Resident Fees per Semester Credit Hour (SCH)

Academic Registration Student Cost for Cost for Increase from Increase from
Year Fee In-District Out-of-District Technology Activity 12 SCH 12 SCH Prior Year Prior Year
(Fall) (per student) Tuition Tuition Fees Fees In-District Out-of-District In-District Out-of-District

2006 $ 12 $ 36 $ 76 $ 6 $ 2 $ 540 $ 1,020 9.76% 4.94%

2005 12 32 72 6 2 492 972 0.00% 0.00%
2004 12 32 72 6 2 492 972 13.89% 6.58%
2003 12 28 68 5 2 432 912 12.50% 5.56%
2002 12 26 66 5 - 384 864 10.34% 4.35%
2001 12 24 64 4 - 348 828 0.00% 0.00%
2000 12 24 64 4 - 348 828 0.00% 0.00%
1999 12 24 64 4 - 348 828 7.41% 11.29%
1998 12 22 57 4 - 324 744 0.00% 0.00%
1997 12 22 57 4 - 324 744 0.00% 0.00%

Non-Resident Fees per Semester Credit Hour (SCH)

Academic Registration Student Cost for Cost for Increase from Increase from
Year Fee In-District Out-of-District Technology Activity 12 SCH 12 SCH Prior Year Prior Year
(Fall) (per student) Tuition Tuition Fees Fees Out of State International In-District Out-of-District

2006 $ 12 $ 91 $ 91 $ 6 $ 2 $ 1,200 $ 1,200 4.17% 4.17%

2005 12 87 87 6 2 1,152 1,152 0.00% 0.00%
2004 12 87 87 6 2 1,152 1,152 5.49% 5.49%
2003 12 83 83 5 2 1,092 1,092 4.60% 4.60%
2002 12 81 81 5 - 1,044 1,044 17.57% 17.57%
2001 12 69 69 4 - 888 888 0.00% 0.00%
2000 12 69 69 4 - 888 888 0.00% 0.00%
1999 12 69 69 4 - 888 888 2.78% 2.78%
1998 12 67 67 4 - 864 864 0.00% 0.00%
1997 12 67 67 4 - 864 864 0.00% 0.00%

Note: Includes basic enrollment tuition and fees but excludes course based fees such as laboratory fees, testing fees and certification fees.

57
North Harris Montgomery Community College District
Assessed Value and Taxable Assessed Value of Property
Last Ten Fiscal Years
(unaudited)

(amounts expressed in thousands) Direct Rate

Taxable Assessed Ratio of Taxable Maintenance &

Assessed Valuation Value Assessed Value to Operations Debt Total
Fiscal Year of Property Less: Exemptions (TAV) Assessed Value (a) Service (a) (a)

2006-07 $ 96,720,584 $ (6,573,726) $ 90,146,858 93.20% $ 0.0820 $ 0.0347 $ 0.1167

2005-06 87,974,128 (6,037,955) 81,936,173 93.14% 0.0860 0.0347 0.1207
2004-05 82,601,478 (7,311,588) 75,289,890 91.15% 0.0798 0.0347 0.1145
2003-04 75,893,959 (6,295,666) 69,598,293 91.70% 0.0798 0.0347 0.1145
2002-03 67,901,932 (4,063,296) 63,838,636 94.02% 0.0742 0.0313 0.1055
2001-02 62,474,553 (3,964,601) 58,509,952 93.65% 0.0760 0.0340 0.1100
2000-01 34,178,258 (2,881,157) 31,297,101 91.57% 0.0750 0.0350 0.1100
1999-00 31,955,285 (2,636,610) 29,318,675 91.75% 0.0777 0.0397 0.1174
1998-99 25,739,511 (2,083,660) 23,655,851 91.90% 0.0807 0.0391 0.1198
1997-98 23,202,740 (2,325,281) 20,877,459 89.98% 0.0680 0.0518 0.1198

Source: Local Appraisal District

Notes: Property is assessed at full market value.

(a) per $100 Taxable Assessed Valuation

58
North Harris Montgomery Community College District
State Appropriation per FTSE and Contact Hour
Last Ten Fiscal Years
(unaudited)

Appropriation per FTSE Appropriation per Contact Hour

(hours expressed in thousands)

State
Appropriation State Academic Voc/Tech Total State
(expressed in FTSE Appropriation Contact Contact Contact Appropriation
Fiscal Year thousands) (a) per FTSE Hours (b) Hours (c) Hours per Contact

2006-07 $ 62,750 25,688 $ 2,443 6,229 182 6,411 $ 9.79

2005-06 62,266 25,269 2,464 6,160 236 6,396 9.74
2004-05 54,697 23,348 2,343 5,750 154 5,904 9.26
2003-04 53,997 22,114 2,442 5,649 193 5,842 9.24
2002-03 46,501 20,552 2,263 5,097 210 5,307 8.76
2001-02 48,744 18,706 2,606 4,599 223 4,822 10.11
2000-01 40,281 16,326 2,467 4,069 198 4,267 9.44
1999-00 38,613 14,810 2,607 3,879 168 4,047 9.54
1998-99 33,279 13,823 2,408 3,667 144 3,811 8.73
1997-98 32,183 12,471 2,581 3,587 142 3,729 8.63

Source
(a) CBM001 Fall Semester
(b) CBM004 Fall Semester
(c) CBM00C 1st Quarter

Note: FTSE is defined as the number of full time students plus total hours taken by part-time students divided by 12.

59
North Harris Montgomery Community College District
Principal Taxpayers
Last Ten Tax Years
(unaudited)

Taxable Assessed Value (TAV) by Tax Year (amounts expressed in thousands)

Taxpayer Type of Business 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Hewlett Packard Manufacturing 717,813 612,508 328,867 259,341 - - - - -

Centerpoint Energy Inc Utility 669,281 627,004 665,897 604,808 - - - - -
Houston Pipeline Co LP Utility 525,621 368,197 - - - - - 126,550 116,094 94,462
Walmart Retail 272,154 194,673 231,324 245,454 - - - - -
Southwestern Bell Utility 254,770 260,074 243,006 - - 365,921 291,608 197,990 - 167,000
Hines Interests Ltd Psp Real Estate 226,654 211,493 190,395 214,578 - 206,790 - - 131,687 110,000
Wal-Mart Real Estate Bus Trs Real Estate 220,261 - - - - - - - -
Continental Airlines Inc Airline 190,101 218,579 218,060 197,419 - 212,018 136,729 165,299 130,941
Exxon Mobil Corp Oil and Gas 174,024 127,130 - - - 137,282 166,180 201,501 122,489 78,820
HEB Grocery Co LP Retail grocer 158,170 - - - - - - - -
Texas Cable Partners LP Utiulity - 136,543 - - - - - - -
Wachovia Development Corp Real Estate - 136,277 - - - - - - -
Woodlands Land Dev LP Real Estate - - 248,881 248,881 302,183 250,185 355,425 126,133 322,710
AEP Energy Services, Inc Utility - - 185,355 - 126,266 - - - -
Gulf States Utilities Utility - - 143,586 143,585 141,063 139,439 106,272 - 103,603
First Security Bank, Trustee Other - - 136,277 - - - - - -
Compaq Manufacturing - - - 202,282 538,611 859,405 680,923 753,487 669,608 884,000
Haliburton Energy Oil and Gas - - - 178,640 156,242 - - - -
BAM Lease Company Property Managemen - - - 160,887 168,148 - - - -
Houston Lighting & Power Utility - - - - 532,028 569,840 232,752 195,534 201,055 194,000
Enron Corporation Conglomerate - - - - - 222,394 182,134 - - 97,983
Weingarten Realty Real Estate - - - - 131,219 109,772 - - - 46,802
Greenspoint Plaza Ltd Property Managemen - - - - 186,453 - 121,144 113,300 -
Huntsman Inc. Petrochemical - - - - - - 86,708 96,209 122,501
Hydril Co. Oil and Gas - - - - - - - 86,345 -
Sarsaparillali - - - - 101,913 - - - -
GGHP Deerbrook Shopping Mall - - - - - - - - - 47,074
Avis Car Rental - - - - - - - - - 46,910
Colombia Regional Medical Hospital - - - - - - - - 108,650
Totals $ 3,408,849 $ 2,892,478 $ 2,591,648 $ 2,455,875 $ 2,384,126 $ 3,073,046 $ 2,359,875 $ 2,062,348 $ 2,029,338 $ 1,767,051

Total Taxable Assessed Value $90,146,858 $81,936,173 $75,289,890 $69,598,293 $63,838,636 $58,509,952 $31,297,101 $29,318,675 $23,655,851 $20,877,459

% of Taxable Assessed Value (TAV) by Tax Year

Taxpayer Type of Business 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Hewlett Packard Manufacturing 0.80% 0.75% 0.37% - - - - - -

Centerpoint Energy Inc Utility 0.74% 0.77% 0.88% 0.87% - - - - - -
Houston Pipeline Co LP Utility 0.58% 0.45% - - - - - 0.43% 0.49% 0.40%
Walmart Retail 0.30% 0.24% 0.31% 0.35% - - - - - -
Southwestern Bell Utility 0.28% 0.32% 0.32% - - 0.63% 0.93% 0.68% - 0
Hines Interests Ltd Psp Real Estate 0.25% 0.26% 0.25% 0.31% - 0.35% - - 0.56% 0.47%
Wal-Mart Real Estate Bus Trs Real Estate 0.24% - - - - - - - - -
Continental Airlines Inc Airline 0.21% 0.27% 0.29% 0.28% - 0.36% 0.44% 0.56% 0.55% 0.00%
Exxon Mobil Corp Oil and Gas 0.19% 0.16% - - - 0.23% 0.53% 0.69% 0.52% 0.33%
HEB Grocery Co LP Retail grocer 0.18% - - - - - - - - -
Texas Cable Partners LP Utiulity - 0.17% - - - - - - - -
Wachovia Development Corp Real Estate - 0.17% - - - - - - - -
Woodlands Land Dev LP Real Estate - - 0.33% 0.36% 0.47% 0.43% 1.14% 0.43% 1.36% 0.00%
AEP Energy Services, Inc Utility - - 0.25% - 0.20% - - - - -
Gulf States Utilities Utility - - 0.19% 0.21% 0.22% 0.24% 0.34% - 0.44% 0.00%
First Security Bank, Trustee Other - - 0.18% - - - - - - -
Compaq Manufacturing - - - 0.29% 0.84% 1.47% 2.18% 2.57% 2.83% 3.74%
Haliburton Energy Oil and Gas - - - 0.26% 0.24% - - - - -
BAM Lease Company Property Managemen - - - 0.23% 0.26% - - - - -
Houston Lighting & Power Utility - - - - 0.83% 0.97% 0.74% 0.67% 0.85% 0.82%
Enron Corporation Conglomerate - - - - - 0.38% 0.58% - - 0
Weingarten Realty Real Estate - - - - 0.21% 0.19% - - - 0
Greenspoint Plaza Ltd Property Managemen - - - - 0.29% 0.00% 0.39% 0.39% - -
Huntsman Inc. Petrochemical - - - - - 0.00% 0.28% 0.33% 0.52% 0.00%
Hydril Co. Oil and Gas - - - - - 0.00% - 0.29% - -
Sarsaparillali - - - - - - - - - -
GGHP Deerbrook Shopping Mall - - - - - - - - - -
Avis Car Rental - - - - - - - - - 0
Colombia Regional Medical Hospital - - - - - - - - 0.46% 0.00%
3.78% 3.53% 3.44% 3.53% 3.73% 5.25% 7.54% 7.03% 8.58% 8.46%

Source: Harris County and Montgomery County Appraisal Districts

60
North Harris Montgomery Community College District
Property Tax Levies and Collections
Last Ten Tax Years
(unaudited)
(amounts expressed in thousands)

Prior
Fiscal Year Cumulative Adjusted Collections - Collections of Current Cumulative
Ended August Levy Levy Tax Levy Year of Levy Prior Levies Collections of Total Collections of
31 (a) Adjustments (b) (c) Percentage (d) Prior Levies (e) Collections Adjusted Levy

2007 $ 91,528 $ 13,673 $ 105,201 $ 102,060 97.01% $ - $ - $ 102,060 97.01%

2006 91,695 5,876 97,571 94,882 97.24% - 1,769 96,651 99.06%
2005 78,300 7,830 86,130 83,765 97.25% 1,387 381 85,533 99.31%
2004 74,477 5,173 79,650 77,593 97.42% 1,407 189 79,189 99.42%
2003 67,075 1,025 68,100 64,734 95.06% 2,864 121 67,719 99.44%
2002 60,906 3,905 64,811 62,478 96.40% 1,935 100 64,513 99.54%
2001 34,427 3,652 38,079 37,025 97.23% 848 28 37,901 99.53%
2000 34,420 1,895 36,315 35,456 97.63% 677 19 36,152 99.55%
1999 28,339 489 28,828 27,832 96.55% 869 9 28,710 99.59%
1998 25,011 1,517 26,528 25,941 97.79% 469 9 26,419 99.59%

Source: Local Tax Assessor/Collector and District records.

(a) per original certified tax levy.
(b) As of August 31st of the current reporting year.
(c) Property tax only - does not include penalties and interest
(d) Represents cumulative collections of prior years not collected in the current year or the year of the tax levy.
(e) Represents current year collections of prior years levies.

61
 North Harris Montgomery Community College District
Ratios of Outstanding Debt
Last Ten Fiscal Years
(unaudited)

For the Year Ended August 31 (amounts expressed in thousands)

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
General Bonded Debt
General obligation bonds $ 184,419 $ 203,905 $ 220,639 $ 236,164 $ 212,193 $ 222,729 $ 132,323 $ 89,163 $ 95,657 $ 68,705
Notes - - - - - - - - - -
Less: Funds restricted for debt service - - - - - - - - - -
Net general bonded debt $ 184,419 $ 203,905 $ 220,639 $ 236,164 $ 212,193 $ 222,729 $ 132,323 $ 89,163 $ 95,657 $ 68,705

Other Debt
Revenue bonds $ 55,296 $ 26,540 $ 27,992 $ 29,408 $ 21,600 $ 12,835 $ 14,075 $ 14,189 $ 8,230 $ 10,280
Notes - - - - - - - - - -
Capital lease obligations - - - - - - - - - -
Total Outstanding Debt $ 239,715 $ 230,445 $ 248,631 $ 265,572 $ 233,793 $ 235,564 $ 146,398 $ 103,352 $ 103,887 $ 78,985

62
General Bonded Debt Ratios
Per Capita $ 124.61 $ 137.77 $ 149.08 $ 159.57 $ 143.37 $ 150.49 $ 89.41 $ 60.25 $ 64.63 $ 46.42
Per FTSE 7,179 8,069 9,450 10,679 10,325 11,907 8,105 6,020 6,920 5,509
As a percentage of Taxable Assessed Value 0.20% 0.25% 0.29% 0.34% 0.33% 0.38% 0.42% 0.30% 0.40% 0.33%

Total Outstanding Debt Ratios

Per Capita $ 161.97 $ 155.71 $ 167.99 $ 179.44 $ 157.97 $ 159.16 $ 98.92 $ 69.83 $ 70.19 $ 53.37
Per FTSE 9,332 9,120 10,649 12,009 11,376 12,593 8,967 6,979 7,516 6,333
As a percentage of Taxable Assessed Value 0.29% 0.28% 0.33% 0.38% 0.37% 0.40% 0.47% 0.35% 0.44% 0.38%

Notes: Ratios calculated using population and TAV from current year. Debt per student calculated using full-time-equivalent enrollment.
 North Harris Montgomery Community College District
Legal Debt Margin Information
Last Ten Fiscal Years
(unaudited)
.

For the Year Ended August 31 (amounts expressed in thousands)

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Taxable Assessed Value $ 90,146,858 $ 81,936,173 $ 75,289,890 $ 69,598,293 $ 63,838,636 $ 58,509,952 $ 31,297,101 $ 29,318,675 $ 23,655,851 $ 20,877,459

General Obligation Bonds

Statutory Tax Levy Limit for Debt Service 450,734 409,681 376,449 347,991 319,193 292,550 156,486 146,593 118,279 104,387
Less: Funds Restricted for Repayment of General Obligation Bonds (6,051) (3,337) (2,324) (1,760) (2,453) (2,817) (938) (154) (80) (2,560)
Total Net General Obligation Debt 444,683 406,344 374,125 346,231 316,740 289,733 155,548 146,439 118,199 101,827
Current Year Debt Service Requirements 30,107 28,809 26,854 22,780 21,136 21,010 12,614 14,147 14,134 14,308
Excess of Statutory Limit for Debt Service over Current Requirements $ 414,576 $ 377,535 $ 347,271 $ 323,451 $ 295,604 $ 268,723 $ 142,934 $ 132,292 $ 104,065 $ 87,519

Net Current Requirements as a % of Statutory Limit 5.34% 6.22% 6.52% 6.04% 5.85% 6.22% 7.46% 9.55% 11.88% 11.25%

Note: Texas Education Code Section 130.122 limits the debt service tax levy of community colleges to $0.50 per hundred dollars taxable assessed valuation.

63
 North Harris Montgomery Community College District
Pledged Revenue Coverage
Last Ten Fiscal Years
(unaudited)

Revenue Bonds
Debt Service Requirements
Pledged Revenues (amounts expressed in thousands) (amounts expressed in thousands)
Community
Fiscal Year Technology Registration Laboratory Education Interest Vending Bookstore Coverage
Ended August 31 Tuition Fee Fees Fees Fees Income Commission Commission Total Principal Interest Total Ratio
2007 $ 6,528 $ 5,403 $ 1,269 $ 855 $ 6,322 $ 2,304$ 293 $ 1,579 $ 24,553 $ 1,346 $ 1,179 $ 2,525 9.72
2006 6,160 4,772 1,222 882 5,964 1,415 242 1,507 22,164 1,451 1,222 2,673 8.29
2005 6,697 4,465 1,157 834 5,933 689 255 1,345 21,375 1,416 1,266 2,682 7.97
2004 6,184 4,157 1,061 697 5,012 645 241 1,789 19,786 1,938 995 2,933 6.75
2003 3,796 3,172 986 619 4,903 570 192 969 15,207 1,310 666 1,976 7.70

64
2002 1,021 2,841 877 578 4,466 564 319 842 11,508 1,240 730 1,970 5.84
2001 929 1,984 762 529 3,898 507 350 714 9,673 115 856 971 9.96
2000 742 1,790 683 468 3,156 580 330 642 8,391 880 199 1,079 7.78
1999 743 1,684 650 476 2,929 591 275 550 7,898 510 1,054 1,564 5.05
1998 690 1,618 643 434 2,619 638 141 497 7,280 770 503 1,273 5.72
North Harris Montgomery Community College District
Demographic and Economic Statistics
Fiscal Years 1998 to 2007
(unaudited)
District District
Personal Personal
Income Income District
Fiscal District (thousands Per Unemployment
Year Population (a) of dollars) Capita (b) Rate (d)
2007 1,480,000 66,959,640 $ 45,243 (c) 4.1%
2006 1,440,000 62,549,280 43,437 (c) 5.0%
2005 1,406,264 58,645,428 41,703 5.3%
2004 1,369,371 53,490,370 39,062 6.2%
2003 1,333,474 49,531,892 37,145 7.2%
2002 1,298,518 47,058,292 36,240 5.9%
2001 867,582 32,408,526 37,355 4.7%
2000 844,839 30,081,337 35,606 4.3%
1999 673,774 21,987,267 32,633 4.8%
1998 656,111 20,656,999 31,484 4.4%

Sources:
(a) District estimate. 2002 includes annexation of CypressFairbanks ISD and Magnolia ISD.
(b) U.S. Department of Commerce Bureau of Economic Analysis, Local Area
BEARFACTS by SMSA/FIPS Code for Harris County, Texas
(c) Estimated using average increase in per capita income 1998-2005
(d) U.S. Bureau of Labor Statistics, Metropolitan Area Employment and Unemployment

65
North Harris Montgomery Community College District
Principal Employers (a)
Fiscal Year 2007 (b)
(unaudited)

2005 (b) 2001 (b)

Percentage Percentage
Number of of Total Number of of Total
Principal Employment Sectors (a) Employees Employment Employees Employment
Local Government 402,961 11.27% 376,255 11.17%
Retail Trade 364,111 10.18% 356,622 10.59%
Construction 278,914 7.80% 271,022 8.05%
Health Care and Social Assistance 275,259 7.70% 237,563 7.05%
Professional and Technical Services 271,786 7.60% 244,541 7.26%
Manufacturing 267,052 7.47% 289,970 8.61%
Administrative and Waste Services 245,929 6.88% 215,071 6.39%
Accommodation and Food Services 227,514 6.36% 203,885 6.05%
Other Services, except public administration 209,730 5.87% 193,435 5.74%
Wholesale Trade 153,485 4.29% 143,967 4.27%
Total 2,696,741 75.42% 2,532,331 75.19%

Total Employment 3,575,609 3,367,964

Source:
U.S. Department of Commerce Bureau of Economic Analysis, Regional Economic System Information, Houston Economic
Area (Houston-Baytown-Huntsville)

Notes:
(a) Principal employer data was not available for the District.
(b) Data is normally presented with the current year compared to nine years prior. Latest data available for employment
sectors is 2005 year and the earliest year available that is comparable is the 2001 year.

66
 North Harris Montgomery Community College District
Faculty, Staff, and Administrators Statistics
Last Ten Fiscal Years
(unaudited)

Fiscal Year
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Faculty
Full-Time 704 661 646 605 532 471 441 416 392 373
Part-Time 1,910 1,799 1,636 1,557 1,272 1,130 998 936 866 869
Total 2,614 2,460 2,282 2,162 1,804 1,601 1,439 1,352 1,258 1,242

Percent
Full-Time 26.9% 26.9% 28.3% 28.0% 29.5% 29.4% 30.6% 30.8% 31.2% 30.0%
Part-Time 73.1% 73.1% 71.7% 72.0% 70.5% 70.6% 69.4% 69.2% 68.8% 70.0%

Staff and Administrators

Full-Time 1,214 1,187 1,142 1,091 940 852 807 744 673 629
Part-Time 1,260 1,078 1,064 894 895 778 745 689 647 617

67
Total 2,474 2,265 2,206 1,985 1,835 1,630 1,552 1,433 1,320 1,246

Percent
Full-Time 49.1% 52.4% 51.8% 55.0% 51.2% 52.3% 52.0% 51.9% 51.0% 50.5%
Part-Time 50.9% 47.6% 48.2% 45.0% 48.8% 47.7% 48.0% 48.1% 49.0% 49.5%

FTSE per Full-time Faculty 36.49 38.23 36.14 36.55 38.63 39.72 37.02 35.60 35.26 33.43
FTSE per Full-Time Staff Member 21.16 21.29 20.44 20.27 21.86 21.96 20.23 19.91 20.54 19.83

Average Annual Faculty Salary $ 61,426 $ 58,424 $ 58,090 $ 56,738 $ 57,252 $ 56,877 $ 55,827 $ 55,832 $ 54,809 $ 53,925
 North Harris Montgomery Community College District
Enrollment Details
Last Ten Fiscal Years
(unaudited)

Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Student Classification Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
00-30 hours 23,372 56.73% 24,543 60.93% 22,752 61.76% 22,907 65.95% 21,379 66.90% 18,610 66.46% 16,355 66.03%
31-60 hours 10,107 24.53% 10,002 24.83% 9,080 24.65% 7,690 22.14% 6,993 21.88% 6,172 22.04% 5,484 22.14% Not available Not available Not available
> 60 hours 7,721 18.74% 5736 14.24% 5010 13.60% 4137 11.91% 3586 11.22% 3221 11.50% 2930 11.83%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00%

Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Semester Hour Load Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
Less than 3 223 0.54% 227 0.56% 156 0.42% 381 1.10% 329 1.03% 293 1.05% 339 1.37%
3-5 semester hours 9,669 23.47% 9,142 22.70% 8,075 21.92% 7,664 22.06% 7,730 24.19% 6,448 23.03% 5,705 23.03%
6-8 Semester hours 10,254 24.89% 10,308 25.59% 9,394 25.50% 8,230 23.69% 7,483 23.42% 6,680 23.85% 5,757 23.24%
9-11 semester hours 7,716 18.73% 7,589 18.84% 6,889 18.70% 6,075 17.49% 5,305 16.60% 4,486 16.02% 3,926 15.85% Not available Not available Not available
12-14 semester hours 11,206 27.20% 10,938 27.15% 10,471 28.42% 10,348 29.79% 9,189 28.75% 8,302 29.65% 7,495 30.26%
15-17 semester hours 1,955 4.75% 1,921 4.77% 1,687 4.58% 1,862 5.36% 1,716 5.37% 1,578 5.64% 1,389 5.61%
18 & over 177 0.43% 156 0.39% 170 0.46% 174 0.50% 206 0.64% 216 0.77% 158 0.64%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00%

68
Average course load 8.8 8.6 8.8 9.2 8.7 8.8 8.9 8.6 8.0 Not available

Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Tuition Status Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
Texas Resident (in-District) 36,873 89.50% 36,285 90.08% 33,726 91.54% 32,002 92.13% 29,589 92.59% 25,846 92.30% 22,730 91.77% 18,578 81.84% 17,193 81.73% 17,129 81.41%
Texas Resident (out-of-District) 3,093 7.51% 3,002 7.45% 2,279 6.19% 1,986 5.72% 1,673 5.23% 1,490 5.32% 1,430 5.77% 3,671 16.17% 3,516 16.71% 3,587 17.05%
Non-Resident Tuition 1,234 3.00% 994 2.47% 837 2.27% 746 2.15% 696 2.18% 667 2.38% 609 2.46% 451 1.99% 328 1.56% 325 1.54%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00% 22,700 100.00% 21,037 100.00% 21,041 100.00%

Source: NHMCCD OIE Credit Student Demographics by District by Term

 North Harris Montgomery Community College District
Student Profile
Last Ten Fiscal Years
(unaudited)

Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Gender Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
Female 24,791 60.17% 24,218 60.12% 22,489 61.04% 21,102 60.75% 19,323 60.46% 16,760 59.85% 14,704 59.36% 13,524 59.58% 12,669 60.22% 12,732 60.69%
Male 16,409 39.83% 16,063 39.88% 14,353 38.96% 13,632 39.25% 12,635 39.54% 11,243 40.15% 10,065 40.64% 9,176 40.42% 8,368 39.78% 8,247 39.31%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00% 22,700 100.00% 21,037 100.00% 20,979 100.00%

Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Ethnic Origin Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
White 21,496 52.17% 22,268 55.28% 21,128 57.35% 20,816 59.93% 19,642 61.46% 17,908 63.95% 16,290 65.77% 15,451 68.07% 14,825 70.47% 14,729 70.21%
Hispanic 9,103 22.09% 8,109 20.13% 7,033 19.09% 6,188 17.82% 5,329 16.68% 4,439 15.85% 3,626 14.64% 3,085 13.59% 2,726 12.96% 2,625 12.51%
African American 4,626 11.23% 4,572 11.35% 4,185 11.36% 3,843 11.06% 3,373 10.55% 2,945 10.52% 2,565 10.36% 2,323 10.23% 1,919 9.12% 1,937 9.23%
Asian 2,558 6.21% 2,422 6.01% 2,058 5.59% 1,900 5.47% 1,906 5.96% 1,528 5.46% 1,223 4.94% 1,149 5.06% 1,069 5.08% 1,053 5.02%
Foreign 847 2.06% 820 2.04% 733 1.99% 671 1.93% 645 2.02% 383 1.37% 298 1.20% 287 1.26% 169 0.80% 88 0.42%
Native American 136 0.33% 148 0.37% 158 0.43% 145 0.42% 131 0.41% 126 0.45% 94 0.38% 111 0.49% 92 0.44% 91 0.43%
Other 2,434 5.91% 1,942 4.82% 1,547 4.20% 1,171 3.37% 932 2.92% 674 2.41% 673 2.72% 294 1.30% 237 1.13% 456 2.17%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00% 22,700 100.00% 21,037 100.00% 20,979 100.00%

69
Fall 2006 Fall 2005 Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997
Age Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
Under 20 15,499 37.62% 14,598 36.24% 13,017 35.33% 12,226 35.20% 12,000 37.55% 10,310 36.82% 9,080 36.66% 5,453 24.02% 2,092 9.94% 2,092 9.97%
20-24 13,231 32.11% 13,075 32.46% 11,979 32.51% 10,979 31.61% 9,731 30.45% 8,579 30.64% 7,466 30.14% 8,717 38.40% 9,699 46.10% 9,641 45.96%
25-29 4,596 11.16% 4,643 11.53% 4,238 11.50% 3,916 11.27% 3,459 10.82% 2,967 10.60% 2,640 10.66% 2,876 12.67% 3,207 15.24% 3,207 15.29%
30-39 4,665 11.32% 4,604 11.43% 4,415 11.98% 4,213 12.13% 3,693 11.56% 3,357 11.99% 3,026 12.22% 3,052 13.44% 3,188 15.15% 3,188 15.20%
40-49 2,353 5.71% 2,469 6.13% 2,384 6.47% 2,477 7.13% 2,233 6.99% 2,084 7.44% 1,891 7.63% 1,961 8.64% 2,087 9.92% 2,087 9.95%
50 & over 856 2.08% 892 2.21% 809 2.20% 923 2.66% 842 2.63% 706 2.52% 666 2.69% 641 2.82% 764 3.63% 764 3.64%
Total 41,200 100.00% 40,281 100.00% 36,842 100.00% 34,734 100.00% 31,958 100.00% 28,003 100.00% 24,769 100.00% 22,700 100.00% 21,037 100.00% 20,979 100.00%

Average Age 24.1 24.5 24.6 24.9 24.7 24.9 25.0 24.5 25.7 26.2

Source: NHMCCD OIE Credit Student Demographics by District by Term

North Harris Montgomery Community College District
Transfers to Senior Institutions
2004 Fall Students as of Fall 2005
(Includes only public senior colleges in Texas)
(unaudited)

Transfer Transfer Transfer Total of all % of all

Student Student Student NHMCCD NHMCCD
Count Count Count Transfer Transfer
Academic Technical Tech-Prep Students Students
1 University of Houston 2,248 82 111 2,441 20.79%
2 Sam Houston State University 2,258 77 75 2,410 20.53%
3 Texas A&M University 1,714 43 23 1,780 15.16%
4 The University of Texas at Austin 1,072 21 17 1,110 9.45%
5 University of Houston - Downtown 933 49 70 1,052 8.96%
6 Texas State University 534 19 12 565 4.81%
7 Texas Tech University 362 8 8 378 3.22%
8 Stephen F. Austin State University 285 11 14 310 2.64%
9 Prairie View A&M University 253 22 32 307 2.61%
10 Texas Southern University 180 9 10 199 1.69%
11 The University of Texas at San Antonio 179 3 3 185 1.58%
12 University of North Texas 162 5 2 169 1.44%
13 Texas Woman's University 110 3 16 129 1.10%
14 Lamar University 89 2 3 94 0.80%
15 The University of Texas Health Science Center at Houston 72 6 11 89 0.76%
16 The University of Texas at Dallas 58 5 1 64 0.55%
17 The University of Texas at Arlington 52 2 3 57 0.49%
18 Texas A&M University at Galveston 54 1 1 56 0.48%
19 The University of Texas at Tyler 53 0 2 55 0.47%
20 The University of Texas Medical Branch at Galveston 38 1 3 42 0.36%
21 University of Houston at Clear Lake 26 5 1 32 0.27%
22 University of Houston at Victoria 26 4 1 31 0.26%
23 Texas A&M University at Corpus Christi 25 1 4 30 0.26%
24 Texas Tech University Health Sciences Center 23 0 2 25 0.21%
25 Midwestern State University 15 7 1 23 0.20%
26 Tarleton State University 19 1 1 21 0.18%
27 The University of Texas - Pan American 14 3 0 17 0.14%
28 West Texas A&M University 12 2 0 14 0.12%
29 The University of Texas Health Science Center at San Antonio 12 1 1 14 0.12%
30 Texas A&M University at Kingsville 8 0 0 8 0.07%
31 Texas A&M University at Commerce 6 0 0 6 0.05%
32 Sul Ross State University 6 0 0 6 0.05%
33 Angelo State University 4 1 1 6 0.05%
34 The University of Texas M.D. Anderson Cancer Center 2 3 0 5 0.04%
35 The University of Texas at El Paso 3 0 0 3 0.03%
36 The Texas A&M University System Health Science Center 3 0 0 3 0.03%
37 Texas A&M University at Texarkana 2 0 0 2 0.02%
38 The University of Texas Southwestern Medical Center at Dallas 2 0 0 2 0.02%
39 Texas A&M International University 1 0 0 1 0.01%
40 The University of Texas at Brownsville 0 0 0 0 0.00%
41 The University of Texas of the Permian Basin 0 0 0 0 0.00%
Totals 10,915 397 429 11,741 100.00%

Source:
Texas Higher Education Coordinating Board

70
North Harris Montgomery Community College District
Capital Asset Information
Fiscal Years 2002 to 2007
(unaudited)

Fiscal Year
2007 2006 2005 2004 2003 2002

Academic buildings 30 30 30 29 25 20
Square footage (in thousands) 1,575 1,575 1,575 1,524 1,334 1,034
Libraries 7 7 7 7 6 2
Square footage (in thousands) 299 299 299 299 232 81
Number of Volumes (in thousands) 662,298 862,764 686,172 928,639 812,876 1,020,276
Administrative and support buildings 22 22 21 20 19 14
Square footage (in thousands) 507 505 503 500 456 276
Dormitories - - - - - -
Square footage (in thousands) - - - - - -
Number of Beds - - - - - -
Apartments - - - - - -
Square footage (in thousands) - - - - - -
Number of beds - - - - - -
Dining Facilities - - - - - -
Square footage (in thousands) 55,116 55,116 55,116 55,116 55,116 40,881
Average daily customers 3,907 n/a n/a n/a n/a n/a
Athletic Facilities 38 38 38 38 36 29
Square footage (in thousands) 112 112 112 112 87 78
Stadiums - - - - - -
Gymnasiums - - - - - -
Fitness Centers 6 6 6 6 4 3
Tennis Court 32 32 32 32 32 26
Plant facilities 6 6 6 6 6 5
Square footage (in thousands) 33 33 33 33 30 24
Transportation -
Cars 16 16 16 16 15 14
Light Trucks/Vans 17 17 15 14 12 9
Buses - - - - - -

n/a - not available

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SINGLE AUDIT SECTION

72
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT
AUDITING STANDARDS

To the Board of Trustees

North Harris Montgomery Community College District

We have audited the financial statements of the North Harris Montgomery Community College District (the
“District”) as of and for the year ended August 31, 2007 and have issued our report thereon dated November
8, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the District’s internal control over financial reporting as
a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal
control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the
District’s internal control over financial reporting.

A control deficiency exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect misstatements
on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that
adversely affects the District’s ability to initiate, authorize, record, process, or report financial data reliably in
accordance with generally accepted accounting principles such that there is more than a remote likelihood
that a misstatement of the District’s financial statements that is more than inconsequential will not be
prevented or detected by the District’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in

more than a remote likelihood that a material misstatement of the financial statements will not be prevented
or detected by the District’s internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and would not necessarily identify all deficiencies in internal control that might
be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control
over financial reporting that we consider to be material weaknesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether District’s financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts,
and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those

73
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results
of our tests disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards.

This report is intended solely for the information and use of the Board of Trustees, audit committee,
management, and federal and state of Texas awarding agencies and pass-through entities and is not intended
to be and should not be used by anyone other than these specified parties.

Houston, Texas
November 8, 2007

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 REPORT ON COMPLIANCE WITH REQUIREMENTS
APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL
OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND
STATE OF TEXAS SINGLE AUDIT CIRCULAR

To the Board of Trustees

North Harris Montgomery Community College District

Compliance

We have audited the compliance of North Harris Montgomery Community College District (the “District”)
with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB)
Circular A-133 Compliance Supplement and State of Texas Single Audit Circular that are applicable to each
of its major federal and state programs for the year ended August 31, 2007. The District’s major federal and
state programs are identified in the summary of auditors’ results section of the accompanying schedule of
findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants
applicable to each of its major federal and state programs is the responsibility of the District’s management.
Our responsibility is to express an opinion on the District’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of
States, Local Governments, and Non-Profit Organizations and the State of Texas Single Audit Circular.
Those standards, OMB Circular A-133, and the State of Texas Single Audit Circular require that we plan and
perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance
requirements referred to above that could have a direct and material effect on a major federal and state
program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance
with those requirements and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not
provide a legal determination of District’s compliance with those requirements.

In our opinion, the District complied, in all material respects, with the requirements referred to above that are
applicable to each of its major federal and programs for the year ended August 31, 2007.

Internal Control Over Compliance

The management of the District is responsible for establishing and maintaining effective internal control over
compliance with the requirements of laws, regulations, contracts, and grants applicable to federal and state
programs. In planning and performing our audit, we considered the District's internal control over
compliance with the requirements that could have a direct and material effect on a major federal or state
program in order to determine our auditing procedures for the purpose of expressing our opinion on
compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control
over compliance.

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A control deficiency in an entity's internal control over compliance exists when the design or operation of a
control does not allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect noncompliance with a type of compliance requirement of a federal or state
program on a timely basis. A significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects the entity's ability to administer a federal or state program such that there
is more than a remote likelihood that non-compliance with a type of compliance requirement of a federal or
state program that is more than inconsequential will not be prevented or detected by the entity's internal
control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in

more than a remote likelihood that material noncompliance with a type of compliance requirement of a
federal or state program will not be prevented or detected by the entity's internal control.

Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and would not necessarily identify all deficiencies in internal control that might be
significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over
compliance that we consider to be material weaknesses, as defined above.

This report is intended solely for the information and use of the Board of Trustees, audit committee,
management, and federal and state of Texas awarding agencies and pass-through entities and is not intended
to be and should not be used by anyone other than these specified parties.

Houston, Texas
November 8, 2007

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 SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED AUGUST 31, 2007

SECTION I:

SUMMARY OF AUDITORS' RESULTS

Financial Statements:

1. Type of auditors' report issued: Unqualified

2. Internal control over financial reporting:

a) Material weakness identified? No
b) Reportable conditions identified that are not considered
to be material weaknesses? None Reported
c) Noncompliance material to financial statements noted? No

Federal and State Awards:

1. Internal control over major programs:

a) Material weakness identified? No

b) Reportable condition identified that are not considered to be material weakness? No

2. Type of auditors' report issued on compliance for major programs. Unqualified

3. Any audit findings disclosed that are required to be reported in accordance with
section 510(a) of Circular A-133? No

4. Identification of major programs:

Federal - CFDA Number Name of Federal Program or Cluster

84.007 Federal Supplemental Educational Opportunity Grants

84.032 Federal Family Education Loan Program
84.033 Federal Work Study Program
84.063 Federal Pell Grant Program
84.375 Academic Competitiveness
84.002A Adult Education- State Grant Program

State – Contract Number Program Title

N/A Texas Grant

N/A TWC Skill Development

Dollar threshold used to distinguish between type A and type B programs:

Federal: $649,477
State: $300,000

Auditee qualified as low-risk auditee under OMB Circular A-133, Section 530 and the State of Texas Single
Audit Circular?

Federal Yes
State Yes

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 SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED AUGUST 31, 2007

SECTION 2:

FINDINGS-FINANCIAL STATEMENT AUDIT

None reported.

SECTION 3:

FINDINGS AND QUESTIONED COSTS-MAJOR FEDERAL AND STATE OF TEXAS AWARD

PROGRAMS

None reported.

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 SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED AUGUST 31, 2007

Prior Year Findings:

There were no audit findings included in the August 31, 2006 Schedule of Findings and Questioned Costs relative to
Federal and State of Texas Awards.

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Financial Advisor Services Provided By: