OFFICIAL STATEMENT Dated: April 30, 2013 Ratings: Fitch: “AA” S&P: “AA-” NEW ISSUES - Book-Entry-Only (See “OTHER INFORMATION - Ratings”) In the opinion of Bond Counsel, interest on the Obligations will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under “TAX MATTERS” herein, including the alternative minimum tax on corporations.

$244,690,000 EL PASO COUNTY HOSPITAL DISTRICT

(El Paso County, Texas)

$134,290,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, SERIES 2013

$110,400,000 GENERAL OBLIGATION REFUNDING BONDS,

SERIES 2013

Dated Date: April 1, 2013 Due: August 15, as shown on Page 2 Interest to Accrue from the Date of Delivery

PAYMENT TERMS . . . Interest on the $134,290,000 El Paso County Hospital District Combination Tax and Revenue Certificates of Obligation, Series 2013 (the “Certificates”) will accrue from the date of their delivery to the initial purchasers shown below (the “Underwriters”), will be payable February 15 and August 15 of each year, commencing February 15, 2014, until maturity or prior redemption, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Interest on the $110,400,000 El Paso County Hospital District General Obligation Refunding Bonds, Series 2013 (the “Bonds” and, together with the Certificates, the “Obligations”) will accrue from the date of their delivery to the Underwriters, will be payable February 15 and August 15 of each year, commencing August 15, 2013, until maturity or prior redemption, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive Obligations will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”), pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Obligations may be acquired in denominations of $5,000 or integral multiples thereof within a maturity. No physical delivery of the Obligations will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Obligations will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Obligations (see “THE OBLIGATIONS - Book-Entry-Only System” herein). The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (see “THE OBLIGATIONS - Paying Agent/Registrar”).

AUTHORITY FOR ISSUANCE . . . The Certificates are issued pursuant to the Constitution and general laws of the State of Texas (the “State”), including particularly Chapter 281, Texas Health and Safety Code, as amended, Subchapter C of Chapter 271, Texas Local Government Code, as amended, and Chapter 1371, Texas Government Code, as amended, and a certificate order adopted by the Commissioners Court (the "Commissioner Court") of El Paso County, Texas (the “County”), on behalf of the El Paso County Hospital District (the “District”), on April 8, 2013 (the “Certificate Authorization”), in which the Commissioners Court delegated pricing of the Certificates and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Certificates (the Certificate Authorization and the Pricing Certificate for the Certificates are jointly referred to as the “Certificate Order”) (see “THE OBLIGATIONS - Authority for Issuance of the Certificates”). The Bonds are issued pursuant to the Constitution and general laws of the State, including particularly Chapter 281, Texas Health and Safety Code, as amended, and Chapter 1207, Texas Government Code, as amended, and a bond order adopted by the Commissioners Court, on behalf of the District, on April 8, 2013 (the “Bond Authorization”), in which the Commissioners Court delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Bonds (the Bond Authorization and the Pricing Certificate for the Bonds are jointly referred to as the “Bond Order”). The Bond Order and the Certificate Order are sometimes collectively referred to herein as the “Orders”. The Obligations constitute direct obligations of the District, payable from the levy and collection of an ad valorem tax levied on all taxable property within the District, within the limits prescribed by law. The Certificates are additionally secured by a limited pledge of $1,000 of the Surplus Revenues of the District’s hospital operations. The Obligations are not obligations of the County and the holders of the Obligations are not entitled to demand payment from any tax revenues or any other revenues or assets of the County. (see “THE OBLIGATIONS - Security and Source of Payment”).

PURPOSES OF THE CERTIFICATES . . . Proceeds from the sale of the Certificates will be for the purpose of paying contractual obligations of the District to be incurred for the following purposes, to wit: (i) to repair, renovate, improve, enlarge and equip facilities of the “University Medical Center of El Paso” which is owned and operated by the District (the “Hospital”), including the Hospital Annex; (ii) to acquire, construct, improve and equip medical outpatient clinics of the District to be located in the East, Northeast, Central and West areas of the County, including an emergency or urgent care facility to be located at the District’s existing Northeast care center; (iii) to repair, renovate, improve, enlarge and equip existing medical outpatient clinics of the District; (iv) to acquire materials, equipment, machinery, buildings, land and rights-of-way for such projects; (v) to acquire materials, equipment and machinery for the imaging, gastroenterology, gynecology, neurology, surgery and other medical departments of the Hospital; (vi) to pay interest on the Certificates during certain phases of construction (and possibly up to one year thereafter); and (vii) to pay for professional services and the costs of issuance associated therewith (see “PLAN OF FINANCING - Purpose of the Certificates”).

PURPOSES OF THE BONDS . . . Proceeds from the sale of the Bonds will be used to (i) refund certain of the District’s currently outstanding obligations (the “Refunded Obligations”) (see “Schedule I - SCHEDULE OF REFUNDED OBLIGATIONS” for a more complete description of the Refunded Obligations and their call date) and (ii) pay costs of issuance related to the Bonds. The refunding is being undertaken to lower the District’s debt service payments and will result in a present value savings to the District (see “PLAN OF FINANCING - Purpose of the Bonds” and “PLAN OF FINANCING - Refunded Obligations”).

CUSIP PREFIX: 283590 SEE MATURITY SCHEDULES and 9 DIGIT CUSIP

ON PAGE 2

SEPARATE ISSUES . . . The Bonds and the Certificates are being offered concurrently by the District under a common Official Statement. The Bonds and the Certificates are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of holders, and other features.

LEGALITY . . . The Obligations 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 Texas and the opinions of Fulbright & Jaworski L.L.P., Dallas, Texas, Bond Counsel (see Appendix D, “Forms of Bond Counsel’s Opinions”). Certain legal matters will be passed upon for the Underwriters by Bracewell & Giuliani LLP, Dallas, Texas, Counsel for the Underwriters.

DELIVERY . . . It is expected that the Obligations will be available for delivery through the facilities of DTC on May 16, 2013.

BOFA MERRILL LYNCH CITIGROUP

2

MATURITY SCHEDULES CUSIP Prefix: 283590 (1)

$134,290,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013

Maturity Principal CUSIP Maturity Principal CUSIP

August 15 Amount Rate Yield Suffix (1) August 15 Amount Rate Yield Suffix (1)

2015 770,000$ 3.000% 0.460% EG8 2025 1,205,000$ 5.000% 2.570% (2) ES2

2016 945,000 4.000% 0.690% EH6 2026 1,260,000 3.000% 3.030% ET0

2017 985,000 5.000% 0.880% EJ2 2027 1,300,000 5.000% 2.840% (2) EU7

2018 1,030,000 4.000% 1.110% EK9 2028 1,370,000 5.000% 2.930% (2) EV5

2019 935,000 3.000% 1.350% EL7 2029 1,430,000 3.250% 3.400% EY9

2020 965,000 5.000% 1.610% EM5 2030 1,480,000 3.250% 3.470% EZ6

2021 1,015,000 4.000% 1.870% EN3 2031 1,525,000 3.375% 3.530% FA0

2022 1,060,000 3.000% 2.090% EP8 2032 1,580,000 3.375% 3.580% FB8

2023 1,090,000 5.000% 2.290% EQ6 2033 1,630,000 3.500% 3.630% EW3

2024 1,145,000 5.000% 2.430% (2) ER4

$26,230,000 5.000% Term Certificates due August 15, 2039 Priced to Yield 3.430% (2) CUSIP Suffix (1) FC6

$85,340,000 5.000% Term Certificates due August 15, 2043 Priced to Yield 3.490% (2) CUSIP Suffix (1) EX1

(Interest to accrue from the Date of Delivery)

$110,400,000

GENERAL OBLIGATION REFUNDING BONDS, SERIES 2013

Maturity Principal CUSIP Maturity Principal CUSIP

August 15 Amount Rate Yield Suffix (1) August 15 Amount Rate Yield Suffix (1)

2016 1,505,000$ 3.000% 0.690% FD4 2025 5,440,000$ 5.000% 2.570% (2) FN2

2017 2,015,000 5.000% 0.880% FE2 2026 5,715,000 5.000% 2.730% (2) FP7

2018 2,080,000 5.000% 1.110% FF9 2027 5,995,000 5.000% 2.840% (2) FQ5

2019 4,060,000 5.000% 1.350% FG7 2028 6,295,000 5.000% 2.930% (2) FR3

2020 4,265,000 5.000% 1.610% FH5 2029 6,610,000 5.000% 3.010% (2) FU6

2021 4,475,000 5.000% 1.870% FJ1 2030 6,940,000 5.000% 3.070% (2) FV4

2022 4,695,000 5.000% 2.090% FK8 2031 7,290,000 5.000% 3.130% (2) FS1

2023 4,935,000 5.000% 2.290% FL6 2032 7,650,000 5.000% 3.180% (2) FW2

2024 5,180,000 5.000% 2.430% (2) FM4 2033 8,040,000 5.000% 3.230% (2) FX0

$17,215,000 4.000% Term Bonds due August 15, 2035 Priced to Yield 3.580% (2) CUSIP Suffix (1) FT9

(Interest to accrue from the Date of Delivery) _______________

(1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of the American Bankers Association. CUSIP numbers have been assigned to this issue by the CUSIP Service Bureau and are included solely for the convenience of the owners of the Obligations. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. None of the District, the Financial Advisor or the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein.

(2) Priced to the first optional call date of August 15, 2023. REDEMPTION OF THE CERTIFICATES . . . The District reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2024, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2023, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see “THE OBLIGATIONS - Optional Redemption of the Certificates”). Additionally, the Certificates maturing on August 15 in the years 2039 and 2043 are subject to mandatory sinking fund redemption as described herein under "THE OBLIGATIONS – Mandatory Redemption of the Certificates". REDEMPTION OF THE BONDS . . . The District reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2024, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2023, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see “THE OBLIGATIONS - Optional Redemption of the Bonds”). Additionally, the Bonds maturing on August 15, 2035 are subject to mandatory sinking fund redemption as described herein under "THE OBLIGATIONS – Mandatory Redemption of the Bonds".

No dealer, broker, salesman or other person has been authorized by the District or the Underwriters to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriters. This Official Statement does not constitute an offer to sell Obligations in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction.

Certain information set forth herein has been obtained from the District and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Financial Advisor or the Underwriters. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or other matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” for a description of the District’s undertaking to provide certain information on a continuing basis.

The prices and other terms respecting the offering and sale of the Obligations may be changed from time to time by the Underwriters after the Obligations are released for sale, and the Obligations may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell the Obligations into investment accounts.

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Obligations or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offence.

THE OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE OBLIGATIONS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE OBLIGATIONS HAVE BEEN REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF.

NEITHER THE DISTRICT, ITS FINANCIAL ADVISOR, NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY-ONLY SYSTEM.

IN CONNECTION WITH THE OFFERING OF THE OBLIGATIONS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OBLIGATIONS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

TABLE OF CONTENTS

OFFICIAL STATEMENT SUMMARY ...................................... 4

DISTRICT OFFICIALS, STAFF AND CONSULTANTS ........ 7 ELECTED OFFICIALS – EL PASO COUNTY COMMISSIONERS

COURT ......................................................................... 7 APPOINTED OFFICIALS – BOARD OF MANAGERS OF THE

HOSPITAL DISTRICT .................................................... 7 SELECTED ADMINISTRATIVE STAFF ...................................... 7 CONSULTANTS AND ADVISORS ............................................. 7

INTRODUCTION .......................................................................... 9

PLAN OF FINANCING ................................................................ 9

THE OBLIGATIONS .................................................................. 11

TAX INFORMATION ................................................................. 18 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL

OBLIGATION DEBT .................................................... 21 TABLE 2 – TAXABLE ASSESSED VALUATIONS BY CATEGORY ............................................................... 22 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT

HISTORY .................................................................... 23 TABLE 4 – TAX RATE, LEVY AND COLLECTION HISTORY .. 23 TABLE 5 - TEN LARGEST TAXPAYERS ................................. 23 TABLE 6 - ESTIMATED OVERLAPPING DEBT ..................... 24 TABLE 7 - INTEREST AND SINKING FUND BUDGET

PROJECTION .............................................................. 26 TABLE 8 - AUTHORIZED BUT UNISSUED GENERAL

OBLIGATION BONDS .................................................. 26 TABLE 9 – OTHER OBLIGATIONS ......................................... 26 TABLE 10 – REVENUE BONDED DEBT ................................. 26

DEBT INFORMATION .............................................................. 27 TABLE 11 - GENERAL OBLIGATION DEBT SERVICE

REQUIREMENTS ......................................................... 27

FINANCIAL INFORMATION .................................................. 28 TABLE 12 – CHANGE IN NET ASSETS .................................. 28 TABLE 12A - GENERAL FUND REVENUES AND EXPENDITURE

HISTORY ................................................................... 29 TABLE 13 - CURRENT INVESTMENTS ................................... 31

TAX MATTERS .......................................................................... 32

CONTINUING DISCLOSURE OF INFORMATION ............ 33

OTHER INFORMATION .......................................................... 34 RATINGS .............................................................................. 34 REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR

SALE ......................................................................... 35 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC

FUNDS IN TEXAS ....................................................... 35 LEGAL MATTERS ................................................................. 35 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL

COMPUTATIONS ........................................................ 36 FINANCIAL ADVISOR ........................................................... 36 FORWARD-LOOKING STATEMENTS DISCLAIMER ................. 37

SCHEDULE I – SCHEDULE OF REFUNDED OBLIGATIONS APPENDICES GENERAL INFORMATION REGARDING THE DISTRICT .......... A GENERAL INFORMATION REGARDING THE COUNTY ............ B EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .......... C FORMS OF BOND COUNSEL’S OPINIONS ............................. D The cover page hereof, this page, the schedule, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement.

3

4

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 Obligations 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 DISTRICT .............................. The El Paso County Hospital District (the “District”) is a political subdivision of the State of Texas (the “State”), located in, and having boundaries contiguous with, El Paso County, Texas (the “County”). The District covers approximately 1,058 square miles. The District is managed by a Board of Managers who are appointed by the El Paso County Commissioners Court (the “Commissioners Court”). Under State law, the Commissioners Court also levies taxes and authorizes the issuance of general obligation bonds on behalf of the District on the District’s faith and credit. The principal health care asset of the District is University Medical Center of El Paso, which is located in El Paso, Texas (see “Appendix A - General Information Regarding the District”).

THE CERTIFICATES…. ................ The $134,290,000 El Paso County Hospital District Combination Tax and Revenue Certificates of Obligation, Series 2013 (the “Certificates”) are issued in part as serial certificates maturing August 15 in each of the years 2015 through 2033 and in part as term certificates maturing August 15 in each of the years 2039 and 2043 (see “THE OBLIGATIONS - Description of the Obligations”).

THE BONDS…. ............................. The $110,400,000 El Paso County Hospital District General Obligation Refunding Bonds,

Series 2013 (the “Bonds” and, together with the Certificates, the “Obligations”) are issued in part as serial bonds maturing August 15 in each of the years 2016 through 2033 and in part as term bonds maturing August 15, 2035 (see “THE OBLIGATIONS - Description of the Obligations”).

PAYMENT OF INTEREST ............... Interest on the Certificates accrues from the date of their delivery to the Underwriters and is

payable on February 15, 2014, and each August 15 and February 15 thereafter until maturity or prior redemption (see “THE OBLIGATIONS - Description of the Certificates” and “THE OBLIGATIONS - Optional Redemption of the Certificates”).

Interest on the Bonds accrues from the date of their delivery to the Underwriters and is

payable on August 15, 2013, and each February 15 and August 15 thereafter until maturity or prior redemption (see “THE OBLIGATIONS - Description of the Bonds” and “THE OBLIGATIONS - Optional Redemption of the Bonds”).

AUTHORITY FOR ISSUANCE OF THE CERTIFICATES ............... The Certificates are issued pursuant to the Constitution and general laws of the State,

including particularly Chapter 281, Texas Health and Safety Code, as amended, Subchapter C of Chapter 271, Texas Local Government Code, as amended, and Chapter 1371, Texas Government Code, as amended, and a certificate order adopted by the Commissioners Court, on behalf of the District, on April 8, 2013 (the “Certificate Authorization”), in which the Commissioners Court delegated pricing of the Certificates and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Certificates (the Certificate Authorization and the Pricing Certificate for the Certificates are jointly referred to as the “Certificate Order”) (see “THE OBLIGATIONS - Authority for Issuance of the Certificates”).

AUTHORITY FOR ISSUANCE OF THE BONDS ............................ The Bonds are issued pursuant to the Constitution and general laws of the State, including

particularly Chapter 281, Texas Health and Safety Code, as amended, and Chapter 1207, Texas Government Code, as amended, and a bond order adopted by the Commissioners Court, on behalf of the District, on April 8, 2013 (the “Bond Authorization”), in which the Commissioners Court delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Bonds (the Bond Authorization and the Pricing Certificate for the Bonds are jointly referred to as the “Bond Order”) (see “THE OBLIGATIONS - Authority for Issuance of the Bonds”). The Bond Order and the Certificate Order are sometimes collectively referred to herein as the “Orders”.

5

SECURITY FOR THE OBLIGATIONS ............................. The Obligations constitute direct obligations of the District, payable from the levy and

collection of an ad valorem tax levied on all taxable property within the District, within the limits prescribed by law. The Certificates are additionally secured by a limited pledge of $1,000 of the Surplus Revenues of the District’s hospital operations (see “THE OBLIGATIONS - Security and Source of Payment”). The Obligations are not obligations of the County and the holders of the Obligations are not entitled to demand payment from any tax revenues or any other revenues or assets of the County.

REDEMPTION ............................... The District reserves the right, at its option, to redeem Obligations having stated maturities on

and after August 15, 2024, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2023, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see “THE OBLIGATIONS - Optional Redemption of the Certificates” and “THE OBLIGATIONS - Optional Redemption of the Bonds”). Additionally, the Certificates maturing on August 15 in the years 2039 and 2043 and the Bonds maturing on August 15, 2035, respectively, are subject to mandatory sinking fund redemption as described herein under "THE OBLIGATIONS – Mandatory Redemption of the Certificates" and "THE OBLIGATIONS – Mandatory Redemption of the Bonds".

TAX EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Obligations will be excludable from gross

income for federal income tax purposes under existing law, subject to the matters described under “TAX MATTERS” herein, including the alternative minimum tax on corporations.

USE OF CERTIFICATE PROCEEDS ................................. Proceeds from the sale of the Certificates will be for the purpose of paying contractual

obligations of the District to be incurred for the following purposes, to wit: (i) to repair, renovate, improve, enlarge and equip facilities of the “University Medical Center of El Paso” which is owned and operated by the District (the “Hospital”), including the Hospital Annex; (ii) to acquire, construct, improve and equip medical outpatient clinics of the District to be located in the East, Northeast, Central and West areas of the County, including an emergency or urgent care facility to be located at the District’s existing Northeast care center; (iii) to repair, renovate, improve, enlarge and equip existing medical outpatient clinics of the District; (iv) to acquire materials, equipment, machinery, buildings, land and rights-of-way for such projects; (v) to acquire materials, equipment and machinery for the imaging, gastroenterology, gynecology, neurology, surgery and other medical departments of the Hospital; (vi) to pay interest on the Certificates during certain phases of construction (and possibly up to one year thereafter); and (vii) to pay for professional services and the costs of issuance associated therewith (see “PLAN OF FINANCING - Purpose of the Certificates”).

USE OF BOND PROCEEDS ............ Proceeds from the sale of the Bonds will be used to (i) refund certain of the District’s currently

outstanding obligations (the “Refunded Obligations”) (see “Schedule I - SCHEDULE OF REFUNDED OBLIGATIONS” for a more complete description of the Refunded Obligations and their call date) and (ii) pay costs of issuance related to the Bonds. The refunding is being undertaken to lower the District’s debt service payments and will result in a present value savings to the District (see “PLAN OF FINANCING - Refunded Obligations”).

RATINGS ...................................... Fitch Ratings (“Fitch”) and Standard & Poor’s Ratings Services, a Standard & Poor’s

Financial Services LLC business (“S&P”) have assigned ratings of “AA” and “AA-”, respectively, to the Obligations, without regard to credit enhancement. The presently outstanding unenhanced tax-supported debt of the District is rated “AA” by Fitch and “AA-” by S&P (see “OTHER INFORMATION - Ratings”).

BOOK-ENTRY-ONLY SYSTEM ...................................... The definitive Obligations will be initially registered and delivered only to Cede & Co., the

nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Obligations may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Obligations will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Obligations will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Obligations (see “THE OBLIGATIONS - Book-Entry-Only System”) .

PAYMENT RECORD ..................... The District has never defaulted in payment of its general obligation tax debt.

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SELECTED FINANCIAL INFORMATION

Gross G.O. Ratio of Gross GrossFiscal Taxable Tax Debt G.O. Tax Debt G.O. TaxYear Taxable Assessed Outstanding to Taxable Debt

Ended Assessed Valuation at End Assessed Per

9-30 Valuation (2) Per Capita of Year Valuation Capita

2009 751,296 34,178,398,131$ 45,493$ 266,250,000$ 0.78% 354$

2010 800,647 35,409,444,068 44,226 260,905,000 0.74% 326

2011 800,647 35,614,484,235 44,482 256,085,000 0.72% 320

2012 800,647 36,672,090,486 45,803 251,250,000 0.69% 314

2013 820,790 38,082,678,921 (4) 46,398 374,930,000 (3) 0.98% (3) 457 (3)

Population (1)

Estimated

________________ (1) Source: District Officials for fiscal year 2013. U.S. Census Bureau for years 2009 through 2010. El Paso County CAFR for

fiscal year 2011 and 2012 estimates. (2) As reported by the El Paso Central Appraisal District; subject to change during the ensuing year. (3) Projected, includes the Obligations and excludes the Refunded Obligations. (4) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the

fiscal year 2013 taxable assessed valuation of the District's largest taxpayer. For additional information regarding the District, please contact: Michael Nunez Maria Fernanda Urbina Chris Janning Chief Financial Officer or First Southwest Company or First Southwest Company El Paso County Hospital District 221 N. Kansas, Ste. 1200 325 N. St. Paul, Ste. 800 4815 Alameda Avenue El Paso, Texas 79901 Dallas, Texas 75201 El Paso, Texas 79905 (915) 351-7228 (214) 953-4042 (915) 521-7626

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DISTRICT OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS – EL PASO COUNTY COMMISSIONERS COURT

Length of

Officials Service Term Expires

Veronica Escobar, County Judge 2 years 2014

Carlos Leon, Commissioner Pct. #1 Less than 1 year 2016

Sergio Lewis, Commissioner Pct. #2 2 years 2014

Vincent Perez, Commissioner Pct. #3 Less than 1 year 2016

Daniel R. Haggerty, Commissioner Pct. #4 17 years 2014 APPOINTED OFFICIALS – BOARD OF MANAGERS OF THE HOSPITAL DISTRICT

Length of Term

Board of Managers Service Expires Occupation

Tracy Yellen, Chair 5 Years Mar-16 COO Foundation of the Diocese of El Paso

David Osborn, Vice Chair 1.5 Years Mar-14 Chief Lending Officer West Star Bank

Laura Ponce, Secretary 1 Year Mar-15 Executive Director, Project Bravo

Jose Luna, MD 6 Years Mar-14 Chief Clinical Officer, Centro San Vicente

William Hanson 1 Year Mar-15 CPA, Business Consultant

Br. Jose Nicholas Gonzalez, FSC New Mar-16 Principal, Cathedral High School

Monica Salaiz-Narvaez New Mar-16 Certified Financial Planner/Partner, Strategic Wealth Advisors

SELECTED ADMINISTRATIVE STAFF

Length of

Name Position Length of Service Healthcare Service

James N. Valenti Chief Executive Officer 8 years 30 years

Michael Nunez Chief Financial Oficer 7 years 28 years

Diana Fancher Chief Nursing Officer 6 years 20 years

Maria Zampini VP of Operations 19 years 20 years

Edward M. Sosa Chief Legal Officer 12 years 12 years

Lorena Navedo Executive Chief of Staff 5 years 7 years

Cathy Gibson Chief Compliance Officer 10 years 25 years CONSULTANTS AND ADVISORS Auditors ........................................................................................................................................................................... BKD, LLP. Dallas, Texas Bond Counsel .........................................................................................................................................Fulbright & Jaworski L.L.P. Dallas, Texas Financial Advisor ...................................................................................................................................... First Southwest Company El Paso, Texas

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9

OFFICIAL STATEMENT

RELATING TO $244,690,000 EL PASO COUNTY HOSPITAL DISTRICT

$134,290,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, SERIES 2013

$110,400,000 GENERAL OBLIGATION REFUNDING BONDS,

SERIES 2013

INTRODUCTION This Official Statement, which includes the cover page, the Schedule and the Appendices hereto, provides certain information regarding the issuance of $134,290,000 El Paso County Hospital District Combination Tax and Revenue Certificates of Obligation, Series 2013 (the “Certificates”), and the $110,400,000 El Paso County Hospital District General Obligation Refunding Bonds, Series 2013 (the “Bonds” and, together with the Certificates, the “Obligations”). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the respective Orders (defined herein), except as otherwise indicated herein. There follows in this Official Statement descriptions of the Obligations and certain information regarding the District and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the District’s Financial Advisor, First Southwest Company, El Paso, Texas, upon payment of reasonable copying, handling, and delivery charges. SEPARATE ISSUES . . . The Bonds and the Certificates are being offered concurrently by the District under a common Official Statement. The Bonds and the Certificates are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of holders, and other features. DESCRIPTION OF THE DISTRICT . . . The District is a political subdivision of the State of Texas (the “State”), being a Hospital District created pursuant to a vote of the qualified electors of the County in 1958 in accordance with Article IX, Section 4 of the Texas Constitution and began operations in 1959. The boundaries of the District are coterminous with those of El Paso County, Texas (the “County”). The District covers approximately 1,058 square miles. The principal medical facility operated by the District is University Medical Center of El Paso (the "Hospital"). The management, control and administration of the affairs of the District have been delegated to a Board of Managers (the “Board”) consisting of seven members appointed to three-year terms by the Commissioners Court of the County (the “Commissioners Court”). The Commissioners Court, acting on behalf of the District, retains certain governance responsibilities in addition to the appointment of the Board, including levying the annual tax rate and authorizing the issuance of general obligation bonds. See "Appendix A – General Information Regarding the District" for more detailed description of the District and the Hospital.

PLAN OF FINANCING PURPOSE OF THE CERTIFICATES . . . Proceeds from the sale of the Certificates will be for the purpose of paying contractual obligations of the District to be incurred for the following purposes, to wit: (i) to repair, renovate, improve, enlarge and equip facilities of the “University Medical Center of El Paso” which is owned and operated by the District (the “Hospital”), including the Hospital Annex; (ii) to acquire, construct, improve and equip medical outpatient clinics of the District to be located in the East, Northeast, Central and West areas of the County, including an emergency or urgent care facility to be located at the District’s existing Northeast care center; (iii) to repair, renovate, improve, enlarge and equip existing medical outpatient clinics of the District; (iv) to acquire materials, equipment, machinery, buildings, land and rights-of-way for such projects; (v) to acquire materials, equipment and machinery for the imaging, gastroenterology, gynecology, neurology, surgery and other medical departments of the Hospital; (vi) to pay interest on the Certificates during certain phases of construction (and possibly up to one year thereafter); and (vii) to pay for professional services and the costs of issuance associated therewith. PURPOSE OF THE BONDS . . . Proceeds from the sale of the Bonds will be used to (i) refund certain of the District’s currently outstanding obligations (the “Refunded Obligations”) (see “Schedule I - SCHEDULE OF REFUNDED OBLIGATIONS” for a more complete description of the Refunded Obligations and their call date) and (ii) pay costs of issuance related to the Bonds. The refunding is being undertaken to lower the District’s debt service payments and will result in a present value savings to the District.

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REFUNDED OBLIGATIONS . . . The principal and interest due on the Refunded Obligations are to be paid on the interest payment dates and the redemption date thereof from funds to be deposited pursuant to a Special Escrow Agreement (the “Escrow Agreement”) between the District and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the “Escrow Agent”). The Bond Order provides that from the proceeds of the sale of the Bonds received from the Underwriters and other available funds of the District, the District will deposit with the Escrow Agent the amount that, together with investment earnings thereon, will be sufficient to accomplish the discharge and final payment of the Refunded Obligations on their redemption date. Such funds will be held by the Escrow Agent in a special escrow account (the “Escrow Fund”) and used to purchase obligations of some or all of the following types: (a) direct noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of their acquisition or purchase by the District, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent and (c) noncallable obligations of a state or an agency or a county, municipality or other political subdivision of a state that have been refunded and that, on the date of their acquisition or purchase by the District, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent (the “Escrowed Securities”). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Obligations.

Grant Thornton LLP, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Escrowed Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Escrowed Securities will not be available to pay the Obligations (see “OTHER INFORMATION - Verification of Arithmetical and Mathematical Computations”).

By the deposit of the Escrowed Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the District will have effected the defeasance of all of the Refunded Obligations in accordance with State law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the verification report of Grant Thornton LLP, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Escrowed Securities and any cash held for such purpose by the Escrow Agent and the Refunded Obligations will not be deemed as being outstanding obligations of the District payable from ad valorem taxes or other revenues nor for the purpose of applying any limitation on the issuance of debt.

In the Escrow Agreement, the District covenants to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund are insufficient to make such payment.

SOURCES AND USES OF FUNDS . . . Proceeds from the sale of the Obligations, together with funds contributed by the District, will be used approximately as follows:

The Certificates The Bonds Total

Sources of Funds:

Principal Amount 134,290,000.00$ 110,400,000.00$ 244,690,000.00$

Net Original Issue Premium 16,686,073.65 18,554,643.85 35,240,717.50

District Contribution 10,000,000.00 (1) - 10,000,000.00 (1)

Transfer from Prior Debt Service Fund - 1,578,377.78 1,578,377.78

Total Sources 160,976,073.65$ 130,533,021.63$ 291,509,095.28$

Uses of Funds:

Deposit into Escrow Fund -$ 129,698,026.18$ 129,698,026.18$ Deposit into Project Fund 150,000,000.00 - 150,000,000.00

Land Acquisition, if any 10,000,000.00 (1) 10,000,000.00 (1)

Total Underwriter's Discount 553,570.31 430,052.64 983,622.95

Cost of Issuance 422,503.34 404,942.81 827,446.15 Total Uses 160,976,073.65$ 130,533,021.63$ 291,509,095.28$

(1) Up to $10,000,000 of funds may be contributed by the District for land acquisition relating to the projects being funded with

the proceeds of the Certificates.

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THE OBLIGATIONS DESCRIPTION OF THE CERTIFICATES . . . The Certificates are dated April 1, 2013, and mature on August 15 in each of the years and in the amounts shown on page 2 hereof. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and will be payable on February 15 and August 15 of each year, commencing February 15, 2014, until maturity or prior redemption. The definitive Certificates will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”) pursuant to the Book-Entry-Only System described herein. No physical delivery of the Certificates will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates (see “THE OBLIGATIONS - Book-Entry-Only System” herein). Interest on the Certificates is payable to the registered owner appearing on the bond registration books of the Paying Agent/Registrar on the Record Date (as defined below) and such interest shall be paid by the Paying Agent/Registrar (i) by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the bond register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. The principal of the Certificates is payable at maturity or upon prior redemption, upon their presentation and surrender to the Paying Agent/Registrar; provided, however, that so long as Cede & Co. (or other DTC nominee) is the registered owner of the Certificates, all payments will be made as described under “THE OBLIGATIONS - Book-Entry-Only System” herein. If the date for any payment on the Certificates shall be a Saturday, Sunday, a legal holiday, or a day when banking institutions in the city where the designated corporate office of the Paying Agent/Registrar is located is authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day when banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. DESCRIPTION OF THE BONDS . . . The Bonds are dated April 1, 2013, and mature on August 15 in each of the years and in the amounts shown on page 2 hereof. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and will be payable on February 15 and August 15 of each year, commencing August 15, 2013, until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”) pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see “THE OBLIGATIONS - Book-Entry-Only System” herein). Interest on the Bonds is payable to the registered owner appearing on the bond registration books of the Paying Agent/Registrar on the Record Date (as defined below) and such interest shall be paid by the Paying Agent/Registrar (i) by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the bond register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. The principal of the Bonds is payable at maturity or upon prior redemption, upon their presentation and surrender to the Paying Agent/Registrar; provided, however, that so long as Cede & Co. (or other DTC nominee) is the registered owner of the Bonds, all payments will be made as described under “THE OBLIGATIONS - Book-Entry-Only System” herein. If the date for any payment on the Bonds shall be a Saturday, Sunday, a legal holiday, or a day when banking institutions in the city where the designated corporate office of the Paying Agent/Registrar is located is authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day when banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. AUTHORITY FOR ISSUANCE OF THE CERTIFICATES . . . The Certificates are issued pursuant to the Constitution and general laws of the State, including particularly Chapter 281, Texas Health and Safety Code, as amended, Subchapter C of Chapter 271, Texas Local Government Code, as amended, and Chapter 1371, Texas Government Code, as amended, and a certificate order adopted by the Commissioners Court, on behalf of the District, on April 8, 2013 (the “Certificate Authorization”), in which the Commissioners Court delegated pricing of the Certificates and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Certificates (the Certificate Authorization and the Pricing Certificate for the Certificates are jointly referred to as the “Certificate Order”). AUTHORITY FOR ISSUANCE OF THE BONDS . . . The Bonds are issued pursuant to the Constitution and general laws of the State, including particularly Chapter 281, Texas Health and Safety Code, as amended, and Chapter 1207, Texas Government Code, as amended, and a bond order adopted by the Commissioners Court, on behalf of the District, on April 8, 2013 (the “Bond Authorization”), in which the Commissioners Court delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who approved a “Pricing Certificate” which contains the final terms of sale and completed the sale of the Bonds (the Bond Authorization and the Pricing Certificate for the Bonds are jointly referred to as the “Bond Order”). The Bond Order and the Certificate Order are sometimes collectively referred to herein as the “Orders”.

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SECURITY AND SOURCE OF PAYMENT . . . The Obligations constitute direct obligations of the District, payable from the levy and collection of an ad valorem tax levied on all taxable property within the District, within the limits prescribed by law. The Certificates are additionally secured by a limited pledge of $1,000 of the Surplus Revenues of the District’s hospital operations. The Obligations are not obligations of the County and the holders of the Obligations are not entitled to demand payment from any tax revenues or any other revenues or assets of the County. TAX RATE LIMITATION . . . All taxable property within the District is subject to the assessment, levy and collection by the Commissioners Court for the benefit of the District of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article IX, Section 4, of the Texas Constitution is applicable to county-wide hospital districts, and limits the maximum ad valorem tax rate to $.75 per $100 of assessed valuation for all purposes (see “TAX INFORMATION - General Obligation Debt Limitation”). OPTIONAL REDEMPTION OF THE CERTIFICATES . . . The District reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2024, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2023, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed, the District may select the maturities of Certificates to be redeemed. If less than all the Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Certificates are in Book-Entry-Only form) shall determine by lot the Certificates, or portions thereof, within such maturity to be redeemed.\ MANDATORY REDEMPTION OF THE CERTIFICATES . . . The Certificates maturing August 15, 2039 and August 15, 2043 are subject to mandatory sinking fund redemption prior to their scheduled maturity and shall be redeemed by the District, in part, prior to their scheduled maturity (provided that a portion of a Certificate may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof plus accrued interest to the date of redemption, on the dates, and in the principal amounts set forth below:

Redemption Date Principal Amount August 15, 2034 $ 1,685,000 August 15, 2035 $ 1,770,000 August 15, 2036 $ 1,245,000 August 15, 2037 $ 1,305,000 August 15, 2038 $ 1,370,000 August 15, 2039* $ 18,855,000

Redemption Date Principal Amount August 15, 2040 $ 19,800,000 August 15, 2041 $ 20,790,000 August 15, 2042 $ 21,830,000 August 15, 2043* $ 22,920,000

*Stated Maturity Approximately forty-five (45) days prior to each mandatory redemption date for the Term Certificates, the Paying Agent/Registrar shall select by lot the numbers of the Term Certificates within the applicable Stated Maturity to be redeemed on the next following August 15 from moneys set aside for that purpose in the Interest and Sinking Fund with respect thereto. Any Term Certificates not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Term Certificates for a Stated Maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the District, by the principal amount of Term Certificates of like Stated Maturity which, at least 50 days prior to the mandatory redemption date, (1) shall have been acquired by the District at a price not exceeding the principal amount of such Term Certificates plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory redemption requirement. OPTIONAL REDEMPTION OF THE BONDS . . . The District reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2024, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2023, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the District may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. MANDATORY REDEMPTION OF THE BONDS . . . The Bonds maturing August 15, 2035 are subject to mandatory sinking fund redemption prior to their scheduled maturity and shall be redeemed by the District, in part, prior to their scheduled maturity (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the

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par or principal amount thereof plus accrued interest to the date of redemption, on the dates, and in the principal amounts set forth below:

Redemption Date Principal Amount August 15, 2034 $ 8,440,000 August 15, 2035* $ 8,775,000

*Stated Maturity Approximately forty-five (45) days prior to each mandatory redemption date for the Term Bonds, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds to be redeemed on the next following August 15 from moneys set aside for that purpose in the Interest and Sinking Fund with respect thereto. Any Term Bonds not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Term Bonds required to be redeemed on a mandatory redemption date may be reduced, at the option of the District, by the principal amount of Term Bonds which, at least 50 days prior to the mandatory redemption date, (1) shall have been acquired by the District at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory redemption requirement. NOTICE OF REDEMPTION . . . Not less than 30 days prior to a redemption date for the Obligations, the District shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Obligations to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE OBLIGATIONS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TO ACCRUE. With respect to any optional redemption of the Obligations, unless certain prerequisites to such redemption required by the Orders have been met and moneys sufficient to pay the principal of and premium, if any, and interest on the Obligations to be redeemed shall have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice may state that said redemption is conditional upon the satisfaction of such prerequisites and receipt of such moneys by the Paying Agent/Registrar on or prior to the date fixed for such redemption. If a conditional notice of redemption is given and such prerequisites to the redemption are not satisfied or sufficient moneys are not received, such notice shall be of no force and effect, the District shall not redeem such Obligations and the Paying Agent/Registrar shall give notice, in the manner in which the notice of redemption was given, to the effect that the Obligations have not been redeemed. AMENDMENTS TO THE CERTIFICATE ORDER . . . The Commissioners Court, on behalf of the District and with the consent of the District, may amend the Certificate Order without the consent of or notice to any registered owners of the Certificates, solely for any one or more of the following purposes: (i) to add to the covenants and agreements of the District contained in the Certificate Order, other covenants and agreements thereafter to be observed, or to surrender any right or power reserved to or conferred upon the District in the Certificate Order; (ii) to cure any ambiguity or inconsistency, or to cure or correct any defective provisions contained in the Certificate Order, upon receipt by the District of an opinion of nationally recognized bond counsel, that the same is needed for such purpose, and will more clearly express the intent of the Certificate Order; or (iii) to supplement the security for the Certificates, replace or provide additional credit facilities, or change the form of the Certificates or make such other changes in the provisions of the Certificate Order as the District may deem necessary or desirable and which shall not, in the judgment of the District, materially adversely affect the interests of the owners of the outstanding Certificates. In addition, the Commissioners Court, on behalf of the District and with the consent of the District may, with the written consent of the holders of a majority in aggregate principal amount of the Certificates then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Certificate Order; except that, without the consent of the registered owners of all of the Certificates affected, no such amendment, addition, or rescission may (i) make any change in the maturity of the outstanding Certificates; (ii) reduce the rate of interest borne by outstanding Certificates; (iii) reduce the amount of the principal payable on outstanding Certificates; (iv) modify the terms of payment of principal of or interest on the outstanding Certificates, or impose any conditions with respect to such payment; (v) affect the rights of the owners of less than all Certificates then outstanding; or (vi) change the minimum percentage of the outstanding principal amount of Certificates necessary for consent to such amendment. AMENDMENTS TO THE BOND ORDER . . . The Commissioners Court, on behalf of the District and with the consent of the District, may amend the Bond Order without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency or formal defect or omission therein. In addition, the Commissioners Court, on behalf of the District and with the consent of the District may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds then outstanding affected thereby, amend, add to, or rescind any of the

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provisions of the Bond Order; except that, without the consent of the registered owners of all of the Bonds affected, no such amendment, addition, or rescission may (i) change the date specified as to the date on which the principal of or any installment of interest on any Bond is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any Bond or interest thereon is payable, or in any other way modify the terms of payment of the principal or of interest on the Bonds; (ii) give any preference to any Bond; (iii) extend a waiver of default to subsequent defaults; or (iv) reduce the aggregate principal amount of the Bonds as required for consent to any amendment, addition or waiver. DISCHARGE OF THE OBLIGATIONS . . . The Orders provide that the Obligations may be discharged, defeased, redeemed or refunded in any manner now or hereafter permitted by law. Under current Texas law, such discharge may be accomplished either: (i) by depositing with the Paying Agent/Registrar or other lawfully authorized entity a sum of money equal to the principal and all interest to accrue on the Obligations to maturity, and/or (ii) by depositing with the Paying Agent/Registrar or other lawfully authorized entity amounts sufficient, together with the investments earnings thereon, to provide for the payment of such Obligations; provided that such deposits may be invested and reinvested only in (a) direct non-callable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the District adopts or approves the proceedings authorizing the issuance of refunding obligations, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the District adopts or approves the proceedings authorizing the issuance of refunding obligations to refund the Obligations, as applicable, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; or (iii) any combination of (i) and (ii) above. The foregoing obligations may be in book-entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of the Obligations. There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Obligations. Because the Orders do not contractually limit such investments, registered owners may be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under State law. There is no assurance that the ratings for U.S. Treasury securities used for defeasance purposes or that for any other defeasance security will be maintained at any particular rating category. BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Obligations is to be transferred and how the principal of and interest on the Obligations are to be paid to and credited by DTC while the Obligations are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The District and the Underwriters cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Obligations, or any notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Obligations), or any notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Obligations. The Obligations will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered Obligation certificate will be issued for each maturity of the Obligations in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

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

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

Redemption notices shall be sent to DTC. If less than all of the Obligations within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

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.

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

All payments on the Obligations will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the District or the Paying Agent/Registrar on payable dates 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 in the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. All payments on the Obligations to DTC are the responsibility of the District, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Obligations at any time by giving reasonable notice to the District and the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Obligations are required to be printed and delivered. (See "REGISTRATION, TRANSFER AND EXCHANGE" herein) The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository) with respect to either or both series of the Obligations. In that event, Obligations will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Obligations are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Obligations, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Orders will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the District, the Financial Advisor or the Underwriters. Effect of Termination of Book-Entry-Only System. In the event the Book-Entry-Only System with respect to the Obligations is discontinued by DTC, or the use of the Book-Entry-Only System with respect to the Obligations is discontinued by the District, printed Obligation certificates will be issued to the respective holders of the Obligations, and the respective Obligations will be subject to transfer, exchange, and registration provisions as set forth in the Orders, summarized under “THE OBLIGATIONS - Registration, Transfer and Exchange” below.

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PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. In the Orders, the District retains the right to replace the Paying Agent/Registrar. The District covenants to maintain and provide a Paying Agent/Registrar at all times until the Obligations are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon any change in the Paying Agent/Registrar for the Obligations, the District agrees to promptly cause a written notice thereof to be sent to each registered owner of the Obligations by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. SUCCESSOR PAYING AGENT/REGISTRAR . . . Provision is made in the Orders for replacement of the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the District, the new Paying Agent/Registrar shall accept the previous Paying Agent/Registrar’s records and act in the same capacity as the previous Paying Agent/Registrar. Any Paying Agent/Registrar selected by the District shall be either a qualified national or state banking or financial institution doing business under the laws of the United States of America or of any state, authorized under such laws to exercise trust powers and to serve as a Paying Agent/Registrar. The successor Paying Agent/Registrar, if any, shall be determined by the District. REGISTRATION, TRANSFER AND EXCHANGE . . . In the event the Book-Entry-Only System is discontinued for either or both series of Obligations, printed Obligation certificates of the appropriate series will be delivered to the beneficial owners thereof, and thereafter the Obligations may be transferred, registered and assigned on the registration books only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. An Obligation may be assigned by the execution of an assignment form on the Obligations or by other instrument of transfer and assignment must be acceptable to the Paying Agent/Registrar. A new Obligation or Obligations will be delivered by the Paying Agent/Registrar in lieu of the Obligation or Obligations being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States Mail, first class postage prepaid, to the new registered owner. To the extent possible, new Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three (3) business days after the receipt of the Obligations to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Obligations registered and delivered in an exchange or transfer shall be in authorized denominations and for a like kind and aggregate principal amount as the Obligation or Obligations surrendered for exchange or transfer. See “THE OBLIGATIONS - Book-Entry-Only System” for a description of the system to be utilized initially in regard to the ownership and transferability of the Obligations. LIMITATION ON TRANSFER OF OBLIGATIONS . . . Neither the District nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Obligation called for redemption, in whole or in part, where such redemption is scheduled to occur within forty-five (45) calendar days after the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled principal balance of an Obligation. RECORD DATE FOR INTEREST PAYMENT . . . The record date (“Record Date”) for the interest payable on the Obligations on any interest payment date means the close of business on the last business day of the 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 from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest (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 an Obligation appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. OBLIGATIONHOLDERS’ REMEDIES . . . The Orders do not specify events of default with respect to the Obligations. If the District defaults in the payment of principal of or interest on the Obligations when due, or if it fails to make payments into any fund or funds created in the Orders, or defaults in the observation or performance of any other covenants, conditions, or obligations set forth in the Orders, the registered owners may seek a writ of mandamus to compel District officials to carry out their legally imposed duties with respect to the Obligations if there is no other available remedy at law to compel performance of the Obligations or Orders and the District’s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles and rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Obligations in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Orders do not provide for the appointment of a trustee to represent the interest of the obligationholders upon any failure of the District to perform in accordance with the terms of the Orders, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in “clear and unambiguous” language. Because it is unclear whether the Texas legislature has effectively waived the District’s sovereign immunity from a suit for money damages, obligationholders may not be able to bring such a suit against the District for breach of the Obligations or Orders covenants. Even if a judgment against the District could be obtained, it could not be enforced by direct

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levy and execution against the District’s property. Further, the registered owners cannot themselves foreclose on property within the District or sell property within the District to enforce the tax lien on taxable property to pay the principal of and interest on the Obligations. Furthermore, the District is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or obligationholders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinions of Bond Counsel will note that all opinions relative to the enforceability of the Orders and the Obligations are qualified with respect to the customary rights of debtors relative to their creditors.

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TAX INFORMATION

AD VALOREM TAX LAW . . . The appraisal of property within the District is the responsibility of the El Paso Central Appraisal District (the “Appraisal District”). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and the market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law requires the appraised value of a residence homestead to be based solely on the property’s value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. State law further limits the appraised value of a residence homestead for a tax year to an amount that would not exceed the lesser of (1) the market value of the property for the most recent tax year that the market value was determined by the appraisal office or (2) the sum of (a) 10% of the property’s appraised value in the preceding tax year, plus (b) the property’s appraised value in the preceding tax year, plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board within the Appraisal District, the members of which are appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The District may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the District by petition filed with the Appraisal Review Board.

Reference is made to Title 1 of the Texas Tax Code (the “Property Tax Code”) for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes.

Article VIII of the State Constitution (“Article VIII”) and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation.

Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant 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. Once authorized, such exemption may be repealed or decreased or increased in amount (i) by the governing body of the political subdivision or (ii) by a favorable vote of a majority of the qualified voters at an election called by the governing body of the political subdivision, which election must be called upon receipt of a petition signed by at least 20% of the number of qualified voters who voted in the preceding election of the political subdivision. In the case of a decrease, the amount of the exemption may not be reduced to less than $3,000 of the market value.

The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i) the deceased spouse died in a year in which the deceased spouse qualified for the exemption, (ii) the surviving spouse was at least 55 years of age at the time of the death of the individual’s spouse and (iii) the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse.

In addition to any other exemptions provided by the Property Tax Code, the governing body of a political subdivision, at its option, may grant an exemption of up to 20% of the market value of residence homesteads, with a minimum exemption of $5,000.

In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created.

Under Article VIII and State law, the governing body of a county, municipality or junior college district may provide for a freeze on total amount of ad valorem levied on the residence homestead of a disabled person or persons 65 years of age or older above the amount of tax 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, the total amount of taxes imposed on such homestead cannot be increased except for improvements (other than repairs or improvements required to comply with governmental requirements) and such freeze is transferable to a different residence homestead. Also, a surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes is entitled to the same exemption so long as the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse and the spouse was at least 55 years of age at the time of the death of the individual’s spouse. Once established such freeze cannot be repealed or rescinded.

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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; provided, however, that a disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100 percent disability compensation due to a service-connected disability and a rating of 100 percent disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran’s residence homestead. Furthermore, effective January 1, 2012, the surviving spouse of a deceased veteran who had received a disability rating of 100% are entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries.

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.

Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation.

Article VIII, Section 1-j, provides for “freeport property” to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Notwithstanding such exemption, counties, school districts, junior college districts and cities may tax such tangible personal property provided official action to tax the same was taken before April 1, 1990. 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 an exemption from taxation for “goods-in-transit,” which are defined as (i) personal property acquired or imported into the State and transported to another location inside or outside the State, (ii) stored under a contract for bailment in public warehouses not in any way owned or controlled by the owner of the stored goods, and (iii) transported to another location inside or outside the State within 175 days of the date the property was acquired or imported into the State. 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.

Pursuant to changes enacted during the 2011 Texas Legislative Special Session, all taxing units, including those that have previously taken official action to tax goods-in-transit, may not tax goods-in-transit in the 2012 tax year or thereafter, unless the governing body of the taxing unit holds a public hearing and takes action on or after October 1, 2011, to provide for the taxation of the goods-in-transit. After holding a public hearing, a taxing unit may take official action prior to January 1 of the first tax year in which the governing body proposes to tax goods-in-transit. After taking such official action, the goods-in-transit remain subject to taxation by the taxing unit until the governing body of the taxing unit rescinds or repeals its previous action to tax goods-in-transit. If, however, a taxing unit took official action prior to October 1, 2011 to tax goods-in-transit and pledged the taxes imposed on the goods-in-transit for the payment of a debt, taxes may continue to be imposed on goods-in-transit until the debt is discharged, if cessation of the imposition of the tax would impair the obligation of the contract by which the debt was created.

A county or a municipality may utilize tax increment financing (“TIF”), pursuant to the Tax Increment Financing Act, Texas Tax Code, Chapter 311, to encourage development and redevelopment within a designated reinvestment zone. Taxes collected from increases in valuation above the base value (the “captured appraised value”) by each taxing unit that levies ad valorem taxes on real property in the reinvestment zone may be used to pay costs of infrastructure or other public improvements in the reinvestment zone and to supplement or act as a catalyst for private development in the defined area of the reinvestment zone. The tax increment base value for a taxing unit is the total appraised value of all real property taxable by the taxing unit and located in the reinvestment zone as of January 1 of the year in which the county or municipality created the reinvestment zone. Each taxing unit can choose to dedicate all, any portion or none of its taxes collected from the captured appraised value to the costs of improvements in the reinvestment zone. The amount of a taxing unit’s tax increment for a year is the amount of property taxes levied by the taxing unit for that year on the captured appraised value of real property taxable by the taxing unit and located in the reinvestment zone, multiplied by the taxing unit’s percentage level of participation.

In addition, the District may enter into tax abatement agreements with owners of property pursuant to Chapter 312, Texas Tax Code, as amended. Prior to entering into a tax abatement agreement, each taxing entity must adopt guidelines and criteria for establishing tax abatement, which each entity with taxing authority over the property will follow in granting tax abatement to owners of property. The tax abatement agreement may exempt from ad valorem taxation by each of the applicable taxing jurisdictions, including the District, for a period of up to ten (10) years, all or any part of any increase in the assessed valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is executed, on the condition that the property owner make specified improvements or repairs to the property in conformity with the terms of the tax abatement.

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EFFECTIVE TAX RATE AND ROLLBACK TAX RATE . . . By each September 1 or as soon thereafter as practicable, the Commissioners Court, acting for the District, adopts a tax rate per $100 taxable value for the current year. The Commissioners Court will be required to adopt the annual tax rate for the District before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the District. If the Commissioners Court does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the County for the benefit of the District for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures for the next year, and (2) a rate to fund debt service in the next year.

Under the Property Tax Code, the County for the benefit of the District must annually calculate and publicize its “effective tax rate” and “rollback tax rate”. Under current law, a tax rate cannot be adopted by the Commissioners Court that exceeds the lower of the rollback tax rate or the effective tax rate until two public hearings are held on the proposed tax rate following a notice of such public hearings (including the requirement that notice be posted on the County’s website if the County owns, operates or controls an internet website and public notice be given by television if the County has free access to a television channel) and the Commissioners Court has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the District by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate.

“Effective tax rate” means the rate that will produce last year’s total tax levy (adjusted) from this year’s total taxable values (adjusted). “Adjusted” means lost values are not included in the calculation of last year’s taxes and new values are not included in this year’s taxable values.

“Rollback tax rate” means the rate that will produce last year’s maintenance and operation tax levy (adjusted) from this year’s values (adjusted) multiplied by 1.08 plus a rate that will produce this year’s debt service from this year’s values (unadjusted) divided by the anticipated tax collection rate.

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 District 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:

Month

Cumulative Penalty

Cumulative Interest

Total

February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July

12% 6% 18%

After July, the penalty remains at 12%, and interest accrues at a rate of one percent (1%) for each month or portion of a month the tax remains unpaid. A delinquent tax continues to incur the penalty as long as the tax remains unpaid, regardless of whether a judgment for the delinquent tax has been rendered. The purpose of imposing such interest penalty is to compensate the taxing unit for revenue lost because of the delinquency. In addition, if an account is delinquent in July, a 15% attorney’s collection fee may be added to the total tax penalty and interest charge.

Taxes levied by the District 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 District, having the power to tax the property. The District’s tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax 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 District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. The ability of the District to collect delinquent taxes by 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

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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.

DISTRICT APPLICATION OF TAX CODE . . . The District does not grant an exemption to the market value of the residence homestead of persons 65 years of age or older or the disabled;

The District has not granted an additional exemption of 20% of the market value of residence homesteads.

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

The District does not tax nonbusiness personal property;

The District does not permit split payments, and discounts are not allowed;

The District has taken action to authorize exceptions for freeport property;

The District does tax “goods-in-transit”;

The County has established on behalf of the District a tax abatement policy and has entered into tax abatement agreements;

The District does not participate in any tax increment financing zones;

The District contracts with the City of El Paso for the collection of District taxes.

TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2012/13 Taxable Assessed Valuation

(excluding totally exempt property) 40,605,989,561$ (1)

Less Exemptions/Reductions at 100% Market Value: Disabled or Deceased Veterans 369,880,260$ Pollution Control 87,239,214 Homestead Cap 225,734,240 Charity - Absolutes 6,667,214 Low Income Housing Exemptions 19,761,200 Freeport Exemption 1,750,149,728 10% Cap Loss 63,878,784 2,523,310,640

2012/13 Net Taxable Assessed Valuation 38,082,678,921$ (1)

General Obligation Debt Payable from Ad Valorem Taxes (as of 3/31/13) (1)(2) 135,280,000$ Series 2013 Certificates 134,290,000 Series 2013 Bonds 110,400,000

379,970,000$

Interest & Sinking Fund (as of 1/31/13) 7,202,515$ Ratio Tax Supported Debt to Taxable Assessed Valuation 1.00%

Per Capita 2012/13 Taxable Assessed Valuation - $46,398Per Capita General Obligation Debt Payable from Ad Valorem Taxes - $463

2013 Estimated Population - 820,790

(1) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the

fiscal year 2013 taxable assessed valuation of the District's largest taxpayer. (2) Excludes the Refunded Obligations.

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TABLE 2 – TAXABLE ASSESSED VALUATIONS BY CATEGORY

2013 2012 2011% of % of % of

Category Amount Total Amount Total Amount TotalReal, Residential, Single-Family 23,018,875,305$ 56.69% 22,594,333,812$ 58.22% 22,172,518,488$ 59.44%Real, Residential, Multi-Family 1,858,830,137 4.58% 1,758,168,072 4.53% 1,689,240,523 4.53%Real, Vacant Lots/Tracts 879,138,080 2.17% 852,771,377 2.20% 840,345,025 2.25%Real, Acreage (Land Only) 394,413,100 0.97% 404,077,359 1.04% 411,668,416 1.10%Real, Farm and Ranch Improvements 108,568,028 0.27% 108,064,967 0.28% 103,469,527 0.28%Real, Commercial 6,889,468,086 16.97% 6,605,477,888 17.02% 6,119,602,170 16.41%Real, Industrial 1,288,463,860 3.17% 782,143,127 2.02% 768,536,352 2.06%Real, Oil, Gas and Other Mineral Reserves 11,473 0.00% 11,473 0.00% 11,673 0.00%Real and Tangible Personal, Utilities 695,719,554 1.71% 706,112,404 1.82% 659,127,603 1.77%Personal, Commercial 3,753,022,658 9.24% 3,511,837,558 9.05% 3,129,115,412 8.39%Personal, Industrial 1,193,667,351 2.94% 993,146,279 2.56% 870,555,936 2.33%Tangible Personal, Other (Mobile Home) 120,689,178 0.30% 118,999,196 0.31% 121,104,221 0.32%Intangible Personal - 0.00% - 0.00% - 0.00%Real Property & Special Inventory 405,122,751 1.00% 371,440,650 0.96% 414,329,224 1.11%Total Appraised Value Before Exemptions 40,605,989,561$ (1) 100.00% 38,806,584,162$ 100.00% 37,299,624,570$ 100.00%Less: Total Exemptions/Reductions (2,523,310,640) (2,134,493,676) (1,685,140,335)

Taxable Assessed Value 38,082,678,921$ (1) 36,672,090,486$ 35,614,484,235$

Fiscal Year Ended September 30,

2010 2009% of % of

Category Amount Total Amount TotalReal, Residential, Single-Family 22,173,290,931$ 58.55% 21,743,901,069$ 58.82%Real, Residential, Multi-Family 1,652,936,871 4.36% 1,543,059,876 4.17%Real, Vacant Lots/Tracts 781,189,159 2.06% 670,130,912 1.81%Real, Acreage (Land Only) 425,201,805 1.12% 434,010,049 1.17%Real, Farm and Ranch Improvements 102,765,630 0.27% 101,254,503 0.27%Real, Commercial 5,964,567,188 15.75% 5,893,156,596 15.94%Real, Industrial 857,294,064 2.26% 889,627,214 2.41%Real, Oil, Gas and Other Mineral Reserves 11,673 0.00% 920 0.00%Real and Tangible Personal, Utilities 642,128,302 1.70% 627,392,541 1.70%Tangible Personal, Commercial 3,465,290,255 9.15% 3,171,221,700 8.58%Tangible Personal, Industrial 1,183,884,155 3.13% 1,241,433,559 3.36%Tangible Personal, Other (Mobile Home) 126,829,752 0.33% 94,512,443 0.26%Intangible Personal - 0.00% - 0.00%Real Property & Special Inventory 495,765,369 1.31% 558,198,762 1.51%Total Appraised Value Before Exemptions 37,871,155,154$ 100.00% 36,967,900,144$ 100.00%Less: Total Exemptions/Reductions (2,461,711,086) (2,789,502,013)

Taxable Assessed Value 35,409,444,068$ 34,178,398,131$

Fiscal Year Ended September 30,

_________ (1) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the

fiscal year 2013 taxable assessed valuation of the District's largest taxpayer. NOTE: Valuations shown are certified taxable assessed values reported by the Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records.

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TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY

Gross G.O. Ratio of Gross GrossFiscal Taxable Tax Debt G.O. Tax Debt G.O. TaxYear Taxable Assessed Outstanding to Taxable Debt

Ended Assessed Valuation at End Assessed Per

9-30 Valuation (2) Per Capita of Year Valuation Capita

2009 751,296 34,178,398,131$ 45,493$ 266,250,000$ 0.78% 354$

2010 800,647 35,409,444,068 44,226 260,905,000 0.74% 326

2011 800,647 35,614,484,235 44,482 256,085,000 0.72% 320

2012 800,647 36,672,090,486 45,803 251,250,000 0.69% 314

2013 820,790 38,082,678,921 (4) 46,398 374,930,000 (3) 0.98% (3) 457 (3)

Population (1)

Estimated

________________ (1) Source: District Officials for fiscal year 2013. U.S. Census Bureau for years 2009 through 2010. El Paso County CAFR for

fiscal year 2011 and 2012 estimates. (2) As reported by the Appraisal District; subject to change during the ensuing year. (3) Projected, includes the Obligations and excludes the Refunded Obligations. (4) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the

fiscal year 2013 taxable assessed valuation of the District's largest taxpayer. TABLE 4 – TAX RATE, LEVY AND COLLECTION HISTORY

InterestOperation and

FYE Tax and Sinking % Current % Total

9-30 Rate Maintenance Fund (1) Tax Levy Collections Collections2009 0.181504$ 0.146175$ 0.035329$ 61,642,732$ 96.60% 99.43%2010 0.179405 0.146281 0.033124 63,526,307 97.52% 99.60%

2011 0.182124 0.150266 0.031858 64,862,523 97.48% 99.65%

2012 0.192363 0.161435 0.030928 70,543,533 97.63% 100.00%

2013 0.192363 0.165585 0.026778 73,256,984 94.63% (2) 96.07% (2)

______________

(1) Interest and Sinking Fund tax rate does not take into account debt service on the Series 2005 Certificates that is considered to be self-supporting. See "Table 7 – Interest and Sinking Fund Budget Projected" for a discussion of the self-supporting debt.

(2) Partial collections as of March 31, 2013.

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TABLE 5 - TEN LARGEST TAXPAYERS

2012/2013 % of TotalTaxable Taxable

Assessed AssessedName of Taxpayer Nature of Property Valuation Valuation

Western Refining Co. (1) Refinery 910,433,842$ (1) 2.39% (1)

El Paso Electric Co. Electric Utility 264,012,007 0.69%Sierra Providence Physical Rehabilitation Hospital Healthcare 231,585,285 0.61%Simon Property Group Developer 195,370,658 0.51%River Oaks Properties Ltd. Developer 159,705,608 0.42%Southwestern Bell Telephone Co. Telephone Utility 92,762,116 0.24%El Paso Outlet Center Holding LLC Retail 92,013,362 0.24%Las Palmas Dunhill LP Retail 81,411,369 0.21%Wal-Mart Retail 77,495,030 0.20%Texas Gas Service Gas Utility 75,576,402 0.20%

2,180,365,679$ 5.73%

(1) Western Refining Inc. (the “Company”) sued the El Paso Central Appraisal District seeking an adjustment of the taxable assessed valuation of property that the Company owns in the District and tax refunds for the alleged overpayment of ad valorem taxes associated with any adjustment in the taxable assessed valuation of such property for certain tax years, including the 2012 tax year. For years prior to tax year 2012, a settlement was reached with the Company and all refunds for such overpayments were made by the District. The District has been informed that on May 2, 2013, the Appraisal District and the Company entered into a settlement with respect to the taxable assessed valuation of the property that the Company owns in the District. As of May 9, 2013, the District has not received official notice from either the Appraisal District or the Tax-Assessor Collector of the final taxable assessed valuation of the Company’s property for tax year 2012 and the amount set forth above does not reflect any adjustment to take into account the settlement. Based on media reports, however, the District believes that the settlement reduces the taxable assessed valuation of the Company's real property for tax year 2012 by approximately $460 million. Such a reduction in value could result in the District having to refund approximately $800,000 to the Company for the overpayment of taxes, although the District has not yet received official notice of the amount of any required refund. The District has sufficient funds to refund any such amounts to the Company and such repayment will not have a material adverse impact on the District’s finances or operations.

GENERAL OBLIGATION DEBT LIMITATION . . . The District’s ability to issue general obligation debt is limited by tax rate limitations imposed on the District by the State Constitution. The District’s ad valorem tax rate for all purposes cannot exceed $0.75 per $100 of valuation. Administratively, the Attorney General of the State of Texas will permit allocation of up to two-thirds of hospital district taxes for debt service; provided, however, that the Attorney General will permit a higher bond allowable rate on a showing of good cause. (see “THE OBLIGATIONS - Tax Rate Limitation”).

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TABLE 6 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the District are paid out of ad valorem taxes levied by such entities on properties within the District. Such entities are independent of the District and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax debt (“Tax Debt”) was developed from information contained in “Texas Municipal Reports” published by the Municipal Advisory Council of Texas. Except for the amounts relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the District.

2012/2013 Total

Taxable 2012/2013 Tax-Supported Estimated Overlapping

Assessed Tax Debt % Funded Debt

Governmental Subdivision Valuation Rate as of 3/31/13 Applicable As of 3/31/13

County

El Paso County 36,418,883,297$ 0.408870 226,015,000$ 100% 226,015,000$

Special Districts

El Paso Co Hospital Dist 38,082,678,921 (1) 0.192363 379,970,000 (2) 100% 379,970,000

Horizon Regional MUD 1,053,456,560 0.468700 45,685,000 100% 45,685,000

Lower Valley Water Dist 1,382,857,527 0.201574 7,315,000 100% 7,315,000

Paseo Del Este MUD #2 40,282,336 0.750000 2,425,000 100% 2,425,000

Paseo Del Este MUD #3 58,547,795 0.750000 6,595,000 100% 6,595,000

Paseo Del Este MUD #10 151,284,070 0.750000 3,030,000 100% 3,030,000

Total Special Districts 40,769,107,209$ 445,020,000$ 445,020,000$

Cities

Anthony 154,615,024 0.417499 5,977,000$ 100% 5,977,000$

El Paso 32,042,964,752 0.658404 929,160,000 100% 929,160,000

Horizon City 696,274,884 0.322791 630,000 100% 630,000

Socorro 843,915,848 0.565805 1,060,000 100% 1,060,000

Vinton 118,518,862 0.279715 16,195,000 100% 16,195,000

Total Cities 33,856,289,370$ 953,022,000$ 953,022,000$

School Districts

Anthony ISD 160,466,564 1.170000 3,061,868$ 100% 3,061,868$

Canutillo ISD 1,588,210,262 1.422100 86,569,994 100% 86,569,994

Clint ISD 1,032,913,520 1.335050 123,394,733 100% 123,394,733

El Paso ISD 15,904,430,943 1.235000 440,643,641 100% 440,643,641

Fabens ISD 158,731,655 1.261900 24,765,000 100% 24,765,000

San Elizario ISD 170,063,129 1.160756 1,978,000 100% 1,978,000

Socorro ISD 7,801,940,934 1.274794 474,356,446 100% 474,356,446

Tornillo ISD 58,045,268 1.303700 11,905,084 100% 11,905,084

Ysleta ISD 6,409,873,732 1.330000 224,622,523 100% 224,622,523

Total School Districts 33,284,676,007$ 1,391,297,289$ 1,391,297,289$

Total Direct and Consolidated Overlapping Funded Debt 3,015,354,289$

Ratio of Direct and Consolidated Overlapping Funded Debt to Taxable Assessed Valuation 7.92%

Per Capita Consolidated Overlapping Funded Debt 3,674$ (1) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the

fiscal year 2013 taxable assessed valuation of the District's largest taxpayer. (2) Projected, includes the Obligations and excludes the Refunded Obligations.

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TABLE 7 - INTEREST AND SINKING FUND BUDGET PROJECTION

2012/13 Net Taxable Assessed Valuation (1) 38,082,678,921$

Projected 2012/13 Total Debt Service Requirements 15,707,490$

Projected 2012/13 Interest & Sinking Fund Tax Revenue @ 100.00% Collections 10,197,780$

Budgeted District transfer from available operating revenue (2) 5,509,710$

Total District resources budgeted for debt service 15,707,490$ (1) See Footnote (1) to "Table 5 – Ten Largest Taxpayers" for a discussion of recent events concerning the reduction of the fiscal

year 2013 taxable assessed valuation of the District's largest taxpayer. (2) The District’s currently outstanding Combination Tax and Revenue Certificates of Obligation, Series 2005 (the “Series 2005

Certificates”) are secured by a combined pledge of (i) the levy and collection of an ad valorem tax on all taxable property in the District, within the limits prescribed by law, and (ii) certain revenues of the District’s hospital operations. Historically, the District has annually budgeted and transferred available hospital operating revenues in an amount sufficient to fully pay the annual debt service requirements on the Series 2005 Certificates. The Series 2005 Certificates are being partially refunded by the Bonds, but the Bonds are secured solely by the levy and collection of an ad valorem tax levied on all taxable property within the District, within the limits prescribed by law. It is the District’s current intent however, to continue the annual transfer of hospital operating revenues in amounts sufficient to fully pay debt service on the Bonds and the remaining Series 2005 Certificates. In the event the District chooses to discontinue such transfer of hospital operating revenues or such revenues are not otherwise available to pay debt service on the Bonds or Series 2005 Certificates, the District will be required to levy ad valorem taxes or to appropriate other lawfully available funds of the District, if any, in amounts sufficient to pay debt service on the Bonds and the Series 2005 Certificates.

TABLE 8 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS The District has no authorized but unissued general obligation bonds. ANTICIPATED ISSUANCE OF ADDITIONAL GENERAL OBLIGATION DEBT . . . The District does not anticipate the issuance of additional general obligation debt within the next 12 months. TABLE 9 – OTHER OBLIGATIONS The District has no other obligations as of September 30, 2012. TABLE 10 – REVENUE BONDED DEBT As of April 1, 2013, the District has no revenue debt outstanding.

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DEBT INFORMATION TABLE 11 - GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS

Fiscal LessYear Refunded Total

Ending General Obligation Debt Service Obligations Outstanding9/30 Principal Interest Total Debt Service Principal Interest Total Principal Interest Total Debt Service2013 5,040,000$ 12,245,868$ 17,285,868$ 2,893,044$ 1,314,666$ 1,314,666$ 15,707,490$ 2014 5,230,000 12,051,205 17,281,205 5,786,088 8,079,841$ 8,079,841$ 5,317,750 5,317,750 24,892,708 2015 5,440,000 11,845,155 17,285,155 5,786,088 770,000$ 6,478,269 7,248,269 5,317,750 5,317,750 24,065,086 2016 5,690,000 11,593,155 17,283,155 7,441,088 945,000 6,455,169 7,400,169 1,505,000$ 5,317,750 6,822,750 24,064,986 2017 5,945,000 11,336,630 17,281,630 7,905,750 985,000 6,417,369 7,402,369 2,015,000 5,272,600 7,287,600 24,065,849 2018 6,205,000 11,079,468 17,284,468 7,871,250 1,030,000 6,368,119 7,398,119 2,080,000 5,171,850 7,251,850 24,063,186 2019 6,600,000 10,817,043 17,417,043 9,743,000 935,000 6,326,919 7,261,919 4,060,000 5,067,850 9,127,850 24,063,811 2020 6,930,000 10,487,043 17,417,043 9,745,500 965,000 6,298,869 7,263,869 4,265,000 4,864,850 9,129,850 24,065,261 2021 7,275,000 10,140,543 17,415,543 9,742,250 1,015,000 6,250,619 7,265,619 4,475,000 4,651,600 9,126,600 24,065,511 2022 7,640,000 9,776,793 17,416,793 9,743,000 1,060,000 6,210,019 7,270,019 4,695,000 4,427,850 9,122,850 24,066,661 2023 8,015,000 9,398,293 17,413,293 9,747,000 1,090,000 6,178,219 7,268,219 4,935,000 4,193,100 9,128,100 24,062,611 2024 8,405,000 9,010,768 17,415,768 9,743,500 1,145,000 6,123,719 7,268,719 5,180,000 3,946,350 9,126,350 24,067,336 2025 8,825,000 8,590,518 17,415,518 9,747,250 1,205,000 6,066,469 7,271,469 5,440,000 3,687,350 9,127,350 24,067,086 2026 9,265,000 8,149,268 17,414,268 9,747,250 1,260,000 6,006,219 7,266,219 5,715,000 3,415,350 9,130,350 24,063,586 2027 9,730,000 7,686,018 17,416,018 9,743,000 1,300,000 5,968,419 7,268,419 5,995,000 3,129,600 9,124,600 24,066,036 2028 10,210,000 7,202,358 17,412,358 9,744,000 1,370,000 5,903,419 7,273,419 6,295,000 2,829,850 9,124,850 24,066,626 2029 10,720,000 6,698,688 17,418,688 9,744,250 1,430,000 5,834,919 7,264,919 6,610,000 2,515,100 9,125,100 24,064,456 2030 11,255,000 6,162,688 17,417,688 9,743,000 1,480,000 5,788,444 7,268,444 6,940,000 2,184,600 9,124,600 24,067,731 2031 11,815,000 5,599,938 17,414,938 9,744,500 1,525,000 5,740,344 7,265,344 7,290,000 1,837,600 9,127,600 24,063,381 2032 12,405,000 5,009,188 17,414,188 9,742,750 1,580,000 5,688,875 7,268,875 7,650,000 1,473,100 9,123,100 24,063,413 2033 13,025,000 4,388,938 17,413,938 9,747,000 1,630,000 5,635,550 7,265,550 8,040,000 1,090,600 9,130,600 24,063,088 2034 13,680,000 3,737,688 17,417,688 9,746,000 1,685,000 5,578,500 7,263,500 8,440,000 688,600 9,128,600 24,063,788 2035 14,365,000 3,053,688 17,418,688 9,744,000 1,770,000 5,494,250 7,264,250 8,775,000 351,000 9,126,000 24,064,938 2036 15,080,000 2,335,438 17,415,438 - 1,245,000 5,405,750 6,650,750 - - - 24,066,188 2037 15,835,000 1,581,438 17,416,438 - 1,305,000 5,343,500 6,648,500 - - - 24,064,938 2038 16,625,000 789,688 17,414,688 - 1,370,000 5,278,250 6,648,250 - - - 24,062,938 2039 - - - - 18,855,000 5,209,750 24,064,750 - - - 24,064,750 2040 - - - - 19,800,000 4,267,000 24,067,000 - - - 24,067,000 2041 - - - - 20,790,000 3,277,000 24,067,000 - - - 24,067,000 2042 - - - - 21,830,000 2,237,500 24,067,500 - - - 24,067,500 2043 - - - - 22,920,000 1,146,000 24,066,000 - - - 24,066,000

251,250,000$ 200,767,495$ 452,017,495$ 203,340,556$ 134,290,000$ 167,057,285$ 301,347,285$ 110,400,000$ 78,066,716$ 188,466,716$ 738,490,939$

Series 2013 Certificates (1) Series 2013 Bonds (2)

(1) Average life of the issue – 25.348 years. Interest is calculated at the rates shown on Page 2 hereof. (2) Average life of the issue – 14.839 years. Interest is calculated at the rates shown on Page 2 hereof.

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FINANCIAL INFORMATION TABLE 12 – CHANGE IN NET ASSETS

2012 2011 2010 2009 2008OPERATING REVENUE:Net Patient Service Revenue 148,933,000$ 148,329,000$ 135,985,000$ 131,305,000$ 135,504,000$ Premium Revenue 122,327,000 118,253,000 109,003,000 93,215,000 84,727,000 Medicaid Supplemental Revenue 73,589,000 56,778,000 54,628,000 48,964,000 48,917,000

Service Contract Revenue (1) 13,700,000 - - - - Other Operating Revenue 17,947,000 19,531,000 13,915,000 12,995,000 5,725,000

Total Operating Revenues 376,496,000$ 342,891,000$ 313,531,000$ 286,479,000$ 274,873,000$

OPERATING EXPENSES:Salaries and Employee Benefits 139,715,000$ 132,686,000$ 123,042,000$ 115,089,000$ 104,192,000$ Medical Claims Expense 100,232,000 95,226,000 92,005,000 78,525,000 66,217,000 Purchased Services 38,932,000 36,238,000 36,309,000 33,968,000 31,157,000 Professional Fees 3,847,000 5,877,000 6,366,000 17,326,000 39,877,000 Supplies and Other 83,343,000 81,881,000 78,184,000 73,644,000 59,271,000 Depreciation and Amortization 28,198,000 18,249,000 16,588,000 14,958,000 15,065,000

Total Operating Expenses 394,267,000$ 370,157,000$ 352,494,000$ 333,510,000$ 315,779,000$

OPERATING REVENUE (LOSS) (17,771,000)$ (27,266,000)$ (38,963,000)$ (47,031,000)$ (40,906,000)$

NON-OPERATING REVENUE (EXPENSES):Investment Return 152,000$ 625,000$ 1,251,000$ 2,541,000$ 5,948,000$

Interest Expense (2) (8,400,000) (1,502,000) (534,000) (813,000) (1,309,000) Property Tax Revenue 71,570,000 65,857,000 64,617,000 63,001,000 54,801,000

Intergovernmental Transfer (3) (43,740,000) (35,839,000) (21,969,000) (10,001,000) (2,124,000) Tobacco Settlement 1,322,000 1,255,000 1,127,000 2,249,000 2,337,000 Miscellaneous 2,671,000 1,456,000 771,000 1,364,000 1,393,000 Contributions to Others (2,682,000) (753,000) (518,000) (296,000) (1,300,000)

Total Non-Operating Revenue 20,893,000 31,099,000 44,745,000 58,045,000 59,746,000

CHANGE IN NET ASSETS 3,122,000$ 3,833,000$ 5,782,000$ 11,014,000$ 18,840,000$

NET ASSETS - Beginning of Year 250,726,000 246,893,000 241,111,000 230,097,000 211,257,000

NET ASSETS - End of Year 253,848,000$ 250,726,000$ 246,893,000$ 241,111,000$ 230,097,000$

Fiscal Years Ended September 30,

(1) Represents the contracted service revenues and rent payments received from El Paso Children's Hospital. (2) Increase in Interest Expense is due to bond interest expense fully reflected in FY12. In prior years this was capitalized as

assets were being constructed. (3) The Intergovernmental Transfers represents contributions made pursuant to an affiliation agreement with a privately-owned

safety net hospital to improve the level of health care provided to the County indigent population. The District provides funding for the nonfederal share of this Medicaid Supplemental Payment Program.

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TABLE 12A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY

2012 2011 2010 2009 2008OPERATING REVENUE:Net Patient Service Revenue 148,933,000$ 148,329,000$ 135,985,000$ 131,305,000$ 135,504,000$ Premium Revenue 122,327,000 118,253,000 109,003,000 93,215,000 84,727,000 Medicaid Supplemental Revenue 73,589,000 56,778,000 54,628,000 48,964,000 48,917,000

Service Contract Revenue (1) 13,700,000 - - - - Other Operating Revenue 17,947,000 19,531,000 13,915,000 12,995,000 5,725,000

Total Operating Revenues 376,496,000$ 342,891,000$ 313,531,000$ 286,479,000$ 274,873,000$

OPERATING EXPENSES:Salaries and Employee Benefits 139,715,000$ 132,686,000$ 123,042,000$ 115,089,000$ 104,192,000$ Medical Claims Expense 100,232,000 95,226,000 92,005,000 78,525,000 66,217,000 Purchased Services 38,932,000 36,238,000 36,309,000 33,968,000 31,157,000 Professional Fees 3,847,000 5,877,000 6,366,000 17,326,000 39,877,000 Supplies and Other 83,343,000 81,881,000 78,184,000 73,644,000 59,271,000 Depreciation and Amortization 28,198,000 18,249,000 16,588,000 14,958,000 15,065,000

Total Operating Expenses 394,267,000$ 370,157,000$ 352,494,000$ 333,510,000$ 315,779,000$

OPERATING REVENUE (LOSS) (17,771,000)$ (27,266,000)$ (38,963,000)$ (47,031,000)$ (40,906,000)$

NON-OPERATING REVENUE (EXPENSES):Investment Return 152,000$ 625,000$ 1,251,000$ 2,541,000$ 5,948,000$

Interest Expense (2) (8,400,000) (1,502,000) (534,000) (813,000) (1,309,000) Property Tax Revenue 71,570,000 65,857,000 64,617,000 63,001,000 54,801,000

Intergovernmental Transfer (3) (43,740,000) (35,839,000) (21,969,000) (10,001,000) (2,124,000) Tobacco Settlement 1,322,000 1,255,000 1,127,000 2,249,000 2,337,000 Miscellaneous 2,671,000 1,456,000 771,000 1,364,000 1,393,000 Contributions to Others (2,682,000) (753,000) (518,000) (296,000) (1,300,000)

Total Non-Operating Revenue 20,893,000 31,099,000 44,745,000 58,045,000 59,746,000

CHANGE IN NET ASSETS 3,122,000$ 3,833,000$ 5,782,000$ 11,014,000$ 18,840,000$

NET ASSETS - Beginning of Year 250,726,000 246,893,000 241,111,000 230,097,000 211,257,000

NET ASSETS - End of Year 253,848,000$ 250,726,000$ 246,893,000$ 241,111,000$ 230,097,000$

Fiscal Years Ended September 30,

(1) Represents the contracted service revenues and rent payments received from El Paso Children's Hospital. (2) Increase in Interest Expense is due to bond interest expense fully reflected in FY12. In prior years this was capitalized as

assets were being constructed. (3) The Intergovernmental Transfers represents contributions made pursuant to an affiliation agreement with a privately-owned

safety net hospital to improve the level of health care provided to the County indigent population. The District provides funding for the nonfederal share of this Medicaid Supplemental Payment Program.

FINANCIAL POLICIES Budget Process . . . The District prepares an annual budget to project the financial plan of the operations for the coming fiscal year. The budget includes an operational budget and a capital expenditure budget. The budget preparation begins at the Department Head level, working in conjunction with the Administrative Associates. Completed Departmental budgets are then submitted to the Administrative Associates for finalization. Subsequent reviews and revisions prior to final review and approval by the Board of Managers typically approve an annual operating budget in September of each year. The Budget is then submitted to the Commissioners Court for approval. Presentation of Financial Records, Basis of Accounting . . . The District’s final statements are prepared in conformity with generally accepted accounting principles, including those recommended in the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Health Care Organizations and other pronouncements applicable to health care organizations, except for reporting where guidance from the Governmental Accounting Standards Board is applicable. The District uses the “fund accounting” principles in the preparation of its financial statements. See Note 1 to the District’s audited financial statements for the fiscal year ended September 30, 2012, which are attached hereto as Appendix C, for additional information with respect to the accounting standards utilized by the District.

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Other Financial Policies . . . The District has a goal of adopting a budget each year which includes balanced amounts of revenues and expenditures. In addition, the District has in recent years followed a policy of funding capital items from the current year’s funds, in lieu of issuing debt. In recent years, the District has received significant amounts of matching funds from Medicaid in accordance with federal and State legislation pertaining to the Disproportionate Share program. . INVESTMENTS The District invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Board. Both State law and the District’s investment policies are subject to change.

LEGAL INVESTMENTS . . . Under State law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) 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 and share certificates meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code, as amended) (the “PFIA”) (i) that are issued by an institution that has its main office or a branch office in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits or (ii) where (a) the funds are invested by the District through (I) a broker that has its main office or a branch office in the State of Texas and is selected from a list adopted, at least annually, by the District as required by law or (II) a depository institution that has its main office or a branch office in the State that is selected by the District; (b) the broker or the depository institution selected by the District arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the District; (c) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States, and (d) the District appoints the depository institution selected under (a) above, a custodian as described by Section 2257.041(d) of the Texas Government Code, or a clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the District with respect to the certificates of deposit; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1) which are pledged to the District, held in the District’s name, and deposited at the time the investment is made with the District or with a third party selected and approved by the District and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State primary government securities dealer or a financial institution doing business in the State; (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than “A” or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District’s name and deposited at the time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less; (10) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least “A-1” or “P-1” or the equivalent by at least one nationally recognized credit rating agency; (11) commercial paper with a stated maturity of 270 days or less that is rated at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank; (12) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share; and (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.

The District may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The District also is authorized to invest its funds in certificates of deposit issued by one or more federally insured depository institutions, wherever located, in accordance with procedures set forth in the PFIA.

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The District is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.

INVESTMENT POLICIES . . . Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for District funds, the maximum allowable stated maturity of any individual investment, the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the PFIA. All District funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each fund’s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield.

Under Texas law, the District’s investments must be made “with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived.” At least quarterly the District’s investment officers must submit an investment report to the Board detailing: (1) the investment position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and the fully accrued interest for the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest District funds without express written authority from the Board.

ADDITIONAL PROVISIONS . . . Under State law, the District is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt by written instrument a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the District to disclose the relationship and file a statement with the Texas Ethics Commission and the Board; (4) require the qualified representative of firms offering to engage in an investment transaction with the District to: (a) receive and review the District’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the District and the business organization that are not authorized by the District’s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the District’s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the District and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the District’s investment policy; (6) provide specific investment training for the Treasurer, chief financial officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse purchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the District’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the District. TABLE 13 - CURRENT INVESTMENTS As of January 31, 2013, the District’s investable funds were invested in the following categories:

Description Book Value Percent Market Value Percent

Tobacco Settlement Portfolio 838,053$ 1.2% 984,324$ 1.4%

Agency Portfolio 68,591,440 95.4% 68,591,440 95.2%

2008 Bonds 2,480,853 3.4% 2,480,853 3.4%

71,910,346$ 100.0% 72,056,617$ 100.0%

Note: Investments consist of US Treasury Notes and Federal Agency Securities.

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TAX MATTERS TAX EXEMPTION . . . The delivery of the Obligations is subject to the opinions of Bond Counsel to the effect that interest on the Obligations for federal income tax purposes (1) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of such opinions (the “Code”), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. Forms of Bond Counsel’s opinions are reproduced as Appendix D. The statutes, regulations, rulings, and court decisions on which such opinions are based are subject to change.

Interest on the Obligations owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust (“FASIT”). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed.

In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the District made in a certificate dated the date of delivery of the Obligations pertaining to the use, expenditure, and investment of the proceeds of the Obligations and will assume continuing compliance by the District with the provisions of the Orders subsequent to the issuance of the Obligations. The Orders contain covenants by the District with respect to, among other matters, the use of the proceeds of the Obligations and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Obligations are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage “profits” from the investment of proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Obligations to be includable in the gross income of the owners thereof from the date of the issuance of the Obligations.

Bond Counsel’s opinions are not a guarantee of a result, but represent its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to the matters addressed in the opinions of Bond Counsel, and Bond Counsel’s opinions are not binding on the IRS. The IRS has an ongoing program of auditing the tax-exempt status of the interest on tax-exempt obligations. If an audit of the Obligations is commenced, under current procedures the IRS is likely to treat the District as the “taxpayer,” and the owners of the Obligations would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Obligations, the District may have different or conflicting interests from the owners of the Obligations. Public awareness of any future audit of the Obligations could adversely affect the value and liquidity of the Obligations during the pendency of the audit, regardless of its ultimate outcome.

Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Obligations. Prospective purchasers of the Obligations should be aware that the ownership of tax-exempt obligations such as the Obligations may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.

Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Obligations from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Obligations. Prospective purchasers of the Obligations should consult with their own tax advisors with respect to any proposed or future changes in tax law.

TAX ACCOUNTING TREATMENT OF DISCOUNT AND PREMIUM ON CERTAIN OBLIGATIONS . . . The initial public offering price of certain Obligations (the “Discount Obligations”) may be less than the amount payable on such Obligations at maturity. An amount equal to the difference between the initial public offering price of a Discount Obligation (assuming that a substantial amount of the Discount Obligations of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Obligation. A portion of such original issue discount allocable to the holding period of such Discount Obligation by the initial purchaser will, upon the disposition of such Discount Obligation (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Obligations described above under “Tax Exemption.” Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Obligation, taking into account the semiannual compounding of accrued interest, at

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the yield to maturity on such Discount Obligation and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year.

However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation’s alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Obligation by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Obligation was held) is includable in gross income.

Owners of Discount Obligations should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Obligations for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Obligations. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Obligations may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.

The initial public offering price of certain Obligations (the “Premium Obligations”) may be greater than the amount payable on such Obligations at maturity. An amount equal to the difference between the initial public offering price of a Premium Obligation (assuming that a substantial amount of the Premium Obligations of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Obligations. The basis for federal income tax purposes of a Premium Obligation in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Obligation. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser’s yield to maturity.

Purchasers of the Premium Obligations should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Obligations for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Obligations.

CONTINUING DISCLOSURE OF INFORMATION In the Orders, the District has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the District will be obligated to provide certain updated financial information and operating data annually, and timely notice of certain specified events, to the Municipal Securities Rulemaking Board (the “MSRB”).

ANNUAL REPORTS . . . The District will provide certain updated financial information and operating data annually to the MSRB. The information to be updated includes all quantitative financial information and operating data with respect to the District of the general type included in this Official Statement (i) in Tables 1 through 5 and 7 through 13, (ii) in the Tables included in Appendix A and (iii) in Appendix C. The District will update and provide this information within six months after the end of each fiscal year ending in and after 2013.

The financial information and operating data to be provided may be set forth in full in one or more documents or may be included by specific reference to any document available to the public on the MSRB’s Internet Web site identified below or filed with the United States Securities and Exchange Commission (the “SEC”), as permitted by SEC Rule 15c2-12 (the “Rule”). The updated information will include audited financial statements, if the District commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the District will provide unaudited financial information and operating data of the type described in the preceding paragraph by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix C or such other accounting principles as the District may be required to employ from time to time pursuant to State law or regulation.

The District’s current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change.

NOTICE OF CERTAIN EVENTS . . . The District will also provide timely notices of certain events to the MSRB. The District will provide notice of any of the following events with respect to the Obligations to the MSRB in a timely manner (but not in excess

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of ten business days after the occurrence of the event): (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Obligations, or other material events affecting the tax status of the Obligations; (7) modifications to rights of holders of the Obligations, if material; (8) Obligation calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Obligations, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the District, which shall occur as described below; (13) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of its assets, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. In addition, the District will provide timely notice of any failure by the District to provide annual financial information in accordance with their agreement described above under “Annual Reports”.

For these purposes, any event described in clause (12) in the immediately preceding paragraph is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

AVAILABILITY OF INFORMATION . . . The District has agreed to provide the foregoing information only as described above. Investors will be able to access continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org.

LIMITATIONS AND AMENDMENTS . . . The District has agreed to update information and to provide notices of certain specified events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Obligations at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders and beneficial owners of the Obligations may seek a writ of mandamus to compel the District to comply with its agreement.

The District may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if (1) the agreement, as amended would have permitted an underwriter to purchase or sell the Obligations in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances, and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provisions of the Orders that authorizes such amendment) of the outstanding Obligations consent to such amendment or (b) a person that is unaffiliated with the District (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Obligations. The District may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations. If the District amends its agreement, it must 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 type of information and data provided.

COMPLIANCE WITH PRIOR UNDERTAKINGS . . . During the last five years, the District has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule.

OTHER INFORMATION RATINGS The Obligations are rated “AA” by Fitch Ratings (“Fitch”) and “AA-” by Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). The presently outstanding unenhanced tax-supported debt of the District is rated “AA” by Fitch and “AA-” by S&P. An explanation of the significance of such ratings may be obtained from the rating agencies furnishing the ratings. The ratings reflect only the respective views of such rating companies and the District makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies if, in the judgment of either or both of such companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Obligations.

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LITIGATION It is the opinion of the County Attorney and District Staff that there is no pending litigation against the District that would have a material adverse financial impact upon the District or its operations or has been filed or is pending to enjoin the issuance and delivery of the Obligations or which would affect the provisions made for the payment or security or in any manner questioning the validity of the Obligations. At the time of the initial delivery of the Obligations, the District will provide the Underwriters with a certificate to the effect that no litigation of any nature has been filed or is then pending challenging the issuance of the Obligations or that affects the payment and security of the Obligations or in any other manner questioning the issuance, sale or delivery of the Obligations. REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR SALE The sale of the Obligations 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 Obligations have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Obligations been qualified under the securities acts of any jurisdiction. The District assumes no responsibility for qualification of the Obligations under the securities laws of any jurisdiction in which the Obligations may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Obligations 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 Texas Government Code, provides that the Obligations are negotiable instruments, investment securities governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Obligations by municipalities or other political subdivisions or public agencies of the State of Texas, the PFIA requires that the Obligations be assigned a rating of at least “A” or its equivalent as to investment quality by a national rating agency. See “OTHER INFORMATION - Ratings” above. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Obligations are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Public Funds Collateral Act, Chapter 2257, Texas Government Code, provides that the Obligations are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the District has been made of the laws in other states to determine whether the Obligations are legal investments for various institutions in those states. The District has made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Obligations for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Obligations for such purposes. The District has made no review of laws in other states to determine whether the Obligations are legal investments for various institutions in those states. LEGAL MATTERS The District will furnish the Underwriters complete transcripts of proceedings had incident to the authorization and issuance of the Obligations, including the unqualified approving legal opinions of the Attorney General of Texas as to the Obligations to the effect that the Obligations are valid and legally binding obligations of the District, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the District to like effect and to the effect that the interest on the Obligations will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under “TAX MATTERS” herein, including the alternative minimum tax on corporations, forms of which opinions are attached to this Official Statement as Appendix D. Though it represents the Financial Advisor and the Underwriters from time to time in matters unrelated to the issuance of the Obligations, Bond Counsel has been engaged by and only represents the District in connection with the issuance of the Obligations. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Obligations which would affect the provision made for their payment or security, or in any manner questioning the validity of said Obligations will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information in the Official Statement under the captions and subcaptions “PLAN OF FINANCING” (excluding the information under the subcaption “Sources and Uses of Funds”), “THE OBLIGATIONS” (excluding the information under the subcaptions “Book-Entry-Only System” and “Obligationholders’ Remedies”), “TAX MATTERS”, “CONTINUING DISCLOSURE OF INFORMATION” (excluding the information under the subcaption “Compliance with Prior Undertakings”), “OTHER INFORMATION - Registration and Qualification of Obligations for Sale”, “OTHER INFORMATION - Legal Investments and Eligibility to Secure Public Funds in Texas” and “OTHER INFORMATION - Legal Matters” (excluding the last sentence of the first paragraph thereof), and such firm is of the opinion that the information relating to the Obligations and the legal issues

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contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Obligations, such information conforms to the provisions of the Orders. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations is contingent upon the sale and delivery of the Obligations. Certain legal matters will be passed upon for the Underwriters by their counsel, Bracewell & Giuliani LLP, Dallas, Texas, whose legal fees are contingent upon the sale and delivery of the Obligations. The legal opinions to be delivered concurrently with the delivery of the Obligations express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS Grant Thornton LLP, a firm of independent public accountants, will deliver to the District, on or before the settlement date of the Obligations, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the Escrowed Securities, to pay, when due, the maturing principal of, interest on and related call premium requirements, if any, of the Refunded Obligations and (b) the mathematical computations of yield used by Bond Counsel to support its opinion that interest on the Obligations will be excluded from gross income for federal income tax purposes. The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by First Southwest Company on behalf of the District. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by First Southwest Company on behalf of the District and has not evaluated or examined the assumptions or information used in the computations. FINANCIAL ADVISOR

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

The Financial Advisor to the District has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the District and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.

UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc. (together, the “Underwriters”) have agreed to purchase from the District, upon the satisfaction of certain conditions, all of the Certificates, if any are purchased, at a purchase price equal to the aggregate principal amount of the Certificates, less an underwriting discount of $553,570.31, and will offer the Certificates initially at the offering prices stated on page 2 hereof. The Underwriters may offer and sell the Certificates to certain dealers (including depositing the Certificates into investment trusts) and to others at prices lower than the prices stated on page 2 hereof. After the Certificates are released for sale, the public offering prices and other selling terms may from time to time be varied by the Underwriters. The Underwriters have agreed to purchase from the District, upon the satisfaction of certain conditions, all of the Bonds, if any are purchased, at a purchase price equal to the aggregate principal amount of the Bonds, less an underwriting discount of $430,052.64, and will offer the Bonds initially at the offering prices stated on page 2 hereof. The Underwriters may offer and sell the Bonds to certain dealers (including depositing the Bonds into investment trusts) and to others at prices lower than the prices stated on page 2 hereof. After the Bonds are released for sale, the public offering prices and other selling terms may from time to time be varied by the Underwriters. The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. The Underwriters and their respective affiliates may, from time to time, perform various financial advisory and investment banking services for the District, for which they will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default

37

swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. The District intends to use a portion of the proceeds from the offering of the Bonds to redeem the Refunded Obligations. To the extent an Underwriter or an affiliate thereof is an owner of Refunded Obligations, such Underwriter or its affiliate, as applicable, would receive a portion of the proceeds from the issuance of the Bonds contemplated herein in connection with such Refunded Obligations being redeemed by the District. Citigroup Inc., parent company of Citigroup Global Markets Inc., an underwriter of the Obligations, has entered into a retail brokerage joint venture with Morgan Stanley. As part of the joint venture, Citigroup Global Markets Inc. distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Citigroup Global Markets Inc. may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Obligations. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District’s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the District on the date hereof, and the District assumes no obligation to update any such forward-looking statements. The District’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 District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. MISCELLANEOUS The financial data and other information contained herein have been obtained from the District’s records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Orders authorizing the issuance of the Obligations approved the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorized its further use in the reoffering of the Obligations by the Underwriters.

/s/ Tracy Yellen Chairman, Board of Managers

El Paso County Hospital District ATTEST: /s/ Laura Ponce

Secretary, Board of Managers El Paso County Hospital District

SCHEDULE I – SCHEDULE OF REFUNDED OBLIGATIONS

Original Original Interest Principal

Dated Date Maturity Date Rates Amount

11/1/05 8/15/16 4.250% $ 1,655,000

8/15/17 5.000% 2,190,000

8/15/18 5.000% 2,265,000

8/15/19 5.000% 4,250,000

8/15/20 5.000% 4,465,000

8/15/21 5.000% 4,685,000

8/15/22 5.000% 4,920,000

8/15/23 5.000% 5,170,000

8/15/24 5.000% 5,425,000

8/15/25 5.000% 5,700,000

8/15/26 5.000% 5,985,000

8/15/27 5.000% 6,280,000

8/15/28 5.000% 6,595,000

8/15/29 5.000% 6,925,000

8/15/30 5.000% 7,270,000

8/15/31 (1) 5.000% 7,635,000

8/15/32 (1) 5.000% 8,015,000

8/15/33 (1) 5.000% 8,420,000

8/15/34 (1) 5.000% 8,840,000

8/15/35 (1) 5.000% 9,280,000

$ 115,970,000

Combination Tax & Revenue Certificates of Obligation, Series 2005

Redemption Date: 8/15/2015, at a price of par plus accrued interest to the redemption date. (1) Represents mandatory sinking fund redemption amount of a term certificate with a stated maturity of August 15, 2035.

APPENDIX A GENERAL INFORMATION REGARDING THE DISTRICT

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EL PASO COUNTY HOSPITAL DISTRICT Organization and Statutory Authority… El Paso County Hospital District (the “District”) was established pursuant to a vote of the qualified electors of El Paso, Texas (the “County”) in 1958 in accordance with Article IX, Section 4 of the Texas Constitution and began operations in 1959. The boundaries of the District are coterminous with those of the County. The principal medical facility operated by the District is University Medical Center of El Paso, in El Paso, Texas (the “Hospital”). Pursuant to the State Constitution and Chapter 281, Texas Health and Safety Code, as amended, the District is empowered to purchase, acquire, construct and maintain the Hospital and has full responsibility for providing medical and hospital care to indigent and needy residents of the County. The Hospital… The Hospital is a 395 licensed bed acute care facility owned and operated by the District, and provides medical and hospital services to the residents of El Paso County and surrounding communities, and to indigent and needy residents of the County regardless of their ability to pay. The Hospital originated as El Paso County General Hospital in 1915 and was enlarged in 1932 and renamed the El Paso City-County Hospital. When the District was created in 1959, the name of the Hospital was changed to R.E. Thomason General Hospital. In 1973, the Hospital affiliated with Texas Tech University School of Medicine and a Health Sciences Center was built on the Hospital campus. It also established affiliation agreements with the University of Texas at El Paso School of Nursing and Allied Health, the Texas Tech University Gayle Greve Hunt School of Nursing, the El Paso Community College and Dona Ana Community College’s nursing programs and numerous other institutions of higher education. In 2009, Texas Tech expanded its El Paso presence by opening a full-fledged, four-year Medical School on the Hospital campus. That’s when the Hospital changed its name to University Medical Center to reflect its evolution from a general hospital to a major academic medical center. Two years later, El Paso Children’s Hospital, the region’s only separately licensed children’s hospital, opened on the Hospital campus. The Hospital is a vital community health service resource. In addition to being a full-service licensed and accredited acute care hospital with 16,250 admissions in fiscal year 2011 and 14,890 in fiscal year ended 2012, it also provides the El Paso community with a large network of ambulatory care services and access to primary and specialty care, including family practice, obstetrics and gynecology, internal medicine, orthopedics, pediatrics, surgery, neurosurgery, neurology, psychiatry and over 34 other subspecialties. The Hospital is also a major provider of emergency and trauma care. In 2012, there were 55,730 patient visits to the Hospital’s emergency department. The Hospital provides 24-hour/365 full physician coverage in all medical specialties and is the only comprehensive emergency facility in the County. It also serves as the base medical communications station for the city-wide emergency medical service. In 2001, the Hospital was designated as a Level I Trauma Center by the State of Texas, the only facility of its kind within 280 miles of the City of El Paso. Services provided at the Hospital include medical-surgical, obstetrics & gynecology, cardiology, gastroenterology, geriatrics, neurosurgery, nephrology, orthopedics, cardiac intensive care, trauma intensive care, surgical intensive care, neuro intensive care, medical intensive care, respiratory therapy and inpatient physical therapy. Ancillary services provided include diagnostic radiology, cardiopulmonary testing, electroencephalography, physical therapy, ambulatory surgery, clinical and histopathology laboratory, full-body C.T. scanning, MRI, interventional radiology services, ultrasound, respiratory therapy, cardiac catheterization, blood banking, occupational and speech therapy, laser surgery, echocardiography, social services and volunteer services. El Paso Children’s Hospital provides a full spectrum of pediatric services, including hemotology/oncology and neonatal intensive care. The Hospital serves as the primary teaching hospital for Texas Tech University School of Medicine campus in El Paso. The Hospital is instrumental in the clinical training of 45 third and 54 fourth year medical students and in the post-graduate specialty training of approximately 248 resident physicians and fellows. The residencies offered are Family Medicine, Obstetrics, Gynecology, Pediatrics, Internal Medicine, Psychiatry, Orthopedic Surgery, Anesthesiology, General Surgery, Emergency Medicine and Transitional Programs. The medical education and residency programs are directed by 233 faculty members. Fellowship training available at the Hospital includes cardiovascular diseases, nephrology, gastroenterology, radiology, child and adolescent psychiatry and sports medicine. The Hospital’s total Medical Staff roster includes 405 members. In accordance with the Hospital’s affiliation agreements with multiple educational institutions, students from all healthcare backgrounds come to the Hospital to learn and perfect their skills through observation and clinical training.

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GOVERNANCE The Board… The management, control and administration of the affairs of the District are vested in a Board of Managers (the “Board”) consisting of seven members appointed to serve staggered three-year terms by the Commissioners Court of the County. Each member of the Board may not serve more than two consecutive three-year terms and is not eligible for reappointment to the Board until the second anniversary of the date the member's eligibility expires. All Board members serve without pay. The Board elects a Chairman, Vice Chairman and Secretary from among its members. The Board also appoints an Administrator (CEO) to supervise and direct the activities and affairs of the District. The Board also appoints physicians to the medical staff of the Hospital.

Length of Term

Board of Managers Service Expires Occupation

Tracy Yellen, Chair 5 Years Mar-16 COO Foundation of the Diocese of El Paso

David Osborn, Vice Chair 1.5 Years Mar-14 Chief Lending Officer West Star Bank

Laura Ponce, Secretary 1 Year Mar-15 Executive Director, Project Bravo

Jose Luna, MD 6 Years Mar-14 Chief Clinical Officer, Centro San Vicente

William Hanson 1 Year Mar-15 CPA, Business Consultant

Br. Jose Nicholas Gonzalez, FSC New Mar-16 Principal, Cathedral High School

Monica Salaiz-Narvaez New Mar-16 Certified Financial Planner/Partner, Strategic Wealth Advisors Source: District records. Management The District's Administrative Staff consists of the following individuals: James N. Valenti, President & CEO James N. Valenti was named President and CEO of University Medical Center of El Paso in 2004. Mr. Valenti’s career in healthcare administration spans more than 30 years. He has distinguished himself as an effective leader at major institutions in Oklahoma, Texas and Missouri. Prior to his move to El Paso, he served at four major health systems and under his leadership, three achieved Top 100 status. Mr. Valenti is a fellow in the American College of Healthcare Executives and a 2007 recipient of the college’s Regent’s Award, a national honor that recognizes executive leadership in healthcare. He also is the 2011 recipient of the National Association of Public Hospitals and Health Systems (NAPH) prestigious honor, the President’s Award, for the extraordinary transformation of the Hospital. Mr. Valenti earned his Bachelor’s degree from St. Louis University where he graduated Summa Cum Laude and his Master’s degree in Health Administration from Washington University in St. Louis. Michael Nunez, Chief Financial Officer Michael Nunez joined University Medical Center of El Paso in 2006 in the capacity as Corporate Controller. Mr. Nunez became Interim Chief Financial Officer beginning July 2010 and was later appointed as Chief Financial Officer in January 2011. Mr. Nunez currently has over 28 years of healthcare experience, both in public accounting and in hospitals. Mr. Nunez is a Certified Public Account since 1989 and is a member of both the American Institute of Certified Public Accountants and the New Mexico Society of Certified Public Accountants. Mr. Nunez is also a Certified Healthcare Financial Professional (CHFP) with the Healthcare Financial Management Association. Mr. Nunez earned his Bachelor of Accountancy from New Mexico State University, Las Cruces, New Mexico. Diana Fancher, Chief Nursing Officer Diana Fancher joined University Medical Center of El Paso in 2007 bringing with her over 20 years senior administrative and clinical practice experience. Ms. Fancher has served as the Chief Nursing Officer for the past six years.

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Ms. Fancher holds an undergraduate degree in Nursing from New Mexico State University, and Masters Degree in both Business/Health Care Management and Nursing from the University of Phoenix and a Doctorate of Nursing Practice – Executive Leadership from Texas Tech University Health Science Center at Lubbock, Texas. Edward Sosa, Chief Legal Officer Edward Sosa joined University Medical Center of El Paso in 2000 as Chief Legal Officer. Mr. Sosa is an Assistant County Attorney with over 20 years experience in county and local government law, including 13 years in healthcare. Mr. Sosa oversees all aspects of in-house counsel work and directs outside counsel with respect to specialized matters and litigation. Mr. Sosa received his undergraduate degree from Stanford University and his J.D. from the University of California at Berkeley. Catherine Gibson, Chief Compliance Officer Catherine Gibson joined University Medical Center of El Paso in February, 2002 as CDM Coordinator for the newly formed Compliance Office. Ms. Gibson progressed to Compliance Officer in 2005; Corporate Compliance Officer in 2007; and most recently in November, 2012 as Chief Compliance Officer / Chief Waiver Officer and a member of the Senior Executive Leadership Team. Ms. Gibson's responsibilities include serving as Chief Compliance Officer, HIPAA Privacy Officer, and complete oversight of all matters involved the Compliance Program. Ms. Gibson is also the Chief Waiver Officer in leading Region 15 with the Texas Medicaid 1115 Waiver program. Ms. Gibson has over 20 years of healthcare experience. Ms. Gibson earned her Bachelor’s degree from Ohio University and a Masters of Business Administration from the University of Phoenix. Lorena Navedo, Executive Chief of Staff Lorena Navedo joined University Medical Center of El Paso in the capacity of Executive Chief of Staff in July 2008. Ms. Navedo has more than 15 years of administrative and healthcare experience. Since joining the organization in 2008, Ms. Navedo's responsibilities have been expanded to include oversight over Human Resources, Medicare Business Development, and Medical Staff Services. Ms. Navedo earned her Bachelor's degree from Arizona State University and a Master's of Public Administration degree from the University of Texas at El Paso. Maria M. Zampini, Vice President of Ancillary and Support Services Maria M. Zampini joined University Medical Center of El Paso in 1993. Ms. Zampini was named Vice President of Ancillary and Support Services in 2006 and in 2012 Vice President of Operations. Ms. Zampini has over 20 twenty years experience in healthcare, including most recently in managing the District’s $300 million facility expansion projects. Ms. Zampini graduated from the University of Texas at El Paso with a Bachelors and Masters in Business Administration with specialization in Economics and Marketing.

MEDICAL STAFF As of September 30, 2012, the Hospital has an organized medical staff of 405 physicians from thirteen clinical departments. The medical staff is composed of four categories. Active Physicians who participate in the care of a minimum of forty (40) patients during a reappointment

cycle Associate Physicians who participate in the care of less than forty (40) patients in a reappointment cycle

Courtesy Physicians who have had no patient encounters in the past reappointment cycle; they do not take part in or direct patient care, admit patients or write orders for care; they have Medical Staff membership, but no clinical privileges

Provisional Initial appointment year for all practitioners

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Medical Staff by Category (Table 1) The table below reflects the composition of the medical staff as of September 30, 2012.

CategoryNumber of Physicians

Active 219

Associate 96

Courtesy 16

Provisional 74Total 405

Source: District records. Medical Specialties (Table 2) The table below reflects the number of physicians by specialty as of September 30, 2012.

SpecialtyNumber of Physicians

Number of Active

Physicians

Active Board

Certified

Active Average

AgeAnesthesiology 24 11 7 54Emergency Medicine 36 24 24 45Family Practice 24 13 11 49Internal Medicine 81 50 47 51Neurology 4 2 2 64Obstetrics/Gynecology 32 21 16 53Ophthamology 16 5 5 41Orthopedics 31 10 7 51Pathology 8 5 5 54Pediatrics 68 25 24 51Psychiatry 8 5 5 62Radiology 19 15 9 53Surgery 54 33 30 54Total 405 219 192 52

Source: District records. Top Ten Physicians by Discharges (Table 3) The table below reflects the top ten physicians by number of discharges for the fiscal year ended September 30, 2012 and their percent of the Hospital’s total discharges for the period.

Specialty Discharges Age% of

Admissions Cumulative %

Pediatrics 652 41 4.4% 4.4%Surgery 603 51 4.0% 8.4%Internal Medicine 592 32 4.0% 12.4%Surgery 565 50 3.8% 16.2%Pediatrics 506 48 3.4% 19.6%Pediatrics 497 50 3.3% 22.9%Obstetrics/Gynecology 497 64 3.3% 26.3%Internal Medicine 480 48 3.2% 29.5%Pediatrics 462 53 3.1% 32.6%Surgery 460 40 3.1% 35.7%

Source: District records.

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Nursing Turnover Report (Table 4) The table below reflects turnover in nurses and employees in the fiscal years ended September 30, 2012 through 2008.

% % %Fiscal Vacancy Turnover TurnoverYear Nurses Nurses Others2008 10.3 10.7 14.42009 10.5 10.2 12.22010 10.5 8.9 14.92011 13.1 13.6 13.92012 11.9 13.3 12.7

Source: District records.

UTILIZATION Utilization (Table 5) Set forth below is certain utilization information for the fiscal years ended September 30, 2012 through 2008.

2012 (2)

2011 2010 2009 2008Total Patient Days

(1)66,946 74,803 72,402 68,019 69,032

Discharges (1)

14,845 16,673 16,187 15,704 16,396Admissions

(1)14,890 16,250 15,698 15,256 15,870

Births 3,509 3,784 4,154 4,512 4,889Avg Length of Stay 4.51 4.49 4.47 4.33 4.21Avg Daily Census 183 206 198 186 189Percent Occupancy 61.8% 69.2% 65.9% 61.9% 63.7%Outpatient Visits 617,634 590,937 544,628 525,870 460,643Emergency Room Visits 55,730 55,381 56,652 60,273 61,836Surgical Cases 6,804 7,521 7,224 6,846 6,336

(1) Adults and Pediatrics, excluding well-baby

(2) Pediatric utilization transferred to El Paso Children's Hospital February 2012

Fiscal Year Ended September 30,

Source: District records.

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SELECTED FINANCIAL AND OPERATING DATA

Summary of Revenues and Expenses (Table 6) The following table presents a summary of the District's historical revenues and expenses for each of the five fiscal years for the period ended September 30, 2012. The summary of financial information for each of the fiscal years has been derived from the District's audited financial statements. In management's opinion, such data includes all adjustments necessary for fair presentation of the results of operations.

2012 2011 2010 2009 2008OPERATING REVENUE:Net Patient Service Revenue 148,933,000$ 148,329,000$ 135,985,000$ 131,305,000$ 135,504,000$ Premium Revenue 122,327,000 118,253,000 109,003,000 93,215,000 84,727,000 Medicaid Supplemental Revenue 73,589,000 56,778,000 54,628,000 48,964,000 48,917,000

Service Contract Revenue (1) 13,700,000 - - - - Other Operating Revenue 17,947,000 19,531,000 13,915,000 12,995,000 5,725,000

Total Operating Revenues 376,496,000$ 342,891,000$ 313,531,000$ 286,479,000$ 274,873,000$

OPERATING EXPENSES:Salaries and Employee Benefits 139,715,000$ 132,686,000$ 123,042,000$ 115,089,000$ 104,192,000$ Medical Claims Expense 100,232,000 95,226,000 92,005,000 78,525,000 66,217,000 Purchased Services 38,932,000 36,238,000 36,309,000 33,968,000 31,157,000 Professional Fees 3,847,000 5,877,000 6,366,000 17,326,000 39,877,000 Supplies and Other 83,343,000 81,881,000 78,184,000 73,644,000 59,271,000 Depreciation and Amortization 28,198,000 18,249,000 16,588,000 14,958,000 15,065,000

Total Operating Expenses 394,267,000$ 370,157,000$ 352,494,000$ 333,510,000$ 315,779,000$

OPERATING REVENUE (LOSS) (17,771,000)$ (27,266,000)$ (38,963,000)$ (47,031,000)$ (40,906,000)$

NON-OPERATING REVENUE (EXPENSES):Investment Return 152,000$ 625,000$ 1,251,000$ 2,541,000$ 5,948,000$

Interest Expense (2) (8,400,000) (1,502,000) (534,000) (813,000) (1,309,000) Property Tax Revenue 71,570,000 65,857,000 64,617,000 63,001,000 54,801,000

Intergovernmental Transfer (3) (43,740,000) (35,839,000) (21,969,000) (10,001,000) (2,124,000) Tobacco Settlement 1,322,000 1,255,000 1,127,000 2,249,000 2,337,000 Miscellaneous 2,671,000 1,456,000 771,000 1,364,000 1,393,000 Contributions to Others (2,682,000) (753,000) (518,000) (296,000) (1,300,000)

Total Non-Operating Revenue 20,893,000 31,099,000 44,745,000 58,045,000 59,746,000

CHANGE IN NET ASSETS 3,122,000$ 3,833,000$ 5,782,000$ 11,014,000$ 18,840,000$

NET ASSETS - Beginning of Year 250,726,000 246,893,000 241,111,000 230,097,000 211,257,000

NET ASSETS - End of Year 253,848,000$ 250,726,000$ 246,893,000$ 241,111,000$ 230,097,000$

Fiscal Years Ended September 30,

(1) Represents the contracted service revenues and rent payments received from El Paso Children's Hospital. (2) Increase in Interest Expense is due to bond interest expense fully reflected in FY12. In prior years this was capitalized as

assets were being constructed. (3) The Intergovernmental Transfers represents contributions made pursuant to an affiliation agreement with a privately-owned

safety net hospital to improve the level of health care provided to the County indigent population. The District provides funding for the nonfederal share of this Medicaid Supplemental Payment Program.

Source: District records.

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The District’s Relationship with El Paso Children’s Hospital In 2005, the District was approached by a group of El Paso community leaders seeking to establish a dedicated, pediatric specialty hospital. At the time, El Paso was the largest urban area in the country without a dedicated children’s hospital. After extensive planning, the District agreed to cooperate with the group to seek voter approval for the District to issue general obligation bonds to fund the construction of a specialty children’s hospital building on the District’s campus. The plan envisioned that the District would lease the facility to an organization which became known as "El Paso Children's Hospital" (EPCH) for operation of a children's hospital and that the District would provide support and administrative services to EPCH at fair market value. The plan also envisioned that EPCH would be a private, non-profit, tax exempt organization, which would operate the children's hospital as an independent, separately licensed hospital. In November of 2007, the voters of El Paso County approved $120 million of general obligation bonds for the proposed children’s hospital project. In April 2008, the District sold the Series 2008A Bonds to fund the construction of the children’s hospital facility. In 2009, the children's hospital leadership incorporated the EPCH and, in 2012, entered into a facility lease and a series of support and administrative agreements under which the District provides services to EPCH and EPCH pays the District for the services provided based on negotiated fees at fair market value. In addition, under the terms of a Development Services Agreement entered into with the District, EPCH has agreed to pay the District for certain start up costs and working capital advanced by the District on behalf of EPCH. EPCH has not fully met all of its payment obligations under its agreements with the District; however, the District and EPCH have negotiated a separate agreement on obligations pursuant to which the District expects to receive current payments and payments in arrears over time. Any failure of EPCH to make such payments should not have a material adverse effect on the District's operations. EPCH achieved licensing and accreditation and initiated operations in 2012. The District recognizes revenues received from EPCH for purchased services and rent as operating revenues. The District does not have responsibility for EPCH operations, management nor a financial interest in EPCH. EPCH is not a component unit of the District. Summary Balance Sheet (Table 7)

Balance Sheet 2012 2011 2010 2009 2008

Current assets:Cash and cash equivalents $67,847 $108,517 $39,035 $70,011 $66,570Medicaid supplemental receivable 17,318 7,824 10,377 9,517 4,668 Patients Receivable, net 19,911 11,296 8,827 11,411 13,409 Other receivables, current 18,791 18,394 15,565 16,472 13,649 Service contract receivable 25,119 - - - - Total current assets $148,992 $146,037 $90,324 $153,806 $176,346

Noncurrent assets:Capital assets, net $406,446 $386,715 $290,417 $187,075 $128,088Assets limited as to use 12,589 36,796 139,522 207,530 230,787 Long-term investments 995 16,002 51,449 19,169 16,921 Other assets 8,487 2,982 3,246 3,768 4,102 Total noncurrent and other assets $428,517 $442,495 $484,634 $417,542 $379,898

Total assets $577,509 $588,532 $574,958 $571,348 $556,244

Liabilities:Current liabilities:Accounts payable and accrued expenses $66,128 $75,370 $60,375 $58,410 $50,207Current portion of est. self-insurance costs 1,936 1,992 2,076 1,832 1,693 Current maturities of long-term debt 5,211 5,006 4,991 4,786 4,987 Total current liabilities $73,275 $82,368 $67,442 $65,028 $56,887

Other liabilities $2,072 $1,914 $2,093 $1,760 $1,024Long-term debt, net 248,314 253,524 258,530 263,449 268,236

Total liabilities $323,661 $337,806 $328,065 $330,237 $326,147

Net assets $253,848 $250,726 $246,893 $241,111 $230,097

Total liabilities & net assets $577,509 $588,532 $574,958 $571,348 $556,244

Fiscal Year Ended September 30, ($ Thousands)

A-8

Management’s Discussion and Analysis In February 2012, the District transitioned its Pediatric services to a newly established 501(c) (3) named El Paso Children’s Hospital. El Paso Children’s Hospital is on the District campus and leases it facilities from the District. However its current and future operations are totally independent and separate from those of the District. This transition makes any comparative analysis from period to period difficult and less meaningful. As importantly, the tax pledge backing the District’s general obligation bonds is the sole security for bondholders. Consequently a Management Discussion and Analysis has not been included in this Appendix A. Please refer to the Management Discussion and Analysis included in the annual audited financial statements as included in this offering document. Payor Mix (Table 8) The District derives its patient revenues from Medicare, Medicaid, El Paso County sponsored programs, self-paying patients and commercial insurance. Set forth below is a table showing the source of patient revenues (based on gross charges) of the District for each of the fiscal years ended September 30, 2012 through 2008.

PAYOR 2012 2011 2010 2009 2008

Medicare 18.0% 16.7% 16.7% 16.3% 17.0%

Medicaid 18.4% 22.5% 22.5% 23.0% 24.9%

Commercial 5.6% 5.4% 4.9% 8.3% 6.3%

Charity 24.1% 24.3% 25.0% 21.6% 19.9%

Self-Pay 22.2% 21.4% 21.1% 22.7% 23.5%

HMO/PPO 5.2% 4.4% 5.0% 5.1% 4.4%

Other 6.5% 5.3% 4.8% 3.0% 4.0%

TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%

Fiscal Year Ended September 30,

Source: District records.

Medicaid Supplemental Revenues. Also, the District receives revenue from the Medicaid Waiver Program (the Uncompensated Care Pool and the Delivery System Reform Incentive Program Pool) – replacing the former Upper Payment Limit Program, the Texas Disproportionate Share Program, Tobacco Settlement Program, and Investment Income. Supplemental Medicaid and Other Non Operating Revenues (Table 9)

2012 2011 2010 2009 2008

Medicaid Supplemental Revenue 73,589$ 56,778$ 54,628$ 48,964$ 48,917$

Investment Income 152 625 1,251 2,541 5,947

Tobacco Settlement 1,322 1,255 1,127 2,249 2,337

75,063$ 58,658$ 57,006$ 53,754$ 57,202$

Fiscal Year Ended September 30, ($ Thousands)

Source: District records.

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A-9

Cash and Investments (Table 10) Historical Summary of Cash and Investments of the District. The District's funds are currently invested in cash and cash equivalents, U.S. Government Securities and U.S. Agency Obligations. A summary of cash and investments of the District as of September 30, 2012-2008 is set forth below.

2012 2011 2010 2009 2008

Cash, Short-term Investments, Designated

Investments-Current Portion and Restricted Investments $67,853 $108,523 $55,555 $116,406 $144,620

Long-term Investments, Board Designated 995 16,002 51,449 19,169 16,921

Total Cash and Investments $68,848 $124,525 $107,004 $135,575 $161,541

Days Cash on Hand (1) (2) 59.9 116.5 108.8 150.1 193.6

(1) Operating expense includes Inter-Governmental Transfer Expense for the purposes of Days Cash on Hand

(2) Operating expense excludes Bad Debt Expense and Depreciation for the purposes of Days Cash on Hand

Fiscal Year Ended September 30, ($ Thousands)

Source: District records. Debt to Capitalization (Table 11)

2012 2011 2010 2009 2008Long-Term Debt - Bonds:General Obligation Refunding Bonds, Series 1998 - - - $8,335 $10,840Public Property Finance C/O, Series 2002 - - - 17,815 20,065 Combination Tax & Revenue C/O, Series 2005 120,000 120,000 120,000 120,000 120,000 General Obligation Bonds, Series 2008A 120,100 120,100 120,100 120,100 120,100 Refunding Bonds, Series 2009 11,150 15,985 20,805 - - Total Bonds $251,250 $256,085 $260,905 $266,250 $271,005

Long-Term Debt - Other:Bond Premium (Discount) $2,275 $2,445 $2,616 $1,985 $2,092Note Payable & Capital Lease Obligations - - - - 126Total Other Debt $2,275 $2,445 $2,616 $1,985 $2,218

Total Long-Term Debt, less Current Maturities $253,525 $258,530 $263,521 $268,235 $273,223

Unrestricted Net Assets $86,349 $82,702 $78,800 $112,201 $141,453

Total Capitalization $503,302 $480,361 $434,338 $469,682 $490,549

Ratio of Long-Term Debt to Capitalization 50.4% 53.8% 60.7% 57.1% 55.7%

Fiscal Year Ended September 30, ($ Thousands)

Source: District records.

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A-10

SERVICE AREA Competition The following table sets forth the operating beds and inpatient admissions of the major competitors of the District in El Paso County.

Hospital Owner Staffed Beds2012

Discharges

Providence Memorial Hospital Tenet 500 17,607

Del Sol Medical Center HCA 350 16,933

Las Palmas Medical Center HCA 327 11,368

Sierra Medical Center Tenet 351 11,045

Sierra Providence East Medical Center Tenet 110 7,545

Source: Truven Health Analytics Report Generated March 2013

EMPLOYMENT BENEFITS

Pension Plan The following is an excerpt of Note 12 from the District's September 30, 2012 audited financial statement. Plan Description – The District provides retirement, disability and death benefits for all of it full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (the "TCDRS"). The board of trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system, consisting of over 600 nontraditional defined benefit pension plans. TCDRS, in the aggregate, issues a Comprehensive Annual Financial Report ("CAFR") on a calendar-year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768-2034. Under the state law governing TCDRS enacted in 1991 effective January 1, 1992, the District selected a plan of benefits to provide in the future, while at the same time considering the level of the employer contribution rate to adequately fund the plan. The District has adopted an employer contribution rate which is actuarially determined as a part of the annual actuarial valuation. The rate, applicable for a calendar year, consists of the normal cost contribution rate (plus any amount required to amortize any unfunded actuarial liability) using the entry age actuarial cost method. The contribution rate for the calendar year 2012 is 6.13%. The contribution rates for the calendar years 2011 and 2010 were 5.94% and 6.07%, respectively. The Plan provisions are adopted by the Board of Managers of the District within the options available in the Texas state statutes governing TCDRS ("TCDRS Act"). Members can retire at age 50 and above with eight or more years of service, with 30 years of service regardless of age or when the sum of their age and years of service equals 75 or more. Members are vested after eight years of service but must leave their accumulated contributions in the Plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum are not entitled to any amounts contributed by their employer. Benefit amounts are determined by the sum of the employee's contributions to the Plan, with interest and employer-financed monetary credits. The level of these monetary credits is adopted by the Board of Managers of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employer's commitment to contribute. At retirement, death or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. Funding Policy – The District has elected the annually determined contribution rate plan provisions of the TCDRS Act. The Plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The employer contributed using the actuarially determined rate of 6.13% for the months of the accounting year in 2012 and 5.94% for the months of the accounting year in 2011. The contribution rate payable by the employee members for calendar years 2012 and 2011 is 5%, as adopted by the board of managers of the District. The employee contribution rate and the employer contribution rate many be changed by the board managers of the District within the options available in the TCDRS Act.

A-11

The schedule of funding progress, presented as required supplementary information, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Annual Pension Cost – For the District's fiscal years ended September 30, 2012 and 2011, the annual pension cost of the TCDRS plan was approximately $6.7 million and $6.3 million, respectively, with the actual employer contributions approximating pension costs. Actuarial Valuation Information The annual required contributions were actuarially determined as a percentage of the covered payroll of the participating employees and were in compliance with GASB Statement No. 50, Accounting for Pensions by State and Local Governmental Employers, parameters based on the actuarial valuations as of December 31, 2011 and 2010, the basis for determining the contribution rates for calendar years 2012 and 2011. The December 31, 2011, actuarial valuation is the most recent valuation.

2011 2010 2009

Actuarial cost method Entry Age Entry Age Entry Age

Amortization methodLevel percentage of

payroll, closedLevel percentage of

payroll, closedLevel percentage of

payroll, closed

Amoritization period 20 years 20 years 20 years

Asset valuation methodSAF: 10-yr smoothed

valueSAF: 10-yr smoothed

valueSAF: 10-yr smoothed

value

ESF: Fund value ESF: Fund value ESF: Fund value

Actuarial assumptions

Inflation 3.50% 3.50% 3.50%

Investment rate of return (1) 8.00% 8.00% 8.00%

Projected salary increases (1) 5.40% 5.40% 5.40%

Cost-of-living adjustments 0.00% 0.00% 0.00%

Valuation Date

Definitions: SAF is defined as "Subdivision Accumulation Fund" and ESF is defined as "Employee Savings Fund" Note (1): Includes inflation at the stated rate. Annual Pension Cost

Annual Percentage Net

Accounting Pension of APC Pension

Year Ended ("APC") Contributed Obligation

September 30, 2010 5,782$ 100% -$

September 30, 2011 6,302$ 100% -$

September 30, 2012 6,696$ 100% -$

Schedule of Funding Information

Unfunded

Actuarial UAAL as

Actuarial Actuarial Accrued Percentage

Value of Accrued Liability Funded Annual of Covered

Assets Liability ("UAAL") Ratio Covered Payroll

Valuation Date ("AVA") ("AAL") (3) (2) (2) (3) Payroll (4) (6)

(1) (2) (3) (4) (5) (6) (7)

December 31, 2011 $185,653 $219,168 $33,514 84.7% $112,318 29.8%

A-12

ACCREDITATION The Hospital is licensed by the Texas Department of State Health Services and is fully accredited by the Joint Commission (the “TJC”) having earned the Commissioner's Gold Seal of Approval. TJC completed its survey of the Hospital in July 2012 and received full accreditation. Approved as a provider in both the Medicare and Medicaid programs, the Hospital participates with Blue Cross of Texas and other major insurance carriers in the area. The Pharmacy Department is licensed by the State Board of Pharmacy and accredited by TJC for Hospital and Home Care. The Respiratory Lab is accredited by TJC. The Radiology Department is licensed by the Texas Department of Health Bureau of Radiation Control and accredited by the American College of Radiology in ultrasound and mammography. The Laboratory Department is accredited by Clinical Laboratory Improvement Amendment 88’ and by the College of American Pathologists. The Hospital is verified by the American College of Surgeons (the “ACS”) for designation as a Level I Trauma Center for the State of Texas. The Hospital has also received the Nursing Pathway to Excellence Designation, Chest Pain Accreditation 2012, Texas Health Care Silver Quality Award and Stroke Designation.

INSURANCE The District is self-insured for claims under the Texas Workers' Compensation Act (the "Act"). At September 30, 2012 and 2011, the District had accrued amounts, which in the opinion of management, are sufficient to cover all claims arising under the Act through September 30, 2012 and 2011, respectively. The accrual is based on an independent actuarial determination obtained by management for all claims arising in the self-insured period. The District is also self-insured for malpractice claims against the District. At September 30, 3012 and 2011, the District had accrued amounts that in the opinion of management, are sufficient to cover all asserted and unasserted claims incurred through September 30, 2012 and 2011, respectively. The accrual is based on an independent actuarial determination obtained by management for all claims arising in the self-insured period. The estimate is based on a maximum liability, under Texas statue, of $100,000 for each person, $300,000 for each single occurrence for bodily injury or death and $100,000 for each single occurrence for injury to or destruction of property. Because of these limits on its liability, The District does not hold commercial stop-loss coverage for malpractice claims. Eligible employees of the District are covered under a self-insured health plan, which is administered by the health Plan. The District accrues a liability for all claims that are estimated to have been incurred prior to year-end under the plan. Losses from asserted and unasserted claims identified under the District's incident reporting system are accrued based on estimates that incorporate the District's past experience, as well as other considerations, including the nature of each claim or incident and relevant trend factors. It is reasonably possible that the District's estimate of losses will change by a material amount in the near term. At September 30, 2012 and 2011, the District's assets designated for self-insured obligations were $3.5 million and $3.8 million, respectively. Changes in and the balances of the Hospital District's aggregate claims liability in fiscal years 2012 and 2011 are as follows:

Beginning of Current- Balance atFiscal Year Year Claim FiscalLiability Expenses Payments Year-End

Employee health claims2011 1,326$ 8,649$ (8,581)$ 1,394$ 2012 1,394$ 8,519$ (8,584)$ 1,329$

Worker's compensation claims2011 1,089$ 73$ (355)$ 807$ 2012 807$ 115$ (224)$ 698$

Professional liability2011 1,097$ (22)$ (191)$ 884$ 2012 884$ 234$ (128)$ 990$

LITIGATION

As of the date of this Official Statement, the District has certain pending and threatened litigation and claims incurred in the ordinary course of business; however, management believes that the probable resolution of such contingencies will not exceed the District's self-insurance reserves and will not materially affect the financial position of the District or the results of its operations and changes in its net assets. See "INSURANCE" above.

APPENDIX B GENERAL INFORMATION REGARDING THE COUNTY

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B-1

GENERAL INFORMATION REGARDING THE COUNTY

LOCATION AND HISTORY . . . El Paso County is located in far West Texas on the international boundary between the United States of America and Mexico, on the Rio Grande, and is the lowest altitude, all-weather pass through the Rocky Mountains. It is approximately equidistant from the cities of Houston, Texas, Denver, Colorado, and Los Angeles, California. Since the first appearance of Spaniards on the North American Continent, it has been a major crossroads for continental north-south and east-west traffic. In 1536 Cabeza de Vaca and his party crossed the Rio Grande, and the Mission of Guadalupe was erected (the Mission still stands in the central square of the City of Juarez). The first trading post was erected in central El Paso in 1848, and the same year, the United States Military Post, later named Fort Bliss, was established. El Paso has continued since that time to be a highly strategic military base. The County encompasses an area of approximately 1,058 square miles. The City of El Paso, the County seat, situated at the foot of the Franklin Mountains, has excellent diversification in its economy. Mining and manufacturing, important military establishments, domestic and foreign commerce, farming and tourist trade are major contributors to the economy. El Paso’s large natural retail and wholesale trade territory extends well into New Mexico and Arizona, as well as Texas and Mexico. El Paso is the sixth largest city in Texas and the largest U.S. city on the Mexico border. Population in the 1970 Census was 322,261; the 1980 Census was 425,259; the 1990 Census was 515,342, the 2000 Census was 563,662, and the 2010 Census was 800,647. The population of the sister city of Juarez, Mexico is currently estimated at over 1.2 million. EDUCATION . . . All of the public schools in El Paso County are under the supervision of nine independent school districts – the three largest, the El Paso Independent School District, Ysleta Independent School District, and Socorro Independent School District, have a total of 193 schools, including 29 high schools, 37 intermediate schools, 156 elementary and elementary/intermediate schools/preschools, and 12 special schools, with a combined enrollment of approximately 268,599. In addition to public schools, there are 75 private and parochial schools and several other private schools offering specialized academic or technical and mechanical education. Many excellent colleges and universities are located within the El Paso area. Among these are: El Paso Community College (El Paso); University of Texas at El Paso (El Paso); New Mexico State University (Las Cruces, New Mexico); Sul Ross State College (Alpine, Texas); New Mexico Western College (Silver City, New Mexico); New Mexico School of Mines (Socorro, New Mexico); Eastern New Mexico University (Portales, New Mexico); and New Mexico Military Institute (Roswell, New Mexico). The University of Texas at El Paso was established in 1913 and attracts thousands of visitors to seminars, conferences, convocations, sport contests and other events. The University offers degrees in seven schools: Engineering, Business Administration, Science, Education, Liberal Arts, Nursing and Graduate. Current enrollment is approximately 22,106. El Paso Community College, which offers a wide range of studies for both daytime and evening classes, had a Spring 2012 enrollment of approximately 29,116. HOSPITALS . . . There are eight (8) hospitals providing approximately 2,256 beds in the El Paso County area, including William Beaumont Army Medical Center, which serves active and retired military personnel. AGRICULTURE . . . Agriculture is an important activity in El Paso County with crop production in the lowlands and livestock in upland areas adding a vital dimension to El Paso’s versatile economy. Major farm products include beef and dairy cattle, cotton, alfalfa, grain, and pecans. As reported in the Texas Almanac, the average annual income from El Paso County farm products sold is about $41 million. CONVENTIONS AND TOURISM . . . The El Paso Civic and Convention Center includes a 70,000 square foot Assembly-Exhibition Hall, a theatre-auditorium, and headquarters for the Chamber of Commerce. To accommodate conventioneers attracted by the Center to the County, approximately 8,743 hotel and motel rooms are available. Ciudad Juarez, immediately adjacent to El Paso, is a major factor and attraction in the area. TRANSPORTATION . . . Numerous transportation facilities, together with El Paso’s strategic location, have contributed substantially to development and growth of the County. Four major rail lines operate through El Paso, with the National Railway of Mexico serving sister city Juarez. Interstate Highways 10 and 25 provide direct access to El Paso for commercial truckers and tourists. Five other U.S. Highways and the Central Highway of Mexico link El Paso to its surrounding market areas.

B-2

The El Paso International Airport is a large, modern airport with facilities for handling all types and sizes of commercial aircraft. Six passenger airlines and four all-cargo airlines serve El Paso. The following table shows the total airline passenger loadings for the past five years:

2006 1,711,910 2009 1,537,0682007 1,721,068 2010 1,551,2202008 1,713,382 2011 1,491,302

Source: City of El Paso, Economic Development Department. MINING, SMELTING AND REFINERIES . . . El Paso is a major smelter center for copper ores with the Freeport-McMoRan Copper & Gold Inc. processes approximately 30% of all copper refined in the United States. While mining within El Paso County is of negligible proportions, substantial supplies of ore are produced in the trade territory, both domestic and in Mexico. Other minerals contribute to the prosperity of the trade area, notably potash from the Carlsbad, New Mexico vicinity where 90% of the United States production is mined. The steel rolling mill facility of Border Steel Rolling Mill, Inc. has the capacity to produce 16,500 tons per month of merchants rod and bar steel products. The modern electric furnaces use scrap metal as the basic ingredient. Two oil refineries provide asphalt, jet fuel, gasoline and fuel oil for a market area encompassing West Texas, New Mexico and Arizona. MANUFACTURING . . . Because of El Paso’s location on the Mexican border, firms can maintain plant operations in the United States but can manufacture their goods in Mexico. This “twin plant” operation, commonly called the Maquila Program enables firms to cut production costs by producing the main component of goods across the border while assembling the finished product in the United States. The Directory of El Paso Manufacturers lists more than 500 industrial firms in El Paso County and Ciudad Juarez, Mexico. Currently, according to employment and value, the electronics industry has emerged as the leader among El Paso manufacturers, surpassing both the automotive and apparel industries. Other current growth industries in the area include plastics (primarily injected molded parts), electrical equipment, and military defense manufacturing. MAJOR EMPLOYERS

Name Classification Number of Employees Fort Bliss (Military & Civilian) Government 32,371 El Paso Independent School District Education 8,600 Ysleta Independent School District Education 7,155 T&T Staff Management Employment 5,587 City of El Paso Government 5,500 Socorro Independent School District Education 4,891 Sierra Providence Health Network Healthcare 3,980 Wal-Mart Retail 3,526 University of Texas at El Paso Education 3,000 County of El Paso Government 2,771 El Paso Community College Education 2,499 Sources: City of El Paso Economic Development & Financial Services Department; El Paso Development Corporation ECONOMIC AND GROWTH INDICES – CITY OF EL PASO

Number TotalYear Electric Gas Water of Permits Valuation2002 315,650 183,443 158,764 11,914 623,485,243$ 2003 324,020 187,447 162,810 12,260 514,254,183 2004 332,125 196,253 167,753 12,404 645,619,419 2005 340,853 200,854 171,607 12,661 973,789,365 2006 349,731 205,999 174,922 12,131 1,001,348,129 2007 354,203 208,571 178,031 16,934 1,167,500,000 2008 361,034 213,533 182,315 17,438 880,950,000 2009 367,031 218,646 185,062 19,614 898,000,000 2010 373,155 224,280 191,094 33,470 688,590,000 2011 336,219 N/A N/A 23,096 1,036,190,000

Utility Connections Building Permits

Note: Not included in Building permit values are numerous major projects at military establishments where enlargements and improvements are frequently in progress. Source: El Paso Chamber of Commerce and El Paso Regional Economical Development Corporation.

B-3

EMPLOYMENT STATISTICS

2011 2010 2009 2011 2010 2009

Civilian Labor Force 313,224 305,643 298,447 12,152,029 11,945,170$ 11,701,585$

Total Employment 282,862 278,760 279,724 11,139,392 11,068,659 11,126,436

Unemployment 30,362 26,883 18,723 1,012,637 876,511 575,149

Percentage Unemployment 9.7% 8.8% 6.3% 8.3% 7.3% 4.9%

El Paso County Texas

BANKING . . . The City of El Paso has 56 financial institutions, as well as the El Paso Branch of the Federal Reserve Bank of Dallas. MILITARY INSTALLATIONS . . . Military installations in and around El Paso have a significant impact on the economy of the County. The employment of civilian personnel is substantial, and combined with the military payrolls, has a pronounced effect on the level and stability of business volume. Large additional expenditures for supplies and contractual services, when added to the military payrolls, place many millions of dollars annually in local commercial channels. Fort Bliss, historically important since its establishment as a post in 1848, is now the Army’s Air Defense Training Center. Enlargement and improvements of facilities continues on a large scale, with the processing and training of Army Basic Trainees having recently been added to the mission of the Fort. From its common boundary with the County of El Paso, the Fort extends northward to adjoin White Sands Missile Range. The combined facilities represent an uninterrupted distance in excess of 100 miles dedicated to military and scientific pursuits. Biggs Army Base adjoins both the City and Fort Bliss and houses the Army’s Sergeant Major Academy. Having fulfilled a variety of missions during its history, the Base, which has a major installation of the Strategic Air Command, has now been transferred to the Army. The Army Air Materiel Command, the Defense Language Institute and the Army Aviation Laboratory utilize the facilities of the Base. William Beaumont Army Medical Center, the Army’s hospital in El Paso, is a 12-story facility with 432 beds. William Beaumont is a fully accredited, permanent teaching and specialized-treatment hospital. With a complement of approximately 2,200 military and civilian personnel, the hospital’s contribution to the El Paso economy is substantial. White Sands Missile Range in New Mexico has long played an important role in weapons testing. With increasing technology involved in modern weapons, the facility’s activities continue to take on increased importance. It is the largest all-land missile range in the Western Hemisphere. Holloman Air Force Base was originally established in 1942 as Alamogordo Air Field six miles west of Alamogordo, New Mexico. Initial construction began at the airfield February 6, 1942. The base was renamed in 1948 after Col. George Holloman, a Rich Square, N.C. native, who was a pioneer in early rocket and pilot-less aircraft research. McGregor Range is a testing and experimental area for missiles, rockets and anti-aircraft weapons. Like its neighbors, the impact of both construction and expansion programs, and operations requirements, make the Range an important economic factor in the region.

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APPENDIX C EXCERPTS FROM THE EL PASO COUNTY HOSPITAL DISTRICT ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2012

The information contained in this Appendix consists of excerpts from the El Paso County Hospital District Annual Financial Report for the Year Ended September 30, 2012, and is not intended to be a complete statement of the District’s financial condition. Reference is made to the complete Report for further information.

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Independent Accountants’ Report on Financial Statements and Supplementary Information

Board of Managers El Paso County Hospital District d/b/a University Medical Center of El Paso El Paso, Texas We have audited the accompanying balance sheets of El Paso County Hospital District d/b/a University Medical Center of El Paso, a component unit of El Paso County, Texas, as of September 30, 2012 and 2011, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Hospital District’s management. Our responsibility is to express an 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 El Paso County Hospital District d/b/a University Medical Center of El Paso as of September 30, 2012 and 2011, and its changes in financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards and the State of Texas Single Audit Circular, we have also issued our report dated January 21, 2013, on our consideration of the Hospital District’s internal control over financial reporting and our tests of its compliance with certain provisions of Texas 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.

Board of Managers El Paso County Hospital District d/b/a University Medical Center of El Paso Page 2 Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and pension information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Our 2012 audit was performed for the purpose of forming an opinion on the basic financial statements as a whole. The other supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

January 21, 2013

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

3

Introduction

This section of the El Paso County Hospital District’s (the “Hospital District”) annual financial report presents management’s discussion and analysis of the Hospital District’s financial activities for the fiscal years ended September 30, 2012 and 2011. It should be read in conjunction with the financial statements in this report.

Financial Highlights

• In December 2012, Standard and Poor’s affirmed the bond rating at ‘AA-’ with a Stable outlook. In 2011, the Hospital District’s bond rating was affirmed by Fitch Ratings with a ‘AA’ rating and a Stable outlook.

• The Hospital District’s property tax rate was $0.182124 in 2012.

• The Hospital District placed in service over $278 million in assets with the opening of the El Paso Children’s Hospital (El Paso Children’s) and Women’s Tower in February 2012 and renovations throughout the Hospital District completed in June 2012.

• Total assets decreased $11 million (1.9%) between 2011 and 2012 and total assets increased $13.5 million (2.3%) between 2010 and 2011.

• Net assets increased $3.1 million (1.2%) between 2011 and 2012 and net assets increased $3.8 million (1.5%) between 2010 and 2011. Both years’ increase in net assets was due to the income reported for the year.

• Operating revenues increased $33.6 million or 9.8% between 2011 and 2012 primarily from an increase in premium revenue of $4.0 million, an increase in Uncompensated Care Program (UC Program) revenue of $16.8 million, an increase in net patient service revenue of $0.6 million, and additional revenues of $13.7 million for net contract revenue attributable to opening of El Paso Children’s, and the associated facility lease, medical equipment and information technology lease and purchased service agreements.

Operating revenues increased $29.4 million or 9.4% between 2010 and 2011 primarily from an increase in premium revenue of $9.3 million or 8.5%, an increase in Upper Payment Limit Program (UPL Program) revenue of $2.2 million or 4%, an increase in net patient service revenue of $12.3 million and an increase in Other Revenue of $5.6 million or 9%.

• Operating expenses increased $24.0 million or 6.5% between 2011 and 2012 primarily from an increase in medical claims expense of $5.0 million or 5.3%, an increase in salaries and employee benefits expense of $7.0 million or 5.3%, an increase in purchased services expense of $2.7 million or 7.4%, an increase of supplies and other expenses of $1.5 million or 1.8%, and an increase in depreciation and amortization expense of $9.9 million or 54.5% due to placing in service El Paso Children’s Tower and completing the Master Facility Expansion, offset by a decrease in professional fee expenses of $2.0 million or 34.5%.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

4

Operating expenses increased $17.7 million or 5.0% between 2010 and 2011 primarily from an increase in medical claims expense of $3.2 million, an increase in salaries and employee benefits expense of $9.6 million, an increase of supplies and other expenses of $3.7 million, and an increase in depreciation expense of $1.7 million offset by a decrease in purchased services and professional fee expenses of $.6 million.

• Nonoperating revenues decreased $10.2 million or 32.8% between 2011 and 2012 primarily from an increase in intergovernmental transfer expense of $7.9 million and an increase in interest expense due to the ceasing of interest capitalization for the El Paso Children’s Tower and the Master Facility Expansion placed in service in 2012.

Nonoperating revenues decreased $13.6 million or 30.5% between 2010 and 2011 primarily from an increase in intergovernmental transfer expense of $13.9 million.

Overview of the Financial Statements

This annual report consists of four components: the Independent Accountants’ Report, the Management’s Discussion and Analysis (this section), the Financial Statements and Supplementary Information.

The Financial Statements of the Hospital District report the financial position of the Hospital District and the results of its operations and its cash flows. The financial statements are prepared on the accrual basis of accounting. These statements offer short-term and long-term financial information about the Hospital District’s activities.

The Balance Sheets include all of the Hospital District’s assets and liabilities and provide information about the nature and amounts of investments in resources (assets) and the obligations to Hospital District creditors (liabilities) for both the current and prior year. They also provide the basis for evaluating the capital structure of the Hospital District and assessing the liquidity and financial flexibility of the Hospital District.

All revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net Assets. These statements measure the performance of the Hospital District’s operations over the past two years and can be used to determine whether the Hospital District has been able to recover all of its costs through its patient service revenue, ad valorem taxes and other revenue sources.

The primary purpose of the Statements of Cash Flows is to provide information about the Hospital District’s cash flows from operating, investing and financing activities. The cash flow statements outline where the cash comes from, what the cash is used for and the change in the cash balance during the reporting period.

The annual report also includes Notes to the Financial Statements that are essential to gain a full understanding of the data provided in the financial statements. The notes to the financial statements can be found immediately following the Financial Statements.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

5

Following the Notes to the Financial Statements is a section containing Supplementary Information that further explains and supports the information reported in the Financial Statements. This section includes schedules outlining Funding Progress and Actuarial Valuation for the Hospital District’s Pension Plan, as well as the Schedule of Balance Sheet Information and the Schedule of Revenues, Expenses and Changes in Net Assets Information for 2012.

Financial Analysis of the Hospital District

The Balance Sheets and the Statements of Revenues, Expenses and Changes in Net Assets report information about the Hospital District’s activities. These statements report the net assets of the Hospital District and changes in them. Increases or improvements, as well as decreases or declines in the net assets, are one indicator of the financial state of the Hospital District. Other non-financial factors that should also be considered include changes in economic conditions, population growth (including uninsured and working poor), taxable property values and tax rates and new or changed government legislation.

Net Assets

A summary of the Hospital District’s Balance Sheets are presented in the following table:

Condensed Balance Sheets (In millions)

2012 2011 2010

Current and other assets $ 171.1 $ 201.8 $ 284.6

Capital assets, net 406.4 386.7 290.4

Total assets 577.5$ 588.5$ 575.0$

Long-term debt, including current maturities $ 253.5 $ 258.5 $ 263.5 Other liabilities 70.2 79.3 64.6

Total liabilities 323.7 337.8 328.1

Invested in capital assets - net ofrelated debt 163.4 162.0 164.8

Restricted - expendable 4.1 6.0 3.3

Unrestricted 86.3 82.7 78.8

Total net assets 253.8$ 250.7$ 246.9$

Total liabilities and net assets 577.5$ 588.5$ 575.0$

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

6

Total assets decreased $11.0 million or 1.9% between 2011 and 2012.

• Current and other assets decreased $30.7 million or 15.2% primarily as a result of reserves and bond funding being expended on construction projects.

• Capital assets increased $19.7 million or 5.1% primarily due to the Master Facility Expansion and the El Paso Children’s construction projects.

• Total liabilities decreased $14.1 million or 4.2% primarily due to the timing of UPL Program payments.

Total assets increased $13.6 million or 2.4% between 2010 and 2011.

• Current and other assets decreased $82.5 million or 29.3% primarily as a result of bond funding being expended on construction projects.

• Capital assets increased $96.3 million or 33.2% primarily due to the Master Facility Expansion and the El Paso Children’s construction projects.

• Total liabilities increased $9.7 million or 3.0% primarily due to the timing of UPL Program and medical claims payments.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

7

Summary of Revenues, Expenses and Changes in Net Assets

The following table presents a summary of the Hospital District’s revenues and expenses for each of the fiscal years ended September 30, 2012, 2011 and 2010:

Condensed Statements of Revenues, Expenses and Changes in Net Assets

(In millions)

2012 2011 2010

Operating Revenue

Net patient service revenue $ 148.9 $ 148.3 $ 136.0 Premium revenue 122.3 118.3 109.0

Supplementary uncompensated care revenue 73.6 56.8 54.6

Net contract revenues 13.7 - -

Other revenue 17.9 19.5 13.9

Total operating revenues 376.4 342.9 313.5

Operating Expense

Maintenance and operation expenses 265.8 256.8 243.9

Medical claims expense 100.2 95.2 92.0

Depreciation and amortization expense 28.2 18.2 16.6

Total operating expenses 394.2 370.2 352.5

Operating Loss (17.8) (27.3) (39.0)

Nonoperating Revenues, Net 20.9 31.1 44.8

Increase in Net Assets 3.1 3.8 5.8

Net Assets, Beginning of Year 250.7 246.9 241.1

Net Assets, End of Year $ 253.8 $ 250.7 $ 246.9

Note: Certain reclassifications have been made to 2010 amounts to conform to the 2011 and 2012 financial statement presentation. The reclassifications had no effect on the Hospital District’s changes in net assets.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

8

Operating revenues increased $33.5 million or 9.8% between 2012 and 2011.

• Premium revenue increased $4.0 million or 3.4% primarily due to increased reimbursement for addition of pharmacy benefit beginning March 2012.

• UC Program revenue increased $16.8 million or 29.6% primarily due to Medicaid Transformation Waiver Program and increased federal funding levels.

• Net patient service revenue remained consistent between 2012 and 2011.

• Uncompensated care increased to $326.4 million in 2012 ($196.4 million in charity care - a 1.7% increase from 2011 and $129.8 million in bad debt expense - an 8.5% increase from 2011) from $312.8 million in 2011 ($193.1 million in charity care and $119.7 million in bad debt expense) - an overall increase of 4.4%.

Operating revenues increased $29.4 million or 9.4% between 2011 and 2010.

• Premium revenue increased $9.3 million or 8.5% primarily due to health plan increased membership.

• UPL Program revenue increased $2.2 million or 3.9% primarily due to higher federal funding levels.

• Net patient service revenue increased $12.3 million or 9.1% due to increased inpatient and outpatient volumes and improved cash collections.

• Uncompensated care increased to $312.8 million in 2011 ($193.1 million in charity care - a 5.2% increase from 2010 and $119.7 million in bad debt expense - an 8.0% increase from 2010) from $294.4 million in 2010 ($183.5 million in charity care and $110.8 million in bad debt expense) - an overall increase of 6.3%.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

9

The following table presents the relative percentages of gross charges billed for patient services by payer for the fiscal years ended September 30, 2012, 2011 and 2010:

Payer 2012 2011 Change 2010 Change

Medicare 18% 17% 1% 17% 0%

Medicaid 19% 22% -3% 22% 0%

Commercial 6% 5% 1% 5% 0%

Charity 24% 24% 0% 25% -1%

Self-pay 22% 22% 0% 21% 1%

HMO/PPO 5% 5% 0% 5% 0%

Other 6% 5% 1% 5% 0%

100% 100% 100%

Years Ended September 30

Operating expenses increased $24.1 million or 6.5% between 2012 and 2011.

• Medical claims expense increased $5.0 million or 5.3% primarily due to inclusion of pharmacy benefit for the health plan beginning March 2012.

• Salaries and employee benefits expense increased $7.0 million or 5.3% due to higher staffing associated with growth and expansion in adult service lines and shift of doctor expenses from physician fees to direct employees of the Hospital District.

• Supplies and other expenses increased $1.5 million or 1.8% primarily due to increase in pharmaceutical prices for certain drugs.

• Physician fees expenses decreased $2.0 million or 34.5% as a result of shift of doctor expenses from physician fees to direct employees of the Hospital District.

• Depreciation and amortization expense increased by $9.9 million or 54.5% due to opening El Paso Children’s and Women’s Tower in February 2012.

• Purchased services expense increased by $2.7 million or 7.4% as a result of an increase in utilities, computer fees and repairs and maintenance expenses associated with opening of El Paso Children’s and Women’s Tower.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

10

Operating expenses increased $17.7 million or 5.0% between 2011 and 2010.

• Medical claims expense increased $3.2 million or 3.5% primarily due to increased health plan membership and increased NICU and H1N1 - related claims.

• Salaries and employee benefits expense increased $9.6 million or 7.8% due to increased volumes, compensation for systems development on computer physician order entry and increased staffing in preparation for the new El Paso Children’s opening in February 2012.

• Supplies and other expenses increased $3.7 million or 4.7% primarily due to increase in pharmaceutical received in kind and increases in volumes for surgery and cardiology.

• Physician fees expenses decreased $.5 million or 7.7% as a result of additional physician contracts that were transferred to and became part of the Private UPL Program. A corresponding increase in the Intergovernmental transfer expense is discussed in the Nonoperating activity section below.

• Depreciation expense increased by $9.9 million or 35% due to the Hospital District’s west expansion which opened October 2010.

• Purchased services expense decreased by $.7 million or 0.2% as a result of a decrease in referrals to outside medical care providers.

Nonoperating activity decreased $10.2 million or 32.8% between 2012 and 2011.

• Intergovernmental transfer expense increased $7.9 million or 22.0% due to additional physician contracts that became part of the Private UPL Program requiring additional funding. The Program is designed to bring additional federal funding to the community to serve indigent patients.

• Interest expense increased $6.9 million or 459% due to ceasing of interest expense capitalization for construction assets that were placed in service in 2012.

Nonoperating activity decreased $13.6 million or 30.5% between 2011 and 2010.

• Intergovernmental transfer expense increased $13.8 million or 63.1% due to additional physician contracts that became part of the Private UPL Program requiring additional funding.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

11

Capital Assets

The following table presents a summary of the Hospital District’s capital assets as of September 30, 2012, 2011 and 2010:

Capital Assets (In millions)

Fiscal Year Fiscal Year Dollar Fiscal Year

2012 2011 Change 2010

Land and land improvements $ 10.3 $ 10.1 $ 0.2 $ 10.1 Building and leasehold improvements 411.0 163.6 247.4 128.7

Equipment 225.9 180.8 45.1 163.0

647.2 354.5 292.7 301.8

Construction in progress 0.5 245.3 (244.8) 183.8

Accumulated depreciation (241.2) (213.1) (28.1) (195.2)

Property, plant and equipment, net of accumulated depreciation $ 406.4 $ 386.7 $ 19.7 $ 290.4

The Hospital District’s significant construction projects placed in service in 2012 include:

• $154 million Master Facility Expansion Project – Construction began in November 2008 with final phase of completion in June 2012. This project was paid for from the 2005 bond issue proceeds of $113 million and the remaining $41 million from Hospital District cash reserves.

• $16.5 million Infrastructure Improvement Projects – There are various individual projects on which construction began in 2008 and was completed in mid-2012. This project was paid for from Hospital District cash reserves.

• $122 million El Paso Children’s – Construction began in February 2009 with final completion date in January 2012. This project was paid from the 2008 bond issue proceeds.

Capital Assets increased $19.7 million or 5.1% between 2012 and 2011. The Hospital District invested $47.9 million of which $39.5 million was for the Master Facility Expansion Project, Infrastructure Improvement and El Paso Children’s construction projects. The remaining capital purchases was for an additional MRI and CT Scan unit for the expanded Radiology area and annual routine capital purchases. The ratio of capital expenditures to depreciation expense is 170% in 2012.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

12

Capital Assets increased $96.3 million or 33.2% between 2011 and 2010. The Hospital District invested $114.2 million of which $103 million was for the Master Facility Expansion Project, Infrastructure Improvement and El Paso Children’s construction projects and the remaining was for the Ysleta Clinic renovation project, continued development on the Electronic Health Record system and annual routine capital purchases. The ratio of capital expenditures to depreciation expense is 629% in 2011.

Long-term Debt

Long-term debt consists of the following:

• Series 2009, $25.8 million Refunding Bonds • Series 2008A, $120.1 million General Obligation Bonds • Series 2005, $120 million Combination Tax and Revenue Bonds

Long-term debt, including current maturities, at September 30, 2012, totaled $253.5 million and decreased 1.9% from 2011 primarily due to scheduled principal payments. Long-term debt represents 78.3% of the total liabilities at September 30, 2012.

Long-term debt, including current maturities, at September 30, 2011, totaled $258.5 million and decreased 2% from 2010 primarily due to scheduled principal payments. Long-term debt represents 76.5% of the total liabilities at September 30, 2011.

More detailed information about the Hospital District’s long-term debt is presented in the notes to the financial statements.

Economic Factors and Key Challenges

The Hospital District’s board and senior management considered many factors while forecasting its fiscal year 2013 budget. One of the most significant concerns taken into consideration while planning the budget is the status of the economy, which takes into account market forces and environmental factors, such as:

Medicaid Transformation Waiver

In December 2011, the Health and Human Services Commission (“HHSC”) received federal approval of a waiver that allows the state to expand Medicaid managed care while preserving hospital funding, provides incentive payments for health care improvements and directs more funding to hospitals that serve large numbers of uninsured patients.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

13

The Texas Healthcare Transformation and Quality Improvement Program (the transformation) allows the state to expand Medicaid managed care while preserving federal hospital funding historically received as UPL Program payments (supplemental payments to make up the difference between what Medicaid pays for a service and what Medicare would pay for the same service) will be the basis for the supplemental payments in 2012 through 2016. This system replaces the UPL Program payment methodology with two funding pools – the Uncompensated Care (UC) pool and Delivery System Reform Incentive Payment (DSRIP) pool.

UC Pool Payments are designed to help offset the costs of uncompensated care provided by the hospital or other providers.

DSRIP Pool Payments are incentive payments to hospitals and other providers that develop programs or strategies to enhance access to health care, increase the quality of care and improve the health of the patients and families served, and improve the cost-effectiveness of the care provided. Preliminary estimates from HHSC indicates approximately $500 million is available for Region 15 DSRIP funding for the five year period ending 2016. Of these amounts, the Hospital District is entitled to $217 million of the $500 million.

Under the transformation waiver, eligibility to receive UC pool or DSRIP pool payments requires participation in a regional health care partnership. Within a partnership, participants include governmental entities providing public funds known as intergovernmental transfers (“IGTs”), Medicaid providers and other stakeholders. Participants will develop a regional plan that identifies partners, community needs, the proposed projects to meet those needs and funding distribution. Each partnership must have one anchoring entity (of which the UMC is the anchoring entity for Region 15), which acts as a primary point of contact for HHSC in the region and is responsible for seeking regional stakeholder engagement and coordinating development of a regional plan.

Since 2007, under the UPL Program, UMC has participated with a local health care provider for payment of health care services provided to indigent patients being performed at UMC. This budget assumes that this program will continue at its current funding and expense alleviation level under the Waiver program.

HHSC has had challenges in timely implementing the Waiver program and has delayed Medicaid Supplemental payments. HHSC and CMS are working to approve the necessary documentation defining the Waiver. Consequently, the delayed payments have necessitated that UMC implement a cash conservation plan which is projected to extend until the second quarter of Fiscal 2013.

State Financial Pressures

During the last session of the Texas legislature, state lawmakers adopted a budget that underfunded the Medicaid program by $4 to $5 billion dollars. They theorized that more revenues would become available during the 2012 – 2013 biennium as the state’s economy improved. It has not and in June of this year, state agencies were ordered to cut 10% from their current budgets when writing their spending proposals for the next biennium.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

14

Lawmakers also redirected funds intended for the state’s trauma centers and the crime victims’ compensation program to other purposes during the last legislative session. Payments to designated trauma centers were reduced by 23% in the 2012 – 2013 biennium, from $75 million per year to $57.5 million. $36 million was taken from the crime victims’ compensation fund. Additionally, Texas’ six poison control centers absorbed a $2.3 million reduction in the current biennium and face the possibility of being consolidated in the next, such that only four centers will remain.

The state’s budget situation isn’t expected to improve in the next biennium. According to the Associated Press, state lawmakers will face a projected $10 billion shortfall when they convene in January.

Health Policy

Governor Rick Perry recently announced that Texas will opt-out of a provision of the Affordable Care Act that would have extended Medicaid coverage to nearly 2 million of the state’s 6.2 million uninsured citizens. That means that an estimated 135,000 uninsured El Pasoans who would have qualified for Medicaid under the expansion will likely remain uninsured.

Funding for the Women’s Health Program in Texas (family planning) remains in jeopardy after state officials earlier this year acted to exclude Planned Parenthood from participating in the program in violation of federal guidelines. The $40 million-a-year program gets 90% of its funding from the federal government. Texas now must absorb that cost or eliminate the program.

El Paso Children’s Hospital

El Paso Children’s commenced operations in February 2012. They received Joint Commission accreditation on March 8, 2012, received their Medicare provider number in late May 2012 and received their Medicaid number in late June 2012.

Included in the Hospital District’s operating revenues are service and lease-type agreements with the El Paso Children’s which approximate $28.4 million (prior to the allowances for uncollectible amounts) and include the following:

• Contractual services agreement • Facility lease agreement • Medical equipment (new and transferred) lease agreement • IT lease agreement • Administrative services agreement • Pre-opening costs agreement • Working capital advance agreement

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

15

A couple of these agreements have an initial six-month no payment provision and the remaining have an initial one-year no payment provision enabling El Paso Children’s to establish their billing and collection processes before they begin making payments on these agreements. El Paso Children’s began making payments on these agreements beginning August 2012 and as of December 2012 had paid almost $12 million. The Hospital District also provides for an allowance for uncollectible accounts based upon review of outstanding receivables, current economic conditions and cash flows of El Paso Children’s.

Contacting the Hospital District’s Financial Manager

This financial report is designed to provide our citizens, customers and creditors with a general overview of the Hospital District’s finances and to demonstrate the Hospital District’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the El Paso County Hospital District, Fiscal Services Office, 4815 Alameda Avenue, El Paso, Texas 79905.

Report of Management’s Responsibility

The management of the Hospital District is responsible for the preparation and integrity of the financial information presented in this report. The basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board and the Financial Accounting Standards Board and include amounts based on judgments and estimates made by management. Management also prepares the other information included in the report and is responsible for its accuracy and consistency with the financial statements.

The 2012 and 2011 financial statements have been audited by the independent accounting firm of BKD, LLP, as stated in their reports, who was given unrestricted access to all financial records and related data, including the minutes of all meetings of the board of managers. The board of managers, through its Finance Committee (the “Committee”), provides oversight to the financial reporting process. Integral to this process is the Committee’s review and discussion with management of the monthly financial statements and the external auditors for the annual financial statements.

The Hospital District maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded and that assets are properly safeguarded, and also to provide reasonable assurance to our management and the board of managers regarding the reliability of our financial statements. The internal control system includes:

• A documented organizational structure and division of responsibility.

• Established policies and procedures that are regularly communicated and that demand highly ethical conduct from all employees.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Management’s Discussion and Analysis

Years Ended September 30, 2012 and 2011

16

The Hospital District’s Compliance Department monitors the operation of the internal control system and reports findings and recommendations to management and the board of managers as appropriate. Corrective actions are taken to address control deficiencies and other opportunities for improvement as they are identified.

El Paso County Hospital District d/b/a University Medical Center of El Paso

/s/ James N. Valenti /s/ Michael L. Nuñez

James N. Valenti Michael L. Nuñez, CHFP, CPA President and CEO Chief Financial Officer

[This Page is Intentionally Left Blank]

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Balance Sheets

September 30, 2012 and 2011

(In thousands)

See Notes to Financial Statements

Assets 2012 2011

Current AssetsCash and cash equivalents $ 67,847 $ 108,517 Short-term investments 6 6 Current portion of cash and investments held for self-funded

insurance reserves 1,936 1,992 Patient accounts receivable, net of allowance for uncollectible

accounts of 2012 - $51,904; 2011 - $39,521 19,911 11,296 Appropriation receivable for delinquent property taxes, net of

allowance of 2012 - $4,212; 2011- $3,836 1,628 1,587 Disproportionate share funds receivable 17,318 7,824 Supplies 5,679 5,840 Contract receivable net of allowance 2012 - $14,676 25,119 - Prepaid expenses and other 9,548 8,975

Total current assets 148,992 146,037

Noncurrent Cash and InvestmentsHeld by trustee for debt service 1,441 1,436 Held by trustee for self-funded insurance 3,546 3,824 Held by trustee for project construction 7,656 30,825 Held for Foundation 1,182 2,003 Restricted for medical claims 700 700

14,525 38,788 Less amount required to meet current obligations 1,936 1,992

12,589 36,796 Other long-term investments 995 16,002

13,584 52,798

Capital Assets, Net 406,446 386,715

Other AssetsContract receivable 5,637 - Debt issuance cost 2,850 2,982

Total other assets 8,487 2,982

Total assets $ 577,509 $ 588,532

17

Liabilities and Net Assets 2012 2011

Current LiabilitiesAccounts payable and accrued expenses $ 66,128 $ 75,370 Current maturities of long-term debt 5,211 5,006 Estimated self-insurance costs, current portion 1,936 1,992

Total current liabilities 73,275 82,368

Estimated Self-insurance Costs 1,081 1,093

Long-term Debt 248,314 253,524

Other Long-term Liabilities 991 821

Total liabilities 323,661 337,806

Net AssetsInvested in capital assets - net of related debt 163,428 161,992 Restricted - expendable 4,071 6,032 Unrestricted 86,349 82,702

Total net assets 253,848 250,726

Total liabilities and net assets $ 577,509 $ 588,532

El Paso County Hospital District d/b/a University Medical Center of El Paso

Statements of Revenues, Expenses and Changes in Net Assets

Years Ended September 30, 2012 and 2011

(In thousands)

See Notes to Financial Statements 18

2012 2011

Operating RevenuesNet patient service revenue, net of provision for uncollectible $ 148,933 $ 148,329

accounts; 2012 - $129,832, 2011 - $119,741Premium revenue 122,327 118,253 Supplementary uncompensated care revenues 73,589 56,778 Net contract revenues 13,700 - Other revenue 17,947 19,531

Total operating revenues 376,496 342,891

Operating ExpensesSalaries and employee benefits 139,715 132,686 Medical claims expense 100,232 95,226 Purchased services 38,932 36,238 Professional fees 3,847 5,877 Supplies and other 83,343 81,881 Depreciation and amortization 28,198 18,249

Total operating expenses 394,267 370,157

Operating Loss (17,771) (27,266)

Nonoperating Revenues (Expenses)Investment return 152 625 Interest expense (8,400) (1,502)County appropriation - property taxes 71,570 65,857 Intergovernmental transfer (43,740) (35,839)Tobacco settlement 1,322 1,255 Miscellaneous - other 2,671 1,456 Contributions to others (2,682) (753)

Total nonoperating revenues 20,893 31,099

Increase in Net Assets 3,122 3,833

Net Assets, Beginning of Year 250,726 246,893

Net Assets, End of Year $ 253,848 $ 250,726

El Paso County Hospital District d/b/a University Medical Center of El Paso

Statements of Cash Flows

Years Ended September 30, 2012 and 2011

(In thousands)

See Notes to Financial Statements 19

2012 2011

Operating ActivitiesReceipts from and on behalf of patients and members $ 261,333 $ 263,388 Payments to suppliers and contractors (229,725) (231,531)Payments to employees (138,743) (131,957)Cash received from contract revenues

and other operating activities 17,906 19,465 Cash received from uncompensated care related activities 64,095 59,331

Net cash used in operating activities (25,134) (21,304)

Noncapital Financing ActivitiesCounty appropriations supporting operations 60,316 54,527 Cash received from tobacco settlement 1,322 1,255 Cash paid for contributions to others (38,061) (28,005)Other cash received 1,692 1,456

Net cash provided by noncapital financing activities 25,269 29,233

Capital and Related Financing ActivitiesPrincipal paid on bonds payable (4,835) (4,820)Interest paid on bonds payable (12,390) (12,488)County appropriations to acquire or retire debt for

acquisitions of capital assets 11,254 11,330 Purchase of capital assets (59,636) (87,865)

Net cash used in capital and related financing activities (65,607) (93,843)

Investing ActivitiesPayments received from El Paso Children’s 4,950 - Funding to El Paso Children’s (19,570) - Interest on investments 152 625 Purchase of investments - (59,661)Proceeds from disposition of investments 37,660 214,800

Net cash provided by investing activities 23,192 155,764

Increase (Decrease) in Cash and Cash Equivalents (42,280) 69,850

Cash and Cash Equivalents, Beginning of Year 123,952 54,102

Cash and Cash Equivalents, End of Year $ 81,672 $ 123,952

Supplemental Cash Flows Information

Capital assets acquisition included in accounts payable located in payables to suppliers and contractors 6,229$ 20,369$

Equipment provided to El Paso Children’s 1,457$ -$

El Paso County Hospital District d/b/a University Medical Center of El Paso

Statements of Cash Flows (Continued)

Years Ended September 30, 2012 and 2011

(In thousands)

See Notes to Financial Statements 20

2012 2011

Reconciliation of Cash and Cash Equivalents to the Balance Sheets

Cash and cash equivalents in current assets $ 67,847 $ 108,517 Cash and cash equivalents in current portion of cash and

investments held for self-funded insurance reserves 1,936 1,992 Cash and cash equivalents in noncurrent cash and investments 11,889 13,443

Total cash and cash equivalents $ 81,672 $ 123,952

Reconciliation of Operating Loss to Net Cash Used in Operating Activities

Operating loss $ (17,771) $ (27,266)Depreciation and amortization 28,198 18,249 Provision for uncollectible accounts 129,832 119,741 Changes in operating assets and liabilities

Patient accounts receivable, net (138,447) (122,210)Estimated third party payer settlements (1,312) (725)Accounts payable and accrued expenses (2,051) (8,563)Other current and non-current liabilities (68) (434)Other current and non-current assets (23,515) (96)

Net cash used in operating activities $ (25,134) $ (21,304)

El Paso County Hospital District d/b/a University Medical Center of El Paso

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

21

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Reporting Entity

The El Paso County Hospital District d/b/a University Medical Center of El Paso (the “Hospital District”) is a component unit of El Paso County, Texas (the “County”). The Commissioner’s Court (the “Court”) of the County appoints the Hospital District’s governing body (the “Board”) and approves the Hospital District’s budget, tax rate and issuance of bonded debt. The Hospital District is charged with the legal responsibility to provide medical and hospital care to all County residents regardless of their ability to pay based upon Board approved eligibility guidelines.

The Hospital District is the sole corporate member of El Paso First Health Plans, Inc. (the “Health Plan”), University Medical Center Foundation of El Paso (the “Foundation”) and Thomason Cares, Inc. (“Thomason Cares”). The Health Plan is licensed as a health maintenance organization by the Texas Department of Insurance (“TDI”) and serves as third-party administrator for the Hospital District’s medical claims. The Foundation is a Section 501(c)(3) corporation and was created for the exclusive benefit of the Hospital District. Thomason Cares was incorporated as a Texas not-for-profit corporation and has been certified under the Medical Practices Act of Texas as Section 501(a) not-for-profit health organizations. Thomason Cares operates as a physician group practice of primary care physicians. It employs physicians for the Hospital District’s outpatient clinics and pediatric unit of the hospital. The Thomason Health Facilities Development Corporation (the “Corporation”), a nonstock, not-for-profit corporation, was created by the Hospital District pursuant to the Health Facilities Development Corporation Act for the purpose of acquiring health-related equipment for the Hospital District. The Corporation is inactive.

Each of these entities are included as blended component units in the Hospital District’s financial statements.

As part of the Affordable Care Act, hospitals exempt from the tax under Section 501(c)(3) of the Internal Revenue Code are required to comply with the new requirements under new Code Section 501(r). Code Section 501(r) requires exempt hospitals prepare and implement a community health needs assessment, implement a financial assistance policy, implement an emergency care policy, limit charges to individuals eligible for financial assistance and refrain from certain collection actions for patients that may qualify for financial assistance. Failure to comply with these requirements could result in a hospital not being recognized as exempt under Code Section 501(c)(3). The IRS has not issued final guidance on how they intend to enforce the provisions related to Code Section 501(r). The Hospital District believes it has taken reasonable steps to comply with 501(r) and has recorded no provision relative to the organization’s compliance or non-compliance with Code Section 501(r). However, this could change materially in the near-term.

El Paso County Hospital District d/b/a University Medical Center of El Paso

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

22

Basis of Accounting and Presentation

The financial statements of the Hospital District have been prepared on the accrual basis of accounting using the economic resources measurement focus. Revenues, expenses, gains, losses, assets and liabilities from exchange and exchange-like transactions are recognized when the exchange transaction takes place, while those from government-mandated nonexchange transactions (principally federal and state grants and county appropriations) are recognized when all applicable eligibility requirements are met. Operating revenues and expenses include exchange transactions and program-specific, government-mandated nonexchange transactions. Government-mandated nonexchange transactions that are not program specific (such as county or state appropriations), investment income and interest on capital assets-related debt are included in nonoperating revenues and expenses. The Hospital District first applies restricted net assets when an expense or outlay is incurred for purposes for which both restricted and unrestricted net assets are available.

The Hospital District prepares its financial statements as a business-type activity in conformity with applicable pronouncements of the Governmental Accounting Standards Board (“GASB”). Pursuant to GASB Statement No. 20, the Hospital District has elected to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board (“FASB”) that were issued on or before November 30, 1989, and do not conflict with or contradict GASB pronouncements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

The Hospital District considers all liquid investments with original maturities of three months or less to be cash equivalents. At September 30, 2012 and 2011, cash equivalents consisted primarily of money market funds and overnight repurchase agreements.

Authorized Investments

The Board of the Hospital District has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act (Section 2256, Texas Government Code). Under the Public Funds Investment Act, the Hospital District is authorized to make investments in (1) obligations of the United States or its agencies, (2) direct obligations of the state of Texas or its agencies, (3) obligations of political subdivisions rated not less than A by a national investment rating firm, (4) certificates of deposit and (5) other instruments and obligations authorized by statute.

El Paso County Hospital District d/b/a University Medical Center of El Paso

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

23

For the fiscal years ended September 30, 2012 and 2011, management of the Hospital District believes that it has complied with the provisions of the Public Funds Investment Act and the Hospital District’s investment policies.

County Appropriations – Property Taxes

The Hospital District received approximately 16.0% of its support from County appropriations funded by property taxes in both 2012 and 2011. These funds were used as follows:

2012 2011

Percentage used to support operations 84.2% 82.8%Percentage used for debt service on bonds 15.8% 17.2%

Total 100.0% 100.0%

Property taxes are levied January 1 and become due October 1 each year based on the value of all real and personal property located in the County. Assessed taxes become delinquent the following February 1. The tax rate is set at a level to meet the Hospital District’s budgeted debt service and operating needs. Debt service needs include both interest expense and scheduled principal reductions of general obligation bonds and obligations for which property tax revenues have been pledged.

County appropriations funded by property taxes are recorded in the fiscal period for which the appropriations are budgeted. Appropriations receivable for delinquent property taxes are recorded net of a provision for uncollectible amounts, collection expenses and appraisal fees. Subsequent adjustments to the tax rolls made by the County Assessor are included in revenues in the period such adjustments are made.

Premium Revenue

Premium revenue represents premiums collected through the Texas Department of Health and Human Services (“HHSC”), Children’s Health Insurance Program (“CHIP”) and the State of Texas Access Reform Medicaid programs (“STAR”). Premiums are due monthly and are recognized as revenue during the period in which the Health Plan is obligated to provide services to members.

Intergovernmental Transfer

The Hospital District has entered into an affiliation agreement with an area hospital to improve the level of health care provided to the County indigent population by participating in one of the state’s Medicaid supplemental payment programs for privately owned safety-net hospitals. The Hospital District provides funding for the nonfederal share of the Medicaid Supplemental Payment Program (“Private” UPL Program). This amount approximated $43.7 million in 2012 and $35.8 million in 2011.

El Paso County Hospital District d/b/a University Medical Center of El Paso

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

24

Tobacco Settlement Revenue

Tobacco settlement revenues are the result of a settlement between various counties and hospital districts in Texas and the tobacco industry for tobacco-related health care costs. The Hospital District received approximately $1.3 million in 2012 and $1.2 million in 2011, associated with the settlement. The funding from the tobacco industry is to offset indigent health care costs of local governments.

Risk Management

The Hospital District is exposed to various risks of loss from torts; theft of, damage to and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental and accident benefits. Commercial insurance coverage is purchased for claims arising from such matters other than medical malpractice, worker’s compensation and employee health claims. Settled claims have not exceeded this commercial coverage in any of the three preceding years.

The Hospital District is self-insured for a portion of its exposure to risk of loss from medical malpractice, worker’s compensation and employee health claims. Annual estimated provisions are accrued for the self-insured portion of medical malpractice, worker’s compensation and employee health claims and include an estimate of the ultimate costs for both reported claims and claims incurred but not yet reported.

Investments and Investment Income

Investments in U.S. Treasury, agency and instrumentality obligations with a remaining maturity of one year or less at time of acquisition and in nonnegotiable certificates of deposit are carried at amortized cost. All other investments are carried at fair value. Fair value is determined using quoted market prices.

Investment income includes dividend and interest income, realized gains and losses on investments carried at other than fair value and the net change for the year in the fair value of investments carried at fair value.

Patient Accounts Receivable

The Hospital District reports patient accounts receivable for services rendered at net realizable amounts from third-party payers, patients and others. The Hospital District provides an allowance for uncollectible accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

25

Reserves for Incurred But Not Reported Medical Claims

Management estimates and provides reserves for incurred but not reported physician and hospital services rendered to enrolled members during the period. These reserves represent management’s best estimate of the ultimate net cost of all reported and unreported claims incurred during the reporting period. The estimate is based on actuarial projections of the historical development of claims incurred but not reported and case-basis estimates of claims reported prior to the end of the reporting period.

The estimate of the unpaid claims liability is based on the best data available to management; however, because of the limited history, the estimates are subject to a significant degree of inherent variability. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.

Although management believes the estimate of the unpaid liability is reasonable, it is possible that actual incurred claims expense will not conform to the assumptions inherent in the determination of the liability; accordingly, the ultimate settlement of the claims may vary significantly from the estimate included in the accompanying financial statements.

Supplies

Supply inventories are stated at the lower of cost, determined using the first-in, first-out method or market.

Capital Assets

Capital assets are recorded at cost at the date of acquisition or fair value at the date of donation if acquired by gift. Depreciation is computed using the straight-line method over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives.

During the years ended September 30, 2012 and 2011, the Hospital District capitalized interest expense of $3.7 million and $10.5 million, respectively.

Deferred Financing Costs

Deferred financing costs represent costs incurred in connection with the issuance of long-term debt. Such costs are included in other assets and are being amortized over the term of the respective debt using a method that approximates the effective interest method.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

26

Compensated Absences

Hospital District policies permit most employees to accumulate vacation and sick leave benefits that may be realized as paid time off or, in limited circumstances, as a cash payment. Expenses and the related liability are recognized as vacation benefits are earned whether the employee is expected to realize the benefit as time off or in cash. Extended sick leave benefits are recognized when time off occurs and no liability is accrued for such benefits. Compensated absence liabilities are computed using the regular pay and termination pay rates in effect at the balance sheet date.

Net Assets

Net assets of the Hospital District are classified in three components. Net assets invested in capital assets, net of related debt, consist of capital assets net of accumulated depreciation and reduced by the outstanding balances of borrowings used to finance the purchase or construction of those assets. Restricted expendable net assets are noncapital assets that must be used for a particular purpose as specified by creditors, grantors, or donors external to the Hospital District, including amounts deposited with trustees as required by bond indentures. Unrestricted net assets are remaining assets less remaining liabilities that do not meet the definition of invested in capital assets, net of related debt or restricted expendable.

Net Patient Service Revenue

The Hospital District has agreements with third-party payers that provide for payments to the Hospital District at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and includes estimated retroactive revenue adjustments and a provision for uncollectible accounts. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods as adjustments become known.

Charity Care

The Hospital District provides care without charge or at amounts less than its established rates to patients meeting certain criteria under its charity care policy. Because the Hospital District does not pursue collection of amounts determined to qualify as charity care, these amounts are not reported as net patient service revenue.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

27

Income Taxes

As an essential government function of the County, the Hospital District is generally exempt from federal income taxes under Section 115 of the Internal Revenue Code. However, the Hospital District is subject to federal income tax on any unrelated business taxable income.

Thomason Cares, the Foundation and the Health Plan are incorporated as not-for-profit corporations in the state of Texas and are exempt from income taxes under Section 501(a) of the Internal Revenue Code. These entities are subject to federal income tax on any unrelated business income.

Electronic Health Records Incentive Program

The Electronic Health Records Incentive Program, enacted as part of the American Recovery and Reinvestment Act of 2009, provides for one-time incentive payments under both the Medicare and Medicaid programs to eligible hospitals that demonstrate meaningful use of certified electronic health records technology (EHR). Payments under the Medicare program are generally made for up to four years based on a statutory formula. Payments under the Medicaid program are generally made for up to four years based upon a statutory formula, as determined by the state, which is approved by the Centers for Medicare and Medicaid Services. Payment under both programs are contingent on the hospital continuing to meet escalating meaningful use criteria and any other specific requirements that are applicable for the reporting period. The final amount for any payment year is determined based upon an audit by the fiscal intermediary. Events could occur that would cause the final amounts to differ materially from the initial payments under the program.

The Hospital District recognizes revenue ratably over the reporting period starting at the point when management is reasonably assured it will meet all of the meaningful use objectives and any other specific grant requirements applicable for the reporting period.

In 2012, the Hospital District completed the first-year requirements under the Medicaid program and has recorded revenue of approximately $1.8 million, which is included in other revenues within operating revenues in the statement of revenues, expenses and changes in net assets.

Reclassifications

Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 financial statement presentation. The reclassifications had no effect on the change in net assets or financial position.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

28

Note 2: Net Patient Service Revenue

The Hospital District has agreements with third-party payers that provide for payments to the Hospital District at amounts different from its established rates. These payment arrangements include:

Medicare. Inpatient acute care services and substantially all outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Certain inpatient nonacute services and defined medical education costs are paid based on a cost reimbursement methodology. The Hospital District is reimbursed for certain services at tentative rates with final settlement determined after submission of annual cost reports by the Hospital District and audits thereof by the Medicare fiscal intermediary. The Hospital District’s Medicare cost reports have been audited by the Medicare administrative contractor through September 30, 2007.

Medicaid – Non-managed. Inpatient services rendered to Medicaid program beneficiaries that are not part of a managed care plan are paid at prospectively determined rates per discharge similar to those of the Medicare inpatient program. Medicaid outpatient beneficiaries are reimbursed using a mixture of cost-based and a fee schedule methodologies. For outpatients, the Hospital District is reimbursed for cost-based services at a preliminary rate, with the final settlement determined after submission of annual cost reports by the Hospital District and audits thereof by the Medicaid fiscal intermediary. The Hospital District’s Medicaid cost reports have been audited by the Medicaid fiscal intermediary through September 30, 2006.

Medicaid – Managed. Inpatient and outpatient services rendered to Medicaid managed care program beneficiaries are primarily paid based on prospective rates and fee schedule amounts, with no retroactive settlement for the difference in the cost of services and the payments received.

Revenue from the Medicare program accounted for approximately 18.0% in 2012 and 16.7% in 2011 of the Hospital District’s total gross patient revenues. Revenue from the Medicaid program accounted for approximately 18.5% in 2012 and 22.5% in 2011 of the Hospital District’s total gross patient revenues. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change materially in the near term.

The Hospital District has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Hospital District under these agreements includes prospectively determined rates per discharge, discounts from established charges and prospectively determined daily rates.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

29

Note 3: Uncompensated Care

In support of its mission, the Hospital District voluntarily provides care to patients at less than its established charges for patients that meet the Hospital District’s charity care criteria. Because the Hospital District does not pursue collection of amounts determined to qualify as charity care, they are not reported in net patient service revenue. Charges excluded from revenue under the Hospital District’s charity care policy were $196.4 million in 2012 and $193.1 million in 2011. Additional uncompensated care in the form of uncollectible patient account receivables totaled $129.8 million in 2012 and $119.7 million in 2011. In total, the Hospital District provided uncompensated care of $326.2 million and $312.8 million in 2012 and 2011, respectively.

Note 4: Funds for the Indigent’s Medical Care

In response to the growing number of uninsured patients and the rising cost of health care, the Texas Legislature established a Texas Medicaid Disproportionate Share Program (DSH Program) that was designed to assist those facilities serving the majority of the indigent patients by providing funds supporting increased access to health care within the community. This program allows the Texas Department of Human Services to levy assessments from certain hospitals, use the assessed funds to obtain federal matching funds, and then redistribute the total funds to those facilities serving a disproportionate share of indigent patients in the state of Texas. The revenues related to these funds are included in the supplemental revenues for uncompensated care in the statements of revenues, expenses and changes in net assets.

On December 12, 2011, the United States Department of Health & Human Services approved a new Medicaid Section 1115(a) demonstration entitled “Texas Health Transformation and Quality Improvement Program.” This demonstration expands existing Medicaid managed care programs and establishes two funding pools that will assist providers with uncompensated care costs and promote health system transformation. The demonstration is effective from December 12, 2011 to September 30, 2016. During 2012, the Hospital District received funding under the Uncompensated Care provisions of this plan, and anticipates receiving funding for uncompensated care and delivery system improvement payments (DSRIP) in 2013 through the end of the demonstration period.

The Hospital District receives additional reimbursement from this program as well as the Texas Medicaid Upper Payment Limit Program (UPL Program) to assist in serving the indigent population of El Paso County. The Hospital District received approximately $73.6 million and $56.7 million during 2012 and 2011, respectively, from these programs.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

30

Note 5: Deposits, Investments and Investment Income

Deposits

Custodial credit risk is the risk that in the event of a bank failure, a government’s deposits may not be returned to it. The Hospital District’s deposit policy for custodial credit risk requires compliance with the provisions of state law.

State law requires collateralization of all deposits with federal depository insurance; bonds and other obligations of the U.S. Treasury, U.S. agencies or instrumentalities or the state of Texas; bonds of any city, county, school district or special road district of the state of Texas; bonds of any state; or a surety bond having an aggregate value at least equal to the amount of the deposits.

At September 30, 2012 and 2011, $5.2 million and $29.2 million, respectively, of the Hospital District’s bank balances of $86.7 million and $142.5 million, respectively, were exposed to custodial risk as follows:

2012 2011

Uninsured and uncollateralized $ 4,381 $ - Uninsured and collateral held by securities held by a

custodial bank that is an agent of the Hospital District 617 29,251 Insured 81,770 113,298

$ 86,768 $ 142,549

Investments

At September 30, 2012 and 2011, the Hospital District had all of its investments in U.S. Treasury and agency obligations with the following maturities:

2012 2011

One year or less $ 6 $ 6 Between one and five years 1,695 39,355

$ 1,701 $ 39,361

Interest Rate Risk – As a means of limiting its exposure to fair value losses arising from rising interest rates, the Hospital District investment policy requires that total investments have a weighted-average maturity of five years or less. The longer the maturity of a fixed-rate obligation, the greater the impact a change in interest rates will have on its fair value. As interest rates increase, the fair value of the obligations decrease. Likewise, when interest rates decrease, the fair value of the obligations increase.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

31

Credit Risk – Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. It is the Hospital District’s policy to limit its investments to U.S. Treasury and agency. The debt securities of the U.S. agencies are rated AA+ by Standard & Poor’s rating agency.

Custodial Credit Risk – For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Hospital District will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. All of the Hospital District’s investments are held in safekeeping or trust accounts.

Concentration of Credit Risk – The Hospital District places no limit on the amount that may be invested in any one issuer as long as the restrictions of the Texas Public Funds Investment Act are followed. All investments are in U.S. Treasury or Agency obligations.

Summary of Carrying Values

The carrying values of deposits and investments shown above are included in the balance sheets as follows:

2012 2011

Carrying valueDeposits $ 81,672 $ 123,952 Investments 1,701 39,361

$ 83,373 $ 163,313

Included in the following balance sheet captionsCash and cash equivalents $ 67,847 $ 108,517 Short-term investments 6 6 Cash and investments - current self-insurance 1,936 1,992 Noncurrent cash and investments 13,584 52,798

$ 83,373 $ 163,313

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

32

Investment Return

Investment return for the years ended September 30, 2012 and 2011, consisted of:

2012 2011

Interest income $ 159 $ 1,304 Net decrease in fair value of investments (7) (679)

$ 152 $ 625

Note 6: Patient Accounts Receivable

The Hospital District grants credit without collateral to its patients, many of whom are area residents and are insured under third-party payer agreements. Patient accounts receivable at September 30, 2012 and 2011, consisted of:

2012 2011

Medicare $ 5,009 $ 3,637 Medicaid 2,441 1,820 Other third-party payers 19,763 15,260 Patients 44,602 30,100

71,815 50,817 Less allowance for uncollectible accounts 51,904 39,521

$ 19,911 $ 11,296

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

33

Note 7: Capital Assets

Capital assets, accumulated depreciation and related activity as of and for the years ended September 30, are as follows:

Estimated Transfer/ Transfer/

Useful Disposals/ Disposals/

In Years 2010 Additions 2011 Additions 2012

Land and land improvements - $ 10,055 $ - $ 73 $ 10,128 $ 198 $ - $ 10,326

Buildings and leasehold

improvements 8-40 128,718 197 34,727 163,642 163 247,176 410,981

Movable and fixed equipment 3-15 163,008 7,424 10,308 180,740 5,996 39,122 225,858

301,781 7,621 45,108 354,510 6,357 286,298 647,165

Less accumulated depreciation (195,231) (18,249) 340 (213,140) (28,198) 92 (241,246)

106,550 (10,628) 45,448 141,370 (21,841) 286,390 405,919

Construction in progress

including capitalized interest 183,867 107,199 (45,721) 245,345 41,682 (286,500) 527

Property and equipment - net $ 290,417 $ 96,571 $ (273) $ 386,715 $ 19,841 $ (110) $ 406,446

RetirementsRetirements

Construction in Progress

Master Facility Expansion Project – Construction began in November 2008 with a completion date of June 2012. This project cost $154 million of which $113 million was paid from the 2005 bond issue proceeds (see Note 11) and the remaining $41 million came from Hospital District reserves.

Infrastructure Improvement Projects – There are various individual construction projects estimated to cost $16.5 million, to be paid from Hospital District reserves and were substantially completed by mid-2012.

El Paso Children’s – Construction began in February 2009 with a completion date of January 2012. This project cost $122 million and was to be paid mainly from the proceeds from the 2008 bond issue (see Note 11).

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

34

Note 8: Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses included in current liabilities at September 30, 2012 and 2011, consisted of:

2012 2011

Payable to suppliers and contractors $ 31,755 $ 37,362 Payable to employees (including payroll taxes and benefits) 14,388 13,416 Medical claims payable 14,945 16,011 Estimated third-party payer settlements 805 2,117 Accrued interest 1,530 1,548 Patient refunds 1,398 1,332 Rebates and other 1,307 3,584

$ 66,128 $ 75,370

Note 9: Medical Malpractice, Employee Health and Workers’ Compensation Claims

The Hospital District is self-insured for claims under the Texas Workers’ Compensation Act (the “Act”). At September 30, 2012 and 2011, the Hospital District had accrued amounts, which in the opinion of management, are sufficient to cover all claims arising under the Act through September 30, 2012 and 2011, respectively. The accrual is based on an independent actuarial determination obtained by management for all claims arising in the self-insured period.

The Hospital District is also self-insured for malpractice claims against the Hospital District. At September 30, 2012 and 2011, the Hospital District had accrued amounts that in the opinion of management, are sufficient to cover all asserted and unasserted claims incurred through September 30, 2012 and 2011, respectively. The accrual is based on an independent actuarial determination obtained by management for all claims arising in the self-insured period. The estimate is based on a maximum liability, under Texas statute, of $100,000 for each person, $300,000 for each single occurrence for bodily injury or death and $100,000 for each single occurrence for injury to or destruction of property. Because of these limits on its liability, the Hospital District does not hold commercial stop-loss coverage for malpractice claims.

Eligible employees of the Hospital District are covered under a self-insured health plan, which is administered by the Health Plan. The Hospital District accrues a liability for all claims that are estimated to have been incurred prior to year-end under the plan.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

35

Losses from asserted and unasserted claims identified under the District’s incident reporting system are accrued based on estimates that incorporate the District’s past experience, as well as other considerations, including the nature of each claim or incident and relevant trend factors. It is reasonably possible that the District’s estimate of losses will change by a material amount in the near term.

At September 30, 2012 and 2011, the Hospital District’s assets designated for self-insured obligations were $3.5 million and $3.8 million, respectively. Changes in and the balances of the Hospital District’s aggregate claims liability in fiscal years 2012 and 2011 are as follows:

Beginning of Current- Balance at

Fiscal Year Year Claim FiscalLiability Expenses Payments Year-End

Employee health claims2011 $ 1,326 $ 8,649 $ (8,581) $ 1,394 2012 $ 1,394 $ 8,519 $ (8,584) $ 1,329

Workers’ compensation claims2011 $ 1,089 $ 73 $ (355) $ 807 2012 $ 807 $ 115 $ (224) $ 698

Professional liability2011 $ 1,097 $ (22) $ (191) $ 884 2012 $ 884 $ 234 $ (128) $ 990

The Hospital District has certain pending and threatened litigation and claims incurred in the ordinary course of business; however, management believes that the probable resolution of such contingencies will not exceed the Hospital District’s self-insurance reserves and will not materially affect the financial position of the Hospital District or the results of its operations and changes in its net assets.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

36

Note 10: Long-term Debt

The following is a summary of long-term debt transactions for the Hospital District for the years ended September 30, 2012 and 2011:

Beginning Ending CurrentBalance Additions Deductions Balance Portion

Long-term debt

Bonds payable $ 256,085 $ - $ 4,835 $ 251,250 $ 5,040

Plus

Net bond premium and discount 2,445 - 170 2,275 171

Total long-term debt $ 258,530 $ - $ 5,005 $ 253,525 $ 5,211

Beginning Ending CurrentBalance Additions Deductions Balance Portion

Long-term debt

Bonds payable $ 260,905 $ - $ 4,820 $ 256,085 $ 4,835

Plus

Net bond premium and discount 2,616 - 171 2,445 171

Total long-term debt $ 263,521 $ - $ 4,991 $ 258,530 $ 5,006

2012

2011

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

37

Bonds Payable

In June 1998, the Hospital District issued Series 1998 General Obligation Refunding Bonds. Proceeds from this issue were used to refund all of the Hospital District’s Series 1988A General Obligation Refunding Bonds in order to lower the overall annual debt service requirements of the Hospital District. The Series 1998 Premium Capital Appreciation Bonds are not subject to redemption prior to maturity. The Series 1998 Current Interest Bonds, at the option of the Hospital District, provide for early redemption in whole or in part on August 15, 2008, or any date thereafter until their 2012 maturity, at the par value thereof plus accrued interest to the date of redemption.

The orders that authorized the issuance of the Series 1998 bonds declare that the County must levy a continuing direct tax on taxable property within the County for each year these bonds are outstanding. Tax revenues, levied within the limits prescribed by law, must be sufficient, with allowances made for delinquencies and collection costs, to pay the debt service requirements of the Series 1998 refunding bonds. Tax revenues must also provide for payment of maintenance and operating expenses after payment of principal and interest on the Series 1998 bonds and pay any subsequent subordinate lien revenue bonds that may be issued with priority over maintenance and operating expenses.

In August 2002, the Hospital District issued Series 2002 Public Property Finance Contractual Obligations. Proceeds from the sale of the Contractual Obligations were used to purchase certain capital assets and to pay for related costs of issuance.

The Series 2002 Public Property Finance Contractual Obligations, at the option of the Hospital District, provide for early redemption on Obligations having stated maturities on and after August 15, 2008, in whole or in part, on August 15, 2007, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption.

The Series 2002 Public Property Finance Contractual Obligations constitute direct obligations of the Hospital District, payable from the levy and collection of an ad valorem tax levied for the benefit of the Hospital District by the Court, within the limits prescribed by law, on all taxable property located within the Hospital District and any revenues or funds available to the Hospital District for its public purpose.

In October 2009, the Hospital District refunded the Series 2002 Public Property Finance Contractual Obligations; and the Series 1998 General Obligation Refunding Bonds; with $25.8 million Refunding Bonds, Series 2009 bond issue. The 2002 Public Property Finance Contractual Obligations redemption requirement was $18.0 million and the Series 1998 General Obligation Refunding Bonds redemption requirement was $8.4 million at the time of the closing. The original maturity schedule of the 2002 Public Property Finance Contractual Obligations and the Series 1998 General Obligation Refunding Bonds from 2010 to 2018 were maintained with a stated interest rate ranging from 2.0% to 3.5%. The Series 2009 are not subject to redemption prior to maturity. The Series 2009 bonds are direct obligations of the Hospital District and are payable from an ad valorem tax.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

38

In December 2005, the Hospital District issued $120 million in Combination Tax and Revenue Bonds. Proceeds of the bonds financed the construction and equipping of operating and emergency departments, replacement facility for inpatient surgery, the addition of private patient rooms and the establishment of a heart program at the hospital facility, as well as the establishment of additional outpatient services and expansion of the infusion center. Interest rates on the Series 2005 bonds range from 4.25% to 5.00%.

The Series 2005 Combination Tax and Revenue Bonds, at the option of the Hospital District, provide for early redemption on Obligations having stated maturities on and after September 30, 2013, in whole or in part, on August 15, 2007, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption.

The Series 2005 Combination Tax and Revenue Bonds constitute direct obligations of the Hospital District, payable from the levy and collection of an ad valorem tax levied for the benefit of the Hospital District by the Court, within the limits prescribed by law, on all taxable property located within the Hospital District and any revenues or funds available to the Hospital District for its public purpose.

In May 2008, the Hospital District issued $120.1 million in Series 2008A General Obligation Bonds. Proceeds of the bonds financed the construction and equipping of the Children’s Hospital with a stated interest rate ranging from 4.00% to 4.25%.

The Series 2008A General Obligation Bonds, at the option of the Hospital District, provide for early redemption on Obligations having stated maturities on and after August 15, 2019, in whole or in part, on August 15, 2018, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption.

The Series 2008A General Obligation Bonds constitute direct obligations of the Hospital District, payable from the levy and collection of an ad valorem tax levied for the benefit of the Hospital District by the Court, within the limits prescribed by law, on all taxable property located within the Hospital District and any revenues or funds available to the Hospital District for its public purpose.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

39

The debt service requirements of the various bond issues as of September 30, 2012, are as follows:

Year Ending Total to September 30, be Paid Principal Interest

2013 $ 17,277 $ 5,040 $ 12,237 2014 17,273 5,230 12,043 2015 17,273 5,440 11,833 2016 17,271 5,690 11,581 2017 17,274 5,945 11,329 2018-2022 86,943 34,650 52,293 2023-2027 87,075 44,240 42,835 2028-2032 87,078 56,405 30,673 2033-2038 104,497 88,610 15,887

$ 451,961 $ 251,250 $ 200,711

Note 11: Restricted Net Assets

At September 30, 2012 and 2011, restricted expendable net assets were available for the following purposes:

2012 2011

Debt service and construction $ 1,441 $ 1,435 Medical claims 700 700 Foundation 1,930 3,897

Total restricted expendable net assets $ 4,071 $ 6,032

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

40

Note 12: Pension Plan

Plan Description – The Hospital District provides retirement, disability and death benefits for all of its full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (“TCDRS”). The board of trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system, consisting of over 600 nontraditional defined benefit pension plans. TCDRS, in the aggregate, issues a Comprehensive Annual Financial Report (“CAFR”) on a calendar-year basis.

The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768-2034.

Under the state law governing TCDRS enacted in 1991 effective January 1, 1992, the Hospital District selected a plan of benefits to provide in the future, while at the same time considering the level of the employer contribution rate to adequately fund the plan. The Hospital District has adopted an employer contribution rate which is actuarially determined as a part of the annual actuarial valuation. The rate, applicable for a calendar year, consists of the normal cost contribution rate (plus any amount required to amortize any unfunded actuarial liability) using the entry age actuarial cost method. The contribution rate for the calendar year 2012 is 6.13%. The contribution rates for the calendar years 2011 and 2010 were 5.94% and 6.07%, respectively.

The Plan provisions are adopted by the Board of Managers of the Hospital District within the options available in the Texas state statutes governing TCDRS (“TCDRS Act”). Members can retire at age 60 and above with eight or more years of service, with 30 years of service regardless of age or when the sum of their age and years of service equals 75 or more. Members are vested after eight years of service but must leave their accumulated contributions in the Plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum are not entitled to any amounts contributed by their employer.

Benefit amounts are determined by the sum of the employee’s contributions to the Plan, with interest and employer-financed monetary credits. The level of these monetary credits is adopted by the Board of Managers of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employer’s commitment to contribute. At retirement, death or disability, the benefit is calculated by converting the sum of the employee’s accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act.

Funding Policy – The Hospital District has elected the annually determined contribution rate plan provisions of the TCDRS Act. The Plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The employer contributed using the actuarially determined rate of 6.13% for the months of the accounting year in 2012 and 5.94% for the months of the accounting year in 2011.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

41

The contribution rate payable by the employee members for calendar years 2012 and 2011 is 5%, as adopted by the board of managers of the Hospital District. The employee contribution rate and the employer contribution rate may be changed by the board of managers of the Hospital District within the options available in the TCDRS Act.

The schedule of funding progress, presented as required supplementary information, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Annual Pension Cost – For the Hospital District’s fiscal years ended September 30, 2012 and 2011, the annual pension cost of the TCDRS plan was approximately $6.7 million and $6.3 million, respectively, with the actual employer contributions approximating pension costs.

Actuarial Valuation Information

The annual required contributions were actuarially determined as a percentage of the covered payroll of the participating employees and were in compliance with GASB Statement No. 50, Accounting for Pensions by State and Local Governmental Employers, parameters based on the actuarial valuations as of December 31, 2011 and 2010, the basis for determining the contribution rates for calendar years 2012 and 2011. The December 31, 2011, actuarial valuation is the most recent valuation.

Valuation Date 2009 2010 2011

Actuarial cost method Entry Age Entry Age Entry Age

Amortization method Level percentage of Level percentage of Level percentage of payroll, closed payroll, closed payroll, closed

Amortization period 20 years 20 years 20 years

Asset valuation method SAF: 10-yr smoothed SAF: 10-yr smoothed SAF: 10-yr smoothedvalue value value

ESF: Fund value ESF: Fund value ESF: Fund value

Actuarial assumptions Inflation 3.50% 3.50% 3.50%

Investment rate of return1 8.00% 8.00% 8.00%

Projected salary increases1 5.40% 5.40% 5.40%

Cost-of-living adjustments 0.00% 0.00% 0.00%

Note 1: SAF is defined as “Subdivision Accumulation Fund” Note 2: ESF is defined as “Employee Savings Fund” 1Includes inflation at the stated rate.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

42

Annual Pension Cost

Annual Percentage Net Accounting Pension of APC PensionYear Ended (“APC”) Contributed Obligation

September 30, 2010 $ 5,782 100% $ -

September 30, 2011 $ 6,302 100% $ -

September 30, 2012 $ 6,696 100% $ -

Schedule of Funding Information

UnfundedActuarial UAAL as

Actuarial Actuarial Accrued PercentageValue of Accrued Liability Funded Annual of CoveredAssets Liability (“UAAL”) Ratio Covered Payroll

Valuation Date (“AVA”) (“AAL”) (3) (2) (2) (3) Payroll (4) (6)(1) (2) (3) (4) (5) (6) (7)

December 31, 2011 $ 185,653 $ 219,168 $ 33,514 84.7% $ 112,318 29.8%

Note 13: Contractual Arrangements with El Paso Children’s

In 2007, the voters of El Paso County, Texas, by general election, approved the issuance of $120.1 million El Paso County Hospital District General Obligation Bonds, Series 2008A as tax-exempt obligations to construct and equip a children’s hospital.

El Paso Children’s, a Texas not-for-profit corporation, is a separate entity apart from the Hospital District. El Paso Children’s began operations in February 2012 and received its Medicare accreditation in March 2012.

In 2012, the Hospital District has agreed to various cancellable agreements with El Paso Children’s including but not limited to the following: a) Master Agreement; b) Facility Lease Agreement; c) Development Services Agreement; d) Repayment Phase Agreement (Phase I and Phase II); e) Administrative Services Agreement; f) Information Technology lease; g) Interim Equipment Agreement; and h) Contract Services Agreement for Diagnostic Imaging and Laboratory.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

43

The short-term and long-term portion of the El Paso Children’s lease receivable is located in contract receivable, net of allowance on the balance sheet and the contract revenues, net of allowance are located in the net contract revenues in the statements of revenues, expenses and changes in net assets. The net contract revenues and contract receivable, net of allowance consisted of the following at September 30, 2012, from each agreement:

Facility lease agreement (A) $ 3,651 Development services and repayment phase agreement (B) 19,643 Administrative services agreement (C) 5,420 Information technology agreement (D) 698 Interm equipment agreement (E) 1,266 Other (F) 78

30,756

Less: Short-term portion contract receivable 25,119

Long-term portion of contract receivable $ 5,637

The Hospital District records the contract receivable based upon the contractual arrangements. The Hospital District provides an allowance for uncollectible accounts based upon a review of outstanding receivables, current economic conditions and cash flows of El Paso Children’s.

As of September 30, 2011, amounts due under the contractual arrangements noted above were fully reserved.

(A) The Hospital District has leased building space to El Paso Children’s to provide general and pediatric care. The lease matures in February 2042 and includes a monthly payment of $860,509 for first 36 months with a 1% increase per year thereafter. The lease also has two renewal options of 10 years. The impact of escalation on the base rent is allocated on a straight line basis over the lease and amounts to $108,876 per month at the end of September 30, 2012.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

44

(B) Under the Development Service Agreement, the Hospital District has provided certain funding prior to the commencement of operations of El Paso Children’s and to also provide funding during the initial six months of operation.

Under the Phase I repayment plan, beginning March 1, 2013, El Paso Children’s is to pay the balance in 60 equal installments; 4.8% per annum. The net contract receivable balance at the end of September 30, 2012, was approximately $3.2 million.

Under the Phase II repayment plan, beginning in March 1, 2013, El Paso Children’s is to pay the balance in four monthly payments ending in June 2013. The net contract receivable balance at the end of September 30, 2012, was approximately $16.4 million.

(C) The Hospital District and El Paso Children’s have entered into an Administrative Services Agreement under which the District shall provide specified administrative and support services to El Paso Children’s. These services shall include but not be limited to the following: 1) Fiscal and revenue cycle; 2) Information technology; 3) Human resources; 4) Ancillary support; 5) Nursing support; 6) Medical staff support. These services are due once billed to El Paso Children’s. The net contract receivable balance at the end of September 30, 2012, was approximately $3.9 million. The Hospital District and El Paso Children’s have entered into a Contractual Services Agreement under which the District shall provide Diagnostic Imaging and Laboratory Services. These services are due once billed to El Paso Children’s. The net contract receivable balance at the end of September 30, 2012, was approximately $1.5 million.

(D) Hospital District has leased to El Paso Children’s certain information technology capital equipment, software and licenses under a cancellable operating lease. Matures March 2018; paid over five years starting March 2013 at a monthly payment of $151,839 per month plus interest of 4.8% per annum.

(E) The Hospital District has leased to El Paso Children’s certain leased equipment under a cancellable operating lease. Matures on March 1, 2017; paid over five years at a monthly payment of $330,812 per month; plus an interest of 4.8% per annum.

(F) The Hospital District performed some miscellaneous services for El Paso Children’s that are not under a contractual arrangement. This amount is offset with a one-time leased employee arrangement from El Paso Children’s during February 2012.

Operating Leases

The Hospital District is the lessor of certain building space and equipment under the Facility Lease Agreement and the Interm Equipment Agreement. These leases are considered cancellable leases under the terms of the agreements.

El Paso County Hospital District d/b/a University Medical Center of El Paso

A Component Unit of El Paso County

Notes to Financial Statements

September 30, 2012 and 2011

(In thousands)

45

The following is a summary of property held for lease at September 30, 2012:

Building $ 118,813 Moveable and fixed equipment 20,456

139,269 Accumulated depreciation 5,075

$ 134,194

Note 14: Contingencies

In the normal course of business, the Hospital District is, from time to time, subject to allegations that may or do result in litigation. Some of these allegations are in areas not covered by the Hospital District’s self-insurance program (discussed elsewhere in these notes) or by commercial insurance; for example, allegations regarding employment practices or performance of contracts. The Hospital District evaluates such allegations by conducting investigations to determine the validity of each potential claim. Based upon the advice of legal counsel, management records an estimate of the amount of ultimate expected loss, if any, for each. Events could occur that would cause the estimate of ultimate loss to differ materially in the near term.

Note 15: Subsequent Events

The Hospital District evaluates the impact of subsequent events, events that occur after the balance sheet date but before the financial statements are issued, for potential recognition in the financial statements as of the balance sheet date or disclosure in the notes to the financial statements. The Hospital District evaluated events occurring subsequent to September 30, 2012 through January 21, 2013, the date on which the accompanying financial statements were available to be issued. During this period, there were no subsequent events that required recognition in the financial statements. Additionally, there were no nonrecognized subsequent events that required disclosure.

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APPENDIX D

FORMS OF BOND COUNSEL’S OPINIONS

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2200 Ross Avenue, Suite 2800 • Dallas, Texas 75201-2784 Telephone: 214 855 8000 • Facsimile: 214 855 8200

57089533.1/11302315

AUSTIN • BEIJING • DALLAS • DENVER • DUBAI • HONG KONG • HOUSTON • LONDON • LOS ANGELES • MINNEAPOLIS MUNICH • NEW YORK • PITTSBURGH-SOUTHPOINTE • RIYADH • SAN ANTONIO • ST. LOUIS • WASHINGTON DC

www.fulbright.com

[Closing Date]

IN REGARD to the authorization and issuance of the “El Paso County Hospital District Combination Tax and Revenue Certificates of Obligation, Series 2013,” dated April 1, 2013, in the principal amount of $134,290,000 (the “Certificates”), we have examined into their issuance by El Paso County, Texas (the “County”) on behalf of the El Paso County Hospital District (the “District” and, together with the County, the “Issuer”), solely to express legal opinions as to the validity of the Certificates and the exclusion of the interest on the Certificates from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the Issuer, the disclosure of any financial or statistical information or data pertaining to the Issuer and used in the sale of the Certificates, or the sufficiency of the security for or the value or marketability of the Certificates.

THE CERTIFICATES are issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof (within a maturity). The Certificates mature on August 15 in each of the years specified in the pricing certificate (the “Pricing Certificate”) executed pursuant to an order adopted by the Commissioners Court of the Issuer authorizing the issuance of the Certificates (the “Order” and, jointly with the Pricing Certificate, the “Certificate Order”), unless redeemed prior to maturity in accordance with the terms stated on the Certificates. The Certificates accrue interest from the date, at the rates, and in the manner and is payable on the dates, all as provided in the Certificate Order.

IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified copies of the proceedings of the Issuer in connection with the issuance of the Certificates, including the Certificate Order, (ii) certifications and opinions of officers of the Issuer relating to the expected use and investment of proceeds of the sale of the Certificates and certain other funds of the Issuer and to certain other facts within the knowledge and control of the Issuer, and (iii) such other documentation, including an examination of the Certificate executed and delivered initially by the Issuer (which we found to be in due form and properly executed), and such matters of law as we deem relevant to the matters discussed below. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements and information contained in such certificates.

BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof:

1. The Certificates have been duly authorized by the Issuer and, when issued in compliance with the provisions of the Certificate Order, are valid, legally binding and enforceable obligations of the District, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the District, and are additionally payable from and secured by a limited pledge of the Surplus Revenues (as defined in the Certificate Order) of the District’s hospital operations, in the manner

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and to the extent provided in the Certificate Order, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights or the exercise of judicial discretion in accordance with the general principles of equity.

2. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the Issuer with the provisions of the Certificate Order relating to sections 141 through 150 of the Code, interest on the Certificates for federal income tax purposes (a) will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on the Certificates owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, or a financial asset securitization investment trust (“FASIT”). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.

WE EXPRESS NO OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Ownership of tax-exempt obligations such as the Certificates may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement Benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.

OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

2200 Ross Avenue, Suite 2800 • Dallas, Texas 75201-2784 Telephone: 214 855 8000 • Facsimile: 214 855 8200

57089548.1/11302315

AUSTIN • BEIJING • DALLAS • DENVER • DUBAI • HONG KONG • HOUSTON • LONDON • LOS ANGELES • MINNEAPOLIS MUNICH • NEW YORK • PITTSBURGH-SOUTHPOINTE • RIYADH • SAN ANTONIO • ST. LOUIS • WASHINGTON DC

www.fulbright.com

[Closing Date]

IN REGARD to the authorization and issuance of the “El Paso County Hospital District General Obligation Refunding Bonds, Series 2013,” dated April 1, 2013, in the principal amount of $110,400,000 (the “Bonds”), we have examined into their issuance by El Paso County, Texas (the “County”) on behalf of the El Paso County Hospital District (the “District” and, together with the County, the “Issuer”), solely to express legal opinions as to the validity of the Bonds, the defeasance and discharge of the District’s outstanding obligations being refunded by the Bonds and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the Issuer, the disclosure of any financial or statistical information or data pertaining to the Issuer and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds.

THE BONDS are issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof (within a maturity). The Bonds mature on August 15 in each of the years specified in the pricing certificate (the “Pricing Certificate”) executed pursuant to an order adopted by the Commissioners Court of the Issuer authorizing the issuance of the Bonds (the “Order” and, jointly with the Pricing Certificate, the “Bond Order”), unless redeemed prior to maturity in accordance with the terms stated on the Bonds. The Bonds accrue interest from the date, at the rates, and in the manner and is payable on the dates, all as provided in the Bond Order.

IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified copies of the proceedings had in connection with the issuance of the Bonds, including the Bond Order, a Special Escrow Agreement (the “Escrow Agreement”) between the District and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the “Escrow Agent”), a special report of Grant Thornton LLP, Certified Public Accountants (the “Accountants”) and an examination of the initial Bond executed and delivered by the Issuer (which we found to be in due form and properly executed); (ii) certifications of officers of the Issuer relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the Issuer and (iii) other documentation and such matters of law as we deem relevant. In the examination of the proceedings relating to the issuance of the Bonds, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies, and the accuracy of the statements contained in such documents and certifications.

BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof:

1. The Bonds have been duly authorized by the Issuer and, when issued in compliance with the provisions of the Bond Order, are valid, legally binding and enforceable obligations of the District, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the District, in the manner and to

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the extent provided in the Bond Order, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights or the exercise of judicial discretion in accordance with the general principles of equity.

2. The Escrow Agreement has been duly authorized, executed and delivered and is a binding and enforceable agreement in accordance with its terms and the outstanding obligations refunded, discharged, paid and retired with the proceeds of the Bonds have been defeased and are regarded as being outstanding only for the purpose of receiving payment from the funds held in a trust fund with the Escrow Agent, pursuant to the Escrow Agreement and in accordance with the provisions of V.T.C.A., Government Code, Chapter 1207, as amended. In rendering this opinion, we have relied upon the special report of the Accountants as to the sufficiency of cash and investments deposited with the Escrow Agent pursuant to the Escrow Agreement for the purposes of paying the outstanding obligations refunded and to be retired with the proceeds of the Bonds and the interest thereon.

3. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the Issuer with the provisions of the Bond Order relating to sections 141 through 150 of the Code, interest on the Bonds for federal income tax purposes (a) will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on the Bonds owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, or a financial asset securitization investment trust (“FASIT”). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.

WE EXPRESS NO OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement Benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.

OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions

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represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

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