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HomeMy WebLinkAbout2003 $1,949.287.70 Unlimited Tax Refunding Bonds Series 2003NEW ISSUE-BOOK-ENTRY-ONLY Ratings: Moody's: "Aaa" (See "MUNICIPAL BOND RATING OFFICIAL STATEMENT Dated March 10.2003 and BOND INSURANCE" herein) In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date hereof, subject to the matters described under "TAX MAnERS" herein, including the alternative minimum tax on corporations. The District has designated the Bonds as "Qualiiied Tax-Exempt Obligations': See "TAX MATTERS - Qualified Tax-Exemot Obligations for Financial Institutions" herein. - $1,949,287.70 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 (A Poiitical Subdivision of the State of Texas Located in Denton and Tarrant Counties. Texas) UNLIMITED TAX REFUNDING BONDS, SERIES 2003 Dated Date: April 1, 2003 Due: September 1, as shown on inside cover page The Trophy Club Municipal Utility District No. 1 (the "District" or "Issuer") $1,949.287.70 Unlimited Tax Refunding Bonds, Series 2003 (the. "Bonds") are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"). particularly Chapter 1207, Texas Governmen! Code, as amended, and an order (the "Order") adopted by the Board of Directors (the "Board). (See "THE BONDS - Author~ty for Issuance" herein.) The Bonds are obligations solely of Trophy Club Municipal Utility District No. 1 and are not obligations OF the State of Texas; Denton County, Texas; the Town of Trophy Club, Texas; or any entity other than the District. The Bonds, when issued, will constitute valid and legally binding obligations of the District and will be payable irom the proceeds of an annual ad valorem tax, without legal limitation to rate or amount, levied against taxable property within the District. THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN. (See "INVFSTMFNT CONSIDERATIONS " herein.) Bond ourchasers are encouraoed to read this entire Official Statement orior to ..~ ~ - making an investment decision. The Bonds are being issued in part as current interest bonds ("CIBs") and in part as capital appreciation bonds ("CABs"). The ClBs will be issued in fully registered form in principal denominations of $5,000 or any Integral multiple thereof within a maturity. The ClBs will accrue interest from their dated date as shown above, and such Interest will be calculated on a 360-day year of twelve 30-day months. Accrued interest on the ClBs is payable on March 1 and September 1 of each year, commencing September 1, 2003, to the registered owners of the ClBs shown on the bond registration books of the Paying AgentIRegistrar, which initially is JPMorgan Chase Bank. Dallas, Texas, at the close of business on the Record Date (see Record Date herein), and such interest shall be payable by check or draft dated as of an interest payment date and mailed by the Paying AgenffRegistrar to the address of the registered owners appearing on the bond registration books or by such other method acceptable to the Paying A enffRegistrar, requested by and at the risk and expense of the registered owner. Principal of the ClBs will be payable by t 2 e Paying AgentlRegIstrar, upon presentation and surrender of the Bonds for payment at its designated corporate office. The CABs will accrete interest from the date of their delivery to the underwriter, and such interest wlll compouricl semiannually on March 1 and September 1, commencing September 1. 2003, and is payable only at maturity. The ac~retedlzompounded interest on the CABS will be calculated on a 360-day year of twelve 30-day months, and such "Accreted Value", as used herein with respect to CABs, shall mean the original principal amount of a CAB plus the initial premium, if an , paid theretor with J interest thereon compounded semiannually to March 1 and September 1, as the case may be, next prece ing the date of such calculation (or the date of calculation, if such calculation is made on March 1 or September I), at the stated yield@) shown therefore on the inside cover page of this Official Statement. The CABS will be issued in full registered form in denominations of $5,000 of the "Accreted Value" due at maturity (the "Maturity Amount") or any integral muiiple thereqf within a maturity. For any day other than a March 1 and September 1, the Accreted Value of a CAB shall be determined by a stralght line interpolation between the values for the applicable semiannual compounding dates (based on 30-day months). The Accreted Value of the CABs will be payable at maturity by the Paying AgenffRegistrar, upon their presentation and surrender, at its designated corporate office. Proceeds irom the sale of the Bonds are being used to refund the 2003 through 2007 maturities of the District's Unlimited Tax Refunding Bonds. Series 1993 in orderto achieve level annual debt payments and reduce the required annual tax rate for debt service, and to pay the costs related to the issuance of the Bonds. (See "PLAN OF FINANCING - Purpose" herein.) The Pa ment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued Ly Financial Guaranty Insurance Company ("Financial Guaranty") simultaneously with the delivery of the Bonds. (See "BOND INSURANCE herein.) The Bonds are not subject to redemption prior to maturity. (See "THE BONDS - Redemption" herein.) Financial Guaraniy lnsurance FGIC. ~oml,:u~y ,,;,,:,,~,~~s,rm, m,,,,.,~rn,,,<"~L,,, ,,,,m,,cb,,,;"~,~,,,, L,,5LL,~"r~~~,,,,,>",~,. " ,,ri,",un,,ll,"i,, lllil .I"liilll.il "llll ill,? C_'. I.Cll.lli"""l rzrni.. STATED MATURITY SCHEDULE (On Inside Cover Page) ~ ~ The Bonds are offered for delive , wlienLas and if issued and recg.ived by the Undenvriter and subject to the approving o inion r of the Attorney General olthe late 9 1 exas and ille approval or certain !egal matters by McC?ll. Parl<hurst & Horton L.~P., Dallas, Texas, Bond Counsel. !he le a1 oprnion oiBond Counsel wrll be pnnted on, or w~ll accompany the Bo~ids. Certain matters will be passed upon irtlie Undewrilerby Fulbright & Jaworski L.L.P., Dallas, Texas. as counsel to tlie Undewdriter, Delivew of the Bonds through DTC IS expected on or about April 9, 2003, in Dallas, Texas. First Southwest Company STATED MATURITY SCHEDULE' (Due September 1) $1,949,287.70 UNLIMITED TAX REFUNDING BONDS. SERIES 2003 51,865.000.00 Current Interest Bonds Stated Principal Rate Yield (Interest Accrues form Dated Date) $84,287.70 Premium Capital Appreciation Bonds Oh Initial Offering Stated Principal Premium Purchase Yield to Maturity Price per $5,000 Maturity Amount Amount - Price Value in Maturitv Value 2005 $84.287.70 $117,369.00 $201 -656.70 1.70 $210,000.00 $4,801.35 (Interest Accretes from Delively Date) TABLE OF CONTENTS 3 4 4 4 5 ........................ .. ............ 5 SELECTED FINANCIAL INFORMATION 6 OFFICIAL STATEMENT 7 INTRODUCTION 7 PLAN OF FINANCING 7 MASTER DISTRICT CONTRACT .......................................... 22 INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT ........................................ 22 Investment Officer and Authorized Investments ............ 23 .. 29 Schedule of Refunded Bonds Schedule I Schedule of Accreted Values of Premium Capital Appreciation Bonds Schedule II Financial Information of the Issuer Appendix A General Information Regarding Town of Trophy Club, Texas and Denton Count)' Appendix B Form of Legal Opinion of Bond Counsel Appendix C The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30,2002 Appendix D Municipal Band insurance Policy Specimen Appendix E The cover page, subsequent pages hereof and the schedules and appendices attached hemto, are pa^ of this Ofiicial Staiement. USE OF INFORMATION IN THE OFFICIAL STATEMENT No dealer, broker, salesman, or other person has been authorized to give any information, or to make any representation 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 lssuer. This OfrTciaI Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Any information or expression 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 an implication that there has been no change in the affairs of the Issuer or other matters described herein since the date hereof. NEITHER THE DISTRICT NOR ITS FINANCIAL ADVISOR MAKES ANY REPRESENTATION OR WARRANN WlTH RESPECTTO THE INFORMATION CONTAINED IN THlS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY ("DTC") OR ITS BOOK-ENTRY-ONLY SYSTEM OR INFORMATION UNDER THE CAPTION "BOND INSURANCE REGARDING FINANCIAL GUARANN INSURANCE COMPANY ("FGIC") AND ITS INSURANCE POLICY AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DTC AND FGIC. RESPECTIVELY. THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSlBiLITlES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THlS TRANSACTION. BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR THE COMPLETENESS OF SUCH INFORMATION. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMiSSlON AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION. QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WlTH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. IN CONNECTION WITH THIS OFFERING. THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE DISTRICT The Issuer Trophy Club Municipal Utility District No. 1 (the "District") was created under the name of Denton County Municipal Utility District No. 1 on March 4, 1975 and operates as a municipal utility district pursuant to the provisions of Article XVI, Section 59 of the Texas Constitution and Chapters 49 and 54 of the Texas Water Code, as amended. The District is subject to the continuing supervision of the Texas Commission on Environmental Quality (the "TCEQ"). (See "THE DISTRICT - General" herein.) Location The District, a political subdivision of the State of Texas, is located in the far southeastern quadrant of Denton County and northeastern Tarranl County, Texas near the southern shore of Lake Grapevine, and just east of the Town of Roanoke, Texas and is partially within the boundaries of the Town of Trophy Club. Texas, partially within the boundaries of the Town of Westlake, Texas, and partially in unincorporated areas. (See "THE DISTRICT - Location" herein.) Status of Development The District is a residential and mixed-use development consisting of some 1,289 acres, of which approximateiy 1,012 acres are developable. (See "THE DISTRICT - Status of Development" herein.) The inirastructure of the District is essentially fully deveioped. Payment Record Authority for issuance Use of Proceeds THE BONDS Description The Bonds are being issued in part as current interest bonds ("CiBs") and in part as capital appreciation bonds ("CABS"). (See "THE BONDS - General Description" herein.) Redemption The Bonds are not subject to redemption prior to maturity. Source of Payment Principal and interest on the Bonds are payable from the proceeds of a continuing direct annual ad valorem tax levied upon all taxable property within the District, which under Texas law is not limited as to rate or amount. The Bonds are obligations solely of Trophy Club Municipal Utility District No. 1 and are not obligations of the Town of Trophy Club, Texas; Denton County, Texas; the State of Texas; or any entity other than the District. (See 'THE BONDS - Source of and Security for PaymenP' herein.) The District has never defaulted in the timely payment of principal of or interest on its outstanding obligations. The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, including particularly Chapter 1207. Texas Government Code, as amended, and an order (the "Order") adopted by the Board of Directors (the "Board) of the District. (See "THE BONDS - Authority for lssuance" herein. Proceeds from the sale of the Bonds are being used to refund the 2003 through 2007 maturities of the District's Unlimited Tax Refunding Bonds, Series 1993 in order to achieve level annual debt payments and reduce the required annual tax rate for debt service, and to pay the costs related to the issuance of the Bonds. (See "PLAN OF FINANCING - Purpose" herein.) Municipal Bond lnsurance The Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued hy Financial Guaranty lnsurance Company ("Financial Guaranty") simultaneously with the delivery of the Bonds. (See "BOND INSURANCE herein.) Municipal Bond Rating Moody's investors Service. Inc. ("Moody's") has assigned a municipal bond rating of "Aaa" to the Bonds with the understanding that, concurrently with the delivery of the Bonds, a municipal bond insurance policy will be issued by Financial Guaranty. Moody's has assigned an underiying rating of "Baa2 to the Bonds. An explanation of the significance of a rating may be obtained from the company furnishing the rating. (See "MUNICIPAL BOND RATING" herein.) Qualified Tax-Exempt The District has designated the Bonds as "qualified tax-exempt obligations" pursuant to section Obligations 265(b) of the Internal Revenue Code of 1986, as amended, and will represent that the total amount of tax-exempt bonds (including the Bonds) issued by it during calendar year 2003 is not reasonably expected to exceed $10,000,000. (See "TAX MATTERS - Qualified Tax- Exempt Obligations for Financial Institutions" herein.) Book-Entry-Only System The Issuer intends to utilize the Book-Entry-Only System of The Depository Trust Company, New York. New York relating to the method and timing of payment and the method and transfer relating to the Certificates. (See "BODK-ENTRY-ONLY SYSTEM herein.) Issuance of Additional The District does not anticipate 81e issuance of additional debt within the next twelve months. Debt Bond Counsel McCall, Parkhurst & Horton L.L.P.. Dallas. Texas Underwriter's Counsel Fulbright & Jaworski L.L.P.. Dallas, Texas Delivery When issued, anticipated on or about April 9, 2003 General Counsel Whitaker, Chalk. Swindle & Sawyer, L.L.P.. Fort Worth, Texas Financial Advisor Southwest Securities, Dallas. Texas. Engineer Carter & Burgess, Furl Worth, Texas. Paying AgentlRegistrar JPMorgan Chase Bank, Dallas, Texas. lNVESTMENT CONSIDERATIONS The purchase and ownership of the Bonds involve certain investment considerations and all prospective purchasers are urged to examine carefully the Official Statement, including particularly the section captioned "INVESTMENT CONSIDERATIONS," with respect to the investment security of the Bonds. SELECTED FINANCIAL INFORMATION 2002 Taxable Assessed Valuation Gross Bond Debt Principal Outstanding (after issuance of the Bonds) Ratio of Gross Debt Principal to 2002 Assessed Valuation 2002-2003 Tax Rate Maintenance & Operation Debt Service Fire Protection Total Debt Service Fund Balance as of January 31,2003 Average Percentage of Current Tax Collection -Tax Years 1997-2001 Average Percentage of Total Tax Collection -Tax Years 1997-2001 Projecteo Average Ann~lal Deb: Sen, ce Requ~remcnt (2003-201 1) Of tile Bonds ana lne O~lstandlng Bonds ('Projezled Average Requ~remeni') Tax Rate Required to Pay Projected Average Requirement Based Upon Current Taxable Assessed Valuation at 99% Collections Projccied Max~mum Ann~al Deb1 Sewtce Requ rcrnenr (2009 of ine Bonds and Tne O~rstano~ng Bonos ( Projecreo Max~mum Requ~remenl ) Tax Rate Required to Pay Projected Maximum Requirement Based Upon Current Taxable Assessed Valuation at 99% collections Number of connections as of September 30.2002 Estimated population as of January 31. 2003 $0.173801$100 A.V. '"I As ceriified by the Denton Centml Appraisal District. (See "TAXING PROCEDURES"1ierein.) lb' Amount includes the "Value at Maturity" of the CABS for maturities 2005 and 2006 of the Series 1997 Bonds and forthe 2005maturity of the Series 2003 Bonds. $0.17456/$100 A.V. rrhe remainder of lhis page is intentionally lefl blanlr] OFFICIAL STATEMENT relating to $1,949,287.70 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 (A Political Subdivision of the State of Texas Located in Denton and Tarrant Counties, Texas) UNLiMlTED TAX REFUNDING BONDS, SERIES 2003 INTRODUCTION This Official Statement provides certain information in connection with the issuance by the Trophy Club Municipal Utility District No. 1 (the "District" or "Issuer") of its $1,949,287.70 Unlimited Tax Refunding Bonds. Series 2003 (the "Bonds"). The Bonds are issued pursuant to a bond order (the "Order") adopted by the Board of Directors (the "Board) of the District on the date of the sale of the Bonds, and pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1207 of the Texas Government Code. as amended. Unless otherwise indicated, capitalized terms used in this Ofticial Statement have the same meaning assigned to such terms in the Order. Included in this Official Statement are descriptions of the Bonds, the Order, the Status of Development and certain information about the District and its finances. ALL DESCRIPTIONS OF DOCUMENTS CONTAINED HEREIN ARE SUMMARIES ONLY AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO EACH SUCH DOCUMENT. Copies of such documents may be obtained from the District or its Financial Advisor. PLAN OF FINANCING Purpose The proceeds of the Bonds are being used to refund the 2003 through 2007 maturities of the Districfs Unlimited Tax Refunding Bonds. Series 1993 (the "Refunded Bonds") in order to achieve level annual debt payments and reduce the required annual tax rate for debt service (see "Schedule I - Schedule of Refunded Bonds"), and to pay the costs of issuance for the Bonds. Refunded Bonds The Refunded Bonds, maturities 2003 - 2007 are being redeemed on April 9. 2003 (the "Redemption Date") at par, immediately upon delivery of the Bonds. Southwest Securities will provide a Letter of Sufficiency of the money's deposited into the escrow fund for redemption of the Refunding Bonds. The Refunded Bonds, and interest due thereon, are to be paid from funds deposited with JPMorgan Chase Bank. Dallas. Texas (the "Escrow Agent") or its successor. The Order approves and authorizes the execution of an escrow agreement (the "Escrow Agreement") between the lssuer and the Escrow Agent: The Order further provides that, from a portion of the proceeds of the sale of the Bonds and other lawfully available funds of the lssuer (the "Escrowed Securities'), if any, the District will deposit with the Escrow Agent the amount sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such amount will be held by the Escrow Agent in an escrow account (the "Escrow Fund). By the deposit of the Escrowed Securities and cash with the Escrow Agent pursuant to the Escrow Agreement, the District will have effected the defeasance of the Refunded Bonds pursuant to the terms of Texas Government Code, Chapter 1207, as amended, and the order authorizing the issuance of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such defeasance, the Refunded Bonds will no longer be payable from ad valorem taxes, but will be payable solely from the principal of and interest on the Escrowed Securities and cash held for such purpose by the Escrow Agent, and the Refunded Bonds will be defeased and thus will not be included in or considered to be indebtedness of the District for the purpose of a limitation on indebtedness or taxation or for any other purpose. The District has covenanted in the Escrow Agreement to make timely deposits lo the Escrow Fund, from lawfully available funds, of additional funds in the amount required to pay the principal of and interest on the Refunded Bonds should, for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insuhicient to make such payments. SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds will be applied approximately as follows: Sources of Funds Par Amount of Current lnterest Bonds Capital Appreciation Bonds 84.287.70 Premium on Capital Appreciation Bonds 117,369.00 Less: Original Issue Premium 11.805.25 Accrued Interest on the Bonds 1.160.61 Total Sources of Funds S2.079.6- Uses of Funds Redemption of Series 1993 Bonds on April 9,2003 $1,950,000.00 Interest Due on Redemption Date 11,755.19 Costs of Issuance (including Bond Insurance) 97.122.66 Underwriter's Discount 15,195.80 Accrued Interest Deoosit to INS Fund 1.160.61 Contingency Total Uses of Funds THE BONDS General Description The Bonds shall be dated April 1. 2003, and will be issued in part as Current Interest Bonds ("CIBs"), and in part as Capital Appreciation Bonds ("CABs"). lnterest accruing on the ClBs and the accretedlcompounded interest on the CABs shall be calculated on the basis of 360-day year of twelve 30-day months. The paying agent and transfer agent (the "Paying Agent/Registrarm') for the Bonds is initially JPMorgan Chase Bank, Dallas, Texas. The ClBs are to mature on the dates and in the principal amounts set forth on the inside cover page hereof. The ClEs will each be issued as fully registered bonds in principal denominations of $5,000 or any integral multiple thereof within a maturity. lnterest on the ClBs will accrue from the dated date of such Bonds at the interest rates shown on the inside cover page hereof, and such interest shall be payable to the registered owners thereof on September 1, 2003 and semiannually thereafter on March 1 and September 1 in each year until maturity. lnterest on the ClBs is payable to the registered owners appearing on the records of the Paying AgentIRegistrar at the close of business on the Record Date (hereinafter detined) and payment of such interest shail be by check or draft dated as of an interest payment date and sent, first class mail, postage prepaid, by the Paying AgentiRegistrar to the address of the registered owner appearing on the bond registration books of the Paying Agent Registrar or by such other method, acceptable to the Paying AgentlRegistrar, requested by and at the risk and expense of the registered owner. Principal of the ClBs will be payable to the registered owner at maturity upon presentation and surrender of the Bonds at the designated corporate office of the Paying AgenVRegistrar. The CABS will mature on the date and in the Maturity Amount (as defined below) set forth on the inside cover page of this Official Statement. The CABs will be issued as fully registered bonds in Maturity Amount denominations of $5,000 or any integral multiple thereof within a maturity. lnterest on the CABS will accrete from the date of their initial delivery to the Underwriter and compound on each March 1 and September 1 ("Accretion Dates") commencing September 1, 2003. The "Accreted Value", as used herein with respect to CABs, shall mean the original principal amount of a CAB plus the initial premium, if any, paid therefor with interest thereon compounded semiannually to March 1 and September 1, as the case may be, nexl preceding the date of such calculation (or the date of calculation, if such calculation is made on March 1 or September l), at the stated yieid(s) shown thereiore on the inside cover page hereof. The Accreted Value of the CABs at maturity is the "Maturity Amount", and based on the initial offering price for the CABs, a schedule of Accreted Values per $5,000 Maturity Amount on the respective Accretion Date, using the yield stated on the inside cover page of this Offlcial Statement, is set forth in Schedule II attached hereto. The Maturity Amount of the CABs at maturity is payable only upon presentation to the Paying Agent /Registrar at its designated corporate trust office. The yields on the CABS to a particular purchaser may differ depending upon price paid by such purchaser. For various reasons, securities that do not pay interest periodically, such as the CABs, have traditionally experienced greater price fluctuations in the secondary market than securities that pay interest on a periodic basis. If the s~ecified date ior anv eavment of ~rincipal oi or interest on the Bonds is a Saturday, Sundav, or leaal holidav or equivalent for banking institutidni generally'in the city in which Designated Payment I Transfer bfiice is lbcated. ;uch mav be made on the next succeedino dav which is not one oi the foreooino days without additional interest and with the same -. iorde and effect as if made on the spiciiiid dale for such payment. initially, the Bonds will be registered and delivered only to Cede 6 Co.. the nominee oiThe Depository Trust Company CDTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the beneficial owners. Principal oi and interest on the Bonds will be payable by the Paying Agent to Cede & Co., which will distribute the amounts paid to the participaiing members of DTC for subsequent payment to the beneficial owners of the Bonds. (See "BOOK-ENTRY-ONLY SYSTEM " herein.) Redemption The Bonds are not subject to redemption prior to maturity. DTC Redemption Provision The Paying Agent and the District, so long as a Book-Entw-Only System is used for the Bonds. will send anv notice of - - redempi:on, notice of proposed amendmentio the Order or oiher notlces w:ln respecl lo tne Bonds on y to OTC. ~n; iai ure by DTC to aovise any DTC Panic~panl, as hereln defined or of any Erect Partici~ant or lnoirect Particioant. as herein dei,ned, to . notify the beneficial owner, shall not affect the validity of the redemption of ~onds called for redemption or any other scion premised on any such notice. Redemption of portions of the Bonds by the District will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book-Entry Only System, a redemption of such Bonds held for the account of DTC Participants in accordance with its rules or other agreements with DTC Participants and then Direct Participants and Indirect Participants may implement a redemption of such Bonds and such redemption will not be conducted by the District or the Paying Agent. Neither the District nor the Paying Agent will have any responsibility to DTC Participants, indirect Participants or the persons for whom DTC Participants act as nominees with respect to the payments on the Bonds or the providing of notice to Direct Participants, Indirect Participants, or beneficial owners of the selection of portions of the Bonds for redemption. Termination of Book-Entry-Only System The D:sIrict is inillally utillzlng tile book-entry-only syslem of the DTC. (See "BOOK-ENTRY-ONLY SYSTEM' here!".) in the cvcnt that tne Book-Entry-Only System is dscontinued by DTC or the D:stnci, the fo.lovr:ng prov:sions w I. be applcab e to the Bonds. Pavment: Principal of the Bonds will be payable at maturity to the registered owners as shown by the registration books maintained by the Paying Agent upon presentation and surrender of the Bonds to the Paying Agent at the designated office for payment of the Paying AgenffRegistrar in Dallas, Texas (the "Designated Paymentrrransfer Office"). Interest on the Bonds will be payable by check or draft, dated as of the applicable interest payment date, sent by the Paying Agent by United States mail, first class, postage prepaid, to the registered owners at their respective addresses shown on such records, or by such other method acceptable to the Paying Agent requested by registered owner at the risk and expense of the registered owner. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday or day on which banking institutions in the city where the Designated Paymentrrransfer Office of the Paying Agent is located are required or authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or day on which banking institutions are required or authorized to close, and payment on such date shall for all purposes be deemed to have been made on the original date payment was due. Reaistmtion: The Bonds may be transferred and re-registered on the registration books of the Paying Agent only upon presentation and surrender thereof to the Paying AgenffRegistrar at the Designated PayrnenVTransfer Office. A Bond also may be exchanged for a Bond or Bonds of like maturity and interest and having a like aggregate principal amount or maturity amount, as the case may be, upon presentation and surrender at the Designated PaymenVTransfer Office. All Bonds surrendered for transfer or exchange must be endorsed for assignment by the execution by the registered owner or his duly authorized agent of an assignment form on the Bonds or other instruction of transfer acceptable to the Paying Agenl. Transfer and exchange of Bonds will 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 transfer or exchange. A new Bond or Bonds, in lieu of the Bond being transferred or exchanged, will be delivered by the Pavina AsenffReoistrar to the reqistered owner, at the Desisnated Pavmentrrransfer Office of the Pavinq ~~enff~e~i&rar or by~?tedStates mail, first-class, postage prepaid. To the exteit possible;new Bonds issued in an exchange ;r transfer of Bonds will be delivered to the registered owner not more than three (3) business days after the receipt of the Bonds to be canceled in the exchange or transfer andihe denominations of $5,000 or any i&egral multiplethereof. Limitations on Tmnsfer of Bonds: Neither the District nor the Paying Agent shall be required to make any transfer, conversion or exchange to an assignee of the registered owner of the Bonds during the period commencing on the close of business on the 15Ih calendar day of the month preceding each interest payment date (the "Record Date") and ending with the opening of business on the next following principal or interest payment date. Reolacement Bonds: If a Bond is mutilated, the Paying Agent will provide a replacement Bond in exchange for the mutilated bond. If a Bond is destroyed, lost or stolen, the Paying Agent will provide a replacement Bond upon (i) the filing by the registered owner with the Paying Agent of evidence satisfactory to the Paying Agent of the destruction, loss or theft of the Bond and the authenticity of he registered owner's ownership and (ii) the furnishing to the Paying Agent of indemnification in an amount satisfactory to hold the District and the Paying Agent harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Bond must be borne by the registered owner. The provisions of the Order relating to the replacement Bonds are exclusive and the extent lawful, preclude all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost or stolen Bonds. Authority for Issuance The bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended, and the Order. Source of and Security for Payment The Bonds are payable as to principal and interest from the proceeds of an annual ad valorem tax, without legal limit as to rate or amount, levied against taxable property within the District. Tax Pledoe: The Board covenants in the Order that, while any of the Bonds are outstanding and the District is in existence, it will levy and assess a continuing ad valorem tax upon each $100 valuation of taxable property within the District at a rate from year to year sufficient. full allowance being made for anticipated delinquencies, together with revenues and receipts from other sources which are legally available for such purposes, to pay interest on the Bonds as It becomes due, to provide for the payment of principal of and interest on the Bonds when due, to pay when due any other contractual obligations of the District payable in whole or in part from taxes, and to pay the expenses of assessing and collecting such tax. The Board additionally covenants in the Order to timely assess and collect such tax. The net proceeds from taxes levied to pay debt service on the Bonds are required to be placed in a special account of the District designated its "interest and Sinking Fund for the Bonds. The Bonds are obligations solely of the District and are not obligations of the Town of Trophy Club, Texas; Denton County, Texas; the State of Texas; or any political subdivision or entity other than the District. Abolition: Under Texas law, If a district is located wholly in two or more municipalities and in unincorporated area, the district may be abolished by agreement among the district and all of the municipalities in which parts of the district are located. The abolition agreement must provide for the distribution of assets and liabilities (including the Bonds) of the abolished district. The agreement must also provide for the distribution among one or more of the municipalities the pro rata assets and liabilities located in the unincorporated area and must provide for service to customers in unincorporated areas in the service area of the abolished district. The municipality that provides the service in the unincorporated area may charge its usual and customary fees and assessments to the customers in that area. No representation is made concerning the likelihood of abolition or the ability of the municipalities which contain parts of the District to make debt service payments on the Bonds should abolition occur. Consolidation: A district (such as the District) has the legal authority to consolidate with other districts and in connection therewith, to provide for the consolidation of its assets, such as cash and the utility system, with the water and wastewater systems of districts with which it is consolidating as well as its liabilities (which would include the Bonds). Yield on Premium Capital Appreciation Bonds The approximate yield of the CABs as set forth on the inside cover page of this OMcial Statement is the approximate yield based upon the initial offering price therefor set forth on the inside cover page of this Official Statement. Such offering price includes the principal amount of such CABS plus premium equal to the amount by which such offering price exceeds the principal amount of such CABs. Because of such premium, the approximate offering yield on the CABS is lower than the bond interest rates thereon. The yield on the CABs to a particular purchaser may differ depending upon the price paid by that purchaser. For various reasons, securities that do not pay interest periodically, such as the CABs, have traditionally experienced greater price fluctuations in the secondary market than securities that pay interest on a periodic basis. Payment Record The District has never defaulted Legality The Bonds are offered when, as and if Issued, subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCali. Parkhurst & Horton L.L.P.. Dallas. Texas. The legal opinion of Bond Counsel will accompany the global certificates to be deposited with DTC or will be printed on the Bonds should the Book-Entry-Only System be discontinued. A form of the legal opinion of Bond Counsel appears in Appendix C attached hereto. Flow of Funds and investment of Funds The Order creates an lnterest and Sinking Fund. This fund shall be kept separate and apart from all other funds of the District. The interest and Sinking Fund shall constitute a trust fund, which shall be held in trust for the benetit of the holders of the Bonds. Any cash balance in any fund must be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of municipal utility districts having an aggregate market value, exclusive of accrued interest, at ail times equal to the cash balance in the fund to which such securities are pledged. The Order establishes the Interest and Sinking Fund to be used to pay principal and interest on the Bonds. The Order requires that the District deposit to the credit of the interest and Sinking Fund (i) from the delivery of the Bonds to the Undewriter, the amount received from proceeds of the Bonds representing accrued interest on the CIBs, (ii) District ad valorem taxes (and penalties and interest thereon) levied to pay debt service requirements on (or fees and expenses of the Paying Agent with respect oi) the Bonds, and (iii) such other funds as the Board shall, at its option, deem advisable. The Order requires that the lnterest and Sinking Fund be applied solely to provide ior the payment of the principal of and interest on the Bonds when due. 10 Defeasance of Outstanding Bonds The Order orovides for the defeasance of the Bonds when uavment oi the orincioal of and oremium. if anv. on Bonds. olus interest theieon to the due date thereof (whether such due dsebe by reason bf maturity, rede;nption, or otheGise), is bv irrevocablv deoosilins with a oavins aaent, in trust (1) monev sufficient to make such oavment or (21 Defeasance Securities. .-- . certified by in independent pubkc accounting firm of n'aiiona~ reputation to mature as to br[ncipal an; interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the respective series of Bonds. The Order provides that "Defeasance Securities" means (1) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (2) 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 are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (3) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision oi a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The District has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the District moneys in excess of the amount required for such defeasance. Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment of the Bonds have been made as described above, all rights of the District to take any other action amending the terms of the Bonds are extinguished. Paying AgentlRegistar Principal of and semiannual interest on the Bonds will be paid by JPMorgan Chase Bank. Dallas, Texas, the initial Paying AgenVRegisrrar (me "Payng Agent"). Tne Pay ng Agent mJst be aoank, lrcsr company, financial institution or orher eniry duty qualified and eq~a.1~ aurnorized lo serve an0 perform the ouries as paying agent and reg'strar for the Bonos Provision is made in the Order for the District to replace the Paying Agent by an order of the District giving notice to the Paying Agent of the termination of the appointment, stating the effective date of the termination and appointing a successor Paying Agent. If the Paying Agent is replaced by the District, the new Paying Agent shall be required to accept the previous Paying Agent's records and act in the same capacity as the previous Paying Agent. Any successor paying agentlregistrar selected by the District shall be subject to the same qualification requirements as the Paying Agent. The successor paying agenuregistrar, if any, shall be determined by the Board of Directors and written notice thereof, specifying the name and address of such successor paying agentlregistrar will be sent by the District or the successor paying agentlregistrar to each Registered Owner by first-class mail, postage prepaid. Record Date The record date for payment of the interest on Bonds on any regularly scheduled interest payment date is defined as the fifteenth (15th) day of the month (whether or not a business day) preceding such interest payment date. Issuance of Additional Debt The District may issue bonds necessary lo provide those improvements and facilities for which the District was created, with the approval of the TCEQ and, in the case of bonds payable from taxes, the Districrs voters. Following the issuance of the Bonds, $1,229,277 unlimited tax bonds authorized by the District's voters will remain unissued. In addition, voters may authorize the issuance of additional bonds or other contractual obligations secured by ad valorem taxes. The District also has the right to enter into certain other obligations including the issuance of revenue bonds and notes, bond anticipation notes and tax anticipation notes without voter approval. Neither Texas law nor the Order imposes a limitation on the amount of additional debt which may be issued by the District. Any additional debt issued by the District may dilute the security of the Bonds. (See "INVESTMENT CONSIDERATIONS - Future Debt " herein.) Specific Tax Covenants In the Order the District has covenanted with respect to, among other matters, the use of the proceeds of the Bonds and the property financed therewith by persons other than state or local governmental units, and the manner in which the proceeds of the Bonds are to be invested. The District may cease to comply with any such covenant if it has received a writien opinion of a nationally recognized bond counsel to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income taxation ai interest on the Bonds under Section 103 of the Code. Additional Covenants The District has additionally covenanted in the Order that it will keep accurate records and accounts and employ an independent certified public accountant to audit and report on its financial affairs at the close of each fiscal year, such audits to be in accordance with applicable IavJ, rules and regulations and open to inspection in the office of the District. 11 Remedies in Event of Default In the event the District defaults in the observance or performance of any covenant in the Order including payment when due of the principal of and interest on the Bonds, any Bond owner may apply for a writ of mandamus from a court of competent jurisdiction requiring the Board of Directors or other officers of the District to observe or perform such covenants. The Order provides no additional remedies to a Bond owner. Specifically, the Order does not provide for an appointment of a trustee to protect and enforce the interests of the Bond owners or for the acceleration of maturity of the Bonds upon the occurrence of a default in the District's obligations. Consequently, the remedy of mandamus is a remedy, which may have to be enforced from year to year by the Bond owners. Under Texas law, no judgment obtained against the District may be enforced by execution of a levy against the District's public purpose property. The Bond owners themselves cannot foreclose on property within the District or sell property within the District in order to pay principal of or interest on the Bonds. In addition, the enforceability of the rights and remedies of the Bond owners may be limited by federal bankruptcy laws or other similar laws affecting the rights of creditors of political subdivisions. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Order and the Bonds are qualified to the customary rights of debtors relative to their creditors MUNICIPAL BOND RATING Moody's Investors Service. Inc. ("Moody's") has assigned a municipal bond rating of "Aaa" to the Bonds with the understanding that, concurrently with the delivery of the Bonds, a municipal bond insurance policy will be issued by Financial Guaranty. Moody's has assigned an underlying rating of "Baa2 to the Bonds. An explanation of the significance of a rating may be obtained from the company furnishing the rating. The rating reflects only the respective view of such company, and the District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating company, If, in the judgment of such company circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. BOND INSURANCE The following information regarding municipal bond insurance on the Bonds was provided by Financial Guaranty. Concurrently with the issuance of the Bonds, Financial Guaranty lnsurance Company ("Financial Guaranty") will issue Its Municipal Bond New Issue lnsurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Bonds, which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to State Street Bank and Trust Company, N.A.. or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from an owner of Bonds or the Paying Agent of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal and interest shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal or interest made to an owner of a Bond, which has been recovered from such owner pursuant to the United States Bank~ptCy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is non-cancelable and the premium will be fully paid at the time of delivery of the Bonds. The Policy covers failure to pay principal of the Bonds on their respective stated maturity dates or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity, and covers the failure to pay an installment of interest on the stated date for its payment. This Official Statement contains a section regarding the ratings assigned to the Bonds and reference should be made to such section for a discussion of such ratings and the basis for their assignment to the Bonds. Reference should be made to the description of the Issuer for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement. The Policy is not covered by the Property/Casualty lnsurance Security Fund specified in Article 76 of the New York lnsurance Law. Financial Guaranty is a wholly owned subsidiary of FGlC Corporation (the "Corporation"), a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital'). Neither the Corporation nor GE Capital is obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciied in the State of New York and subject to regulation by the State of New York lnsurance Department. As of 12 September 30. 2002, the total capital and surplus of Financial Guaranty was approximately $1.1 billion. Financial Guaranty prepares financial statements on the basis of both statutov accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 125 Park Avenue. New York, New York 10017. Attention: Communications Department (telephone number: 212-312-3000) or to the New York State insurance Department at 25 Beaver Street. New York. New York 10004-2319. Attention: Financial Condition PropertyiCasualty Bureau (telephone number: 212-480-5187). BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of tile bonds is to be transferred and how the principal 06 premium, if any, and interest on the Bonds are to be paid to and credited by the Depository Tmst Company while the Bonds are registered in its nominee's name. Tile information in this section concerning DTC and the Bool<-Entry-Only Systen? has been provided by DTC for use in disclosure documents such as tllis OKiciai Statement Tlie District believes tile source of such iniormation to be reliable, but takes no responsibility for the accuracy or completeness thereof The District cannot and does not give any assurance the (f) DTC will distribnte payments of debt semice on the Bonds, or redemption or other notices, to DTC Pedicipant, (2) DTC Participants or otliers wiil distribute debt service payments paid to DTC or its nominee (as the registered owner oi the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and ad in the manner described in this Official Statement. The current rdes applicable to DTC are on file with the Securifies and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Parficipants are on file with DTC, The Depository Trust Company ("DTC), New York. New York, wiil act initially as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of the Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S, and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Particioants of sales and other securities transactions in denosited securities. throuoh electronic comouterized ,~- ~ ~- book-entry transfers and pledges in Direct Participants' accounts. This eliminates the need fir physrcal movementif securities certificates. Direct Particinants Include both U.S. and non-U.S, securities brokers and dealers. banks. trust comoanies. clearino ,~ ~~ ~ ., corporations, and certain other organizations. DTC is a wholly owned subsidiary of he Depository Trust & clearin; Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange. Inc.. the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("lndirect Participants"). DTC has Standard B Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and lndirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction. as well as periodic statements of their holdings, from the Direct or lndirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or lndirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee. Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with OTC and their registration in the name of Cede & Co.. or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC's records reflecl only the identity of the Direct Participants to whose accounts such Bonds 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. Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to lndirect Participants. and by Direct Participants and indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish Registered Owners' Remedies Bond owners are entitled under Texas Law to seek a writ of mandamus to compel the District to perform its obligations under the Order. Such remedy would have to be exercised upon each separate default and could prove costly, time-consuming and difficult to enforce. Further, there is no trust indenture or trustee, and all legal actions to enforce such remedies would have to be taken at the initiative of, and be financed by, Bond owners. The Order does not provide for acceleration of maturity of the Bonds upon any default. Bankruptcy, reorganization and other similar laws affecting the enforcement of creditor's rights generally may also limit the rights and remedies of the Bond owners and the enforceability of the Bonds. (See "THE BONDS - Remedies in Event of DefaulP' herein.) Bankruptcy Limitation to Registered Owners' Rights The enforceability of the rights and remedies of Bondholders may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. Texas law requires a municipal utility district such as the District to obtain the approval of the TCEQ as a condition to seeking relief under the Federal Bankruptcy Code. If a petitioning district were allowed to proceed voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other things, affect Registered Owners by reducing or eliminating the amount of indebtedness, deferring or rearranging the debt service schedule, reducing or eiiminating the interest rate, modifying or abrogating collateral or security arrangements. substituting (in whole or in part) other securities, and otherwise compromising and modifying the rights and remedies of the Registered Ownet's claim against a district. A district may not be forced into bankruptcy involuntarily. The Effect of the Financial Institutions Act of 1989 on Tax Collections of the District The "Financial institutions Reform, Recovery and Enforcement Act of 1909" ("FIRREA"), enacted on August 9, 1989, contains certain provisions which affect the time for protesting property valuations, the fixing of tax liens, and the collection of penalties and interest on delinquent taxes on real property owned by the Federal Deposit Insurance Corporation ("FDIC) when the FDlC is acting as the conservator or receiver of an insolvent financial institution. Under FIRREA real property held by the FDlC is still subject to ad valorem taxation, but such act states (i) that no real property of the FDlC shall be subject to foreclosure or sale without the consent of the FDIC and no involuntary liens shall attach to such property, (ii) the FDlC shall not be liable for any penalties or fines, including those arising from the failure to pay any real or personal property tax when due and (iii) notwithstanding failure of a person to challenge an appraisal in accordance with state law, such value shall be determined as of the period for which such tax is imposed. There has been little judicial determination of the validity of the provisions of FIRREA or how they are to be construed and reconciled with respect to conflicting state laws. However, certain recent federal court decisions have held that the FDlC is not liable for statutory penalties and interest authorized by State property tax law, and that although a lien for taxes may exist against real property, such lien may not be foreclosed without the consent of the FDIC, and no liens for penalties, fines, interest, attorneys fees, costs of abstract and research fees exist against the real property for the failure of the FDlC or a prior property owner to pay ad valorem taxes when due. It is also not known whether the FDlC will attempt to claim the FIRREA exemptions as to the time for contesting valuations and tax assessments made prior to and after the enactment of FIRREA. Accordingly, to the extent that the FIRREA provisions are valid and applicable to any property in the District, and to the extent that the FDlC attempts to enforce the same, these provisions may affect the timeliness of collection of taxes on property, if any, owned by the FDlC in the District, and may prevent the collection of penalties and interest on such taxes. Continuing Compliance with Certain Covenants The Order contains covenants by the District intended to preserve the exclusion from gross income of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. (See "THE BONDS - Specific Tax Covenants " herein.) Failure by the District to comply with such covenants on a continuous basis prior to maturity of the Bonds could result in interest on the Bonds becoming taxable retroactively to the date of original issuance. (See "TAX MATTERS " herein.) Future Debt The District has the right to issue the remaining $1,229,217 authorized but unissued unlimited tax bonds and such additional bonds as may hereafter be approved by both the Board of Directors and voters of the District. All of the remaining unlimited tax bonds, which have heretofore been authorized by the voters of the District may be issued by the District from time to time for qualified purposes, as determined by the Board of Directors of the District, subject to the approval of the Attorney General of the State of Texas and the TCEQ. In the opinion of the District's engineer, the remaining authorization should be sufficient to complete ultimate development within the District. At this time no future bond issues are anticipated. LOCATION MAP THE DISTRICl Creation of the District The District was created under the name of Denton County Municipal Utility District No. 1 by order of the Texas Water Rights Commission on March 4, 1975 for the purpose of providing water and sewer facilities and other authorized services to the area within the District. The District's name was changed to Trophy Club Municipal Utility District ("MUD) No. 1 on April 1, 1983. The District is governed by Chapter 54. Texas Water Code, and other applicable state laws. General The District is comprised of 1.289 acres, of which 1,012 acres are developable. The majority of the remaining acreage lies within the boundaries of the golf course. Of the 1,012 developed acres, approximately 752 acres have been fully developed, including approximately 921 single-family lots, 136 apartment units and 42 townhouses. Residential development in the District is substantially complete, with only a iew leftover lots remaining to be built on. A 450-acre tract owned by Maguire Partners. formerly known as Maguirenhomas Partners, and IBM Corporation is presently being developed as a mixed-use project comprised of low-rise office and retail buildings, including a hotel, restaurants and fitness center. Phase I of this project known as the Solana complex, which is approximately 40 acres, is complete and on the tax role at a valuation of $183,177,647 including the balance of 215 acres horizontally developed and 195 acres undeveloped. Officials of the project indicate that the buildings are approximately 94% occupied. The residential development known as "Trophy Club" is a country club development featuring a 36-hole golicourse, clubhouse, golf shop, swimming pool, tennis courts, and equestrian center. Management of the District Board of Directors The District is governed by a board, consisting of five directors, which has control over and management supervision of all affairs of the District. Directors are elected and serve four-year staggered terms and receive no remuneration, except a Director's per diem allowance of $100 per day on which necessary service is performed for the District. The District and all similar districts are subject to the continuing supervision and filing requirements of the Texas commission on Environmental Quality ("TCEQ"), including the preparation and filing of an annual independent audit report. All District facilities plans are submitted to the TCEQ for review and approval. Name - Dean Henry Pasition President Term Length of Time Expires May With District 2004 5 years Wesley W. Obermeier Vice President 2006 11 years Jim Hase Secretaryrrreasurer 2004 2 years Ted Neidenberger Director 2006' 10 years Constance S. White Director 2006 16 years appointed June 2002 All of the directors are residents and homeowners of the District The District has 17 full-time employees and maintains permanent offices within the district where all services are provided and controlled. Consultants Tax Assessor/Collector Land and improvements in the District are being appraised by the Denton County Appraisal District. The Tax Assessor/Collector is appointed by lhe Board oi Directors of the District. The Denton County Tax AssessoriCollector currently serves the District in this capacity under contract. District Manaaer Mr. Walter Fitzpatrick was an elected Director oi Trophy Club MUD No. 2 from 1995 through 2002 and assumed District Manager responsibiiitles for the District in February 2003. He also serves as manager for Trophy Club MUD No. 2 and Trophy Club Master District Joint Venture. District Finance Director Mr. Roger Unger has served as Finance Director for the District for one year and earlier served almost eleven years as District Manager. Enoineer The District employs the following consulting engineers ior various District projects: Carter & Burgess (the "Engineer"), Freese B Nichols, Inc.. and Camp, Dresser B McKee, Inc. Rutledge Crain B Company. PC has served as the District's independent auditor since August 2997 Financial Advisor Southwest Securities serves as the District's financial advisor (the "Financial Advisor"). The fee for services rendered in connection with the issuance ofthe Bonds is based on the percentage oithe Bonds actually issued, sold and delivered and, therefore, such fee is contingent upon the sale and delivery of the Bonds. Bond Counsel The District has engaged McCall. Parkhurst & Horton L.L.P., Dallas, Texas, as Bond Counsel in connection with the issuance oithe District's Bonds. The fees of Bond Counsel are contingent upon the sale of and delivery of the Bonds. Leoal Counsel The District employs Whitaker, Chalk, Swindle 8 Sawyer, L.L.P. as general legal counsel ior the District Location The District is located in southem Denton County and northern Tarrant County partially within the Town of Trophy Club and partially within the Town of Westlake. The District is directly adjacent to and accessible from State Highway 114, north of and approximately mid-way between Dallas and Fort Worth. The District is approximately 27 miies from downtown Dallas, 25 miles from downtown Fort Worth, 17 miles from Denton, 8 miies irom Grapevine and 14 miles from the Dallas-Fort Worth International Airport. Major highways connecting these popuiation centers, which will also serve the District, include State Highways 114, 170 and 377 and Interstate Highways 35E and 35W. State Highway 170 connects Trophy Club directly to Alliance Airport which is located seven miles southwest of the District. (See "Vicinity Map" herein.) Population The popuiation of the District is estimated to be approximately 3.500 and the population of the entire Trophy Club Development is estimated at 7,800. Topography and Drainage The land within the District has a gradual slope from the southeast to the northwest toward Marshall Creek, which iorms the western boundary of the District. Runoff water enters Grapevine Reservoir just north of the District through Marshall Creek or several other small tributaries. The maximum elevation in the area being developed is approximately 690 feet mean sea level and the minimum elevation in the area being developed is approximateiy 576 feet mean sea level. The soil is sandy loam and clay loam. and existing vegetation consists of native grasses and small oak trees. Areas which are subject to flooding by a 100-year frequency flood are located in the flood plan of Marshall Creek and have been delineated by the Water Resources Branch of the U.S. Geological Survey. Additional fiood studies were made by the engineers to determine what areas may be subject to flooding. It was determined that the area subject to flooding within the District is approximately 58.5 acres based on 100-year flood frequency; however, 57.6 acres of this area is within the golf course area and is not intended to be developed for residential land use. Shopping and Commercial Facilities A recently constructed shopping center within Trophy Club MUD No. 2 has a major grocery store chain outlet, a bank, a drug store, several service businesses, iast iood outlets, and a beauty shop. Additionally there are several more businesses and proiessional offices located in the District, at the primary entrance to the Town oi Trophy Club. There are additional shopping facilities in Roanoke, about two (2) miles west of the District and numerous shopping iacilities in Southlake about iive (5) miles east of the Districi and in Grapevine about eleven (11) miles east of the District. Full metropolitan shopping facilities are available in Dallas and Fort Worth, Texas which have their central business districts approximately 27 miles and 25 miles. respectively irom the District. 19 Fire Protection Trophy Club Municipal Utility District No. 1 operates a fire department with four emergency response vehicles, which are housed and maintained in a six-bay station constructed in 1990. The operalion is staffed with nine full time fire fighterlparamedics, one Captain, a Fire Chief, a fire inspector, and several volunteer fire fighters. This department serves the entire community and is currently financed by a combination of a $0.0900 maintenance tax assessment in the District and approximately $75,000 of reserves and a 50.1 1192 maintenance tax assessment in MUD No. 2 with an annual budget of $743,400. Police Protection Twenty-four hour security is provided by the Town of Trophy Club Police Department Schools The District is located in the Northwest Independent School District. Lakeview and Beck Elementary Schools (grades K-5) and Medlin Middle School (grades 6-8) are located in Trophy Club. Northwest Middle School (grades G-a), and Northwest High School (grades 9-12) are both located in Justin, Texas, about 8.4 miies from the center of the District. School bus transportation is provided by the school district and is available to students living at least two miles from campus or those without a continuous walkway connecting their home and the campus. Other Community Services The District, in partnership with Trophy Club MUD No. 2, operates under a Master District concept to provide water, sanitary sewer and storm drainage services to residents of the District. The District offices jointly with Trophy Ciub MUD No. 2 and the Town of Trophy Ciub in a permanent operations office at the main water plant at 100 Municipal Drive, Trophy Ciub. Texas 76262. Garbage and trash collection along with recycling is currently provided to residents of the District by contract between Trinity Waste Services and the Town of Trophy Club, with pickups twice weekly. Other utilities serving the District are TXU Energy, Southwestern Bell Communications. MCI Telecommunications, IONEX, ATBT, World Com. Sage Telecom, Birch Telecom, and Charter Cable Company. The U.S. Postal Service provides mail service to each occupied house in Trophy Club Recreational opportunities in Trophy Club are afforded by Lake Grapevine, which lies two miies north and east of the District and its surrounding parks. Trophy Club has several community parks including facilities for soccer, baseball, softball, basketball, and tennis as well as playground amenities. The Town is currently constructing a new 10-acre park with additional sports venues. Trophy Club Country Club is operated by Cobblestone Golf Group. Inc. as a private membership club and provides a 36-hole golf course, tennis, swimming, clubhouse, and golf shop. Principal Developers of the District - An Historical Perspective The development of property within the District was first started in 1973 by Trophy Ciub Estates, a joint venture composed of Johnson-Loggins, Inc., a Delaware corporation with principal ofrices in Houston, Texas, Ben Hogan, a businessman and former professional golfer from Fort Worth, Texas, and John W. McMackin, as attorney from Fort Worth, Texas. Financing for the project was provided by Gibraltar Savings Association. As of March 30. 1977, the Trophy Club Estates joint venture was dissolved in a series of transactions which resulted in Messrs. Hogan and McMackin's receiving legal title to 74.3 acres within the project and Johnson-Loggins, lnc.'s receiving legal title to the remaining acres within the project. As part of the same series of transactions, Johnson-Loggins, Inc. transferred its legal title and interest in the project to Gibraltar Savings Association. Mr. Hogan transferred his iegal title and interest in the project to Lake Forest Developments, a new joint venture of which John W. McMackin was the principal and managing partner. in June of 1983. Gibraltar Savin~s Association sold the maioritv of its interest in the oroiect to indeoendent American Development Corporation or reiakd entities. ~ubsequentl~,'independent American ~eieid~ment Corporation or related entities sold its interest in the oroied to various other develo~ers who are resoonsible for the land deveiooment of 134 acres within the District Maguire Partners, formerly known as Maguirenhomas Partners, and IBM Corporation formed a joint venture to develop a 450- acre tract of land within the District as a rnixed-use development known as the Solana complex. Maguire Partners and tBM Corporation Joint Venture has paid all expenses incurred for the development of this properiy, including the cost of on-site utiiilies and the required expansion of the central facilities, including water supply, water storage and wastewater treatment. Phase I of this project was completed in 1988 and includes 1.4 million square feet of office buildings. Presently there are approximately 195 acres remaining to be developed. Status of Development of the District The area in the District is locally known as "Trophy Club." It is a residential and mixed-use development consisting of some 1.289 acres, of which approximately 1.012 are developable. The District is a mature district with no significant land left far residential development, although there is substantial land lefl for commercial development in the Solana complex, which is located within the city of Westlake. Most of the District's commercial land within the Town of Trophy Club is either developed or currently under development. Lot and custom home sales officially began in the District in mid-year 1975. Homes are currently being offered at prices ranging from 5120,000 to $1,000,000 and lots range in price from $35,000 to $200,000. The status of single-family home development as of February 15.2003 is shown below: Status of Sinqle-Family Home Develo~ment Houses Additional Total Multi-Family Under Houses Total Developed Houses Units Construction Occuuied Houses Lots Comuleted '" '" In addition to the single-family development, there are 136 apartments and 42 completed townhouses, which are approximately 99% occupied. Status of Business / Commercial Develooment The undeveloped commercial land within tile Solana complex (approximately 230 acres) is available for commercial development, however the District is unaware of any current plans for additional development in the Solana complex. The Town of Trophy Club and MUD No. 1 are currently experiencing commercial development on approximately 30 acres of land along Highway 114. The development consists of a medical complex, hotels, restaurants and a short-stay hospital facility. Additionally, the District currently has a small strip center along Highway 114 containing several food establishments and professional offices. THE DISTRICT'S SYSTEM General The following information describes generally the water, sewer and drainage systems for the entire Trophy Club project, including those facilities located in the District and Trophy Club Municipal Utility District No. 2. Hereinafter, Trophy Club Municipal Utility District No. 1 and Trophy Club Municipal Utility District No. 2 are referred to as "MUD No. 1" and "MUD No. 2. MUD No. 2 in partnership with MUD No. 1 manages the operation of the District facilities under a Master District concept. All financial transactions relating to water and sewer operations are included in the financial statements of the Master District, a portion of which is included in APPENDIX A as TABLE 18. Specific information regarding water and sewer rates and other fees within the District is included in APPENDIXA, TABLES 19-21. Description of the Water System Sources of Water Suooly: The present water supply is provided from two sources: (i) four ground wells which provide approximately 1,000,000 gallons per day, and (ii) a 21 inch water line which is capable of delivering 8,000,000 gallons per day of treated water from the City of Fort Worth facilities. (See "WATER SUPPLY CONTRACT" herein). Currently the District contracts with the City of Fort Worth on behalf of the Trophy Club development, for water service in excess of that produced by the four wells. Current maximum usage is some 5,000,000 gallons per day (of which 3,700.000 is Fort Worth water). These sources, when combined, provide water, which complies with the quality requirements of the Texas Department of Health and needs only chlorination at the water plant. Water Plan1 Facility: The present facility provides 4,000,000 gallons ground storage with pumpingichiorination capacity of 10,000.000 gallons per day. This facility is currently being expanded. Description of the Wastewater System Wastewater Treatment Plant Facilitv: The wastewater treatment plant system has a permitted treatment /discharge capacity of 1,750,000 gallons per day from the Texas Commission on Environmental Quality under TPDES Permit No. 11593-001. This facility is currently being expanded. Although the permit authorizes the discharge of wastewater to the adjacent tributary leading to Lake Grapevine, the plant effluent is currently pumped to various holding ponds within the community and is re-used for irrigating the golf course. WATER SUPPLY CONTRACT The charge to the Master District for the purchase of the City of Fort Worth's water is presently $1.55 per 1,000 gallons. To finance MUD No. 1's share of the cost of the original water storage facility payable to the City and provide for use of the water supply throughout the Trophy Club project, MUD No. 1 entered into a contract with Gibraltar Savings Association d/b/a/ Trophy Club dated August 21. 1979. Under the terms of such contract Gibraltar agreed to fund all money required to be paid by MUD No. 1 to the City. Gibraltar also retained a right to a portion of the water made available through these facilities. MUD No. 1 repaid its proportionate share of the advances made by Gibraltarto the City. MUD No. 1 and Gibraltar mutually agreed to cooperate in establishing a central water system to serve the entire Trophy Club project by using MUD No. 1 as a "Master Distric?'. Subsequently Gibraltar and MUD No. 1 entered into such contract including all successors to Gibraltar. MUD No. 2 as a successor to Gibraltar became a party to this Master District Contract. In October 2000 MUD No. 1 and MUD No. 2 renegotiated the Master District Contract as an agreement between the two districts only. In 1991, a 15,000-foot section of the 21-inch line had to be relocated due to road construction at a cost of 1.1 million dollars. MUD No. 1 financed its portion plus all uncommitted capacity in the relocated line through a bond issue sold in 1991. MUD No. 1 fronted the total cost of relocating the line and was subsequently reimbursed by MUD No. 2 for their its current ownership portion. MASTER DISTRICT CONTRACT On December 1, 1982, MUD No. 1 entered into a written Contract for the Provision. Operation and Maintenance of Water Supply and Waste Disposal Facilities with Gibraltar Savings Association as the then principal developer of Trophy Club (the "Contract"). Under the terms of the Contract. MUD No. 1 agreed to construct, operate, and maintain the central water supply and wastewater treatment facilities to serve the entire Trophy Club project, including MUD No. 2 and other land to the north and northwest of MUD No. 1 which is part of the Trophy Club project, but not yet developed or included in a municipal utility district. On October 4. 2000, MUD No. 1 and MUD No. 2 renegotiated this contract between MUD No. 2 and MUD No. 1. They are currently operating under the new Master District Contract. The Contract contains provisions regarding the policies and procedures to be used in the planning, financing, and operation of the joint facilities. In general, the Contract provides that the entity holding title to district facilities under the previous Master District Contract will continue to hold title to those facilities. All future construction and/or renovation of facilities will be overseen by the Master District Board, which consists of 3 members each from MUD No. 1 and MUD No. 2. All new construction of central plant facilities will be shared equally by MUD No. 1 and MUD No. 2 while new construction specific to an individual MUD will be paid for by that MUD. The Contract may be terminated by any party as of September 30,2005, so long as notice to terminate is submitted in writing to all parties by September 30,2003. After September 30, 2005, this Contract may be terminated by any party as of September 30 of any year by written notice to all other parties delivered at least two (2) years in advance. This Contract may be terminated at any other time or upon shorternolice only upon consent of both districts. INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT Available District funds are invested as authorized by Texas Law and in accordance with investment policies approved by the Board of Directors. Both state law and the District's investment policies are subject to change. The District's goal in its investment policy is to preserve principal and maintain liquidity, while securing a competitive yield on its portfolio. Available District funds are invested as authorized by Texas law and in accordance with investment policies approved by the Board of Directors. Both state law and the DistricYs investment policies are subiect to change. Under Texas law. the District is a~thorfzed to :west n (i) obllgalions of lhe United States oi its agenc'es and ;nstiumentaities. Inc Ld~ng lelters of credit; (2) drect ob ioat~ons of the Srate of Texas or '1s aaencl?s and nslrumenla1it:es: (3) collateralzeo monaaae ob aatlons drecl v issued by :a federal agency orinstrumentality oi tie United States, the underlying security for which is iuaranteei by an agency or instrumentality of the United States: (4) other obligation, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or Insured by the Federal Deposit lnsurance Corporation or the National Credit Union Share lnsurance 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, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (I), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas. (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-I or P-I or the equivalent by at least one nationally recognized credit rating agency. (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-I or P-I or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency il the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-ioad money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated 22 maturity of 90 days or less and include in their investment objectives the maintenance oi a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The 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 nationallv recoanized rating servce The Distrtcl may also conlract vrth an tnvesimenr management firm regslered under lne nvesrmknt ~ivisers Act of 1940 (15 U S.C. Sect'on 80b-1 el seq.) or i'ltth tne Stale Set-rilies Boaro to provide for the investmenl and manasement of its public iunds or other funds under its control for a term up to two years, but the District retains ultimate responsi~ility as fiduciary of its assets. In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution. 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. 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 and the maximum average dollar-weighted maturity allowed for pooled fund groups. All District funds must be invested consistent with a formally adopted "lnvestment 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 portiolio, 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 piobable safety of capital and probable income to be derived." At least quarterly the District's investment officers must submit an investment report to the Board of Directors detailing: (1) the investment position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest District funds without express written authority from the Board of Directors. Under Texas law, the District is additionally required to: (1) annually review its adopted policies and stratesies. (2) reauire anv investmenl offcers with personal bustnessre at onsh'ps orfam y reial:onships vith frms seek~ng lo scl se&ri<e; lo the ~istricl lo oisclose tne reationshi~ and fie a slalenlenr vviln tne Texas Ethics Comm ss:on and the Dslricl (31 reau.re the reqislereo principal of firms seeking to sell securities to the District to: (a) receive and review the ~istrict;sinvestment (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activilies, and (c) deliver a written statement attesting to these requirements; (4) In conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the District's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement iunds to no greater than the ten of the reverse repurchase agreement, (6) restrict the lnvestment in non-money market mutual funds in the aggregate to no more than 15% of the District's monthly average fund balance, ex~iuding bond proceeds and reserves and other funds held for debt service and (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. lnvestment Officer and Authorized Investments The District's Finance Director or other person designated by the Board of Directors of the District shall be the investment officer and invest District funds in legally authorized and adequately secured investments in accordance with generally accepted accounting procedures and provisions of the Public Funds lnvestment Act. Authorized investments shall include: Certificates of Deposit. Federal Agency Discount Notes, Investment Pools, Treasury Bills and Demand Accounts in Local Banking Institutions. investment Reports Cash flow statements shall be prepared monthly for every designated fund. All receipts and disbursements shall be in the statement with individual line items that are specific to each designated iund. On a qJarter y bas's. rne inveslmenr oificcr wil s~bmt lo lne Board oi Drcclors a v~r lien report of invesl~nent lransactions for all funds. The report r~:Ii descr~oe in oetai !he lnveslmenl pos tion of the Dlstrct on tha oale of me repon and 1st n deta~ the transactions for the quarter The investment officer will confirm that the par value of approved securities is of an adequate amount to protect the District's uninsured deposits in the depository bank or other uninsured investments. All investment reports shall specifically address whether current investment results have been affected by risks and shall explain the actions the investment officer has taken to control or correct such risks, specifically: . All investment shall be legal investments. lnvestments shall be made in a prudent manner. - The financial condition of institutions with which investments are placed shall be considered. All investments over the insured amounts shall be secured by a pledge of approved securities. Current investments As of January 31. 2003 all the District's funds in the amount of $1,710.614 were invested in TexPool. The District does no! currently own, nor does it anticipate the inclusion of long-term securities or derivative products in its portfolio. TAX DATA District Bond Tax Rate Limitation The District's tax rate for debt service on the Bonds is legally unlimited as to rate or amount. Maintenance Tax The Board of Directors of District has the statutory authority to levy and collect an annual ad valorem tax for planning, constructing, acquiring, or maintaining or repairing or operating the District's improvements, if such maintenance tax is authorized by a vote of the District's electors. Such tax is in addition to taxes which the District is authorized to levy for paying principal of and interest on the Bonds, and any tax bonds which may be issued in the future. At an election held on October 7, 1975, voters within the District authorized a maintenance tax not to exceed $0.25/$100 assessed valuation. As shown in APPENDIX A. TABLE 13 - "TAX RATE DISTRIBUTION," the District levied a 2002 maintenance and operations tax of $0.01/$100 assessed valuation. Overlapping Taxes Other governmental entities whose boundaries overlap the District have outstanding bonds payable from ad valorem taxes. The statement of direct and estimated overlapping ad valorem tax debt shown in APPENDIX A -TABLE 14 (page A-6) was developed from several sources, including information contained in "Texas Municipal Reports." published by the Municipal Advisory Council of Texas. Except for the amount relating to the District, the District has not independently veriiied the accuracy or completeness of such information, and no person is entitled to rely upon information as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional bonds since the dates stated in this table, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of which cannot be determined. Political subdivisions overlapping the District are authorized by Texas law to levy and collect ad valorem taxes for operation, maintenance and/or general revenue purposes in addition to taxes for debt service and the tax burden for operation, maintenance andlor general purposes is not included in these figures. See APPENDIX A - TABLES 14- 16 for information on overlapping taxing entities. TAXING PROCEDURES Authority to Levy Taxes The Board is authorized to levy an annual ad valorem tax on all taxable property within the District in an amount sufficient to pay the principal of and interest on the Bonds, their pro rata share of debt service on any contract tax bonds and any additional bonds or obligations payable from taxes which the District may hereafter issue and which are now outstanding (see "INVESTMENT CONSIDERATIONS - Future Debt" herein) and to pay the expenses of assessing and collecting such taxes. The District agrees in the Order to levy such a tax from year-to-year as described more fully herein under "THE BONDS - Source of and Security for Payment". Under Texas law, the Board is also authorized to levy and collect an ad valorem tax for the operation and maintenance of the District and its water and wastewater system and for the payment of certain contractual obligations, if authorized by its voters. (See "TAX DATA herein.) Property Tax Code and County-Wide Appraisal District The Texas Propeny Tax Code (:ne "Propeny Tax Code ) specifies In5 iaxlng proceoJres of all polilcai s~oo~vis ons of !he Stale of Texas, Inc~ding tnc D:slricl. Provisions of the Property Tax Code are complex an0 aro not fuliy s~mmarlzed tieren. The Property Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property values and establishes in each county of the State of Texas an appraisal district with the responsibility for recording and appraising property for all taxing units within the county and an appraisal review board with responsibility for reviewing and equalizing the values established by the appraisal district. The board of directors of the appraisal district selects a chief appraiser to manage the appraisal offices of the appraisal district. The Denton County Appraisal District (the "DCAD) has the responsibility for appraising property for ail taxing units within Denton County, including the District. Such appraisal values are subject to review and change by the Denton County Appraisal Review Board (the "Appraisal Review Board"). The appraisal roll as approved by the Appraisal Review Board must be used by the District in establishing its tax roll and tax rate. General: Except for certain exemptions provided by Texas law, all property with a tax situs in the District is subject to taxation by the District: however, no effort is made by the District to collect taxes on tangible or intangible personal property not devoted to commercial or industrial use. Principal categories of exempt propem include: property owned by the State of Texas or its political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain non-profit cemeteries; farm products owned by the producer; and certain property owned by charitable, religious, scientific, literary, student housing, veterans, youth, development or fraternal organizations. Goods, wares, ores and merchandise (other than oil, gas or petroleum products) that are acquired in or imported into the state and forwarded out of state within 175 days thereafter are also exempt (Freeport Property). Property owned by a disabled veteran or by the spouse or certain children oi a deceased disabled veteran or a veteran who died while on active duty has been granted an exemption from $5,000 up to $12,000 of assessed vaiue. The District does grant a Freeport Property exemption. Residential Homestead Exemptions: The Board may exempt up to 20% of the market value of residential homesteads from ad valorem taxation. Such exemption would be in addition to any other applicable exemptions provided by law. However, if ad valorem taxes have previously been pledged for the payment of debt, then the Board may continue to levy and collect taxes against the exempted value of the homesteads until the debt is discharged if the cessation of the levy would impair the obligation of the contract by which the debt was created. The Board does not grant this exemption. Also exempt, if approved by the Board or through a process of petition and referendum by the District's voters, are residenfial homesteads of certain persons who are disabled or at least 65 years old, to the extent of $3,000 of appraised value or more. The District is authorized by statute to disregard such exemptions for the elderly and disabled if granting the exemptions would impair the District's obligation to pay tax supported debt incurred prior to adoption of the exemptions by the District. The Board has granted such elderly and disabled exemptions in the amount of $25,000 of assessed valuation. Tax Abatement: Denton County or the Town of Trophy Club may designate ail or part of the area within the District as a reinvestment zone. Thereafter, the District may enter into tax abatement agreements with owners of real property within the District for 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 a comprehensive plan. None of the area within the District has been designated as a reinvestment zone to date and the District does not expect any area within the District to be so designated in the foreseeable future. Valuation of Property for Taxation Generally, all taxable property in the District must be appraised by the Denton County Appraisal District at one hundred percent (100%) of market value as of January 1 of each year, subject to review and approval by the Appraisal Review Board. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. Certain iand may be appraised at less than market vaiue under the Property Tax Code. increases in the appraised vaiue of residence homesteads are limited to 10 percent annually regardless of the market value of the property. Upon application of a landowner, land which qualifies as "open-space iand" is appraised based on the category of land, using accepted income capitalization methods applied to the average net income derived from the use of the land for agriculture and hunting or recreational leases. Upon application of a landowner, land which qualifies as "limber land" is appraised using accepted income capitalization methods applied to the average net income derived from the use of the land for production of timber. Land which qualifies as an aesthetic management zone, critical wildlife management zone, or streamside management zone or is being regenerated for timber production for 10 years after harvest is valued at one-half that amount. In the case of both open space and timber land valuations, if the use of land changes, an additional tax is generally imposed on the iand equal to the difference between the taxes imposed on the land for each of the five (5) years preceding the year in which the change of use occurs and the tax that would have been imposed had the iand been taxed on the basis of market value in each of those years, plus interest at an annual rate of seven percent (7%) calculated from the dates on which the differences would have become due. There are also special appraisal methods for agricultural land owned by individuals whose primary occupation and income are farming and for recreational, park, and scenic land. Also, houses or lots held for sale by a developer or builder which remain unoccupied, are not leased or rented and produce no income are required to be assessed at the price for which they would sell as a unit to a purchaser who would continue the owner's business, upon application of the owner. Once an appratsa ro.. IS prepare0 and approved by the Appratsa. Red 6~ Boaro, il s Use0 Dy the Dlslrct tn eslao isnlng 11s tai rak. Tne Propeny Tax Cooc- r2q~1res the Appraisal District to imp ernEnt a pan lor pertodlc reappratsal oi orooeny to uooale appraised values. The plan must provide for appraisal of all real property in the Appraisal District at least one every three (3) years. It is not know what frequency of reappraisal will be utilized by the Appraisal District or whether reappraisals will be conducted on a zone or countywide basis. District and Taxpayer Remedies The chief appraiser must give written notice before the Appraisal Review Board meeting to an affected owner if a reappraisal has resulted in an increase in value over the prior year or the value rendered by the owner, or if property not previously included on the appraisal roll has been appraised. Any owner who has timely filed notice with the Appraisal Review Board may appeal the final determination by the Appraisal Review Board of the owner's protest by filing suit in Texas district court. Prior to such appeal, however, the owner must pay the tax due on the amount of value of the property involved that is not in dispute or the amount of tax paid in the prior year, whichever is greater, but not to exceed the amount of tax due under the order from which the appeal :s taken. In tne event of such wit, tne value of the propeny :s determine0 by the co~rt, or apry f requested by any party. Adoitona y the D:stncr ,s entil,ed to cnall~nge cenaln matlers oefore the Apprasal Review Board, ~ncl~o;no the leve of app;aisal of certain category of property, the exclusion of property from the appraisal records, or the grant in wholeor in part of a partial exemption, or a determination that land qualifies for a special use appraisal (agricultural or timber classification, for example). The District may not, however, protest a valuation of individual property. Levy of Taxes The rate of taxation is set by the Board based upon the valuation of property within the District as of the preceding January 1 and the amount required to be raised for debt service, maintenance purposes, and authorized contractual obligations. Unless the Board, or the qualified voters of the District or of Denton County at an election held for such purpose, determines to transfer the collection of taxes to the DCAD or another taxing unit, the District Is responsible for the levy and collection of its taxes. Collection of Taxes Taxes are due on receipt of the tax bill and become delinquent afler January 31 of the following year. However, a person over 65 is entitled by law to pay current taxes on his residential homestead in installments or to defer taxes without penalty during the time he owns and occupies the property as his residential homestead. The date of the delinquency may be postponed if the tax bills are mailed after January 10 of any year. Delinquent taxes are subject to a 6% penalty for the first month of delinquency, one percent (1%) for each month thereafter to July I, and 12% total if any taxes are unpaid on July 1. Delinquent taxes also accrue Interest at the rate of 1% per month during the period they remain outstanding. In addition, where a district engages an attorney for collection of delinquent taxes, the Board may impose a further penalty not to exceed fifteen percent 15% on all taxes unpaid on July 1 in lieu of recovering attorney's fees. The District may be prohibited from collection of penalties and interest on real property owned by the Federal Depository Insurance Corporation. In prior years the District has : engaged a delinquent tax attorney and imposed such a penalty. District's Rights in the Event of Tax Delinquencies 1 Taxes levied by the District are a personal obligation of the owner of the property on January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and iocai taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the District, having power to tax the property. The Districts tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the District is determined by applicable federal law. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time afler taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property within two years afler the purchaser's deed issued at the foreclosure sale is filed in the county records) or by bankruptcy proceedings which restrict the collection of taxpayer debts. (See "INVESTMENT CONSiDERATlONS - General -Tax Collections and Foreclosure Remedies" herein.) LEGAL MATTERS Legal Opinions i Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving opinion of the Attorney $ General of the State of Texas and McCall. Parkhurst & Horton L.L.P., Bond Counsel. whose opinion will accompany the Bonds. 4 In its capacity as Bond Counsel, McCall. Parkhurst & Horton L.L.P, has reviewed the information appearing in this Official 1 Statement under the captions "PLAN OF FINANCING," "THE BONDS" (exclusive of the information in the subcaption "Payment 8 Record"). "LEGAL MATTERS" (exclusive of the last sentence of the first paragraph thereof) "TAX MATrERS," "CONTINUING DISCLOSURE OF INFORMATION (exclusive of the information in the subcaption "Compliance With Prior Agreements"), and "OTHER MATTERS - Registration and Qualification of Bonds for Sale, and Legal Investments and Eligibility to Secure Public Funds in Texas" to determine whether such information accurately summarizes the material and documents referred to therein and is correct as to matters of law. Such firm has not, however, independently verified any of the factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the issuer for the purpose of passing upon the accuracy or completeness of this Ofticia1 Statement. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to the accuracy or completeness of any of the information contained herein. The iegal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. The iegal opinions of Bond Counsel will be printed on the definitive Bonds or will accompany the global certificates deposited with DTC and the form of such opinion is attached hereto as Appendix C. Certain iegal matters will be passed upon for the Underwriter by Fulbright 8 Jaworski L.L.P., Dallas. Texas, counsel for the Underwriter. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the respective 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 oi 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. Litigation The District is not a party to any litigaiion or other proceeding pending or to its knowledge threatened, in any court, agency or other administrative body (either city, state or federal) which, if decided adversely to the District would have a material adverse effect on the financial condition of the District. No Material Adverse Change The obligation of the Underwriter to take and pay for the Bonds is subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change In the condition (financial or otherwise) of the District from that set forth or contemplated in the Official Statement. TAX MATTERS Opinion On the date of initial delivery of the Bonds, McCaii, Parkhurst 8 Horton L.L.P.. Dallas, Texas Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof C'Existing Law"), (1) interest on the Bonds for federal income tax purposes wiil be excludable from the "gross income" of the holders thereof and (2) the Bonds will not be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57 (a) (5) of the lnternal Revenue Code of 1986 (the "Code"). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds. (See APPENDIX C - "Form of Bond Counsel's Opinion" herein.) In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the District, including information and representations contained in the District's federal tax certificate, and (b) covenants of the District contained in the Order relatino to certain matters, includin~ arbitraqe and the use of the proceeds of the Bonds and the orooertv financed or refinanced therewith. Although it is expectedthat theBonds will qualify as tax-exempt the status of the ~onds could be affected bv iuture events. However. future events bevond the control of the District, as well as the failure to observe the aforementioned representations or covenants, could dause the interest on the Bonds to become taxable retroactively to the date of issuance, Bond Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel's opinion is not a guarantee of a result. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof wiil not be changed in a manner, which would adversely affect the tax treatment ofthe purchase, ownership or disposition of the Bonds. A Ruling was not sought from the internal Revenue Service by the District with respect to the bonds or property financed with the proceeds of the Bonds. No assurances can be given as to whether or not the lnternal Revenue Service will commence an audit of the Bonds, or as to whether the lnternal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the District as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Federal Income Tax Accounting Treatment of Original lssue Discount The initial public offering price to be paid for one or more maturities of the Bonds (the "Original lssue Discount Bonds") may be less than the principal amount thereof or one or more periods for the payment of interest on the Bonds may not be equal to the accrual period or be in excess of one year. In such event, the difference between (i) "stated redemption price at maturity" of each Original lssue Discount Bond, and (ii) the initial offering price to the public of such Original lssue Discount Bond would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the Bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under Existing Law, any owner who has purchased such Original lssue Discount Bond in the initial public offering is entitled to exclude frokgross income (as defined in section 61 of the Code) an amount of income with resuect to such Orioinal lssue Discount Bond eaual to that uortion of the amount of such orioinal issue discount allocable to the acdrua~ period. Fo;a discussion of certain collaieral federai tax consequences, see discussion set forth below. in the event of the redemption, saie or other taxable disposition of such Original lssue Discount Bond prior to stated maturity. however, the amount realized by such owner in excess of the basis of such Original lssue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original lssue Discount Bond was held by such initial owner) is includable in gross income Under Existing Law, the original issue discount on each Original lssue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bond and ratably within each such six-month per~od) and the accrued amount is added to an initial owner's basis for such Original lssue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, saie or other disposition thereof. The amount to be added to basis for each accrual period is equal to (i) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (ii) the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original lssue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original lssue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Originai lssue Discouni Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original lssue Discount Bonds. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federai income tax consequences resulting from the purchase. ownership or disposition of the Bonds. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THF DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS. INCLUDING THOSE WHO ARE -- ~ SUBJECT TO SPECIAL PROV~SIONS OF THE CODE. SHOULD CONSULT THEIR OWN'TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DiSPOSlTlON OF TAX-EXEMPT BONDS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Interest on the Bonds will be includable as an adjustment for "adjusted earnings and profits" to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for non-corporate taxpayers (28 percent for taxable excess exceeding $175,000), of the taxpayer's "alternative minimum taxable income." if the amount of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year. lnterest on the Bonds may be subject to the "branch profits tax" imposed by Section 884 of the Code on the effedively- connected earnings and profits of a foreign corporation doing business in the United States. Under Section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federai income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such obligations. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price or, in the case of an obligation issued at an original issue discount, the "revised issue price" (i.e., a market discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. Qualified Tax-Exempt Obligations for Financial Institutions Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a "financial institution," on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible by such taxpayer in determining taxable income. Section 265(b) of the Code provides an exception to the disallowance of such deduction for any interest expense paid or incurred on indebtedness of a taxpayer which is a "financial institution" allocable to tax-exempt obligations, other than "private activity bonds," which are designated by an "qualified small issuer" as "qualified tax- exempt obligations." A "qualified small issuer' is any governmental issuer (together with any subordinate issuers) who issues no more than $10,000,000 of tax-exempt obligations during the calendar year. Section 265(b)(5) of the Code defines the term "financial institution" as referring to any corporation described in section 585(a)(2) of the Code, or any person accepting deposits from the public in the ordinary course of such person's trade or business which is subject to federal or state supervision as a financial institution. The District has designated the Bonds as "qualified tax-exempt obligalions" within the meaning of section 265(b) of the Code. In furtherance of that designation, the District will covenant to take such action, which would assure or to refrain from such action, which would adversely affect the treatment of the Bonds as "qualified tax-exempt obligations." Potential purchasers should be aware that if the issue price to the public (or, in the case of discount bonds, the amount payable at maturity) exceeds $10,000,000, then such obligations might fail to satisfy the $10,000,000 limitation and the obligations would not be "qualified tax-exempt obligations." CONTINUING DISCLOSURE OF INFORMATION The offering of the Bonds qualifies for an exemption from Rule 15c2-12 (the "Rule") of the Securities and Exchange Commission regarding the District's continuing disclosure obligations because the District has less than $10,000,000 in aggregate amount of outstanding obligations and no person other than the District is committed by contract or other arrangement with respect to the payment of the Bonds. In accordance with such exemption, the District in the Order has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The lssuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the lssuer will be obligated to provided certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The District will provide certain financial information and operating data, which is customarily prepared by the District and is publicly available to the appropriate state information depository ("SID"). The financial information and operating data with respect to the District of the general type included in this Official Statement in Appendix A, Tables 1. 12 and 13 will be provided. Under Texas Law, the District must keep its fiscal records in accordance with generally accepted accounting principals, must have its financial accounts and records audited by a certified public accountant within 120 days after the close of each fiscal year of the District, and must file each audit report with the TCEQ within 135 days after the close of the fiscal year. The District's fiscal records and audit reports are available for public inspection during regular business hours, and the District and the TCEQ are required by law to provide a copy of the District's audit reports to any member of the public within a reasonable time on request, upon payment of applicable copying charges. Requests for copies should be addressed to the District 100 Municipal Drive, Trophy Club, Texas 76262. The District will provide this information to the SID within six months after the end of each of its fiscal years ending in or after 2003. The lssuer may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permined by SEC Rule 15c2-I2 (the "Rule"). The updated information will include audited financial statements for the lssuer, if the lssuer commissions an audit and it is completed by the required time. If audited financial statements cannot be provided. the lssuer will provide unaudited financial statements until the audited financial statements become available. Any such financial sratemenls v,.l be prepared :n accoroance vr tn the acco~nlng princples descr:oeo in the Issuer's ann~al financla: stalements, or s~ch orher accounting princples as tne lss~er may be required to employ lrom I me lo lime pLrsuant lo slate avr or reg~lat'on The Issuer's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day in March in each year, unless the lssuer changes its fiscal year. If the lssuer changes its fiscai year, it will notify any SID of the change. 29 Material Event Notices The lssuer will also provide timely notices of certain events to certain information vendors. The lssuer will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties: (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to periornl: (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds: and (11) rating changes. Neither the Bonds nor the Order make any provision for debt service reserves, or liquidity enhancement. In addition, the lssuer will provide timely notice of any failure by the lssuer to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". The lssuer will provide each notice described in this paragraph to any SID and the Municipal Securities Rulemaking Board ("MSRB). Availability of Information from SID and MSRB The lssuer has agreed to provide the foregoing information only to any SID and the MSRB. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the infomlation through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID, and has been qualified as a SID by the staff of the SEC. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 5121476-8947. Limitations and Amendments The lssuer has agreed to update information and to provide notices of material events only as described above. The lssuer 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 lssuer makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The lssuer disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of Bonds may seek a writ of mandamus to compel the lssuer to comply with its agreement. The lssuer 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 lssuer, if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or any person unaffiliated with the lssuer (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds. The lssuer may also repeal or amend these provisions if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the lssuer 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 the type of information and data provided. Compliance with Prior Agreements During the past five years, the lssuer has complied with all continuing disclosure agreements made by it in accordance with the Rule. FINANCIAL ADVISOR Southwest Securities is employed as Financial Advisor to the District to assist in the issuance of the Bonds. In this capacity, the Financial Advisor has compiled certain data relating to the Bonds that is contained in this Official Statement. The Financial Advisor has not Independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the District to determine the accuracy or completeness of this Official Statement. Because of their limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. The fee of the Financial Advisor for services with respect to the Bonds is contingent upon the issuance and sale of the Bonds. In the normal course of business, the Financial Advisor may from time to time sell investment securities to the District for the investment of debt proceeds or other funds of the District, upon the request of the District. OFFICIAL STATEMENT Experts In approving this Official Statement, the District has relied upon the following experts in addition to the Financial Advisor The Enoineer: Some oi information contained in the Official Statement relating to engineering matters has been provided by Carter & Burgess. Inc, and has been included in reliance upon the authority of said firm as experts in the field of civil engineering. Ap~raisal District: The information contained in this Official Statement relating to the certified assessed valuation of property in the District and has been provided by the Denton County Appraisal District, in reliance upon their authority as experts in the field of appraising and tax assessing. Tax Assessor/Collector: The information contained in this Official Statement relating to tax collection rates, and principal taxpayers has been provided by the Denton County Tax Assessor/Collector in reliance upon her authority as an expert in the field of tax assessing and collecting. Updating the OKcial Statement During Underwriting Period If, subsequent to the date of the Official Statement to and including the date the Underwriter is no longer required to provide an Official Statement to potential customers who request the same pursuant to Rule 15~2-12 of the federal Securities Exchange Act of 1934 (the "Rule") (the earlier of (I) 90 days from the "end of the underwriting period (as defined in the Rule) and (ii) the time when the Official Statement is available to any person from a nationally recognized repository but In no case less than 25 days after the "end of the underwriting period"), the District learns or is notified by the Underwriter of any adverse event which causes any of the key representations in the Official Statement to be materially misleading, the District will promptly prepare and supply to the Underwriter a supplement to the Official Statement which corrects such representation to the reasonable satisfaction of the Underwriter, unless the Underwriter elects to terminate its obligation to purchase the Bonds as described above. 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 Offlcial Statement will prove to be accurate. OTHER MATTERS Legal Investment and Eligibility to Secure Public Funds in Texas The following is quoted from Section 49.186 of the Texas Water Code, and is applicable to the District: "All bonds, notes. and other oblioations issued bv a district shall be legal and authorized investments for all banks, trust companies, building and loan associaiions, savings and ioanassociations, insurance companies of all kinds and tvoes, fiduciaries. and trustees, and for all interest and sinkincl funds and other public funds of the State of ~exai'and all agenciks, subdivisions, and instrumentalities of th;! state including all counties, cities, towns, villages, school districts and all other kinds and types of districts, public agencies, and bodies politic." For the Bonds to be eligible investments for municipalities, political subdivisions or public agencies of Texas, the Public Funds lnvestment Act, V.T.C.A.. Government Code. Chapter 2256, provides a rating of "A or its equivalent as to investment quality must be assigned by a national rating agency. Pursuant to the Public Funds Collateral Act (Chapter 2257, Texas Government Code), the Bonds are eligible to secure deposits of public funds of the State of Texas or any political subdivision or public agency of the State of Texas and are lawful and sufficient security for those deposits to the extent of their market value. 31 No representation is made that the Bonds wili be acceptable to public entities to secure their deposits or wili be acceptable tc such institutions for investment purposes. No representation is made concerning other laws, rules, regulations, or investmenl criteria which might apply to any such persons or entities or which might otherwise limit the suitability of the Bonds for any of th~ Ioregolng purposes. ho representation 1s maoe concern ng tne eilg b I ly of tne Bonds lo secure p-bl~c f~nds or lnclr legal~ty as lnvestmenrs by lnslltut ons in slates other than rcxas Registration and Qualification of Bonds for Sale No registration statement relating to the offer and sale of the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions,provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein: nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The District assumes no responsibility for registration of the Bonds under the securities laws of any other jurisdiction in which the Bonds, may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdiction. Annual Audits Under Texas Law, the District must keep its fiscal records in accordance with generally accepted accounting principles, must have its financiai accounts and records audited by a certified or permitted public accountant within 120 days after the close of each fiscal year of the District, and must file each audit report with TCEQ within 135 days afler the close of the fiscal year. Copies of each audit report must also be filed in the ofiice of the District. The DistricPs fiscal records and audit reports are available for public inspection during regular business hours, and the District is required by law to provide a copy of the District's audit reports to any Registered Owner or other member of the public within a reasonable time on request, upon payment of charges prescribed by the Texas General Services Commission. GASB 34 in June 1999, the Governmental Accounting Standards Board issued Statement No. 34. "Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments." The objective of this Statement is to enhance the clarity and usefulness of the general-purpose external financial reports of state and local governments to the citizenry, legislative and oversight bodies, and investors and creditors. The District must implement GASB 34 beginning with its fiscal year ending September 30, 2004. While adoption of this Statement may alter the presentation of the District's financial information, District management does not believe that adoption of GASB 34 will have any material adverse impact on the District's financial position, results of operation, or cash flows. Underwriting The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the issuer at a price of $2,063,266.15 (representing the par amount of the ClBs of $1,865,000, plus the par amount of the CABS of $84.287.70, plus Premium on the CABS of $117,369.00, plus an original issue premium of $11,805.25, less an Underwriter's discount of $15,195.80), plus accrued interest on the ClBs to the date of initial delivery of the Bonds to the Underwriter. The Underwriter's obligation is subject to certain conditions precedent. The Underwriter will be obligated to purchase all of the Bonds, if any Bonds are purchased. The Bonds may be offered and soid to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriter. Concluding Statement The financial data and other information contained in this Official Statement have been obtained from the District's records. audited financiai statements and other sources which are believed to be reliable. This is no guarantee that any of the assumptions or estimates contained herein wili 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 ail respects. The Order will also approve the form and content of this Official Statement, and any addendum, supplement or amendment thereto, and authorize its further use in the offering of the Bonds by the Underwriter. Is1 Dean Henrv President, Board of Directors Trophy Club Municipal Utility District No. 1 /s/ Jim Hase Secretary, Board of Directors Trophy Club Municipal Utility District No. 1 32 SCHEDULE I SCHEDULEOFREFUNDEDBONDS TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 UNLIMITED TAX REFUNDING BONDS. SERIES 1993 Original Original Maturity Principal Amount to be Interest Dated Date LSeptember 11 Amount Refunded Rates June 1.1993 2003 $ 350,000 $ 350,000 5.50% These maturities will be redeemed prior to original maturity on April 9, 2003, at par. SCHEDULE II SCHEDULE OF ACCRETED VALUES OF PREMIUM CAPITAL APPRECIATION BONDS ("CABS) CABS Delivery Date: April 9,2003 2005 Maturity Accreted Value Qa& APPENDIX A FINANCIAL INFORMATION OF THE ISSUER (This appendix contains quanlitative financial information and operating data with respect to the Issuer. The Information is only a partial representation and does not purport to be complete, For further and more complete information, reference should be made to the original documents, which can be obtained from various sources, as noted.) FINANCIAL INFORMATION OF THE ISSUER ASSESSED VALUATION TABLE 1 2002 Actual Market Value of Taxable Properly S 386,925,224 Less Exemptions: Local Optional Over-65 Disabled and Deceased Veterans' Pioduclivily Loss Freeporl 10% Value Cap Loss Total Exempt Properly Other - 2001 Net Taxable Assessed Valuation (100% of ~ctuai)"' '" See "TAXING PROCEDURES" in the Official Statement ior a description ofthe issuer's taxation procedures. Does not include net taxable value of 87,203,133 iorpropeiiy currently under RweL%,. Source: Denton County Appraisal District GENERAL OBLIGATION BONDED DEBT TABLE 2 (As oiFebrua~~ 1.2003) Gcncrill Obllgatlon Deb1 Princlpal Outstanding: Unt mlreo iax Rciund no Bonds. Sertes 1993 (be ng rri~ndeo v. tn I,!? Bonds) WW 8 SS Colnb ned Tax and Reven-e Refl.no no Bonds Soi~es 1897 Unlimited Tax Refunding Bonds. Series 2003 (the;'8ondsq') Total General Obligation Debt Principal Outstanding: Genera Ob 9311on lnleresl and Slnklng F-nd Balance as of 1-31-03 Rallo 01 General Ob igailon Deo! Princ pa lo 2002 Net Assesseo Val~a; on 2002 he1 A-sesseo 'laluat on Population Estimates: 2000 - 3.450: Current (Estimate) - Per Capita 2002 Net Assessed Valuation - Per Capita General Obligation Debt Principal - I nc ~des me "/a -c at Kerl.nrv"ofrr~~ Przms~m CAB5 lor 2005 and2006 rnaru,!L.s I~CILO~S [he 'Val~e a1 h<=runr," oirno Fremsdm CAB5 lor In? 2005 m~lurrry : See 'TAXING P2OCEDURES' m rno Oificlal Sr~lemmr lor a oesc~orlco clrne IsSLer s 1arol.on cra?eodrcs OTHER OBLIGATIONS TABLE 3 Notes Payable: The District has financed the purchase of personal firefighting equipment with a note payable annually at $2,445, including interest accruing at2.50%, payable through May, 2005. Capllal Lease Obligations: T?e Dlstricl snares ilie p-rcnass of LanoLs ofilce aq.1 plnenl v.;ll, capllal eases is. In lne Toan of Tropt>{ Cluo and IAJO 2 Tne D:slnno anarc of tne lo:a monlnly pabrnc-nls nc .umg nlcresl accru ng at 7 00:0) te S547 payable through May, 2005. Linc of Crcdil: n Septemoer oi 2002 tne D!s:ricl cnlerco'nl, a reiol.lng t.ne ofcruo;~ (tne L nc IS,. It) konncsst Bsn~ lo proroe addllionoi I q~d ;) for lne D'sl:8cl in ine men1 I occoines econom~zal / pr.oen1 to lemponr y ~se eo#nc pown oi existing reserves lor capital project financing. Under the terms of the Line, the Distrlct, at its discretion, may fund up to 51.000.000 through one or more draws. As oithe date of this Oflicial Statement, the District has not exercised any draws under the Line. Repayment terms are to be determined ai time of draw, with the initial interesl rate to be 4.75% MUD 2 Paymsnt Agreement: In December of 2002 the Dtstrict entered into an agreement with MUD 2 pursuant to which the District agreed to pay one-haif of the debt service on bonds issued by MUD 2 to finance the construction of a two million gallon storaae tank bv MUD 2. The District's share of the total vearlv debt service (including inteiesll is anlici~ated to be approximatr& 530.000 per year for 20 years. Public Property Finance Contractual Obligations: (Paid from M8O Funds) Fiscal Year Ended 9-30 Prindoal 2003 S 56,000.00 S 15.125.00 2004 59,000.00 11,962.50 Debt Seivice S 71.125.00 70,962.50 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year 30-Sep Current Total Debt Service ~utstandinq'" $ 750,912.50 859,525.00 860,055.00 857.825.00 859,045.00 398,575.00 398,065.00 401.505.00 398,620.00 $ 5.784.127.50 Less: Refunded Bonds The Bonds Principal Interest Total Combined Debt Service la' Does not include Public Properly Finance Contractual Obligations indebtedness (see Table 3, page A-I). " Includes the Refunded Bonds and excludes all March 1, 2003 interestpayments. TAXADEQUACY TABLE ! 2002 Assessed Valuation Maximum Annual Debt Service Requirements (Fiscal Year Ending 9-30-09) Indicated Maximum Interest and Sinking Fund Tax Rate at 99% collections Note: Above computation is exclusive of investment earnings, delinquent tax colleclions and penalties end interest on delinquent tax collections. INTEREST AND SINKING FUND MANAGEMENT INDEX TABLE E Interest and Sinking Fund Balance. Fiscal Year Ended September 30.2002 FY 2003 lnterest and Sinking Fund Tax Levy of $0.20 at 99% Collections Produces Total Available for Debt Service Less: General Obligation Debt Service Requirements. Fiscal Year Ending 9-30-03 (prior to refunding) 861.825 Estimated Surplus at Fiscal Year Ending 9-30-03") (prior to refunding) $ 47.319 '"I Does not include delinquent tax collections, penalties and interest on delinquent tax collections or investment earnings. PROJECTED GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE TABLE 7 (As of Februafy 1. 2003) Fiscal Year Endina 9/30 2003 Principal Repayment ScheduleIb) Outstanding The Bondsl"' Bonds Total $ 290.000 $ 285.000 $ 575,000 305.000 205,000 510,000 315,000 270,000 525,000 315.000 215.000 530,000 315,000 220,000 535,000 330,000 225,000 555,000 345.000 235,000 580,000 365,000 235,000 600,000 380,000 245.000 625.000 $ 2,960,000 $ 2,075,000 $ 5,035,000 Bonds Percent of Unpaid at Principal End of Year Retired (%) 5 4,460.000 11.42% 3,950,000 21 55% 3,425,000 31.98% 2,895,000 42.50% 2,360.000 53.13% 1,805,000 64.15% 1,225,000 75.67% 625.000 87.59% 100.00% ' Excludes the Reiunded Bonds and all PPFCO principal outstanding (see Table 2, page A-I) '" All CABS are stated at Maturity Amounts. FUND BALANCES TABLE 8 (As of Janauav 31. 2003 General Fund Debt Service Fund Other (Master District) $ 764,815 559,050 386.749 Totai $ 1,323,865 TAXABLE ASSESSED VALUATION FOR TAX YEARS 1995-2002 TABLE 9 Tax Year - 1995 - 1996 1997 1998 1999 2000 2001 2002 Net Taxable Assessed Valuation $ 266.901.000 Change From Preceding Year Amount ($1 Percent l%l NIA NIA ''I Reduction in total value is primarily due to the revaluation ofpersonal property at the Solana Business Complex. Sources: Texas Municipal Report published by the Municipal Advisory Council of Texas and the Denton Central Appraisal District ssssss s p r 2 -$+ - WVtN m. m m w. mmm-mm -NUNU* '9 m. m. 0. rq N i?EE%L%S - 0 C % 2 m E u - m C m m 5 - m z;;, mwolomm m - .m mm- g m 0 0- % moohoo'z OLnmlDh m. o. m. -? m. m awl-mmm .-mmmmw 7 m a- N W r-b LV~N a- h 0 N. M 'X oooumo~ NO-01-h ~.o.m.m.nm m-+morn -mm--w 0- - 0. " m r W womb-m (DmUmmm m. m. m. -. 14. ". -0mwwm mmmcu~m W 2 OL m w .5 ssssss s 8 m - mm- % k W m h h S 9 *gr- ", W*W m U .9 N. 5 % 2 0 =? VI 2 0 -2 L m s 0 W mmmwwm om*mmq u.W.CD.N.*.*. mmm~~m a mwmmmo om wwo :/ 6.6 ui;ui * m P?" w W VI 2 2 .S "i mmr 2 2 .m mmmmmm m -UwNWU m m. 4 m. *. V? a. m. v?O.-.m.m?N b -hCnV)OW 7 hl-=,NO- 8gm"om mNmNur IC 3 ml-- '9 - u m w- m *Xss G ;ii E s Vftftvf 6 3 W fA M g $ - m .g 5 2 * m $ s - - - m %" - " 5 - 0 2 W M W M ‘.+ m C m d .- % % -. m w 7 w m N < G w E a* q mm% 2 ~XZE:ZE:E: -. 9 r o? m. ? N 6gWwXzj 9 N. " - (1 w - a s Y m 2 c 0 LO c 2 .O ; 3 MV~~AQ~ PRINCIPAL TAXPAYERS 2002-2003 TABLE 11 % of Total 2002 ZOO2 Net Taxable Assessed Name - Type of ProperQ Assessed Valuatior Valuation Maguire Thomas Partners Westiake PS Commercial Office Complex $133,939,555 35.34% Levi Strauss & Company Commercial Office 4.026.939 1.06% TC Plantations Ltd. PS Apartment Complex 3.941.473 1.04% Clubcorp Golf of Texas LP PIS Golf Course Management 3,745,614 0.99% Trophy Club 114 LP Pis Strip Shopping Center 3,224,031 0.85% MTP-IBM Phase 11 8 111 Joint Venture Undeveloped Land 3,187,289 0.84% Beck Properiy Trophy Club LP Undeveloped Land 2,958,828 0.78% Chrysler Financial Company Commercial Office 2.859.307 0.75% Oakmont Ent Inc Land Development Company (Com. & Res.) 2.338.963 0.62% TC Indian Creek Ltd PIS Townhomes 1,784,428 0.47% Total ~~427 Based on a 2002 Net Taxable Assessed Valuation of $ 378,958.339 Source: Texas Municipal Report published by the Municipal Advisory Council of Texas and the Denton Central Appraisal District PROPERTY TAX RATES AND COLLECTIONS "' TABLE 12 Tax Net Taxable Year Assessed Valuation - 1997 5 319,497,081 1998 344172,113 1999 366,021,775 2000 412,096,656 2001 415,244,076 2002 378,958,339 Tax Rate - $ 0.2900 0.2800 0.2400 0.2400 0.2400 0.3000 Tax % ~o~~ections'~' Fiscai Year & - Current T& Ended $ 925,541 98.90% 99.58% 9-30-98 1,006,417 98.54% 100.03% 9-30-99 908,448 99.45% 100.22% 9-30-00 1,005,235 99.40% 100.09% 9-30-01 1,026,892 98.99% 99.55% 9-30-02 1,136,639 (In Process of Collection) 9-30-03 'a' See "TAXING PROCEDURES - Levy and Collection of Taxes-in the body of the Official Statement for a complete discussion of the District's provisions. "' Includes penalties and interest. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton Central Appraisal District and the issuer TAX RATE DISTRIBUTION TABLE 13 General Fund I & S Fund Fire Protection TOTAL Sources: Texas Municipal Repori published by the Municipal Advisory Councii of Texas -"ON 10 "MU 'ayellsa~ SL.L~-OL I.# onw qnl3 Audo~~ 00-PL-LO 10 u~ai'qn13 hlido~~ auON IS10 IElldPoH '03 lucilel auoN 1~10 a6a11o3 03 lueuel 912.~151a 1eswddvr(1un03 lUeYel pue uoluaa pue s~xal lo ll3uno3 hos~~pvledjquoyy eq, liqpaqrilqnd spoday ledqunyy sexal luala, ISOW :almoS 'xet Apadmd r LSOWO OPZEZ'O BE6EL'O OSZLZ'O 16'PEe.L LGBPZ'O OOSEG'L S Emm ZOOZ . - . .- an en 1enl3y 1072 01 lqa~ Eu doe mnO p-c 1x31 a lo c luh uo!len cna Sere1 passarsv ION zo7z 01 lqaa Ou doc lano p-c :=a> 0 lo olsh 9PZ3L09'LC S LE9'ELE'LPL S 1qaa Gulddepano Pile ledlluud loalia SSW0 lel01 OOO'SEO'S %OO'OOL OOO'SEO'S EO-LO-zo L:: onw qn13 Audoj~ SPZ'ZLSZE s LES'QFE'9EL S IVO Bulddeilano I~N le101 008'Lgo'L %S6'9S 000'00VZ1 EO-10-20 JO UMOL layensa~ ~PO'SSL'Z %LVW OOO'S~Z'~ EQLO-zo qn13 Aqdml JO u,nq 96LL9 %PC0 OOO'S99'E EO-LWZO 13uls!a ielidSOH bun03 luwel O~L'P~L ?&PZ'O ooo'oo6'o8 ~(1-10-20 VIJISIO aBai103 i(1uno3 luwe~ 96L'ZSE %PC0 OOO'SLP~ESL EIl-10-20 f,luno3luwel SLS'ECZ'IL %P6'9 US'LLB'L9L EULVZO I3VlSiO 100435 ~uapuada~ui lSaM4UON LUS'Z8O'L 9608'0 LLS'ZLE'SEL c0-LO-ZO Alunw uoluaa ESE'Zl.8'6 S %69'S EBO'6PP'ZLL S E0-10-20 ~~1510 10042~ lua~uadapul ilolle3 t)~~ae~i~a,%o nu~aecpano lCllllUUd FW AWE uulxel IUIIOWV .A ~qaa SSOJEI a10 Aq paqsllqnd svodan ledplunyy sexel a41 loipue suoliqpryn! lenplnlpul aql mmj pmnms elep uodn paseq sl uoltelruojul siql sa!l!lua leluamuanoGlo 'saw warolen pe wall =lqei(ed spuoq Gu~pucls~no se PaullaP 'ssaupaiqapul aql rele3!Pui alqei Gui~ollol a41 GENERAL FUND COMBINED STATEMENT OF REVENUES AND EXPENDITURES AND CHANGES IN FUND BALANCES TABLE 17 Revenues: Water, Sewer, Fire Department 5 - 5 - 5 2.410.442 S 2.137.246 5 2.096.183 Standby Fees 0 2.699 3.343 5.414 Inspeclion and Tap Connections 64.403 94.455 83.961 AV Taxes. Penalties & Interest 270,501 265.961 142.693 368,892 303.944 Sale of Aszeta 907,900 Miscelianeous Revenues 323,605 28.754 341,964 02.649 85,022 lntere5t 60.031 69.713 116.548 64.200 74.393 Total Revmes S 1.562.037 S 364.448 S 3.086.749 5 2.770.792 5 2,849,737 Expcndltures: current: AdministmUonlGenenl Government 5 918.103 Water and Sewer FireDepanment 279.070 Contribution to Tmphy Club I WeStlake DPS Capital Dutlay Debt Service iota1 Expenditures S 1.197.253 Other Financing Sources (Uses) $ Excess (Deficit) 01 Revenues Oveilunderl Expendtlures S 364.784 Fund Balance - October 1 896,604 Residual Eqully Transfer Fund Balance -September30 $ 1.263.388 - Source: me Isrueh Audifed Floanclal Sfa$menfs MASTER DISTRICT WATERWORKS AND SEWER SYSTEM OPERATING EXPERIENCE TABLE 18 Revenues FISCUI Year Ended Scptombsr 30 2002 - - 2001 - ZOO0 - 1999 1990 - Water a Sewer Service s 2,792,553 lnspedion and Tap Connection Fees 63,585 Dlhei 36.909 Total Revenues 5 2,893,157 Expenditures: Water 8 Seiver Purchased S Adminlsliative 604,341 Water Openlions 1,752,729 Wastewater Opcrallons 454,009 Wastewater Coliedlon System 311,341 Storm Sewer 136.286 Dther 700 Capital Outlay 275.115 Total Expenses 5 3,136,601 Excess (deficiency) of revenuer over (under) expenses 5 1243.444) 5 (593,101) 5 223,435 S 136.694 5 (106,325) Other Ftnanong Sourcer [Uses): S - 5 219.032 NIA NIA NIA Fund Balance Odober 1 733,356 NlA NIA NIA Residual Equity Tranrler In - 1,106.625 NIA NIA NIA Fund Balance September30 S 489.912 Customer Count Water1 Sewer MUD No1 1.271 1.252 1.231 1.211 1179 Water I Sewer MUD No.2 1.434 - 1.383 1.259 1.216 - 1.055 Total 2.705 2.635 2.490 2.427 2.234 Note: Tmphy Club MarterDis1"~t Joint Venturz baaan openlions on October 1. 2000. Amounlspiessnied far 1998 lhmugh 2000 an pm lorma and ere compiled fmm lnfomalion lor the iilnrter Dlslticl as a fund a1 Tmphy Club Munidpal Ulllily D1sl"cl No.? lorlhe period. Expense calsganes dlrarham actual MssterDlslticl audll calsgooes WATER SERVICE RATES TABLE 19 (Monthly Billing) Rates Amended Effective September 1,2002 WATER Minimum Charge 0 to 6,000 gallons 6,000 to 12,000 gallons 12.000 to 25.000 gallons Over 25,000 gallons Note: Out-of-District water rates are determined by contract. GOLF COURSE First 300.000 gallons per month Over 300.000 gallons per month $11.00 2.00 per 1,000 gallons 2.30 per 1,000 gallons 2.50 per 1,000 gallons 2.60 per 1,000 gallons $ 1,000.00 (minimum/rnonth) 2.60 per 1.000 gallons SEWER SERVICE RATES TABLE 20 (Monthly Billing) Rates Amended Effective September 1,2002 WASTEWATER Minimum Charge 0 to 6,000 gailons 6,000 to 12.000 gallons Over 12,000 gallons $1 I .oo 2.00 per 1,000 gallons 2.30 per 1,000 gallons 2.30 per 1,000 gallons OTHER FEES TABLE 21 Rates I Fees Effective September 1.2003 Tap Fees Standard will include 314 inch (District side) by 518 inch (cuslomer side) Larger than standard is actual cost to District of larger line plus 20% Fire Line Tap Fee = $30.00 per inch of diameter of the fire line Sewer Inspection Fee Maintenance and Repair (charge to video sewer line to determine condition) Effluent Charge: (sold toTrophy Club County Club and discharged on course lakes) Stand-By Charge Disconnection 1 Re~onnection Fee (due to non-payment of bill) Disconnection I Reconnection Fee (due to non-payment of bill) Disconnection I Reconnetiton Fee (temporarily, at customer request) Returned Checks Confidentiality Request Same-Day Service Accuracy Reading Fee Security Deposits Builders Residential Owners Residential Lessees Construckion Meters Other Customers Storm Drain Assessment Temporary Water Service Installation/Meter Hook-up Fee Sale of Water 150.00 150.00 0.20 per each 1.000 gallons 6.00 per month 25.00 during regular hours 65.00 after regular hours 10.00 each to dislre connect 25.00 5.00 on-time charge 25.00 10.00 75.00 40.00 100.00 Price equal to two months avg. bill Price equal to two months avg. bill 1.00 per month 100.00 2.60 per each 1,000 gallons APPENDIX B GENERAL INFORMATION REGARDING THE TOWN OF TROPHY CLUB AND DENTON COUNTY, TEXAS TOWN OF TROPHY CLUB General The Town of Trophy Club (the 'Town"), incorporated in January of 1985 is Texas's first premiere planned residential and country-club community. The Town is located In the southem portion of the County on State Highway 114 approximately 8 miies west of the City of Grapevine, 17 miles south of the City of Denton, 25 miles north of downtown Fort Worth. 27 miles northwest of downtown Dallas, and 14 miies northwest of the Dallas-Fort Worth international Airport. Lake Grapevine is located approximately 2 miles north and east of the Town. The majority of properly within the Town consists af single-family and multi- family housing. The Solana Business Complex is located adjacent to the Town's eastern border in the cities of Westlake and Southlake. Both residents and businesses of the Town are furnished water and wastewater treatment from either Trophy Ciub Municipal Utility District ("MUD") No. 1 or Trophy Ciub MUD No. 2. The Town's 2000 Census was 6,350, which is a 61.9% increase over the 1990 Census. The Town's current population estimate is 7,800. Source: Latest Texas Municipal Report published by fhe Municipal Advisory Council of Texas, U.S. Census Reporl and Issuer's Website. Population: Census 1980 Town of Trophv Ciub NIA 1990 3,922 273.525 2000 6.350 423,976 Current Population Est. 7,800 468,600 Sources: United States Bureau of the Census. Texas Municipal Reports, Sales and Marketing Magazine, 2002 Survey of Buying Power and the Town of Trophy Club Leading Employers Trophy Club MUD No. 1: The following employers have 50 or more employees: Ernplover Tvpe of Business Verizon Wireless Communications Sabre Travel Wells Fargo Banking IBM Computing and Software Design Citigroup Investment Banking Pfizer Pharmaceuticais Levi Strauss Merchandising DaimlerChrysler Automotive McKesson Pharmaceuticals Sonitroi Security Johnson & Johnson Pharmaceuticais Marriott Corporation Hotels Source: lnformation from the Issuer Education The Town of Trophy Club is served by the Northwest independent Schooi District (the "NISD). NISD covers approximately 232 square miles in Denton, Tarrant and Wise Counties. In addition to serving the Town, NlSD also serves the communities of Aurora. Avondaie, Drop, New Fairview, Hasiet, Justin, Marshall Creek, Newark. Northlake, Rhome and Roanoke. Northwest ISD is comprised of eight elementary schools for grades pre-kindergarten through five, three middle schools for grades six, seven and eight, and one high schooi for grades nine through twelve. Ail campuses offer enriched curricula with special programs for giftedltalented students as well as students achieving below grade level, and all are equipped with computers and fuii cafeteria service. NISD expects to serve an estimated 6,000 students in the 2002-2003 schooi year. Source: lnformation from Northwest Independent School District DENTON COUNTY Denton County (the "County") is located in north central Texas, encompassing 912 square miles, and was created in 1846 from Fannin County. it is the third largest county of the nine counties comprising the Dallas-fort Worth Consolidated Metropolitan Statistical Area (CMSA). The county is traversed by interstate Highway 35, United States Highways 77, 377 and 380 and State Highways 114 and 121. The county is divided north and south geographically by the East CrossTimers, which is a narrow strip of woodland that extends from the Red River to the Brazos River around Waco. The economy is diversified by manufacturing. state supported institutions, and agriculture. The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Minerals produced in Denton County include natural gas and clay. Institutions of higher education include University of North Texas and Texas Woman's University. Lake Lewisville attracts over 3,000.000 visitors annually. Alliance Airport, located in the County has continued to expand. A major NASCAR racetrack was opened in 1997, which has had a positive impact on employment and recreational spending for the area. Several growing urban centers are located in the County. including the cities of Denton, Lewisviile, Carrollton and The Colony. The 2000 census was 423.976. which is a 551% increase since 1990. The 2002 estimated population for the County is 488,600. Source: Latest Texas Municipal Report published by the Municipal Advisory Council of Texas and Sales and Marketing Magazine. 2002 Survey of Buying Power Leading Employers Denton County: 2002 Emplover Type of Business University of North Texas, Denton State University Lewisviiie Independent School District Public Education Number Employees 5,900 4.500 Frito-Lay Food Distribution 2,436 American Airlines Maintenance Base and Engineering Center 2.350 Denton independent School District Public Education 2.000 Horizon Health Health Care Services 1.500 Denton County Denton State Schooi Boeing Electronics City of Denton Peterbilt Motors Co. Texas Woman's University Xerox Corporation Federal Express Genuity sysco County Government Mental Health, Mental Retardation Facility Electronics Municipal Government Diesel Truck Manufacturing State University Office Equipment Package Processing and Delivery Regional Corporate Headquarters Distribution Center Source: Denlon County Economic Deveiopment Oiiice 8-2 Labor Force Statistics Denton County December 2002 December 2001 Civilian Labor Force 266,144 264,968 Total Employed 255,129 262.200 Total Unemployed 11.015 9.931 % Unemployed 4.1% % Unemployed (Texas) 5.7% % Unemployed (United States) 5.7% Source: Texas Worl(force Commission. Labor Marltet information Department. Estimated Retail Sales Statistics ($000,~) Denton State of Year - - Texas 2002 $5,166,964 $286,003,615 2001 5,124,640 288,535,506 2000 5,501,681 263,430,625 1999 3.1 80.028 189.976.641 1998 2.853.148 176.771.820 Source: Sales & Marketing Magazine. Survey of Buying Power 1995-2002. Figures represent estimates as of January 1 of each year given. Estimated Total Effective Buying lncome (EBI) Denton County Total Effective Median Buying lncome Household ($000) a $1 1,184,697 $54,508 9.338.442 49.146 State of Texas Total Effective Median Buying Income Household Source: Sales 8 Marlreiing Magazine, Survey of Buying Power 1995-2002. Figures iepresent estimates as of January 1 of ti~e year noted. Agriculture The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Cash receipts from iaml marketings are as iollows: 2002 2000 - 1999 - 1998 Crops $20,165,800 $13,129,000 519,360,000 $23,692,000 L~vestock and L~vestock Products $29,605,700 $24,709.200 $33,861,000 $33,044,000 AG Cash Rece~pts Total $97,219.380 589.257.440 $102,784,350 $99,987,400 Source: ONCOR Agnculfure lncome Evaluation, 1998 Nlmugh 2002 Government payments not included APPENDIX C FORM OF LEGAL OPINlON OF BOND COUNSEL Proposed Form of Opinion of Bond Counsel An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horion L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law. LAWOFFICES McCALL, PARKHURST & HORTON L.L.P. GX CONG.?ESS AVEG 717 NO131 HAX\2003 7W 7\ ST l.'ARYS Si?EET 12% OYE N:=RCA\ CENER h MI-, noo? 125 ONE RIVERWAX ?ACE AUSTIN, TEXAS 78701-3248 DALLAS. TEXAS 75201-6587 SAN ANTONIO, TEXAS 782053503 Telephone: 512 470-3805 Telephone: 2111 754-9200 Telephone: 210 225-2800 Facilmile: 512 472-0871 Facsimile: 214 754.9250 Facsimile: 310-225.2904 TROPIIY CLUB WNNCII'AL UTILlTY DISTRICT NO. 1 UNLDIITED TAX REFUNDLNG BONDS, SERIES 2003. DATED APRIL 1,2003 IN THE AGGREGATE PRINCIPAL AMOUNT OF %1,949.2R7.70 AS BOND COUNSEL FORTROPHY CLUBMUMCPALUTILIWDISTRIUNO. 1 (the "District") issuer ofthe Bonds described above (tlie "Bonds"), wchave examined into tlic legality andvalidity oftheBonds, wltich bear interest from the dntes specified in the text of the Bonds, at tho rates and payable on tbc dates as stated in tlic tcxt of tlie Bonds, maturing serially on September 1 in each ofthe years 2003 through 201 1, inclusive, all in accordance with the terms and conditions stated in tlie text of the Bonds. FVEYEW EUNDNED tlie Constitution and laws of the State ofTexas, certiiied copies oftlie proceedings of thc District, tlie Escrow Agreement, dated as ofApril 1,2003, between the District and JPMorgan Chase Bank, Dall;is, Texns, as Escrow Agent (the "Escrorv Agreement"), and other documents authorizing and relilting to tlie issuance of said Bonds, including one of tlie executed Bonds (Bond Numbcr R-I), and spccilncns of Bonds to be nuilienticated and delivered in exchange lor the Bonds. BASED ON SAID EX4MINATION, IT IS OUR OPINION that the Escrow Agreement has been duly nutliorized, executcd and delivered by the District and constitutes a binding andenforceablc agreement in accordance with its terms and that tlic Refunded Bonds, as defi ned in the Order authorizing the Bonds, in the aggregate principal amount oT$1,950,000, being refundcd by the Bonds, are outstanding undcr the resolution authorizing tlicir issuance only for the purpose of rcceivingtlie funds provided by, and aresecured solely by and payablesolely from. the Escroiv Agreement and the cashand investinents, including thc income tlicrefrom, held by the Escro\v Agent pursuant to the Escrow Agreement. In rendcring this opinion, ive have relied upon the repon of Sootltwest Securities as to the sufficiency of the cash and investments dcpositcd with theEscrorv Agenipursuant to the Escrow Agrcement for the put'posc ofpaying sucli Refunded Botids to be retired with the procccds of the Bonds and the inierest thcrcon. BASED ONS~ESAMIN~~T1ON,ITISOUROPINlONT~~T the Bonds havc bccn ziuthorizcd and issucd and tlic Bonds delivered concunently with tliis opinionhavcbecn duly delivered, and tliat, assuming due authentication. Bonds issucd in crchange therefor will have bcen duly delivcrcd, io accordance with law, and tliat seid Bonds. cxcel~t as may be limited by laws applicable to the District rclati~ig to banl;mptcy, rcorganizniion and other similor matters affcciing creditors' rights, constitute valid nndlegallybindingobligatio~is ofthcDistrict,payable from ad valoremtaxes to bc levied ;and collected by the District upon taxable property within the District, which taxes thc District has covenanted to levy in ail amount sufficient to pay the i:itcrcst on and the principal oftlic Bonds. Such covenant to lcvy taxes issubject to the right ofa city, under exisling Tcnas laru, to annex all of tlic territory within the District; to t;ikc overall propcrtics ;lnd assets ofthe District; lo assulneall debts,liabilitics, and obligations oftheDistrict, including thcBonds; and to abolisli thc District orifthc District consolidates witit another District. WEESI'RESSNO OI'INION as to any insuranccpolicies issued ivith respect to tI~cpa>~ments due Surtlie principal ofand interest on thc Bonds, 1101 as to nny such insurance policies issued it1 the future. IT IS FURTHER OUROPINION, except as discussed below, that the intercston Ule Bonds is excludablc from the gross income ofthe owncrs for federal income tax purposes under tlic statutes, regulations, published rulings, and court decisions existing on the date ofthis opinion. Weare furthcrofthe opinion thattheBonds are not "specitied private activity bonds" and that accordingly, interest on the Bonds will not be included as an individual or corporate alternative minimum lax preference item under Section 57(a)(5) of the Internal llcvenuc Codc of 1986 (the "Code"). In exprcssing the aforementionedopinions, we havc assumed complianceby the Districtwith, certain rcpresentations and covenants regarding the use and investment of thc proceeds of tl~e Bonds, and tlie usc of the Property refinanced therewith. We call your attention to the fact tliat failurc by thc District to comply with such representations and covenants may cause the interest on the Bonds to become includable in gross income retroactively to the date of issuance ofthe Bonds. OUR OPINIONS.4RE BASED ON ESISTmG LAW, which is subject to change. Such opinions arefurthcrbased on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect ;iny facts or circumstances that may thereafter come to ourattcntion or to reflcctany changes in any la\vrhat may thereafter occur or become cffectivc. Moreover, our opinions arc not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); mtlicr, such opinions represe~it our legal judgmcnt based upon our rcvicw of cxistiilg lnw and in reliance upon the rcpresentations and covenants rcferenced above that we dcem relevantto sucl~ opinions. The Scrvice has an ongoing audit program to dcterminc compliance with rules that relate to whetlicr intercst on state or local obligations is i~icludable in gross income for fcderi~l income tax purposes. No assurance can be given whcther or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its currcntpublishedprocedures the Service is likcly to treat the District as thc taxpayer. We obsc~ve that the District has covenanted not to take ;my action, or omit to take any action within its control, tliat if taken or omitted, respectively, may result in the treatment of interest on thc Bonds as includable in gross income for federal income tax purposes. WE CALL YOUR ATTENTION TO T'LE FACT that the interest oil tax-exempt obligations, such as the Bonds is (a) included in a corpontion's alternative minimum taxable incomc for purposes ofdetennini~ig tile alternative minimum tax imposed on corporations by Section 55 of thc Code, (b) subjccl to the branch profits tax imposed on foreign corporations by Section 884 of the Code and (c) included in the passive invcstment income of an S corporation and subject to the tax imposed by Section 1375 of the Codc. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local tax consequences of acquiring, carrying, owning or disposing of the Bonds. OURSOLE ENGAGEMENT in connection with tlie issuanccofthc Bonds is as Bond Counsel forthe District, and, ill that capacity, wc have been engaged by the District for the sole purpose of rendering an opinion with respect to the Icgality and validity of the Boitds under tlie Constitution and laws of the State of Texas, and with respect to the exclusion frorngross income of the intcrcst oil the Boiids for federal income tax purposes, and for no other reason or purpose. Wc havc not been requested to investigate or verify, and have not independently investigated or verified any records,dnta, orother material relating to the financial condition orcapabilitics oithc District, or the disclosure thereofin connection with the sale ofthe Bonds, and have not assumed any responsibilitywith respect tliereto. We express no opinion and makc no commcnt withrcspect to the markctabiliLy ofthe Bonds and have rclied solcly on certificates executed by officials of theDistrict as to tlic current outstandi~lg indebtedness of, and assessed valuation of taxable propcrty within tlie District. Our role in connection with the District's Ofticial Statement prepared for use in connection with the sale oftllc Bonds has been limitcd as described therein. IN EXPRBSSLh'G THE AFOREMENTIONED OPINIONS, wc have relied on, certain representations, the accuracy of which we havc not independently verified, and assume compliance with certain covenants, regarding the use and investment ofthe procccds oftlie Bonds and the use of the property financed therewith. We call your attention to the fact that iisucli representations are dcter~nincd lo bc inaccur;~te or t~pon a failurc by the District to comply withsuch covenants, interest on the Bonds may becomc includable in gross income retroactively to the date ofissunnce ofthe Bonds. TIIEFOREGOING OPINIONS represent our legal judgement based upon a review ofexisting lcgal autliorities that we dccm relevant to render such opinions and are not a guarantee ofa result. APPENDIX D EXCERPTS FROM THE DISTRICT'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,2002 (Independent Auditor's Report, General Financial Statements and Notes to the Financial Statements - not intended to be a complete statement of the issuer's financial condition. Reference Is made to the complete Annual Financial Report for further information.) RUTLEDGE CRAlN & COMPANY, PC CERTIFIED PUBLIC ACCOUNTANTS -- - 2401 Garden Park Courl. SUlle B Arlington. Texas 76013 INDEPENDENT AUDITORS REPORT To the Board of Directors Trophy Club Municipal Utility District No. 1 Trophy Club, Texas We have audited the accompanying general purpose financial statements of Trophy Club Municipal Utility District No. 1, as of September 30, 2002 and for the year then ended. These general purpose financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on the general purpose financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audi includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose 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 audit provides a reasonable basis for our opinion. In our opinion the general purpose financial statements referred to above present fairly, in all material respects, the financial position of Trophy Club Municipal Utility District No. 1, as of September 30. 2002, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying supplemental information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the general purpose financial statements of Trophy Club Municipal Utility District No. 1. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. November 1,2002 PC Members Melio (817) 265-9989 Arnerlcan lnstilule 01 Certltled Public Accounlanls Fax (617) 861-9623 Texas Society 01 Ceflilied Publlc Accounlanls TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 COMBINED BALANCESHEET ALL FUND TYPES AND ACCOUNT GROUPS SEPTEMBER 30,2002 (WITH COMPARATIVE TOTALS FOR SEPTEMBER 30,2001) Governmental Fund Types General Debt Service Fund Fund ASSETS AND OTHER DEBITS Assets: Cash and cash equivalents lnvestmenls Receivables (net of allowances for uncollectibles): Taxes lnlergovernmenlal Miscellaneous Due from other funds Prepaid Items Restricted assets: Note receivable Conlract receivable Fixed assets Other Debik: Amount available in debt service fund Amount lo be provided forrelirement of general long-ten debt Total Assets LIABILITIES, EQUITYAND OTHER CREDITS Liabilities: Accounts payable Accrued liabililies Liabilities payable from restricted assets: Due to ofher funds Due to other governments Deferred revenue General obligation bands payable Contractual obligations payable Notes payable Capital leases payable Total Liabilities Equity and other credits: Investment in general fiired assets Fund balances: Reserved for nole recsivable Unresewed, undesigneted Total equity and other credits Total Liabilities, Equity & Other Credits The accompanying notes are an integral part of this statement Totals Account Groups General General Long- Fixed Assets Term Debt (Memorandum Only) September 30. Seotember 30 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUND TYPES YEAR ENDED SEPTEMBER 30,2002 (WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30,2001) Totals Governmental Fund Types (Memorandum Only) General Debt Service September 30, September 30, Fund Fund 2002 2001 Revenues: Ad valorem taxes, penalties and interesl $ 270,501 $ 756,348 $ 1,026,849 S 1.011,054 Sale of assets 907,900 - 907,900 - MisceNaneous revenues 323.605 - 323.605 69.049 interest Total revenues Expenditures: Current: Administrative 918,183 - 918,183 112,751 Fire department 279.070 - 279,070 14,256 Contribution to Trophy ClubM/esllake DPS - - - 258,026 Debt service: Principal - 585.000 585,000 515,000 Interest - 250.865 250,865 275,845 Paying agent fees Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Operatins transfers in ~'perating transfers out Total other financing sources (uses) Excess of revenues and other financing sources over (under) expenditures and other financing uses 364,784 (70.305) 294,479 (3,956) Fund balances, October 1 898.604 229,111 1,127,715 2,238,296 Residual equity transfer - - - (1 ,I 06,625) Fund balances, September 30 $ 1,263,388 $ 158,806 $ - 1,422.194 S 1,127.715 The accompanying notes are an integral part of tnis sratement. 7 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. I S JA JEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND YEAR ENDED SEPTEMBER 30,2002 Revenues: Water. sewer, lire department Ad valorem taxes, penalties and interest Sale of assets Miscellaneous revenues Interest Total revenues Expenditures: Current Administrative Fire department Total expenditures Excess (deficiency) of revenues over (under) expenditures Fund balances, October 1 Fund balances, September 30 General Fund Variance Favorable Budget Actual (Unfavorable) $ 4,000 $ - $ 264.686 (4,000) 270,501 5,815 - O"7.900 907.900 The accompanying notes are an integral part of this statement TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity Trophy Club Municipal Utility Ditrict No. 1 (the District) was created by an order of the Texas Natural Resources Consewation Gommission FCEQ) (formerly the Texas Water Commission) on March 4, 1975 and confirmed by the electorate of the District at a confirmation election held on October 7. 1975. The Board of Director's held its first meeting on April 24, 1975. The bonds ware first sold on June 8, 1976. The D'itrict operates pursuant to Article XVI, Chapter 59 of the Texas Camtitution and Chapter 54 of the Texas Water Code, as amended. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for the District. The financial statements of the District have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government units. As required by generally accepted accounting principles, these financial statements present the District only. There are no component units which setiify requirements for blending within the District's financial statements or discrete presentation. Master District The Master District holds legal title to the central water supply system and the central waste disposal system. The proportionate allocation of costs end related beneficial usage rights in the major assets is estimated as follows: Water plant and wells wen<-one inch watar line Elevated tank Original treatment plant and land First expanded treatment plant Second expanded treatment plant Administration building (A) Future MUD 1 MUD2 40.91% 27.14% 31.85% (A) The developer's original intent was for five districts. (8) MUD 2 does not acknowledge any portion of the cost of the administration building as being their responsibility Pursuant to the provisions of the New Master District Contract dated October 4. 2000, the Master District is menaged as a joint venture of the District and MUD2 whereby representatives of the boards of directors of the Ditrict and MUM serve on the Master District board of directors. Accordingly the financial statements of the Master District have been removed from those of the District effective October 1. 2000 and are presented separately. Agreements exist batween the District and MUM that compensate the District for watar and sewer plant capacity and out of district sales as approved and required by the TCEQ. TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 Based upon this arrangement, all financial transactions relating to water and sewer operations are included in the financial statements of the Master District joint venture. A summary of the Master District financial statements for the year ended September 30, 2002 follows: Tolal assets Total liabilities Total equity Total revenue, including other sources $ 2,893,157 Total expenditures (3,136,801) Excess of revenues over (under) expenditures (243,444) Plus capital expenditures 275.1 15 Net revenue (loss) before capital expenditures $ 31,671 The Master District Joint Venture financial statements are available at the District's administrative oifices Termination of Trophv Club I Westlake De~artment of Public Safetv Joint Venture Effective June 1, 2002, the joint venture was terminated by the venturers - the Trophy Club Entities (Town of Trophy Club, Texas. Trophy Club Municipal Utility District No. I, and Trophy Club Municipal Utility District No. 2) and the Town of Westlake, Texas. The Town of Trophy Club, Texas assumed responsibility for police and emergency medical services: MUD1 assumed responsibilities for fire protection. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the District are organized and operated on the basis of funds and account groups. Afund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. The District utilizes governmental fund types to account for the District's activaies and to prepare its financial statements. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e.. when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereaiter to pay iiabiliies of the current period. The District considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Those revenues susceptible to accrual are ad valorem tares and interest. Penalties and interest on proper& taxes and miscellaneous revenue are recorded when received, as they are generaliy not rneasurable until received. The District reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the 'rneasurable" and "available" criteria ior recognition in the current period. Governmental funds include the following fund types: The general fund is the District's primary operating fund. It accounts for all financial resources of the general government. except those required to be accounted for in another fund. TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 Debt service funds account for the servicing of general long-term debt not being financed by proprietary or nonexpendable trust funds. Account Groups include the following: The general tixed assets account group is used to account for all foced assets of the District. The general long-term debt account group is used to account for general long-term debt and certain other liabilities of the District. C. Assets, Liabilities and Equity 1. Deposits and lnvestments The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the District to invest in (1) obligations of the United States or its agencies and instrumentalities: (2) direct obligations of the State of Texas or its agencies; (3) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States; (4) obligations of states, agencies. counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent: (5) certificates of deposit by state and national banks domiciled in this state that are (A) guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or, (8) secured by obligations that are described by (1) - (4); or, (6) fully collateralized direct repurchase agreements having a defined termination date, secured by obligations described by (I), pledged with third party selected or approved by the District, and placed through a primary government securiiies dealer. lnvestments are stated at fair value. 2. Receivables and Payables Transactions between funds that are representative of lendinglborrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances tofirom other funds." All other outstanding balances between funds are reported as "due tofirom other funds." Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. Trade accounts receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of ninety days comprise most of the allowance for uncollectibles. Property taxes are levied as of October 1, on the assessed value listed as of the prior January 1, for all real and certain personal property located in the District. The appraisal of property within the District is the responsibility of Denton Appraisal District (Appraisal District) as required by legislation passed by the Texas legislature. The Appraisal District is required under such legislation to assess ail property within the Appraisal District on the basis of 100% of its appraised value and is prohibted from applying any assessment ratios. The value of property within the Appraisal District must be reviewed every five years: however, the District may, at its own expense, require annual reviews of appraised values. The District may challenge appraised values established by the Appraisal District through various appeals and, if necessary, legal action. Property taxes for the District are not limited as to rate or amount. In an election held October 7. 1975, the electorate of the District authorized the levy of up to 50.25 per 8100 valuation for the operations and maintenance of the District. Property taxes attach as an enforceable lien on property as of January 1, following the levy date. Taxes are due by January. 31, following the levy date. Proprty taxes are recorded as receivables when levied. Following is information regarding the 2001 tax levy: TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 Adjusted taxable values $ 427,871,500 O&M tax levy $0.0632/$100 5 270.415 I &S tax levy $0.1768/$100 756.477 Total tax levy $0.2400/$100 $ 1,026,892 3. Prepaid Items Certain payments to vendorj reflect costs applicable to future accounting periods and are therefore recorded as prepaid items. 4. Fixed Assets Fixed assets used in governmental fund types of the District are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Dedicated fixed assets are recorded at their estimated fair value at the date of dedication. Assets in the general fixed assets account group are not depreciated. The cost of normal maintenance and repain that do not add to the value of the asset or materially extend assets' lives are not included in the general fixed assets account group. Public domain ("infrastructure") general fixed assets consisting primarily of drainage systems have been capitalized 5. Organizational Costs The District, in conformance with requirements of the TCEQ, capitalized costs incurred in the creation of the District. The TCEQ requires capitalization as organizational costs for the construction period all costs incurred in the issue and sale of bonds, bond interest and amortized bond premium and discount, losses on sales of investments, accrued interest on investments purchased, attorney fees and some administrative expenses until construction and acceptance or use of the first revenue producing facility has occurred. 6. Long-term Obligations The District reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligalions not expected to be financed with current available financial resources are ako reported in the general long-term debt account group. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. 7. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reserved fund balance represents the amount of prepaid items. 8. Memorandum Only-Total Columns Total columns on the general purpose financial statements are captioned as "memorandum only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, resulk of operations or cash flows in accordance with generally accepted accounting principles. Interfund eliminations have not been made in the aggreaation of this data. TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 9. Comparative Data/Reclassifications Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding of the changes in the Diitrict's financial position and operations. Ako, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. 11. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles as follows: 1. The Board of Directors adopts an annual budget for the General Fund on the modified accrual basis. The Board of Directors budgets revenue but does not budget expenditures for the Debt Service Fund. 2. The Board of Directors approves all budget appropriations. Any revisions which alter the total appropriations of the General Fund must be approved by the Board of Directors. The level of budgetary responsibility is by total appropriations of the General Fund. 3. All annual appropriations lapse at fiscal year end 4. No significant amendments to the budgat occurred during the year. B. BudgeVGAAP Reconciliation The budget is adopted on the modified accrual basis of accounting, thus there ere no reconciling items between the Budget basis and the GAAP basis of accounting. C. Utcess of Expenditures Over Appropriations For the year expenditures exceeded appropriations for the following funds: General Fund $ 559,812 Ill. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A Cash, Cash Equivalents, and lnvestments Cash - At year end. the District's carrying-amount of deposits was 5190.531 and the bank balance was 5132.469. All of the bank balance was covered by federal depository insurance or by collateral held by the District's agent in the District's name. lnvestments Investments are categorized into these three categories of credit risk: 1. Insured or registered, or securities held by the District or its agent in the D~trict's name. 2. Uninsured and unregistered, with securities held by the counter party's trust department or agent in the District's name. 3. Uninsured and unregistered, with securities held by the counter party's, or by its trust department or agent but not in the District's name. TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 At year end, the District's investments were as follows: Msrket Investments not subject to categorization: Texas Local Government Pool System (TexPool) 8t185.309 81.185.30? TexPool is an external investment pool operated by the Texas Comptroller of Public Accounts and is not SEC registered. The Texas lnteriocal Cooperation Act and the Texas Public Investments Act provide for creation of public funds investment pools and permit eligible governmental entities to jointly invest their funds in authorized investments. The fair value of investments in the pool is independently reviewed monthly. At September 30, 2002, the fair value of the position in TexPool approximates fair value of the shares. B. Fbted Assets Activity in the general fixed assets account group for the District was as follows for the year ended September 30. 2002: Land Buildings Furniture and fixtures Machinery and equipment Autos and tmcks Water system Sanitary wastewater system Drainage system Constmction in progress Engineering fees District Organization Balance Total $18,927,987 Additions $ - Balance Disposals 9/30/2002 $ 5 248.093 Interfund Receivables and Payabies There were no interfund rece~vable balances as of September 30,2002 D. Long-Term Debt 1. Combination Tax and Revenue Bonds/Contractual Obligations The District periodically issues combination tax and revenue bonds for general uses and expansions of the system. This debt for the bonds is recorded in the general long-term debt account group (to be repaid from a combination of propem tax revenue and revenues of the water and waste water utility system). Combination bonds ere as follows: Water works and sewer system combination unlimited tax end revenue bonds. Series 1993. with interest rates ranging from 3.25% to 5.9% , due through 2007. $ 1.9s0.000 Water works and sewer system combination unlimited tax and revenue refunding bonds, Series 1997, with interest rates ranging from 4.0% to 5.05;. due through 2011, including related capital appreciation bonds. 2,960,000 Total combination tax and revenue bonds Less unaccreted discount Total long-term bonds TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. I NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 The District periodically issues other forms of long-term debt including contractual obligations, and public property finance contractual obligations, which are unsecured. The debt for the bands is recorded in the general long-term debt account group (to be repaid from revenues of the water and waste water utility system). Such other debt is as follows: Public property finance contractual obligations, Series 1996, with interest rate of 5.50%, due through 2006. $258.000 Public property finance contractual obligations, Series 1999, with interest rates ranging from 5.50%, due through 2006. 40.000 Total long-ten contractual obligations 298.000 Total general long-term debt net $ 5.108.955 2. Notes Payable The District has financed the purchase of personal firefighting equipment with a note payable Annually at $2,445 including interest accruing at 2.50% through September, 201 8. $ S3im 3. Capital Lease Obligations The District shares the purchase of various office equipment with capital leases with the Town of Tmphy Club and MUD2. The District's share of the total monthly payments (including interest accruing at 7.00%) is $447, payable through May. 2005. $SO 4. Changes in General Long-Term Debt During the year, the following changes in general long-term debt occurred: Balance Balance 9/30/2001 Additions Payments 9/30/2002 Combination tax & revenue bonds $ 5,495,000 $ $ (585.000) $ 4,910,000 Unaccreted discount (1 11,865) 12,820 (99.045) Net combination bonds 5.383.135 (572.180) 4,810.955 Contract obligations 352.000 (54.000) 298.000 5,735,135 (626,180) 5,108,955 Note payable 30,786 (1.476) 29,310 Capital lease obligations 15,914 32,001 (12.285) 35.630 $ 5.781.835 $ 32.001 $ (639.941) $ 5,173,895 5. Debt Service Requirements The requirement to amortize all bonds and contractual obligations outstanding as of September 30 is summarized below: Year Endina September 3-0, Principal Interest Total 2003 $ 696.000 $ 238,915 $ 932,915 2004 729.000 201.484 930.484 2005 767;000 163;694 930.694 2006 789,000 137,982 926,982 zoo7 ao7.000 137,982 944,982 Thereafter 1,420,000 176.765 1,596,765 Total 5,208,000 S 1,054,822 $ 6.262.822 Discount (99,045) TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 The requirements to amortize the note payable and capital lease obligation as of September 30 are summarized below: Year Endins Notes Capital September 30. Payable ease Oblig. 2003 $ 2,245 $ 15,704 2004 2.245 15.704 Thereafter 24;695 Total 35,920 41.877 Less interest (6,610) (6.247) 6. Additional Long-term Debt Disclosure Tax and revenue bonds authorized and unissued as of September 30.2002 amounted to $1,229,217, The bonds are payable from the proceeds of ad valorem taxes levied upon all property subject to taxation within the District, without limitation as to rate or amount, and are further payable from, and secured by a lien on and pledge of the net revenue to be received from the operation of the District's waterworks and sanitaty sewer system. The outstanding bonds are callable for redemption prior to maturity at the option of the District as follows: Series 1993 -All maturities from 2003 to 2007 are callable in principal increments of $5,000 on or after September 1. 2002 at par plus unpaid accrued interest to the fixed date for redemptions. Series 1996 -All maturities are callable at anytime in principal increments of $1,000 plus unpaid accrued interest to the fixed date for redemptions. Series 1997 -All maturities from 2008 to 2011 are callable in principal increments of $5.000 on or after September 1, 2007 at par plus unpaid accrued interest to the fixed date for redemptions. The provisions of the bond resolutions relating to debt service requirements have been met, and the cash allocated for these purposes is sufficient to meet debt service requirements for the year ended September 30,2002. IV. OTHER INFORMATION A Risk Management The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets: business interruption; errors and omissions: injuries to employees: employee health benefits; and other claims of various nature. Commercial insurance is purchased for the risks of loss to which the Dktrict is exposed. Any losses reported but unsettled or incurred and not reported, are believed to be insignificant to the District's general purpose financial statements. B. Commitments The District iollows the guidelines of the TGEQ in its dealings with developers. The District leases certain equipment and a modular building under the provisions of operating leases. One half of the monthly rent ($450 per month) on the modular buildings lease is repaid to the District by the Town of Trophy Club. Future minimum rental payments are $3.600 for 2002. C. Contingent Liabilities The District is currently not subject to any pending litigation. However, the District is en interested party to several administrative hearings at year end. Although the outcome of these matters is not presently determinable, it is TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS September 30,2002 management's opinion that resolution of these matters will not have a material adverse effect on the financial condition of the District. D. Concentration Of Credit Risk Property taxes and accounts receivable for utilities are due from citizens and businesses within the District's boundaries. Risk of loss is immaterial due to wide dispersion of receivables and policies which address procedures for filing property tax liens or utility service cut-off. E. Contracts Under the terms of a contract whereby MUD 1 and MUD 2 sold an unused portion of the water supply system to the Ci of Roanoke, Texas, the City of Roanoke will make annual payments to the Master District account of $23.663 including interest through 2006. At September 30, 2002, the District's share (60%) of the receivable was $48,638. APPENDIX E MUNICIPAL BOND INSURANCE POLICY SPECIMEN Financial Guannty Insunnce Company 125 Park Avenue NewYork, NY I0017 (212) 312-3000 (800) 352-0001 A GE Capital Company Municipal Bond New Issue Insurance Policy Exhibit A Issuer: Policv Number: Control Number: OOlOOOl Bonds: Financial Guaranty Insurance Company ("Financial New York stock insurance company, in irrevocably agrees to pay to U.S. Bank T Agent"), for the benefit of Bondholders of the principal and interest on the above-described debt by the Issuer. J Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Gunranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guamnty. Upon such disbursement, Financial Guaranty shall become the owner ofthe Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall he fully subrognted to all of the Bondholder's rights thereunder, including tlle Bondholder's right to payment thereof. This Policy is oon-cancellable for any reason. The premium on this Policy is nor refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment is entitled under the terms of such Bond to payment thereof "Due for Payment" means, when referring to the principal of a Bond, the stated mahnity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption). acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date FGlC ir nrrnirarcd rcrviccmzri: vicd by einrncirl Gurmly ImunnceComplny under license imm its psicnt company. FGlC Corponrion. Form 9(M10(10113) Pnge 1 of2 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 352-0001 A GE Capital Company FGIC Municipal Bond New Issue Insurance Policy for payment of interest. 'Wonpayment" in respect of a Bond means the failure of the issuer to have provided sufficient filnds to the paying agent for payment in Full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, registered or certified mail, from a Bondholder or a "Business Day" means any day other than a Saturday, Sunday or by law to remain closed. y to be affixed with its corporate seal and to be e effective and binding upon Financial Guaranty by virtue of the countersignature of its duly - President Effective Date: Autllorizcd Representative U.S. Bank Trust National Association achowledges that it has agreed to perform the duties oCFiscal Agent under this I'olicy. Autl~orized Officer FGIC is s rcgiitcred scwice mark ued by Financial GUIUIIY lnsumnct Compnny under liccngc imm ih pawn1 campmy. FGlC Carpamlion. Form 9000 (10193) Pogc2 012 Financial Guannty Insurance Company 125 Pa& Avenue NewYo4NY I0017 (212) 312-3000 (800) 352-0001 A GE Capital Company Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Control Number: 0010001 .. It is fiuther understood that the term "Nonpayment" in respect izcludes any payment of principal or interest made to a Bondholder by or on behalf of the isswmf s h%Pwhirh hs been recovered from'such Bondholder pursuant to the ~niied States Badmpt a trustee in banhptcy in accordance with a final, nonappealable ordcr of a court having co NOTHING HEREIN SHALL BE CON WANE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE . IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEME In Wihless Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized ofilcer in facsimile to become effective and binding upon Financial Guannty by vhe of the countersignature of its duly authorized represenhtive. Q!? 5% /Q& - President Effective Dote: Ackno~vledged as of the Effective Date written above: Authorized Oficer U.S. Bank Trust National Associntion, as Fiscal Agent Authorized Representative FGIC is a regincrrd rerviccmerk ucd by 1:inanriul Guamnty InrunnceCompnny under iicenie from ie prrcn! compmy. FGlC Cornontion. Form E-0002 (10193) Page 1 of I FINAL TO: Individuals Listed Below FROM: Dan A. Almon DATE: January 6, 2003 RE: $1,949,287.70 Trophy Club Municipal Utility District No. 1 Unlimited Tax Refunding Bonds, Series 2003 Please find attached the closing memorandum for the above captioned Bonds. If you have any questions, give me a call at (214) 859-9452 or Mary Jane Dietz (214) 859-6803 or fax at (214) 859-9475. Distribution to: Name Entity Email Phone Number Mr. Walter Fitzpatrick Trophy Club MUD No. 1 wfitzpatrick@trophyclub.org 682-831-4610 Mr. Roger Unger Trophy Club MUD No. 1 runger@trophyclub.org 682-831-4613 Ms. Renae Gonzales Trophy Club MUD No. 1 rgonzales@trophyclub.org 682-831-4611 Mr. Pete Tart McCall, Parkhurst & Horton ptart@mphlegal.com 214-754-9230 Ms. Tina Ward McCall, Parkhurst & Horton tward@mphlegal.com 214-754-9220 Ms. Kristen Savant Fulbright & Jaworski L.L.P. ksavant@fulbright.com 214-855-8072 Ms. Beverly Knight First Southwest Company bknight@firstsw.com 214-953-4040 Ms. Joann Smith First Southwest Company josmith@firstsw.com 214-953-4087 Ms. Maryanna Manchee JPMorgan Chase Bank maryanna.manchee@jpmorgan.com 214-468-6411 Ms. Stephanie Cain Financial Guaranty Ins. Co. stephanie.cain@ge.com 212-312-3230 1 2 FINAL TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 $1,949,287.70 Unlimited Tax Refunding Bonds, Series 2003 CLOSING MEMORANDUM CLOSING Payment for and delivery of the captioned Bonds is scheduled to occur on Wednesday, April 9, 2003 (the “Closing Date”) at 10:00 A.M. at the offices of JPMorgan Chase Bank, Dallas, Texas (“JPMorgan”). RECEIPT AND DISBURSEMENT OF FUNDS On the Closing Date, First Southwest Company will wire transfer the Purchase Price of the Bonds in the amount of $2,064,426.76 to JPMorgan Chase, Houston, Texas, ABA #113 000 609, credit Dallas Issuer Administrative Services, Account # 00103237013, for further credit to Trophy Club Municipal Utility District No. 1, Unlimited Tax Refunding Bonds, Series 2003, Attention Maryanna Manchee, (214-468-6411). Details regarding all funds to be received by JPMorgan are shown below. Par Amount of Bonds $1,949,287.70 Plus Premium 117,369.00 Plus Accrued Interest 1,160.61 Plus Original Issue Premium 11,805.25 Less Underwriter’s Discount 15,195.80 Total Purchase Price of the Bonds $2,064,426.76 Upon receipt of such funds the following disbursements are to be made by JPMorgan: 1. Chase will retain $1,962,355.19 in payment of the following: Redemption of the Series 1993 Bonds (maturities 2004-2009) $1,950,000.00 Interest Due to Redemption Date (4-9-03) 11,755.19 Paying Agent/Registrar Fee on New Bonds (First Year) 300.00 Early Redemption Notice and Processing 300.00 $1,962,355.19 2. By wire transfer, transmit the FGIC insurance premium in the amount of $22,122.66 to Bankers Trust, New York, ABA # 021-001-033, 16 Wall Street, New York, New York, for credit to Financial Guaranty Insurance Company, Account # 50-256-127, for Policy # 03010323, Trophy Club Municipal Utility District No. 1, Unlimited Tax Refunding Bonds, Series 2003, Attention; Stephanie Cain (212-312-3230) 3. By wire transfer, transmit the amount of $8,740.02 to the depository bank as follows: Northwest Bank, Roanoke, Texas ABA #111-910-681 for credit to Trophy Club MUD #1 I&S Account #6000145. This amount (representing the items shown below) is the initial deposit to the Interest and Sinking Fund for the Series 2003 Unlimited Tax Refunding Bond issue. Accrued Interest $1,160.61 “Use of Funds” Contingency Amount 4,388.30 Excess Cost of Issuance Funds 3,191.11 Total Amount for Deposit to I&S Fund $8,740.02 3 FINAL 4. By wire transfer, transmit the amount of $34,999.85 to JPMorgan Chase Bank, ABA # 113 000 609, FAO SWS Securities, Account # 08805076955, Attention: Lisa Henderson, Reference: Trophy Club MUD No.1 # 9003-119375. This amount is in payment of the Financial Advisory Fee, Refunding Calculations Fee and Electronic Internet Posting/Distribution Fee, as listed in Exhibit “A” attached hereto. 5. By wire transfer, transmit the amount of $31,999.85 to Colonial BHAM, 1999 Bryan St., Dallas Texas, ABA # 0620- 0131-9, Account # 00000-0152-9, for credit to McCall, Parkhurst & Horton L.L.P. Operating Account, for further credit to Client Reference #2667.009 Trophy Club MUD No. 1. This amount is in payment of Bond Counsel fee including expenses and Attorney General fee, as listed in Exhibit “A” attached hereto. 6. The remaining portion of the Bond proceeds, in the amount of $4,209.19 is to be disbursed in the form of checks payable to (1) Moody’s Investors Service, Inc. and (2) Island Printing, representing payments for all remaining costs of issuance, as indicated in Exhibit A attached hereto: These checks should be sent via Courier Delivery to Dan Almon at Southwest Securities, 1201 Elm St. Suite 3500, Dallas, Texas 75270, for delivery to the individual parties. GOOD FAITH CHECK On the Closing Date, the District is to return via Federal Express or Certified Mail, uncashed, the good faith check in the amount of $19,500.00 to First Southwest Company, Attention: Beverly Knight, 325 N. St. Paul, Suite 800, Dallas, TX 75201 (214-953-4040). [The remainder of this page is intentionally left blank.] 4 FINAL TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 $1,949,287.70 Unlimited Tax Refunding Bonds, Series 2003 EXHIBIT A JPMorgan will make disbursements as follows: JPMorgan Payments Via Wires SWS Securities, Attention: Dan Almon Financial Advisory Fee $30,999.85 OS Electronic Internet Posting/Distribution Fee 1,500.00 Refunding Calculations Fee 2,500.00 $34,999.85 McCall, Parkhurst & Horton L.L.P. Attention: Pete Tart (Includes $750.00 for A.G. Fee) 31,999.85 Sub Total $66,999.70 JPMorgan Payments Via Checks Sent to Dan Almon Southwest Securities by Courier Moody’s Investors Service, Inc. $ 3,250.00 Island Printing (Final Official Statement Printing) 959.19 Sub Total $ 4,209.19 _______________________________________________________________ Additional costs included in Cost of Issuance as follows: Paying Agent/Registrar Fee, Early Redemption Fee retained by Chase upon the initial receipt of funds $ 600.00 Excess Cost of Issuance Reimbursed to District in Item #4 3,191.11 Total Cost of Issuance $75,000.00