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HomeMy WebLinkAbout2010 $2 Million Unlimited Tax Bonds Series 2010-Fire StationTRANSCRIPT OF PROCEEDINGS RELATING TO $2,000,000 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1 UNLIMITED TAX BONDS, SERIES 2010 MCCALL, PARKHURST & HORTON L.L.P. 717 N. HARWOOD, SUITE 900 DALLAS, TEXAS 75201 PARKSIDE@MAYFIELDRNCHMUD\UTB\2010: TABLE.CON $2,000,000 Trophy Club Municipal Utility District No. 1 Unlimited Tax Bonds, Series 2010 TABLE OF CONTENTS CONSOLIDATION PROCEEDINGS TAB Consolidation Agreement between Trophy Club Municipal Utility District No. 1 and Trophy Club Municipal Utility District No. 2 ................................ 1 Trophy Club Municipal Utility District No. 1 Certified Order Calling May 9, 2009 Consolidation Election.................................................. 2 Trophy Club Municipal Utility District No. 1 Certified Amended and Restated Order Calling May 9, 2009 Consolidation Election ................................. 3 Trophy Club Municipal Utility District No. 1 Affidavits of Posting of Notice of Consolidation Election.................................................. 4 Trophy Club Municipal Utility District No. 1 Certified Order Canvassing Election Returns for May 9, 2009 Consolidation Election ............................. 5 Trophy Club Municipal Utility District No. 1 Consolidation Election Justice Department Preclearance Letter........................................... 6 Trophy Club Municipal Utility District No. 2 Certified Order Calling May 9, 2009 Consolidation Election.................................................. 7 Trophy Club Municipal Utility District No. 2 Certified Amended and Restated Order Calling May 9, 2009 Consolidation Election ................................. 8 Trophy Club Municipal Utility District No. 2 Affidavits of Posting of Notice of Consolidation Election.................................................. 9 Trophy Club Municipal Utility District No. 2 Certified Order Canvassing Election Returns for May 9, 2009 Consolidation Election ............................. 10 Trophy Club Municipal Utility District No. 2 Consolidation Election Justice Department Preclearance Letter........................................... 11 PARKSIDE@MAYFIELDRNCHMUD\UTB\2010: TABLE.CON BOND ELECTION PROCEEDINGS Trophy Club Municipal Utility District No. 1 Certified Order Calling May 10, 2008 Bond Election ............................................................. Trophy Club Municipal Utility District No. 1 Certified Order Canvassing Election Returns for May 10, 2008 Bond Election .................................. 12 13 Trophy Club Municipal Utility District No. 1 Affidavit of Posting Notice of May 10, 2008 Bond Election ................................................... 14 Trophy Club Municipal Utility District No. 1 Affidavit of Publication of Notice of May 10, 2008 Bond Election ............................................. 15 Justice Department Preclearance Letter..................................... 16 TCEQ APPROVAL PROCEEDINGS Certified Copy of an Order Approving an Engineering Project and the Issuance of $2,000,000 Unlimited Tax Bonds ......................................... 17 BASIC FINANCING DOCUMENTS Order Authorizing the Issuance of $2,000,000 Trophy Club Municipal Utility District No. 1 Unlimited Tax Bonds, Series 2010; Authorizing the Levy of an Ad Valorem Tax in Support of the Bonds; Approving an Official Statement; Authorizing the Execution of a Paying Agent/registrar Agreement; Awarding the Sale of the Bonds; Making Certain Continuing Disclosure Undertakings under Rule 15c2-12; and Authorizing Other Matters Related to the Issuance of the Bonds ....................................... 18 Paying Agent/Registrar Agreement........................................ 19 Bond Insurance Policy and Insurance Documents ............................ 20 PUBLICATION AND OFFERING DOCUMENTS Resolution Authorizing Notice Sale of Trophy Club Municipal Utility District No. 1 Unlimited Tax Bonds, Series 2010, in the Principal Amount of $2,000,000, and Other Matters Related Thereto................................................. 21 Affidavits of Publication of Notice of Sale of Bonds .......................... 22 Affidavits of Publication of Corrected Notice of Sale of Bonds .................. 23 PARKSIDE@MAYFIELDRNCHMUD\UTB\2010: TABLE.CON Preliminary Official Statement dated March 9, 2010 .......................... 24 Winning Bid Form..................................................... 25 Official Statement dated March 16, 2010 ................................... 26 DISTRICT CERTIFICATES General and No-Litigation Certificate ...................................... 27 Federal Tax Certificate ................................................. 28 LEGAL OPINIONS AND CLOSING DOCUMENTS Opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel ................. 29 Reliance Letter........................................................ 30 Approving Opinion of the Attorney General of Texas with Comptroller's Registration Certificate............................................................ 31 Instruction Letter to Paying Agent/Registrar................................. 32 Closing Memorandum .................................................. 33 Receipt for Proceeds ................................................... 34 Paying Agent/Registrar Receipt ........................................... 35 MISCELLANEOUS Form 8038-G Filing .................................................... 36 Specimen Bond ....................................................... 37 Rating Letters......................................................... 38 DTC Blanket Letter of Representation ..................................... 39 Certificate of Obligor................................................... 40 Closing Certificate..................................................... 41 NEW ISSUE-BOOK·ENTRY-ONLY Ratings:S&P:"MA"(Negative Outlook)(Insured) "M·"(Underlying) Moody's:"Aa3"(Negative Outlook)(Insured) "A2"(Underlying) (See "RATINGS"and "BOND INSURANCE"herein) OFFICIAL STATEMENT Dated March 16,2010 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 MATTERSw herein. THE DISTRICT HAS DESIGNATED THE BONDS AS "QUALIFIED TAX-EXEMPTOBLIGATlONS". (See "TAX MATTERS -Qualified Tax-Exempt Obligations for Financiallnstitutionsw herein.) $2,000,000 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 (A Political Subdivision ofthe State ofTexas Located in Denton and Tarrant Counties) UNLIMITEDTAX BONDS,SERIES 2010 Dated Date:April 1,2010 Due:September 1,as shown on Page ii The Trophy Club Municipal Utility District NO.1 (the "District"or "Issuer")$2,000,000 Unlimited Tax Bonds,Series 2010 (the "Bonds") are being issued pursuant to the terms and provisions ofan order (the "Order")of the Board of Directors of the District (the "Board")and in accordance with the Constitution and general laws of the State of Texas (the "State"),inclUding particularly Article XVI,Section 59 of the Texas Constitution and the general laws of the State of Texas,including Chapters 49 and 54 of the Texas Water Code,as amended.and an order ofthe Texas Commission on Environmental Quality.The Bonds were authorized by the voters ofthe District at an election held on May 10,2008.(See "THE BONDS -Authority for Issuance"herein.) The Bonds,when issued,will constitute direct and general obligations of the District,payable from the proceeds of an annual ad valorem tax levied against all taxable property located therein,without limitation as to rate or amount.Neither the State of Texas, Denton or Tarrant Counties,Texas nor any political subdivision or municipality,other than the District shall be obligated to pay the principal of or interest on the Bonds.Neither the faith and credit nor the taxing power of the State of Texas or Denton or Tarrant Counties,Texas or any political subdivision or municipality thereof,other than the District,Is pledged to the payment of the principal of or interest on or the redemption price of the Bonds.(See "THE BONDS -Security for Payment" herein.)THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN.(See "INVESTMENT CONSIDERATIONS·herein.)Bond purchasers are encouraged to read this entire Official Statement prior to making an investment decision. Interest on the Bonds will accrue from April 1,2010 (the "Dated Date")and is payable March 1,2011,and each September 1 and March 1 thereafter until the earlier of maturity or redemption,and will be calculated on the basis of a 36Q-day year of twelve 3Q-day months.The Bonds will be issued in fully registered form only,without coupons,in denominations of $5,000 or any integral multiple thereof,and when issued,will be registered in the name of Cede &Co.,as registered owner and nominee for The Depository Trust Company rOTC"),New York,New York,acting as securities depository for the Bonds until DTC resigns or is discharged.The Bonds initially will be available to purchasers in book-entry form only.So long as Cede &Co.,as the paying agent to DTC,is the registered owner of the Bonds,principal of and interest on the Bonds will be payable by the paying agent to DTC,which will be solely responsible for making such payment to the beneficial owners of the Bonds.The initial paying agenUregistrar for the Bonds shall be The Bank of New York Mellon Trust Company,N.A.,Dallas,Texas (the ·Paying Agent"). Proceeds from the sale of the Bonds are being used to (i)construct and equip a new fire station and (ii)pay the costs related to the issuance of the Bonds.(See "THE BONDS -Use of Bond Proceeds"herein.) The District reserves the right to redeem,prior to maturity,in integral multiples of $5,000,those Bonds maturing on and after September 1,2021,in whole or from time to time in part,on September 1,2020,and on any date thereafter at a price of par piUS accrued interest from the most recent interest payment date to the date fixed for redemption.In addition,the Bonds maturing September 1,2027,September 1,2029 and September 1,2031 are subject to mandatory sinking fund redemption,as further described herein.(See "THE BONDS -Redemption Provisionsw herein.) After requesting competitive bids for purchase of the Bonds,the District has accepted the lowest bid to purchase the Bonds,bearing interest as shown,at a price of 100%of par plus accrued interest to the date of delivery,resulting in a net interest cost rate to the District of 4.156986%. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICPAL CORP.(FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.)("Assured Guaranty Municipal"or "AGM").(See "BOND INSURANCE"herein.) ~URED GUARANTY' MUNICIPAL STATED MATURITY SCHEDULE (See Page i1) The Bonds are offered for delivery,when,as and if issued and received by the initial purchaser (the "Purchaser?and subject to the approving opinion of the Attomey General ofthe State of Texas and the approval ofcertain legal matters by McCall,ParKhurst &Horton L.L.P.,Dallas, Texas,Bond Counsel.Delivery ofthe Bonds through DTC in Dallas,Texas is expected on or about April 15,2010. STATED MATURITY SCHEDULE (Due September 1) Base CUSIP -897059 (a) Stated Maturity Principal Rate Yield CUSIP Due 9-1 Amount (%)(%)Suffix(a) 2012 $65,000 3.50 1.00 DU2 2013 65,000 3.50 1.20 DVO 2014 70,000 3.50 1.50 DW8 2015 70,000 3.50 1.90 DX6 2016 75,000 3.50 2.40 DY4 2017 80,000 3.50 2.75 DZ 1 2018 85,000 3.50 3.00 EA5 2019 85,000 3.50 3.20 EB3 2020 90,000 3.50 3.35 EC 1 2021 95,000 3.50 3.50 ED9 2022 100,000 5.00 3.60 EE 7 2023 105,000 5.00 3.70 EF 4 2024 110,000 5.00 3.80 EG2 2025 115,000 4.00 3.90 EH 0 $240,000 4.10%Term Bond due September 1,2027 Price to Yield 4.15%EK 3(8) $265,000 4.20%Term Bond due September 1,2029 Price to Yield 4.25%EM 9(a) $285,000 4.25%Term Bond due September 1,2031 Price to Yield 4.35%EP 2 (a) (8)CUSIP is a registered trademark of the American Bankers Association.CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau,a Standard &Poor's Financial Services LLC business.This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services.Neither the District nor the Financial Advisor is responsible for the selection or the correctness ofthe CUSIP numbers set forth herein. ii TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 BOARD OF DIRECTORS Jim Budarf Dean Henry Gary Cantrell Kevin Carr Jim Hase James C.Thomas Joseph Boclair Robert Fair Steven Kohs Neil Twomey Position Joint President Joint President Joint Vice President Joint Vice President Joint Secretary Joint Secretary Director Director Director Director Two-Year Term· Expires.May 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Occupation Retired Retired Retired Self Employed Retired Retired Alcon Research Retired Retired Retired •Due to the May 2009 consolidation of Trophy Club Municipal Utility District No.1 and Trophy Club Municipal Utility District No.2,all officers ofeach District continue to actjointly as officers of the consolidated Trophy Club Municipal Utility District No.1 until the next general election.At the May 8,2010 election,all five director positions shall be subject to election,and the terms ofsuch seats shall be staggered,as provided by law for a confirmation and direction election. DISTRICT PERSONNEL AND ADVISORS General Manager Robert Scott . Trophy Club,Texas Director of Finance Kathy DuBose Trophy Club,Texas Attorneys for the District.,Bob West Whitaker Chalk Swindle &Sawyer,LLP Fort Worth,Texas Pamela Harrell Liston The Liston Law Firm,P.C. Rowlett,Texas Financial Advisor Southwest Securities Dallas,Texas Bond Counsel McCall,Parkhurst &Horton L.L.P. Dallas,Texas Independent Auditors Weaver &Tidwell,LLP Dallas,Texas Professional Engineers TMBP Engineering Dallas,Texas Tax Assessor -Collector Denton County Texas Tarrant County Texas Chief Appraiser Denton County Texas Tarrant County Texas ForAdditional Information Please Contact: Mr.Robert Scott .District Manager 100 Municipal Drive Trophy Club,Texas 76262 (682)831-4610 iii Mr.Dan A.Almon Senior Vice President Southwest Securities,Inc. 1201 Elm Street,Suite 3500 Dallas,Texas 75270 (214)859-9452 TABLE OF CONTENTS Governance 14 General 14 Location 14 Population 14 Topography and Drainage 14 Shopping and Commercial Facilities 14 Fire Protection 15 Police Protection 15 Schools 15 Recreational Opportunities 15 Status of Development of the District 15 Public Improvement District Description 16 INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT..16 Current Investments 17 TAX DATA 18 District Bond Tax Rate Limitation 18 Maintenance and Operations Tax 18 Overlapping Taxes 18 TAXING PROCEDURES 18 Authority to Levy Taxes 18 Property Tax Code and County-Wide Appraisal District 18 Valuation of Property for Taxation 19 Notice and Hearing Procedures 20 District and Taxpayer Remedies 20 Levy and Collection of Taxes 20 District's Rights in the Event of Tax Delinquencies 20 LEGAL MAnERS 21 Legal Opinions 21 Litigation 21 No-Litigation Certificate 21 No Material Adverse Change 21 TAX MAnERS 22 Opinion 22 Federal Income Tax Accounting Treatment of Original Issue Discount 22 Collateral Federal Income Tax Consequences 23 State,Local and Foreign Taxes 23 Qualified Tax-Exempt Obligations for Financial· Institutions 23 CONTINUING DISCLOSURE OF INFORMATION 24 Annual Reports 24 Material Event Notices 24 Availability of Information 24 Limitations and Amendments 24 Compliance with Prior Agreements 25 FINANCIAL ADVISOR 25 OFFICIAL STATEMENT 25 Updating the Official Statement During Underwriting Period 25 Forward-Looking Statements Disclaimer 25 OTHER MAnERS 26 Initial Purchaser 26 Legal Investment and Eligibility to Secure Public Funds in Texas 26 Registration and Qualification of Bonds for Sale 26 Absence of Litigation 26 Certification as to Official Statement...26 Concluding Statement 27 Appendix A Appendix B Appendix C Appendix D Appendix E Financial Information of the Issuer General Information Regarding the District Fonn of Legal Opinion of Bond Counsel The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30,2009 Specimen Municipal Bond Insurance Policy BOARD OF DIRECTORS iii DISTRICT PERSONNEL AND ADVISORS iii TABLE OF CONTENTS iv USE OF INFORMATION IN THE OFFICIAL STATEMENT v SALE AND DISTRIBUTION OF THE BONDS vi Award of the Bonds vi Issue Prices and Marketability vi INVESTMENT CONSIDERATIONS vi SELECTED DATA FROM THE OFFICIAL STATEMENT..vii SELECTED FINANCIAL INFORMATION viii OFFICIAL STATEMENT 1 INTRODUCTION 1 THE BONDS 1 General Description 1 Use of Bond Proceeds 1 Authority for Issuance 1 Texas Commission on Environmental Quality Approval 2 Security for Payment 2 Payment Record 2 Flow of Funds and Investment of Funds 3 Redemption Provisions 3 Termination of Book-Entry-Only System .4 Defeasance of Outstanding Bonds 5 Paying Agent/Registrar 5 Record Date 6 Issuance of Additional Debt...6 Specific Tax Covenants 6 Additional Covenants 6 Remedies in Event of Default...6 Amendments to the Order 6 SOURCES AND USES OF FUNDS .7 RATINGS 7 BOND INSURANCE 7 Bond Insurance Policy 7 Assured Guaranty Municipal Corp.(Fonnerly Known as Financial Security Assurance Inc.)7 BOND INSURANCE RISK FACTORS 9 General 9 Claims-Paying Ability and Financial Strength of Municipal Bond Insurers 9 BOOK-ENTRY-ONLY SYSTEM 9 Use ofCertain Terms in Other Sections ofthis Official Statement 11 INVESTMENT CONSIDERATIONS 11 General 11 Approval of the Bonds 11 Marketability 11 Tax Collections and Foreclosure Remedies 12 Consolidation 12 Abolition 12 Alteration of Boundaries 12 Registered Owners'Remedies 12 Bankruptcy Limitation to Registered Owners'Rights 12 The Effect of the Financial Institutions Act of 1989 on Tax Collections of the District...13 Continuing Compliance with Certain Covenants 13 Future Debt 13 THE DISTRICT 13 Creation ofthe District...13 The cover page,subsequentpages hereofandthe schedules andappendices attachedhereto,are partofthis Official Statement. iv 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 representations other than those contained in this Official Statement,and if given or made,such other information or representations must not be relied upon as having been authorized by the District. This Official Statement does not alone constitute,and is not authorized by the District for use in connection with,an offer to sell or the solicitation of any offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. All ofthe summaries of the statutes,orders,resolutions,contracts,records,and engineering and other related reports set forth in the Official Statement are made subject to all of the provisions of such documents.These summaries do not purport to be complete statements of such provisions,and reference is made to such documents,copies of which are available from the Financial Advisor,upon the payment of reasonable duplication costs. This Official Statement contains,in part,estimates,assumptions and matters of opinion which are not intended as statements of fact,and no representation is made as to the correctness of such estimates,assumptions,or matters of opinion,or as to the likelihood that they will be realized.Any information and expressions of opinion herein contained are subject to change without notice,and neither the delivery of this "Official Statement"nor any sale made hereunder shall,under any circumstances,create any implication that there has been no change in the affairs of the District or the other matters described herein since the date hereof.However,the District has agreed to keep this "Official Statement"current by amendment or sticker to reflect material changes in the affairs of the District,and to the extent that information actually comes to its attention,other matters described in the "Official Statement"until delivery of the Bonds to the Initial Purchaser and thereafter only as specified in "OFFICIAL STATEMENT -Updating the Official Statement During Underwriting Period"and "CONTINUING DISCLOSURE OF INFORMATION." NEITHER THE DISTRICT NOR THE FINANCIAL ADVISOR MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY ("DTC")OR ITS BOOK-ENTRY-ONLY SYSTEM OR ANY INFORMATION UNDER THE CAPTION "BOND INSURANCE"REGARDING ASSURED GUARANTY MUNICIPAL CORP.("ASSURED GUARANTY MUNICIPAL"OR "AGM") OR ITS POLICY,AS SUCH INFORMATION HAS BEEN FURNISHED BY DTC AND AGM,RESPECTIVELY. Assured Guaranty Municipal Corp.(formerly known as Financial Security Assurance Inc.)("AGM")makes no representation regarding the Bonds or the advisability of investing in the Bonds.In addition,AGM has not independently verified,makes no representation regarding,and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein,or omitted herefrom,other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "BOND INSURANCE"(but excluding the information under the heading "BOND INSURANCE -Introduction")and "APPENDIX E -SPECIMEN MUNICIPAL BOND INSURANCE POLICY". THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH.THE REGISTRATION,QUALIFICATION,OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED,OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. THIS OFFICIAL STATEMENT CONTAINS "FORWARD-LOOKING"STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,AS AMENDED.SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS,UNCERTAINTIES,AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE,AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS,PERFORMANCE,AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD- LOOKING STATEMENTS. [The remainder ofthis page is intentionally left blank.] v SALE AND DISTRIBUTION OF THE BONDS Award of the Bonds After requesting competitive bids for the Bonds,the District accepted the bid resulting in the lowest net interest cost,which bid was tendered by Southwest Securities (the "Initial Purchaser")bearing the lowest interest rates shown on the cover page hereof, at a price of 100%of the par value thereof plus accrued interest to the date of delivery which resulted in a net interest cost of 4.156986%as calculated pursuant to Texas Government Code Chapter 1204,as amended.The initial reoffering yields were supplied to the District by the Purchaser.The initial reoffering yields shown on the cover page will produce compensation to the Initial Purchaser of approximately $15,237.00,after the payment of the insurance premium. Issue Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Initial Purchaser on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity has been sold to the public.For this purpose,the term "public"shall not include any person who is a bond house, broker or similar person acting in the capacity of underwriter or wholesaler.Otherwise,the District has no understanding with the Initial Purchaser regarding the reoffering yields or prices of the Bonds.Information concerning reoffering yields or prices is the responsibility ofthe Initial Purchaser. The prices and other terms with respect to the offering and sale of the Bonds may be changed from time-to time by the Initial Purchaser after the Bonds are released for sale,and the Bonds may be offered and sold at prices other than the initial offering prices,including sales to dealers who may sell the Bonds into investment accounts.In connection with the offering of the Bonds, the Initial Purchaser may over -allot or effect transactions which stabilize or maintain the market prices or the Bonds at levels above those which might otherwise prevail in the open market.Such stabilizing,if commenced,may be discontinued at any time. The District has no control over trading of the Bonds in the secondary market.Moreover,there is no guarantee that a secondary market will be made in the Bonds.In such a secondary market,the difference between the bid and asked price of utility district bonds may be greater than the difference between the bid and asked price of bonds of comparable maturity and quality issued by more traditional municipal entities,as bonds of such entities are more generally bought,sold or traded in the secondary market. INVESTMENT 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 "INVEWSTMENT CONSIDERATIONS", with respect to the investment security ofthe Bonds. [The remainder ofthis page is intentionally left blank.] vi SELECTED DATA FROM THE OFFICIAL STATEMENT 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 Issuer The Bonds Security for Payment Paying Agent/Registrar Description Redemption Provisions Tax Matters Use of Proceeds Bond Insurance Ratings Book-Entry-QnlySystem Future Bond Issues Payment Record Delivery Legality The Trophy Club Municipal Utility District No.1 (the "District"or "Issuer")is a political subdivision ofthe State of Texas located in Denton and Tarrant Counties,Texas.The District was created as a municipal utility district pursuant to Chapter 54 of the Texas Water Code and is a conservation and redamation district in accordance with Article XVI,Section 59 of the Texas Water Code.The District has also adopted a fire protection plan under Section 50.055 of the Texas Water Code,now codified as Subchapter L of Chapter 49 of the Texas Water Code,pursuant to the Order of the Texas Water Commission of August 22,1983.In July of 2009, documentation was submitted to the Texas Commission on Environmental Quality ("TCEQ")regarding the consolidation of Trophy Club Municipal Utility District Nos.1 and 2 as of a May 9,2009 election.(See "THE DISTRICT'and "APPENDIX B -GENERAL INFORMATION REGARDING THE DISTRICT'herein.) The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas,including particularly Article XVI,Section 59 of the Texas Constitution and the general laws of the State of Texas, including Chapters 49 and 54 ofthe Texas Water Code,as amended,an order ofthe Texas Commission on Environmental Quality,and an order (the "Order")adopted by the Board of Directors (the "Board")of the District.The Bonds were authorized by the voters of the District at an election held May 10,2008.(See "THE BONDS -Authority for Issuance"herein.) The Bonds,when issued,will constitute direct and general obligations of the District,payable from the proceeds of an annual ad valorem tax levied against all taxable property located therein,without limitation as to rate or amount.Neither the State ofTexas,Denton or Tarrant Counties,Texas nor any political subdivision or municipality,other than the District shall be obligated to pay the principal of or interest on the Bonds.Neither the faith and credit nor the taxing power of the State of Texas or Denton or Tarrant Counties,Texas or any political subdivisions or municipality thereof,other than the District,is pledged to the payment of the principal of or interest on or the redemption price of the Bonds.(See "THE BONDS -Securityfor Payment"herein.) The initial Paying AgenURegistrarfor the Bonds is The Bank of New York Mellon Trust Company,N.A., Dallas,Texas The Bonds in the aggregate principal amount of $2,000,000 mature on September 1 of each year in the amounts as set forth on page ii of this Official Statement.Interest accrues from April 1,2010 (the "Dated Date")atthe rates per annum set forth page ii hereofand is payable March 1,2011 and each September 1 and March 1 thereafter until maturity or earlier redemption.The Bonds are offered in fully registered form in integral multiples of$5,000 for anyone maturity.(See "THE BONDS -General Description"herein.) Bonds maturing on and after September 1,2021 are subject to redemption in whole or from time to time in part at the option of the District on September 1,2020,and on any date thereafter,at par plus accrued interest from the most recent interest payment date to the date of redemption.In addition,the Bonds maturing September 1,2027,September 1,2029 and September 1,2031 are subject to mandatory sinking fund redemption,as further described herein. In the opinion of Bond Counsel,the interest on the Bonds will be excludable from gross income ofthe owners thereof for purposes of federal income laxation under existing law subject to matters discussed herein under "TAX MAnERS".(See ''TAX MAnERS"and Appendix C -"Form of Legal Opinion ofBond Counsel"herein.) Proceeds from the sale of the Bonds are being used to (i)construct and equip a new fire station and (ii)pay the costs related to the issuance of the Bonds.(See "THE BONDS -Use of Bond Proceeds"herein.) The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP.(FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.)("Assured Guaranty Municipal"or "AGM")(See "BOND INSURANCE"and "BOND INSURANCE RISK FACTORS" herein.) Moody's Investors Service,Inc.("Moody's")and Standard &Poor's Ratings Services,a Standard &Poor's Financial Services LLC business ("S&P")are expected to assign ratings of "Aa3"(Negative Outlook)and "AAA"(Negative Outlook),respectively,to the Bonds with the understanding that,concurrently with the delivery of the Bonds,a municipal bond insurance policy will be issued by Assured Guaranty Municipal. Moody's and S&P have assigned underlying ratings of "A2"and "AA-",respectively,to the Bonds.An explanation of the significance of such ratings may be obtained from the rating agency.(See "RATINGS" herein.) The Issuer intends to utilize the Book-Entry-Only System ofThe Depository Trust Company,New York, New York relating to the method and timing of payment and the method and transfer relating to the Bonds.(See "BOOK-ENTRY-ONLY SYSTEM"herein.) The Bonds were authorized at an election held in the District on May 10,2008.After the sale of the Bonds, the District will have no authorized but unissued bonds for fire protection remaining.(See "APPENDIX A - TABLE 16"herein).The District has no plans to issue additional bonds within the next twelve months. The Issuer has never defaulted in the timely payment of principal of or interest on its general obligation indebtedness. When issued,anticipated on oraboutApril 15,2010. Delivery ofthe Bonds is subject to the approval by the Attorney General of the State ofTexas and the rendering ofan opinion as to legality McCall,Parkhurst &Horton L.L.P.,Bond Counsel,Dallas,Texas. vii SELECTED FINANCIAL INFORMATION 2009 Estimated Net Taxable Assessed Valuation Gross Debt Principal Outstanding (after issuance of the Bonds) Ratio of Gross Debt Principal to 2009 Taxable Assessed Valuation Debt Service Fund Balance as of January 31,2010 (unaudited) 2009-2010 Tax Rate Operations Fire Protection Debt Service Total $0.02714 0.10914 0.06872 $1,023,493,111 $9,290,000 0.83% $979,124 $0.20500 (a) Average Percentage ofTotal Tax Collections -Tax Years 2004-2008 Projected Average Annual Debt Service Requirement (2011-2031) Ofthe Bonds and the Outstanding Bonds ("Projected Average Requirement") Tax Rate Required to Pay Projected Average Annual Requirement Based Upon Current Net Taxable Assessed Valuations at 99%Collections Projected Maximum Annual Debt Service Requirement (2011)of the Bonds and The Outstanding Bonds ("Projected Maximum Requirement") Tax Rate Required to Pay Projected Maximum Annual Requirement Based Upon Current Net Taxable Assessed Valuations at 99%collections Estimated 2009 population 99.72%(b) $567,820 $0.05604/$100 AV $1,494,559 $0.1475/$100 AV 7,441 ca)2009 Net Taxable Valuation does not include property under protest or values for incomplete accounts.(See "TAXING PROCEDURES·herein.) (a)Historical tax collection information for Tax Years 2004-2008 represents the combined totals from two separate entities (Trophy Club MUD No.1 and Trophy Club MUD No.2). viii OFFICIAL STATEMENT relating to $2,000,000 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 (A Political Subdivision ofthe State of Texas Located in Dallas County,Texas) UNLIMITED TAX BONDS,SERIES 2010 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 $2,000,000 Unlimited Tax Bonds,Series 2010 (the "Bonds"). The Bonds are being issued pursuant to Article XVI,Section 59 of the Texas Constitution and the general laws of the State of Texas,including Chapters 49 and 54 of the Texas Water Code,as amended,an order of the Texas Commission on Environmental Quality,and an order (the "Order")adopted by the Board of Directors (the "Board")of the District,and will constitute direct and general obligations of the District,payable from the proceeds of an ad valorem tax levied against all taxable property located therein,without limitation as to rate or amount. Unless otherwise indicated,capitalized terms used in this Preliminary Official Statement have the same meaning assigned to such terms in the Order. Included in this Preliminary Official Statement are descriptions of the Bonds,the Order,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 Financial Advisor. THE BONDS General Description The $2,000,000 Trophy Club Municipal Utility District No.1 Unlimited Tax Bonds,Series 2010 will bear interest from April 1,2010 (the "Dated Date")and will mature on September 1 of the years and in the principal amounts,and will bear interest at the rates per annum,set forth on page ii hereof. Interest on the Bonds will accrue from the Dated Date and is payable March 1,2011,and each September 1 and March 1 thereafter until the earlier of maturity or redemption,and will be calculated on the basis of a 360-day year of twelve 30-day months.The Bonds will be issued in fully registered form only,without coupons,in denominations of $5,000 or any integral multiple thereof.The initial paying agent for the Bonds shall be The Bank of New York Mellon Trust Company,NA,Dallas, Texas ("Paying Agent").The principal of and interest on the Bonds shall be payable without exchange or collection charges,in any coin or currency of the United States of America which,on the date of payment,is legal tender for the payment of debt due the United States of America. If the specified date for any payment of principal (or Redemption Price)of or interest on the Bonds is a Saturday,Sunday,or legal holiday or equivalent for banking institutions generally in the city in which Designated Payment I Transfer Office of the Paying Agent is located,such payment may be made on the next succeeding day which is not one of the foregoing days without additional interest and with the same force and effect as if made on the specified date for such payment. Initially,the Bonds will be registered and delivered only to Cede &Co.,the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein.No physical delivery of the Bonds will be made to the beneficial owners.Principal of and interest on the Bonds will be payable by the Paying Agent to Cede &Co.,which will distribute the amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds.(See "BOOK-ENTRY-ONLY SYSTEM"HEREIN.) Use of Bond Proceeds Proceeds from the sale of the Bonds are being used to (i)construct and equip a new fire station and (ii)pay the costs related to the issuance of the Bonds.(See "THE PROJECT"herein.) Authority for Issuance The Bonds were authorized at an election held on May 10,2008. The Bonds are issued by the District pursuant to the terms and provisions of the Order,Article XVI,Section 59 of the Texas Constitution and the general laws of the State of Texas,including Chapters 49 and 54 of the Texas Water Code,as amended, and an order of the Texas Commission on Environmental Quality. 1 Texas Commission on Environmental Quality Approval On January 28,2010,the Texas Commission on Environmental Quality ("TCEQ")issued a Commission Order ("TCEQ Order") approving the project and the issuance of the Bonds.The approval order included the following information: "....Pursuant to TEX.WATER CODE Section 49.181,the engineering project for Trophy Club Municipal Utility District No.1 of Denton and Tarrant Counties is hereby approved together with the issuance of $2,000,000 of bonds at a maximum net effective interest rate of 5.72%.The District is directed not to expend $1,830,809 ($1,664,372 construction plus $116,437 contingencies)of the bond issue proceeds approved herein for Trophy Club Fire Station No.1 pending District Board receipt of plans and specifications approved by all entities with jurisdiction and construction documents....The approval of the sale of these bonds herein shall be valid for one year from the date of this Order unless extended by written authorization ofthe Commission staff...... The TECQ further ordered,to enable the Commission to carry out the responsibilities imposed by Texas Water Code Sections 49.181-182,that the District shall:(1)fumish the TCEQ copies of all bond issue project construction documentation outlined under Title 30 of the Texas Administrative Code,Section 293.62,including detailed progress reports and as-built plans required by Texas Water code Section 49.277(b),to the extent not already been submitted;(2)notify the Utilities and Districts Section of the TCEQ and obtain approval of the TCEQ for any substantial alterations in the engineering project approved herein before making such alterations;and (3)ensure,as required by Texas Water Code Section 49.277(b),that all construction financed with the proceeds from the sale of bonds is completed by the construction contractor according to the plans and specifications contracted. Security for Payment The Bonds will constitute valid and legally binding direct obligations of the District payable from the proceeds of a continuing direct annual ad valorem tax levied by the District against all taxable property located therein,without legal limit as to rate or amount.The Order irrevocably pledges such ad valorem taxes to the payment ofthe principal of and interest on the bonds while the same remain outstanding.Neither the State of Texas,Denton or Tarrant Counties,Texas nor any political subdivision or municipality,other than the District shall be obligated to pay the principal of or interest on the Bonds.Neither the faith and credit nor the taxing power of the State of Texas or Denton or Tarrant Counties,Texas or any political subdivision or municipality thereof,other than the District,is pledged to the payment of the principal of or interest on or the redemption price of the Bonds. Tax Pledge:The Board covenants in the Order that,while any ofthe 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 fl:om 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 the Bonds when due or the redemption price at any earlier required redemption date,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. 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 municipal utility 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).The District is the resulting entity from a consolidation in May 2009 of Trophy Club Municipal Utility District No.1 and Trophy Club Municipal Utility district NO.2 (see "THE DISTRICr). Payment Record The District has never defaulted on the timely payment of principal of and interest on its general obligation indebtedness. 2 Flow of Funds and Investment of Funds The Bond Order creates an Interest and Sinking Fund and a Construction Fund. Each fund shall be kept separate and apart from all other funds of the District.Any cash balance in any fund must be continuously secured,to the extent that the United States or an instrumentality of the United States does not insure the cash balance,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 all times equal to the cash balance in the fund to which such securities are pledged. Interest and Sinking Fund:The Bond Order establishes the Interest and Sinking Fund to be used to pay principal and interest on the Bonds.The Bond Order requires that the District deposit to the credit of the Interest and Sinking Fund (i)from the delivery of the Bonds to the initial purchaser,the amount received from proceeds of the Bonds representing accrued interest,(ii)District ad valorem taxes (and penalties and interest thereon)levied to pay debt service requirements on the Bonds,and (iii)such other funds as the Board shall,at its option,deem advisable.The Bond Order requires that the Interest and Sinking Fund be applied solely to provide for the payment of the principal or redemption price of and interest on the Bonds when due,and to pay fees to the Paying Agent when due. Construction Fund:The Construction Fund is the capital improvements fund of the District.The Bond Order requires the District to deposit to the credit of the Construction Fund the balance of the proceeds of the Bonds remaining after the deposits to the Interest and Sinking Fund.The Construction Fund may be applied solely to (i)pay the costs necessary or appropriate to accomplish the purposes for which the Bonds are issued,(ii)pay the costs of issuing the Bonds and (iii)the extent the proceeds of the Bonds and investment income attributable thereto are in excess of the amounts required to construct and equip the fire station as approved by the TCEQ,then in the discretion of the District to transfer such unexpended proceeds or income to the Interest and Sinking Fund. Redemption Provisions Optional Redemption:The Bonds maturing on or after September 1,2021,are subject to redemption prior to maturity at the option of the District,in whole or from time to time in part,on September 1,2020,and on any date thereafter,at a redemption price equal to the principal amount thereof plus accrued interest from the most recent interest payment date to the date fixed for redemption. Mandatory Sinking Fund Redemption:The Bonds maturing September 1,2027,September 1,2029 and September 1,2031 (the "Term Bonds")are subject to mandatory sinking fund redemption in part prior to their stated maturities,and will be redeemed by the Issuer at the redemption prices equal to the principal amounts thereof plus interest accrued thereon to the redemption dates,on the dates and in the principal amounts shown in the following schedule: Term Bond Due September 1,2027 Redemption Date Principal Amount September 1,2026 $115,000 September 1,2027*125,000 Term Bond Due September 1,2029 Redemption Date Principal Amount September 1,2028 $130,000 September 1,2029*135,000 *Represents Maturity Term Bond Due September 1,2031 Redemption Date Principal Amount September 1,2030 $140,000 September 1,2031*145,000 Approximately forty-five (45)days prior to the mandatory redemption date,the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds to be redeemed.Any Term Bond not selected for prior redemption shall be paid on the date of its Stated Maturity. The principal amount of the Term Bonds for a given Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions shall be reduced,at the option of the Issuer,by the principal amount of Term Bonds of like Stated Maturity which,at least 45 days prior to the mandatory redemption date,(1)shall have been defeased or acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation,or (2)shall have been purchased and canceled by the Paying Agent/Registrar at the request of the Issuer at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase,(3)have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory sinking fund redemption. 3 Notice ofRedemption:Not less than thirty (30)days prior to a redemption date for the Bonds,the District shall cause a notice of such redemption to be sent by United States mail,first-class postage prepaid,to the registered owners of each Bond or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing of such notice.With respect to any optional redemption of the Bonds,unless certain prerequisites to such redemption required by the Order have been met and money sufficient to pay the principal of and premium,if any,and interest on the Bonds to be redeemed will have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption,such notice will state that said redemption may,at the option of the Issuer,be conditional upon the satisfaction of such prerequisites and receipt of such money by the Paying Agent/Registrar on or prior to the date fixed for such redemption or upon any prerequisite set forth in such notice of redemption.If a conditional notice of redemption is given and such prerequisites to the redemption are not fulfilled,such notice will be of no force and effect, the Issuer will not redeem such Bonds,and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given,to the effect that such Bonds have not been redeemed.ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER RECEIVED BY ANY HOLDER OF THE BONDS,AND,SUBJECT TO PROVISION FOR PAYMENT OF THE REDEMPTION PRICE HAVING BEEN MADE,AND ANY PRECONDITIONS STATED IN THE NOTICE OF REDEMPTION HAVING BEEN SATISFIED INTEREST ON THE REDEEMED BONDS SHALL CEASE TO ACCRUE FROM AND AFTER SUCH REDEMPTION DATE NOTWITHSTANDING THAT A BOND HAS NOT BEEN PRESENTED FOR PAYMENT.By the date fixed for any such redemption,due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed.If such notice of redemption is given and if due provision for such payment is made,all as provided above,the Bonds or portion thereof which are to be redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities,and they shall not bear interest after the date fixed for redemption,and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the Issuer,so long as a Book-Entry-Only System is used for the Bonds,will send any notice of redemption,notice of proposed amendment to the Bonds or other notices with respect to the Bonds only to DTC.Any failure by DTC to advise any DTC participant,or of any DTC participant or indirect participant to notify the Beneficial Owner,will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice.Redemption of portions of the Bonds by the Issuer will reduce the outstanding principal amount of such Bonds held by DTC.In such event, DTC may implement,through its Book-Entry-Qnly 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 DTC participants and indirect participants may implement a redemption of such Bonds from the Beneficial Owners.Any such selection of Bonds to be redeemed will not be govemed by the Order and will not be conducted by the Issuer or the Paying Agent/Registrar.Neither the Issuer nor the Paying Agent/Registrar 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 DTC participants,indirect participants, or Beneficial Owners of the selection of portions of the Bonds for redemption.(See "BOOK-ENTRY-ONLY SYSTEM"herein.) Termination-of Book-Entry-only System The District is initially utilizing the book-entry-only system of the DTC.(See "BOOK-ENTRY-ONLY SYSTEM"herein.)In the event that the Book-Entry-Only System is discontinued by DTC orthe District,the following provisions will be applicable to the Bonds. Payment: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 Agent/Registrar in Dallas,Texas (the "Designated PaymentfTransfer 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 PaymentfTransfer 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.Initially,the only registered owner of the Bonds will be CEDE &CO.as nominee of DTC.(See "BOOK-ENTRY-ONLY SYSTEM"herein.) Registration: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 Agent/Registrar at the Designated PaymentfTransfer 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 PaymentfTransfer 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 Agent.Transfer and exchange of Bonds will be without expense or service charge to the registered owner,except for any tax or other govemmental 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 Paying Agent/Registrar to the registered owner,at the Designated PaymentfTransfer Office of the Paying AgentlRegistrar or by United 4 States mail,first-class,postage prepaid.To the extent possible,new Bonds issued in an exchange or 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 and the denominations of $5,000 or any integral multiple thereof.(See "BOOK-ENTRY-ONLY SYSTEM" herein for a description of the system to be initially utilized in regard to ownership and transferability of the Bonds.) Umitations on Transfer ofBonds: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 (i)during the period commencing on the close of business on the 15th calendar day ofthe 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 or (ii)with respect to any Bond called for redemption,in whole or in part,within forty- five (45)days of the date fixed for redemption;provided,however,such limitation of transfer shall not be applicable to an exchange by the registered owner ofthe uncalled balance of a Bond. Replacement 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 ofmutilated,destroyed,lost or stolen Bonds. Defeasance of Outstanding Bonds The Order provides for the defeasance of the Bonds when payment of the principal of and premium,if any,on Bonds,plus interest thereon to the due date thereof (whether such due date be by reason of maturity,redemption,or otherwise),is provided by irrevocably depositing with a paying agent,in trust (1)money sufficient to make such payment or (2)Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and 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 of 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 or redemption of the Bonds have been made as described above,all rights of the District to initiate proceedings to call the Bonds for redemption or take any other action amending the terms of the Bonds are extinguished;provided,however,that the right to call the Bonds for redemption is not extinguishedif the District:(i)in the proceedings providing for the firm banking and financial arrangements,expressly reserves the right to call the Bonds for redemption;(ii)gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements;and (iii)directs that notice of the reservation be included in any redemption notices that it authorize. Paying Agent/Registrar Principal of and semiannual interest on the Bonds will be paid by The Bank of New York Mellon Trust Company,NA,Dallas, Texas,the initial Paying AgenVRegistrar (the "Paying Agent").The Paying Agent.must be a bank,trust company,financial institution or other entity duly qualified and equally authorized to serve and perform the duties as paying agent and registrar for the Bonds. Provision is made in the Order for the District to replace the Paying Agent by a resolution 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 agenVregistrar selected by the District shall be subject to the same qualification requirements as the Paying Agent.The successor paying agent/registrar,if any,shall be determined by the Board of Directors and written notice thereof,specifying the name and address of such successor paying agenVregistrar will be sent by the District or the successor paying agenVregistrar to each Registered Owner by first-class mail,postage prepaid. 5 Record Date The record date for payment of the interest on Bonds on any regularly scheduled interest payment date is defined as the fifteenth day of the month preceding such interest payment date. Issuance ofAdditional Debt The District may issue bonds necessary to construct waterworks and sewer system improvements and facilities for which the District was created and to provide fire protection to the District,with the approval of the District's voters.Following the issuance of the Bonds,$5,769,217,000 unlimited tax bonds authorized by the District's voters will remain unissued,with no remaining authorization for fire protection.The District has no plans to issue additional general obligation debt within the next twelve months.In addition,voters may authorize the issuance of additional bonds or other contractual obligations secured by ad valorem taxes.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"herein.)The District may also issue bonds secured by revenues of the water and sewer system or other revenues of the District (other than ad valorem tax revenues)without voter approval. 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 written 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 of 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 law,rules and regulations and open to inspection in the office of the District. Remedies in Event of Default The Order provides that,in addition to all other rights and remedies of any owner of Bonds provided by the laws of the State of Texas,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 Amendments to the Order The District may without the consent of or notice to any Bond owners amend the Order in any manner not detrimental to the interest of the Bond owners,including the curing of an ambiguity,inconsistency,or formal defect or omission therein.In addition, the District may,with the written consent of the owners of a majority in principal amount of the Bonds then outstanding affected thereby,amend,add to,or rescind any of the provisions of the Order,except that,without the consent of the owners of all of the Bonds affected,no such amendment,addition,or rescission may (1)extend the time or times of payment of the principal of and interest on the Bonds,reduce the principal amount thereof or the rate of interest thereon,change the place or places at,or the coin or currency in which,any Bond or the interest thereon is payable,or in any other way modify the terms of payment of the principal of or interest on the Bonds,(2)give any preference to any Bond over any other Bond,or (3)reduce the aggregate principal amount of Bonds required for consent to any such amendment,addition,or rescission.In addition,a state,consistent with federal law,may in the exercise of its police powers make such modifications in the terms and conditions of contractual covenants relating to the payment of indebtedness of its political subdivisions as are reasonable and necessary for attainment of an important public purpose. 6 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 Bonds Accrued Interest on the Bonds Cash Premium Total Sources of Funds Uses of Funds Deposit to the Construction Fund Costs of Issuance Accrued Interest Deposit to Interest &Sinking Fund Total Uses of Funds RATINGS $2,000,000.00 3,139.60 1,000.00 $200413960 $1,915,712.00 85,288.00 3,139.60 $200413960 Moody's Investors Service,Inc.("Moody's")and Standard &Poor's Ratings Services,a Standard &Poor's Financial Services LLC business ("S&P")are expected to assign ratings of "Aa3"(Negative Outlook)and "AAA"(Negative Outlook),respectively,to the Bonds with the understanding that,concurrently with the delivery of the Bonds,a municipal bond insurance policy will be issued by Assured Guaranty Municipal.Moody's and S&P have assigned underlying ratings of "A2"and "M-",respectively,to the Bonds.An explanation of the significance of a rating may be obtained from the company fumishing the rating.The rating reflects only the respective view of such companies,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 any 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 has been supplied byAssured Guaranty Municipal Corp.("Assured Guaranty Municipal","AGM"orthe "Insurer')for inclusion in this Official Statement.No representation is made by the Issuer,the Financial Advisor or the Purchaser as to the accuracy or completeness ofthis information. The following information is not complete and reference is made to Appendix E for a specimen of the municipal bond insurance policy (the "Policy")ofAssured Guaranty Municipal. Bond Insurance Policy Concurrently with the issuance of the Bonds,Assured Guaranty Municipal Corp.(formerly known as Financial Security Assurance Inc.)("AGM")will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy").The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York,California,Connecticut or Florida insurance law. Assured Guaranty Municipal Corp.(Formerly Known as Financial Security Assurance Inc.) AGM is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd.("Holdings").Holdings is an indirect subsidiary of Assured Guaranty Ltd.("AGL"),a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO". AGL,through its operating subsidiaries,prOVides credit enhancement products to the U.S.and global public finance, infrastructure and structured finance markets.No shareholder of AGL,Holdings or AGM is liable for the obligations ofAGM. On July 1,2009,AGL acquired the financial guaranty operations of Holdings from Dexia SA (UDexia").In connection with such acquisition,Holdings'financial products operations were separated from its financial guaranty operations and retained by Dexia. For more information regarding the acquisition by AGL of the financial guaranty operations of Holdings,see Item 1.01 of the Current Report on Form 8-K filed by AGL with the Securities and Exchange Commission (the "SEC")on July 8,2009. Effective November 9,2009,Financial Security Assurance Inc.changed its name to Assured Guaranty Municipal Corp. AGM's financial strength is rated uAAA"(negative outlook)by Standard and Poor's Ratings Services,a Standard &Poor's Financial Services LLC business ("S&P")and "Aa3"(negative outlook)by Moody's Investors Service,Inc.("Moody's").On February 24,2010,Fitch,Inc.("Fitch"),at the request of AGL,withdrew its "M"(Negative Outlook)insurer financial strength rating of AGM at the then current rating level.Each rating of AGM should be evaluated independently.An explanation of the significance of the above ratings may be obtained from the applicable rating agency.The above ratings are not 7 recommendations to buy,sell or hold any security,and such ratings are subject to revision or withdrawal at any time by the rating agencies,including withdrawal initiated at the request of AGM in its sole discretion.Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by AGM.AGM does not guarantee the market price of the securities it insures,nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Recent Developments Ratings In a press release dated February 24,2010,Fitch announced that,at the request of AGL,it had withdrawn the "M"(Negative Outlook)insurer financial strength rating of AGM at the then current rating level.Reference is made to the press release,a copy of which is available at www.fitchratings.com.for the complete text of Fitch's comments. On December 18,2009,Moody's issued a press release stating that it had affirmed the "Aa3"insurance financial strength rating of AGM,with a negative outlook.Reference is made to the press release,a copy of which is available at www.moodys.com.for the complete text of Moody's comments. On July 1,2009,S&P published a Research Update in which it affirmed its "AM"counterparty credit and financial strength ratings on Financial Security Assurance Inc.,now known as AGM.At the same time,S&P continued its negative outlook on AGM.Reference is made to the Research Update,a copy ofwhich is available at www.standardandpoors.com.for the complete text of S&P's comments. There can be no assurance as to any further ratings action that Moody's or S&P may take with respect to AGM. For more information regarding AGM's financial strength ratings and the risks relating thereto,see AGl's Annual Report on Form 1D-K for the fiscal year ended December 31,2009,which was filed by AGl with the SEC on March 1,2010.Effective July 31,2009,Holdings is no longer subject to the reporting requirements of the Securities and Exchange Act of 1934,as amended (the "Exchange Act"). Capitalization ofAGM At December 31,2009,AGM's consolidated policyholders'surplus and contingency reserves were approximately $2,232,359,793 and its total net unearned premium reserve was approximately $2,391,940,484 in accordance with statutory accounting principles. Incorporation ofCertain Documents by Reference Portions of the following documents filed by AGl with the SEC that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i)The Annual Report on Form 10-K for the fiscal year ended December 31,2009 (which was filed by AGl with the SEC on March 1,2010). All information relating to AGM included in,or as exhibits to,documents filed by AGL pursuant to Section 13(a),13(c),14 or 15(d)of the Exchange Act after the filing of the last document referred to above and before the termination ofthe offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents.Copies of materials incorporated by reference are available over the internet at the SEC's website at http://www.sec.gov,at AGl's website at http://www.assuredguaranty.com,or will be provided upon request to Assured Guaranty Municipal Corp.(formerly known as Financial Security Assurance Inc.):31 West 52nd Street,New York,New York 10019, Attention:Communications Department (telephone (212)826-0100). Any information regarding AGM included herein under the caption "BOND INSURANCE -Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.)"or included in a document incorporated by reference herein (collectively, the "AGM Information")shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference)modifies or supersedes such previously included AGM Information.Any AGM Information so modified or superseded shall not constitute a part of this Official Statement,except as so modified or superseded. AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds.In addition,AGM has not independently verified,makes no representation regarding,and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein,or omitted herefrom,other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "BOND INSURANCE". 8 BOND INSURANCE RISK FACTORS General In the event of default of the scheduled payment of principal of or interest on the Bonds when all or a portion thereof becomes due,any owner of the Bonds shall have a claim under the Policy for such payments.The payment of principal and interest in connection with mandatory or optional prepayment of the Bonds by the Issuer which is recovered by the Issuer from the Bond owner as a voidable preference under applicable bankruptcy law is covered by the Policy;however,such payments will be made by the Insurer at such time and in such amounts as would have been due absent such prepayment by the Issuer (unless the Insurer chooses to pay such amounts at an earlier date).Payment of principal of and interest on the Bonds is not subject to acceleration,but other legal remedies upon the occurrence of non-payment do exist (see "THE Bonds -Default and Remedies"). In the event the Insurer is unable to make payment of principal and interest as such payments become due under the Policy,the Bonds are payable solely from the ad valorem tax levied,within the limits prescribed by law,on all taxable property located within the Issuer.In the event the Insurer becomes obligated to make payments with respect to the Bonds,no assurance is given that such event will not adversely affect the market price or the marketability (liquidity)of the Bonds. The long-term ratings on the Bonds will be dependent in part on the financial strength of the Insurer and its claims-paying ability. The Insurer's financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance can be given that the long-term ratings of the Insurer and of the ratings on the Bonds,whether or not subject to the Policy,will not be subject to downgrade and such event could adversely affect the market price or the marketability (liquidity) for the Bonds.See the disclosure described in "OTHER PERTINENT INFORMATION -Ratings"herein.The obligations of the Insurer under the Policy are general obligations of the Insurer and in an event of default by the Insurer,the remedies available may be limited by applicable bankruptcy law.None of the Issuer,the Financial Advisor or the Initial Purchaser has made independent investigation into the claims-paying ability of the Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is given. Claims-Paying Ability and Financial Strength of Municipal Bond Insurers Moody's Investor Services,Inc.,Standard &Poor's Ratings Service,a Standard &Poor's Financial Services LLC business and Fitch Ratings (the "Rating Agencies")have,in recent months,downgraded and/or placed on negative watch the claims-paying and financial strength of most providers of municipal bond insurance.Additional downgrades or negative changes in the rating outlook for all bond insurers is possible.In addition,recent events in the credit markets have had substantial negative effects on the bond insurance business.These developments could be viewed as having a material adverse effect on the claims-paying ability of such bond insurers,including any bond insurer of the Bonds.Thus,when making an investment decision,potential investors should carefully consider the ability of any such bond insurer to pay principal and interest on the Bonds and the c1aimspaying ability of any such bond insurer,particularly over the life of the Bonds. BOOK-ENTRY-ONLY SYSTEM This section describes how ownership ofthe Bonds is to be transferred and how the principal of,premium,ifany,and interest on the Bonds are to be paid to and credited by the Depository Trust Company while the Bonds are registered in its nominee's name.The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement.The District believes the source of such information to be reliable,but takes no responsibility for the accuracy orcompleteness thereof. The District cannot and does not give any assurance the (1)DTC will distribute payments of debt service on the Bonds,or redemption or other notices,to DTC Participant,(2)DTC Participants orothers will distribute debt service payments paid to DTC orits nominee (as the registered owner of the Bonds),or redemption orother notices,to the Beneficial Owners,or that they will do so on a timely basis,or (3)DTC will serve and act in the manner described in this Official Statement.The current rules applicable to DTC are on file with the Securities and Exchange Commission,and the current procedures ofDTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds.The Bonds will be issued as fully registered securities 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 each maturity,and will be deposited with DTC. DTC,the world's largest depository,is a limited-purpose trust company organized under the New York Banking Law,a "banking organization"within the meaning of the New York Banking Law,a member of the Federal Reserve System,a "clearing corporation",within the meaning of the New York Uniform Commercial Code,and a "clearing agency"registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934.DTC holds and provides asset servicing for over 3.5 million issues of U.S.and non-U.S.equity issues,corporate and municipal debt issues,and money market instruments (from over 100 countries)that DTC's participants ("Direct Participants")deposit with DTC.DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities,through electronic computerized book-entry transfers and pledges between Direct Participants'accounts.This eliminates the need for physical movement of certificated securities.Direct Participants include both U.S.and non-U.S.securities brokers and dealers,banks,trust companies,clearing 9 corporations,and certain other organizations.DTC is a wholly-owned subsidiary of The Depository Trust &Clearing Corporation ("DTCC").DTCC is the holding company for DTC,National Securities Clearing Corporation and Fixed Income Clearing Corporation,all of which are registered clearing agencies.DTCC is owned by the users of its regulated subsidiaries.Access to the DTC system is also available to others such as both U.S.and non-U.S.securities brokers and dealers,banks,trust companies,and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant,either directly or indirectly ("Indirect Participants").DTC has Standard &Poor's highest rating:AAA.The DTC Rules applicable to its Participants are on file with the SEC.More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Bonds under the DTC system must be made by or through Direct Participants,which will receive a credit for the Bonds on DTC's records.The ownership interest of each actual purchaser of Bonds ("Beneficial Owner")is in turn to be recorded on the Direct and Indirect Participants'records.Beneficial Owners will not receive written confirmation from DTC of their purchase.Beneficial Owners are,however,expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners.Beneficial Owners will not receive Bonds representing their ownership interests in Bonds,except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers,all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee,Cede &Co.,or such other name as may be requested by an authorized representative of DTC.The deposit of Bonds with DTC and their registration in the name of Cede &Co.or such other DTC nominee do not effect any change in beneficial ownership.DTC has no knowledge ofthe actual Beneficial Owners ofthe Bonds;DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,which mayor may not be the Beneficial Owners.The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants,by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be govemed by arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time.Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds,such as redemptions,tenders,defaults,and proposed amendments to the Bond documents.For example,Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners.In the alternative,Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC.If less than all of the Bonds within a maturity are being redeemed,DTC's practice is to determine by lot the amount ofthe interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede &Co.(nor any other DTC nominee)will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures.Under its usual procedures,DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date.The Omnibus Proxy assigns Cede &Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede &Co.,or such other nominee as may be requested by an authorized representative of DTC.DTC's practice is to credit Direct Participants'accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Paying Agent/Registrar,on the payable date in accordance with their respective holdings shown on DTC's records.Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with securities held for the accounts of 9ustomers in bearer form or registered in "street name,"and will be the responsibility of such Participant and not of DTC nor its nominee,the Paying Agent/Registrar,or the Issuer,subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede &Co.(or such other nominee as may be requested by an authorized representative of DTe)is the responsibility of the Issuer or the Paying Agent/Registrar,disbursement of such payments to Direct Participants will be the responsibility of DTC,and disbursement of such payments to the Beneficial Owners will be the responsibility of the Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Paying Agent/Registrar.Under such circumstances,in the event that a successor securities depository is not obtained,Bonds are required to be printed and delivered to DTC Participants or the Beneficial Owners,as the case may be. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository).In that event,Bonds will be printed and delivered.(See "THE BONDS -Termination of Book-Entry-Only System" herein.) The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Issuer believes to be reliable,but the Issuer takes no responsibility for the accuracy thereof. 10 Use ofCertain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System,references in other sections of this Official Statement to registered owners should be read to include the person for which the Direct or Indirect Participant acquires an interest in the Bonds,but (i)all rights of ownership must be exercised through DTC and the Book-Entry- Only System,and (ii)except as described above,notices that are to be given to registered owners under the Order will be given only to DTC. INVESTMENT CONSIDERATIONS General The Bonds are obligations of the District and are not obligations of the Town of Trophy Club,State of Texas,Denton County, Tarrant County or any other political subdivision except the District.The Bonds are payable from a continuing,direct,annual ad valorem tax,without legal limitations as to rate or amount,on all taxable property within the District.(See "THE BONDS -Source of Payment"herein.)The investment quality of the bonds depends both on the ability of the District to collect from the property owners all taxes levied against their property or,in the event of foreclosure,the value of the taxable property with respect to taxes levied by the District and by other taxing authorities. Approval ofthe Bonds The Attorney General of Texas must approve the legality of the Bonds prior to their delivery.The Attorney General of Texas does not pass upon or guarantee the quality of the Bonds as an investment,nor does he pass upon the adequacy or accuracy of the information contained in this Official Statement. Marketability The District has no understanding (other than the initial reofferingyields)with the Initial Purchaser regarding the reoffering yields or prices of the Bonds and has no control over the trading of the Bonds in the secondary market.There is no assurance that a secondary market will be made for the Bonds.If there is a secondary market,the difference between the bid and asked price of Bonds may be greater than the difference between the bid and asked spread of other bonds generally bought,sold or traded in the secondary market. The prices and other terms with respect to the offering and sale of the Bonds may be changed from time-to time by the Initial Purchaser after the Bonds are released for sale,and the Bonds may be offered and sold at prices other than the initial offering prices,including sales to dealers who may sell the Bonds into investment accounts.In connection with the offering of the Bonds, the Initial Purchaser may over -allot or effect transactions which stabilize or maintain the market prices or the Bonds at levels above those which might otherwise prevail in the open market.Such stabilizing,if commenced,may be discontinued at any time. Factors Affecting Taxable Values and Tax Payments Economic Factors and Interest Rates:A substantial percentage of the taxable value of the District results from the current market value of single-family residences and developed lots.The market value of such homes and lots is related to general economic conditions affecting the demand for and taxable value of residences.Demand for lots and residential dwellings can be significantly affected by factors such as interest rates,credit availability,construction costs,energy availability and the prosperity and demographic characteristics of the urban center toward which the marketing of tots is directed.Decreased levels of construction activity,which has been experienced in the District for the last several years,tend to restrict the growth of property values in the District or could adversely impact existing values.Interest rates and the availability of mortgage and development funding have a direct impact on the construction·activity,particularly short-term interest rates at which developers and homebuilders are able to obtain financing for development and construction costs.Interest rate levels may affect the ability of a landowner with undeveloped property to undertake and complete development activities within the District.Because of the numerous and changing factors affecting the availability of funds,the District is unable to assess the future availability of such funds for continued development and construction within the District.In addition,the success of development within the District and growth of District's taxable property values are,to a great extent,a function of the Dallas/Fort Worth metropolitan and regional economics. Impact on District Tax Rates:Assuming no further development,the value of the land and improvements currently within the District will be the major determinant of the ability or willingness of District property owners to pay their taxes.The 2009 estimated net taxable assessed valuation of the District (see page vii "SELECTED FINANCIAL INFORMATION")is $1,023,493,111.After issuance of the Bonds the projected maximum annual debt service requirement will be $1,494,559 (2011) and the projected average annual debt service requirement will be $567,820 (2010 through 2031,inclusive).Assuming no increase or decrease from the 2009 assessed valuation and no use of funds on hand,a tax rate of $0.14750 per $100 assessed valuation at a 99%collection rate would be necessary to pay the projected maximum annual debt service requirement of $1,494,559 and a tax rate of $0.05604 per $100 assessed valuation at a 99%collection rate would be necessary to pay the projected average annual debt service requirement of $567,820.The District's 2009 debt service tax rate is $0.06872 per $100 assessed valuation.(See "APPENDIX A -TABLES 4 and 5"herein. 11 Tax Collections and Foreclosure Remedies The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem taxes.Under Texas law,the levy of ad valorem taxes by the District constitutes a lien in favor of the District on a parity with the liens of all other state and local taxing authorities on the property against which taxes are levied,and such lien may be enforced by foreclosure. The District's ability to collect ad valorem taxes through such foreclosure may be impaired by (a)cumbersome,time-consuming and expensive collection procedures,(b)a bankruptcy court's stay of tax collection procedure against a taxpayer,or (c)market conditions limiting the proceeds from a foreclosure sale of taxable property.While the District has a lien on taxable property within the District for taxes levied against such property,such lien can be foreclosed only in a judicial proceeding.Because ownership of the land within the District is highly fragmented among a number of taxpayers,attorney's fees,and other costs of collecting any such taxpayer's delinquencies could substantially reduce the net proceeds to the District from a tax foreclosure sale.Finally,any bankruptcy court with jurisdiction over the bankruptcy proceedings initiated by or against a taxpayer within the District pursuant to the Federal Bankruptcy Code could stay any attempt by the District to collect delinquent ad valorem taxes against such taxpayer. Consolidation A district (such as the District)has the legal authority to consolidate with other municipal utility districts and,in connection therewith,to provide for the consolidation of its assets,such as its water and wastewater systems with the assets of the district(s)with which it is consolidating,as well as its liabilities (which would include the Bonds and other Obligations of the District).The District is the resulting entity from a consolidation in May 2009 of Prior MUD 1 and Prior MUD 2 (see "THE DISTRICT").No representation is made that the District will consolidate again in the future with any other 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; Alteration of Boundaries In certain circumstances,under Texas law the District may alter its boundaries to:1)upon satisfying certain conditions,annex additional territory;and 2)exclude land subject to taxation within the District that is not served by District facilities if the District simultaneously annexes land of equal acreage and value that may be practicably served by District facilities.No representation is made concerning the likelihood that the District would effect any change in its boundaries. 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 Default"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. Ifa petitioning district were allowed to proceed voluntarily under Chapter 9 of the Federal Bankruptcy Code,it could file a plan for an adjustment of its debts.If such a plan were confirmed by the bankruptcy court,it could,among other things,affect Registered Owners by reducing or eliminating the amount of indebtedness,deferring or rearranging the debt service schedule,reducing or eliminating the interest rate,modifying or abrogating collateral or security arrangements,substituting (in whole or in part)other securities,and otherwise compromising and modifying the rights and remedies of the Registered Owner's claim against a district. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security 12 interest under Chapter 9 and such provision is subject to judicial construction.Chapter 9 also includes an automatic stay provision that would prohibit,without Bankruptcy Court approval,the prosecution of any other legal action by creditors or Bondholders of an entity which has sought protection under Chapter 9.Therefore,should the District avail itself of Chapter 9 protection from creditors,the ability to enforce would be subject to the approval ofthe Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court);and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it.The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. A district may not be forced into bankruptcy involuntarily. The Effect ofthe Financial Institutions Act of 1989 on Tax Collections of the District The "Financial Institutions Reform,Recovery and Enforcement Act of 1989"("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 FDIC is acting as the conservator or receiver of an insolvent financial institution. Under FIRREA real property held by the FDIC is still subject to ad valorem taxation,but such act states (i)that no real property of the FDIC shall be subject to foreclosure or sale without the consent of the FDIC and no involuntary liens shall attach to such property,(ii)the FDIC 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 no definitive 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 federal court decisions have held that the FDIC 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 FDIC or a prior property owner to pay ad valorem taxes when due.It is also not known whether the FDIC 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 FDIC attempts to enforce the same,these provisions may affect the timeliness of collection of taxes on property,if any,owned by the FDIC 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 ofthe Bonds could result in interest on the Bonds becoming taxable retroactively to the date of original issuance.(See "TAX MAnERS"herein.) Future Debt The District has reserved in the Order the right to issue the remaining $5,769,217,000 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 Directorsof the District,subject to the approval of the Attorney General of the State of Texas and the TCEQ. THE DISTRICT Creation ofthe District The District was created by the consolidation of two prior municipal utility districts,being Trophy Club Municipal Utility District No. 1 ("Prior MUD 1")and Trophy Club Municipal Utility District NO.2 ("Prior MUD 2"and collectively with Prior MUD 1,the "Prior MUDs").Prior MUD 1 was created as Denton County Municipal Utility District No.1 by order of the Texas Water Rights Commission (the "Commission")on March 4,1975 for the purpose of providing water and sewer facilities and other authorized services to the area within the territory of Prior MUD 1.The name of Prior MUD 1 was changed to Trophy Club Municipal Utility District No.1 on April 1,1983.Prior MUD 2 was created as a result of the consolidation of Denton County Municipal Utility District No.2 and Denton County Municipal Utility District No.3,which were created by the Texas Commission on Environmental Quality for the purpose of providing water,sewer and drainage facilities and other authorized services to the area.The creation of Prior MUD 2 was confirmed by its electorate at an election held on August 9,1980. On January 26,2009,the Boards of the Prior MUDs entered into an agreement to consolidate the Prior MUDs into a single Municipal Utility District covering the territory of the Prior MUDs,subject to the approval of the consolidation by the voters at an election held for that purpose.On May 9,2009,the voters approved the consolidation and the District became the Trophy Club 13 Municipal Utility District No.1 (the "District").Pursuant to the consolidation agreement,the District assumed the outstanding bonds,notes and other obligations of the Prior MUDs and the authorized but unissued bonds,taxes and other obligations ofthe Prior MUDs and became authorized to levy a uniform tax on all taxable property within the District.The functions performed by the District include supplying water for municipal purposes;collecting,transporting,processing and disposing of wastes; establishing,operating and maintain a fire department;and performing other functions permitted by municipal utility districts under the Texas Water Code. Governance The District is governed by a board of directors which has control over and management supervision of all affairs of the District. Upon the consolidation of Prior MUD 1 and Prior MUD 2,all five board members of each entity continue to act jointly as board members of the consolidated district until the next general election in May of 2010.At that next general election,five directors will be elected for the District to serve four-year staggered terms.Directors 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 TCEQ,including the preparation and filing of an annual independent audit report.All District facility plans are submitted to the TCEQ for review and approval. General The District is comprised of 2283.5 acres [approximately 94 acres in Westlake (Solana)).Approximately 195 acres in Trophy Club are undeveloped.Ofthe developed acres,there are approximately 2,420 existing households,136 apartment units and 42 townhouses.Of the 195 undeveloped acres,135 are zoned residential and approximately 60 acres are for commercial development.A developer has indicated future plans to subdivide the 135 residential acres into 290 single family lots;92 will be custom built homes/acreage. Location The District is located in southern Denton County and northern Tarrant County partially within the Town of Trophy Club (the "Town")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 miles from downtown Dallas,25 miles from downtown Fort Worth,17 miles from Denton,8 miles from Grapevine and 14 miles from the Dallas-Fort Worth International Airport. Major highways connecting these population 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 population of the District is estimated to be .approximately 7,441 and the population of the entire Town of Trophy Club,the District and the Trophy Club PID No.1 (the "Trophy Club Development")is estimated at 8,211 (as of December 2009). Topography and Drainage The land within the District has a gradual slope from the southeast to the northwest toward Marshall Creek,which forms 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 approximately 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 flood 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 shopping center within the District has a major grocery store chain,a bank,a major chain drug store,several service businesses,fast food outlets,and a beauty shop and a dry cleaners.Additionally there are several more businesses and professional offices located in the District,at the primary entrance to the Town of Trophy Club.There are additional shopping facilities in Roanoke,about two (2)miles west of the District and numerous shopping facilities in Southlake about five (5)miles east of the District 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 from the District. 14 Fire Protection The District operates its Fire Department (the "Department")with an engine,a Quint,a brush truck and two support vehicles. Currently the Department is staffed with twelve (12)full-time firefighter /paramedics,one full-time Fire chief and a full-time administrative assistant.The station was built in 1985 and constructed in a metal building with a square footage of 3,600 square feet.This includes three apparatus bays,along with living quarters and offices.Operations under the Department include fire suppression,fire prevention,emergency management,investigation /enforcement and emergency medical response.The new fire station to be constructed and equipped with proceeds from the sale of the Bonds will replace this existing facility.This Department serves the Town of Trophy Club and area in the District that is not in the Town limits,and is currently financed by a combination of a $0.10914 maintenance tax assessment in the District,as well as a $0.10186 Public Improvement District ("PID")assessment in Trophy Club PID NO.1.The 2009-2010 annual operating budget is $1,190,429 with October 1,2009 reserves of $95,138. Police Protection Twenty-four hour security is provided by the Town of Trophy Club Police Department Schools The Town is served by the Northwest Independent School District (the "School District"or "Northwest ISO").Northwest ISO covers approximately 232 square miles in Denton,Wise and Tarrant Counties.In addition to serving the Town,the School District also serves the communities of Aurora,Fairview,Haslet,Justin,Newark,Northlake,Rhome,Roanoke and portions of Flower Mound,Fort Worth,Keller,Southlake and Westlake.Northwest ISO is comprised of 14 primary schools for grades pre- kindergarten through fifth,3 middle schools for grades sixth through eighth,2 high schools for grades ninth through twelfth,and two alternative education campuses for grades seventh through twelfth.One of the high schools,Byron Nelson High School,is located in the Town of Trophy Club.It opened in August 2009 with ninth and tenth grades.Eleventh grade will be added in August 2010,and twelfth grade will attend Byron Nelson High School in August 2011.All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level,and all are equipped with computers and full cafeteria service.The School District serves a 2009-2010 estimated enrollment of 14,096 students (as of February 1,2010). Recreational Opportunities Recreational opportunities in Trophy Club are afforded by Lake Grapevine and its surrounding parks,which lie two miles north and east of the District.The Town has several community parks,including facilities for soccer,baseball,softball,basketball, tennis,a competitive swimming pool and playground amenities.The Town also operates an 877 acre Corps of Engineers park, which features 100 acres of motorized trails,as well as many passive recreational opportunities such as fishing,hiking and picnicking. Status ofDevelopment ofthe District The area in the District is locally known as "Trophy Club."It is a residential and mixed-use development consisting of some 2,283.5 acres.The District is a mature district with roughly 195 acres undeveloped,of which 135 acres are zoned residential and approximately 60 acres are available for commercial development.There is substantial land left for commercial development in the Solana complex,which is located within the City of Westlake. Lot and custom home sales officially began in the District in mid-year 1975.Homes are currently being offered at prices ranging from $200,000 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 15,2010 is shown below: Status of Single-Family Home Development Houses Additional Total Multi-Family Under Houses Total Developed Houses Units Construction Occupied Houses Lots and Lots Completed (a) 19 2,420 2,439 32 2,471 178 (a)In addition to the single-family development,there are approximately 132 apartments and 42 completed townhouses,which are occupied. 15 Status ofBusiness/Commercial Development The undeveloped commercial land within the 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 the District have commercial land available for development on approximately 52 acres of land along Highway 114.The land is zoned for uses such as 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. Public Improvement District Description Trophy Club PID No.1 (the "PID")consists of approximately 609.683 acres of land generally to the north of Oakmont Drive,Oak Hill Drive and the Quorum Condominiums,east of the Lakes Subdivision and Parkview Drive,south of the Corps of Engineer's property,and west of the Town's eastem limit.The PID is located entirely within the Town limits but outside the District.A master-planned residential community (the "Property")is under construction in the PID and at build-out will be comprised of approximately 1,489 residential units located within the Property,which Property is zoned to permit such use pursuant to the PD Zoning.The District provides water and sewer services to the PID. 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.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. Under Texas law,the District is authorized to invest in (1)obligations,including letters of credit,of the United States or its agencies and instrumentalities;(2)direct obligations of the State of Texas or its agencies and instrumentalities;(3)collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States,the underlying security for which are guaranteed by an agency or instrumentality of the United States;(4)other obligations,the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of,the State of Texas or the United States or their respective agencies and instrumentalities;(5)obligations of states,agencies,counties,cities,and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent;(6)bonds issued,assumed or guaranteed by the State of Israel;(7)certificates of deposit and share certificates issued by,or invested by an investing entity through,a depository institution that has its main office or a branch office in the State of Texas,that are guaranteed or insured as required by,or otherwise meet the requirements of,the Texas Public Funds Investment Act (Chapter 2256,Texas Government Code,as amended);(8)fully collateralized repurchase agreements that have a defined termination date,are fully secured by obligations described in clause (1),and are placed through a primary govemment 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-1 or P-1 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-1 or P-1 or the eqUivalent by either (a)two nationally recognized credit rating agencies or (b)one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S.or state bank;(11)no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share;and (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.If specifically authorized in the authorizing document,bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations 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 and are pledged to the District and deposited with the District or a third party selected and approved by the District. The District may invest in such obligations directly or through govemment investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service.The District may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C.Section 80b-1 et seq.)or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years,but the District retains ultimate responsibility 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 ofwhich is determined by an index that adjusts opposite to the changes in a market index. Under State 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 16 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 "Investment Strategy Statement"that specifically addresses each fund's investment.Each Investment Strategy Statement will describe its objectives conceming:(1)suitability of investment type,(2) preservation and safety of principal,(3)liquidity,(4)marketability of each investment,(5)diversification of the portfolio,and (6) yield. Under Texas law,the District's investments must be made "with judgment and care,under prevailing circumstances,that a person of prudence,discretion,and intelligence would exercise in the management of the person's own affairs,not for speculation,but for investment considering the probable safety of capital and the probable income to be derived."At least quarterly the District's investment officers must submit an investment report to the Board detailing:(1)the investment position of the District,(2)that all investment officers jointly prepared and signed the report,(3)the beginning market value,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. Under State law,governmental bodies in the State are authorized to implement securities lending programs if (i)the securities loaned under the program are 100%collateralized,a loan made under the program allows tor termination at any time and a loan made under the program is either secured by (a)obligations that are described in clauses (1)through (6)of the second paragraph under this caption,(b)irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm not less than "A"or its equivalent,or (c)cash invested in obligations that are described in clauses (1)through (6)and (10)through (12)of the second paragraph under this caption,or an authorized investment pool;(ii)securities held as collateral under a loan are pledged to the governmental body,held in the name of the governmental body and deposited at the time the investment is made with the District or a third party designated by the District; (iii)a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas;and (iv)the agreement to lend securities has a term of one year or less. Under State law,the District is additionally required to:(1)annually review its adopted policies and strategies,(2)adopt a rule, order,ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule,order,ordinance or resolution,(3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Board;(4)require the qualified representative of firms offering to engage in an investment transaction with the District to:(a)receive and review the District's investment policy,(b)acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the District and the business organization that are not authorized by the District's investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the District's entire portfolio or requires an interpretation of subjective investment standards),and (c)deliver a written statement in a form acceptable to the District and the business organization attesting to these requirements;(5)perform an annual audit of the management controls on investments and adherence to the District's investment policy;(6)restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse purchase agreement;(7)restrict the investment in non-money market mutual funds in the aggregate to no more than 15%of the District's monthly average fund balance,excluding bond proceeds and reserves and other funds held for debt service;(8)require local government investment pools to conform to the new disclosure,rating,net asset value,yield calculation,and advisory board requirements,and (9)at least annually review,revise,and adopt a list of qualified brokers that are authorized to engage in investment transactions with the District. Current Investments As of January 31,2010 the District's funds were invested in the District's depository bank and TexPool as shown in the table that follows.The District does not currently own,nor does it anticipate the inclusion of long-term securities or derivative products in its portfolio. Fund and InvestmentType TexPool-lnterest and Sinking Fund TexPool-Fire Station Construction Reserve Fund TexPool-Operating Fund First Financial Bank Money Market Account -Operating Fund Total Investments 17 Amount $979,124 1,784,044 1,050,672 71,896 $3885,736 TAX DATA District Bond Tax Rate Limitation By law the District's tax rate for debt service on the Bonds is unlimited as to rate or amount. Maintenance and Operations Tax The Board is also authorized to levy and collect an annual ad valorem tax for planning,constructing,acquiring,or maintaining or repairing or operating the District's improvements and facilities,if such maintenance and operations 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.As shown in APPENDIX A,TABLE 13 -"TAX RATE DISTRIBUTION,"the District levied a 2009-2010 maintenance and operations tax for fire protection purposes of $0.1094/$100 assessed valuation and $0.02714/$100 assessed valuation for all other operations and maintenance purposes. 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 verified 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 ahd/or general revenue purposes in addition to taxes of debt service and the tax burden for operation, maintenance and/or general purposes is not included in these figures.(See APPENDIX A -TABLES 14,15 &17 for information on overlapping taxing entities.) TAXING PROCEDURES Authority to Levy Taxes The Board has been 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 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 -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 for the payment of certain contractual obligations,if authorized by its voters.(See"TAX DATA -District Bond Tax Rate Limitation"herein.) Property Tax Code and County-Wide Appraisal District The Texas Property Tax Code (the "Property Tax Code")specifies the taxing procedures of all political subdivisions of the State of Texas,including the District.Provisions ofthe Property Tax Code are complex and are not fully summarized herein. 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 Central Appraisal District and the Tarrant Appraisal District have the responsibility for appraising property for all taxing units within Denton and Tarrant Counties,including the District.Such appraisal values are subject to review and change by the appraisal review boards of each county.The appraisal roll as approved by the appraisal review boards 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 property applicable to the District include:(i)property owned by the State of Texas or its political subdivisions if the property is used for public purposes;(ii)property exempt from ad valorem taxation by federal law;(iii)certain property owned by charitable organizations,youth development associations,religious organizations, and qualified schools;(iv)designated historical sites;and (v)solar and wind-powered energy devices. Freeport Exemption:Article VIII,Section 1-j of the Texas Constitution authorizing an ad valorem tax exemption for "freeport property"was approved November 7,1989.Freeport property is goods detained in Texas for 175 days or less for the purpose of assembly,storage,manufacturing,processing or fabrication.The District does grant this exemption. 18 Goods in Transit:"Goods in Transit",which are certain goods,principally inventory,that are stored,for the purposes of assembling,storing,manufacturing,processing or fabricating the goods,in a location that is not owned by the owner of the goods and are transferred from that location to another location within 175 days;a taxpayer may receive only one of the freeport exemptions or the goods-in-transit exemptions for items of personal property.The District does not exempt Goods in Transit. Agricultural/Open-Land Exemption:Article VIII provides that eligible owners of both agricultural land (Section 1-d)and open- space land (Section 1-d-1),including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production,may elect to have such property appraised for propertytaxation on the basis of its productive capacity.The same land may not be qualified under both Section 1-d and 1-d-1.The District does have land that qualifies for this exemption. Residence Homestead Exemptions:Under Section 1-b,Article VIII,and State law,the governing body of a political subdivision, at its option,may grant an exemption of not less than $3,000 of market value ofthe residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision.Once authorized,such exemption may be repealed or decreased or increased in amount (i)by the governing body of the political subdivision or (ii)by a favorable vote of a majority of the qualified voters at an election called by the governing body of the political subdivision,which election must be called upon receipt of a petition signed by at least 20%of the number of qualified voters who voted in the preceding election of the political subdivision.In the case of a decrease,the amount of the exemption may not be reduced to less than $3,000 ofthe market value. The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled)is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i)the deceased spouse died in a year in which the deceased spouse qualified for the exemption,(ii)the surviving spouse was at least 55 years of age at the time of the death of the individual's spouse and (iii)the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse.The Board has granted such elderly and disabled exemptions in the amount of $25,000 of assessed valuation. In addition to any other exemptions provided by the Property Tax Code,the governing body of a political subdivision,at its option,may grant an exemption of up to 20%of the market value of residence homesteads,with a minimum exemption of $5,000.The District does not grant the option percentage of market value exemption. In the case of residence homestead exemptions granted under Section 1-b,Article VIII,ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment ofdebt if cessation of the levy would impair the obligation of the contract by which the debt was created. Disabled/Deceased Veterans Exemption:State law and Section 2,Article VIII,mandate an additional property tax exemption for disabled veterans or the surviving spouse (for so long as the surviving spouse remains unmarried)or children (under 18 years of age)of a deceased veteran who died while on active duty in the armed forces;the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000;provided,however, that beginning in the 2009 tax year,a disabled veteran who receives from the from the United States Department of Veterans Affairs or its successor 100 percent disability compensation due to a service-connected disability and a rating of 100 percent disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran's residence homestead.The District does grantthe disabled I deceased veterans Exemption. Tax Abatement:Dallas County or the City of Irving may designate all 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.All of the area of the District is included in reinvestment zones designated by the Town of Trophy Club,fortax abatement purposes. Valuation of Property for Taxation Generally,all taxable property in the District must be appraised by the Denton Central Appraisal District and the Tarrant Appraisal District (collectively,the "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,either the replacement cost or the income or the market data method of valuation may be used,whichever is appropriate. Certain land may be appraised at less than market value under the Property Tax Code.Increases in the appraised value 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 land"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 "timber 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 land equal to the difference 19 between the taxes imposed on the land for each ofthe five (5)years preceding the year in which the change of use occurs and the tax that would have been imposed had the land 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 appraisal roll is prepared and approved by the Appraisal Review Board,it is used by the District in establishing its tax rate.The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update 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. Notice and Hearing Procedures The Tax Code establishes a "truth-in-taxation"process identifying increases in the effective tax rate.The rollback tax rate equals 108%of the total tax rate for the prior year.If the District decides to increase the tax rate more than eight percent (8%) above the previous year's tax rate,it must hold a public hearing and give notice to its taxpayers.If the actual tax rate adopted exceeds the rollback tax rate,taxpayers may petition to hold an election to reduce the tax rate to the rollback tax rate for the fiscal year. The Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values, appraisals which are higher than renditions,and appraisals of property not previously on an appraisal roll 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 is taken.In the event of such suit,the value of the property is determined by the court,or a jury if requested by any party.Additionally,the District is entitled to challenge certain matters before the Appraisal Review Board,including the level of appraisal of certain category of property,the exclusion of property from the appraisal records,or the grant in whole or 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 and Collection ofTaxes 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 or Tarrant County at an election held for such purpose,determines to transfer the collection of taxes to the Denton Central Appraisal District or Tarrant Appraisal District or another taxing unit,the District is responsible for the levy and collection of its taxes.The District has contracted with the Denton County Tax Collector to collect the taxes for the District. Taxes are due on receipt of the tax bill and become delinquent after January 31 of the following year.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 1,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 twenty percent 20%on all taxes unpaid on July 1.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 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 local taxes,penalties, and interest ultimately imposed for the year on the property.The lien exists in favor ofthe State of Texas and each local taxing unit,including the District,having power to tax the property.The District's 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 20 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 after taxes on property become delinquent,the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax,or both.In filing a suit to foreclose a tax lien on real property,the District must join other taxing units that have claims for delinquent taxes against all or part of the same property.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 after 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 CONSIDERATIONS -General-Tax Collections and Foreclosure Remedies".) LEGAL MATTERS Legal Opinions Issuance of the Bonds is subject to the approving legal opinion of the Attorney General of Texas to the effect that the initial Bonds are valid and binding obligations of the District payable from the proceeds of an annual ad valorem tax levied,without legal limit as to rate or amount,upon all taxable property within the District.Issuance of the Bonds is also subject to the legal opinion of McCall,Parkhurst &Horton L.L.P.("Bond Counsel"),based upon examination of a transcript of the proceedings incident to authorization and issuance of the Bonds,to the effect that the Bonds are valid and binding obligations of the District payable from the sources and enforceable in accordance with the terms and conditions described therein,except to the extent that the enforceability thereof may be affected by bankruptcy,insolvency,reorganization,moratorium,or other similar laws affecting creditors'rights or the exercise of judicial discretion in accordance with general principles of equity.Bond Counsel's, legal opinion will also address the matters described below under "TAX MATTERS."Such opinions will express no opinion with respect to the sufficiency ofthe security for or the marketability of the Bonds.In its capacity as Bond Counsel,McCall,Parkhurst &Horton L.L.P.has reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the Order. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are based upon a percentage of Bonds actually issued,sold and delivered,and therefore,such fees are contingent upon the sale and delivery of the Bonds.The legal opinion to be delivered concurrently with the delivery of the Bonds expresses the professional judgment of the attorney rendering the opinion as to the legal issue explicitly addressed therein.In rendering a legal opinion,the attorney does not become an insurer or guarantor of that expression of professional judgment,of the transaction opined upon,or of the future performance of the parties to the transaction.Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.Though it represents the financial Advisor and certain entities that may bid on the Bonds from time to time in matters unrelated to the issuance of the Bonds,Bond Counsel has been engaged by and only represents the District in connection with the issuance ofthe Bonds. Litigation The District is not a party to any litigation or other proceeding pending or to its knowledge threatened,in any court,agency or other administrative body (either 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-Litigation Certificate The District will furnish to the Initial Purchaser a certificate,dated as of the date of delivery of the Bonds,executed by both the President and Secretary of the Board,to the effect that no litigation of any nature,except as disclosed in this Official Statement, has been filed or is then pending or threatened,either in state or federal courts,contesting or attacking the Bonds;restraining or enjoining the issuance,execution or delivery of the Bonds;affecting the provisions made for the payment of or security for the Bonds;in any manner questioning the authority or proceedings for the issuance,execution,or delivery of the Bonds;or affecting the validity ofthe Bonds. No Material Adverse Change The obligations of the Initial Purchaser to take and pay for the Bonds,and of the District to deliver the Bonds,are 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. 21 TAX MATTERS Opinion On the date of initial delivery of the Bonds,McCall,Parkhurst &Horton L.L.P.,Dallas,Texas,Bond Counsel to the Issuer,will render its opinion that,in accordance with statutes,regulations,published rulings and court decisions existing on the date thereof ("Existing Law"),for federal income tax purposes,interest on the Bonds (i)will be excludable from the "gross income"of the holders thereof and (ii)will not be includable in the owner's alternative minimum taxable income under section 55 of the Internal Revenue Code of 1986 (the "Code").Except as stated above,Bond Counsel to the Issuer 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 Legal Opinion of Bond Counsel. In rendering its opinion,Bond Counsel to the Issuer will rely upon (a)certain information and representations of the Issuer, including information and representations contained in the Issuer's federal tax certificate,and (b)covenants of the Issuer contained in the Bond documents relating to certain matters,including arbitrage and the use of the proceeds of the Bonds and the property financed or refinanced therewith.Failure by the Issuer to observe the aforementioned representations or covenants could cause the interest on the Bonds to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Bonds in order for interest on the Bonds to be,and to remain,excludable from gross income for federal income tax purposes.Failure to comply with such requirements may cause interest on the Bonds to be included in gross income retroactively to the date of issuance of the Bonds.The opinion of Bond Counsel to the Issuer is conditioned on compliance by the Issuer with such requirements,and Bond Counsel to the Issuer has not been retained to monitor compliance with these requirements subsequent to the issuance of the Bonds. Bond Counsel's opinion represents its legal judgement 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.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 Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase,ownership or disposition of the Bonds. A ruling was not sought from the Internal Revenue Service by the Issuer with respect to the Bonds or the property financed or refinanced with proceeds of the Bonds.No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Bonds,or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel.If an Internal Revenue Service audit is commenced,under current procedures the Internal Revenue Service is likely to treat the Issuer 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 ofOriginal Issue Discount The initial public offering price to be paid for one or more maturities of the 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 (the "Original Issue Discount Bonds").In such event,the difference between (i)the "stated redemption price at maturity"of each Original Issue Discount Bond,and (ii)the initial offering price to the public of such Original Issue 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 Issue Discount Bond in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code)an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the accrual period.For a discussion of certain collateral federal tax consequences,see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however,the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner)is includable in gross income. Under existing law,the original issue discount on each Original Issue 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 Bonds and ratably within each such six-month period)and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof.The amount to be added to basis for each accrual period 22 is equal to (a)the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period)le.ss (b)the amounts payable as current interest during such accrual period on such Original Issue Discount Bond. The federal income tax consequences of the purchase,ownership,redemption,sale or other disposition of Original Issue 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 Issue 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 Original ·Issue Discount Bonds and with respect to the federal,state,local and foreign tax consequences of the purchase,ownership,redemption,sale or other disposition of such Original Issue Discount Bonds. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal 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 ofwhich 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,individual recipients of Social Security or Railroad Retirement benefits,individuals allowed an earned income credit,certain S corporations with accumulated earnings and profits and excess passive investment income,foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE.INVESTORS,INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS 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 DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. 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 federal 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 ofissue.Such treatment applies to "market discount bonds"to the extent such gain does not exceed the accrued market discount of such bonds;although for this purpose,a de minimis amount of market discount is ignored.A "market discount bond"is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or,in the case ofa bond issued at an original issue discount,the "revised issue price"(Le.,the issue price plus accrued original issue 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 indeterrnining the taxpayer's taxable income.Section 265(b)ofthe Code provides an exception to the disallowance of such deduction for any interest expense paid or incurred on indebtedness of a taxpayer that is a "financial institution"allocable to tax-exempt obligations,other than "private activity bonds,"that are designated by a "qualified small issuer"as "qualified tax-exempt obligations."A "qualified small issuer"is any governmental issuer (together with any "on-behalf of'and "subordinate"issuers) who issues no more than $10,000,000 of tax-exempt obligations during the calendar year,except that such amount will be $30,000,000 for taxable years beginning after December 31,2008 and ending prior to January 1,2011.Section 265(b)(5)ofthe Code defines the term ''financial institution"as any "bank"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 that is subject to federal or state supervision as a financial institution.Notwithstanding the exception to the disallowance of the deduction of interest on indebtedness related to "qualified tax-exempt obligations"provided by Section 265(b)of the Code,Section 291 of the Code provides that the allowable deduction to a "bank,"as defined in Section 585(a)(2)of the Code,for interest on indebtedness incurred or continued to purchase "qualified tax-exempt obligations"shall be reduced by twenty-percent (20%)as a "financial institution preference item." 23 The Issuer has designated the Bonds as "qualified tax-exempt obligations"within the meaning of section 265(b)of the Code.In furtherance of that designation,the Issuer has covenanted to take such action that would assure,or to refrain from such action that 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 exceeds $10,000,000 ($30,000,000 for taxable years beginning after December 31, 2008 and ending prior to January 1,2011),there is a reasonable basis to conclude that the payment of a de minimis amount of premium in excess of $10,000,000 ($30,000,000 for taxable years beginning after December 31,2008 and ending prior to January 1,2011)is disregarded,however,the Internal Revenue Service could take a contrary view.If the Internal Revenue Service takes the position that the amount of such premium is not disregarded,then such obligations might fail to satisfy the aforementioned dollar limitation and the Bonds would not be "qualified tax-exempt obligations." CONTINUING DISCLOSURE OF INFORMATION In the Order,the Issuer has made the following agreement for the benefit of the holders and beneficial owners of each of the Bonds.The Issuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. .Under the agreement,the Issuer will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events,to the Municipal Securities Rulemaking Board (the "MSRB"). Annual Reports The Issuer will provide certain updated financial information and operating data to the MSRB.The District will provide to any quantitative financial information and operating data with respect to the District of the general type included in this Official Statement. The information to be updated includes Tables 1,12 and 13 of Appendix A,and the annual audited financial statements ofthe District. The Issuerwill update and provide this information within six months after the end of each fiscal year ending in and after 2010. The financial information to be provided may be set forth in full in one or more documents or may be included by specific reference to any document available to the public on the MSRB's Internet Website or filed with the SEC,as permitted by SEC Rule 15c2-12 (the "Rule").The updated information will include audited financial statements for the Issuer,if the Issuer commissions an audit and it is completed by the required time.If audited financial statements are not available by the required time,the Issuer will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available.Any such financial statements will be prepared in accordance with the accounting principles described in Appendix D or such other accounting principles as the Issuer may be required to employ from time to time pursuant to State law or regulation. 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 Issuer changes its fiscal year.If the Issuer changes its fiscal year,it will notify the MSRB of the change. Material Event Notices The Issuer will also provide timely notices of certain events to certain information vendors.The Issuer will provide notice of any of the following events with respect to the Bonds,if such event is material to a decision to purchase or sell Bonds:(1)principal and interest payment delinquencies;(2)non-payment related defaults;(3)unscheduled draws on debt service reserves reflecting financial difficulties;(4)unscheduled draws on credit enhancements reflecting financial difficulties;(5)substitution of credit or liquidity providers,or their failure to perform;(6)adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7)modifications to rights of holders of the Bonds;(8)Bond calls;(9)defeasances;(10)release,substitution,or sale of property securing repayment of the Bonds;and (11)rating changes.Neither the Bonds nor the Order makes any provision for debt service reserves or liquidity enhancement.In addition,the Issuer will provide timely notice of any failure by the Issuer to provide information,data,or financial statements in accordance with its agreement described above under "Annual Reports".The Issuer will provide each notice described in this paragraph to the MSRB. Availability of Information The Issuer has agreed to provide the foregoing financial information and operating data only as described above.Investors will be able to access continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org. Limitations and Amendments The Issuer has agreed to update information and to provide notices of material events only as described above.The Issuer 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 Issuer 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 Issuer 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 Issuer to comply with its agreement. The Issuer 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 Issuer,if the agreement,as amended,would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the 24 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 Issuer (such as nationally recognized bond counsel)determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds.The Issuer 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 Issuer 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 For the last five years,the District has complied in all material respects with its previous continuing disclosure agreements made 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 Updating the Official Statement During Underwriting Period If,subsequent to the date of the Official Statement to and including the date the Initial Purchaser is no longer required to provide an Official Statement to potential customers who request the same pursuant to Rule 15c2-12 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 Initial Purchaser 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 Initial Purchaser a supplement to the Official Statement which corrects such representation to the reasonable satisfaction of the Initial Purchaser.(See "DELIVERY OF THE BONDS AND ACCOMPANYING DOCUMENTS"in the Official Notice of Sale herein.)The obligation of the District to update or change the Official Statement will terminate when the District delivers the Bonds to the Initial Purchaser (the "end of the underwriting period"within the meaning of the Rule), unless the Initial Purchaser provides written notice to the District that less than all of the Bonds have been sold to ultimate customers on or before such date,in which case the obligation to update or change the Official Statement will extend for an additional period of time of 25 days after all of the Bonds have been sold to ultimate customers (but no longer than 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 the MSRB,but in no case less than 25 days after the "end of the underwriting period"for the Bonds).In the event the Initial Purchaser provides written notice to the District that less than all of the Bonds have been sold to ultimate customers,the Initial Purchaser agrees to notify the District in writing following the occurrence of the "end of the underwriting period"as defined in the Rule. 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. 25 Assumptions related to the foregoing involve judgments with respect to,among other things,future economic,competitive,and market conditions and future business decisions,all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District.Any of such assumptions could be inaccurate and,therefore,there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. OTHER MATTERS Initial Purchaser After requesting competitive bids for the Bonds,the District accepted the bid of Southwest Securities,Inc.(the "Initial Purchaser of the Bonds")to purchase the Bonds at the interest rates shown on the inside cover page of the Official Statement at a price of par plus a cash premium of $1,000.The Issuer has expressly consented in writing to allow Southwest Securities,Inc.the option to bid on the Bonds.Compensation earned by Southwest Securities,Inc.as Initial Purchaser of the Bonds will be in addition to fees received by Southwest Securities,Inc.as Financial Advisor as described under the caption "FINANCIAL ADVISOR." The Initial Purchaser of the Bonds can give no assurance that any trading market will be developed for the Bonds after their sale by the District to the Initial Purchaser of the Bonds.The District has no control over the price at which the Bonds are subsequently sold and the initial yield at which the Bonds will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser of the Bonds. Legal Investment and Eligibility to Secure Public Funds in Texas Section 1201.041 of the Public Security Procedures Act (Chapter 1201,Texas Government Code)provides that the Bonds are negotiable instruments governed by Chapter 8,Texas Business and Commerce Code,and are legal and authorized investments for insurance companies,fiduciaries,and trustees,and for the sinking fund of municipalities or other political subdivisions or public agencies of the State of Texas.In addition,various provisions of the Texas Finance Code provide that,subject to a prudent investor standard,the Bonds are legal investments for state banks,savings banks,trust companies with at least $1 million ofcapital and savings and loan associations.The Bonds are eligible to secure deposits of any public funds of the state,its agencies and political subdivisions,and are legal security for those deposits to the extent of their market value.For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (V.T.CA,Government Code,Chapter 2256),the Bonds may have to be assigned a rating of "A"or its equivalent as to investment quality by a national rating agency before such obligations are eligible investments for sinking funds and other public funds.(See "RATINGS"herein.) No representation is made that the Bonds will be acceptable to public entities to secure their deposits or acceptable to such institutions for investment purposes.The District has made no investigation of other laws,rules,regulations or investment criteria which might apply to any such persons or entities or which might otherwise limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such persons or entities to purchase or invest in the Bonds for such purposes.The District has not made any review of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. 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 ofthe 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. Absence of Litigation No litigation is currently outstanding or threatened which would result in any material claim against District. Certification as to Official Statement At the time of payment for and delivery of the Bonds,the Purchaser will be furnished a certificate executed by the proper officials of the District acting in their official capacity,to the effect that:(a)the descriptions and statements of or pertaining to the District contained in its Official Statement relating to the Bonds,and any addenda,supplement or amendment thereto,on the date of such Official Statement,on the date of the sale of said Bonds,and on the date of the delivery,were and are true and correct in all material respects;(b)insofar as the District and its affairs,including its financial affairs,are concerned,such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein,in the light of the circumstances under which they were made,not misleading;(c)to the best of their knowledge,insofar as the descriptions and statements,including financial data,or pertaining to entities,other than the District and its activities,contained in such Official Statement are concerned,such statements and data 26 have been obtained from sources which the District believes to be reliable and the District has no reason to believe that they are untrue in any material respect;and (d)there has been no material adverse change in the financial condition of the District since September 30,2009,the date of the last audited financial statements of the Issuer,portions of which appear in the Official Statement. The Official Statement was approved as to form and content and the use thereof in the offering of the Bonds was authorized, ratified and approved by the Board on the date of sale,and the Purchaser will be furnished,upon request,at the time of payment for and the delivery of the Bonds,a certified copy of such approval,duly executed by the proper officials ofthe Issuer. Concluding Statement The financial data and other information contained in this Official Statement have been obtained from the District's records, audited financial statements and other sources which are believed to be reliable.There is no guarantee that any of the assumptions or estimates contained herein will be realized.All of the summaries of the statutes,documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statues,documents and resolutions.These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information.Reference is made to original documents in all respects. This Official Statement was approved by the Board of the Issuer for distribution in accordance with the provisions of the Securities and Exchange Commission's rule codified at 17 C.F.R.Section 240.15c2-12. lsi Jim Budarf lsi Dean Henry Joint Presidents,Board of Directors Trophy Club Municipal Utility District No.1 lsi Jim Hase lsi James C.Thomas Joint Secretaries,Board of Directors Trophy Club Municipal Utility District No.1 27 [This page is intentionally left blank.] APPENDIX A FINANCIAL INFORMATION OF THE ISSUER (This appendix contains quantitative financial information and operating data with respect to the Issuer.The information is onlya 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 ASSESSEp VALUATION TABLE 1 2009 Actual Market Value ofTaxable Property (100%ofActualya)$1.076.047,808 Less Exemptions: Local Optional Over-65 $11,972,353 Disabled and Deceased Veterans'1,287,007 Agricultual Productivity Loss 3,990,915 Freeport 58,351 10%Homestead Cap Value Loss 2,957,045 Total Exempt Properly 22,740,838 Partial Exempt Property 7,208 43013717 2009 Certified Net Taxable Assessed Valuation{a)$1,033,034,091 (b) Less:Estimated Supplemental Adjustments $(9,540,980) 2009 Estimated Net Taxable Assessed Valuation $1.023,493,111 (a)See"TAXING PROCEDURES"in the Official Statement fora description ofthe Issuer's taxation procedures. (a)Includes taxable value of$17,256.702 for incomplete accounts andaccounts underARB Review Source:Denton Central AppraisalDistrict and Tarrant AppraisalDistrict GENERAL OBLIGATION BONDED DEBT General Obligation Debt Principal Outstanding (As of February 1.2010): IJWo/&SS Combined Tax and Revenue Refunding Bonds,Series 1997 Unlimited Tax Bonds,Series 2002 Unlimited Tax Refunding Bonds.Series 2003 Unlimited Tax Bonds,Series 2003 Unlimited Tax Refunding Bonds,Series 2005 Total General Obligation Debt Principal Outstanding .Current Issue General Obligation Debt Principal Unlimited Tax Bonds,Series 2010 (the "Bonds") Total General Obligation Debt Principal Outstanding (Following the Issuance ofthe Bonds) Interest and Sinking Fund Balance as ofJanuary 31,2010 (unaudited) Ratio of General Obligation Debt Principal to 2009 Estimated NetTaxable Assessed Valuation 2009 Estimated Net Assessed Valuation(a) Population Estimates:2000 -6,350;Current 2009 (Estimate)- Per Capita 2009 Estimated Net Assessed Valuation - Per Capita General Obligation Debt Principal - la)See "TAXING PROCEDURES"in the Official Statement fora description ofthe Issuer's taxation procedures. TABLE 2 $745,000 2,800,000 480,000 945,000 2,320,000 $7,290,000 $2,000,000 $9,290,000 $979,124 0.91% $1,023,493,111 7,441 $137,548 $1,248 OTHER OBLIGATIONS TABLE 3 Interest Average Principal Yearof Rate Final Annual Original Outstanding Description Issue Payable Maturitv ~Amount as of9-30-09 Public Property Finance Contractual Obligations: Improvements 2004 3.50%2012 $39,000 $270,000 $101,250 Fire Truck 2007 4.33%2014 56,000 448,000 322,000 Improvements 2009 3.90%2012 110,000 330,000 330,000 $753,250 NotesPayable: Equipment 1999 2.50%2018 $2,245 $35,000 $17,895 Capital Lease Obligations: Equipment 2006 4.95%2010 $33,000 $165,000 $33,000 Equipment 2008 4.00%2012 9,886 49,432 29,660 $62,660 Total OtherObligations $833,805 A-1 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 4 Current Total The Bonds Fiscal Year Debt Service Combined Sept 30 Outstanding(')Principal Interest Total Debt Service 2010 $1,363,310 $-$-$$1,363,310 2011 1,380,188 114,371 114,371 1,494,559 2012 720,568 65,000 80,733 145,733 866,300 2013 722,138 65,000 78,458 143,458 865,595 2014 512,940 70,000 76,183 146,183 659,123 2015 514,205 70,000 73,733 143,733 657,938 2016 514,655 75,000 71,283 146,283 660,938 2017 519,210 80,000 68,658 148,658 667,868 2018 517,610 85,000 65,858 150,858 668,468 2019 524,955 85,000 62,883 147,883 672,838 2020 520,830 90,000 59,908 149,908 670,738 2021 521,010 95,000 56,758 151,758 672,768 2022 525,100 100,000 53,433 153,433 678,533 2023 523,030 105,000 48,433 153,433 676,463 2024 110,000 43,183 153,183 153,183 2025 115,000 37,683 152,683 152,683 2026 115,000 33,083 148,083 148,083 2027 125,000 28,368 153,368 153,368 2028 130,000 23,243 153,243 153,243 2029 135,000 17,783 152,783 152,783 2030 140,000 12,113 152,113 152,113 2031 145,000 6,163 151,163 151,163 $9379748 $2000000 $1 112301 $3112301 $12492049 (a)Does not include Public Properly Finance Contractual Obligations indebtedness (see Table 3,page A-1). TAX ADEQUACY 2009 Estimated Net Taxable Assessed Valuation Maximum Annual Debt Service Requirements (Fiscal Year Ending 9-30-11) Indicated Maximum Interest and Sinking Fund Tax Rate at 99%collections Note:Above computation is exclusive ofinvestment earnings,delinquent tax collections and penalties and interest on delinquent tax collections. INTEREST AND SINKING FUND MANAGEMENT INDEX TABLE 5 $1,023,493,111 $1,494,559 $0.14750 TABLE 6 Interest and Sinking Fund Balance,Fiscal Year Ended September30,2009 $ FY 2010 Interest and Sinking Fund Tax Levy of $0.06872 at 99%Collections based on the 2009 Estimated Net Taxable Assessed Valuation of $1 ,023,493,111 Produces Interest and Sinking Fund Deposit from Fire Department Rental Income Budgeted Income from PID Utility Connection Fees Paid by Developer(guaranteed with bank letter of credit) (to be depistied to I&S Fund on or before June 2010) Total Available for Debt Service $ 239,434 696,311 308,000 345,000 1,588,745 Less:General Obligation Debt Service Requirements,Fiscal Year Ending 9-30-10 Estimated Surplus at Fiscal Year Ending 9-30-10(')$ 1,363,310 225,435 (a)Does notinclude delinquent tax collections,penalties and interest on delinquent tax collections or investment earnings. A-2 PROJECTED GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE TABLE 7 (As ofFebruary 1,2010) Principal Repayment Schedule(bl Bonds Percent of Fiscal Year Outstanding The Unpaid at Principal Ending 9/30 Bondscal Bonds Total End of Year Retired (%) 2010 $1,055,000 $$1,055,000 $8,235,000 11.36% 2011 1,115,000 1,115,000 7,120,000 23.36% 2012 500,000 65,000 565,000 6,555,000 29.44% 2013 520,000 65,000 585,000 5,970,000 35.74% 2014 330,000 70,000 400,000 5,570,000 40.04% 2015 345,000 70,000 415,000 5,155,000 44.51% 2016 360,000 75,000 435,000 4,720,000 49.19% 2017 380,000 80,000 460,000 4,260,000 54.14% 2018 395,000 85,000 480,000 3,780,000 59.31% 2019 420,000 85,000 505,000 3,275,000 64.75% 2020 435,000 90,000 525,000 2,750,000 70.40% 2021 455,000 95,000 550,000 2,200,000 76.32% 2022 480,000 100,000 580,000 1,620,000 82.56% 2023 500,000 105,000 605,000 1,015,000 89.07% 2024 110,000 110,000 905,000 90.26% 2025 115,000 115,000 790,000 91.50% 2026 115,000 115,000 675,000 92.73% 2027 125,000 125,000 550,000 94.08% 2028 130,000 130,000 420,000 95.48% 2029 135,000 135,000 285,000 96.93% 2030 140,000 140,000 145,000 98.44% 2031 145,000 145,000 100.00% $7,290,000 $2,000,000 $9,290,000 (a)Excludes all PPFCO principal outstanding (see Table 2,page A-1). FUND BALANCES TABLE 8 (As ofJanauary 31,2010 General Fund $1,012,553 Debt Service Fund 1,363,824 (al Fire Station Construction Reserve 1,784,044 Total $4,160,421 (a)Includes additional February 2010 deposits totaling $384,700 TAXABLE ASSESSED VALUATION FOR TAX YEARS 2005-2009 Cal TABLE 9 Change From Preceding YearTax Year 2005 2006 2007 2008 2009 Net Taxable Assessed Valuation $744,193,000 811,214,000 912,618,000 960,911,000 1,023,493,111 (Estimated) Amount ($) 35,623,000 67,021,000 101,404,000 48,293,000 62,582,111 Percent (%) 5.03% 9.01% 12.50% 5.29% 6.51% A-3 Note: (a)Historical comparison information for Tax Years 2005-2008 represents the combined totals from two separate entities (Trophy Club MUD NO.1 and Trophy Club MUD NO.2). Sources:Denton Central Appraisal District,Tarrant Appraisal District andIssuer's 2009 Audited Financial Statements (Supplemental Information) Assessed Valuations may change during the yeardue to various supplements and protests,and valuations on a later date or in othertables ofthis Official Statement maynot match those shown on this table. CLASSIFICATION OF ASSESSED VALUATION TABLE 10 %of %of %of %of %of Cateaorv 2009 Total 2008 Total 2007 Total 2006 Total 2005 Total Land (0)$-0.00%$186,574,000 18.75%$213,640,000 22.56%$193,906,000 23.06%$166,046,000 22.06% Land -Homesite 188,045,683 17.48%-0.00%-0.00%-0.00%0.00% Land -Non Homesite 271,608,898 25.24%-0.00%0.00%0.00%0.00% Land -Agricultural 3,998,666 0.37%0.00%-0.00%-0.00%0.00% Improvements (0)-0.00%737,273,000 74.10%638,560,000 67.43%581,667,000 69.18%518,213,000 68.85% Improvements -Homesite 505,293,510 46.96%-0.00%0.00%0.00%0.00% Improvements -Non Homesite 26,769,054 2.49%-0.00%-0.00%0.00%0.00% Personal Property (oj 70,157,777 6.52%71,091,000 7.15%94,823,000 10.01%65,248,000 7.76%68,356,000 9.08% Mineral Property 10,174,220 0.95%0.00%0.00%-0.00%-0.00% Total Appraised Value $1,076,047,808 100.00%$994,938,000 100.00%$947,023,000 100.00%$840,821,000 100.00%$752,615,000 100.00% Less Exemptions: Exemptions (oj $-$34,027,000 $34,405,000 $29,607,000 $8,422,000 Optional Over-65 11,972,353 Disabled and Deceased Veterans'1,287,007 :to Agricultural Productivity Loss 3,990,915, .j:>.Freeport 58,351 Homestead Cap Adjustment 2,957,045 Total Exempt Property 22,740,838 Partial Exempt Property 7,208 Total Exemptions $43,013,717 $34,027,000 $34,405,000 $29,607,000 $8,422,000 Certified Net Taxable $1,033,034,091 (b)$960,911,000 $912,618,000 $811,214,000 $744,193,000 Assessed Valuation Less:Estimated Supplemental Adjustments $(9,540,980) Estimated Net Taxable Assessed Valuation $1,023,493,111 (oj Historical comparison information for Tax Years 2005-2008 represents the combined totals from two separate entities (Trophy Club MUD No.1and Trophy Club MUD No.2)and detailed information for Land,Improvements and Exemptions is not available. (bj Includes taxable value of$17,256,702 for incomplete accounts and accounts under ARB Review. Source:Denton Central Appraisal District,Tarrant Appraisal District and Issuer's 2009 Audited Basic Financial Statements (Supplemental Information) Note:Assessed Valuations may change during the yeardue to various supplements andprotests,and valuations on a later date or in other tables ofthis Official Statement maynot match those shown on this table. PRINCIPAL TAXPAYERS 2009-2010 Name Tvpe ofProperty Maguire Thomas Partners ETAL Commercial Office Complex Maguire Partners Commercial Office Complex CNL RETMT CRSI Trophy Club Texas LP Medical Plaza I Hospital Citigroup Technology Inc.Computer-Related Services Regency Centers LP Retail Grocery 4663 Okechobee Blvd.&Palm Beach Holdings Commercial Office Complex Levi Strauss &Company Commercial Office Trophy Club Medical Center Healthcare Services Red Oak Gas Opperating Co.LP Natural Gas Wells I Mineral Exploration Clubcorp GolfTexas LP PIS Golf Course Management BDMR Development LLC Real Estate Development Total Based on a 2009 Estimated Net Taxable Assessed Valuation of $1,023,493,111 (a) 2009 Net Taxable Assessed Valuation $129,644,096 41,078,939 20,300,000 14,804,220 12,792,824 6,524,588 6,224,386 6,070,692 6,014,100 5,400,864 5,276,198 $254130 907 TABLE 11 %of Total 2009 Assessed Valuation 12.67% 4.01% 1.98% 1.45% 1.25% 0.64% 0.61% 0.59% 0.59% 0.53% 0.52% ~ (aJ Excludes taxable values for incomplete accounts and accounts under ARB Review and some estimated supplemental adjustments Source:Texas Municipal Report pUblished by the Municipal Advisory Council ofTexas and the Denton CentralAppraisal District. PROPERTYTAX RATES AND COLLECTIONS (al (bl TABLE 12 Tax Net Taxable Tax Tax %Collections Fiscal Year Year ssessed Valuation Rate ~Current Total Ended 2005 $744,193,000 $0.280000 $2,271,746 98.04%98.04%9-30-06 2006 811,214,000 0.280000 2,191,536 100.62%100.62%9-30-07 2007 912,618,000 0.230000 2,234,909 100.36%100.36%9-30-08 2008 960,911,000 0.244615 2,380,679 98.94%99.58%9-30-09 2009 1,023,493,111 (Estimated)0.205000 2,098,161 87.47%(c)87.47%(c)9-30-10 (aJ See wTAXING PROCEDURES -Levyand Collection ofTaxeswin the bodyofthe Official Statement for a complete discussion ofthe District's provisions. (bJ Historical comparison information for Tax Years 2005-2008 represents the combined totals from two separate entities (Trophy Club MUD NO.1and Trophy Club MUD NO.2). (eJ Current year collections as ofJanuary 31,2010. Source:Texas Municipal Report pUblished by the Municipal Advisory Council ofTexas,the Denton Central Appraisal District and the Issuer Note:Assessed Valuations maychange during the yeardue to various supplements andprotests,and valuations on a later date or in othertables ofthis Official Statement may not match those shown on this table. TAX RATE DISTRIBUTION (01 TABLE 13 2009·10 2008-09 2007-08 2006-07 2005-06 2004-05 Operations $0.027140 $0.014040 $0.010200 $0.030900 $0.030900 $0.060000 Fire Protection 0.109140 0.116020 0.120900 0.102700 0.146400 0.107600 Debt Service 0.068720 0.114555 0.098900 0.146400 0.102700 0.112400 TOTAL $0.205000 $0.244615 $0.230000 $0.280000 $0.280000 $0.280000 (aJ Historical comparison information for Tax Years 2005-2008 represents the combined totals from two separate entities (Trophy Club MUD No.1and Trophy Club MUD No.2). Sources:Texas Municipal Report publishedbythe M4nicipal Advisory Council of Texas A-5 DIRECT AND OVERLAPPING DEBT DATA INFORMATION TABLE 14 The following table indicates the indebtedness,defined as outstanding bonds payable from ad valorem taxes,of governmental entities overlapping the District and the estimated percentages and amounts of such indebtedness attributable to property within the District. This information is based upon data secured from the individual jurisdictions and/or the Texas Municipal Reports published by the Texas Municipal Advisory Council.Except for the amounts relating to the District,the District has not independently verified the accuracy or completeness of such information,and no person should rely upon such information as being accurate or complete. Furthermore,certain ofthe entities listed below may have issued additional bonds since the date stated,and such entities may have programs requiring the issuance of substantial amounts of additional bonds,the amount ofwhich cannot be determined. As of 02-01-10 02-01-10 02-01-10 02-01-10 02-01-10 02-01-10 02-01-10 02-01-10 Taxing Body Carroll Independent School District Denton County Northwest Independent School District Tarrant County Tarrant County College District Tarrant County Hospital District Town of Trophy Club Westlake,Town of Total Net Overlapping Debt Trophy Club MUD NO.1 02-01-10 Total Gross Direct Principal and Overlapping Debt Gross Debt Principal $194,305,512 374,335,734 515,730,159 322,210,000 42,785,000 28,810,000 8,722,000 21,525,000 (a) $1,508,423,405 9,290,000 (b) $1,517,713,405 % Overlapping 3.16% 1.16% 6.78% 0.18% 0.18% 0.18% 94.53% 21.16% 100.00% Amount Overlapping $6,140,054 4,342,295 34,966,505 579,978 77,013 51,858 8,244,907 4,554,690 $58,957,299 9,290,000 (b) $68,247,299 (b) Ratio of Direct and Overlapping Debt to 2009 Estimated Net Taxable Assessed Valuation Ratio of Direct and Overlapping Debt to 2009 Market Value Per CapitaDirect and Overlapping Debt (a)Includes $560,000 Tax Notes,Series 2010 sold as a Private Placment to be delivered on March 9,2010. (b).Includes the Bonds. Source:Most Recent Texas Municipal Reports published by the Municipal Advisory Council ofTexas. ASSESSED VALUATION AND TAX RATE OF OVERLAPPING ENTITIE~ 6.67% 6.34% $9,172 TABLE 15 Governmental Entity Carroll Independent School District Denton County Northwest Independent School District Tarrant County Tarrant County College District Tarrant County Hospital District Town of Trophy Club Westlake,Town of 2009 NetTaxable Assessed Valuation $5,340,419,857 53,341,773,091 10,381,883,214 121,465,013,127 122,129,756,706 121,565,707,495 668,728,455 920,264,010 2009 %ofActual Tax Rate 100%$ 1.41500 100%0.24980 100%1.35500 100%0.26400 100%0.13770 100%0.22790 100%0.47000 The Town of Westlake does not levy a property tax. Source:Most recent Texas Municipal Reports publishedby The MunicipalAdvisory Council of Texas and Denton and Tarrant County Appraisal Districts A-6 AUTHORIZED BUT UNISSUED DIRECT GENERAL OBLIGATION BONDS TABLE 16 Date of Amount Issued This Taxing Body Authorization Purpose Authorized To Date Issue Unissued Trophy Club MUD No.1 10-07-75 Water &Sewer $12,344,217 $11,115;000 $$1,229,217 04-04-81 Water &Sewer 5,800,000 3,760,000 2,040,000 10-29-88 Water &Sewer 2,500,000 2,500,000 05-10-08 Fire Station 2,000,000 2,000,000 $22.644,217 $14,875,000 $2,000,000 $5,769,217 AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS OF OVERLAPPING GOVERNMENTAL ENTITIES TABLE 17 Date of Amount Issued Taxing Body Authorization Purpose Authorized To Date Unissued CarroiliSD 05-09-09 School Buildings $114,100,000 $56,600,000 $57,500,000 05-09-09 School Buildings 19,300,000 6,000,000 13,300,000 05-09-09 School Buildings 4,600,000 2,400,000 2,200,000 $138.000.000 $65,000.000 $73.000,000 Denton County 01-16-99 Road $85,320,000 $77,629,375 $7,690,625 05-15-04 Road 186,970,000 131,465,000 55,505,000 05-15-04 Equipment 2,000,000 2,000,000 11-04-08 Road 310,000,000 41,820,000 268,180,000 11-04-08 County Buildings 185,000,000 47,455,000 137,545,000 $769.290,000 $298,369,375 $470,920,625 Northwest I S D 05-10-08 School Buildings $260,000,000 $65,000,000 $195,000,000 Tarrant County 04-04-87 Courthouse Improv.$47,000,000 $46,500,000 $500,000 (a) 08-08-98 Law Enforcement Ctr 70,600,000 63,100,000 7,500,000 08-08-98 Healthcare Facility 9,100,000 1,000,000 8,100,000 05-13-06 Road &Bridge 200,000,000 96,000,000 104,000,000 05-13-06 County Buildings 62,300,000 16,000,000 46,300,000 05-13-06 Juvenile Deten.Ctr.36,320,000 4,200,000 32,120,000 $425,320.000 $226,800,000 $198,520,000 Tarrant Co.College Dist None Tarrant Co.Hospital Dis None Trophy Club,Town of 11-16-09 Parks &Recreation $5,000,000 $$5,000,000 Westlake,Town of None (8)The County will not issue authorization due to age. Source:Most recent Texas Municipal Reports published byThe Municipal Advisory Council of Texas and the Issuer. A-7 GENERAL FUND COMPARATIVE SCHDULES OF REVENUES AND EXPENDITURES TABLE 18 Fiscal Year Ended September 30 2009 2008 2007 2006 2005 Revenueand Other Financing Sources: Ad Valorem Property Taxes $1,283,705 $1,002,608 $909,495 $1,038,439 $894,343 Water &Wastewater Charges 3,721,868 3,678,859 3,151,144 4,005,608 3,355,439 Utility Fees 515,200 Inspection and Tap Fees 4,975 22,550 32,900 42,725 79,625 Interest Earned 20,755 69,447 106,168 57,329 21,840 Capital Proceeds/Contractual Oligations 330,000 49,432 165,000 Miscellaneous and Other 199,780 116,295 131,124 71,151 45,937 Total Revenues and Other Financing Sources:$6,076,283 $4,939,191 $4,330,831 $5,380,252 $4,397,184 Expenditures and OtherFinancing Uses: Administrative $1,297,613 $905,052 $835,590 $769,646 $806,272 Water Operations 1,811,385 1,934,792 1,638,294 1,916,008 1,632,987 Wastewater Operations 999,388 500,224 480,798 469,292 468,513 Wastewater Collection System 294,869 409,948 402,482 673,422 328,419 Information Systems 175,698 187,908 124,987 60,557 55,476 Contribution to Trophy Club Fire Dept.783,736 902,353 725,764 724,738 579,873 Contribution to JointVenture 95,000 Capital Outlay 29,379 442,782 31,381 26,678 Miscellaneous 383,009 45,457 135,121 67,054 200,454 Total Expenditures and Other Financing Uses:$5.745.698 $4.915,113 $4.785.818 $4.712098 $4,193,672 Excess (Deficit)of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses $330,585 $24,078 $(454,987)$668,154 $203,512 Beginning Fund Balance -October 1(Restated) (Restated)2,501,593 2,477,515 2,932,502 2,264,348 2,060,836 Ending Fund Balance -September 30 $2832178 $2501 593 $2477515 $2932502 $2264348 Total Active Retail Connections Water and/orWastewaterConnections 3,161 3,092 2,827 2,799 2,794 NOTE:Historical comparison information forFiscal Years 2006-2009 represents the combined totals from two separate entities (Trophy Club MUD No.1and Trophy Club MUD No.2) N/A =Not Available Source:The Issuer's 2009 AuditedFinancial Statements DEBT SERVICE FUND COMPARATIVE SCHEDULES OF REVENUES AND EXPENDITURES TABLE 19 Fiscal Year Ended September 30 2009 2008 2007 2006 2005 Revenue and OtherFinancing Sources: Ad Valorem Property Taxes $1,100,081 $1,302,763 $1,325,143 $1,309,781 $1,357,464 Penalties and Interest 12225 4,558 Transfers In 383,009 4,558 Interest Earned 4,105 23,326 43,456 32,279 18,724 Miscellaneous and Other 29,379 29,379 41,210 11,831 Total Revenuesand OtherFinancing Sources:$1,499,420 $1,355,468 $1,397,978 $1,383,270 $1,397,135 Expenditures and Other Financing Uses: Principal Retirement $1,025,000 $975,000 $945,000 $636,635 $752,795 Interestand Fiscal Charges 352,195 390,565 425,838 728,740 806,970 Total Expendituresand Other Financing Uses:$1.377.195 $1.365.565 $1.370,838 $1.365,375 $1,559,765 Excess (Deficit)of Revenues and Other Financing Sources Over(Under) Expenditures and OtherFinancing Uses $122,225 $(10,097)$27,140 $17,895 $(162,630) Beginning Fund Balance·October 1(Restated) (Restated)117,209 N/A N/A N/A N/A Ending Fund Balance -September30 $239434 N/A N/A N/A N/A A-a APPENDIXB GENERAL INFORMATION REGARDING THE TOWN OF TROPHY CLUB AND DENTON COUNTY,TEXAS 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 southern portion of the Denton County (the "County")on State Highway 114 approximately 8 miles west of the City of Grapevine,17 miles south of the City of Denton and 14 miles northwest of the Dallas- Fort Worth Intemational Airport.Lake Grapevine is located approximately 2 miles north and east of the Town.The majority of property within the Town consists of 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 Trophy Club Municipal Utility District No.1.The Town's 2000 Census was 6,350,which is a 61.9%increase over the 1990 Census.The Town's 2009 population estimate is 8,211. Source:Latest Texas Municipal Report published by the Municipal Advisory Council of Texas,U.S.Census Report and the Town ofTrophy Club. AWAIIUO• MAP OF TE~,QS SIlC!l/ING LOCATlOK or Population: LUIIOCX• t.4ID1..AND• Year 2009 Estimate 2000 Census 1990 Census 1980 Census """--• WAC;O• AUSTIN • Town of Trophy Club 8,211 6,350 3,922 N/A Denton County 628,300 423,976 273,525 143,126 Sources:United States Bureau ofthe Census,North Central Texas Council ofGovernment and the Town of Trophy Club B-1 Leading Employers in the District: Employer Maguire Partners Northwest Independent School District Trophy Club Country Club Trophy Club Country Club Tom Thumb Town of Trophy Club &Trophy Club MUD #1 Ivy Glen Blockbuster Bank ofAmerica Texas National Bank Quizno's Beck Properties/Centurion Source:Information from the Issuer Education Type of Business Commercial Office Complex Public School District Country Club Country Club and Golf Course Retail Grocery Municipal Governmental Entities Daycare Video Rental/Sales Financial Institution Financial Institution Delicatessen Real Estate Development Number of Employees (2009) 3,531 267 100 99 90 87 31 12 7 6 4 4 The Town is served by the Northwest Independent School District (the "School District"or "Northwest ISO").Northwest ISO covers approximately 232 square miles in Denton,Wise and Tarrant Counties.In addition to serving the Town,the School District also serves the communities of Aurora,Fairview,Haslet,Justin,Newark,Northlake,Rhome,Roanoke and portions of Flower Mound,Fort Worth,Keller,Southlake and Westlake.Northwest ISO is comprised of 14 primary schools for grades pre- kindergarten through fifth,3 middle schools for grades sixth through eighth,2 high schools for grades ninth through twelfth,and two alternative education campuses for grades seventh through twelfth.One of the high schools,Byron Nelson High School,is located in the Town of Trophy Club.It opened in August 2009 with ninth and tenth grades.Eleventh grade will be added in August 2010,and twelfth grade will attend Byron Nelson High School in August 2011.All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level,and all are equipped with computers and full cafeteria service.The School District serves a 2009-2010 estimated enrollment of 14,096 students (as of February 1,2010). Source:Information from Northwest Independent School District and the Town ofTrophy Club DENTON COUNTY General Denton County (the "County")is located in north central Texas.The County was created in 1846.It is the eighth most populous county in the state occupying a land area of 911 square miles.The population of the County has grown by nearly 41 %since the 2000 census.The County seat is the City of Denton. 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.There were 212.6 billion cubic feet of natural gas recovered in 2008,making it the 8th largest gas producing county in the state. Institutions of higher education include University of North Texas and Texas Woman's University with a combined 2009 fall enrollment of over 64,000. Nearby Lake Lewisville attracts over 3,000,000 visitors annually. Alliance Airport,the largest industrial airport in the world is located in the county and continues to attract new transportation, distribution,and manufacturing tenants.The Texas Motor Speedway,a major NASCAR race track,was completed in 1997 and has had a positive impact on employment and recreational spending for the area.A major Wal-Mart distribution center located in Sanger is adding to the growth of the northern portion of the County.Robson Development is constructing one of the nation's largest new communities for retired citizens in the southern portion of the County. Source:Texas Municipal Report and information from the County: B-2 Major Employers in Denton County Employer University of North Texas Lewisville Independent School District Frito Lay Co American Airlines Texas Women's University Denton Independent School District Horizon Health Denton State School Xerox Corporation Denton County City of Denton Federal Express Denton Reg.Medical Center Wal-Mart Distribution Center Medical Center of Lewisville FEMA Source:Denton County Economic Development LaborForce Statistics Principal Line of Business Education Education Distribution Center Airline Education Education Healthcare MHMR Facility Office Equipment County Government Municipality Mail Center Medical Center Distribution Center Health Care Emergency Management Number of Employees 7,100 4,500 2,436 2,350 2,200 2,000 1,500 1,473 1,400 1,227 1,200 863 850 800 769 750 Denton County Civilian Labor Force Total Employed Total Unemployed %Unemployed %Unemployed (Texas) %Unemployed (United States) December 2009 December 2008 351,583 338,134 325,993 320,416 25,590 17,718 7.3%5.2% 8.0%5.7% 9.7%7.1% Source:Texas Workforce Commission,Labor Market Information Department. B-3 [This page is intentionally left blank.] APPENDIXC FORM OF LEGAL OPINION OF BOND COUNSEL Proposed Form of Opinion of Bond Counsel An opinion in substantially thefollowingform will be delivered by McCall,Parkhurst &Horton L.L.P.,BondCounsel,upon the delivery ofthe Bonds, assuming no material changes in facts or law. [DATE OF DELIVERY] TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 UNLIMITED TAX BONDS,SERIES 2010,DATED APRIL 1,2010 IN THE AGGREGATE PRINCIPAL AMOUNT OF $2,000,000 AS BOND COUNSEL FOR TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 (the "District")issuer ofthe Bonds described above (the "Bonds"),we have examined into the legality and validity of the Bonds,which bear interest from the dates and mature on the dates,and are subject to redemption,in accordance with the terms and conditions stated in the text ofthe Bonds.Terms used herein and not otherwise defmed shall have the meaning given in the Order ofthe District authorizing the issuance and sale ofthe Bonds (the "Order"). WE HAVE EXAMINED the Constitution and laws of the State of Texas,and other documents authorizing and relating to the issuance ofsaid Bonds,including one ofthe executed Bonds (Bond Number T-1), and specimens ofBonds to be authenticated and delivered in exchange for the Bonds. BASED ON SAID EXAMINATION,IT IS OUR OPINION THAT the Bonds have been authorized and issued and the Bonds delivered concurrently with this opinion have been duly delivered,and that,assuming due authentication,Bonds issued inexchange therefor will havebeenduly delivered,inaccordance with law,and that said Bonds,except as may be limited by laws applicable to the District relatingto bankruptcy,reorganization and other similar matters affecting creditors'rights generally or by general principles ofequity which permit the exercise ofjudicial discretion,constitute valid and legally binding obligations ofthe District,payable from ad valorem taxes to be levied and collectedbythe District upon taxable property within the District,which taxes the District has covenantedto levy in an amount sufficient to paythe interest on and the principal ofthe Bonds.Such covenant to levy taxes is subject to the right ofa city,under existing Texas law,to annex all ofthe territory within the District;to take over all properties and assets ofthe District;to assume all debts,liabilities,and obligations of the District,including the Bonds;and to abolish the District or ifthe District consolidates with another District. IT IS FURTHEROUR OPINION THAT,except as discussed below,under the statutes,regulations, published rulings,and court decisions existing on the date ofthis opinion,for federal income tax purposes,the interest on the Bonds (i)is excludable from the gross income ofthe owners thereofand (ii)is not includable in an owner's alternative minimum taxable income under section 55 ofthe Internal Revenue Code of1986 (the "Code"). In expressing the aforementioned opinions,we have relied on,certain representations,the accuracy ofwhich we have not independently verified,and assume compliance with certaincovenants regarding the use and investment ofthe proceeds ofthe Bonds and the use ofthe property financed therewith.We callyour attention to the fact that ifsuch representations are determined to be inaccurate or ifthe Issuer fails to comply with such covenants,interest on the Bonds may become includable in gross income retroactively to the date ofissuance ofthe Bonds. EXCEPT AS STATED ABOVE,we express no opinion as to any other federal,state or local tax consequences ofacquiring,carrying,owning or disposing ofthe Bonds. OUROPINIONS ARE BASED ON EXISTING LAW,which is subject to change.Such opinions are further based on our knowledge of facts as ofthe date hereof.We assume no duty to update or supplement our opinions to reflect any facts orcircumstances that may thereafter come to our attentionorto reflect any changesin any law that may thereafter occur or become effective.Moreover,our opinions are not a guarantee ofresult and are not binding onthe Internal Revenue Service (the "Service");rather,such opinions represent our legaljudgment based upon our review ofexisting law and in reliance upon the representations and covenants referenced above that we deemrelevant to such opinions.The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes.No assurance can be given whether or not the Service will commence an audit ofthe Bonds.Ifan audit is commenced,in accordance with its currentpublishedprocedures the Service is likely to treat the Issuer as the taxpayer.We observe that the Issuer has covenanted not to take any action,or omit to take any action within its control,that iftaken or omitted,respectively,may result in the treatment ofintereston the Bonds as includable in gross income for federal income tax purposes. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal ofand interest on the Bonds,nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance ofthe Bonds is as Bond Counsel for the Issuer,and,in that capacity,we have been engaged by the Issuer for the sole purpose ofrendering our opinions with respect to the legality and validity ofthe Bonds under the Constitution and laws ofthe State ofTexas,and with respect to the exclusionfrom gross income ofthe interest on the Bonds for federal income tax purposes,and for no other reason or purpose.The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee ofa result.We have not been requestedto investigate or verify,and have not independentlyinvestigated or verified,any records, data,or other material relating to the financial condition or capabilities ofthe Issuer,orthe disclosure thereofin connection with the sale ofthe Bonds,and have not assumed any responsibility with respect thereto.We express no opinion and make no comment with respect to the marketability ofthe Bonds.Our role in connection with the Issuer's Official Statementpreparedfor use in connection with the sale ofthe Bonds has been limited as described therein. Respectfully, APPENDIXD EXCERPTS FROM THE DISTRICT'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,2009 (Independent Auditor's Report,General Financial Statements and Notes to the Financial Statements -not intended to be a complete statement ofthe Issuer's financial condition.Reference is made to the complete Annual Financial Report for further infonmation.) weaver INDEPENDENT AUDITOR'S REPORT To the Board of Directors Trophy Club Municipal Utility District No.1 Trophy Club,Texas We have audited the accompanying financial statements of the governmental activities and each major fund of the Trophy Club Municipal Utility District No.1,(the District),as of and for the year ended September 30,2009,which collectively comprise the District's basic financial statements as listed in the table of contents.These financial statements are the responsibility of the District's management.Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards,issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinions. In our opinion,the financial statements referred to above present fairly,in all material respects, the respective financial position of the governmental activities,and each major fund of the Trophy Club Municipal Utility District No.1 as of September 30,2009,and the changes in financial position for the year then ended,in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis,and budgetary comparison information on pages 3 through 10 and 32 through 33,are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America.We have applied certain limited procedures,which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information.However,we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards,we have issued a report dated January 25, 2010 on our consideration of the District's internal control over financial reporting and our tests of compliance with certain provisions of laws,regulations,contracts and grants.The purpose of that report is to describe the scope of testing of internal control over financial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financial reporting or on compliance.The report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. AN INDEPENDENT MEMBER OF BAKER TILlY INTF.R.NATIONAL WEAVER AND TIDWELL LLP CERTIFIED PUBUCACCOUNTANTS AND CONSULTANTS WWWWEAVER1LPCDM DALLAS 12m MERIT DRIVE,SUITE 1400,DALLAS.TX 75251 P(972)490 1970 F(972)7028321 Trophy Club Municipal Utility District No.1 January 25,2010 Page 2 Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Trophy Club Municipal Utility District No.1's basic financial statements. The accompanying individual schedules and other supplementary information listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the basic financial statements.The accompanying individual schedules and other supplementary information have been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ~~~.L.!-P WEAVER AND TIDWELL,L.L.P. Dallas,Texas January 25,2010 2 TROPHY CLUB MUNICIPAl UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Trophy Club Municipal Utility District No.1,Texas (the District)Management's Discussion and Analysis (MD&A),is a narrative overview and analysis designed to provide the reader a means to identify and understand the financial activity of the District and changes in the District's financial position during the fiscal year ended September 30,2009. The Management's Discussion and Analysis is supplemental to,and should be considered along with the District's financial statements. Financial Highlights As a result of the May 9,2009 election,voters approved the consolidation of Trophy Club Municipal District No.1 (MUD 1)and Trophy Club Municipal District No.2 (MUD 2).The .consolidation also incorporated and dissolved the Trophy Club Master District Joint Venture, which was a joint venture of the two municipal utility districts'water and wastewater operations.While each of the three entities budgeted and reported financial information independently previous to the election results,state law required that the consolidation be completed within 90 days of the election.As of August 1,2009,all budgets and financial data for the three entities were combined as Trophy Club Municipal Utility District Number 1. All contracts,debt instruments,and official documents of the three entities were revised and/or reauthorized to be that of the consolidated Trophy Club Municipal Utility District Number 1. At the close of the fiscal year,the assets of the consolidated District exceeded its liabilities by $9,017,058.Of this amount,$1,982,083 is unrestricted net assets and may be used to meet the District's ongoing commitments to its citizens and creditors. The District's consolidated net assets increased by $910,336 as a result of operations. At the end of the fiscal year,the District's consolidated governmental funds reported a combined fund balance of $3,071,612. For the year ended September 30,2009,the unreserved fund balance for the General Fund was $2,829,068,which is 53%of the total expenditures for the General Fund for fiscal year 2009. The governmental long-term consolidated liabilities of the District decreased by $828,252. Overview of the Financial Statements The MD&A is intended to introduce the reader to the District's basic financial statements,which are comprised of three components:1.Government Wide Financial Statements,2.Fund Financial Statements,and 3.Notes to those Financial Statements.The report also contains other required supplementary information in addition to the basic financial statements. 3 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Overview ofthe Financial Statements -Continued Government Wide Financial Statements -the government wide financial statements are designed to provide the reader with a general overview of the District's finances in a way that is comparable with financial statements from the private sector.The government wide financial statements consist of two statements: 1.The Statement of Net Assets -(Page 11)this statement presents information on all of the District's consolidated assets and liabilities;the difference between the two is reported as net assets.Over an extended period,the increase or decrease in net assets will serve as a good indicator of whether the financial position of the District is improving or deteriorating. 2.The Statement of Activities -(Page 12)gives information showing how the District's consolidated net assets have changed during the fiscal year.All revenues and expenses are reported on the full accrual basis so certain revenue and expense items will result in cash flows in future fiscal periods (such as uncollected taxes or unused vacation leave). Note:the government wide financial statements are found on pages 11 and 12 of this report. Fund Financial Statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been set aside for specific activities or objectives.Fund financial statements provide detailed information about the most important funds and not about the District as a whole as in the government-wide financial statements. The District uses fund accounting to demonstrate compliance with finance related legal requirements which can be categorized as governmental fund activities. Governmental Funds -All of the District's activities are reported in governmental funds.They are used to account for those functions known as governmental activities.But unlike government -wide financial statements,governmental fund financial statements focus on how monies flow into and out of those funds and their resulting balances at the end of the fiscal year.Statements of governmental funds provide a detailed short-term view of the District's general government operations and the basic services it provides.Such information can be useful in evaluating a government's short-term financing requirements. The District maintains two governmental funds.Information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances for the General Fund and the Debt Service Funds,both of which are considered to be major funds. 4 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Overview of the Financial Statements -Continued The District adopts annual appropriated budgets for the general fund,and debt service funds. A budgetary comparison statement is provided for each annually budgeted fund to demonstrate compliance with its budget. Notes to the Financial Statements -The notes provide additional information that is essential to a full understanding of the data presented in the government-wide and fund financial statements.The notes to the financial statements can be found on pages 17-31. Government-wide Financial Analysis The management discussion and analysis highlights the information provided in both the Statement of Net Assets and Statement of Activities in the government-wide financial statements.It may serve over an extended period of time,as a useful indicator of the District's financial position.At the end of the fiscal year,the District's assets exceeded liabilities by $9,017,058.Of this amount $6,791,050 (75.3%)reflects the District's investment in capital assets (e.g.,land,buildings,machinery and equipment,net of accumulated depreciation),less any related outstanding debt used to acquire those assets.The District uses these capital assets to provide service to the community;therefore these assets are not available for future spending. Table 1 Condensed Statement of Net Assets Current and other Capital assets Total Assets Long-term liabilities Other liabilities Total Liabilities $ Governmental Pctivities 2009 3,922,519 14,018,127 17,940,646 8,194,694 728,894 8,923,588 $ Governmental Activities 2008 3,412,180 14,000,337 17,412,517 9,022,946 681,712 9,704,658 NetAssets: Invested in capital Net of related debt Restricted Unrestricted Total Net Assets 6,791,050 6,390,163 243,925 115,353 1,982,083 1,202,343 $9,017,058 $7,707,859 5 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Government-wide Financial Analysis -Continued District operational analysis -The following table provides a summary analysis of the District's consolidated operations for the fiscal year ended September 30,2009.Governmental activities have increased the District's net assets by $1,309,199 which amounts to a 17.0%increase in net assets for the year. Changes in net assets Table 2 Changes in Net Assets Governmental Activities 2009 Governmental Activities 2008 Total Revenue Expenses: General govemment Fire Interest and fiscal charges Revenue: Program reverue Charges fa"services $ Operating Grants and Contributions General Revenue Ad valorem taxes Ulrestricted investment earnings Miscellaneous Intergovernmental revenue Total Expenses Increase in net assets $ 6 4,242,862 $3,901,575 33,653 2,405,928 2,299,886 24,860 92,773 165,308 115,539 569,379 6,872,611 6,979,152 4,448,268 4,190,448 770,108 902,353 345,036 400,962 5,563,412 5,493,763 1,309,199"$1,485,389 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Financial analysis of the District's funds Governmental Funds -the main focus of the District's governmental funds is to provide information on the consolidated flow of monies to and from the funds,and to note the consolidated unreserved fund balance,which is a good indicator of resources available for spending in the near term.The information derived from these funds is highly useful in assessing the District's financial requirements.The consolidated unreserved fund balance may serve as a useful measure of the government's net resources available for use at the fiscal year end. At the end of the fiscal year,the District's consolidated governmental funds reported combined ending fund balances of $3,071,612,of which 92.1%,or $2,829,068,is unreserved and available to the District for future spending..$3,110 is reserved for prepaid items.The remaining fund balance is not available for spending and is committed to pay debt service. General fund budgetary highlights Revenue:Revenues were $319,766 less than budgeted •Water and wastewater charges were $452,954 (10.85%)less than budgeted.The bUdget was based on estimated growth in new housing similar to the rate in the prior fiscal year.Actual housing starts were much less than anticipated. •Utility fees were $170,200 more than budgeted (49.3%). Expenses:Expenses were $290,946 less than budgeted •Salary savings compared to budget during the fiscal year were $38,319. •Bulk water purchases related to water sales were $24,851 less than budgeted due to unusually cool weather with a high incidence of rain. •Electricity costs were $10,823 less than budget due to successful negotiations for reduced electric rates. •BUdgeted maintenance costs were $57,705 under budget for the fiscal year.- •Fire department vacancies provided salary savings of $23,125 under budget. •Other Fire Department operational savings in training,travel,fuel,and insurance costs provided an additional $45,225 in budget savings during the fiscal year. Debt Service: •The debt service revenue was $6,763 more than budgeted.The debt service expenses were $1 less than budget. 7 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Debt Service -Continued •Transfers from operations were $225,461 more than budgeted.The additional transfers were made in order to establish an ending fund balance adequate to provide a 110%debt coverage ratio at the end of the subsequent fiscal year. •The debt service reserves were increased from $117,209 to $239,434. Overall: •The District's revenue and other financing sources totaled $7,192,694 on expenses of $6,739,884. •The total fund balance increased from $2,618,802 to $3,071,612;an increase of $452,810 or 17.3%in reserves. Capital asset and debt administration. The District's consolidated investments of capital assets for its governmental activities as of September 30,2009 amounted to $14,018,127 net of accumulated depreciation.This represents a broad range of capital assets including,but not limited to land,buildings, improvements,machinery and equipment,vehicles,and water,wastewater treatment,and wastewater collection systems,as well as,organization costs. Table 3 Capital Assets at Year-end Net of Accumulated Depreciation Governmental Governmental Activities Activities 2009 2008 Land $248,093 $248,093 Buildings 357,877 389,290 Improvements other than buildings 103,796 115,326 Machinery and equipment 854,109 435,298 Vehicles 533,633 617,476 Water system 5,338,964 5,104,126 Wastewater treatment system 4,082,727 4,653,503 Wastewater collection system 2,101,115 2,195,861 Organization costs 397,813 480,341 Construction in Progress 159,886 Total $14,018,127 $14,399,200 8 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Capital asset and debt administration -Continued The major additions to capital assets for the fiscal year included a $417,490 disk filter system. Consolidated capital assets net of depreciation at year end:$14,018,127 Additional information about capital assets may be found in Notes 1 F and 5 in the notes to financial statements. Debt administration Long-Term Debt -at the end of the current fiscal year the consolidated District had $8,194,694 in general obligation bonds,contractual obligation bonds,notes payable,capital lease obligations,and accrued compensated absences,a decrease of 9.2%from the previous fiscal year.Of this amount,$8,091,522 is backed by the full faith and credit of the government. General debt currently outstanding Table 4 Outstanding Debt at Year-end Govemmental Activities 2009 Govemmental Activities 2008 General obligation bonds Contract obilgations Notes payable capital lease obligations Compensated aDsences Total $ $ 7,338,272 753,250 17,895 62,660 22,617 8,194,694 $ $ 8,366,802 514,000 19,649 105,546 16,949 9,022,946 9 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2009 Economic factors and next year's budgets and rates: General fund fiscal 2010 budgetary highlights Revenue:Operational revenue budget decreased by $983,701 from fiscal 2009. •Property tax revenue budget increased by $145,668 due to increased valuations. •Utility fees revenue decreased $345,000 due to the reallocation of those fees to the Debt Service Fund. •Water and wastewater revenue budget decreased by $94,084 due to reduced estimates on new housing starts. •Loan proceeds budget related to capital purchases decreased by $707,750. •Interest revenue decreased by $12,896 as a result of lower fund balances and interest rates. Expenses:Operational expense budget increased by $206,728 from fiscal 2009. •The majority of the budget increase is related to $332,660 in bulk water purchases related to increased rates and anticipated growth. •Payroll increases related to anticipated raises and insurance costs are $97,765. The remainder of the budget lines in operating expenses remained basically the same. Overall: The consolidated District's operational budget is anticipated to have expenses of $5,860,363 on revenues of $5,860,363 resulting in no anticipated excess or deficit. Debt Service: •Budgeted debt service revenues have increased from $1,267,196 in fiscal 2009 to $1,367,310 in fiscal 2010,an increase of $100,114,or a 7.9%increase. •Debt service appropriations decreased from $1,377,196 to $1,367,310 as a result of normal annual variances in bond payments. The consolidated District's overall budget for revenue decreased from $8,058,495 in fiscal 2009 to $7,227,673 in fiscal 2010 a 10.3%decrease.The overall appropriations increased from $7,213,378 to $7,227,673 a 0.2%increase. Requests for information This financial report is designed to provide a general overview of the District's consolidated finances for all interested parties.Questions concerning any of the information in this report or requests for additional information should be directed to the Trophy Club Municipal Utility District No.1,Director of Finance,100 Municipal Drive,Trophy Club,Texas 76262. 10 BASIC FINANCIAL STATEMENTS TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 STATEMENT OF NET ASSETS SEPTEMBER 30,2009 ASSETS Cash and cash equivalents Receivables Accounts receivable,net Taxes Other Due from other governments Prepaids Restricted cash Capital assets: Land Buildings Improvements other than buildings Machinery and equipment Vehicles Water system Wastewater treatment system Wastewater collection system Organization costs Accumulated depreciation Deferred charges TOTAL ASSETS LIABILITIES Accounts payable Accrued liabilities Accrued interest payable Due to other governments Customer deposits Noncurrent liabilities: Debt due within one year Debt due in more than one year Total liabilities NET ASSETS Invested in capital assets,net of related debt Restricted for debt service Unrestricted TOTAL NET ASSETS The Notes to Financial Statements are an integral part ofthis statement. 11 Governmental Activities $3,077,898 514,663 55,711 5,892 37,275 3,110 135,976 248,093 506,790 292,801 1,212,378 1,502,552 8,509,288 6,432,479 4,286,723 2,331,300 (11,304,277) 91,994 $17,940,646 $431,403 78,677 25,692 53,095 140,027 1,324,400 6,870,294 8,923,588 6,791,050 243,925 1,982,083 $9,017,058 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30,2009 Program Activites Governmental activities General government Water operations Wastewater operations Wastewater collection system Utility billing Directors Manager's office Human resources Finance Facilities management Information systems Fire Interest on long term debt Total governmental activities Governmental Activities Net (Expenses) Revenue and Program Changes in Revenues Net Assets Operating Charges for Grants and Governmental Expenses Services Contributions Activities $960,449 $4,242,862 $$3,282,413 1,125,502 (1,125,502) 999,388 (999,388) 261,869 (261,869) 160,719 (160,719) 31,244 (31,244) 463,252 (463,252) 38,681 (38,681) 173,359 (173,359) 70,291 (70,291) 163,514 (163,514) 770,108 33,653 (736,455) 345,036 (345,036) $5,563,412 $4,242,862 $33,653 (1,286,897) General Revenues: Ad valorem taxes Investment income Miscellaneous Total general revenues Change in net assets Net Assets -beginning of year,as restated Net Assets·end of year The Notes to Financial Statements are an integral part of this statement. 12 2,405,928 24,860 165,308 2,596,096 1,309,199 7,707,859 $9,017,058 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30,2009 ASSETS Debt Total General Service Governmental Fund Fund Funds Assets Cash and cash equivalents $2,838,464 $239,434 $3,077,898 Receivables: Accounts receivables,net 514,663 514,663 Taxes 25,528 30,183 55,711 Other receivables 5,892 5,892 Due from other governments 37,275 37,275 Prepaids 3,110 3,110 Restricted cash 135,976 135,976 TOTAL ASSETS $3,560,908 $269,617 $3,830,525 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $431,403 $$431,403 Accrued liabilities 78,677 78,677 Customer deposits 140,027 140,027 Due to other governments 53,095 53,095 Deferred revenue 25,528 30,183 55,711 Total liabilities 728,730 30,183 758,913 Fund Balances Reserved for prepaids 3,110 3,110 Unreserved and undesignated,reported in: General fund 2,829,068 2,829,068 Debt service fund 239,434 239,434 Total fund balances 2,832,178 239,434 3,071,612 TOTAL LIABILITIES AND FUND BALANCES $3,560,908 $269,617 $3,830,525 The Notes to Financial Statements are an integral part of this statement. 13 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET ASSETS SEPTEMBER 30,2009 Total fund balances -governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and,therefore,are not reported in the governmental funds balance sheet. Costs associated with the issuance of long-term debt are expensed when incurred in governmental funds.These costs are capitalized and amortized over the life of the debt in the government wide financial statements. Revenue reported as deferred revenue in the governmental funds balance sheet is recognized as revenue in the government wide statement financial statements. Interest payable on long term debt does not require current financial resources, therefore,interest payable is not reported as a liability in the governmental funds balance sheet. Accrued vacation does not require the use of current financial resources; therefore accrued vacation is not reported as a liability in the governmental funds balance sheet. Long-term liabilities,including bonds payable are not due and payable in the current period and,therefore,are not reported in the fund financial statements. Net assets of governmental activities The Notes to Financial Statements are an integral partof this statement. 14 $3,071,612 14,018,127 91,994 55,711 (25,692) (22,617) (8,172,077) $9,017,058 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30,2009 Debt Total General Service Governmental Fund Fund Funds Revenues: Taxes $1,283,705 $1,112,306 $2,396,011 Intergovernmental revenues 33,653 33,653 Water and wastewater charges 3,721,868 3,721,868 Standby fees 819 819 Inspection and tap fees 4,975 4,975 Utility fees 515,200 515,200 Investment income 20,755 4,105 24,860 Miscellaneous 165,308 165,308 Total revenues 5,746,283 1,116,411 6,862,694 Expenditures: Current: General government 360,067 360,067 Water operations 1,811,385 1,811,385 Wastewater operations 999,388 999,388 Wastewater collection system 294,869 294,869 Utility billing 160,719 160,719 Directors 31,244 31,244 Manager's office 463,252 463,252 Human resources 38,681 38,681 Finance 173,359 173,359 Facilities management 70,291 70,291 Information systems 175,698 175,698 Fire 783,736 783,736 Debt Service Principal 1,025,000 1,025,000 Interest and fiscal charges 352,195 352,195 Total expenditures 5,362,689 1,377,195 6,739,884 Excess (deficiency)of revenues over (under)expenditures 383,594 (260,784)122,810 Other financing sources (uses) Issuance of contractual obligations 330,000 330,000 Transfers in 383,009 383,009 Transfers out (383,009)(383,009) Total other financing sources (uses)(53,009)383,009 330,000 Net change in fund balance 330,585 122,225 452,810 Fund Balances -beginning of year,as restated 2,501,593 117,209 2,618,802 Fund Balances -end of year $2,832,178 $239,434 $3,071,612 The Notes to Financial Statements are an integral part of this statement. 15 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 RECONCILIATION OF THE STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30,2009 Net change in fund balances -total governmental funds Amounts reported for governmental activities in the statement of activities are different because: Depreciation expense on capital assets reported in the statement of activities does not require the use of current financial resources,therefore,depreciation expense is not reported as expenditures in the governmental funds. Governmental funds report capital outlays as expenditures.However,in the statement of activities the costs of those assets is allocated over their estimated useful lives and reported as depreciation expense.This is the amount of capital assets recorded in the current period. Governmental funds reflect the proceeds of capital leases as other financing sources and payments as expenditures.However,in the government-wide statements, the proceeds and payments made on capital leases are reflected as changes in liabilities.This amount reflects the payments under capital leases. Repayment of principal on long-term debt reduces long-term liabilities in the statement of net assets,but it is recorded as an expenditure in the governmental funds. Governmental funds reflect the proceeds from the issuance of bonds,contractual obligations,and capital leases as other financing sources;however,in the government- wide financial statements the proceeds are reflected as increases in liabilities. Current year changes in the long term liability for compensated absences do not require the use of current financial resources;therefore they are not reported as expenditures in the governmental funds. Governmental funds report the effects of issuance costs,premiums,and deferred losses on refunding when debt is first issued,whereas the amounts are deferred and amortized in the statement of activities. Certain revenues in the government-wide financial statements that do not produce current financial resources are not reported as revenue in the governmental funds. Current year changes in accrued interest payable do not require the use of current financial resources and,therefore,are not reported as expenditures in governmental funds. Change in net assets of governmental activities The Notes to Basic Financial Statements are an integral part of this statement. 16 $452,810 (684,019) 701,809 42,886 1,117,504 (330,000) (5,668) (3,199) 9,917 7,159 $1,309,199 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A.General Statement Trophy Club Municipal Utility District NO.1 (the District)was created by an order of the Texas Commission on Environmental Quality (TCEQ)(formerly the Texas Natural Resources Conservation 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 were first sold on June 8,1976.The District operates pursuant to Article XVI,Chapter 59 of the Texas Constitution and Chapter 54 of the Texas Water Code,as amended. On May 9,2009,citizens voted to consolidate the District and Trophy Club Municipal Utility District NO.2 (MUD2).As a result,the District's fiscal year 2009 financial statements report consolidated activity and balances for the District and the entities formerly known as MUD2 and the Trophy Club Master District Joint Venture ( a joint venture of MUD1 and MUD2). 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. B.Financial Reporting Entity As required by accounting principles generally accepted in the United States of America,these financial statements include the activities of the District and any organizations for which the District is financially accountable or for which the nature and significance of their relationship with the District are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The definition of the reporting entity is based primarily on the notion of financial accountability.A primary government is financially accountable for the organizations that make up its legal entity.It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to,or to impose specific financial burdens on,the primary government.A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. A primary government has the ability to impose its will on an organization if it can significantly influence the programs,projects,or activities of,or the level of services performed or provided by, the organization.A financial benefit or burden relationship exists if the primary government (a)is entitled to the organization's resources;(b)is legally obligated or has otherwise assumed the obligation to finance the deficits of,or provide financial support to,the organization;or (c)is obligated in some manner for the debt of the organization.Some organizations are included as component units because of their fiscal dependency on the primary government.An organization is fiscally dependent on the primary government if it is unable to adopt its budget,levy taxes,set rates or charges,or issue bonded debt without approval by the primary government.Accordingly, the District has no component units. 17 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED C.Government-Wide and Fund Financial Statements The govemment-wide financial statements (the statement of net assets and the statement of activities)report information on all of the activities of the District,except for fiduciary funds.The effect of interfund activity has been removed from these statements.Governmental activities, which normally are supported by taxes and intergovernmental revenues,are reported separately from business-type activities,which rely to a·significant extent on fees and charges for support. The activities of the District are comprised only of govemmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues.Direct expenses are those that are clearly identifiable with a specific program.Program revenues include 1)charges to customers or applicants who purchase,use,or directly benefit from goods,services,or privileges provided by a given program and 2)operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program.Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements The District segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance.These statements present each major fund as a separate column on the fund financial statements. The District does not report any non-major funds. Governmental funds are those funds through which most govemmental functions typically are financed.The measurement focus of governmental funds is on the sources,uses and balance of current financial resources.The District has presented the following major govemmental funds: General Fund The General Fund is the main operating fund of the District.This fund is used to account for all financial resources not accounted for in other funds.All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund are accounted for in this fund.General operating expenditures,fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund. Debt Service Fund The Debt Service Fund is used to account for resources accumulated and payments made for principal and interest on the long-term debt of governmental funds. D.Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured;basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements.Basis of accounting relates to the timing of the measurement made,regardless of the measurement focus applied. The government-wide statements are reported using the economic resources measurement focus and the accrual basis of accounting.The economic resources measurement focus means all assets and liabilities (whether current or non-current)are included on the statement of net assets and the operating statements present increases (revenues)and decreases (expenses)in net total assets.Under the accrual basis of accounting,revenues are recognized when earned.Expenses are recognized at the time the liability is incurred. 18 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED D.Measurement Focus and Basis of Accounting Governmental fund financial statements are reported using the current financial rE;lsources measurement focus and are accounted for using the modified accrual basis of accounting.Under the modified accrual basis of accounting,revenues are recognized when susceptible to accrual; Le.,when they become both measurable and available. "Measurable"means the amount of the transaction can be determined and "available"means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period.The District considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year.Expenditures are recorded when the related fund liability is incurred.However,debt service expenditures are recorded only when payment is due. The revenues susceptible to accrual are interest income and ad valorem taxes.All other governmental fund revenues are recognized when received. E.Cash and Investments The District's cash and cash equivalents are considered to be cash on hand,demand deposits, and short-term investments of three months or less from the date of acqUisition. The District's investment policy requires that all monies be deposited with the authorized District depository or 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,(B)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 (1),pledged with third party selected or approved by the District,and placed through a primary government securities dealer. All investments are recorded at fair value based on quoted market prices.Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. F.Capital Assets Capital assets,which include property,plant,equipment,are reported in the government-wide financial statements.All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available.Donated assets are valued at their fair market value on the date donated.Repairs and maintenance are recorded as expenses.Renewals and betterments are capitalized.Interest has not been capitalized during the construction period on property,plant and equipment. Assets capitalized have an original cost of $5,000 or more and over one year of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line method.Estimated useful lives are as follows: Buildings Improvements other than buildings Machinery and equipment Vehicles Water and wastewater systems 19 50 Years 15 -30 Years 6 -15 Years 6 -12 Years 30 -65 Years TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED G.Accumulated Vacation,Compensated Time and Sick Leave The District has no employees of its own,but instead,personnel services are furnished under a contract with the Town of Trophy Club,Texas.The District records an allocation of personnel costs from the Town in personnel expense accounts rather than as single line item payable to the Town.Accordingly,the District also records current payroll and an allocation in compensated absences earned by the personnel assigned to it.The District reports this liability using the Town's vacation policy;however,the Town retains primary liability for its employee vacation pay. H.Organizational Costs The District,in conformance with requirements of the TCEQ,capitalized costs incurred in the creation of the District.The TCEQ requires capitalization of 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.The District amortizes the organizational costs using the straight-line method over a period of 22 to 45 years. I.Net Assets Net assets represent the difference between assets and liabilities.Net assets invested in capital assets,net of related debt consists of capital assets,net of accumulated depreciation,reduced by the outstanding balances of any borrowing used for the acquisition,construction or improvements of those assets,and adding back unspent proceeds.Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the District or through external restrictions imposed by creditors,grantors or laws or regulations of other governments. K.Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America,management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities,the disclosures of contingent assets and liabilities,and the reported amounts of revenue and expenses/expenditures.Actual results could differ from those estimates. L.Adopted Accounting Pronouncements On September 30,2009,the District adopted the guidance for subsequent events set forth under generally accepted accounting principles.The current guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date,but before financial statements are issued or are available to be issued.Specifically,the guidance set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements,the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements,and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.The current guidance for accounting for subsequent events provides largely the same guidance on subsequent events which previously existed only in auditing literature.The adoption of the new standard for accounting for subsequent events had no impact on the financial statements as management already followed a similar approach to the adoption of this standard. The District has evaluated subsequent events through January 25,2010. 20 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2.CASH AND INVESTMENTS The funds of the District must be deposited and invested under the terms of a contract,contents of which are set out in the Depository Contract Law.The depository bank places approved pledged securities for safekeeping and trust with the District's agent bank in an amount sufficient to protect District funds on a day-to-day basis during the period of the contract.The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation (FDIC)insurance. At September 30,2009,the carrying amount of the District's deposits (cash,certificates of deposit, and interest-bearing savings accounts included in temporary investments)was $285,121 and the bank balance was $290,413.The District's cash deposits at September 30,2009,and during the year then ended were entirely covered by FDIC insurance or by pledged collateral held by the District's agent bank in the District's name. The Public Funds Investment Act (Govemment Code Chapter 2256)contains specific provisions in the areas of investment practices,management reports and establishment of appropriate policies. Among other things,it requires the District to adopt,implement,and publicize an investment policy. That policy must address the following areas;(1)safety of principal and liquidity,(2)portfolio diversification,(3)allowable investments,(4)acceptable risk levels,(5)expected rates of return,(6) maximum allowable stated maturity of portfolio investments,(7)maximum average dollar-weighted maturity,allowed based on the stated maturity date for the portfolio,(8)investment staff quality and capabilities,(9)and bid solicitation preferences for certificates of deposit.Statutes and the District's investment policy authorized the District to invest in the following investments as summarized below: Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity·of Portfolio In One Issuer U.S.Treasury Obligations 2 years 85%NA U.S.Agencies Securities 2 years 85%NA State of Texas Securities 2 years 85%NA Certificates of Deposits 2 years 85%NA Municipal Securities 2 years 85%NA Money Market 2 years 50%NA Mutual Funds 2 years 50%NA Investment pools 2 years 100%NA The Act also requires the District to have independent auditors perform test procedures related to investment practices as provided by the Act.The District is in substantial compliance with the requirements of the Act and with local policies. Cash and investments as of September 30,2009 are classified in the accompanying financial statements as follows: Statement of Net Assets Primary Government: Cash and cash equivalents Restricted cash Total cash and investments 21 $ $ 3,077,898 135,976 3,213,874 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2.CASH AND INVESTMENTS -CONTINUED Cash and investments as of September 30,2009 consist of the following: Deposits with financial institutions Investments Total cash and investments Disclosures Relating to Interest Rate Risk $ $ 285,121 2,928,753 3,213,874 Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.Generally,the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates.One of the ways that the District manages its exposure to interest rate risk is by investing mainly in investment pools which purchase a combination of shorter term investments with an average maturity of less than 60 days thus reducing the interest rate risk.The District monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio.The District has no specific limitations with respect to this metric. As of September 30,2009,the District had the following investment: Investment Type TexPool Amount $2,928,753 Weighted Average Maturity 44 days Total Investments $2,928,753 As of September 30,2009,the District did not invest in any securities which are highly sensitive to interest rate fluctuations. Disclosures Relating to Credit Risk Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.This is measured by the assignment of a rating by a nationally recognized statistical rating organization.Presented below is the minimum rating required by (where applicable)the Public Funds Investment Act,the District's investment policy,or debt agreements,and the actual rating as of year-end for each investment type. Minimum Rating as Legal of Year Investment Type Amount Rating End TexPool $2,928,753 N/A AAAm Total Investments $2,928,753 22 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2.CASH AND INVESTMENTS -CONTINUED Concentration of Credit Risk The investment policy of the District contains no limitations on the amount that can be invested in anyone issuer.As of September 30,2009,other than external investment pools,the District did not have 5%or more of its investments with one issuer. Custodial Credit Risk Custodial credit risk for deposits is the risk that,inthe event of the failure of a depository financial institution,a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party.The custodial credit risk for investments is the risk that,in the event of the failure of the counterparty to a transaction,a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party.The Public Funds Investment Act and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments,other than the following provision for deposits:The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit).The market value of the pledged securities in the collateral pool must equal at least the bank balance less FDIC insurance at all times. As of September 30,2009 the District deposits with financial institutions were not in excess of federal depository insurance limits. Investment in State Investment Pools The District is a voluntary participant in TexPool.The State Comptroller of Public Accounts exercises responsibility over TexPool.This oversight includes the ability to significantly influence operations,designation of management,and accountability for fiscal matters.Additionally,the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool.TexPool operates in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940.TexPool uses amortized costs rather than market value to report net assets to compute share prices. Accordingly,the fair value of the position in TexPool is the same as the value of TexPool shares. . 23 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 3.ACCOUNTS RECEIVABLE Receivables as of year-end,including the applicable allowances for uncollectible accounts,are as follows: Accounts Receivable: MUD water MUD sewer Unbilled receivables-MUD#1 Refuse (as agent for Town of Trophy Club) Refuse tax (as agent for Town of Trophy Club) Storm drainage (as agent for Town of Trophy Club) Allowance for uncollectible accounts Total (net) Due From Other Governments: Town of Trophy Club NOTE 4.INTERFUND TRANSFERS Transfers between funds during the year are as follows: $ $ $ 248,831 140,509 79,456 33,235 2,866 11,189 516,086 (1,423) 514,663 37,275 Transfer In Debt Service Transfer Out General Fund Total 24 $ $ Amount 383,009 383,009 Purpose To pay debt service TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5.CAPITAL ASSETS Capital asset activity for the year ended September 30,2009,was as follows: Beginning Balance as Beginning Previously Adjustments!Balance Retirements!Ending Reported Reclassifications As Restated Additions Transfers Balance Governmental Activities: Capital assets, not being depreciated land $248,093 $$248,093 $$$248,093 Construction in progress 159,886 159,886 214,615 374,501 Total capital assets not being depreciated 407,979 407,979 214,615 374,501 248,093 Capital assets, being depreciated Buildings 460,917 45,873 506,790 506,790 Improvements other than buildings 292,751 50 292,801 292,801 Machinery and equipment 594,262 144,550 738,812 473,566 1,212,378 Organization costs 3,168,427 (837,127)2,331,300 2,331,300 Vehicles 1,918,685 (429.761)1,488.924 13.628 1,502,552 Water system 8,134,787 8.134.787 374.501 8,509,288 Wastewater treatment system 5,641,225 791,254 6,432;479 6,432,479 Wastewater collection system 4,286,723 4,286,723 4,286,723 Total capital assets being depreciated 24,497,777 (285,161)24,212,616 861,695 25,074,311 less accumulated depreciation for: Buildings (117,891)(19,552)(137,443)(11,470)(148,913) Improvements other than buildings (177,475)(177,475)(11,530)(189,005) Machinery and equipment (154,349)(149.165)(303.514)(54.755)(358.269) Organization costs (2,249,827)398.868 (1.850.959)(82.528)(1.933,487) Vehicles (1,301,934)430,486 (871,448)(97,471)(968,919) Water system (3,026,637)(4,024)(3,030.661 )(139.662)(3,170.323) Wastewater treatment system (1,764,621)(393,275)(2,157,896)(191.857)(2,349,753) Wastewater collection system (2,090,862)(2,090,862)(94,746)(2,185,608) Total accumulated depreciation (10,883,596)263,338 (10,620,258)(684,019)(11,304,277) Governmental activities capital assets,net $14,022,160 $(21,823)$14,000,337 $392,291 $374,501 $14,018,127 Depreciation expense was charged as direct expense to programs of the primary government as follows: General government Water operations Wastewater operations Wastewater collection systems Information systems Fire Total depreciation expense 25 $ $ 135,436 200,079 205,551 98,198 13,481 31,274 684,019 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6.LONG·TERM DEBT At September 30,2009,the District's long-term debt payable consisted of the following: Interest Year Average Rate of Final Annual Original Outstanding Description Payable Issue Maturity Payment Amount 9/30/2009 Tax and revenue bonds: Refunding 3.25-5.90%1997 2011 $398,800 $3,075,000 $745,000 Refunding 4.00-5.00%2003 2011 253,100 1,949,288 480,000 Improvements 4.00-5.00%2002 2023 280,060 3,510,000 2,800,000 Operations 4.00-5.00%2003 2023 89,566 1,200,000 945,000 Refunding 3.00-4.20%2005 2023 216,786 3,143,998 2,320,000 $7,290,000 Contractual Obligations: Fire Truck 4.33%2007 2014 56,000 448,000 $322,000 Improvements 3.50%2004 2012 39,000 270,000 101,250 Improvements 3.90%2009 2012 110,000 330,000 330,000 $753,250 Notes payable: Equipment 2.50%1999 2018 2,245 35,000 $17,895 Capital Lease Obligations: Equipment 4.95%2006 2010 33,000 165,000 $33,000 Equipment 4.00%2008 2012 9,886 49,432 29,660 $62,660 The following is a summary of long-term debt transactions of the District for the year ended September 30,2009: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities: Tax and revenue bonds $8,315,000 $$(1,025,000)$7,290,000 $1,055,000 Contractual obligations 514,000 330,000 (90,750)753,250 198,570 Deferred loss on refunding (64,734)4,413 (60,321 )(4,414) Premium on bonding 116,536 (7,943)108,593 7,943 8,880,802 330,000 (1,119,280)8,091,522 1,257,099 Notes payable 19,649 (1,754)17,895 1,798 Capital lease obligations 105,546 (42,886)62,660 42,886 Compensated absences 16,949 5,668 22,617 22,617 Total Governmental Activities Long-term Liabilities $9,022,946 $335,668 $(1,163,920)$8,194,694 $1,324,400 26 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6.LONG·TERM DEBT -CONTINUED The annual requirements to amortize all debts outstanding as of September 30,2009,are as follows: Tax and revenue bonds: Year Ending September 30,Principal Interest Total 2010 $1,055,000 $308,308 $1,363,308 2011 1,115,000 265,189 1,380,189 2012 500,000 220,567 720,567 2013 520,000 202,138 722,138 2014 330,000 182,940 512,940 2015-19 1,900,000 690,635 2,590,635 2020-23 1,870,000 219,969 2,089,969 Total $7,290,000 $2,089,746 $9,379,746 Contractual obligations Year Ending September 30,Principal Interest Total 2010 $198,570 $30,356 $228,926 2011 205,696 22,493 228,189 2012 211,984 14,339 226,323 2013 67,000 5,932 72,932 2014 70,000 3,031 73,031 Total $753,250 $76,151 $829,401 Notes payable: Year Ending September 30,Principal Interest Total 2010 $1,798 $447 2,245 2011 1,843 402 2,245 2012 1,889 356 2,245 2013 1,936 309 2,245 2014 1,983 261 2,244 2015-18 8,446 534 8,980 Total $17,895 $2,309 $20,204 27 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6.LONG-TERM DEBT -CONTINUED Capital Lease: Year Ending September 30,Principal Interest Total 2010 $42,886 $2,859 $45,745 2011 9,886 802 10,688 2012 9,888 402 10,290 Total $62,660 $4,063 $66,723 The assets acquired under the capital lease obligations above are included in capital assets at a cost of $193,622.Accumulated depreciation on the assets as of September 30,2009 was $83,298. The tax revenue 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 sanitary sewer system.. The outstanding bonds are callable for redemption prior to maturity at the option of the District as follows: 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. Series 2002 -All maturities from 2013 to 2023 are callable in principal increments of $5,000 on or after September 1,2012 at par plus unpaid accrued interest to the fixed date for redemptions. Series 2003 -No bonds are subject to redemption prior to maturity. Series 2003 (debt issued by the entity formerly known as MUD 2)-All maturities from 2013 to 2023 are callable in principal increments of $5,000 on or after September 1,2012 at par plus unpaid accrued interest to the fixed date for redemptions. Series 2005 -All maturities from 2014 to 2023 are callable in principal increments of $5,000 on or after September 1,2013 at par plus unpaid accrued interest to the fixed date for redemptions. Contractual obligations and notes payable are liquidated from the general fund.Tax and revenue bonds are liquidated from the debt service fund. 28 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6.LONG-TERM DEBT -CONTINUED 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 30,2009. In previous years,the District has legally defeased certain outstanding general obligation debt by placing funds into irrevocable trusts pledged to pay all future debt service payments of the refunded debt.Accordingly,a liability for the defeased debt issue is not included in the District's financial statements.As of September 30,2009,the following outstanding bonds were legally defeased: Series 1995 Type Unlimited Tax Refunding Bonds $ Amount 2,490,000 NOTE 7.PROPERTY TAXES $2,490,000 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 and MUD2 (the "Districts").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 all property within the Appraisal District on the basis of 100%of its appraised value and is prohibited 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 Districts may challenge appraised values established by the Appraisal District through various appeals and,if necessary,legal action.Property taxes for the Districts are not limited as to rate or amount.In an election held October 7,1975,the electorate of the Districts authorized the levy of up to $0.25 per $100 valuation per District for the operations and maintenance of the Districts.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.Property taxes are recorded as receivables when levied.Following is information regarding the 2009 tax levies: MUD 1: Adjusted taxable values $516,687,776 0&M tax levy 1&S tax levy Total tax levy $0.1308/$100 $0.0942/$100 $0.2250/$100 29 $ $ 675,880 486,668.00 1,162,548 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7.PROPERTY TAXES-CONTINUED MUD2: Adjusted taxable values $413,674,092 0&M tax levy 1&S tax levy Total tax levy NOTE 8.RISK MANAGEMENT $0.1293/$100 $0.1349/$100 $0.2642/$100 $ $ 534,922 558,129 1,093,051 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 District is exposed.Any losses reported but unsettled or incurred and not reported,are believed to be insignificant to the District's basic financial statements. NOTE 9.RESTATEMENT OF BEGINNING FUND BALANCES AND NET ASSETS' As discussed in Note 1,citizens voted in May 2009 to consolidate the District and MUD2.As a result, the beginning fund balances and net assets of the District have been restated to include those of the District,as well as those of the entities formerly known as MUD 2 and the Trophy Club Master District Joint Venture (Master District). In addition,the District discovered errors in its capital assets records involVing $285,161 of previously disposed of vehicles that were still on the District's capital asset register and several other assets which had been misclassified and incorrectly depreciated.The correction ofthese errors resulted in a $21,823 decrease in beginning net assets. The District's October 1,2008 Fund Balances have been restated as follows: Debt General Service Fund Fund MUD 1 $439,972 $56,840 MUD2 879,256 60,369 Master District 1,182,365 Consolidated fund balances $2,501,593 $117,209 Total $496,812 939,625 1,182,365 $2,618,802 30 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 9.RESTATEMENT OF BEGINNING FUND BALANCES AND NET ASSETS -CONTINUED The District's October 1,2008 Net Assets have been restated as follows: Per prior year financial statements MUD 1 MUD2 Master District To correct capital assets balances (see Note 5) To remove prior year investment in joint venture balance Beginning net assets,as restated 31 $6,168,820 1,560,862 7,544,474 $15,274,156 (21,823) (7,544,474) $7,707,859 REQUIRED SUPPLEMENTARY INFORMATION 32 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION NOTE 1.BUDGETARY CONTROL The District Board (Board)adopts an annual budget for the General Fund on a budgetary basis,which consists of accounting on the modified accrual basis excepting recognition of non-cash grant and capital lease proceeds and related expenditures for equipment.The District also does not budget developer contributions of infrastructure. The Board approves all budget appropriations.Any revisions which alter the total appropriations must be approved by the Board.The level of budgetary responsibility is by total appropriations of the fund. All annual appropriations lapse at fiscal year end. 33 [This page is intentionally left blank.] INDIVIDUAL SCHEDULES AND OTHER SUPPLEMENTARY INFORMATION REQUIRED BY TEXAS COMMISSION ON ENVIRONMENTAL QUALITY (TCEQ) TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE YEAR ENDED SEPTEMBER 30,2009 Variance with Budgeted Amounts Final Budget Original Final Actual Positive (Negative) Revenues Taxes $1,084,648 $1,084,648 $1,112,306 $27,658 Investment income 25,000 25,000 4,105 (20,895) Total revenues 1,109,648 1,109,648 1,116,411 6,763 Expenditures: Debt service Principal 1,025,000 1,025,000 1,025,000 Interest 352,196 352,196 352,195 Total expenditures 1,377,196 1,377,196 1,377,195 Excess (deficiency)of revenues under expenditures (267,548)(267,548)(260,784)6,764 Other financing sources Transfers in 157,548 157,548 383,009 225,461 Total other financing sources 157,548 157,548 383,009 225,461 Net change in fund balance (110,000)(110,000)122,225 232,225 Fund Balances -beginning of year 117,209 117,209 117,209 Fund Balances -end of year $7,209 $7,209 $239,434 $232,225 34 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-1 SERVICE AND RATES YEAR ENDED SEPTEMBER 30,2009 TSI - 1 SERVICE AND RATES 1.Services provided bythe District: a)Retail Water b)Retail Wastewater c)Fire Protection d)Irrigation e)Participates in joint venture,regional system and/or wastewater service (otherthan emergency interconnect) 2.Retail service providers: a)Retail rates-based on 5/8"meter: Most prevalent type of meter (if not a 5/8"):1 inch Admin Fee Minimum Usage Flat Rate YIN Rates per 1,000 Gallons Over Minimum Usage Levels WATER $11.50 o No No No No $2.25 2.71 2.92 3.02 oto 6,000 7,000 to 12,000 13,000 to 25,000 More than 25,000 Note:Out of district water rates are double the "in-town"rate and are included in the rate order. WASTEWATER $11.50 o No No No $2.25 2.71 oto 6,000 7,000 to 12,000 Caps at 12,000 GOLF COURSE Subject to peak draw rates from Ft Worth water department. NOTE:all rates noted above were amended effective January 1,2009 District employs winter averaging for wastewater usage?No 71.68 34.20 29.70 30.20 $ Total water and wastewater charges per 10,000 gallons usage (including surcharges) effective January 1,2009 First 10,000 gallons used Next 10,000 gallons used Next 10,000 gallons used Next 10,000 gallons used and subsequent Maximum residential wastewater charge is for 12,000 gallons or $41.26. 35 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI - 1 (CONTINUED) SERVICE AND RATES YEAR ENDED SEPTEMBER 30,2009 TSI-1 SERVICE AND RATES -CONTINUED b)Retail service providers:number of retail water and/or wastewater*connections within the District as of the fiscal year end.Provide actual numbers and single family equivalents (ESFC). Connections ESFC Active Meter Size Total Active Factor ESFC's Unmetered 1.0 Less than 3/4"2,509.0 2,501.0 1.0 2,501.0 1"535.0 519.0 2.5 1,297.5 1 1/2"13.0 12.0 5.0 60.0 2"74.0 69.0 8.0 552.0 3"12.0 11.0 15.0 165.0 4"11.0 11.0 25.0 275.0 6"2.0 2.0 50.0 100.0 8"80.0 10"115.0 Total Water 3,156.0 3,125.0 4,950.5 Total Wastewater 3,161.0 3,130.0 1.0 3,130.0 *Number of connections relates to water service if provided.Otherwise,the number of wastewater connections should be provided. Note:"inactive"means that water and wastewater connections were made,but service is not being provided. Total water consumption (in thousands)during the fiscal year: Gallons pumped into the system Gallons billed to customers Water accountability ratio Standby Fees: Does the District assess standby fees? 763,859 686,466 89.9% Yes For the most recent fiscal year,FY2009: Total Levy Debt Service Operations and Maintenance $1,102,598 $1,278,081 Total Collected $1,091,526 $1,263,853 Percentage Collected 99.0% 98.9% Have standby fees been levied in accordance with Water Code Section 49.231,thereby constituting a lien on property?No** **Standby fees are levied by the District and constitute a lien under recorded deed restrictions or covenants pursuant to Section 293.150 of Title 30 of Texas Administrative Code. 36 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI - 1 (CONTINUED) SERVICE AND RATES YEAR ENDED SEPTEMBER 30,2009 TSI - 1 SERVICE AND RATES -CONTINUED 5.Location of District: Counties in which District is located: Is the District located entirely in one county? Is the District located within a city? Cities in which District is located: a)Denton b)Tarrant No Partially Town of Trophy Club Town of Westlake Is District located within a city's extra territorial jurisdiction (ETJ)?Unknown ETJ's in which District is located:Unknown Is the general membership of the Board appointed by an office outside the District?No 37 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-2 GENERAL FUND EXPENDITURES AND OTHER FINANCING USES YEAR ENDED SEPTEMBER 30,2009 Current Year Prior Year Administrative $1,297,613 $905,052 Water Operations 1,811,385 1,934,792 Wastewater Operations 538,006 500,224 Wastewater Collection Systems 294,869 409,948 Information Systems 175,698 187,908 Contribution to Trophy Club Fire Dept 783,736 902,353 Capital Outlay 461,382 Miscellaneous 45,457 Transfer to Debt Service Fund 383,009 29,379 Total Expenditures and Other Financing Uses $5,745,698 $4,915,113 Number of employees employed by the District: Full time Equivalents (FTEs) Part time 34 * None 20 None *Note:For fiscal year 2008-2009,fire department operations,including 9 FTE's, were transferred to the MUD 38 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-3 TEMPORARY INVESTMENTS SEPTEMBER 30,2009 Identification Interest Maturity Balance Accrued Interest Funds Number Rate Date End of Year End of Year General Fund TexPool 613300002 0.2303%Demand $203,649 Paid daily Debt Service Fund TexPool 613300003 0.2303%Demand $238,934 Paid daily Fire Department TexPool 613300004 0.2303%Demand $104,269 Paid daily Systems Account TexPool 613300005 0.2303%Demand $384,391 Paid daily GASB 34 Reserves TexPool 613300006 0.2303%Demand $78,681 Paid daily Customer Deposits TexPool 613300007 0.2303%Demand $135,976 Paid daily Fire Construction TexPool 613300008 0.2303%Demand $1,782,853 Paid daily Total -All Funds $2,928,753 39 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-4 TAXES LEVIED AND RECEIVABLE YEAR ENDED SEPTEMBER 30,2009 General Fund Debt Operations Fire Total Service Total Taxes receivable beginning of year $2,251 $15,580 $17,831 $27,769 $45,600 2008 tax levy 138,704 1,139,377 1,278,081 1,102,598 2,380,679 Total to be accounted for 140,955 1,154,957 1,295,912 1,130,367 2,426,279 Less collections and adjustments: Current year (137,122)(1,126,731)(1,263,853)(1,091,526)(2,355,379) Prior years (821)(5,710)(6,531) (8,658)(15,189) Total to be accounted for (137,943)(1,132,441)(1,270,384)(1,100,184)(2,370,568) Taxes receivable,end of year $3,012 $22,516 $25,528 $30,183 $55,711 Taxes receivable by year 1996 and prior 19 108 127 454 581 1997 7 41 48 150 198 1998 7 44 51 140 191 1999 34 239 273 543 816 2000 33 165 198 598 796 2001 34 134 168 441 609 2002 512 4,590 5,102 10,196 15,298 2003 70 126 196 132 328 2004 20 165 185 239 424 2005 153 459 612 769 1,381 2006 276 1,268 1,544 2,114 3,658 2007 265 2,531 2,796 3,335 6,131 2008 1,582 12,646 14,228 11,072 25,300 $3,012 $22,516 $25,528 $30,183 $55,711 FlY FlY FlY FlY FlY Property valuations (in OOO's)08/09 07108 06/07 05/06 04/05 Land $186,574 $213,640 $193,906 $166,046 $171,370 Improvements 737,273 638,560 581,667 518,213 501,417 Personal property 71,091 94,823 65,248 68,356 50,577 Exemptions (34,027)(34,405) (29,607)(8,422)(14,794) $960,911 $912,618 $811,214 $744,193 $708,570 Tax rate per $100 valuation Operations 0.014040 0.0102 0.0309 0.0309 0.0600 Fire department 0.116020 0.1209 0.1027 0.1464 0.1076 Debt service 0.114555 0.0989 0.1464 0.1027 0.1124 Tax rate per $100 valuation 0.244615 *0.2300 0.2800 0.2800 0.2800 Tax levy:$2,380,679 $2,234,909 $2,191,536 $2,271,746 $2,164,427 Percent of taxes collected to taxes levied 99.58%100.36% 100.62%98.04%99.99% 40 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS -BY YEAR SEPTEMBER 30,2009 All Bonded Debt Series Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $1,055,000 $308,308 $1,363,308 2011 1,115,000 265,189 1,380,189 2012 500,000 220,567 720,567 2013 520,000 202,138 722,138 2014 330,000 182,940 512,940 2015 345,000 169,205 514,205 2016 360,000 154,655 514,655 2017 380,000 139,210 519,210 2018 395,000 122,610 517,610 2019 420,000 104,955 524,955 2020 435,000 85,829 520,829 2021 455,000 66,010 521,010 2022 480,000 45,100 525,100 2023 500,000 23,030 523,030 $7,290,000 $2,089,746 $9,379,746 Series 2005 Combination Tax Bonds Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $265,000 $87,271 $352,271 2011 285,000 78,660 363,660 2012 290,000 68,685 358,685 2013 295,000 58,535 353,535 2014 100,000 48,210 148,210 2015 105,000 44,210 149,210 2016 105,000 40,010 145,010 2017 110,000 35,810 145,810 2018 115,000 31,410 146,410 2019 120,000 26,810 146,810 2020 125,000 22,010 147,010 2021 130,000 17,010 147,010 2022 135,000 11,550 146,550 2023 140,000 5,880 145,880 $2,320,000 $576,061 $2,896,061 41 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS -BY YEAR SEPTEMBER 30,2009 Series 2003 Unlimited Tax Bonds Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $235,000 $15,012 $250,012 2011 245,000 7,963 252,963 $480,000 $22,975 $502,975 Series 2003 Combination Tax Bonds Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $50,000 $37,152 $87,152 2011 55,000 35,278 90,278 2012 55,000 33,215 88,215 2013 60,000 31,290 91,290 2014 60,000 29,430 89,430 2015 60,000 27,090 87,090 2016 65,000 24,750 89,750 2017 70,000 22,150 92,150 2018 70,000 19,350 89,350 2019 75,000 16,375 91,375 2020 75,000 13,186 88,186 2021 80,000 10,000 90,000 2022 85,000 6,800 91,800 2023 85,000 3,400 88,400 $945,000 $309,466 $1,254,466 42 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS -BY YEAR SEPTEMBER 30,2009 Series 2002 Combination Tax Bonds Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $140,000 $132,368 $272,368 2011 150,000 124,668 274,668 2012 155,000 118,667 273,667 2013 165,000 112,313 277,313 2014 170,000 105,300 275,300 2015 180,000 97,905 277,905 2016 190,000 89,895 279,895 2017 200,000 81,250 281,250 2018 210,000 71,850 281,850 2019 225,000 61,770 286,770 2020 235,000 50,633 285,633 2021 245,000 39,000 284,000 2022 260,000 26,750 286,750 2023 275,000 13,750 288,750 $2,800,000 $1,126,119 $3,926,119 Series 1997 Combination Tax Bonds Due During Fiscal Principal Due Interest Due Years Ending 1-Sep Mar 1/Sep 1 Total 2010 $365,000 $36,505 $401,505 2011 380,000 18,620 398,620 $745,000 $55,125 $800,125 43 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-6 CHANGES IN LONG-TERM BONDED DEBT YEAR ENDED SEPTEMBER 30,2009 Series 1997 Series 2002 Series 2003 Series 2003 Series 2005 Combination Combination Combination Unlimited Combination Tax Tax Tax Tax Tax Total Interest rate 3.25-5.9%4.00-5.50%3.10-4.25%3.25%2.97-4.20% Date interest payable 3/1 &9/1 3/1 &9/1 3/1 &9/1 3/1 &9/1 3/1 &9/1 Maturity date 9/1/98 to 9/1/2011 9/1/2023 9/1/2023 9/1/2001 9/1/2023 Bonds outstanding at beginning ofyear $1,090,000 $2,935,000 $995,000 $715,000 $2,580,000 $8,315,000 Retirements of principal (345,000)(135,000)50,000)(235,000)(260,000)(1,025,000) Bonds outstanding at end of fiscal year $745,000 $2,800,000 $945,000 $480,000 $2,320,000 $7,290,000 Retirements of interest $68,575 $28,015 $28,015 $28,015 $28,015 $180,635 Paying agent's name &city: All Series Bank of New York Mellon P.O.Box 2320 Dallas,Texas 75221-2320 General Obligation Bond Authority Bonds Amount authorized by voters $27,094,217 Amount issued (21,325,000) Remaining to be issued $5,769,217 The general obligation bonds were authorized on October 7,1975 Debt Service Fund cash and cash equivalents balance as of September 30,2009:$239,434 Average annual debt service payment (principal &interest)for remaining term of debt $669,982 44 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-7 GENERAL FUND COMPARATIVE SCHEDULES OF REVENUES AND OTHER FINANCING SOURCES AND EXPENDITURES AND OTHER FINANCING USES -FIVE YEARS SEPTEMBER 30,2009 Amounts .Percentoftotal revenue REVENUE AND OTHER FINANCING SOURCES 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 Ad valorem property taxes $1,283,705 $1,002,608 $909,495 $1,038,439 $894,343 21.1%20.3%21.0%19.3%20.3% Water and wastewater charges 3,721,868 3,678,859 3,151,144 4,005,608 3,355,439 61.3%74.5%72.8%74.5%76.3% Utility Fees 515,200 8.5%0.0%0.0%0.0%0.0% Inspection and tap fees 4,975 22,550 32,900 42,725 79,625 0.1%0.5%0.8%0.8%1.8% Interest earned 20,755 69,447 106,168 57,329 21,840 0.3%1.4%2.5%1.1%0.5% Capital lease proceeds/contractual obligations 330,000 49,432 165,000 5.4%1.0%0.0%3.1%0.0% Miscellaneousand other 199,780 116,295 131,124 71,151 45,937 3.3%2.4%3.0%1.3%1.0% Total revenue and otherfinancing sources 6,076,263 4,939,191 4,330,831 5,380,252 4,397,164 100.0% 100.0% 100.0%100.0%100.0% EXPENDITURES AND OTHER FINANCING USES Administrative 1,297,613 905,052 835,590 769,646 806,272 21.4%18.3%19.3%14.3%18.3% Water operations 1,811,385 1,934,792 1,638,294 1,916,008 1,632,987 29.8%39.2%37.8%35.6%37.1% Wastewater operations 999,388 500,224 480,798 469,292 468,513 16.4%10.1%11.1%8.7%10.7% Wastewater collection system 294,869 409,948 402,482 673,422 328,419 4.9%8.3%9.3%12.5%7.5% Information systems 175,698 187,908 124,987 60,557 55,476 2.9%3.8%2.9%1.1%1.3% Contribution to Trophy Club Fire Dept 783,736 902,353 725,764 724,738 579,873 12.9%18.3%16.8%13.5%13.2% Contribution to joint venture 95,000 0.0%0.0%0.0%0.0%2.2% Capital outlay 29,379 442,782 31,381 26,678 0.0%0.6%10.2%0.6%0.6% Miscellaneous 383,009 45,457 135,121 67,054 200,454 6.3%0.9%3.1%1.2%4.6% Total expenditures and otherfinancing uses 5,745,698 4,915,113 4,785,818 4,712,098 4,193,672 94.6%99.5%110.5%87.6%95.4% Excess (deficiency)ofrevenues and other financing sources over(under)expenditures and otherfinancing uses $330,585 $24,078 $(454,967)$668,154 $203,512 5.4%0.5%-10.5%12.4%4.6% Total active retail waterand/or wastewaterconnections 3,161 3,092 2,827 2,799 2,794 45 TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1 TSI-7 DEBT SERVICE FUND COMPARATIVE SCHEDULES OF REVENUES AND OTHER FINANCING SOURCES AND EXPENDITURES AND OTHER FINANCING USES -FIVE YEARS SEPTEMBER 30,2009 TSI - 7 COMPARATIVE SCHEDULES OF REVENUES AND OTHER FINANCING SOURCES AND EXPENDITURES AND OTHER FINANCING USES -FIVE YEARS -CONTINUED Amounts Percent of total revenue REVENUE AND OTHER FINANCING SOURCES 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 Ad valorem property taxes 1,100,081 1,302,763 1,325,143 $1,309,781 $1,357,464 73.4%96.1%94.8%94.7%97.2% Penalties and interest 12,225 - - .4,558 0.8% 0.0%0.0%0.0% 0.3% Transfers in 383,009 .4,558 25.5%0.0%0.0%0.0%0.3% Interest earned 4,105 23,326 43,456 32,279 18,724 0.3%1.7%3.1%2.3%1.3% Miscellaneous and other -29,379 29,379 41,210 11,831 0.0%2.2%2.1%3.0%0.8% Total revenue and otherfinancing sources 1,499,420 1,355,468 1,397,978 1,383,270 1,397,135 100.0% 100.0%100.0%100.0% 100.0% EXPENDITURES AND OTHER FINANCING USES Principal retirement 1,025,000 975,000 945,000 636,635 752,795 68.4%71.9%67.6%46.0%53.9% Interest and fiscal charges 352,195 390,565 425,838 728,740 806,970 23.5%28.8%30.5%52.7% 57.8% Total expenditures and other financing uses 1,377,195 1,365,565 1,370,838 1,365,375 1,559,765 91.8%100.7%98.1%98.7%111.6% Excess (deficiency)of revenues and other financing sources over (under)expenditures and otherfinancing uses $122,225 $(10,097)$27,140 $17,895 $(162,630)8.2%-0.7%1.9%1.3%-11.6% 46 [This page is intentionally left blank.] APPENDIXE SPECIMEN MUNICIPAL BOND INSURANCE POLICY f\sSURED GUARANTY" MUNICIPAL ISSUER: BONDS:$in aggregate principal amount of MUNICIPAL BOND INSURANCE POLICY -N Except .ent expt;essly modified by an endorsement hereto,the following terms shall have the meanings specified f6r Pl.i''''''of this Policy."Business Day"means any day other than (a)a Saturday or Sunday or (b)ay 0 ich banking institutions in the State of New York or the Insurer's Fiscal Agent are aut~orized reqUired by law or executive order to remain closed."Due for Payment" means (a)when referill'\9,;;to rincipal of a Bond,payable on the stated maturity date thereof or the date on which the same shalllf~¥.J>en duly called for mandatory sinking fund redemption and does not refer to any earlier date on which p~yment is due by reason of call for redemption (other than by mandatory sinking fund redemption),acceleration or other advancement of maturity unless AGM shall elect,in its sale discretion,to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b)when referring to interest on a Bond,payable on the stated date for payment of interest."Nonpayment"means,in respect of a Bond,the failure of the Issuer to have provided sufficient funds to the Trustee or,if there is no Trustee,to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond."Nonpayment"shall also include,in respect of a Bond,any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the Page 2 of 2 Policy No.-N .hereby waives, sefoff..,or oth '[se)and defenses by-'t"sYI:1.r;9Qation,assignment or .to AGM"ilo avoid payment of itsffi~OllCy. all not be modified,altered or .catl or amendment thereto.Except to a mlum paid in respect of this Policy is or ..vision being made for payment,of the celed or revoked.THIS POLICY IS NOT CURITY FUND SPECIFIED IN ARTICLE 76 ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) By --:---.---:---:--::-::=--_ Authorized Officer TY MUNICIPAL CORP.(FORMERLY KNOWN AS used this Policy to be executed on its behalf by its To the fullest exte only for the benefit of each (including,without limitation, otherwise,to the extent that obligations under this.'',lic in nonrefun United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction."Notice"means telephonic or telecopied notice,subsequently confirmed in a signed writing,or written notice by registered or certified mail,,from an Owner,the Trustee or the Paying Agent to AGM which notice shall specify (a)the person or entity;;m~ing the claim,(b)the Policy Number,(c)the claimed amount and (d)the date such claimed amount became,Que for Payment."Owner" means,in respect of a Bond,the person or entity who,at the time"pf.Nonpayri1~pt,is entitled under the terms of such Bond to payment thereof,except that "Owner"shallfl9l1Qc:;lude the IS,suer or any person or entity whose direct or indirect obligation constitutes the underlying secui11Y~()Lthe Bond's,J-:~',--':J'-y[~-',~3::~ AGM may appoint a fiscal agent (the "Insurer's fiscal Agent")f9.,~~?(jf'\hiS Policy by giving writt~n notice to the Trustee and the Paying A~e~t see~ifying'th.e nam~'yan "'rio~S~..~d9ress of ~he Insurer's Fiscal Agent.From and after the date of r~~elpt of~y~h notice by ttf~.:!Trusteeaqd.,t,t}~Paying Agent,(a)copies of all notices required to be d~ftyered to"~~M 'plJrsuant lfG'hthis PolicY;;~B~1I be simultaneously delivered to the Insurer's Fiscal Agent~l\l'9",to AGM''l:!nd s 11 not be'l:l~~med receivedyntil received by both and (b)all ~ayments required to be maCf~ByAGM '0 s,rolicy m.ay~.pe made directly by AGM or by the Insurer's Fiscal Agent on If of AGM:kT~~lnsurer""al>Agent IS the,agent of AGM only and the Insurer's Fiscal Agent shall in be liable"t9a Ownerr,any act ofJhe Irl~YJ7r's Fiscal Agent or any failure of AGM to depos,j1!pr cau e deposit "fficient-Wr:tds to rm p<!cYp1Emts due under this Policy.~·~~Wto;?' (212)826-0100 Form SOONY (5/90) Financial Advisory Services Provided By: SWS ISOUTHWEST GROUP SECURITIES Building what you value. INVESTMENT BANKERS NEW ISSUE-BOOK-ENTRY-ONLY Ratings:S&P:"MA"(Negative Outlook)(Insured) "AA-"(Underlying) Moody's:"Aa3"(Negative Outlook)(Insured) "A2"(Underlying) (See "RATINGS"and "BOND INSURANCE"herein) OFFICIAL STATEMENT Dated March 16,2010 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 courl decisions existing on the date hereof,subject to the matters described under "TAX MATTERSn herein. THE DISTRICT HAS DESIGNATED THE BONDS AS MQUALIFIED TAX-EXEMPT OBLIGAT10NSn• (See "TAXMATTERS -Qualified Tax-Exempt Obligations for Financial Institutions"herein.) $2,000,000 TROPHY CLUB MUNICIPALUTILITYDISTRICT NO.1 (A Political SubdMsion ofthe State of Texas Located in Denton and Tarrant Counties) UNLIMITED TAX BONDS,SERIES 2010 Dated Date:April 1,2010 Due:September 1,as shown on Page ii The Trophy Club Municipal Utility District NO.1 (the "District"or "Issuer")$2,000,000 Unlimited Tax Bonds,Series 2010 (the "Bonds") are being issued pursuant to the terms and prOVisions of an order (the "Order")of the Board of Directors of the District (the "Board")and in accordance with the Constitution and general laws of the State ofTexas (the "State"),inclUding particularly Article XVI,Section 59 of the Texas Constitution and the general laws of the State of Texas,including Chapters 49 and 54 of the Texas Water Code,as amended,and an order ofthe Texas Commission on Environmental Quality.The Bonds were authorized by the voters ofthe District at an election held on May 10,2008.(See "THE BONDS -Authority for Issuance"herein.) The Bonds,when issued,will constitute direct and general obligations of the District,payable from the proceeds of an annual ad valorem tax levied against all taxable property located therein,without limitation as to rate or amount.Neither the State of Texas, Denton or Tarrant Counties,Texas nor any political subdivision or municipality,other than the District shall be obligated to paythe principal of or Interest on the Bonds.Neitherthe faith and credit nor the taxing power ofthe State of Texas or Denton or Tarrant Counties,Texas or any political subdivision or municipality thereof,other than the District,is pledged to the payment of the principal of or interest on or the redemption price of the Bonds.(See "THE BONDS -Security for Payment" herein.)THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN.(See "INVESTMENT CONSIDERATIONS"herein.)Bond purchasers are encouraged to read this entire Official Statement prior to making an investment decision. Interest on the Bonds will accrue from April 1,2010 (the "Dated Date")and is payable March 1,2011,and each September 1 and March 1 thereafter until the earlier of maturity or redemption,and will be calculated on the basis of a 36<Hiay year of twelve 30-day months.The Bonds will be issued in fully registered form only,without coupons,in denominations of $5,000 or any integral multiple thereof,and when issued,will be registered in the name of Cede &Co.,as registered owner and nominee for The Depository Trust Company ("DTC"),New York,New York, acting as securities depository for the Bonds until DTC resigns or is discharged.The Bonds initially will be available to purchasers in book-entry form only.So long as Cede &Co.,as the paying agent to DTC,is the registered owner of the Bonds,principal of and interest on the Bonds will be payable by the paying agent to DTC,which will be solely responsible for making such payment to the beneficial owners of the Bonds.The initial paying agent/registrar for the Bonds shall be The Bank of New York Mellon Trust Company,NA,Dallas,Texas (the "Paying Agent"). Proceeds from the sale of the Bonds are being used to (i)construct and equip a new fire station and (ii)pay the costs related to the issuance ofthe Bonds.(See "THE BONDS -Use ofBond Proceeds"herein.) The District reserves the right to redeem,prior to maturity,in integral mUltiples of $5,000,those Bonds maturing on and after September 1,2021,in whole or from time to time in part,on September 1,2020,and on any date thereafter at a price of par plus accrued interest from the most recent interest payment date to the date fixed for redemption.In addition,the Bonds maturing September 1,2027,September 1,2029 and September 1,2031 are subject to mandatory sinking fund redemption,as further described herein.(See "THE BONDS -Redemption Provisions"herein.) After requesting competitive bids for purchase of the Bonds,the District has accepted the lowest bid to purchase the Bonds,bearing interest as shown,at a price of 100%of par plus accrued interest to the date of delivery,resulting in a net interest cost rate to the District of 4.156986%. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICPAL CORP.(FORMERLY KNOWN AS FINANCIAL SECURITYASSURANCE INC.)("Assured Guaranty Municipal"or "AGM").(See "BOND INSURANCE"herein.) MsURED GUARANlY MUNICIPAl STATED MATURITYSCHEDULE (See Page i1) The Bonds are offered for delivery,when,as and ifissued and received by the initial purchaser (the "Purchaser")and SUbject to the approving opinion of the Attomey General ofthe State of Texas and the approval ofcertain legal matters by McCall,Parkhurst &Horton L.L.P.,Dallas, Texas,Bond Counsel.Delivery ofthe Bonds through DTC in Dallas,Texas is expectedon orabout April 15,2010.