HomeMy WebLinkAbout$1,200,000 Unlimited Tax Bonds Series 2003NEW ISSUE-BOOK-ENTRY-ONLY Ratings: Moody's: "Aaa"
(See "MUNICIPAL BOND RATING
and BOND INSURANCE' herein
OFFICIAL STATEMENT
Dated June 18, 2003
In the opinion of bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax
purposes under statutes, re ulations. pub!lshed,rulings and court deckions existing on the date hereof, subject to the matters
described under"TAX MA~RS" hereln, lncludlng the alternative minlmum tax on corporations.
The D~stncl has desrgnaled the Bonds as 'Qualrlied Tax-Exempt Oblrgatror~s'
See 'TAX MATTERS - Qlralllied Tax-Exempt Obhgalrons for Frnancral 1nst~tutrons"he~~n
.. .
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
(A Political Subdivision of the State of Texas Located in Denton County)
UNLIMITED TAX BONDS, SERIES 2003
Dated Date: July 1. 2003 Due: September 1, as shown below
;The Trophy Club Municipal Utility District No. 2 (the "District" or "lssuei' $1,200.000 Unlimited Tax Bonds. Series 2003 the
Bo"dsU) are being issued pursuant to the Constitutio" arid general I aws of the State of Texas the "State"), inclu6ing
part~cularly Article XVI, Section 59 of the Texas Constltutlon, Cha ter 49 and chapter 54 or the f exas Water Code, as
amended, and an approving order (the "Bond Ordei' adopted by the floard of Directors (the "Board') of the District. (See ',THE d BONDS - Authority for Issuance" herein.) The Eon s are obligations solel of Trophy Club Munici al Utility District No: 2
and are not obligat.ions of the State of Texas; Denton County, Texas; !he Town of Trophy ~lu%, Texas; or any entlty
other than the District.
The Bonds, when issued, will constitute valid and le all binding obligations of the District and will be payable from the
roceeds of an annual ad valorem tax, without le al l?mit%tion to rate or amount, levied a ainst taxable roperty within the
bistrict, THE BONDS ARE SUBJECT ,TO SP~CIAL INVESTMENT CONSIDERATIO& q~~~~lB~k HEREIN. ,See
"INVESTMENT CONSIDERATIONS " herein. Bond purchasers are encouraged to read this entlre Official Statement prlor to
making an investment decision.
Interest on the Bonds will accrue from Jul 1, 2003 and is ayable March 1, 2004, and each September 1 and March 1
thereafter until the earlier of maturitv or redkmDtion. and will ge calculated on the basis of a 360-dav vear of twelve 30-day ~ ~ ~~ ~~
months. The Bonds will be jssued ih.fully registered corm only, without coupons, in denominations of $5,000 or any integral
multiple thereof, and when issued, wtll be reg~stered In the name of Cede & Co.. as re ~stered owner and nomlnee for the
Depository Trust Compa?y,("DTC:' , New York. New York, actng as securities deposltoly i6r the Bonds until DTC resigns or 1s
disrharn~d The Ronds lnltlallv w11 1 be ava~lable to ourchasers in book-entrv form onlv. So lona as Cede & Co.. as the ~avlns
~~ ~- ~
a ent to DTC, is the re istered owner of the ~onds,'~rincl~al of and interesfon theBoids will be payable by the baying agelit to
D~C, which will be sagely responstble for makin such pa ment to the beneficla1 owners of the Bonds. The ~"ltial paylng
agenvregistrarfor the Bonds shall be The Bank of%ew York :rust Company of Florida, N.A., Dallas. Texas (the "Paylng Agent").
Proceeds from the sale of the Bonds are bein used to pa ex enditures in connection with a court approved Settlement
A reement with the Federal De oslt Insurance dor oration ("?DIG'), and to pay the costs related to the issuance of the Bonds.
(8ee "USE AND DISTRIBUTIOR OF BOND PROCEEDS" herein.)
The District reserves the ri ht to redeem, prior to maturity, in integral multiples of $5,000, those Bonds maturing on.a~id after
September 1. 2014, in whoye or from time to time in part, on September 1, 2013, and on any.date thereafter at a rlce or par
plus accrued interest from the most recent interest ayment date to the date fixed for redemption. In addition, the Term Bonds 8 maturin September 1, 2015. September 1, 2017, eptember 1. 2020 and September 1. 2023 are subject to mandatory sinking
fund retemption, as descr~bed hereln. See "THE BONDS - Redemption" hereln.
The Payment of the principal of and interest on the Bonds when due will be insured by a financial guarant insurance policy to
be issued b Ambac Assurance Corporation ("Ambac Assurance") simultaneously with the delivery of the ionds. (See "BOND INSURANCE" herem.)
Atnbac
STATED MATURITY SCHEDULE
(Due September 1)
Stated Principal Rate Yield Stated Principal Rate Yield
&&& Amount rn rn &&& Amount rn
2004 $30.000 3.75 1.10 2009 50.000 3.75 2.40
2005 40,000 3.75 1.25 2010 50.000 3.75 2.65
2006 45.000 3.75 1 .SO 201 1 55,000 3.75 2.90
2007 45,000 3.75 1.80 2012 55.000 3.50 3.05
2008 45,000 3.75 2.10 2013 60.000 3.10 3.20
**. **Me .*.* e-*
$120.000 3.90% Term Bond due September 1, 2015 Price to Yield 3.35% ''I
$135,000 4.00% Term Bond aue September I. 2.017 Price to Yield 3.6OCh/."'
5220.000 4.25%Tcrm Bond due September 1. 2020 Price to Yield 3.90% '"' . .
$250,000 4.00% Term Bond due sebtember 1; 2023 Price to Yield 4.10%
"' Yields calculated to call date of 9-1-13.
Ths Bonds are ofiered by the Initial Purchaser subject to rior sale, when, as and iilssued by the District and accepted by the Initial
Purchaser, subject among olher things lo the approval oitle lnifia, Bonds by the Attorney General of Texas and the approval of certain
legal matters by McCall, Parkhurst 8 Horton L.L.P. Dallas, Texas, Bond Counsel. Delivery ofthe Bonds through DTC 1s expected on or
about July 17. 2003. tn Dallas, Texas.
TABLE OF CONTENTS
....................... 9 TAX
...................... .. ........... 12
........... .................... .. 12 LEG
ATION ................. 33
Annual Audits
Financial Information of the Issuer Appendix A
General lnformation Regarding Town of Trophy Club. Texas and Denton County Appendix B
Form of Legal Opinion of Bond Counsel Appendix C
The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30. 2002 Appendix D
Financial Guaranty Insurance Policy Specimen Appendix E
The coverpage, subsequent pages hereof and lhe sclledules and appendices atlached herelo. are part of ltris Oficial Slafement
2
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 olher
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 of the summaries of the statutes, orders, 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 oninion 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 thev will be realized. Anv information and exoressions of oninion herein contained are subiect to chanoe without
notice, and neither the delivery of this "b~cial Statement.' nbr any sale made hereunder shall, under any circumstanc;?~, 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 lnitial 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 MAKE ANY REPRESENTATION OR WARRANV 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 THE INSURER OR ITS POLICY AS SUCH INFORMATION HAS BEEN FURNISHED BY DTC
AND THE INSURER. RESPECTIVELY.
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 true interest rate, which bid
was tendered by SAMCO Capital Markets (the "Initial Purchaser") bearing the lowest interest rates shown on the cover page
hereof, which resulted in a true interest cost of 3.9522818% as calculated pursuant to Texas Government Code Chapter 1204,
as amended (the "IBA method). The initial reoffering yields were supplied to the District by the Purchasers. The initial
reoffering yields shown on the cover page will produce compensation to the Purchasers of approximately $17.402.05, after
paying an insurance premium of $21.000.00.
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 lnitial
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 ten "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 lnitial Purchaser regarding the reoffering yields or prices of the Bonds. information concerning reoffering yields or prices is
the responsibility of the lnitial 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 lnitial 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.
OFFICIAL STATEMENT SUMMARY
The following material is qualified in its entirety by the more detailed information and financial statements appearing elsewhere
in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official
Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire
Official Statement.
THE DISTRICT
The Issuer
Location
Trophy Club Municipal Utility District No. 2 (the "District") formed by the merger and
consolidation on August 3, 1990. of Denton County Municipal Utility District No. 2 and Denton
County Municipal Utility District No. 3, and operates as a municipal utility district pursuant to
the provisions of Article XVI, Section 59 of the Texas Constitution and Chapters 49 and 54 of
the Texas Water Code, as amended. The District is subject to the continuing supervision of the
Texas Commission on Environmental Quality (the "TCEQ) (successor to the Texas Natural
Resources Conservation Commiss:on or TNRCC"). Tne ~"sirict s purpose is to provide water
8 wastewater serv:ces to customers within its boundar:es. See 'TrlE DISTR CT - General.'
The District, a political subdivision of the State of Texas, is located in the far southeastern
quadrant of Denton County, Texas near the southern shore of Lake Grapevine, and just east of
the Town of Roanoke, Texas and is entirely within the boundaries of the Town of Trophy Club,
Texas. The District consists of approximately 982.29 acres. See "THE DISTRICT - Location.''
Status of Development The District is comprised of 982.29 acres which consists of an 82.3-acre golf course and 21.62
acres of amenities leaving 878.37 acres developable. Of the 878.37 developable acres,
approximately 756.82 acres have been fully developed, including approximately 1,384 single-
family connections and 27 multi-family connections. Presently, there are 121.55 acres :
remainlnq for residential develo~ment. The District has exoerienced a steadv increase in the
number of houses b~iit (in excess of 40 homes per year) during the past seGeral years. The
residential develo~ment, known as 'Troohv Cluo" is a counrrv c uo deveooment featurino a 27-
The Develo~er
Description
Redemption
hole golf course.'clubhouse, golf shop: swimming pool, tennis courts and equestrian center.
The District's purpose is to provide water & wastewater services to customers within the
district's boundaries.
There are currently two active developers within the District: 1) Beck Properties and 2) Terra
Land Development Co. Beck currently owns and is actively marketing 28 developed singie-
family lots and no single-family lots, which have been platted but not yet developed with utility
facilities. Terra is currently developing and marketing a 23.5361-acre. 46 lot residential
development. See 'THE DEVELOPERS" and "THE DISTRICT-Status of Development."
THE BONDS
The Bonds in the aggregate principal amount of $1,200,000 mature in varying amounts on
September 1 of each year as set forth on the cover of this Ofiicial Statement. Interest accrues
from July 1, 2003 at the rates per annum set forth on the cover page hereof and is payable
March 1. 2004 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 any one maturity.
See 'THE BONDS -General Description."
Bonds maturing on and after September 1. 2014 are subject to redemption in whole or from
time to time in part at the option of the District on September 1, 2013, and on any date
thereafter, at par plus accrued interest from the most recent interest payment date to the date
of redemption. in addition, theTerm Bonds maturing September 1. 2015. September 1. 2017.
September 1, 2020 and September I, 2023 are subject to mandatory sinking fund redemption,
as described herein. (See "THE BONDS - Redemption" herein.)
Source of Payment Principal and interest on the Bonds are payable from the proceeds of a continuing direct
annual ad valorem tax levied upon all taxable property within the District, which under Texas
law is not limited as to rate or amount. The Bonds are obligations solely of Trophy Club
Municipal Utility District No. 2 and are not obligations of the Town of Trophy Club,
Texas; Denton County, Texas; the State of Texas; or any entity other than the District.
See "THE BONDS -Source of and Security for Payment.".
Payment Record The District has never defaulted in the timely payment of principal of or interest on its
outstanding obligations.
Authority for
Issuance
The Bonds are issued pursuant to the Constitution and general laws of the State of Texas,
including particularly Article XVI, Section 59 of the Texas Constitution. Chapter 49 and Chapter
54 of the Texas Water Code, as amended, an approving order of the TCEQ, and an order (the
"Bond Order") adopted by the Board of Directors (the "Board") of the District. See "THE
BONDS -Authority for Issuance" herein.
Bonds Authorized but The Bonds were authorized at elections held on April 4. 1981 and October 29, 1988 by Denton
Unissued County MUD #2 and #3. After the sale of the Bonds, $4,540,000 bonds will remain authorized
but unissued (See "APPENDIX A -TABLE 17" herein).
Use of Proceeds Proceeds from the sale of the Bonds are being used to pay expenditures in connection with a
court approved Settlement Agreement with the Federal Deposit lnsurance Corporation
("FDIC"), and to pay the costs related to the issuance of the Bonds. (See "USE AND
DlSTRiBUTlON OF BOND PROCEEDS'' herein.)
Municipal Bond lnsurance The Payment of the principal of and interest on the Bonds when due will be insured by a
financial guaranty lnsurance policy to be Issued by Ambac Assurance Corporation ("Ambac
Assurance") simultaneously with the delivery of the Bonds. (See "BOND INSURANCE"
herein.)
Municipal Bond Rating Moody's Investors Service, Inc. ("Moody's") has assigned a rating of "AAA" to the Bonds with the
understanding that, simultaneously with the delively of the Bonds, a financial guaranty insurance
policy will be issued by Ambac Assurance Corporation ("Ambac Assurance"). The District
received an underlying rating on the Bonds of "Baal" from Moody's. An explanation of the
significance of a rating may be obtained from the company furnishing the rating. (See
"MUNICIPAL BOND RATING herein.)
Qualified Tax-Exempt The District has designated the Bonds as "qualified tax-exempt obligations" pursuant to section
Obligations 265(b) of the Internal Revenue Code of 1986, as amended, and will represent that the total
amount of tax-exempt bonds (including the Bonds) issued by it during calendar year 2000 is
not reasonably expected to exceed $10,000,000. See 'TAX MATTERS - Qualified Tax-Exempt
Obligations for Financial Institutions" herein.
Book-Entry-Only System The lss~er mends lo ~t1I ze the Book-Entry-Only Syslem of The Depository Trust Company,
hew York, Nev~ York re,arlng lo the meihoo and tlmlng of payment and tne method ano
lransfer relat ng to the Cenlfcates (See BOO&-ENTRY-ON-Y SYSTEM" nereln )
Issuance of Additional The District does not anticipate the issuance of additional debt within the next twelve months
Debt
Bond Counsel McCail, Parkhurst & Horton L.L.P., Dallas. Texas
General Counsel Whitaker, Chalk, Swindle & Sawyer, L.L.P., Fort Worth, Texas
Financial Advisor Southwest Securities. Dallas, Texas.
Engineer Carter & Burgess. Fort Worth, Texas
Paying AgentlRegistrar The Bank of New York Trust Company of Florida, N.A.. Dallas, Texas
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 "INVESTMENT CONSIDERATIONS,"
with respect to the investment security of the Bonds.
SELECTED FINANCIAL INFORMATION
2002 Taxable Assessed Valuation
Gross Debt Principal Outstanding (afler issuance of the Bonds)
Ratio of Gross Debt to 2002 Assessed Valuation
2002-2003 Tax Rate
Debt Service
Maintenance B Operation
Total
Debt Service Fund Balance as of September 30,2002
Average Percentage of Current Tax Collection -Tax Years 1996-2001
Average Percentage of Total Tax Collection - Tax Years 1996-2001
Projected Average Annual Debt Service Requirement (2003-2023)
Of the Bonds and the Outstanding Bonds ("Projected Average Requirement")
Tax Rate Required to Pay Projected Average Requirement Based Upon Current
Taxable Assessed Valuation at 99% Collections
Projected Maximum Annual Debt Service Requirement (201 1) of the Bonds and
The Outstanding Bonds ("Projected Maximum Requirement")
Tax Rate Required to Pay Projected Maximum Requirement Based Upon
Current Taxable Assessed Valuation at 99% collections
Number of connections as of April 1.2003
Estimated population as of April 1, 2003
50.2285615100 A.V.
$0.32167/$100 A.V.
la' As certified by the Denton Central Appraisal District. See "TAXING PROCEDURES" herein. "' Amount includes the "Value at Maturity" of the CABS forthe 2003 maturity of the Series 1995 Bonds.
OFFICIAL STATEMENT
relating to
$1,200,000
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
(A Political Subdivision of the State of Texas Located in Denton County, Texas)
UNLIMITED TAX BONDS, SERIES 2003
INTRODUCTION
This Official Statement provides certain information in connection with the issuance by the Trophy Club Municipal Utility District
No. 2 (the "District" or "Issuer") of its $1,200,000 Unlimited Tax Bonds, Series 2003 (the "Bonds").
The Bonds are issued pursuant to a bond order (the "Bond Order") adopted by the Board of Directors (the "Board) of the
District on the date of the sale of the Bonds, and pursuant to the Constitution and general laws of the State of Texas,
particularly Chapters 49 and 54 of the Texas Water Code, as amended, and the approving order of the Texas Commission on
Environmental Quality (the "Commission" or "TCEQ").
Unless otherwise indicated, capitalized terms used in this Official Statement have the same meaning assigned to such terms in
the Order.
Included in this Official Statement are descriptions of the Bonds, the Bond Order, the Status of Development and certain
information about the District and its finances. ALL DESCRlPTiONS 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 $1,200,000 Trophy Club Municipal Utility District No. 2 Unlimited Tax Bonds. Series 2003 will bear interest from
July 1, 2003 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 the cover page hereof.
Interest on the Bonds will accrue from July 1, 2003 and is payable March 1, 2004, 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 Trust Company of Florida. N.A., Dallas,
Texas ("Paying Agent"). The principal of and interest on the Bonds shall be payable without erchange 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 Oflice 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 B 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 B Co.. which will distribute the
amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See 'DTC
and Book Entry."
Redemption
Optional Redemption: The Bonds maturing on or after September 1, 2014, 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, 2013, 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.
Mandatow Sinlcinq Fund Redern~tion: The Bonds maturing September 1. 2015. September 1. 2017, September 1, 2020 and
September 1, 2023 (collectively, the "Term Bonds") are subject to mandatory sinking fund redemption in part prior to their
stated maturity, and wiil be redeemed by the lssuer at a redemption price equal to the principal amount thereof plus interest
accrutid thereon to the redemption date, on the date and in the principal amounts shown in the following schedule:
Term Bonds Due TermBondsDue
September 1.2015 September I, 2017
Redemption Date Principal Amount Redemption Date Principal Amount
September 1.2014 $50.000 September 1, 2016 $65,000
September 1,2015' 60.000 September 1, 2017- 70,000
Term Bonds Due Term Bonds Due - --.
September I, 2020 September 1,2023
Redemption Date Principal Amount Redemption Date Principal Amount
September 1,2018 $70,000 September 1,2021 $80,000
September 1,2019 75.000 September 1.2022 85,000
September 1,2020' 75.000 September 1, 2023' 85,000
Represents Maturity
Approximately forty-five (45) days prior to the mandatory redemption date, the Paying AgentlRegistrar shall select by lot the
numbers of the Term Bonds to be redeemed. Any Term Bonds not selected for prior redemption shall be paid on the date of
their Stated Maturity.
The principal amount of Term Bonds for a stated maturity required to be redeemed on a mandatory redemption date may be
reduced, at the option of the District, by the principal amount of Term Bonds of like maturity which, at least 50 days prior to the
mandatory redemption date, (1) shall have been acquired by the District at a price not exceeding the principal amount of such
Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying AgentIRegistrar for cancellation or (2)
shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory
redemption requirement.
Notice of Redernofion: At least 30 calendar days prior to the date fixed for any redemption of Bonds or portions thereof prior to
maturity a written notice of such redemption shall be sent by the Paying Agent by United States mail, first-class postage
prepaid, at least 30 calendar days prior to the date fixed for redemption, to the Registered Owner of each Bond to be redeemed
at its address as it appeared on the 45th calendar dav orior to such redemption date and to malor securities deoositories and
bond information sdiices. ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WiLL BE
DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE OF THE REGISTERED OWNERS
FAILED TO RECEIVE SUCH NOTICE. By the date fixed for any such redemption, due provision shall be made with the Paying
AgentlRegistrar 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 afler 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 AgentlRegistrar out of
the funds provided for such payment.
The Bonds of a denomination larger than $5,000 may be redeemed in part ($5,000 or any multiple thereof). Any Bond to be
pariiaily redeemed must be surrendered in exchange for one or more new Bonds of the same maturity for the unredeemed portion
of the principai of the Bonds so surrendered. In the event of redemption of less than ail of the Bonds, the particular Bonds to be
redeemed shall be selected by the District, if less than all of the Bonds of a particular maturity are to be redeemed, the Paying
Agent is required to select the Bonds of such maturity to be redeemed by lot.
The Paying AgentfRegistrar and the lssuer, 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 lssuer will reduce the outstanding principai
amount of such Bonds held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a
redemption of such Bonds held for the account of DTC participants in accordance with its rules or other agreements
with DTC participants and then DTC participants and indirect participants may implement a redemption of such Bonds
from the Beneficial Owners. Anv such selection of Bonds to be redeemed wiil not be governed by the Bond Ordinance -
and will not be conducted hy the lssuer or the Paying AgentlRegistrar. Neither the issuer nor the Paying
AgentlRegistrar 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 OTC
participants, indirect participants, or Beneficial Owners of the selection of portions of the Bonds for redemption. (See
"BOOK-ENTRY-ONLY SYSTEM herein.
DTC Redemption Provision
The Paying Agent and the District, 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 Bond Order or other notices with respect to the Bonds only to DTC. Any
failure by DTC to advise any DTC Participant, as herein defined, or of any Direct Participant or Indirect Participant, as herein
defined, to notify the beneficial owner, shall not affect the validity of the redemption of Bonds called for redemption or any other
action premised on any such notice. Redemption of portions of the Bonds by the Master District wili reduce the outstanding
principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book-Entry Only System, a
redemption of such Bonds held for the account of DTC Participants in accordance with its rules or other agreements with DTC
Participants and then Direct Participants and lndirect Participants may implement a redemption of such Bonds and such
redemption will not be conducted by the District or the Paying Agent. Neither the District nor the Paying Agent wiil have any
responsibility to DTC Participants, indirect Participants or the persons for whom DTC Participants act as nominees with respect
to the payments on the Bonds or the providing of notice to Direct Participants, indirect Participants, or beneficial owners of the
selection of portions of the Bonds for redemption
Termination of Book-Entry-Only System
The District is in'tially utilzing tne book-entry-only system of tne DTC. See 'BOOK-ENTRY-0hLY SYSTEM.' In tne event that the
Book-Entry-Only System 's discontinued by DTC or the District, the folowing provis:ons will be appl~cable to tne Bonds.
Pavment: Principal of the Bonds wili 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 oiflce for payment of the
Paying AgenVRegistrar in Dallas, Texas (the "Designated PaymenVTransfer Office"). Interest on the Bonds will be payable by
check or draft, dated as of the applicable interest payment date, sent by the Paying Agent by United States mail, first class, postage
prepaid, to the registered owners at their respective addresses shown on such records, or by such other method acceptable to the
Paying Agent requested by registered owner at the risk and expense of the registered owner. If the date for the payment of the
principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday or day on which banking institutions in the city where
the Designated Paymentrrransfer ORice 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 ciose, and payment on such date shall for all purposes be deemed to have
been made on Ule original date payment was due.
Reoistration: 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 AgenVRegistrar at the Designated PaymenVTransfer 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 sul~ender at the Designated Paymentrrransfer Oiflce. 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 wiil
be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid
with respect to such transfer or exchange. A new Bond or Bonds, in lieu of the Bond being transferred or exchanged, wiil be
delivered by the Paying AgenVRegistrar to the registered owner, at the Designated Paymentrrransfer Office of the Paying
AgenVRegistrar or by United 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 afler the receipt of the Bonds to
be canceled in the exchange or transfer and the denominations of $5,000 or any integral multiple thereof.
Limitations on Transfer of Bonds: Neither the District nor the Paying Agent shall be required to make any transfer, conversion or
exchange to an assignee of the registered owner of the Bonds (i) during the period commencing on the ciose of business on the
15" calendar day of the month preceding each interest payment date (the "Record Date") and ending with the opening of business
on the next following principai 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 of the uncalled balance of a Bond.
Reolacement Bonds: If a Bond is mutilated, the Paying Agent will provide a replacement Bond in exchange forthe mutilated bond.
If a Bond is destroved, lost or stolen, the Payinq Aqent will provide a replacement Bond uDon (i) the filino bv the reaistered owner
with the Paying ~~ent of evidence satisfact04 tothe ~a~ini~~ent of the destruction, loss'or thefl of the Bond and $e authenticity
of he reaistered ownets owners hi^ and (ii) the furnishina to the Pavinq Aaent of indemnification in an amount satisfactorv to hold .--
the ~istict and the Paying ~~ent'harml&s. 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 Bond Order relating to
the replacement Bonds are exclusive and the extent lahi, preclude all other rights and remedies with respect to the replacement
and payment of mutilated, destroyed, lost or stolen Bonds.
Authority for Issuance
The Bonds were authorized at elections held on April 4, 1981 and October 29, 1988. The District was formerly known as
Denton County Municipal Utility District No. 2 and Denton County Municipal Utility District No. 3, under which entity names the
bonds were voted. After the sale of the Bonds. $4,540,000 in District bonds wili remain authorized but unissued.
The Bonds are issued by the District pursuant to the terms and provisions of the Bond Order: an approving order of the TCEQ,
and the Constitution and general laws of the State, particularly Article XVI. Section 59 of the Texas Constitution and Chapters
49 end 54 of the Texas Water Code, as amended..
TCEQ Approval
On April 29. 2003, the TCEQ issued a Commission Order ("TCEQ Order") approving the project and the issuance of the Bonds.
The approval order included the following information: ..... The engineering project of Trophy Club Municipal Utility District
No. 2 is hereby approved together with the issuance of 51,200,000 of bonds at a maximum net effective interest rate of 5.73%
under Texas Water Code Annotated. Section 49.181 (Vernon 2000). The District is directed not to expend the $16,000
approved herein for oono counsel legal fees pending Commission staff approval which is contingent upon the Commisson
staffs receipt of an executed contracl. The District is directed that it may expeno tne funds approved herein lor purchase of me
facilities without the need for a pre-purchase inspection (TItle 30 Tex. ~dmin. Code. Section293.69). The Oistrlct is advised
that the legal, fiscal agent, and engineering fees have not been evaluated to determine whether these fees are reasonable or
competitive. These fees are included as presented in the engineering report. The District is directed that any surplus bond
proceeds resulting from the sale of bonds at a lower interest rate than that proposed shall be shown as a contingency line item
in the Official Statement and the use of such funds shall be subject to approval pursuant to Commission rules on surplus funds.
Source of and Security for Payment
The Bonds are payable as to principal and interest from the proceeds of an annual ad valorem tax, without legal limit as to rate
or amount, levied against taxable property within the District.
Tax Pledge: The Board covenants in the Bond Order that, while any of the Bonds are outstanding and the District Is in
existence. it will levv and assess a continuins ad valorem tax won each $100 valuation of taxable orooerhr within the District at
a rate from year to year sufficient, full allowaice being made far anticipated delinquencies, together with revenues and receipts
from other sources which are leaallv available for such ourooses. to oav interest on the Bonds as it becomes due, to orovide for
the payment of principal of the konds when due or the redemption brice at any earlier required redemption date, td 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 Bond 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 "lnterest and Sinking Fund" for the Bonds.
The Bonds are obligations solely of the District and are not obligations of the Town of Trophy Club, Texas; Denton
County, Texas; the State of Texas; or any political subdivision or entity other than the District.
Annexation: Under Texas law, the territory within the District may be annexed by the Town of Trophy Club (the "City") without
the consent of the District or its residents. If annexation by the City did occur, the District would be abolished within 90 days
afler annexation. When the District is abolished, the City must assume the assets, functions, and obligations of the District
(including the Bonds). No representation is made concerning the likelihood of annexation or the ability of the City to make Debt
Service Payments on the Bonds should annexation occur.
Consolidation: A district (such as the District) has the legal authority to consolidate with other districts and in connection
therewith, to provide for the consolidation of its assets, such as cash and the utility system, with the water and wastewater
systems of districts with which it is consolidating as well as its liabilities (which would include the Bonds). The District is the
resulting entity from a consolidation in August 1990 of Denton County Municipal Utility District No. 2 and Denton County
Municipal Utility District No. 3.
Payment Record
The District has never defaulted
Flow of Funds and Investment of Funds
The Bond Order creates an lnterest and Sinking Fund and a Construction Fund.
Each fund shall be kept separate and apart from all other funds of the District. The lnterest and Sinking Fund shall constitute a
trust fund which shall be held in trust for the benefit of the holders of the Bonds.
Any cash balance in any fund must be continuously secured by a valid pledge to the District of securities eligible under the laws
of Texas to secure the funds of municipal utility districts having an aggregate market value, exclusive of accrued interest, at ail
times equal to the cash balance in the fund to which such securities are pledged.
lnterest and Sinking Fund: The Bond Order establishes the lnterest and Sinking Fund to ,be used to Pay principal and interest
on and Paying Agent fees in respect to the Bonds. The Bond Order requires that the District deposit to the credit of the lnterest
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 (or fees an0 expenses of ihe Paylng Agent w:tn respect of) the Bonos, an0 (il:) sucn other funds as the Board
shall, at its ogtlon. deem aovisaole. The Bond Order rewires that the lnterest and Sinkma Fund be aoolieo solelv io ornutde for -7r-~~~ ~ , -- 7.--.-- -.
the payment'of the principal or redemption price of and'interest on the Bonds when ducand 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 Debt Service Fund provided in the Bond Order. 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 acquire and construct water, wastewater and drainage facilities 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.
Defeasance of Outstanding Bonds
The Bond 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 Bond
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 shali no longer be regarded to be outstanding or unpaid. Afler 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
extinguished if 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 AgentlRegistrar
Principal of and semiannual interest on the Bonds will be paid by The Bank of New York Trust Company of Florida, N.A..
Dallas. Texas, the initial Paying AgentlRegistrar (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 Bond 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 agentlregistrar
selected by the District shall be subject to the same qualification requirements as the Paying Agent. The successor paying
agentlregistrar, if any, shali be determined by the Board of Directors and written notice thereof, specifying the name and
address of such successor paying agenuregistrar will be sent by the District or the successor paying agentlregistrar to each
Registered Owner by first-class mail, postage prepaid.
Record Date
The record date for payment of the interest on Bonds on any regularly scheduled interest payment date is defined as the
fifteenth (15th) day of the month (whether or not a business day) preceding such interest payment date.
Issuance of Additional Debt
The District mav issue bonds necessarv to provide those improvements and facilities for which the District was created, with the . .
approva of ~~~'TCEQ and, n the case of oonds payaole from taxes, tlle Disrrlct's voters Fo ow ng the ssuance of tne Bonos.
S4.540.000 unlimited lax bonds ahtnorizeo bv tne Districts voters will reman unlssuco. In addit on, voters mav authorize tile .. .
issuance of additional bonds or other contractual obligations secured by ad valorem taxes. The District also tias the right to
11
enter into certain other obligations including the issuance of revenue bonds and notes, bond anticipation notes and tax
anticipation notes without voter approval. Neither Texas law nor the Bond Order imposes a limitation on the amount of
additionai debt which may be issued by the District. Any additionai debt issued by the District may dilute the security of the
Bonds. See "INVESTMENT CONSIDERATIONS."
Specific Tax Covenants
In the Bond 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 Bond 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 ofthe District.
Remedies in Event of Default
The Bond 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 Bond 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 Distri
covenants.
The Bond Order provides no additional remedies to a Bond owner. Specifically, the Bond not provide for an
appointment of a trustee to protect and enforce the interests of the Bond owners or for the a
upon the occurrence of a default in the District's obligations. Consequently, the remedy of
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 o he District's public
purpose property. The Bond owners themselves cannot foreclose on property within the
District in order to pay principal of or interest on the Bonds. In addition, the enforceabili
Bond owners may be limited by federal bankruptcy laws or other similar laws affectin
subdivisions. The opinion of Bond Counsel will note that all opinions relative to the enf Order and the
Bonds are qualified to the customary rights of debtors relative to their creditors
Approval of the Bonds
The Attornev General of Texas must approve the legality of the Bonds prior to their dellve
does not upon or guarantee the qkiity of the Bind; as an investment, nor ooes ne pass upon the adequacy or accuracy
of the informat'on contained in tnls Offic.al Statement.
No-Litigation Certificate
The Dstrict w:ll furn:sh to tne Initial Purcnaser a certificate, dated as of the date of delivery of the Bonds, executed oy both the
President and Secretarv of the Board to tne effect thal no ,il:~al:on of any nalLre has been filed or is then renoinq or
tnreatened, either in staie or federal co~rts, contesting or anacltinb the ~0nds;restraining or enjoining the issuance, exec2on
or delivery of the Bonds: affecting the provisions made for tne payment of or security for the Bonds: in any manner ques1:oning
the authority or proceedngs for the issuance, execution, or delivery of tne Bonos; or affecting the valialty of the Bonds.
No Material Adverse Change
The obligat ons of the lnit~al P~rchascr to take and pay for lne Bonds, and of the Dslrict to delivertne Bonds, are s~bject to the
condition that, up to tne time of dellvery of and receipt of payment for the bonds, there shall have been no malerial adverse
chanoe in tne condit'on Ifinancia or otherwise) of the Dislrlct from tnat set fonh or contemplated .n the Preliminary 0ffic.a
statement.
Amendments to the Bond Order
The District may v~:thou: the consent or notice lo any Bond owners amend the Bond Order in any manner not detrimental lo
the :nlereSt Of tne Bond owners, incuding tne c-ring of an ambiguity, inconsistency, Or formal defect Or omlssion therein in
addition, the District may, with the vrritten consent of the owners of a majority in principal amount of the Bonds then o~tsta~dn~
affected thereby, amend, aod to, or rescino any of the prov,s.ons of the Bond Order, except that, without the consent of tne
owners of al. of tne Bonos affected, no sucn amenomen[, aod'tion, or rescission may (1) extend the or times of payment of
tne princ pal of and interest on the Bonos, reouce tlte principal amount tnereof or the rate of Interest !hereon, change tne p.ace
12
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 iaw, 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.
MUNICIPAL BOND RATING
Moody's Investors Service. Inc. ("Moody's") has assigned a rating of "AAA" to the Bonds with the understanding that.
simultaneously with the delivery of the Bonds, a financial guaranty insurance policy will be issued by Ambac Assurance Corporation
("Ambac Assurance"). The District received an underlying rating on the Bonds of "Baal" from Moody's. An explanation of the
significance of a rating may be obtained from the company furnishing the rating. The rating reflects only the respective view of
such company, and the District makes no representation as to the appropriateness of the rating. There is no assurance that
such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating
company, if, in the judgment of such company circumstances so warrant. Any such downward revision or withdrawal of such
rating may have an adverse effect on the market price of the Bonds.
BOND INSURANCE
The following information regarding municipal bond insurance on the Bonds was provided by Ambac Assurance corporation
("Ambac Assurance").
Payment Pursuant to Financial Guaranty lnsurance Policy
Ambac Assurance has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty lnsurance
Policy") relating to the Bonds effective as of the date of issuance of the Bonds. Under the terms of the Financial Guaranty
lnsurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the
"Insurance Trustee") that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be
unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty lnsurance Policy). Ambac
Assurance will make such payments to the lnsurance Trustee on the later of the date on which such principal and interest becomes
Due for Payment or within one business day following the date on which Arnbac Assurance shall have received notice of
Nonpayment from the Paying AgentlRegistrar. The insurance will extend for the term of the Bonds and, once issued, cannot be
canceled by Ambac Assurance.
The Financial Guaranty lnsurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund
installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Bonds become subject to
manoator,, redemption ano insulficent f~nds are available for redimbtion of all oulsrandlng Bonds. Ambac Ass~rance will reman
obltoated to uav orincioal of and inrerest on ou~sranding Benos on the originally sched~leo interest ano principal payment dales
incl;ding mandatory sinking fund redemption dates. lnthe event of any acceleration of the principal of the Bonds, the insured
payments will be made at such times and in such amounts as would have been made had there not been an acceleration.
in the event the Paying AgentfRegistrar has notice that any payment of principal of or interest on an Bond which has become Due
for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore
recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order
of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such
recovery if sufficient funds are not otherwise available.
The Financial Guaranty lnsurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the
Financial Guaranty lnsurance Policy does not cover:
1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result
of any other advancement of maturity.
2. payment of any redemption, prepayment or acceleration premium
3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee. Paying Agent or Bond
Registrar, if any.
If it becomes necessary to call upon the Financial Guaranty lnsurance Policy, payment of principal requires surrender of Bonds to
the lnsurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be
reaistered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty lnsurance Policy. Payment
of;nlerest pursJani to me Fnanclal G~aranly lnsurance Pol'cy req~ires proof of rlo der enlitlement lo interest payments and an
appropriate asslgnrnenl of the Holoer's right to payment to Arnbac Assurance.
Upon payment of the insurance benefits. Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or right
to payment of principal or interest on such Bond and will be fully subrogated to the surrendering Holder's rights to payment.
Ambac Assurance Corporation
Ambac Assurance Corporation ("Ambac Assurance") is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of
Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of
approximately $6,362,000.000 (unaudited) and statutory capital of approximately $3,945,000,000 (unaudited) as of March 31,
2003. Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory continqencv reserve. Standard &
Poor's Creolt ~arkcts Services, a Division of The ~c~raw-nili Companies, Inc . Moody's 1n;estors $etvite. Inc. and F:tch, Inc
has each assigned a trtple-A financial strength rating to Amoac Assurance.
Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insurinu of an oblioation bv Ambac
Assurance wili not affect the treatmentfor federal income tax purposes of Interest on such obligation &d that insirance proceeds
re~resentinu maturins interest paid bv Ambac Assurance under ~olicv Drovisions substantialiv identical to those contained in its
financial gu&anty insurance poiicy shell be treated for federal income iax purposes in the same manner as if such payments were
made by the Obligor of the Bonds
Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no
representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by
Ambac Assurance and presented under the heading "BOND INSURANCE".
Available information
The parent company of Ambac Ass~rance. Ambac Financia. Group. Inc. (the -Companyn), is subject to the informational requlremenls
of the Sec~nies Exchanoe Act of 1934. as amenoed ftne Exchanoe AcIl, and n accoroance therewln files reoorts. oroxv statements .
and other information with the Securities and Exchange ~ommissio" (the "SEC"). These reports, proxy statemenis and other
information can be read and copied at the SEC's public reference mom at 450 FHh Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an Internet site at
htt~://www.sec.oov that contains reports, proxy and information statements and other information regarding companies that file
electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the
offices of the New York Stock Exchange. Inc. (the "NYSF'), 20 Broad Street. New York, New York 10005.
Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available
from Ambac Assurance. The address of Ambac Assurance's administrative offices and its telephone number are One State
Street Plaza, 19Ih Floor, New York, New York 10004 and (212) 668-0340.
Incorporation of Certain Documents by Reference
The following documents filed by the Company with the SEC (File No. 1-10777) are incorporated by reference in this Official
Statement:
1) The Company's Current Report on Form 8-Kdated January 23,2003 and filed on January 24,2003;
2) The Company's Current Report on Form 8-K dated February 25.2003 and filed on February 28.2003;
3) The Company's Current Report on Form 8-K dated February 25,2003 and filed on March 4,2003;
4) The Company's Current Report on Form 8-K dated March 18,2003 and filed on March 20,2003:
5) The Company's Current Report on Form 8-K dated March 19,2003 and filed on March 26,2003:
6) The Company's Annual Report on Form 10-Kfor the fiscal year ended December 31.2002 and filed
on March 28.2003:
7) The Company's Current Report on Form oated March 25.2003 an0 filed on March 31.2003:
8) The Comoanv's Current Reoort on Form 8-K dated A~rll17.2003 and fi ed on A~r1l21.2003. and
9j The company's Quarterly deport on Form 10-Q for the fiscal quarterly period ended arch il. 2003 and
filed on May 15,2003.
All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official
Statement will be available for inspection in the same manner as described above in "Available Information".
BOOK-ENTRY-ONLY SYSTEM
This section describes how ownership of the bonds is to be transfemd and how the principal of, premium, if any, and interest
on the Bonds are to be paid to and credited by the Depository Trust Company while the Bonds are registered in its nominee's
name. The information in this section concerning DTC and the Boo;<-Entry-Only System has been provided by DTC for use in
disclosure documents sucli as this Official Statement. The District believes the source of such information to be reliable, but
takes no responsibility for the accuracy or completeness thereof.
The District cannot and does not give any assurance tlie (I) DTC wili distribute payments of debt service on the Bonds, or
redemption or other notices, to DTC Participant, (2) DTC Participants or others will distribute debt service payments paid to
DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that
they will do so on a timely basis, or (3) DTC will serve and act in the manner described In this Ofiicial Statement. The current
rvles applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be
followed in dealing with DJC Parfiopants are on file with DJC.
The Depository Trust Company ("DTC). New York, New York, will act initially as securitles depository for the Bonds. The
Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such
other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for
each maturity of the Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million
issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85
countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement
among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized
book-entry transfers and pledges in Direct Participants' accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securitles brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing
Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National
Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging
Markets Clearing Corporation. (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York
Stock Exchange. Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to
the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("lndirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its
Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at
www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the
Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Ownef') is in turn to be
recorded on the Direct and lndirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of
their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or lndirect Participant through which the Beneficial Owner
entered into the transaction.
Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or lndirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership
interests in the Bonds, except in the event that use ofthe 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
chanoe in beneficial ownershin. DTC has no knowledse of the actual Beneficial Owners of the Bonds: DTC's records reflect
only ;he identity of the Direct ~art:cipants to v~nose ac&~nts such Bonds are credited, uvhich may or may not be tne Benef.c:al
Ovrners. Tnc Part:cipants will remain responsble for deeping accoLnt of the~r hoo~ngs on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to lndirect Participants.
and by Direct Participants and lndirect Participants to Beneficial Owners will be governed by arrangements among them.
subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish
to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as
redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of
Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to
Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent
and request that copies of notices be provided directly to them.
Redemption notices shall be sent to Cede & Co. If less than all of the Bonds within a maturity are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds unless authorized by a Direct Participant in
accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Redemption proceeds, distributions and dividend payments on the Bonds will be made to Cede & Co., or such other nominee
as made by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt
Of funds and corresponding information from Issuer or Agent, on payable date in accordance with their respective holdings
shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or lssuer, subject to any
statutorv or reoulatolv reouirements as mav be in efiect from time to time. Pavment of redemotion oroceeds, distributions and
divideni paym>nls td cede & Co. (or s~ch.olher nom:nee as may be request& oy an a~thoriied representalive of DTC) s tne
resoonsib'litv of the lssuer or Arrent, disbursement of s~ch Davmenls to Direct Particioanis w~ll be ihe res~onsibl tv of DTC, and
disbursemeit of such paymentsto the Beneficial Owners $11 be the responsibility of birect and lndirect ~'artici~anis.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to
the District. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required
to be printed and delivered.
The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Bonds will be printed and delivered in accordance with the Bond Order.
In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in
other sections of this Official Statement to registered owners should be read to include the person for which the Participant
acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only
System, and (ii) except as described above, notices that are to be given to registered owners under the Bond Resolution will be
given only to DTC.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the District
believes to be reliable, but the District takes no responsibility for the accuracy thereof.
Use of Certain Terms in Other Sections of this Official Statement
In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in
other sections of this Official Statement to registered owners should be read to include the person for which the Direct or
lndirect 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 Bond
Ordinance will be given only to DTC.
USE AND DISTRIBUTION OF BOND PROCEEDS
Proceeds from the sale of the Bonds are being used to pay expenditures in connection with the court approved Settlement
Agreement with the Federal Deposit Insurance Corporation ('FDIC"), Cause No. 4:OO-CV-1696-Y in the United States District
Court for the Northern District of Texas, Fort Worth Division, and to pay the costs related to the issuance of the Bonds.
The $1,200,000 bond issuance covers the settlement amount, court related attorney and engineering fees, expenses related to
the settlement, settlement interest in accordance with the Settlement Agreement, and Capitalized lnterest as shown below
Non-Construction Costs
A. Payment of Consent Settlement (Judgment) to the Federal $ 1,000,000
Deposit insurance Corporation in its capacity as Manager
ofthe FSLIC Resolution Fund (successor to Gibraltar
Savings Association)
B. Litigation Cost (legal representation in law suit and trial) 118.707.50
C. Engineering Cost (related to lawsuit and trial) .OO
D. Legal Fees - Bond Attorneys (1.5%) 18,000.00
E. Fiscal Fees (1.5%) 18,000.00
F. lnterest Costs
1. Capitalized Interest 0.00
2. Interest From Date Of Settlement 23,800.00
G. Bond Discount 0.00
H. Administration and Printing / Electronic Distribution of 3,500.00
Preliminary/Final Official Statements
I. TCEQ Bond Issuance Fee (0.25%) 2.992.50
I. Bond Application Report Costs 15.000.00
TOTAL NON-CONSTRUCTION COSTS 51,200.000.00
TOTAL BOND ISSUE REQUIREMENT SUUUQDl
INVESTMENT CONSlDERATlONS
General
The Bonds are obligations of the District and are not obligations of the Town ofTrophy Club, State of Texas, Denton 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." 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.
Factors Affecting Taxable Values and Tax Payments
Economic Factors and lnterest 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 lots is directed. Decreased
levels of construction activity would tend to restrict the growth of property values in the District or could adversely impact
existing values.
lnterest 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 homebuiiders are able to obtain financing for development and
construction costs. Lenders have been selective in recent years in making real estate loans in the Houston area because of
the negative impact to their real estate portfolios.. lnterest 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 DallaslFort Worth metropolitan and regional economics.
Comoetition: The demand for single-family homes in the District, could be affected by competition from other residential
developments including other residential developments located in other utility districts located near the District. In addition to
competition for new home sales from other developments, there are numerous previously owned homes in more established
neighborhoods closer to downtown Dallas/Fort Worth that are for sale. Such homes could represent additional competition for
homes proposed to be sold within the District.
The competitive position of the developer in the sale of developed lots and of prospective builders in the construction of single-
family residential houses within the District is affected by most of the factors discussed in this section. Such a competitive
position is directly related to the growth and maintenance of taxable values in the District and tax revenues to be received by
the District. The District can give no assurance that building and marketing programs in the District by the developer will be
implemented or, if implemented, will be successful.
Developers Under No Obiioation to tile District: There is no commitment from, or obligation of, any developers to proceed at
any particular rate or according to any specified plan with the development of land or the construction of homes in the District.
and there is no restriction on any landowner's right to sell its land. Failure to construct taxable improvements on developed lots
and tracts and failure of landowners to develop their land would restrict the rate of growih of taxable value in the District. The
District is also dependent upon developers and the other principal taxpayers for the timely payment of ad valorem taxes, and
the District cannot predict what the future financial condition of either will be or what effect, if any, such financial conditions may
have on their ability to pay taxes. See 'THE DEVELOPERS" and "SELECTED FINANCIAL INFORMATION - Principal
Taxpayers."
lmoact 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 2002
assessed valuation of the District (see "FINANCIAL STATEMENT") is $276,417,531. After issuance of the Bonds the projected
maximum annual debt service requirement will be $883,018 (2011) and the projected average annual debt service requirement
will be $627,420 (2003 through 2023, inclusive). Assuming no increase or decrease from the 2002 assessed valuation and no
use of funds on hand, a tax rate of $0.32268 per $100 assessed valuation at a 99% collection rate would be necessary to pay
the projected maximum annual debt service requirement of $883,018 and a tax rate of $0.22928 per $100 assessed valuation
at a 99% collection rate would be necessary to pay the projected average annual debt service requirement of $627.420. The
District's 2002 debt service tax rate is $0.1722 per $100 assessed valuation. See "APPENDIX A- TABLES 4 and 5 herein.
Tax Collections
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 th,e 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
17
taxpayer, or (c) market conditions limiting the proceeds from a foreclosure sale of taxabie property. While the District has a lien
on taxabie property within the District for taxes levied against such properly, 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 districts and, in connection therewith, to provide
for the consolidation of its water and wastewater systems with the water and wastewater system(s) of the district(s) with which it
is consolidating. The revenues of the consoi oated system may be p eogeo equally to all first lien bonds of thc'consolida~in~
distr~cls. ho representation is maoe that the District wil. consolidate ils water and vlastevlater system witn any other oisrrict.
Annexation
Under Texas law, the territory within the District may be annexed by the Town of Trophy Club (the "City") without the consent of
the District or Its residents. if annexation by the City did occur, the District would be abolished within 90 days after annexation.
When the District is abolished, the City must assume the assets, functions, and obligations of the District (including the Bonds).
No representation is made concerning the likelihood of annexation or the ability of the City to make Debt Service Payments on
the Bonds should annexation occur.
Alteration of Boundaries
in certain circumstances, under Texas law the District may alter its boundaries to: 1) upon satisfying certain conditions, annex
additional territorv: and 2) exclude land subiect to taxation within the District that is not served bv District facilities if the District
simultaneously annexes iand of equal acreage and value that may be practicably served by ~istict facilities. No representatlon
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 Bond Order. Such remedy would have to be exercised upon each separate default and couid 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 Bond 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."
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 TCEO as a condition to seeking relief under
the Federal Bankruptcy Code.
if a petitioning district were allowed to proceed voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan
for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other things, affect
Registered Owners by reducing or eliminating the amount of indebtedness, deferring or rearranging the debt service schedule.
reducing or 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.
A district may not be forced into bankruptcy Involuntarily.
The Effect of the Financiai lnstitutions Act of 1989 on Tax Collections of the District
The "Financial Institutions Reform, Recovery and Enforcement Act of 1983 ("FIRREA"), enacted on August 9, 1989, contains
certain provisions which affect the time for protesting property valuations, the fixing of tax liens, and the collection of penalties
and interest on delinquent taxes on real property owned by the Federal Deposit Insurance Corporation ("FDIC") when the FDlC
is acting as the conservator or receiver of an insolvent financial institution.
Under FIRREA real property held by the FDIC Is still subject to ad valorem taxation, but such act states (i) that no real property
of the FDlC shall be subject to foreclosure or sale without the consent of the FDIC and no involuntary liens shall attach to such
property, (ii) the FDlC shall not be liable for any penalties or fines, including those arising from the failure to pay any real or
personal property tax when due and (iii) notwithstanding failure of a person to challenge an appraisal in accordance with state
law, such value shali be determined as of the period for which such tax is imposed.
18
There has been little judicial determination of the validity of the provisions of FlRREA or how they are to be construed and
reconciled with respect to conflicting state laws. However, certain recent federal court decisions have held that the FDlC is not
liable for statutory penalties and interest authorized by State property tax law, and that although a lien for taxes may exist
against real property, such lien may not be foreciosed without the consent of the FDIC, and no liens for penalties, fines.
interest, attorneys fees, costs of abstract and research fees exist against the real property for the failure of the FDlC or a prior
property owner to pay ad valorem taxes when due. It is also not known whelher the FDlC will attempt to claim the FlRREA
bxemptjons as to t'hgtlme for conlesting va Latlons and tax assessments made prior lo and after tne'enactment of FIRREA.
Accordingly, to the exrent \hat the FlRREA provisions are val:o and applicable to any propeny in lhe Distrct, and to tne exlenr
that the FDlC attempts to enforce the same, these prov:sions may aflect tne timeliness of collection of taxes on propeny, ~f any.
owned by tne FDlC in tne District, and may prevent the colection of penalties and interest on such taxes.
Marketability
The District has no understanding with the Initial Purchaser regarding the reoffering yields or prices of the Bonds and has no
control over trading of the Bonds in the secondary market. Moreover, there is no assurance that a secondary market will be
made in the Bonds. If there is a secondary market, the difference between the bid and asked price for the Bonds may be
greater than the difference behveen the bid and asked price of bonds of comparable maturity and quality issued by more
traditional issuers as such bonds are more generally bought, sold or traded In the secondary market.
Continuing Compliance with Certain Covenants
The Bond 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." Failure by the District to comply with such covenants on a continuous basis prior to maturity of the Bonds could
result in interest on the Bonds becoming taxable retroactively to the date of original issuance. See "LEGAL MATERS."
Future Debt
The District has reserved in the Bond Order the right to issue the remaining $4,540,000 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 Directors of the District, subject to the approval
of the Attorney General of the State of Texas and the TCEQ. In the opinion of the District's engineer, the remaining
authorization should be sufficient to complete ultimate development within the District. At this time no future bond issues are
anticipated.
Litigation
On October 16, 2000, the Federal Deposit Insurance Corporation (as successor to a defunct financial institution) filed suit
agalnsl MJD2 ro recover prlnc~pal, Interest, attorney fees ano courts costs less any amounts that MJD2 can ver iy were pad to
tne lender The FDlC has asked tne coLn of jur~so~ct on to compel MUD2 to IssLe and se I oonos sutfic~ent to settle ~ts clalms
In a settlement dated January 22, 2003, the District agreed to pay $1,000,000 to the FDIC. Payment. accruing interest at 4.9%
will be made with proceeds from the sale of the Bonds. See "USE AND DISTRIBUTION OF BOND PROCEEDS" herein.
rhe remainder of this page is intentionally left blank]
LOCATION MAP
THE DISTRICT
Creation of the District
Trophy Club Municipal Utility District (MUD) No. 2 of Denton County. Texas is the resulting entity from a consolidation in August
1990 of Denton County Municipal Utility District No. 2 and Denton County Municipal Utility District No. 3. Denton County MUD
No. 2 was created by the Texas Water Commission (the "Commission") on May 20. 1980 for the purpose of providing water,
sewer and drainage facilities and other authorized services to the area within the District. Creation of the District was confirmed
by the electorate of the District at an election held on August 9, 1980. Denton County MUD No. 3 was created by the
Commission on May 20. 1980 for similar purposes as Denton County MUD No. 2. Creation of the district was confirmed by the
electorate of the District at an election held on August 9, 1980. Trophy Club MUD No. 2 is subject to ongoing supervision of the
Texas Natural Resources Conservation Commission (successor to the Commission), and operates as a municipal utility district
pursuant to the provisions of Article XVI, Section 59 of the Texas Constitution. Chapters 49 and 54 of the Texas Water Code,
as amended, and other applicable state laws.
General
The District is comprised of 982.29 acres which consists of an 82.3-acre golf course and 21.62 acres of amenities leaving
878.37 acres developable. Of the 878.37 developable acres, approximately 756.82 acres have been fully developed, including
approximately 1.351 single-family connections and 45 multi-family connections, three (3) schools, a church and a daycare
facility. Presently, there are 121.55 acres remaining for residential development. The District has experienced a steady
increase in the number of houses built (in excess of 40 homes per year) during the past several years. The residential
development, known as "Trophy Club is a country club development featuring a 27-hole golf course, clubhouse, golf shop.
swimming pool, tennis courts and equestrian center. The District's purpose is to provide water 8 wastewater services to
customers within the district's boundaries.
Management of the District
Board of Directors
The District is governed by a board, consisting of five directors, which has control over and management supervision of all
affairs of the District. Directors are elected and serve four-year staggered terms and receive no remuneration, except a
Director's per diem allowance of $100 per day on which necessary service is performed for the District. The District and all
similar districts are subject to the continuing supervision and filing requirements of the TCEQ, including the preparation and
filing of an annual independent audit report. All District facilities plans are submitted to the Texas Water commission for
review and approval.
Term
Name - Position Expires May
James C. Thomas President 2004
Jim Budarf Vice-president 2004
Carol Borges Secretarynreasurer 2006
Kevin Carr Director 2004
Lynn Hale Director 2006
All of the directors are residents and homeowners of the District.
The District has 17 full-time employees and maintains permanent offices within the district where all services are provided
and controlled.
Consultants
Tax Assessor/Collector
Land and improvements in the District are being appraised by the Denton County Appraisal District. The Tax
Assessor/Collector is appointed by the Board of Directors of the District. The Denton County Tax Assessor/Collector
currently serves the District in this capacity under contract.
Disfrict Manaqer
Mr. Walter Fitzpatrick was an elected Director of Trophy Club MUD No. 2 from 1995 through 2002 and assumed District
Manager responsibilities for the District in February 2003. He also serves as manager for Trophy Club MUD No. 2 and
Trophy Club Master District Joint Venture.
District Finance Director
Mr. Roger Unger has served as Finance Director for the District for one year and earlier served almost eleven years as
District Manager.
Enoineer
The District employs the following consulting engineers for various District projects: Carter & Burgess (the "Engineer"),
Freese & Nichols, Inc., and Camp, Dresser & McKee. Inc.
Audifor
Rutledge Crain & Company. PC has served as the District's independent auditor since August 1997.
Financial Advisor
Southwest Securities serves as the District's financial advisor (the "Financial Advisor"). The fee for services rendered in
connection with the issuance of the Bonds is based on the percentage of the Bonds actually issued, sold and delivered and,
therefore, such fee is contingent upon the sale and delivery of the Bonds.
Bond Counsel
The District has engaged McCall, Parkhurst & Horton L.L.P., Dallas. Texas, as Bond Counsel in connection with the
issuance of the District's Bonds. The fees of Bond Counsel are contingent upon the sale of and delivery of the Bonds.
Leoal Counsels
The District employs Whitaker. Chalk, Swindle & Sawyer, L.L.P. as general legal counsel for the District.
Location
The District is located in the far southeastern quadrant of Denton County near the southern shore of Lake Grapevine, and just
east of the Town of Roanoke, Texas and is entirely within the boundaries of the Town of Trophy Club. The original limits of the
District described an area wholly outside of an incorporated city and wholly within the extraterritorial jurisdiction of the Town of
Westiake. In January 1985, the voters of Trophy Club Municipal Utility District No. 1 and the District incorporated the Trophy
Club development into the Town of Trophy Club, Texas, except for the area within the Town of Roanoke. The District is directly
adjacent to and accessible from State Highway 114, north of and approximately midway between Dallas and Fort Worth. The
District is approximately 27 miles from downtown Dallas. 25 miies from downtown Fort Worth, 17 miles from Denton. 11 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 Highway 35W (see "LOCATION MAP herein.
Population
The population of the District is estimated to be approximately 4.200 based on 2.96 persons for each of the 1,420 existing
homes and townhouses.
Topography and Drainage
Terrain within the District consists of gently rolling hills and flatlands which had previously been in cultivation. The area drains
to the east and north to Lake Grapevine. The lowest elevation is in the fiowline of Marshall Creek at its exit from the District at
approximately 575 mean sea level (MSL) elevation. The land gently rises to the west and south to a high elevation of 620 MSL.
Flood hazard areas along Marshall Creek cover approximately 25 acres. The majority of this flood prone area is confined to the
proposed greenways, proposed neighborhood parks, and the existing equestrian center. Where development occurs in flood
prone areas, finished floor elevations ere established at 1.5 feet above the 100-year storm surface elevation.
Shopping and Commercial Facilities
A recently constructed shopping center within Trophy Club MUD No. 2 has a major grocery store chain outlet, a bank, a drug
store, several service businesses, fast food outlets, and a beauty shop. Additionally there are several more businesses and
professional omces located in the Town, at the primary entrance to the Town of Trophy Club. There are additional shopping
facilities in Roanoke, about two (2) miies west of the District and numerous shopping facilities in Southlake about five (5) miies
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.
Fire Protection
Trophy Club Municipal Utility District No. 1 operates a fire department with four emergency response vehicles, which are
housed and maintained in a six-bay station constructed in 1990. The operation is staffed with nine full time flre
fighterlparamedics, one Captain, a Fire Chief, a fire inspector, and several volunteer fire fighters. This department serves the
entire community and is currently financed by a combination of a $.11192 maintenance tax assessment in the District and a
$0.0900 maintenance tax assessment in MUD No. 1 and approximately $75,000 of reserves, with an annual budget of
$743.400.
Police Protection
Twenty-four hour security is provided by the Town of Trophy Club Police Department
Schools
The District is located in the Northwest Independent School District. Lakeview and Beck Elementary Schools (grades K-5) and
Medlin Middle School (grades 6-8) are located in Trophy Club. Northwest Middle School (grades 6-8), and Northwest High
School (grades 9-12) are both located in Justin, Texas, about 8.4 miles from the center of the District. School bus
transportation is provided by the school district and is available to students living at least two miles from campus or those
without a continuous walkway connecting their home and the campus.
Other Community Services
The District, in partnership with Trophy Club Municipal Utility District No. 1, operates under a Master District concept to provide
water, sanitary sewer and storm drainage services to residents of the District. The District ofiices jointly with Trophy Club
Municipal Utility District No. 1 and the Town of Trophy Club in a permanent operations office at the main water plant at 100
Municipal Drive. Trophy Club. Texas 76262.
Garbage and trash collection along with recycling is currently provided to residents of the District by contract between Trinity
Waste Services and the Town of Trophy Club, with pickups twice weekly. Other utilities serving the District are TXU Energy,
Southwestern Bell Communications, MCI Teiecommunications, IONEX, AT&T, World Com. Sage Telecom, Birch Telecom, and
Charter Cable Company.
The U.S. Postal Service provides mail service to each occupied house in Trophy Club.
Recreational opportunities in Trophy Club are afforded by Lake Grapevine, which lies two miles north and east of the District
and its surrounding parks. Trophy Club has several community parks including facilities for soccer, baseball, softball.
basketball, and tennis as well as playground amenities. The Town recently completed construction of a new 10-acre park with
additional sports venues and a community swimming complex. Trophy Club Country Club is operated by Cobblestone Golf
Group, Inc. as a private membership club and provides a 36-hole golf course, tennis, swimming, clubhouse, and golf shop.
Status of Development of the District
Development of the District began in 1980 and approximately 580 acres (approximately 71% of the developable acreage) of the
District have been developed with water, sanitary sewer and drainage facilities. The developed area includes the following:
single-family subdivisions know as The Knoll. The Lakes (1-3). Lakeside. Village West (A B 0). Eagles Ridge. Fox Pointe, and
Hogan's Glen-Waters; a mixed use development including single-family, multi-family, office, commercial retail, schools, and
churches; and amenity improvements. The following development breakdown information is as of May 2002:
Residential Development: Approximately 580 acres within the District have been developed with utility facilities to serve seven
single-family residential subdivisions including 1,475 developed single family lots, 1.217 completed and occupied single-family
homes, 116 completed and unoccupied single-family homes, 24 single-family homes under construction and 118 vacant
developed single-family homes. Of the 118 vacant developed single-family lots, 28 lots are owned by Beck Properties. 46 lots
are owned by Terra Land Development Co.. approximately 11 are owned by individuals and the remaining 33 lots are owned by
various home builders who have purchased the lots, but not yet begun construction of a home on such lot. See "THE
DEVELOPERS."
Multi-Familv Development: The District contains one townhouse complex, Quorum Condominiums, totaling 67 units and 5.3459
acres. According to management of Quorum Condominiums, the units were 85% occupied.
Ofiice Development: Ofiice development in the District presently consists of 1.920 square feet of professional offices.
Retail / Commercial Development: A 13.96 acre shopping center (Trophy Club Plaza) and additional retaillcommercial
development provide approximately 40.000 square feet of space occupied by the following businesses: Bank of America,
Blockbuster Video, Trophy Club Cleaners, Wells Fargo Bank. Great Clips. Walgreens, Tom Thumb Grocery. Starbucks, Art 'N'
Frame Gallerie. Hot 'N' Greamy Donuts, Radio Shack, GNC, Hong Kong Express, Subway and Colorful Nails.
Amenity Development: Recreational facilities within the District include the Trophy Club Country Club (Including a 27-hole golf
course, club house, oolf shoo. swimmino oool. tennis courts, and equestrian center), a mixed-use park of approximately 13
d ", .
acres (~ncludng ball fields, pl&grounds, tcnn's couns, grecn space, and soccer fields), a 10 acrc basbball par& currenl y "rider
development, and a community swlmmlig pool park anticipate0 to oe ready for use by the fa of 2003.
Undevelooed Acreaoe The Dsir.ct contains approx mately 121.55 i.ndeveloped 0.11 developable acres, a porton of vrh:cn has
not been provided v~th ut.l:ties If devclopeo, il 1s ant cipaled that the cosl of util:ly iacilt es to serve sucii acroage v.ou d oe
financed by the developer(s).
The following chart more completely describes the status of development within the District as of April 2002
Total
Subdivision Acreaqe
A. Single Family
The Knoll 23.5361
The Lakes (1-3) 144.8800
Lakeside 31.7850
Village West A & B 113.6400
Eagles Ridge 27.7996
Fox Polnte 11.9896
Hogan's Glen-Waters 7.6770
Section 10 53.0500
Section 11 56.4300
Section 12 43.9800
Section 13 26.1430
Total Single Family 540.9100
Single Family Homes
Complete Complete Vacant
Total and and Under Developed
Lots - Occupied Unoccupied Construction Lats
8. Multifamily
Quorum Condominiums 5.3459 1
Total Multifamily 5.3459 1
Trophy Club Plaza 13.9600
Total OfficelComrcllRetail 13.9600
D. Other
Medlin Middle School 16.9420 NIA
Beck Intermediate School 8.6350 NIA
Lakeview Elementary School 15.0000 NIA
lven Glen Elementary
School? 1.0500 NIA
Baptist Church 4.0000 NIA
Total Other 45.6270 NIA
E. Undeveloped Land 228.61 1
Total 834.46 1,480 --
THE DEVELOPER
Role of a Developer
In general, the activities of a landowner or developer within a municipal utility district, such as the District, include, among other
activities, purchasing land within the future district, petitioning for creation of the district, designing the development, derining a
marketing program, planning and scheduling building schedules, securing necessary governmental approvals and permits for
development, arranging for the construction of roads and the installation of utilities (including, in some cases water, sewer, and
drainage facilities in the utility district) pursuant to the rules of the TCEQ, and selling improved lots or commercial reserves to
builders, other developers or third parties. Ordinarily, the developer pays one hundred percent (100%)of the costs of paving
and amenity design and construction while the utility districts finance the costs of the water supply and distribution, wastewater
collection and drainage facilities. Trophy Club Municipal Utility District No. 2 has a policy in place requiring developers to
pay 100% of all development costs with no reimbursement The Town of Trophy Club oversees the development and
platting of all lots as well as street construction and building inspection. While a landowner or developer is required by the
TCEQ to pave streets and pay for its allocable portion of the costs of utilities to be financed by the district through a specific
bond issue, if any, a developer is generally under no obligation to a district to undertake development activities with respect to
other property it owns within a district. Furthermore, there is no restriction on a developer's right to sell any or all of the land.
which the developer owns within a district. In addition, the developer is ordinarily the major taxpayer within the district during
the early stages of development. In Trophy Club Municipal Utility District No. 2 the developer is a minority landowner and
taxpayer when compared to the number of resident homeowners within the District.
Description of the Developers
Beck Properiies is the primary developer in the District. In addition to Beck Properties, Terra Land Development Co. is
currently developing and marketing a 23.5361-acre. 46-lot resident~al development.
THE DISTRICT'S SYSTEM
General
The following information describes generally the water, sewer and drainage systems for the entire Trophy Club project,
including those facilities located in the District and Trophy Club Municipal Utility District No. 2. Hereinafter. Trophy Club
Municipal Utility District No. 1 and Trophy Club Municipal Utility District No. 2 are referred to as "MUD No. 1" and "MUD No. 2.
MUD No. 2 in partnership with MUD No. 1 manages the operation of the District facilities under a Master District concept. All
financial transactions relating to water and sewer operations are included in the financial statements of the Master District, a
portion of which is included in APPENDIX A as TABLE 19. Specific information regarding water and sewer rates and other fees
within the District is included in APPENDIX A, TABLES 20 -22.
Description of the Water System
Sources of Water Supo~v: The present water supply is provided from two sources: (i) four ground wells which provide
approximately 1,000,000 gallons per day, and (ii) a 21 inch water line which is capable of delivering 8,000.000 gallons per day
of treated water from the City of Fort Worth facilities. (See "WATER SUPPLY CONTRACT" herein). Currently the District
contracts with the City of Fort Worth on behalf of the Trophy Club development, for water service in excess of that produced by
the four wells. Current maximum usage is some 5,000.000 gallons per day (of which 3,700,000 is Fort Worth water). These
sources, when combined, provide water, which complies with the quality requirements of the Texas Department of Health and
needs only chlorination at the water plant.
Water Plant Facility: The present facility provides 4,000,000 gallons ground storage with pumping/chlorination capacity of
10,000,000 gallons per day. This facility is currently being expanded.
Description of the Wastewater System
Wastewater Treatment Plant Facilihl: The wastewater treatment plant system has a permitted treatment /discharge capacity of
1,750,000 gallons per day from the Texas Commission on Environmental Quality under TPDES Permit No. 11593-001. This
facility is currently being expanded. Although the permit authorizes the discharge of wastewater to the adjacent tributary
leading to Lake Grapevine, the plant effluent is currently pumped to various holding ponds within the community and is re-used
for irrigating the golf course.
WATER SUPPLY CONTRACT
The charge to the Master District for the purchase of the City of Fort Worth's water is presently S1.55 per 1.000 gallons
To finance MUD No. 1's share of the cost of the original water storage facility payable to the City and provide for use of the
water supply throughout the Trophy Club project, MUD No. 1 entered into a contract with Gibraltar Savings Association dlblal
Trophy Club dated August 21. 1979. Under the terms of such contract Gibraltar agreed to fund all money required to be paid
by MUD No. 1 to the City. Gibraltar also retained a right to a portion of the water made available through these facilities. MUD
No. 1 repaid its proportionate share of the advances made by Gibraltarto the City. MUD No. 1 and Gibraltar mutually agreed to
25
cooperate in establishing a central Water system to serve the entire Trophy Club project by using MUD No. 1 as a "Master
District". Subsequently Gibraltar and MUD No. 1 entered into such contract including all successors to Gibraltar. MUD No. 2 as
a successor to Gibraltar became a party to this Master District Contract. In October 2000 MUD No. 1 and MUD No. 2
renegotiated the Master District Contract as an agreement between the two districts only.
In 1991, a 15,000-foot section of the 21-inch line had to be relocated due to road construction at a cost of 1.1 million dollars.
MUD No. 1 financed its portion plus all uncommitted capacity in the relocated line through a bond issue sold in 1991.
MUD No. 1 fronted the total cost of relocating the line and was subsequently reimbursed by MUD No. 2 for its current ownership
portion.
MASTER DISTRICT CONTRACT
On December 1. 1982, MUD No. 1 entered into a written Contract for the Provision, Operation and Maintenance of Water
Supply and Waste Disposal Facilities with Gibraltar Savings Association as the then principal developer of Trophy Club (the
"Contracl"). Under the terms of the Contract, MUD No. 1 agreed to construct, operate, and maintain the central water supply
and wastewater treatment facilities to serve the entire Trophy Club project, including MUD No. 2 and other land to the north and
northwest of MUD No. 1 which is part of the Trophy Club project, but not yet developed or included in a municipal utility district.
On October 4, 2000, MUD No. 1 and MUD No. 2 renegotiated this contract between MUD No. 2 and MUD No. 1. They are
currently operating under the new Master District Contract.
The Contract contains provisions regarding the policies and procedures to be used in the planning, financing, and operation of
the joint facilities. In general, the Contract provides that the entity holding title to district facilities under the previous Master
District Contract will continue to hold title to those facilities. All future construction andlor renovation of facilities will be
overseen by the Master District Board, which consists of 3 members each from MUD No. 1 and MUD No. 2. All new
construction of central plant facilities will be shared equally by MUD No. 1 and MUD No. 2 while new construction specific to an
individual MUD will be paid for by that MUD.
The Contract may be terminated by any party as of September 30, 2005, so long as notice to terminate is submitted in writing to
all parties by September 30,2003. After September 30,2005, this Contract may be terminated by any party as of September 30
of any year by written notice to all other parties delivered at least two (2) years in advance. This Contract may be terminated at
any othertime or upon shorter notice only upon consent of both districts.
INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT
Available District funds are invested as authorized by Texas Law and in accordance with investment policies approved by the
Board of Directors. Both state law and the District's investment policies are subject to change. The District's goal in its
investment policy is to preserve principal and maintain liquidity, while securing a competitive yield on its portfolio.
Available District funds are invested as authorized by Texas law and in accordance with investment policies approved by the
Board of Directors. Both state law and the District's investment policies are subject to change. Under Texas law, the District is
authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2)
direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly
issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency
or instrumentality of the United States; (4) other obligation, the principal and interest of which is guaranteed or insured by or
backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities;
(5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by
a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the
State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings
bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or
insured by the Federal Deposit lnsurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to
principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for District
deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations
described In clause (I), and are placed through a primary government securities dealer or a financial institution doing business
in the State of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations
of the accepting bank or its parent are rated at least A-I or P-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-I or P-I 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. In
addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are
secured by obligations, including letters of credit, of the United States or its agencies and Instrumentalities in an amount at
least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the
next succeeding paragraph.
The District may invest in such obligations directly or through government investment pools that invest solely in such
obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized
rating service. The District may also contract with an investment management firm registered under the Investment Advisers
Act of 1940 (15 U.S.C. Section Bob-1 et seq.) or with the State Securities Board to provide for the investment end 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 obiigations that have a stated final maturity of greater than 10 years; and (4) collateralized
mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market
index.
Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of
principal and liquiditv: that address investment diversification, yield, maturity, and the uualitv and capabiliht of investment
management; and that include a list of authorized investments foi District funds, the maximum allowablestated maturity of any
individual investment and the maximum averaqe dollar-weiqhted maturitv allowed for oooled fund urouos. All District funds must
be invested consistent with a formally adopted "lnvestment Strategy Statement"' that specifiially addresses each fund's
investment. Each lnvestment Strategy Statement will describe its objectives concerning: (1) suitability of investment type. (2)
preservation and safety of principal, (3) liquidity, (4) marketability of each investment. (5) diversification of the portfolio, and (6)
yield.
Under Texas law, the Districfs 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 probable income to be derived." At least quarterly
the District's investment officers must submit an investment report to the Board of Directors detailing: (1) the investment
position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and
any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market
value of each separateiy listed asset at the beginning and end of the reporting period. (5) the maturity date of each separateiy
invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the
compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may
invest District funds without express written authority from the Board of Directors.
Under Texas law. the District is additionallv reouired to: (11 annuallv review its adooted oolicies and strateoies. 121 reouire anv - .,.
investment officeis with personal business-reiaiionships &'family reiationships with krms'seeking to sell securities to thk ~istric't
to disclose the relationshio and file a statement with the Texas Ethics Commission and the District. 131 reouire the reaistered
principi-of firms seekin4 to sell securities to the District to: (a) receive and review the ~istrict's'invistment poccy. (b)
acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and
(c) deliver a written statement attesting to these requirements; (4) In conjunction with its annual financial audit, perform a
compliance audit of the management controls on investments and adherence to the District's investment policy, (5) restrict
reverse repurchase aqreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to
no greater tnan tne rerm of tne reverse repLrcnase agreement, (6) reslrict rhe invesrment in non-money marker mdtua funds in
the aaareaate ro no more rnan 15Yc of tne D srr~ct's monrhlv averaqe f~nd balance, excluo nq oono oroceeds ano reserves and
othe;f;n& held for debt service and (7) require local government investment pools to conform to'the new disclosure, rating,
net asset value, yield calculation, and advisory board requirements.
lnvestment Officer and Authorized Investments
The District's .Finance Director or other person designated by the Board of Directors of the District shall be the investment
officer and invest District funds in legally authorized and adequately secured investments in accordance with generally
accepted accounting procedures and provisions of the Public Funds lnvestment Act. Authorized investments shall include:
Certificates of Deposit, Federal Agency Discount Notes, lnvestment Pools, Treasury Bills and Demand Accounts in Local
Banking Institutions.
lnvestment Reports
Cash flow statements shall be prepared monthly for every designated fund. All receipts and disbursements shall be in the
statement with individual line items that are specific to each designated fund.
On a quarterly basis, the investment officer will submit to the Board of Directors a written report of investment transactions for
all funds. The report will describe in detail the investment position of the District on the date of the report and list in detail the
transactions for the quarter.
The investment officer will confirm that the par value of approved securities is of an adequate amount to protect the District's
uninsured deposits in the depository bank or other uninsured investments.
Ail investment reports shall specifically address whether current investment results have been affected by risks and shall
explain the actions the investment officer has taken to control or correct such risks, specifically: . ,411 investment shall be legal investments. . Investments shall be made in a prudent manner. . The financial condition of institutions with which investments are placed shall be considered. . AII investments over the insured amounts shall be secured by a pledge of approved securities,
Current investments
As of April 30. 2003 the District's funds were invested as shown in the tabie 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 Investment TVD~
TexPooi $1,062,603
Cash on Hand (Depository Bank) 27.849
Total investments $1,090,452
TAX DATA
District Bond Tax Rate Limitation
The District's tax rate for debt service on the Bonds is legally unlimited as to rate or amount.
Maintenance Tax
The Board of Directors of District has the statutory authority to levy and collect an annual ad valorem tax for planning,
constructing, acquiring, or maintaining or repairing or operating the District's improvements, if such maintenance tax is
authorized by a vote of the District's electors. Such tax is in addition to taxes which the District is authorized to levy for paying
principal of and interest on the Bonds, and any tax bonds which may be issued in the future. At an election held on August 8,
1980. voters within the District authorized a maintenance tax not to exceed $0.251$100 assessed valuation. As shown in
APPENDIX A. TABLE 13 - "TAX RATE DISTRIBUTION," the District levied a 2002 maintenance and operations tax of
$0.16784/$100 assessed valuation.
Overlapping Taxes
Other governmental entities whose boundaries overlap the District have outstanding bonds payable from ad valorem taxes.
The statement of direct and estimated overlapping ad valorem tax debt shown in APPENDIX A - TABLE 14 (page A-6) was
developed from several sources, including information contained in "Texas Municipal Reports," published by the Municipal
Advisory Council of Texas. Except for the amount relating to the District, the District has not independently 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
tabie, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of
which cannot be determined. Political subdivisions overlapping the District are authorized by Texas law to levy and collect ad
valorem taxes for operation, maintenance and/or general revenue purposes in addition to taxes 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-
16 for information on overlapping taxing entities.
TAXING PROCEDURES
Authority to Levy Taxes
The Board is authorized to ievy 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 (see "RISK FACTORS - Future Debl" herein)
and to pay the expenses of assessing and collecting such taxes. The District agrees in the Bond Order to ievy such a tax from
year-to-year as described more fully herein under "THE BONDS - Source of and Security for Payment." Under Texas law, the
Board is also authorized to levy and collect an ad valorem tax for the operation and maintenance of the District and its water
and wastewater system and for the payment of certain contractual obligations, if authorized by its voters. See " TAX RATE
LIMITATION" herein."
Properly Tax Code and County-Wide Appraisal District
The Texas Property Tax Code (the "Property Tax Code") specifies the taxing procedures of ail political subdivisions of the State
oiTexas, including the District. Provisions of the Property Tax Code are complex and are not fully summarized herein.
28
The Propelty Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property values and
establishes in each county of the Statg::.of Texas an appraisal district wiih'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
vaiues established by the appraisal district. The board of directors of the appraisal district selects a chief appraiser to manage
the appraisal ofices of the appraisal district. The Denton County Appraisal District (the "DCAD) has the responsibility for
appraising property for all taxing units within Denton County, including the District. Such appraisal values are subject to review
and change by the Denton County Appraisal Review Board (the "Appraisal Review Board). The appraisal roll as approved by
the Appraisal Review Board must be used by the District in establishing its tax roll and tax rate.
&gg& 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 include: property owned by the State of Texas or its
political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law: certain
non-profit cemeteries; farm products owned by the producer; and certain property owned by charitable, religious, scientific,
literary, student housing, veterans, youth, development or fraternal organizations. Goods, wares, ores and merchandise (other
than oil, gas or petroleum products) that are acquired in or imported into the state and forwarded out of state within 175 days
thereafter are also exempt. Property owned by a disabled veteran or by the spouse or certain children of a deceased disabled
veteran or a veteran who died while on active duty has been granted an exemption from $5.000 up to $12,000 of assessed
value. The District does grant a Freeport Property exemption, but at this time has no such property within its
boundaries.
Residentral Homesteaa Exem~tiorrs: The Board may exempt up ro 20% of the marfie! value of resioent:~. homesteaos from ad
valorem taxalion. S~ch exemption woulo be in additon to any otner appl'caoe exemptlons provided oy an. However. 11 ad
valorem taxes have been pledged for the payment-of debt, then the 6oardmay continue tolevy and collecttaxes
against the exempted value of the homesteads until the debt is discharged if the cessation of the levy would impair the
obligation of the contract by which the debt was created. The board does not grant this exemption
Also exempt, if approved by the Board or through a process of petition and referendum by the District's voters, are residential
homesteads of certain persons who are disabled or at least 65 years old, to the extent of $3,000 of appraised value or more.
The District is authorized by statute to disregard such exemptions for the elderly and disabled if granting the exemptions would
impair the District's obligation to pay tax supported debt incurred prior to adoption of the exemptions by the District. The Board
has granted such elderly and disabled exemptions in the amount of $25,000 of assessed valuation.
Tax Abatement: Denton County or the Town of Trophy Club may designate 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. None of the area within the
District has been designated as a reinvestment zone to date and the District does not expect any area within the
District to be so designated in the foreseeable future.
Valuation of Property for Taxation
Generally, all taxable property in the District must be appraised by the Denton County Appraisal District at one hundred percent
(100%) of market value as of January 1 of each year, subject to review and approval by the Appraisal Review Board. In
determining market value, either for replacement cost 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
between the taxes imposed on the land for each of the five (5) years preceding the year in which the change of use occurs and
the tax that would have been imposed had the 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.
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 properly.
Levy of Taxes
The rate of taxation is set by the Board based upon the valuation of property within the District as of the preceding January 1
and the amount required to be raised for debt service, maintenance purposes, and authorized contractual obligations.
Unless the Board, or the qualified voters of the District or of Denton County at an election held for such purpose, determines to
transfer the collection of taxes to the DCAD or another taxing unit, the District is responsible for the levy and collection of its
taxes.
Collection of Taxes
Taxes are due on receipt of the tax bill and become delinquent after January 31 of the following year. However, a person over
65 is entitled by law to pay current taxes on his residential homestead in installments or to defer taxes without penalty during
the time he owns and occupies the properly as his residential homestead. The date of the delinquency may be postponed if
the tax bills are mailed after January 10 of any year. Delinquent taxes are subject to a 6% penalty for the first month of
delinquency, one percent (1%) for each month thereafter to July 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 fifteen percent
15% on all taxes unpaid on July 1 in lieu of recovering attorney's fees. The District may be prohibited from collection of
penalties and interest on real property owned by the Federal Depository Insurance Corporation. In prior years the District has
engaged a delinquent tax attorney and imposed such a penalty.
District's Rights in the Event of Tax Delinquencies
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 iien 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 of the 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 iien on real property takes priority over the claim of most creditors and other holders of liens on
the property encumbered by the tax lien, whether or not the debt or iien 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 properly 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. lssuance of the Bonds is also subject to the legal
opinion of McCall, Parkhurst S 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 MATFERS." Such opinions will express no opinion with
respect to the sufficiency of the security for or the marketability of the Bonds.
The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are based upon a
of Bonds aclual y issued, so o and oel~vered, an0 tnerefore, s~ch fees are contlngenl upon tne sale and 02 lvery of
tne Bonds The leqal oplnlon to be delivered concurrent y vrllh the oellvery of the Bonds expresses the profess onal luoqmeni
of the attorney rendering the opinion as to the legal issue explicitly addressed therein. in renbering 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. In connection with the transaction described in this Official Statement, Bond
Counsel represents only the District.
Litigation
With the exception of the case detailed herein under "INVESTMENT CONSlDERATiONS -Litigation8, on page 17, in the opinion
of the District's Counsel, 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 of the 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.
TAX MATTERS
Opinion
On the date of initial delivery of the Bonds, McCall. Parkhurst S Horton L.L.P., Dallas. Texas Bond Counsel, will render its
opinion that, in accordance with statutes, regulations, published ruling sand court decisions existing on the date thereof
('Existing Law"). (1) interest on the Bonds for federal income tax purposes will be excludable from the "gross income" of the
holders thereof and (2) the Bonds will not be treated as "specified private activity bonds" the interest on which would be
included as an alternative minimum tax preference item under section 57 (a) (5) of the Internal Revenue Code of 1986 (the
"Code"). Except as stated above. Bond Counsel will express no opinion as to any other federal, state or local tax
consequences of the purchase, ownership or disposition of the Bonds. See APPENDIX B -"Form of Bond Counsel's Opinion."
In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the District, including
information and representations contained in the District's federal tax certificate, and (b) covenants of the District contained in
the Bond Order relating to certain matters, including arbitrage and the use of the proceeds of the Bonds and the property
financed or refinanced therewith. Although it is expected that the Bonds will qualify as tax-exempt the status of the Bonds could
be affected by future events. However, future events beyond the control of the District, as well as the failure to obsewe the
aforementioned representations or covenants, could cause the interest on the Bonds to become taxable retroactively to the
date of issuance.
Bond Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the
aforementioned information, representations and Covenants. Bond Counsel's opinion is not a guarantee of a result. The
Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts
and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof 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 lnternal Revenue Service by the District with respect to the bonds or property financed with
the proceeds of the Bonds. No assurances can be given as to whether or not the lnternal Revenue Service will commence an
audit of the Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. lf an audit is :
commenced, under current procedures the Internal Revenue Service is likely to treat the District as the taxpayer and the
Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of :
taxability.
Federal Income Tax Accounting Treatment of Original lssue Discount
The initial public offering price to be paid for one or more maturities of the Bonds (the "Original lssue Dlscount Bonds") may be
less than the principal amount thereof or one or more periods for the payment of interest on the Bonds may not be equal to the
accrual period or be in excess of one year. In such event, the difference between (i) "stated redemption price at maturity" of
each Original lssue Discount Bond, and (ii) the initial offering price to the public of such Original lssue Dlscount Bond would
constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the
Bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during
equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods
which do not exceed one year. Under Existing Law, any owner who has purchased such Original lssue Discount Bond in the
initial public offering Is entitled to exclude from gross income (as defined In section 61 of the Code) an amount of income with
respect to such Original lssue 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 lssue Discount Bond prior to stated maturity.
however, the amount realized by such owner in excess of the basis of such Original lssue Discount Bond in the hands of such
owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original lssue
Discount Bond was held by such initial owner) is includable in gross income
Under Existing Law, the original issue discount on each Original lssue Discount Bond is accrued dally to the stated maturity
thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual
anniversary dates of the date of the Bond and ratably within each such six-month period) and the accrued amount is added to
an initial owner's basis for such Original lssue Dlscount Bond for purposes of determining the amount of gain or loss recognized
by such owner upon the redemption, sale or other disposltion thereof. The amount to be added to basis for each accrual period
is equal to (I) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the
yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for
the length of the accrual period) less (li) the amounts payable as current interest during such accrual period on such Bond.
The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original lssue
Discount Bonds which are not purchased In the initial offering at the initial offering price may be determined according to rules
which differ from those described above. All owners of Original lssue Discount Bonds should consult their own tax advisors
with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon
redemption, sale or other disposition of such Original lssue 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 lssue Discount
Bonds.
Collateral Federal lncome Tax Consequences
The following discusslon is a summary of certain collateral federal income tax consequences resulting from the purchase,
ownership or disposition of the Bonds. This discusslon is based on existing statutes, regulations, published rulings and court
decisions, all of which are subject to change or modification, retroactively.
The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as
financial institutions, property and casualty insurance companies, life insurance companies, owners of an interest in a FASIT.
individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned lncome credit, certain S
corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued
indebtedness to purchase tax-exempt obligations.
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
interest on the Bonds will be includable as an adjustment for "adjusted earnings and profits" to calculate the alternative
minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for
corporations, or 26 percent for non-corporate taxpayers (28 percent for taxable excess exceeding $175,000), of the taxpayer's
"alternative minimum taxable income." if the amount of such alternative minimum tax is greater than the taxpayer's regular
income tax for the taxable year.
lnterest on the Bonds may be subject to the "branch profits tax" imposed by Section 884 of the Code on the effectively-
connected earnings and profits of a foreign corporation doing business in the United States.
Under Section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest
received or accrued during each taxable year on their returns of 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 of issue. Such treatment applies to "market discount bonds" to the extent such
gain does not exceed the accrued market discount of such obligations. A "market discount bond" is one which is acquired by
the holder at a purchase price which is less than the stated redemption price or, in the case of an obligation issued at an
original issue discount, the "revised issue price" (i.e., a market discount). The "accrued market discount" is the amount which
bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the
number of days between the acquisition date and the final maturity date.
State, Local and Foreign Taxes
lnvestors should consult thelr own tax advisors concerntng the tax implications of the purchase, ownership or dtsposlt~on of the
Bonds under appltcable state or local laws. Foreign Investors should also consult thelr own tax advisors regarding the tax
consequences unique to investors who are not United States persons.
Qualified Tax-Exempt Obligations for Financial institutions
Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a "financial
Institution," on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible by such
taxpayer in determining taxable income. Section 265(b) of the Code provides an exception to the disallowance of such
deduction for any lnterest expense paid or incurred on Indebtedness of a taxpayer which is a Vnancial institution" allocable to
tax-exempt obligations, other than "private activity bonds," which are designated by an "qualified small issuer" as "qualified tax-
exempt obligations." A "qualified small issuer" is any governmental issuer (together with any subordinate issuers) who issues
no more than $10,000,000 of tax-exempt obligations during the calendar year. Section 265(b)(5) of the Code defines the term
"financial institution" as referring to any corporation described in section 585(a)(2) of the Code, or any person accepting
deposits from the public in the ordinary course of such person's trade or business which is subject to federal or state
supervision as a financial institution.
The District has designated the Bonds as "qualified tax-exempt obligations" within the meaning of section 265(b) of the Code.
In furtherance of that designation, the District will covenant to take such action which would assure or to refrain from such
action which would adversely affect the treatment of the Bonds as "qualified tax-exempt obligations." Potential purchasers
should be aware that If the Issue price to the public (or, in the case of discount bonds, the amount payable at maturity)
exceeds $10,000,000, then such obligations might fail to satisfy the $10,000,000 limitation and the obligations would
not be "qualified tax-exempt obllgations."
CONTINUING DISCLOSURE OF INFORMATION
The offering of the Bonds qualifies for an exemption from Rule 15~2-I2 (the "Rule") of the Securities and Exchange Commission
regarding the District's continuing disclosure obllgations because the District has less than $10,000,000 in aggregate amount of
outstanding obligations and no person other than the District is committed by contract or other arrangement with respect to the
payment of the Bonds. In accordance with such exemption, the District in the Bond Order has made the following agreement for
the benefit of the holders and beneficial owners 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 lssuer will be obligated to provided certain
updated financial information and operating data annually, and timely notice of specified material events, to certain information
vendors. This information will be available to securities brokers and others who subscribe to receive the information from the
vendors.
Annual Reports
The District will provide certain financial information and operating data which is customarily prepared by the District and is
publicly available to the appropriate state information depository ("SiD"). The financial information and operating data with
respect to the District of the general type included in this Official Statement in Appendix A, Tables 1, 12 and 13 will be provided.
Under Texas Law, the District must keep its fiscal records in accordance with generally accepted accounting principals, must
have its financial accounts and records audited by a certified public accountant within 120 days after the close of each fiscal
year of the District, and must file each audit report with the TCEQ within 135 days afler the close of the fiscal year. The
District's fiscal records and audit reports are available for public inspection during regular business hours, and the District and
33
the TCEQ are reouired bv law to provide a copy of the District's audit reports to anv member of the oublic within a reasonable
time on request, upon payment of applicable copying charges. ~e~ueits for copies should be addressed to the District 100
Municipal Drive. Trophy Club. Texas 76262. The District will provide this information to the SID within six months after the end
of each of its fiscal years ending in or afler 2002.
The lssuer may provide updated informalion in full lexl or may incorporate by reierence cenain other p~blicly aval aole documents.
as oermined bv SEC Rule 15~2-12 (tne 'Rule"). The -pdaled information vrill incluoe audited financial stalemenrs for the ssuer. if
the'lssuer cokmissions an audit and it is completed by the required time. If audited financial statements cannot be provided, the
lssuer will orovide unaudited financial statements until the audited financial statements become available. Anv such financial
statementswill be prepared in accordance with the accounting principles described in the Issuer's annual financii statements, 01
such other accounting principles as the lssuer 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 lssuer changes its fiscal year. If the lssuer changes its fiscal year, it will notify any SID of the change.
Material Event Notices
The lssuer will also provide timely notices of certain events to certain information vendors. The lssuer will provide notice of any of
the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and
interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting
financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or
liquidity providers, or their failure to 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 Ordinance make any provision for debt
service reserves, credit enhancement or liquidity enhancement. In addition, the lssuer will provide timely notice of any failure by the
lssuer to provide information, data, or financial statements in accordance with its agreement described above under "Annual
Reports". The lssuer will provide each notice described in this paragraph to any SID and the Municipal Securities Rulemaking
Board ("MSRB").
Availability of Information from SID and MSRB
The lssller has agreed to provide the foregoing information only to any SID and the MSRB. The information will be available to
holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or
obtain the information through securities brokers who do so.
The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID, and has been qualified as a SID by
the staff of the SEC. The address of the Municipal Advisory Council is 600 West 8th Street. P.O. Box 2177. Austin. Texas 78768-
2177, and its telephone number is 5121476-6947.
Limitations and Amendments
The lssuer has agreed to update information and to provide notices of material events only as described above. The lssuer has not
aoreed to orovide other information that mav be relevant or material to a comolete mesentation of its financial results of ooerations.
condition, br prospects or agreed to update any information that is provided, except as described above. The lssuer makes no
representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any
future date. The lssuer disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its
con1inu:ng disc.osure agreement or from any slatement maoe purs~anl to ts agreement, a lhough holders or benetcal owners of
Bonds may see6 a vrrt of manoamus lo compel !he lssuer to comply vrtn its agreement.
The lssuer may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal
requirements, a change in law, or a change in the identity, nature, status, or type of operations of the lssuer, if the agreement, as
amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the
Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed
circumstances, and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or any person
unaffiliated with the lssuer (such as nationally recognized bond counsel) determines that the amendment will not materially impair
the interests of the beneficial owners of the Bonds. The lssuer may also repeal or amend these provislons 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 provislons 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 interoretations of the Rule. If the lssuer amends its agreement, it must include with the next financial information
and operating data p;ovided in accordance with its agreement describ& above under "Annual Reports" an explanation, in narrative
iorm, of the reasons for the amendment and of the impact of any change in the type of informatlon and data provided.
Compliance with Prior Agreements
The lssuer has complied with all 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 far the
investment of debt proceeds or otner funds of the District, upon the request of !he District. The Issuer has perm:tled Soutnvrest
Sec~ri1:es. Inc. tne opt:on to bid on the Bonos Southv~est Secur:ties, Inc. may submt a bid for tne Bonos, either indeocndenliv
or as a member of a syndicate organized to submit a bid for the Bonds.
OFFICIAL STATEMENT
Experts
In approving this Official Statement, the District has relied upon the following experts in addition to the Financial Advisor
The Enoineer: Some of information contained in the Official Statement relating to engineering matters has been provided
by Carter 8 Burgess. Inc, and has been included in reliance upon the authority of said firm as experts in the field of civil
engineering.
Appraisal District: The information contained in this Official Statement relating to the certified assessed valuation of
property in the District and has been provided by the Denton County Appraisal District, in reliance upon their authority as
experts in the field of appraising and tax assessing.
Tax Assessor/Co/lector: The information contained in this Official Statement relating to tax collection rates, and principal
taxpayers has been provided by the Denton County Tax AssessorlColiector in reliance upon her authority as an expert in
the field of tax assessing and collecting.
Updating the Official Statement During Underwriting Period
If, subsequent to the date of the Official Statement to and including the date the lnitial Purchaser is no longer required to
provide an Official Statement to potential customers who request the same pursuant to Rule $5~2-12 of the federal Securities
Exchange Act of 1934 (the "Rule") (the earlier of (i) 90 days from the "end of the underwriting period" (as defined in the Rule)
and (ii) the time when the Official Statement is available to any person from a nationally recognized repository but in no case
less than 25 days after the "end of the underwriting period"), the District learns or is notified by the 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 lnitial Purchaser a supplement to the Official Statement which corrects such representation
to the reasonable satisfaction of the lnitial Purchaser, unless the Initial Purchaser elects to terminate its obligation to purchase
the Bonds as described below. See "DELIVERY OF THE BONDS AND ACCOMPANYING DOCUMENTS - Delivery'' herein.
The obligation of the District to update or change the Official Statement will terminate when the District delivers the Bonds to
the lnitial Purchaser (the "end of the underwritina oeriod" within the meanino of the Rule), unless the lnitial Purchaser orovides
v~rilten notice the ~isirict that less than a.1 of thc~onds have oeen sold Lo itimate custdiners on or before sJcn date,'k wn;ch
case the obliaa~ion to uodate or chanae lne Oil'cia. Statement vrit enend for an add tionai oeriod of time of 25 oavs aiter all of ~~ ~~
~ --2- - ~
the Bonds have been sbld to ultimatecustomers. In the event the lnitial Purchaser provides written notice to the District that
less than all of the Bonds have been sold to ultimate customers, the lnitial Purchaser agrees to notify the District in writing
following the occurrence of the "end of the underwriting period" as defined in the Rule.
Certification as to Official Statement
The District, acting by and through its Board of Directors in its official capacity in reliance upon the experts listed above, hereby
certifies, as of the date hereof, that to the best of its knowledge and belief, the information, statements and descriptions
pertaining to the District and its affairs herein contain no untrue statements of a material fact and do not omit to state any
material fact necessary to make the statements herein, in light of the circumstances under which they were made, not
misleading. The information, description and statements concerning entities other than the District, including particularly other
governmental entities, have been obtained from sources believed to be reliable, but the District has made no independent
investigation or verification of such matters and makes no representation as to the accuracy or completeness thereof. All
changes in the affairs of the District and other matters described in the Official Statement subsequent to the delivery of the
Bonds and all information with respect to the resale of the Bonds are the responsibility of the lnitial Purchaser.
Official Statement "Deemed Final"
For purposes of compliance with Rule 15c(2)-12 of the Securities Exchange Commission, this document, as the same may be
supplemented or corrected by the District from time-to-time, may be treated as an Official Statement with respect to the Bonds
described herein "deemed final" by the District as of the date hereof (or of any such supplement or correction) except for the
omission of certain information referred to in the succeeding paragraph.
35
The Official Statement, when further supplemented by adding information specifying the interest rates and certain other
information relating to the Bonds, shall constitute a "FINAL OFFICIAL STATEMENT of the District with respect to the Bonds.
as that term is defined in Rule 15c(2)-12.
Forward-Looking Statements Disclaimer
The statements contained in this Official Statement, and in any other information provided by the District, that are not purely
historical, are forward-looking statements, including statements regarding the District's expectations, hopes, intentions, or
strategies regarding the future. Readers should not Place undue reliance on forward-looking statements. All forward-looking
statements included in this Official Statement are based on information available to the District on the date hereof, and the
District assumes no obligation to update any such forward-looking statements. The District's actual results could differ
materially from those discussed in such forward-looking statements.
The forward-looking statements included herein are necessarily based on various assumptions and estimates and are
inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the
underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market.
legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including
customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and
officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic.
competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the control of the District. Any of such assumptions could be inaccurate and, therefore, there
can be no assurance that the foward-looking statements included in this Official Statement will prove to be accurate.
OTHER MATTERS
Legal Investment and Eligibility to Secure Public Funds in Texas
The following is quoted from Section 49.186 of the Texas Water Code, and is applicable to the District:
"All bonds. notes, and other obliqations issued bv a district shall be leoal and authorized investments for all
banks, trust companies, building and loan associa~ons, savings and ioahassociations, insurance companies of
all kinds and tvoes. fiduciaries. and trustees. and for all interest and sinkino funds and other oublic funds of the
State of ~exai'and all agencies, subdivisions, and instrumentalities of thi state including all counties, cities,
towns, villages, school districts and all other kinds and types of districts, public agencies, and bodies politic."
For the Bonds to be eligible investments for municipalities, political subdivisions or public agencies of Texas, the Public Funds
lnvestment Act, V.T.C.A., Government Code. Chapter 2256, provides a rating of "A or its equivalent as to investment quality
must be assigned by a national rating agency.
Pursuant to the Public Funds Collateral Act (Chapter 2257. Texas Government Code), the Bonds are eligible to secure deposits
of public funds of the State of Texas or any political subdivision or public agency of the State of Texas and are lawful and
sufficient security for those deposits to the extent of their market value.
No representation is made that the Bonds will be acceptable to public entities to secure their deposits or will be acceptable to
such Institutions for investment purposes. No representation is made concerning 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. No representation is made concerning the eligibility of the Bonds to secure public funds or their legality as
investments by institutions in states other than Texas.
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
~omm?ssion under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The ~onds
have not been reqistered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein:
nor have the ~onds been registered or qualified under the securities laws of any other jurisdiction. he District assumes no
responsibility for registration of the Bonds under the securities laws of any other jurisdiction in which the Bonds, may be offered,
sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the
Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities
registration or qualification provisions in such other jurisdiction.
Annual Audits
Under Texas Law, the District must keep its fiscal records in accordance with generally accepted accounting principles, must
have its financial accounts and records audited by a certified or permitted public accountant within 120 days after the close of
each fiscal year of the District, and must file each audit report with the TCEQ within 135 days after the close of the fiscal year.
Copies of each audit report must also be filed in the office of the District. The District's fiscal records and audit reports are
available for public Inspection during regular business hours, and the District is required by law to provide e copy of the
District's audit reports to any Registered Owner or other member of the public within a reasonable time on request, upon
payment of charges prescribed by the Texas General Services Commission.
GASB 34
In June 1999, the Governmental Accounting Standards Board issued Statement No. 34, "Basic Financial Statements - and
Management's Discussion and Analysis - for State and Local Governments." The objective of this Statement is to enhance the
clarity and usefulness of the general-purpose external financial reports of state and local governments to the citizenry,
legislative and oversight bodies, and investors and creditors. The District must implement GASB 34 beginning with its fiscal
year ending September 30. 2004. While adoption of this Statement may alter the presentation of the District's iinancial
information, District management does not believe that adoption of GASB 34 will have any material'adverse impact on the
District's financial position, results of operation, or cash flows.
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. This is no guarantee that any of the
assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions
contained in this Official statement are made subject to all of the provisions of such statutes, documents and resolutions.
These summaries do not purport to be complete statements of such provisions and reference is made to such documents for
further information. Reference is made to original documents in all respects.
The Order will also approve the form and content of this Official Statement, and any addendum, supplement or amendment
thereto, and authorize its further use in the offering of the Bonds by the Purchaser.
/s/ James C. Thomas
President, Board of Directors
Trophy Club Municipal Utility District No. 2
/s/ Cam1 Romes
Secretary, Board of Directors
Trophy Club Municipal Utility District No. 2
APPENDIX A
FINANCIAL INFORMATION OF THE ISSUER
(This appendix contains quantitative financial information and operating data with respect to the Issuer. The information is only a
partial representation and does not purport to be complete. For further and more complete information, reference should be made
to the original documents, which can be obtained from various sources, as noted.)
FINANCIAL INFORMATION OF THE ISSUER
ASSESSED VALUATION TABLE 1
2002 Actual Market Value of Taxable Property $ 281,177,5215
Less Exemptions:
Local Optional Over-65
Disabled and Deceased Veterans'
Productivity Loss
10% Value Cap Loss
Total Exempt Property
2002 Net Taxable Assessed Valuation (100% of ~ctual)l"'
la' See "TAXING PROCEDURES" in the Official Statement for a description of the lssuefs taxation procedures
Does not include net taxable value of $8393832 forproperty currently under review.
Soufce: Issuer
GENERAL OBLIGATION BONDED DEBT TABLE 2
(As of Apnl 1, 2003)
General Obligation Debt Principal Outstanding:
Unlimited Tax Refunding Bonds. Series 1995
Unlimited Tax Bonds, Series 2002
Unlimited Tax Bonds, Series 2003 (the "Bonds")
Total General Obligation Debt Principal Outstanding:
General Obligation Interest and Sinking Fund Balance as of 1-31-03
Ratio of General Obligation Debt to 2002 Net Assessed Valuation
2002 Net Assessed ~aluation'~'
Population Estimates: 2000 - 3,800; Current (Estimate)
Per Capita 2002 Net Assessed Valuation -
Per Capita General Obligation Debt -
'"I Includes the "Value at Maturity" of the CABS for the 2003 maturity. '" See "TAXING PROCEDURES" in the Official Statement for a description of the lssuefs taxation procedures.
OTHER OBLIGATIONS TABLE 3
-None-
GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 4
Fiscal Year Current Total The Bonds Combined
Sept 30 Debt Service Principal Interest Total Debt Service
TAX ADEQUACY TABLE 5
2002 Assessed Valuation
Maximum Annual Debt Service Requirements (Fiscal Year Ending 9-30-11)
Indicated Maximum lnterest and Sinking Fund Tax Rate at 99% collections
Note: Above computation is exclusive of investment earnings, delinquent tax collections and
penalties and interest on delinquent tax collections.
INTEREST AND SINKING FUND MANAGEMENT INDEX TABLE 6
Interest and Sinking Fund Balance, Fiscal Year Ended September 30. 2002 5 230,159
FY 2002 Interest and Sinking Fund Tax Levy of $0.17216 at 99% Collections Produces 471.122
Total Available for Debt Service $ 701.281
Less: General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-03 502.070
Estimated Surplus at Fiscal Year Ending 9-30.03'~) $ 199.211
' Does not include delinquent tax collections, penalties and interest on delinquent tax collections or
investment earnings.
PROJECTED GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE TABLE 7
(Includes the Bonds)
Principal Repayment Schedule
Fiscal Year Outstanding The
Endinq 9130 Bonds Bonds - Total
2003 $ 280,000 '") $ $ 280.000
2004 385,000 30,000 415,000
2005 405,000 40.000 445,000
2006 425.000 45,000 470.000
2007 455,000 45,000 500,000
2008 480,000 45.000 525,000
2009 510,000 50,000 560,000
201 0 535.000 50,000 585,000
201 1 580.000 55.000 635.000
2012 610.000 55,000 665.000
201 3 645,000 60,000 705,000
2014 170,000 60,000 230,000
2015 180,000 60,000 240,000
2016 190,000 65,000 255,000
2017 200.000 70,000 270,000
2018 210,000 70,000 280,000
2019 225,000 75,000 300,000
2020 235,000 75,000 310,000
2021 245,000 80.000 325,000
2022 260,000 85,000 345.000
2023 275.000 85.000 360,000
$ 7,500,000 $ 1,200,000 $ 8,700,000
'" Represents the Value at Maturity of CABS.
Bonds
Unpaid at
End of Year
$ 8,420,000
8,005,000
7,560,000
7,090.000
6,590,000
6,065,000
5,505,000
4,920.000
4,285,000
3,620,000
2,915,000
2,685,000
2,445,000
2,190,000
1,920,000
1,640,000
1,340,000
1,030,000
705,000
360,000
Percent of
Principal
Retired 1%)
3.22%
7.99%
13.10%
18.51%
24.25%
30.29%
36.72%
43.45%
50.75%
58.39%
66.49%
69.14%
71.90%
74.83%
77.93%
81.15%
84.60%
88.16%
91.90%
95.86%
100.00%
FUND BALANCES TABLE 8
(As of April 30, 2003
General Fund
Debt Service Fund
$ 193.560
497,927
Total $ 691.487
TAXABLE ASSESSED VALUATION FOR TAX YEARS 1996-2002 TABLE 9
Tax
Year -
1996 -
1997
Net Taxable
Assessed Valuation
$ 106,241,000
Change From Preceding Year
Amount ($1 Percent l%l
Sources: Texas Municipal Report published by the Municipal Advisory Council of Texas and the
Denton Central Appraisal District
D ssssss s - -- --mmw- o w 0: mmooow
i srl ,YdYid/ f- 31
2
PRINCIPALTAXPAYERS 2002-2003 TABLE 11
% of Total 2002
Name -
1 8 L Development Company
Randall's Food Markets
TC Quorum
SCO~, Larry P 8 Lauie Ann LLC
ONCOR Electric Delivery Company
Beck Property Trophy Club LP
Clubcorp Golf Texas LP
Tvpe of Propem
Residential Development
Retail Grocery Sales
Land I Improvements
Land I Improvements
Electric Utility
Golf Course
Golf Course Management
2002 Net Taxable Assessed
Assessed Valuation Valuation
$ 9,017,790 3.26%
. .
Drees Custom Homes LP Residential ~eveloiment 1,179.838 0.43%
Ziegler. Kurt 8 Dianne Land 1 Improvements 1.059.997 0.38%
Regency Realiy Group Inc. Real Estate Company 990.061 0.36%
Total 3 24,375,777
Based on a 2001 Net Taxable Assessed Valuation of $276.417.531
La24
Source: Texas Municipal Report published by the Municipal Advisory Council of Texas and the Denton Central Appraisal Dislrici.
PROPERTY TAX RATES AND COLLECTIONS '" TABLE 12
Tax Net Taxable Tax Tax % ~ollections'~' Fiscal Year
Year Assessed Valuation - Rate - Current - Total Ended
1996 $ 106,241,000 $ 0.5297 572,076 97.70% 98.16% 9-30-97
1997 128.934.824 0.4485 593,466 99.38% 99.96% 9-30-98
1998 148,612,986 0.3992 600.710 99.01% 99.39% 9-30-99
1999 180,122,026 0.3654 667.046 99.30% 100.29% 9-30-00
2000 218,040,873 0.3654 830.099 99.09% 99.80% 9-30-01
2001 255,019,864 0.3654 966.807 98.86% 99.66% 9-30-02
2002'~' 276.417.531 0.3400 939,820 97.62% 97.10% 9-30-03
''I See "TAXING PROCEDURES - Levy and Colleclion of Jaxes"in /he body of the Ofiicial Statement for a complete discussion of the
District's provisions. '" Includes penalties and Interest. '" Current year collections are as of April 30, 2003.
Source: Texas Municipal Report published by the MllniCipal Advisory Council of Texas, the Denton Central Appraisal District and the Issuer
TAX RATE DISTRIBUTION TABLE 13
General Fund
I 8 S Fund 0.172:! 0.1911 0.2510 0.2719 0.2900 0.3274_ 0.4471
TOTAL $0.3400 50.3654 $0.3654 $0.3654 $0.3992 $0.4485 $0.5297
Sources Texas Mun~clpal Reportpubl~shed by the Munrc~pal Advfsory Councrl of Texas
DIRECT AND OVERLAPPING DEBT DATA INFORMATION TABLE 14
Gross Debt
Taxinq Bodv Principat Dverlapplnq
Denton County 02-01-03 S 135,372,571 0.94%
~orthwest Independent School District 02-01 -03 161,871.977 5.64%
Town of Trophy Club 02-01-03 6.265.000 51.51%
Total Net Overlapping Debt $ 303.509.548
Trophy Club MU0 $2 04-01-03 8.700.000 100.00%
Total Gross Direct and Overlapping Debt $ 312.209.548
Ratio of Direct and Overlapping Debt to 2002 Assessed Valuation
Ratio of Direct and Overlapping Debt to 2002 Actual Value
Per Capita Direct and Overlapping Debt
Amount
Source: Texas Municipal Reports published by the Municipal Advisory Council of Texas
ASSESSED VALUATION AND TAX RATE OF OVERLAPPING ENTITIES TABLE 15
2002 Net Taxable 2002
Governmental Entitv
Denton County
Assessed Valuation % of Actual
$29,337,776,845 100% $ 0.24897
Northwest Independent School District 3,525,805,968 100% 1.83481
Town of Trophy Club 528,333.134 100% 0.23240
Source: Most recenl Texas Municipal Reports published by The Municipal Advisory Council of Texas and Denton Cenlml Appraisal Dislricl.
AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS
OF OVERLAPPING GOVERNMENTAL ENTITIES TABLE 16
Date of Amount Issued
Taxlns Body Authorization Purposa Authorized Unissued
Denton County 11-05-91 Road B Brldge $ 34,000.000 $ 28.875.000 $ 5,125,000
01-16-99 Road 85.320.000 48.600.000 36.720.000
$ 119,320,000 $ 77.475.000 $ 41,845,000
Northwest I S D 02-24-01 School Bucldlng S 162,700,000 S 121,358.814 $ 41,341,186
02-24-01 Stad~um 19 500,000 19.500.000
$ 182,200,000 S121.358.814 S 60.841.186
Town of Trophy Club 07-15-00 Street improvements $ 6,260,000 S 3.000.000 $ 3.260.000
Source, Most recenl Texas Munrclpal Reports pubhshed by The Munlc~pal Advlsory Council of Texas and fhe Issuer
AUTHORIZED BUT UNISSUED DIRECT GENERAL OBLIGATION BONDS TABLE 17
Date of Amount Previously Issued
Taxinq Body Authorization Authorized issued This Series Unissued
Trophy Club MU0 g2 la'
Denton Co MUD#2 04-04-81 Water and Sewer S 6,450,000 $ 5,380,000 S 1,070,000 S
Denton Co MUD #3 04-04-81 Water and Sewer 5,800,000 3.630.000 130,000 2,040,000
Denton Co MUD#3 10-29-88 Water and Sewer 2.500.000 2,500,000
$ 14,750,000 $ 9,010,000 S 1,200,000 $ 4,540,000
' The District is the resuiting entity from a consolidalion in Augusl1990 oiDenlon Counly Municipal Utility Dislricl No.2 and
Denton County Municipal Ulility District No.3. Authorization elections for the Bonds were held under lhose entily names.
Source: Most recenl Texas Municipal Reports published by The Municipal Advisory Council of Texas and the Issuer.
GENERAL FUND COMBINED STATEMENT OF REVENUES AND EXPENDITURES
AND CHANGES IN FUND BALANCES TABLE 18
Revenues:
Fiscal Year Ended September 30
2002 - 2001 - 2000 - - 1999 - 1998
-
AV Taxes. Penaitles B Interest S 461.437 S 260.056 S 172.650 S 184.076 s 161.277
Interest 4,450 8,501 6,101 22,291 23.072
Miscellaneous 90.052 6.467 6.508 13.368 8.453
Total Revenues S 555,939 S 275.044 S 187.459 S 199,735 S 192.802
Expendllures:
Current
AdministrationlGeneral Government S 20,553 S 18.537 S 67,651 S 263,432 S 116,467
Professional Fees 127.202 70.947
Contract Services 6,651 9.436 ,
Purchased Sewices for Resale 40.295
Contribution toTmehv Club I
Westlake DPS
Capital Outlay
Total Expenditures
Excess (Defidt) of Revenues
Over (under) Expenditures S 175.138 5 (88,269) S (38.933) S (63.697) S 76,315
Fund Balance - October 1 134.936) 53.332 92.265 155.962 79.648
Fund Balance - September 30 5 140.2pZ $ (34 9371 '"I S 53.332 $ 92.265 155,96;1.
Source: The lssuerk Audited Financial Slalemenfs
MASTER DISTRICT WATERWORKS AND SEWER SYSTEM OPERATING EXPERIENCE TABLE IS
Revenues
Fiscal Year Ended September 30
2002 - 2001 2000 - - 1999 - 1998
Water B Sewer Sewice S 2.792.663 . .
inspection and Tap Connection Fees 63,585
Other 36,909
Total Revenues 6 2,893,157
Expenditures:
Current
Water 8 Sewer Purchased S
Administrative 804.341
Water Operations 1,152,729
Wastewater Operations 454,089
Wastewaler Collection Syslem 311.341
Storm Sewer 138.266
Other 700
Capital Outlay 275.115
Total Expenses S 3,136,601
Excess (deficiency) of revenues
over (under) expenses 5 (243,444) S (593,101) S 223,435 S 136.694 s (106,325)
Other Financing Sources (Uses): 5 - S 219,832 NiA NIA NIA
Fund Balance October 1 733,356 NIA NIA NIA
Residual Equity Transfer in 1,106,625 NIA NIA NIA
Fund Balance Seplember 30 5 469,912 S 733.356
Customer Count
Water I Sewer MUD No.1 1.271 1,252 1,231 1,211 1.179
Water1 Sewer MUD No.2 1.434 1,383 1.259 1,216 1.055
Total 2.705 2.635 2.490 2.427 2,234
'"I Nofe: Tmphy Club Masler Dislnct Join! Venlore began operations on October 1, 200B Amounls praseflied ioi 1998
fhmugh 2000 are pm iorma and are compiled from iniormalion iar the Masler Dislricl as a iund of Trophy Club
Municipal Utility Dislricf No.1 for the period. Expense calegones difier imm aclual Masler Dislricl audit calegories.
WATER SERVICE RATES TABLE 20
(Monthly Billing)
Rates Effective September 1, 2002
GOLF COURSE IRRIGATION WATER TO THE LAKES
Single-Family Homes
Administrative Fee (Does not include water usage) $1 1 .OO
0 to 6,000 gallons
6,000 to 12,000 gallons
12.000 to 25.000 gallons
Over 25,000 gallons
2.00 per 1,000 gallons
2.30 per 1,000 gallons
2.50 per 1,000 gallons
2.60 per 1.000 gallons
Commerctai (Includes Cl~os and Golf Co-rses)
Administrative Fee (Does nor include water usage) $1 1 .OO
0 to 6.000 gallons
6,000 to 12.000 gallons
12,000 to 25.000 gallons
Over 25,000 gallons
2.00 per 1.000 gallons
2.30 per 1.000 gallons
2.50 per 1,000 gallons
2.60 per 1,000 gallons
Multi-Family
Administrative Fee (Times Number of Units in Complex) $ 11.00
Plus:
Single Meter (Billed at Single-Family Home Rates)
Multiple Meters (Each Meter Billed at Single-Family Home Rates)
GOLF COURSE IRRIGATION WATER TOTHE LAKES
First 300.000 gallons per month
Over 300,000 gallons per month
8 1,000.00 (minimumlmonth)
2.60 per 1,000 gallons
SEWER SERVtCE RATES TABLE 21
(Monthly Billing)
Rates Effective August 1, 2002
Single-Family Homes
Administrative Fee (Does not include sewer usage) $11.00
0 to 6,000 gallons 2.00 per 1,000 gallons
6,000 to 12,000 gallons 2.30 per 1.000 gallons
12.000 gallons per month maximum for residential
Sewer Only Customers Over 12.000 gallons per month 2.30 per 1.000 gallons
Commercial (Includes Clubs)
Administrative Fee (Does not include sewer usage) $1 1.00
0 to 6.000 gallons
6,000 to 12,000 gallons
Over 12,000 gallons per month
2.00 per 1,000 gallons
2.30 per 1.000 gallons
per 1.000 gallons
2.30
Multi-Family
Administrative Fee nimes Number of Units in Complex) $ 11.00
Plus: Billing at Single-Family Home Rates
OTHER FEES TABLE 22
Rates I Fees Effective September 1.2002
Tap Fees
Standard will include 314 inch (District side) by 518 inch (customer side) $ 1,000.00
Larger than standard is actual cost to District of larger line plus 20%
Fire Line Tap Fee = $30.00 per inch of diameter of the tire line
Sewer Inspection Fee 150.00
Maintenance and Repair (charge to video sewer line to determine condition)
Effluent Charge: (sold to Trophy Club County Club and discharged on course lakes)
Stand-By Charge
Disconnection I Reconnection Fee (due to non-payment of bill)
Disconnection I Reconnection Fee (due to non-payment of bill)
Disconnection I Reconnection Fee (temporarily, at customer request)
Returned Checks
Confidentiality Request
Same-Day Service
Accuracy Reading Fee
Security Deposits
Builders
Residential Owners
Residential Lessees
Construction Meters
Other Customers
Storm Drain Assessment
Temporary Water Service
InstallationIMeter Hook-up Fee
Sale of Water
150.00
0.20 per each 1,000 gallons
6.00 per month
25.00 during regular hours
65.00 afler regular hours
10.00 each to dislre connect
25.00
5.00 on-time charge
25.00
75.00
40.00
100.00
Price equal to two months avg. bill
Price equal to two months avg. bill
1.00 per month
100.00
2.60 per each 1,000 gallons
APPENDIX B
GENERAL INFORMATION REGARDING THE TOWN OF TROPHY CLUB AND DENTON COUNTY, TEXAS
GENERAL INFORMATION REGARDING THE TOWN OF TROPHY CLUB
ANDDENTONCOUNTY,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 County on State Highway 114 approximately 8
miles west of the City of Grapevine. 17 miles south of the City of Denton, 25 miles north of downtown Fort Worth. 27 miles
northwest of downtown Dallas, and 14 miles northwest of the Dallas-Fort Worth International 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 either Trophy Club
Municipal Utility District ("MUD") No.1 or Trophy Club MUD No.2. The Town's 2000 Census was 6.350, which is a 61.9%
increase over the 1990 Census. The Town's current population estimate is 7,800.
Source: Latest Texas Municipal Report published by the Municfpal Advisory Council of Texas, U.S. Census Report and
Issuets Website.
Population:
Census Town of Denton
mrt Trophy Club
1980 NIA 143,126
1990 3,922 273,525
2000 6.350 423.976
Current Population Est. 7,800 468,600
Sources: United States Bureau of the Census, Texas Municipal Reports, Sales and Marketing Magazine, 2001 Survey of
Buying Powerand the Town of Trophy Club
;
Leading Employers in the Town of Trophy Club:
Number of
Employer
Trophv Club Country Club
TO& ihumb
Town of Trophy Club . .
Ivy Glen
Bank of America
Blockbuster
Texas National Bank
Quizmo's
Beck Properties
Type of Business
Country Club
Retail Grocery
Municipal Government
Daycare
Financial lnstitution
Video Rental / Saies
Financial Institution
Delicatessen
Real Estate Development
Employees (20021
122
90
68
29
9
9
6
6
5
Source: lnformation from the Issuei
Education
The Town of Trophy Club is served by the Northwest lndependent School District (the "NISD"). NlSD covers approximately 232
square miles in Denton, Tarrant and Wise Counties. In addition to serving the Town. NlSD also serves the communities of
Aurora, Avondale, Drop, New Fairview, Haslet, Justin, Marshall Creek, Newark, Northlake, Rhome and Roanoke. Northwest
ISD is comprised of eight elementary schools for grades pre-kindergarten through five, three middle schools for grades six,
seven and eight, and one high school for grades nine through twelve. All campuses offer enriched curricula with special
programs for giftedltalented students as well as students achieving below grade level, and all are equipped with computers and
full cafeteria service. NlSD expects to serve an estimated 6,000 students in the 2002-2003 school year.
Source: lnformation from Northwest lndependent School District
DENTON COUNTY
Denton County (the Tounty") is located in north central Texas, encompassing 91 1 square miles, and was created in 1846 from
Fannin County. It is the third largest county of the nine counties comprising the Dallas-fort Worth Consolidated Metropolitan
Statistical Area (CMSA). The county Is traversed by Interstate Highway 35. United States Highways 77, 377 and 380 and State
Highways 114 and 121. The county is divided north and south geographically by the East Cross Timers, which is a narrow strip
of woodland that extends from the Red River to the Brazos River around Waco. The economy is diversified by manufacturing,
state supported institutions, and agriculture. The Texas Almanac designates cattle, horses, poultry, hay and wheat as the
principal sources of agricultural income. Minerals produced in Denton County include natural gas and clay. Institutions of
higher education include University of North Texas and Texas Woman's University. Lake Lewisville attracts over 3,000,000
visitors annually. Alliance Airport, located in the County has continued to expand. A major NASCAR racetrack was opened in
1997, which has had a positive impact on employment and recreational spending for the area. Several growing urban centers
are located in the County, including the cities of Denton, Lewisville, Carrollton and The Colony. The 2000 census was 423.976,
which is a 551% increase since 1990. The 2001 estimated population for the County is 444.900.
Source: Latest Texas Municipal Report published by the Municipal Advisory Council of Texas .
Leading Employers Denton County: 2002
Employer
University of North Texas, Denton
Lewisville lndependent School District
Frito-Lay
American Airlines
Denton lndependent School District
Horizon Health
Denton County
Denton State School
Boeing Electronics
City of Denton
Peterbilt Motors Co.
Texas Woman's University
Xerox Corporation
Federal Express
Genuity
sysco
Source: Denton County website
Tvpe of Business
State University
Public Education
Food Distribution
Maintenance Base and Engineering Centet
Public Education
Health Care Services
County Government
Mental Health. Mental Retardation Facility
Electronics
Municipal Government
Diesel Truck Manufacturing
State University
Office Equipment
Package Processing and Delivery
Regional Corporate Headquarters
Distribution Center
Labor Force Statistics
Denton County
March 2003 March 2002
Civilian Labor Force 275.568 264.032
Total Employed 262.194 252,355
Total Unemployed 13,374 11.677
% Unemployed 4.9% 4.4%
% Unemployed vexas) 6.5% 6.0%
% Unemployed (United States) 6.2% 6.1%
Source: Texas Workforce Commission, Labor Market Infomlation Department
Estimated Retail Sales Statistics ($000,~)
Denton State of
Source: Sales & Marketing Magazine, Survey of Buying Power 1995-2002. Figures represent estimates as of January I of each
yeargiven.
Estimated Total Effective Buying lncome (EBI)
Denton County
Total Effective Median
Buying lncome Household
Year - fS000) &
2002 $1 1.184.697 $54,508
2001 9,338,442 49.146
2000 8.627.101 47.952
State of Texas
Total Effective Median
Buying lncome Household
($000\ EBI
$394.967.331 838.669
Source: Sales & Marketing Magazine, Survey of Buying Power 19952002. Figures represent estimates as of January 1 of the
year noted.
Agriculture
The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Cash
receipts from farm marketings are as follows:
2002 2000 - 1999 - 1998 -
Crops $20,165,800 $13,129,000 $19,360,000 $23,692,000
Livestock and Livestoclc Products $29,605,700 $24,709.200 $33,861,000 $33,044.000
AG Cash Receipts Total 597,219,380 589,257,440 $102,784,350 $99,987,400
Source: Texas Utilities Electric Company Agriculture lncome Evaluation. 1998 thmugh 2002.
Government payments not included
APPENDIX C
FORM OF LEGAL OPINION OF BOND COUNSEL
Proposed Form of Opinion of Band Counsel
An opinion in substantially the following form will be delivered by
McCall, Parkhurst & Horton L.L.P., Bond Counsel,
upon the delivery of the Bonds, assuming no material changes in facts orlaw.
LAWOFFICES
MSALL, PARKHURST & HORTON L.L.P.
6W CONGRESS AVWUE 717 NORTH HARWOOO STREET 700 N. ST. MARYS STREET
1250 ONE AMERICAN CENlER NINTH FLOOR 1225 ONE RIVERWALK PLACE
AUSTIN, TEXAS 787013248 DALLAS, TEXAS 75201-6587 SAN ANTONIO. TEXAS 78205-3503
Tclephanc: 512 478-3805 Telephone: 214 754-9200 Telephone: 210 225.2800
Facsimile: 512 4172.0871 Facsimiic: 214 754.9250 Facsimile: 210-225-2984
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
UNLWllTED TAX BONDS, SERLES 2003
IN THE AGGREGATE PRINCIPAL AMOUNT OF $1,200,000
AS BOND COUNSEL FOR TROPHY CLUB MUNICIPAL UTILlTY DISTRICT NO.
2 (the "District") of the bonds described above (the "Bonds"), we have examined into the legality and
validity of the Bonds, which bear interest from the dates specified in the text of the Bonds, until maturity
or redemption, at the rates and payable on the dates specified in the text of the Bonds all in accordance
withthe order of the Board of Directors of the District adopted on June 18,2003, authorizing the issuance
of the Bonds (the "Order").
WE HAVE EXAMINED the applicable and pertinent provisions of flie Constitution and laws of
Ule State of Texas, and a transcript ofcertifiedproceedings ofthe District, and other pertinent instnunents
aufliorizing and relating to the issuance of the Bonds, including one of the executed Bonds (Bond Number
R-1).
BASED ON SAID EXAMINATION, IT IS OUR OPINION THAT tile 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 in exchange therefor will have been duly delivered, in
accordance with law, and that said Bonds, except as may be limited by laws applicable to the District
relating to banlauptcy, reorganizationand other similar matters affecting CR~~~OE' rig!&, constitute valid
and legally binding obligations of tlie District, payable from ad valorem taxes to be levied and collected by
the District upon taxable property within the District, wlichtaxes the District has covenanted to levy in ai
amount sufficient to pay the interest on and the principal of the Bonds. Such covenant to levy taxes is
subject to the right of a city, under exis!i~g Texas law, to annex all of the territory within the District; to lake
over all properties and assets of the Districg to assume all debts, liabilities, and obligations oftl~e Dishicl,
including the Bonds; and to abolish the District.
TEE DISTRICT reserves the right to issue additional bonds \vIich will be payable from taxes.
WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments
due for the principal of and interest on the Bonds, nor as to any such insurance policies issued iu Ule future.
IT IS FURTHXR OUR OPINION, except as discussed below, that the interest on the Bonds
is excludable fiom the gross income of the owners for federal income tax purposes uuder the statutes,
regdations, published rulings and court decisions existing on the date of this opinion. We are Mer of the
opiniontlmt tile Bonds are not specified "private activity bonds" and thaf accordingly, interest 011 tlie Bonds
will not be included as an individual or corporate altemative minimum tax preference item under section
57(a)(5) of tlie Intemal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions,
we assume co~npliance by tlie District with certain representations and covenants regarding tilt use and
invest~i~ent of tlie proceeds of the Bonds. We call your attention to the fact that failure hy the District to
comply with sucl~representations and covenants may cause the interest on tile Bonds to become includable
in gtoss income retroactively to the date of issuance of the Bonds.
WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exempt obligations,
such as the Bonds will be (a) included in a corporation's alternative minimum taxable income for purposes
of determining the alternative minimum tax imposed on corporatio~~s by Section 55 of tlie Code, @) subject
to the branch profits tax imposed on foreign corporations by Section 884 of tlie Code, and (c) included
inthe passive investment income of a Subchapter S corporation and subject to the tax imposed by Section
1375 of tl~e Code.
EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local
lax consequences of acquiring, canying, owning or disposing of the Bonds.
WJ3 HAVE ACTED AS BOND COUNSEL for the District for the sole purpose ofrendering
anopinion with respect to the legality and validity of the Bonds under the Constih~tion and laws of tlie State
olTexas, and with respect to the exclusion from gross income of Ule interest on such Boi~ds for fedenl
income lax purposes, and for no otlierreason or purpose. We express IIO opinion and make no colnment
wilhrespect to the marketability of he Bonds and have relied solely on bonds executed by oficials of the
District as to the current outstanding indebtedness of, and assessed valuation oftaxable properly within.
tl1e District Ourrole in collnection wih the District's Official Statement prepared for use in co~lnection wiUi
the sale of the Bonds has been limited as described therein.
1
8 (Independent Auditor's Report, General Financial Statements and Notes to the Financial Statements - not intended to be a
complete statement of the issuer's financial condition. Reference is made to the complete Annual Financial Report ior further
information.)
RUTLEDGE CRAlN & COMPANY, PC
CERTiFiED PUBLIC ACCOUNTANTS
2401 Garden Pa~k Court. Sui\e 0
Arlington. Texas 76013
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Trophy Ciub Municipal Utility District No. 2
Trophy Ciub. Texas
We have audited the accompanying general purpose financial statements of Trophy Club Municipal Utility District No. 2 (the
'District"), as of September 30, 2002 and for the year then ended. These generai purpose financial statements are the
responsibility of the District's management. Our responsibility is to express an opinion on the general purpose financiai
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the auda to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence suppoiting
the amounts and disclosures in the general purposa financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the general purpose financial statements referred to above present fairiy, in ail material respects, the financiai
postion of Trophy Club Municipal Utility District No. 2, as of September 30. 2002, and the results of its operations for the
year than ended in conformity with accounting principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the general purpose financiai statements taken as a whole.
The accompanying supplemental information listed in the tabla of contents Is presented for purposes of additional analysis
and is not a required part of the general purpose financial statements of Trophy Club Municipal Utiiity District No. 2. Such
information has been subjected to the auditing procedures applied in the audit of the generai purpose financial statements
and, in our opinion, is fairiy stated in all material respects in relation to the general purpose financial statements taken as a
whole.
November 1.2002 V
(except for Note IV E.. as to which
the date is January 22, 2003)
Membeis:
Metro (817) 265-9989 Arnerlcan lnsl~lute ol Cerlilied Public Accounlanls Fax (817) 861-9623
Texas Soc~ely 01 Cerlilied Public Accountants
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
COMBINED BALANCE SHEET
ALL FUND TYPES AND ACCOUNT GROUPS
SEPTEMBER 30.2002
(WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2001)
Assets
Cash
Investments
Receivables (net of allowances for uncollechbies)
Taxes
Other governments
Government loan recervable
Due from other funds
General fixed assets
Other Debits:
Amount available in debt service fund
Amount to be provided for retirement ofgeneraliong-term debt
Total Assets and Other Debits
LIABILITIES, EQUITY AND OTHER CREDITS
Liabilities:
Accounts payable
Due to othergovernments
Due to otherfunds
Deferred revenue
Capital leases payable
Provision for litigation loss
Total Liabilities
Equity and other credits:
Investment in general iiwed assets
Fund balances:
Unreserved, undesignated
Total equity (deficit) and other credits
Total Liabilities. Equity & Other Credits
The accompanying notes are an integral part of this statement.
Governmental Fund Types
General Debt Service
Fund Fund
EXHIBIT A-I
i Capital
I Projects Fund
Totals
Account Groups (Memorandum Only)
General General Long- September 30, September 30,
Fixed Assets Term Debt 2002 2001
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
COfABlNED STATEMENT OF REVENUES. EXPENDITURES. AND CHANGES IN FUND BALANCFS
ALL GOVERNMENTAL FUND TYPES
YEAR ENDED SEPTEMBER 30. 2002
(WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30,2001)
Governmental Fund Types
General Debt Service
Revenues:
Ad valorem taxes, penalties and interest
Interest
Miscellaneous
Total revenues
Expenditures:
Administration
Professional fees
Contract services
Purchased services for resale
Contribution to Trophy Club/Westlake DPS
Capilal outlay
Debt service:
Principal
Interest and fiscal charges
Total expenditures
Excess (deficiency) of revenues over (under) expenditures
Other financing sources (uses):
Proceeds from bond issue
Total other financing sources (uses)
Excess of revenues and other financing sources over
(under) expenditures and other financing uses
Fund balances, October 1
Fund balances (deficit), ~e~tember 30
The accompanying notes are an integral part of this statement.
Fund Fund
Totals
Capital
Projects Fund
$ -
2,344
1,018
3,362
(Memorandum Only)
September 30, September 30,
2002 2001
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
COMBINED STATEMENT OF REVENUES. EXPENDITURES AND CHANGES
IN FUND BALANCES - BUDGET(GAAP BASISJ AND ACTUAL
GENERAL FUND
YEAR ENDED SEPTEMBER 30,2002
1 General Fund
Variance 1
Favorable
Budget Actual (Unfavorable) I
I
Revenues:
~d valorem taxes, penalties and interest
Interest
Miscwllaneous
Total revenues
Expenditures:
Current
Adminislralion
professional fees
Contract services
Contribution lo Trophy ClubM/esllalte DPS
Debt service:
Total expenditures
Excess (deficiency) of revenues over (under) expenditures
Fund balances, October 1
Fund balances (deficit), September 30
The accompanying notes are an integral part of this statement.
TROPHY CLUB MUNICIPAL UTlUN DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIALSTATEMENTS
September 30.2002
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Reporting Entity
Trophy Club Municipal Utility District No. 2 (the District) was created from the combination of two predecessor districts.
These predecessor districts were the Oenton County Municipal Utility District No. 2 and No. 3 (D C MUDs). The D c
MUDS were created by an order of the Texas Natural Resources Conservation Commission (TCEQ) (formerly the
Texas Water Commission) on May 20, 1980 and October 9, 1979, respectively, and confirmed by the electorate of the D
C MUDS in elections held on August 9, 1960. The Board of Directors of the D C MUDs held their first meetings on
March 12 and July 17, 1980, respectively. The first bonds were sold on December 1, and December 7, 1988,
respectively. The District operates pursuant to Article XVI. Chapter 59 of the Texas Constitution and Chapter 54 of the
Texas Water Code, as amended.
During 1980. Denton County Municipal Utility District No. 2 and No. 3 entered into an agreement combining the two
districts into a single district. The electorate of both D C MUDS affirmed the combination in an election held May 5.
1990. The new combined entity is the Dlstrict. The combination was completed August 3. 1990, and all transactions
after August 3, 1990 are deemed to be transactions of the District
The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for the District. The
financial statements of the Dstrict have been prepared in conformity with generally accepted accounting principles
(GAAP) as applied to government units.
For financial reporting purposes, management has considered all potential component units. The decision to include a
potential component unlt In the reporting entity was made by applying the criteria set forth in GAAP. The criteria used
are as follows:
Financial Accountability - The primary government is deemed to be financially accountable if it appoints a voting
majority of the organization's governing body and (1 ) it is able to impose its will on that organization or (2) there is a
potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the
primary government. Additionally, the primary government may be financially accountable A an organization is
fiscally dependent on the primary government regardless of whether the organization has a separately elected
governing board, a governing board appointed by a higher level of government or a jointly appointed board.
Accordingly, the District has no potential component units which meet this definaion.
Trophv Club Master District Joint Venture
Trophy Club Municipal Utillty Dlstrict No. 1 holds legal title to the central water supply system and the central waste
disposal system. The proporttonate allocation of costs and related kneficial usage rlghts in the major assets is
estimated as follows:
The
(A)
Future
Water plant and wells
Twenty-one inch water line
Elevated tank
Original treatment plant and land
First expanded treatment plant
Second expanded treatment plant
Administration building
District MUD 1 Development
27.14% 40.91 % 31.95%
(A) The developer's original intent was for five districts.
(8) The District does not acknowledge any portion of the cost of the administration building as being its
responsibility.
rsuant to the provisions of ihe New Master District Contract dated October 4, 2000, the Master District is managed as
oint venture of the District and MUD1 whereby representatives of the boards of directors of the District and MUD1
rve on the Master District board of directors. Accordingly the financial statements of the Master District have been
oved from those of MUD1 efiective October 1. 2000 and are presented separately. Agreements exist between the
TROPHY CLUB MUNICIPALUIUTY DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIALSTATEMENTS
Seplember 30.2002
District and MUDl that compensate MUDl for water and sewer plant capacity and out of district sales as approved and
required by the TCEQ.
Based upon this arrangement, all financial transactions relating to water and sewer operations are included in the
financial statements of the Master District joint venture. A summary of the Master District financial statements for the
year ended September 30,2002 follows:
Total assets
Total liabililies
Total equity
Total revenue. includino other sources $ 2.893.157 -
Total expenditures (3,136,601)
Excess of revenues over (under) expenditures (243.444)
Plus capital expend~tures 275.115
Net revenue (loss) before capital expenditures
The Master District Joint Venture financial statements are available at the Districts administrative offices.
Termination of Tmohv Club I Westlake De~artment of Public Safety Joint Venture
Eifective June 1, 2002, the joint venture was terminated by the venturers - the Trophy Club Entities flown of
Trophy Club, Texas, Trophy Club Municipal Utility District No. 1, and Trophy Club Municipal Utility District No. 2)
and the Town of Westlake, Texas. The Town of Trophy Club, Texas assumed responsibility for police and
emergency medical services: MUDl assumed responsibilities for fire protection.
B. Measurement Focus, Basis of Accounting and Basis of Presentation
The accounts of the District are organized and operated on the basis of funds and account groups. A fund 6 an
independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds
according to their intended purpose and is wed to aid management In demonstrating compliance with finance-
related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and
managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the
governmental funds not recorded directly in those funds.
The District utilizes governmental fund types to account for the Districrs activities and to prepare its financial
statements. Governmental fund types use the flow of current financial resources measurement focus and the
modified accrual basis of accounting. Under the modified accrual basis of accounting revenues are recognized
when susceptible to accrual (i.e., when they are "measurable and available'). "Measurable" means the amount of
the transaction can be determined and "available" means collectible wkhin the current period or soon enough
therea~er to pay liabilities of the current period. The District considers all revenues available if they are collected
within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for
unmatured interest on general long-term debt which is recognized when due, and certain compensated absences
and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable
available financial resources.
Those revenues susceptible to accrual are ad valorem taxes, interest revenue and charges for services. Penalties
and interest on property taxes and miscellaneous revenue are recorded when received, as they are generally not
measurable until received.
The District reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential
revenue does not meet both the "measurable" and "avaiiable" criteria for recognition in the current period.
TROPHY CLUB MUNICIPAL rnlUTY DISTRICT NO. 2
NOTES50 GENERAL PURPOSE FINANCIALSTATEMENTS
September 30,2002
Governmental funds include the following fund types:
The general fund is the District's primary operating fund. It accounts for all financial resources of the general
governmant, except those required to be accounted for in another fund.
Debt service funds account for the servicing of general long-term debt not being financed by proprietary or
nonexpendable trust funds.
Account Groups include the following:
The general fixed asseh account group is used to account for all fixed assets of the District.
The general long-term debt account group is used to account for general long-term debt and certain other IiabilRies
of the District.
C. &sets, Liabilities and Equity
1. Deposits and Investments
The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term
investments with original maturities of three months or less from the date of acquisition.
State statutes authorize the District to invest in (1) obligations of the United States or its agencies and
inst~mentalities; (2) direct obligations of the State of Texas or its agencies; (3) other obligations, the principal
of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States:
(4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been
rated as to investment quality by a nationally recognized investment rating firm and having received a rating of
not less than A or its equivalent; (5) certificates of deposit by state and national banks domiciled in this state
that are (A) guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or, (8)
secured by obligations that are described by (1) - (4): or, (6) fully collateralized direct repurchase agreements
having a defined termination date, secured by obligations described by (I), pledged with third party selected or
approved by the District, and placed through a primary government securities dealer.
Investments are stated at fair value
2. Receivables and Payables
Transactions between funds that are representatlve of lending/borrowing arrangements outstanding at the end
of the flscal year are referred to as either "lnterfund receivables/payables" (i.e., the currant portion of ~nterfund
loans) or "advances to/from other funds." All other outstanding balances between funds are reported as "due
to/from other funds."
Advances between funds are offset by a fund balance reserve account in applicable governmental funds to
indicate they are not available for appropriation and are not expendable available financial resources
Trade accounts receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in
excess of ninety days comprise most of the allowance for uncollectibles.
Property taxes are levied as of October 1, on the assessed value listed as of the prior January 1, for all real
and certain personal property located in the District. The appraisal of property within the District is the
responsibility of Denton Appraisal District (Appraisal District) as required by legislation passed by the Texas
legislature. The Appraisal District is required under such legislation to assess 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 District may challenge appraised values
established by the ~ppraisal District through various appeals and, % necessary, legal action. Property taxes for
the District are not limited as to rate or amount. In an election held August 9. 1980, the electorate of the
District authorized the levy of up to $0.25 per $100 valuation for the operations and maintenance of the District.
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIALSTATEMENTS
September 30.2002
Property taxes attach as an enforceable lien on pmperty 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 2001 tax levy:
Adjusted taxable values .5 264,586,825
OB Mtaxlevy $0.174301$100 461.178
IBSlaxlevy $0.1 91 10151 00 505,629
Tolal lax levy $0.3654/$100 $ 966,608
3. Tied Assets
Fixed assets used in governmental fund types of the District are recorded in the general fixed assets account
group at cost or estimated historical cost if purchased or constructed. Dedicated fixed assets are recorded at
their estimated fair value at the date of dedication. Assets in the general fixed assets account group are not
depreciated.
The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the
assets' lives are not included in the general fixed assets account group.
Public domain Cinfrastructure"] general fixed assets consisting primarily of drainage systems have been
capitalized.
4. Organizational Costs
The District, in conformance with requirements of the TCEQ, capitalized costs incurred in the creation of the
District. The TCEQ requires capitalization as organizational costs for the const~ction 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 end some administrative expenses until
construction and acceptance or use of the first revenue producing facility has occurred. The District purchased
its facilities already completed by the developer. Only those costs funded by bond proceeds were capitalized.
5. Long-term Obligations
The District reports long-term debt of governmental funds at face value in the general long-term debt account
group. Certain other governmental fund obligations not expected to be financed with current available financial
resources are also reported in the general long-term debt account group.
For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during
the current period. Bond proceeds are reported as an other financing source net of the applicable premium or
discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt se~ice
expenditures.
6. Fund Equity
Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a
specific purpose. Reserved fund balance represents the amount of prepaid items.
7. Memorandum Only-Total Columns
Total columns on the general purpose financial statements are captioned as "memorandum only" because they
do not represent consolidated financial information and are presented only to facilitate financial analysis. The
columns do not present information that reflects financial position, results of operations or cash flows in
accordance with generally accepted accounting principles. Interfund eliminations have not been made in the
aggregation of this data.
TROPHY CLUB MUNICIPAL LlTlUPl DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
September 30,2002
8. Comparative Data/Reclassifications
Comparative total data for the prior year have been presented in selected sections of the accompanying
financial statements in order to provide an undelstanding of the changes in the District's financial position and
operations. Also, certain amounts presented in the prior year data have been reclassified in order to be
consistent with the current yeah presentation.
11. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
A Budgetary Information
Annual budgets are adapted on a basis consistent with generally accepted accounting principles as follows:
1. The Board of Directors adopts an annual budget for the General Fund on the modlfied accrual basis. The
Board of Directors budgets revenues but not expenditures in the Debt Service Fund.
2. The Board of Directors approves all budget appropriations. Any revisions which alter the total appropriations of
the General Fund must be approved by the Board of Directors. The level of budgetary responsibility is by total
appropriations of the General Fund.
3. All annual appropriations lapse at fiscal year end
4. No significant amendments to the budget occurred during the year.
0. BudgeVGAAP Reconciliation
The budget is adopted on the modified accrual basis of accounting, thus there are no reconciling items between the
Budget basis and the GAAP basis of accounting.
C. Excess of Expenditures Over Appropriations
For the year expenditures exceeded appropriations for the following funds:
General Fund 5 182,496
Ill. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS
A Cash, Cash Equivalents, and Investments
Cash -
At year end, the District's carrying amount of deposits was $2,354,441 and the bank balance was 52,339,830. All of
the bank balance was covered by federal depository insurance or by collateral held by the District's agent in the
District's name.
l nvestments
Investments are categorized into these three categories of credit risk:
1. Insured or registered, or securities held by the District or its agent in the District's name.
2. Uninsured and unregistered, with securities held by the counter party's trust department or agent in the
District's name.
3. Uninsured and unregistered, with securities held by the counter party, or by its trust department or agent but
not in the District's name.
TROPHY CLUB MUNICIPAL ~IUTY DISTRICT NO. 2
NOTES TO GENERAL PURPOSE F.NANCIAL STATEMEMS
September 30.2W2
At year end, the District's investments were as follows:
Carrying Market
Amount
Investments not subject to categorization:
Texas Local Government Pool System flexPoor) $ 297.437 $ 207.437
TexPool is an external investment pool operated by the Texas Comptroller of Public Accounts and is not SEC
registered. The Texas Interlocal Cooperation Act and the Texas Public Investments Act provide for creation of
public funds investment pools and permit eligible governmental entities to jointly invest their funds in authorized
investments. The fair value of investments in the pool is Independently reviewed monthly. At September 30. 2002,
the fair value of the position in TexPool approximates fair value of the shares.
B. Fied Assets
Activity in the general fixed assets account group for the District was as follows for the year ended September 30,
2002:
Balance Balance
~/30/2001 Additions Disposals 9/30/2002
Water system $ 1,764,679 $ 1.141.380 $ $ 2,906,059
Sanitary wastewaler system 1,197,709 420,411 1.61 8,200
Drainage system 1,435,438 1,435.438
District organizalion costs 1,808,612 1,808,612
Total $ 6,206,518 $ 1,567,791 $ $ 7,768,309
C. LONG-TERM DEBT
1. Combination Tax and Revenue Bonds
The District periodically issues combination tax and revenue bonds for general uses and expansions of the
system. This debt for the bonds is recorded in the general long-term debt account group (to be repaid from a
combination of property tax revenue and revenues of the water and waste water utility system). Combination
bonds are as follows:
Water works and sewer system combination unlimited tax and revenue refunding
bonds, Series 1995, with interest rates ranging from 4.2% to 6.25%, due through
2013, including related capital appreciation bonds $ 3,990.000
Less unaccreted discount (15,303)
3,974.697
Water works and sewer system combination unlimited tax and revenue refunding
bonds. Series 2002. with interest rates ranging from 4.0% to 5.556. due through
2023, including related capital appreciation bonds 3.51 0.000
Total general long-term debt $248eF97
The series 1995 bonds were issued in two components, serial current interest bonds and capital appreciation
bonds. The capital appreciation component of the issue cannot be called prior to maturii. Thus, the total
bond issue has been reflected at its face amount, net of the unaccreted discount, which is being accreted over
the life of the capital appreciation component of the bonds. The capital appreciation bonds mature as follows:
Year Endinq
September 30,2003
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
September 30.2002
2. Changes in General Long-Term Debt
i During the year, the following changes in general long-term debt occurred:
Balance Balance
9/3a/200l Additions Payments 9/30/2002
I Cornbtnat~on tax 8 revenue bonds $ 4,270,000 5 3.510.000 $ (280.000) 5 7.500.000
Unaccreted (44.943) 29.640 (15,3031 I
5 4.225.057 $ 3,539,640 5 (280,0001 5 7,484,697
I
3. Debt Service Requirements
The requirements to amortize all bonded debt outstanding as of September 30 summarized below:
Year Ending
September 30. Prlnclpal Interest Total
2003 $ 280,000 5 451.645 5 731,645
2004 385,000 393,488 778,488
2005 405,000 372,313 777.313
2006 425.000 349,743 774,743
2007 455,000 325,748 780.748
Therealter 5,550,000 1.981.091 7.531.091
Total 7,500,000 5 3,874,028 $ 13,374,028
Discount I1 5.3031
$ 7,484,697
4. Additional Long-term Debt Disclosure
1 Tax and revenue bonds authorized and unissued as of September 30,2002 amounted to $5,740,000.
I
The bonds are payable from the proceeds of ad valorem taxes levied upon ail property subject to taxation
within the District, without limitation as to rate or amount, and are further payable from, and secured by e lien
on and pledge of the net revenue to be received from the operation of the District's waterworks and sanitary
sewer system.
! Tha provisions of the bond resolutions relating to debt service requirements have been met, and the cash
I allocated for these purposes is sufficient to meet debt service requirements for the year ended September 30,
I 2002.
I
i The outstanding bonds are callable for redemption prior to maturily at the option of the District as follows:
Series 1995 -All maturities irom 2006 to 2013 are callable in principal increments of $5,000 on or after
September 1, 2005 at par plus unpaid accrued interest to the fixed date for redemptions.
Series 2002 -All maturities from 2013 to 2023 ere 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.
IV. OTHER INFORMATION
A Risk Management
The District is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets;
business interruption; errors and omissions; injuries to employees; employee health benefits: and other claims of
13
TROPHY CLUB MUNICIPAL LJrlUTY DISTRICT NO. 2
NOTES TO GENERAL PURPOSE FINANCIALSTATEMENTS
September 30.2002
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 insigniiicant to the District's general
purpose financial statements.
8. Commitments
At September 30, 2002, the District had no specific commitments requiring disclosure
C. Related Party Transactions I
MUD 1 and 'k employees process the payment of invoices for the District and the District reimburses MUD 1. No
management fee for services performed by MUD 1 employees is assessed.
D. Contingent Liabilities
The District is an interested party to several administrative hearings at year end. Although the outcome of these
matters is not presently determinable, R is the opinion of the District's counsel that resolution of these matters will
not have a material adverse effect on the financial condition of the District
E. Subsequent Event
On October 16, 2000, the Federal Deposit Insurance Corporation (as successor to a defunct financial institution)
filed suit against MUD2 to recover principal, interest, attorney fees and courts costs less any amounts that MUM
can verify were paid to the lender. The FDIC asked the court of jurisdiction to compel MUD2 to issue and sell
bonds sufficient to settle k claims.
In a settlement dated January 22. 2003, the District agreed to pay $1,000,000 to the FDIC. Payment. accruing
Interest at 4.9%, will be made with proceeds of new debt.
F. Concentration of Credit Risk
Property taxes receivable are due from citizens and businesses within the District's boundaries. Risk of loss is
immaterial due to wide dispersion of receivables.
G. Contracts
Under the terms of a contract whereby the District and MUD No. 1 sold an unused portion of the water supply
system to the City of Roanoke. Texas, the City of Roanoke will make annual payments to the Master District
account of $23,663 including Interest through 2006. At September 30, 2002. the District's share (40%) of the
receivable was $32,425.
APPENDIX E
FINANCIAL GUARANTY INSURANCE POLICY SPECIMEN
aG
Financial Guaranty Insurance Policy
Ambac Assurance Corporarion
One Srnce Srreer Plaw, 15th Floor
New York, New Yark 10004
Telephone: (212) 668-0340
Obligor: Policy Number:
Ohligoriom: Premium:
Amboc Assurance Comorarion (Ambad. a Wtrconrin rrock insurance comonrion. in considention of the payment af the
premium ond rubjecr ro the rcrmr of this Policy, hcrrby agrees ro pay
"I~unncc Tntrree"), for rhc brnufir of rbc Holderr, thor ponion of thc
(the 'Ohliprions") which rlrdl bccome Dur for Paymcnr bur ~11~11 be
principal and inrerest which is rbcn Due for Paymcnr bur is unpaid. Upon suc
che surrendered Obligncionr and/or COupON and shdl be fully submgnted ro d
presenrarioo and surrrndcr ro the I
with an i~mmmenr of nssignmenr,
Holder's duly nuchorizd represenrn
nomioce. The Imunnce Trusrec r
Inrurancc Tmte of proof thnr the
Insurance Trusrec of an imrrumcn
(i) rhe Obligor or (ii) any penon whose obligationr consdiurc the
o, at he time ofNonpayment, is the owner ofnn Obligarion or af
n. As used herein. "Due for Payment", when refercing ro the principd of Obligacioos, is when
che npplicution of n required sinking fund inrtallmcnr hnr heen
is due by rmon of call far redemption (other rhan by applicnrion
mc;), nccelenrion or other ndvanccmcnr of moturiry; nnd, when referring ro inrererr on the
cschedulcd dare for poymenr ofinrcrur b been reached. As wed herein, "Nonpuymcnt" means rhr failure
e providcd su€ficicor funds to the cmree or paying ngenr for pzymcnt in full of dl principal of and interest
hich arc Due for Pnymenr.
Thir Policv is noncmcelnblc. Thc oremiurn on this Policv is nor refundable for nnv rpeon. includine oovmenc of the Obliaarionr .~ ~ u. . u
prior to rnmxiq. Thir Policy doer nor insure lbzirlsr lor5 of any prrpaymrnr or orhcr ucelcnrian paymrnr which nr my rime
mny become due in rcspccr of my Obligorion, udar rhln ur rlte sole option of Amblc, nor bglinrr my risk orhcr than Nonpa).munr.
~n witness whcmof, Ambac hrr caused this Policy to br &xed with a facsimile of i~ corponre seal and ra be signed by its duly
nurhorbed officers in himile to become effective as its originnl seal md SigtIn~res and binding upon Ambac by virtue of the
counrersignarure of irr duly nurhorizcd represenocive.
niE BAhK OF NEW YORK ~ckt~owledger rlur it hlr agred
to prdurm the duriw of Inrurancc Tmrcc under rh~r Policy.
?c ,
Form No.: 2B-0012 (1/01) Authortred Officer of Insunncc Trurree
A-
FINAL
TO: Individuals Listed Below
FROM: Dan A. Almon
DATE: July 10, 2003
RE: $1,200,000 Trophy Club Municipal Utility District No.2
Unlimited Tax Bonds, Series 2003
Please find attached the closing memorandum for the above captioned Bonds.
If you have any questions, give me a call at (214) 859-9452 or Mary Jane Dietz (214) 859-6803 or fax at
(214) 859-9475.
Distribution to:
Name Entity Email Phone
Mr. Walter Fitzpatrick Trophy Club MUD No.2 wfitzpatrcik@trophyclub.org 682-831-4610
Mr. Roger Unger Trophy Club MUD No.2 runger@trophyclub.org 682-831-4613
Ms. Renae Gonzales Trophy Club MUD No.2 rgonzales@trophyclub.org 682-831-4611
Mr. Peter Tart McCall, Parkhurst & Horton L.L.P. ptart@mphlegal.com 214-754-9230
Ms. Tina Ward McCall, Parkhurst & Horton L.L.P. tward@mphlegal.com 214-754-9220
Mr. Steve Sledge SAMCO Capital Markets ssledge@serviceasset.com 214-765-1442
Mr. Mike Wadsworth SAMCO Capital Markets mwadsworthe@serviceasset.com 214-765-1437
Ms. Debbie Bennett The Bank of New York Trust Co. of Florida dbenett@bankofny.com 214-880-8223
Mr. Terry Gallagher Ambac Assurance Corporation tegallagher@ambac.com 212-208-3139
Ms. Dianne Parker TexPool dianne.parker@lehman.com 866-839-7665
1
2
FINAL
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.2
(Denton County, Texas)
$1,200,000
Unlimited Tax Bonds, Series 2003
CLOSING MEMORANDUM
CLOSING
Payment for and delivery of the captioned Bonds is scheduled to occur on Thursday, July 17, 2003 (the “Closing Date”) at
10:00 A.M. at the offices of The Bank of New York Trust Company of Florida, N.A., Dallas, Texas (“BONY”) Plaza of the
Americas, Suite 420 – South Tower, 600 N. Pearl Street, Dallas, TX 75201.
INSURANCE PREMIUM TRANSFER
On the Closing Date, the Purchaser (SAMCO Capital Markets) will wire transfer the AMBAC insurance premium of
$21,000.00 to Citibank, N. A. ABA # 021 000 089, AMBAC Assurance Corporation, Account# 40609486, for AMBAC
Policy #21171BE, Trophy Club Municipal Utility District Unlimited Tax Bonds, Series 2003, Attn: Terry Gallagher
(212 208 33139).
Upon transmission of the premium to Ambac, the Purchaser will notify Bond Counsel of the wire reference number and
the time such wire was sent. Bond Counsel will contact Ambac to obtain release of the municipal bond insurance policy,
and upon such release Bond Counsel will contact the Paying Agent/Registrar with regard to disbursement of the funds
listed below and the release of the definitive Bonds.
RECEIPT AND DISBURSEMENT OF FUNDS
On the Closing Date, SAMCO Capital Markets will wire transfer to The Bank of New York, N.A. (BONY)
ABA #021-0000-18, GLA 111-565, TAS # 184152 REF: Trophy Club MUD No.2 Unlimited Tax Bonds, Series 2003, Attn:
Debbie Bennett (214-880-8223) or Pat Blue (214-880-8221), the following amount representing the purchase price for the
Bonds.
Par Amount of Bonds $1,200,000.00
Plus Accrued Interest 2,076.22
Less Good Faith Check (24,000.00)
Total $1,178,076.22
Upon receipt of such funds the following disbursements are to be made by BONY:
1. BONY will retain $1,000.00 in payment of the first year’s paying agent fee, leaving $1,177,076.22 to be distributed as
follows:
2. By wire transfer, transmit the amount of $1,138,576.22 as follows:
State Street Bank and Trust Company, Boston, MA,
ABA (3400) #011 000 028
BNF (4200) - TexPool Account # 67573774
RFB (4320) – Location ID #77385
Participant Name – Trophy Club MUD 2 (M
For final credit by TexPool as follows:
a) Municipality Fund Account
(OBI # 449, 0613400001) in the amount of $1,136,500.00
b) Interest and Sinking Fund Account
(OBI # 449, 0613400002) in the amount of $2,076.22
3
FINAL
3. By wire transfer, transmit the amount of $19,500.00 to JPMorgan Chase Bank, ABA # 113 000 609, FAO SWS
Securities, Account # 08805076955, Attention: Lindsey DeLisio, Reference: Trophy Club MUD No.2, # 9003-119114.
This amount is in payment of the Financial Advisory and Official Statement (OS) Electronic Internet
Posting/Distribution Fees as listed in Exhibit “A” attached hereto.
4. By wire transfer, transmit the amount of $19,000.00 to Colonial BHAM, 1999 Bryan St., Dallas Texas,
ABA # 0620-0131-9, Account # 00000-0152-9, for credit to McCall, Parkhurst & Horton L.L.P. Operating Account, for
further credit to Client Reference #3674.003 Trophy Club MUD No.2. This amount is in payment of Bond Counsel fee
and expenses as listed in Exhibit “A” attached hereto.
GOOD FAITH CHECK
Upon payment for and delivery of the Bonds, the District shall deposit the Good Faith Check in the amount of $24,000.00
into its Municipality Fund Account with TexPool (OBI # 449, 0613400001). This good faith deposits brings the total
deposited for payment of the Settlement Agreement to $1,160,500.00:
BOND PROCEEDS FEE
Immediately following receipt of the funds, the District will write a check drawn on the Municipality Fund Account at
TexPool for $3,000.00 payable to the TCEQ. This amount represents the TCEQ Bond Proceeds Fee and should be
mailed to Robert Cummins, TCEQ, MC-152, PO Box 13087, Austin, TX, 78711-3087. Following this fee payment, the
balance available for executing the Settlement Agreement will be $1,157,500.00.
4
FINAL
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.2
(Denton County, Texas)
$1,200,000
Unlimited Tax Bonds, Series 2003
EXHIBIT A
Southwest Securities
Financial Advisory Fee $18,000.00
Official Statement Electronic
Posting/Distribution Via the Internet 1,500.00
Total $ 19,500.00
McCall, Parkhurst & Horton L.L.P.
Bond Counsel Fee $18,000.00
Reimbursable Expenses 250.00
Attorney General Fee 750.00
Total $19,000.00