HomeMy WebLinkAbout2015 Trophy Club MUD No.1 WWTP Improvement Revenue Bond - OS 1-26-2015NEW ISSUE - BOOK-ENTRY-ONLY Ratings: S&P: “AA-”
(See “RATING” herein)
OFFICIAL STATEMENT
Dated January 20, 2015
In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under statutes,
regulations, published rulings and court decisions existing on the date hereof, subject to the matters described under “TAX MATTERS”
herein including the alternative minimum tax on corporations.
The District has designated the Bonds as “Qualified Tax-Exempt Obligations”
See “TAX MATTERS - Qualified Tax-Exempt Obligations for Financial Institutions” herein.
$9,230,000
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1
(A Political Subdivision of the State of Texas Located in Denton and Tarrant Counties)
WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 2015
Dated Date: February 1, 2015 Due: September 1, as shown on Page ii
The Trophy Club Municipal Utility District No. 1 (the “District” or “Issuer”) $9,230,000 Water and Sewer System Revenue Bonds, Series
2015 (the “Bonds”) are being issued pursuant to the terms and provisions of an order (the “Order”) of the Board of Directors of the
District (the “Board”) and in accordance with the Constitution and general laws of the State of Texas (the “State”), including particularly
Article XVI, Section 59 of the Texas Constitution and Texas Water Code, Chapters 49 and 54, as amended, and an approving order of
the Texas Commission on Environmental Quality issued on February 6, 2014. (See “THE BONDS - Authority for Issuance” herein.)
The Bonds, when issued, will constitute special obligations of the District, payable, both as to principal and interest, solely from and
secured by a first lien on and pledge of the Net Revenues of the District’s water and sewer system (the “System”). The Net Revenues
consist of the gross revenues of the System, less maintenance and operation expenses of the System. Depreciation and payments into
and out of funds for the Bonds and Additional Parity Obligations shall never be considered expenses of maintenance and operation.
Additionally, the District has established a reserve fund (the “Reserve Fund”) pledged to the payment of the Bonds and any Additional
Parity Obligations and is required to maintain an amount in the Reserve Fund equal to average annual debt service requirements on the
Bonds Similarly Secured (see “SELECTED PROVISIONS OF THE ORDER”). The Bonds do not constitute a general obligation of
the District, and the holders of the Bonds shall not have the right to demand payment thereof from any funds raised or to be
raised by taxation. None of the State of Texas, Denton or Tarrant Counties, Texas nor any political subdivision or
municipality, other than the District shall be obligated to pay the principal of or interest on the Bonds. (See “THE BONDS –
Security for Payment” herein.) THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN.
(See "INVESTMENT CONSIDERATIONS" herein.) Bond purchasers are encouraged to read this entire Official Statement prior to
making an investment decision.
Interest on the Bonds will accrue from February 1, 2015 (the “Dated Date”) and is payable September 1, 2015, and each March 1 and
September 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, and when issued, will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust
Company (“DTC”), New York, New York, acting as securities depository for the Bonds until DTC resigns or is discharged. The Bonds
initially will be available to purchasers in book-entry form only. Purchasers of the Bonds (“Beneficial Owners”) will not receive physical
delivery of certificates representing their interest in the Bonds purchased. So long as Cede & Co., as the paying agent to DTC, is the
registered owner of the Bonds, principal of and interest on the Bonds will be payable by the paying agent to DTC, which will be solely
responsible for making such payment to the Beneficial Owners of the Bonds. The initial paying agent/registrar for the Bonds shall be
BOKF, NA dba Bank of Texas, Austin, Texas (the “Paying Agent”).
Proceeds from the sale of the Bonds are being used for (i) acquiring, constructing and equipping improvements to the District's
wastewater treatment facilities and (ii) pay the costs related to the issuance of the Bonds. (See “THE BONDS – Use of Bond Proceeds”
herein.)
The District reserves the right to redeem, prior to maturity, in integral multiples of $5,000, those Bonds maturing on and after
September 1, 2025, in whole or from time to time in part, on March 1, 2025, and on any date thereafter at a price of par plus accrued
interest from the most recent interest payment date to the date fixed for redemption. (See “THE BONDS – Optional Redemption”
herein.)
After requesting competitive bids for purchase of the Bonds, the District has accepted the lowest bid to purchase the Bonds, bearing
interest rates as shown on page ii herein, at a price of 100% of par plus a cash premium of $4,615.00 plus accrued interest to the date
of delivery, resulting in a net interest cost rate to the District of 2.75%.
STATED MATURITY SCHEDULE
(See Page ii)
The Bonds are offered for delivery, when, as and if issued and received by the initial purchaser (the “Purchaser”) and subject to the approving
opinion of the Attorney General of the State of Texas and the approval of certain legal matters by Fulbright & Jaworski LLP, Dallas, Texas, a
member of Norton Rose Fulbright, Bond Counsel. Delivery of the Bonds through DTC in Dallas, Texas is expected on or about
February 17, 2015.
ii
STATED MATURITY SCHEDULE
(Due September 1)
Base CUSIP – 897061 (a)
Stated
Maturity
Principal
Amount
Rate
(%)
Yield
(%)
CUSIP
Suffix(a)
2016 $210,000 2.000 0.500 AA 5
2017 365,000 2.000 0.750 AB 3
2018 375,000 2.000 1.000 AC 1
2019 380,000 2.000 1.150 AD 9
2020 390,000 2.000 1.350 AE 7
2021 400,000 2.000 1.500 AF 4
2022 410,000 2.000 1.700 AG 2
2023 420,000 2.000 1.800 AH 0
2024 435,000 2.000 1.900 AJ 6
2025 450,000 2.250 2.050 (b) AK 3
2026 460,000 2.500 2.375 (b) AL 1
2027 475,000 2.500 2.450 (b) AM 9
2028 490,000 2.750 2.550 (b) AN 7
2029 510,000 2.750 2.650 (b) AP 2
2030 525,000 3.000 2.800 (b) AQ 0
2031 545,000 3.000 2.900 (b) AR 8
2032 565,000 3.000 3.000 AS 6
2033 585,000 3.000 3.150 AT 4
2034 610,000 3.125 3.250 AU 1
2035 630,000 3.250 3.350 AV 9
The District reserves the right to redeem, prior to maturity, in integral multiples of $5,000, those Bonds maturing on and after
September 1, 2025, in whole or from time to time in part, on March 1, 2025, and on any date thereafter at a price of par plus
accrued interest from the most recent interest payment date to the date fixed for redemption. (See “THE BONDS – Optional
Redemption” herein.)
___________
(a) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor’s
CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does
not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Financial Advisor is responsible for the
selection or the correctness of the CUSIP numbers set forth herein.
(b) Yield calculated to first call date, March 1, 2025.
iii
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1
BOARD OF DIRECTORS
Name
Position
Two-Year
Term Expires
May
Occupation
James Moss President 2016 Retired
Jim Hase Vice President 2018 Retired
Kevin Carr Secretary / Treasurer 2018 Self-Employed
James C. Thomas Director 2016 Retired
Neil Twomey Director 2018 Retired
DISTRICT PERSONNEL AND ADVISORS
General Manager ........................................................................................................................................... Jennifer McKnight
...................................................................................................................................................................... Trophy Club, Texas
Finance Manager ............................................................................................................................................. Renae Gonzales
...................................................................................................................................................................... Trophy Club, Texas
Administration Manager ............................................................................................................................................... Terri Sisk
...................................................................................................................................................................... Trophy Club, Texas
Attorneys for the District ............................................................................................................................................... Bob West
................................................................................................................................ Whitaker Chalk Swindle & Schwartz, PLLC
........................................................................................................................................................................ Fort Worth, Texas
Pamela Harrell Liston
........................................................................................................................................................... The Liston Law Firm, P.C.
.............................................................................................................................................................................. Rowlett, Texas
Financial Advisor ................................................................................................................................ Southwest Securities, Inc.
................................................................................................................................................................................ Dallas, Texas
Bond Counsel ...................................................................................................................................... Fulbright & Jaworski LLP
................................................................................................................................................................................ Dallas, Texas
Independent Auditors ......................................................................................................................... Lafollett and Abbott PLLC
......................................................................................................................................................................... Tom Bean, Texas
Tax Assessor - Collector ......................................................................................................................... Denton County, Texas
................................................................................................................................................................. Tarrant County, Texas
Chief Appraiser ........................................................................................................................................ Denton County, Texas
................................................................................................................................................................. Tarrant County, Texas
For Additional Information Please Contact:
Ms. Jennifer McKnight Mr. Dan A. Almon
General Manager Senior Vice President
Trophy Club Municipal Utility District Southwest Securities, Inc.
100 Municipal Drive 1201 Elm Street, Suite 3500
Trophy Club, Texas 76262 Dallas, Texas 75270
(682) 831-4610 (214) 859-9452
iv
TABLE OF CONTENTS
STATED MATURITY SCHEDULE ............................................ ii
BOARD OF DIRECTORS ........................................................ iii
DISTRICT PERSONNEL AND ADVISORS ............................. iii
TABLE OF CONTENTS ........................................................... iv
USE OF INFORMATION IN THE OFFICIAL STATEMENT ...... v
SALE AND DISTRIBUTION OF THE BONDS .......................... v
Award of the Bonds .......................................................... v
Issue Prices and Marketability.......................................... v
INVESTMENT CONSIDERATIONS ......................................... v
SELECTED DATA FROM THE OFFICIAL STATEMENT ........ vi
PRELIMINARY OFFICIAL STATEMENT .................................. 1
INTRODUCTION ...................................................................... 1
THE BONDS ............................................................................. 1
General ............................................................................ 1
Description of the Bonds .................................................. 1
Use of Bond Proceeds ..................................................... 1
Authority for Issuance ...................................................... 2
Texas Commission on Environmental Quality
Approval ........................................................................ 2
Payment Record .............................................................. 2
Redemption Provisions .................................................... 2
Termination of Book-Entry-Only System .......................... 3
Defeasance of Outstanding Bonds ................................... 3
Paying Agent/Registrar .................................................... 4
Record Date ..................................................................... 4
Tax Covenants ................................................................. 4
SOURCES AND USES OF FUNDS ......................................... 5
SECURITY FOR THE BONDS ................................................. 5
Reserve Fund................................................................... 5
Rate Covenant ................................................................. 6
Issuance of Additional Bonds ........................................... 6
Bondholders’ Remedies ................................................... 7
RATING .................................................................................... 7
BOOK-ENTRY-ONLY SYSTEM ............................................... 7
Use of Certain Terms in Other Sections of this Official
Statement ...................................................................... 9
INVESTMENT CONSIDERATIONS ......................................... 9
General ............................................................................ 9
Approval of the Bonds ...................................................... 9
Consolidation ................................................................... 9
Abolition ........................................................................... 9
Alteration of Boundaries ................................................. 10
Registered Owners’ Remedies....................................... 10
Bankruptcy Limitation to Registered Owners' Rights ..... 10
Continuing Compliance with Certain Covenants ............ 10
Future Debt .................................................................... 10
Future and Proposed Legislation ................................... 10
THE DISTRICT ...................................................................... 11
Creation of the District ................................................... 11
Governance ................................................................... 11
Employees ..................................................................... 11
General .......................................................................... 11
Location ......................................................................... 11
Population ..................................................................... 11
Topography and Drainage ............................................. 12
Shopping and Commercial Facilities ............................. 12
Fire Protection ............................................................... 12
Police Protection ............................................................ 12
Schools .......................................................................... 12
Recreational Opportunities ............................................ 12
Status of Development of the District ............................ 12
Public Improvement District Description ........................ 13
THE DISTRICT’S SYSTEM ................................................... 13
Description of the Water System ................................... 13
Description of the Wastewater System .......................... 14
INVESTMENT AUTHORITY AND INVESTMENT
PRACTICES OF THE DISTRICT ........................................ 14
Current Investments ...................................................... 15
LEGAL MATTERS ................................................................. 16
Legal Opinions ............................................................... 16
Litigation ........................................................................ 16
No-Litigation Certificate ................................................. 17
No Material Adverse Change......................................... 17
TAX MATTERS ...................................................................... 17
Tax Exemption ............................................................... 17
Tax Accounting Treatment of Discount and Premium
on Certain Bonds ........................................................ 18
Qualified Tax-Exempt Obligations for Financial
Institutions .................................................................. 18
CONTINUING DISCLOSURE OF INFORMATION ................ 19
Annual Reports .............................................................. 19
Notice of Certain Events ................................................ 19
Availability of Information from MSRB ........................... 19
Limitations and Amendments ........................................ 19
Compliance with Prior Agreements ............................... 20
FINANCIAL ADVISOR ........................................................... 20
OFFICIAL STATEMENT ........................................................ 20
Updating the Official Statement During Underwriting
Period ......................................................................... 20
Forward-Looking Statements Disclaimer ....................... 20
OTHER MATTERS ................................................................ 21
Legal Investment and Eligibility to Secure Public
Funds in Texas .............................................................. 21
Registration and Qualification of Bonds for Sale ........... 21
Certification as to Official Statement .............................. 21
Concluding Statement ................................................... 22
Financial Information of the Issuer Appendix A
Selected Provisions of the Order Appendix B
Form of Legal Opinion of Bond Counsel Appendix C
Excerpts from the District’s Audited Financial Statements for the Year Ended September 30, 2014 Appendix D
The cover page, subsequent pages hereof and the schedules and appendices attached hereto, are part of this Official Statement.
v
USE OF INFORMATION IN THE OFFICIAL STATEMENT
No dealer, broker, salesman or other person has been authorized to give any information or to make any representations other
than those contained in this Official Statement, and if given or made, such other information or representations must not be
relied upon as having been authorized by the District.
This Official Statement does not alone constitute, and is not authorized by the District for use in connection with, an offer to sell
or the solicitation of any offer to buy in any state in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
All of the summaries of the statutes, orders, resolutions, contracts, records, and engineering and other related reports set forth
in the Official Statement are made subject to all of the provisions of such documents. These summaries do not purport to be
complete statements of such provisions, and reference is made to such documents, copies of which are available from the
Financial Advisor, upon the payment of reasonable duplication costs.
This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of
fact, and no representation is made as to the correctness of such estimates, assumptions, or matters of opinion, or as to the
likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without
notice, and neither the delivery of this "Official Statement" nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the District or the other matters described herein since the date
hereof. However, the District has agreed to keep this "Official Statement" current by amendment or sticker to reflect material
changes in the affairs of the District, and to the extent that information actually comes to its attention, other matters described in
the "Official Statement" until delivery of the Bonds to the Initial Purchaser and thereafter only as specified in "OFFICIAL
STATEMENT -Updating the Official Statement During Underwriting Period" and “CONTINUING DISCLOSURE OF
INFORMATION.”
NEITHER THE DISTRICT NOR THE FINANCIAL ADVISOR MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO
THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY (“DTC”)
OR ITS BOOK-ENTRY-ONLY SYSTEM, AS SUCH INFORMATION WAS PROVIDED BY DTC.
THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND
CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF
THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE
SECURITIES HAVE BEEN REGISTERED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF.
THIS OFFICIAL STATEMENT CONTAINS "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE, AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS, PERFORMANCE, AND
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE
CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-
LOOKING STATEMENTS.
SALE AND DISTRIBUTION OF THE BONDS
Award of the Bonds
After requesting competitive bids for the Bonds, the District accepted the bid resulting in the lowest net interest cost, which bid was
tendered by Raymond James and Associates, Inc. (the “Purchaser”) bearing the interest rates shown on page ii hereof, at a price of
100% of the par value thereof plus a premium of $4,615.00, plus accrued interest to the date of delivery which resulted in a net interest
cost of 2.75% as calculated pursuant to Texas Government Code Chapter 1204, as amended. 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 Initial
Purchasers of approximately $93,562.90.
Issue Prices and Marketability
The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Initial Purchaser
on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity has been
sold to the public. For this purpose, the term "public" shall not include any person who is a bond house, broker or similar person acting
in the capacity of underwriter or wholesaler. Otherwise, the District has no understanding with the Initial Purchaser regarding the
reoffering yields or prices of the Bonds. Information concerning reoffering yields or prices is the responsibility of the Initial Purchaser.
The prices and other terms with respect to the offering and sale of the Bonds may be changed from time-to time by the Initial Purchaser
after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including
sales to dealers who may sell the Bonds into investment accounts. In connection with the offering of the Bonds, the Initial Purchaser
may over - allot or effect transactions which stabilize or maintain the market prices or the Bonds at levels above those which might
otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
The District has no control over trading of the Bonds in the secondary market. Moreover, there is no guarantee that a secondary market
will be made in the Bonds. In such a secondary market, the difference between the bid and asked price of utility district bonds may be
greater than the difference between the bid and asked price of bonds of comparable maturity and quality issued by more traditional
municipal entities, as bonds of such entities are more generally bought, sold or traded in the secondary market.
INVESTMENT CONSIDERATIONS
The purchase and ownership of the Bonds involve certain investment considerations and all prospective purchasers are urged to
examine carefully the Official Statement, including particularly the section captioned “INVESTMENT CONSIDERATIONS”, with respect
to the investment security of the Bonds.
vi
SELECTED DATA FROM THE OFFICIAL STATEMENT
The following material is qualified in its entirety by the more detailed information and financial statements appearing elsewhere
in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official
Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire
Official Statement.
The Issuer The Trophy Club Municipal Utility District No. 1 (the "District" or “Issuer”) is a political subdivision
of the State of Texas located in Denton and Tarrant Counties, Texas. The District was created as
a municipal utility district pursuant to Chapters 49 and 54 of the Texas Water Code and is a
conservation and reclamation district in accordance with Article XVI, Section 59 of the Texas
Constitution. The District has also adopted a fire protection plan under Section 50.055 of the
Texas Water Code, now codified as Subchapter L of Chapter 49 of the Texas Water Code,
pursuant to the Order of the Texas Water Commission of August 22, 1983. In July of 2009,
documentation was submitted to the Texas Commission on Environmental Quality (“TCEQ”)
regarding the consolidation of Trophy Club Municipal Utility District Nos. 1 and 2 as of a May 9,
2009 election. (See “THE DISTRICT” herein.)
The Bonds The Bonds are being issued pursuant to the terms and provisions of an order (the “Order”) of the
Board of Directors of the District (the “Board”) and in accordance with the Constitution and
general laws of the State of Texas (the “State”), including particularly Article XVI, Section 59 of
the Texas Constitution and Texas Water Code, Chapters 49 and 54, as amended, and an
approving order of the Texas Commission on Environmental Quality issued on February 6,
2014. (See “THE BONDS - Authority for Issuance” herein.)
Security for Payment The Bonds, when issued, will constitute special obligations of the District, payable, both as to
principal and interest, solely from and secured by a first lien on and pledge of the Net Revenues
of the District’s water and sewer system (the “System”). The Net Revenues consist of the gross
revenues of the System, less maintenance and operation expenses of the System.
Depreciation and payments into and out of funds for the Bonds and Additional Parity
Obligations shall never be considered expenses of maintenance and operation. Additionally,
the District has established a reserve fund (the “Reserve Fund”) pledged to the payment of the
Bonds and Additional Parity Obligations and is required to maintain an amount in the Reserve
Fund equal to average annual debt service requirements on the Bonds Similarly Secured (see
“SELECTED PROVISIONS OF THE ORDER”). The Bonds do not constitute a general
obligation of the District, and the holders of the Bonds shall not have the right to
demand payment thereof from any funds raised or to be raised by taxation. None of the
State of Texas, Denton or Tarrant Counties, Texas nor any political subdivision or
municipality, other than the District shall be obligated to pay the principal of or interest
on the Bonds. (See “THE BONDS –Security for Payment” herein.)
Paying Agent/Registrar The initial Paying Agent/Registrar for the Bonds is BOKF, NA dba Bank of Texas, Austin,
Texas.
Description The Bonds in the aggregate principal amount of $9,230,000 mature on September 1 of each year
in the amounts as set forth on page ii of this Official Statement. Interest accrues from
February 1, 2015 (the “Dated Date”) at the rates per annum set forth page ii hereof and is payable
September 1, 2015 and each March 1 and September 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” herein.)
Optional Redemption Bonds maturing on and after September 1, 2025 are subject to redemption in whole or from
time to time in part at the option of the District on March 1, 2025, and on any date thereafter, at
par plus accrued interest from the most recent interest payment date to the date of redemption.
(See “THE BONDS - Optional Redemption” herein.)
Tax Matters In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income of
the owners thereof for purposes of federal income taxation under existing law subject to matters
discussed herein under “TAX MATTERS” including the alternative minimum tax on corporations.
(See “TAX MATTERS” and Appendix C - “Form of Legal Opinion of Bond Counsel” herein.)
Use of Proceeds Proceeds from the sale of the Bonds will be used to (i) make improvements to the District’s
wastewater treatment facilities and (ii) pay the costs related to the issuance of the Bonds. (See
“THE BONDS – Use of Bond Proceeds” herein.)
vii
Ratings Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business
(“S&P”) has assigned a rating of "AA-" to the Bonds. An explanation of the significance of a
rating may be obtained from S&P. (See “RATINGS” herein.)
Qualified Tax Exempt
Obligations
The Issuer has designated the Bonds as “Qualified Tax-Exempt Obligations” for financial
institutions. (See “TAX MATTERS - Qualified Tax-Exempt Obligations for Financial Institutions”
herein.)
Book-Entry-Only System The Issuer intends to utilize the Book-Entry-Only System of The Depository Trust Company,
New York, New York relating to the method and timing of payment and the method and transfer
relating to the Bonds. (See “BOOK-ENTRY-ONLY SYSTEM” herein.)
Future Bond Issues Currently the District has no plans to issue additional debt within the next twelve months.
Payment Record The Issuer has never defaulted in the timely payment of principal of or interest on its revenue
indebtedness.
Delivery When issued, anticipated on or about February 17, 2015.
Legality Delivery of the Bonds is subject to the approval by the Attorney General of the State of Texas and
the rendering of an opinion as to legality by Fulbright & Jaworski LLP, Bond Counsel, Dallas,
Texas, a member of Norton Rose Fulbright.
[The remainder of this page has intentionally been left blank.]
1
OFFICIAL STATEMENT
relating to
$9,230,000
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO. 1
(A Political Subdivision of the State of Texas Located in Denton and Tarrant Counties, Texas)
WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 2015
INTRODUCTION
This Official Statement provides certain information in connection with the issuance by the Trophy Club Municipal Utility District
No. 1 (the “District” or “Issuer”) of its $9,230,000 Water and Sewer System Revenue Bonds, Series 2015 (the “Bonds”).
The Bonds are being issued pursuant to the terms and provisions of an order (the “Order”) of the Board of Directors of the
District (the “Board”) and in accordance with the Constitution and general laws of the State of Texas (the “State”), including
particularly Article XVI, Section 59 of the Texas Constitution and Texas Water Code, Chapters 49 and 54, as amended, and an
approving order of the Texas Commission on Environmental Quality issued on February 6, 2014, and will constitute special
obligations of the District, payable, both as to principal and interest, solely from and secured by a first lien on and pledge of the
Net Revenues of the District’s water and sewer system (the “System”).
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 Order, and certain information about the District and its
finances. ALL DESCRIPTIONS OF DOCUMENTS CONTAINED HEREIN ARE SUMMARIES ONLY AND ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO EACH SUCH DOCUMENT. Copies of such documents may be obtained from the
District or Financial Advisor.
THE BONDS
General
The Order authorizes the issuance and sale of the Bonds and prescribes the terms, conditions and provisions for payment of the
principal of and interest on the Bonds by the District. Set forth below is a description of the Bonds and a summary of certain
provisions of the Order. Capitalized terms in such summary are used as defined in the Order. Such summary is not a complete
description of the entire Order and is qualified by reference to the Order, copies of which are available from the District or the
Financial Advisor. (See “APPENDIX B - SELECTED PROVISIONS OF THE ORDER" herein.)
Description of the Bonds
The $9,230,000 Trophy Club Municipal Utility District No. 1 Water and Sewer System Revenue Bonds, Series 2015 will bear
interest from February 1, 2015 (the “Dated Date”) and will mature on September 1 of the years and in the principal amounts set
forth on page ii hereof.
Interest on the Bonds is payable September 1, 2015, and each March 1 and September 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 BOKF, NA dba Bank of Texas, Austin, Texas ("Paying Agent"). The principal of and interest on the Bonds
shall be payable without exchange or collection charges, in any coin or currency of the United States of America which, on the
date of payment, is legal tender for the payment of debt due the United States of America.
If the specified date for any payment of principal (or Redemption Price) of or interest on the Bonds is a Saturday, Sunday, or
legal holiday or equivalent for banking institutions generally in the city in which Designated Payment / Transfer Office of the
Paying Agent is located, such payment may be made on the next succeeding day which is not one of the foregoing days without
additional interest and with the same force and effect as if made on the specified date for such payment.
Initially, the Bonds will be registered and delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”)
pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the beneficial
owners. Principal of and interest on the Bonds will be payable by the Paying Agent to Cede & Co., which will distribute the
amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. (See
“BOOK–ENTRY-ONLY SYSTEM” HEREIN.)
Use of Bond Proceeds
Proceeds from the sale of the Bonds are being used to (i) make improvements to the District’s wastewater treatment facilities
and (ii) pay the costs related to the issuance of the Bonds.
2
Authority for Issuance
The Bonds are issued pursuant to the terms and provisions of an order (the “Order”) of the Board of Directors of the District (the
“Board”) and in accordance with the Constitution and general laws of the State of Texas (the “State”), including particularly
Article XVI, Section 59 of the Texas Constitution and Texas Water Code, Chapters 49 and 54, as amended, and an approving
order of the Texas Commission on Environmental Quality issued on February 6, 2014.
Texas Commission on Environmental Quality Approval
On February 6, 2014, the Texas Commission on Environmental Quality (“TCEQ”) issued a Commission Order (“TCEQ Order”)
approving the project and the issuance of the Bonds. The approval order included the following information:
“….Pursuant to TEX. WATER CODE Section 49.181, the engineering project for Trophy Club Municipal Utility District
No. 1 of Denton and Tarrant Counties is hereby approved together with the issuance of $14,995,000 ($9,230,000 in
water and sewer system revenue bonds and $5,765,000 in unlimited tax bonds) in bonds at a maximum net effective
interest rate of 6.23%.... The District is directed not to expend $12,991,567 ($11,297,015 for construction plus
$1,694,552 in contingencies) of the bond issue proceeds approved herein for the wastewater treatment plant
improvements pending District Board’s receipt of plans and specifications approved by all entities with jurisdiction, as
necessary…. The approval of the sale of these bonds herein shall be valid for one year from the date of this Order
unless extended by written authorization of the Commission staff.”
The TCEQ further ordered, to enable the TCEQ to carry out the responsibilities imposed by Texas Water Code Sections 49.181-
182, that the District shall: (1) furnish the TCEQ copies of all bond issue project construction documentation outlined under Title
30 of the Texas Administrative Code, Section 293.62, including detailed progress reports and as-built plans required by Texas
Water code Section 49.277(b), which have not already been submitted; (2) notify the Utilities and Districts Section of the TCEQ
and obtain approval of the TCEQ for any substantial alterations in the engineering project approved herein before making such
alterations; and (3) ensure, as required by Texas Water Code Section 49.277(b), that all construction financed with the proceeds
from the sale of bonds is completed by the construction contractor according to the plans and specifications contracted.
Payment Record
The District has never defaulted on the timely payment of principal of and interest on its revenue indebtedness.
Redemption Provisions
Optional Redemption: The Bonds maturing on or after September 1, 2025, are subject to redemption prior to maturity at the
option of the District, in whole or from time to time in part, on March 1, 2025, 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.
Notice of Redemption: Not less than thirty (30) days prior to a redemption date for the Bonds, the District shall cause a notice of
such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each Bond or a
portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar at the close
of business on the business day next preceding the date of mailing of such notice. With respect to any optional redemption of
the Bonds, unless certain prerequisites to such redemption required by the Order have been met and money sufficient to pay
the principal of and premium, if any, and interest on the Bonds to be redeemed will have been received by the Paying
Agent/Registrar prior to the giving of such notice of redemption, such notice will state that said redemption may, at the option of
the Issuer, be conditional upon the satisfaction of such prerequisites and receipt of such money by the Paying Agent/Registrar
on or prior to the date fixed for such redemption or upon any prerequisite set forth in such notice of redemption. If a conditional
notice of redemption is given and such prerequisites to the redemption are not fulfilled, such notice will be of no force and effect,
the Issuer will not redeem such Bonds, and the Paying Agent/Registrar will give notice in the manner in which the notice of
redemption was given, to the effect that such Bonds have not been redeemed. ANY NOTICE OF REDEMPTION SO MAILED
TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER
RECEIVED BY ANY HOLDER OF THE BONDS, AND, SUBJECT TO PROVISION FOR PAYMENT OF THE REDEMPTION
PRICE HAVING BEEN MADE, AND ANY PRECONDITIONS STATED IN THE NOTICE OF REDEMPTION HAVING BEEN
SATISFIED INTEREST ON THE REDEEMED BONDS SHALL CEASE TO ACCRUE FROM AND AFTER SUCH REDEMPTION
DATE NOTWITHSTANDING THAT A BOND HAS NOT BEEN PRESENTED FOR PAYMENT. By the date fixed for any such
redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for
the Bonds or portions thereof which are to be so redeemed. If such notice of redemption is given and if due provision for such
payment is made, all as provided above, the Bonds or portion thereof which are to be redeemed thereby automatically shall be
treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and
they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price from
the Paying Agent/Registrar out of the funds provided for such payment.
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The Paying Agent/Registrar and the Issuer, so long as a Book-Entry-Only System is used for the Bonds, will send any notice of
redemption, notice of proposed amendment to the Bonds or other notices with respect to the Bonds only to DTC. Any failure by
DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the Beneficial Owner, will not affect
the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption
of portions of the Bonds by the Issuer will reduce the outstanding principal amount of such Bonds held by DTC. In such event,
DTC may implement, through its Book-Entry-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. Any such selection of Bonds to be redeemed will not be
governed by the Order and will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying
Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants
act as nominees, with respect to the payments on the Bonds or the providing of notice to DTC participants, indirect participants,
or Beneficial Owners of the selection of portions of the Bonds for redemption. (See "BOOK-ENTRY-ONLY SYSTEM" herein.)
Termination of Book-Entry-Only System
The District is initially utilizing the book-entry-only system of the DTC. (See “BOOK-ENTRY-ONLY SYSTEM” herein.) In the event
that the Book-Entry-Only System is discontinued by DTC or the District, the following provisions will be applicable to the Bonds.
Payment: Principal of the Bonds will be payable at maturity or redemption to the registered owners as shown by the registration
books maintained by the Paying Agent upon presentation and surrender of the Bonds to the Paying Agent at the designated office
for payment of the Paying Agent/Registrar in St. Paul, Minnesota (the “Designated Payment/Transfer 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 Payment/Transfer Office of the Paying Agent is located are required or authorized by
law or executive order to close, then the date for such payment shall be the next succeeding day which is not a Saturday, Sunday,
legal holiday or day on which banking institutions are required or authorized to close, and payment on such date shall for all
purposes be deemed to have been made on the original date payment was due. Initially, the only registered owner of the Bonds
will be CEDE & CO. as nominee of DTC. (See “BOOK-ENTRY-ONLY SYSTEM” herein.)
Registration: The Bonds may be transferred and re-registered on the registration books of the Paying Agent only upon presentation
and surrender thereof to the Paying Agent/Registrar at the Designated Payment/Transfer Office. A Bond also may be exchanged
for a Bond or Bonds of like maturity and interest and having a like aggregate principal amount, upon presentation and surrender at
the Designated Payment/Transfer Office. All Bonds surrendered for transfer or exchange must be endorsed for assignment by the
execution by the registered owner or his duly authorized agent of an assignment form on the Bonds or other instruction of transfer
acceptable to the Paying Agent. Transfer and exchange of Bonds will be without expense or service charge to the registered
owner, except for any tax or other governmental charges required to be paid with respect to such transfer or exchange. A new
Bond or Bonds, in lieu of the Bond being transferred or exchanged, will be delivered by the Paying Agent/Registrar to the registered
owner, at the Designated Payment/Transfer Office of the Paying Agent/Registrar 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 after the receipt of the Bonds to be canceled in the exchange or transfer and the
denominations of $5,000 or any integral multiple thereof. (See “BOOK-ENTRY-ONLY SYSTEM” herein for a description of the
system to be initially utilized in regard to ownership and transferability of the Bonds.)
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 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.
Replacement Bonds: If a Bond is mutilated, the Paying Agent will provide a replacement Bond in exchange for the mutilated bond.
If a Bond is destroyed, lost or stolen, the Paying Agent will provide a replacement Bond upon (i) the filing by the registered owner
with the Paying Agent of evidence satisfactory to the Paying Agent of the destruction, loss or theft of the Bond and the authenticity
of he registered owner’s ownership and (ii) the furnishing to the Paying Agent of indemnification in an amount satisfactory to hold
the District and the Paying Agent harmless. All expenses and charges associated with such indemnity and with the preparation,
execution and delivery of a replacement Bond must be borne by the registered owner. The provisions of the Order relating to the
replacement Bonds are exclusive and the extent lawful, preclude all other rights and remedies with respect to the replacement and
payment of mutilated, destroyed, lost or stolen Bonds.
Defeasance of Outstanding Bonds
The Order provides for the defeasance of the Bonds when payment of the principal of and premium, if any, on Bonds, plus
interest thereon to the due date thereof (whether such due date be by reason of maturity, or otherwise), is provided by
irrevocably depositing with the Paying Agent/Registrar, or an authorized escrow agent, in trust (1) money sufficient to make such
payment or (2) Government 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 Bonds. The
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Order provides that "Government 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, (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 and (4) any other then authorized securities or obligations under applicable Texas
state law that may be used to defease obligations such as the Bonds. There is no assurance that the current law will not be
changed in a manner which would permit investments other than those described above to be made with amounts deposited to
defease the Bonds. Because the Order does not contractually limit such investments, registered owners will be deemed to have
consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same
investment quality as those currently permitted under State law. There is no assurance that any particular rating for U.S.
Treasury securities used as Government Securities or the rating for any other Government Security will be maintained at any
particular rating category. The District has additionally reserved the right, subject to satisfying the requirements of (1) and (2)
above, to substitute other Government Securities for the Government Securities originally deposited, to reinvest the uninvested
moneys on deposit for such defeasance and to withdraw for the benefit of the District moneys in excess of the amount required
for such defeasance.
Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking
and financial arrangements for the discharge and final payment of the Bonds have been made as described above, all rights of
the District to initiate proceedings to take any action amending the terms of the Bonds are extinguished.
Paying Agent/Registrar
Principal of and semiannual interest on the Bonds will be paid by BOKF, NA dba Bank of Texas, Austin, Texas, the initial Paying
Agent/Registrar (the "Paying Agent"). The Paying Agent must be a bank, trust company, financial institution or other entity duly
qualified and equally authorized to serve and perform the duties as paying agent and registrar for the Bonds.
Provision is made in the Order for the District to replace the Paying Agent by a Order of the District giving notice to the Paying
Agent of the termination of the appointment, stating the effective date of the termination and appointing a successor Paying
Agent. If the Paying Agent is replaced by the District, the new Paying Agent shall be required to accept the previous Paying
Agent’s records and act in the same capacity as the previous Paying Agent. Any successor paying agent/registrar selected by
the District shall be subject to the same qualification requirements as the Paying Agent. The successor paying agent/registrar, if
any, shall be determined by the Board of Directors and written notice thereof, specifying the name and address of such
successor paying agent/registrar will be sent by the District or the successor paying agent/registrar 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 day of the month preceding such interest payment date.
Tax Covenants
In the Order the District has covenanted with respect to, among other matters, the use of the proceeds of the Bonds and the
property financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the
Bonds are to be invested, the periodic calculation and payment to the United States of arbitrage profits from the investment of
proceeds, and the reporting of certain information to the United States Treasury. 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.
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SOURCES AND USES OF FUNDS
The proceeds from the sale of the Bonds will be applied approximately as follows:
Sources of Funds
Par Amount of Bonds $ 9,230,000.00
Accrued Interest on the Bonds 10,437.22
Net Original Issue Premium 98,177.90
Total Sources of Funds $ 9,338,615.12
Uses of Funds
Deposit to the Construction Fund $ 9,015,000.00
Costs of Issuance 215,000.00
Accrued Interest Deposit to Interest & Sinking Fund 15,052.22
Underwriter’s Discount 93,562.90
Total Uses of Funds $ 9,338,615.12
SECURITY FOR THE BONDS
The following summary of the provisions of the Order that describe the security for the Bonds is qualified by reference to the
Order, excerpts of which are included in Appendix B “SELECTED PROVISIONS OF THE ORDER.”
Net Revenues
The District has pledged the Net Revenues to secure the payment of the Bonds, the Outstanding Obligations shown below, and
any Additional Bonds (as defined below) and has reserved the right, subject to certain conditions, to pledge the Net Revenues to
secure additional parity obligations (“Additional Parity Obligations”) from time to time in the future (see “SECURITY FOR THE
BONDS – Issuance of Additional Bonds”). The Order defines “Net Revenues” as all of the revenues of every kind and nature
received through the operation of the System, less the expenses of operation and maintenance paid thereof, including salaries,
labor, materials, repairs and extensions necessary to render efficient service; provided, however, that only such repairs and
extensions as in the judgment of the Board, reasonably and fairly exercised, are necessary to keep the System in operation and
render adequate service to the District and the inhabitants thereof, or such as might be necessary to meet some physical
accident or condition which would otherwise impair the security of the Bonds or the Additional Parity Obligations shall be
deducted in determining Net Revenues. Depreciation and payments into and out of funds for the Outstanding Obligations, the
Bonds and any Additional Parity Obligations shall never be considered expenses of maintenance and operation. Additionally,
the District has established a reserve fund (the “Reserve Fund”) pledged to pay principal of or interest on the Bonds and
Additional Parity Obligations and covenants to maintain an amount equal to the Required Reserve, as described below (see
“SELECTED PROVISIONS OF THE ORDER”). The District has not covenanted or obligated itself to pay the Bonds from
monies raised or to be raised from taxation.
The District has Outstanding Obligations secured by and payable from Net Revenues on parity with the Bonds as follows:
Dated Date Outstanding Amount Issue Description
04-01-13 $302,000 Revenue Notes Series 2013
The Series 2013 Notes are referred to hereinafter as the “Outstanding Obligations”. The “Parity Revenue Obligations” means,
collectively, the Bonds, the Outstanding Obligations, and any Additional Parity Obligations.
Reserve Fund
In the Order, the District covenants to accumulate and maintain a reserve for the payment of the Bonds and Additional Parity
Obligations (the Required Reserve) equal to the lesser of (i) the Average Annual Debt Service Requirements (calculated on a
Fiscal Year basis and determined as of the date of issuance of the Bonds or the most recently issued series of Additional Parity
Obligations then Outstanding, or at the option of the District, at the end of each fiscal year) for the Bonds and Additional Parity
Obligations or (ii) the maximum amount in a reasonably required reserve fund for the Bonds and Additional Parity Obligations
from time to time that can be invested without restriction as to yield pursuant to section 148 of the Internal Revenue Code of
1986, as amended (the Reserve Fund), which Fund or account shall be maintained at an official depository of the District. All
funds deposited into the Reserve Fund (excluding surplus funds which include earnings and income derived or received from
deposits or investments which will be transferred to the Revenue Fund during such period as there is on deposit in the Reserve
Fund the Required Reserve) shall be used solely for the payment of the principal of and interest on the Bonds Similarly Secured,
when and to the extent other funds available for such purposes are insufficient, and, in addition, may be used to retire the last
stated maturity or interest on the Bonds or Additional Parity Obligations.
Upon issuance of the Bonds, the total amount required to be accumulated and maintained in the Reserve Fund is hereby
determined to be $616,680 (the Required Reserve), which is equal to not less than the Average Annual Debt Service for the
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Bonds, and on or before the 1st day of the month next following the month the Bonds are delivered to the Purchasers and on or
before the 1st day of each following month, the District shall cause to be deposited to the Reserve Fund from the Pledged
Revenues an amount equal to at least one-sixtieth (1/60th) of the Required Reserve. After the Required Reserve has been fully
accumulated and while the total amount on deposit in the Reserve Fund is in excess of the Required Reserve, no monthly
deposits shall be required to be made to the Reserve Fund.
As and when Additional Parity Bonds are delivered or incurred, the Required Reserve shall be increased, if required, to an
amount calculated in the manner provided in the first paragraph of this Section. Any additional amount required to be
maintained in the Reserve Fund shall be so accumulated by the deposit of the necessary amount of the proceeds of the issue or
other lawfully available funds in the Reserve Fund immediately after the delivery of the then proposed Additional Parity Bonds,
or, at the option of the District, by the deposit of monthly installments, made on or before the 1st day of each month following the
month of delivery of the then proposed Additional Parity Bonds, of not less than 1/60th of the additional amount to be maintained
in the Reserve Fund by reason of the issuance of the Additional Parity Bonds then being issued (or 1/60th of the balance of the
additional amount not deposited immediately in cash), thereby ensuring the accumulation of the appropriate Required Reserve.
When and so long as the cash and investments in the Reserve Fund equal the Required Reserve, no deposits need be made to
the credit of the Reserve Fund; but, if and when the Reserve Fund at any time contains less than the Required Reserve (other
than as the result of the issuance of Additional Parity Bonds as provided in the preceding paragraph), the District covenants and
agrees to cure the deficiency in the Required Reserve by resuming the Required Reserve Fund Deposits to said Fund or
account from the Pledged Revenues, or any other lawfully available funds, such monthly deposits to be in amounts equal to not
less than 1/60th of the Required Reserve covenanted by the District to be maintained in the Reserve Fund with any such
deficiency payments being made on or before the 1st day of each month until the Required Reserve has been fully restored.
The District further covenants and agrees that, subject only to the prior payments to be made to the Bond Fund, the Pledged
Revenues shall be applied and appropriated and used to establish and maintain the Required Reserve and to cure any
deficiency in such amounts as required by the terms of the Order and any other order pertaining to the issuance of Additional
Parity Bonds.
During such time as the Reserve Fund contains the Required Reserve, the District may, at its option, withdraw all surplus funds
in the Reserve Fund in excess of the Required Reserve and deposit such surplus in the Revenue Fund, unless such surplus
funds represent proceeds of the Bonds, then such surplus will be transferred to the Bond Fund. The District hereby designates
its Depository as the custodian of the Reserve Fund.
The District, at its option and consistent with the provisions of the Order, may, to the extent permitted by then-applicable law,
fund the Reserve Fund at the Required Reserve by purchasing an insurance policy that will unconditionally obligate the
insurance company or other entity to pay all, or any part thereof, of the Required Reserve in the event funds on deposit in the
Interest and Sinking Fund are not sufficient to pay the debt service requirements on the Bonds Similarly Secured. All orders
adopted after the date hereof authorizing the issuance of Additional Parity Bonds shall contain a provision to this effect.
In the event an insurance policy issued to satisfy all or part of the District’s obligation with respect to the Reserve Fund causes
the amount then on deposit in the Reserve Fund to exceed the Required Reserve, the District may transfer such excess amount
to any fund or account established for the payment of or security for the Bonds Similarly Secured (including any escrow
established for the final payment of any such obligations pursuant to Chapter 1207, as amended, Texas Government Code) or
use such excess amount for any lawful purpose now or hereafter provided by law.
Rate Covenant
The District will at all times collect for services rendered by the System such amounts as will be at least sufficient to pay all
expenses of operation and maintenance, and to provide Net Revenues equal to 1.10 times the amount that is sufficient to pay
the scheduled principal of and interest on the Parity Revenue Obligations, plus one times the amount (if any) required to be
deposited in any reserve or contingency fund or account created for the payment and security of the Parity Revenue
Obligations.
Issuance of Additional Bonds
The District expressly reserves and shall hereafter have the right to issue in one or more installments such other bonds as
provided below. Such Bonds may be payable from and equally secured by a pledge of and first lien on the Net Revenues, to the
same extent as pledged and in all things on a parity with the lien of these Bonds.
The District expressly reserves and shall hereafter have the right to issue in one or more installments the following:
(1) Additional Bonds. The District expressly reserves the right to issue Additional Bonds payable solely from the Net Revenues
of the System, for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System, or refund
bonds or other obligations issued in connection with the System, and such bonds may be payable form and equally secured
by a first lien on and pledge of said Net Revenues on a parity with the pledge thereof for these Bonds. Provided, however,
that before the District can issue Additional Bonds payable solely from the Net Revenues of the System, an independent
certified public accountant shall certify that the Net Earnings of the System for the last completed fiscal year or a 12
consecutive calendar month period ending no more than 90 days preceding the adoption of the order authorizing the
Additional Bonds shall have been not less than 1.20 times the average annual debt service requirements of the Outstanding
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Obligations, the Bonds and any Additional Parity Obligations. Additionally, in connection with the issuance of Additional
Parity Obligations, the President of the Board and the General Manager shall sign a written certificate to the effect that the
District is not in default as to any covenant, condition or obligation in connection with the Outstanding Obligations, the
Bonds and Additional Parity Obligations and the bond orders authorizing the same and the Interest and Sinking Fund and
the Reserve Fund each contain the amount then required to be therein.
At such time as the Outstanding Bonds are no longer outstanding, the Accountant, in making a determination of the Net
Earnings, may take into consideration a change in the rates and charges for services and facilities afforded by the System
that became effective at least sixty (60) days prior to the last day of the period for which Net Earnings are determined and,
for purposes of satisfying the above Net Earnings test, make a pro forma determination of the Net Earnings of the System
for the period of time covered by his certification or opinion based on such change in rates and charges being in effect for
the entire period covered by the Accountant's certificate or opinion.
(2) Inferior Lien Bonds. The District also reserves the right to issue inferior lien bonds and to pledge the Net Revenues of the
System, to the payment thereof, such pledge to be subordinate in all respects to the lien of these Bonds and the
Outstanding Bonds and any Additional Bonds.
Bondholders’ Remedies
The Order provides that, in addition to all other rights and remedies of any Registered Owners provided by the laws of the State
of Texas, in the event the District defaults in the observance or performance of any covenant in the Order including payment
when due of the principal of and interest on the Bonds, any Registered Owner may apply for a writ of mandamus from a court of
competent jurisdiction requiring the Board of Directors or other officers of the District to observe or perform such covenants.
The Order provides no additional remedies to a Registered Owner. Specifically, the Order does not provide for the appointment
of a trustee to protect and enforce the interests of the Registered Owners or for the acceleration of maturity of the Bonds upon
the occurrence of a default in the District’s obligations. Consequently, the remedy of mandamus is a remedy which may have to
be enforced from year-to-year by the Registered Owners and may prove time consuming, costly and difficult to enforce.
Statutory language authorizing local governments such as the District to sue and be sued does not waive the local government’s
sovereign immunity from suits for money damages, so that in the absence of other waivers of such immunity by the Texas
Legislature, a default by the District in its covenants in the Order may not be reduced to a judgment for money damages. The
Bonds are not secured by an interest in any improvements or any other property of the District. Under Texas law, no judgment
obtained against the District may be enforced by execution of a levy against the District’s public purpose property. The
Registered Owners themselves cannot foreclose on property within the District or sell property within the District in order to pay
principal of or interest on the Bonds. In addition, the enforceability of the rights and remedies of the Registered Owners may be
delayed, reduced or otherwise affected or limited by federal bankruptcy laws or other similar laws affecting the rights of creditors
of a political subdivision or by a state statute reasonably required to attain an important public purpose. See “INVESTMENT
CONSIDERATIONS – Registered Owners’ Remedies” and “– Bankruptcy Limitation to Registered Owners’ Rights.”
RATING
Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned a rating of
"AA-" to the Bonds. Currently the District has no underlying rating on its revenue debt. An explanation of the significance of a
rating may be obtained from S&P. The rating reflects only the 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 any such rating company, if, in the judgment of such company
circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market
price of the Bonds.
BOOK-ENTRY-ONLY SYSTEM
This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on
the Bonds are to be paid to and credited by the Depository Trust Company while the Bonds are registered in its nominee’s
name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in
disclosure documents such as this Official Statement. The District and the Purchaser believe the source of such information to
be reliable, but take no responsibility for the accuracy or completeness thereof.
The District and the Purchaser cannot and do not give any assurance the (1) DTC will distribute payments of debt service on the
Bonds, or redemption or other notices, to DTC Participant, (2) DTC Participants 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
(hereinafter defined), or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this
Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the
current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the
name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of
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DTC. One fully registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of each
maturity, and will be deposited with DTC.
DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking
organization“ within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing
corporation“, within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million
issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100
countries) that DTC‘s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among
Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry
transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of certificated
securities. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing
Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income
Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly (“Indirect Participants”). DTC is rated “AA+“ by Standard & Poor’s. The DTC Rules applicable to its
Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the
Bonds on DTC’s records. The ownership interest of each actual purchaser of Bonds (“Beneficial Owner”) is in turn to be
recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of
their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Bonds
representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is
discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s
partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The
deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect
only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take
certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as
redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds
may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to
Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and
request that copies of the notices be provided directly to them.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a
Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the
Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those
Direct Participants to whose accounts Bonds are credited on the Record Date (identified in a listing attached to the Omnibus
Proxy).
Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and
corresponding detail information from the Issuer or the Paying Agent/Registrar, on the payable date in accordance with their
respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or
registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying
Agent/Registrar, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of
DTC) is the responsibility of the Issuer or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will
be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of the Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable
notice to the Issuer or the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities
depository is not obtained, physical Bonds are required to be printed and delivered to DTC Participants or the Beneficial
Owners, as the case may be.
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The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities
depository). In that event, physical Bonds will be printed and delivered. (See "THE BONDS – Termination of Book-Entry-Only
System" herein.)
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Issuer
and Underwriter believe to be reliable, but the Issuer and the Underwriter take 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 Indirect
Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-
Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given
only to DTC.
INVESTMENT CONSIDERATIONS
General
The Bonds are special limited obligations of the District and are not obligations of the Town of Trophy Club, the Town of
Westlake, the State of Texas, Denton County, Tarrant County, or any other political subdivision except the District. Payment of
the principal of and interest on the Bonds depends upon the ability of the District to collect amounts sufficient to pay all
expenses of operation and maintenance of the System, and to provide Net Revenues which will be adequate to pay promptly all
of the principal of and interest on the Additional Parity Obligations and to make all deposits required to be made into the
Reserve Fund and any other funds established by the Order or any other order authorizing the issuance of Additional Parity
Obligations. The District has not covenanted or obligated itself to pay the Bonds from monies raised or to be raised from
taxation.
Approval of the Bonds
The Attorney General of Texas must approve the legality of the Bonds prior to their delivery. The Attorney General of Texas
does not pass upon or guarantee the quality of the Bonds as an investment, nor does he pass upon the adequacy or accuracy
of the information contained in this Official Statement.
Consolidation
A district (such as the District) has the legal authority to consolidate with other municipal utility districts and, in connection
therewith, to provide for the consolidation of its assets, such as its water and wastewater systems with the assets of the
district(s) with which it is consolidating, as well as its liabilities (which would include the Bonds and other outstanding obligations
of the District). The District is the resulting entity from a consolidation in May 2009 of Prior MUD 1 and Prior MUD 2 (see “THE
DISTRICT”). No representation is made whether the District will consolidate again in the future with any other district.
Abolition
Under Texas law, if a municipal utility district is located wholly in two or more municipalities, the district may be abolished by
agreement among the district and all of the municipalities in which the district is located. The abolition agreement must provide
for the distribution among the municipalities of the property and other assets of the district and for the pro rata assumption by the
municipalities of all the debts, liabilities, and obligations of the abolished district. When the pro rata share of any district bonds
or other obligations payable in whole or in part from property taxes has been assumed by the municipality, the governing body of
the municipality is required to levy and collect taxes on all taxable property in the municipality to pay the principal of and interest
on its share as the principal and interest become due and payable.
If the abolished municipal utility district has outstanding bonds or other obligations payable in whole or in part from the net
revenue from the operation of the district utility system or property, the affected municipalities are required take over and
operate the system or property through a board of trustees. The municipalities are required to apply the net revenue from the
operation of the system or property to the payment of outstanding revenue bonds or other obligations as if the district had not
been abolished. The system or property is required to be operated in that manner until all the revenue bonds or obligations are
retired in full by payment or by the refunding of the bonds or other obligations into municipal obligations. When all the revenue
bonds and other obligations are retired in full, the property and other assets of the district are distributed among the
municipalities as described above. On the distribution, the board of trustees is dissolved.
The District is located wholly within the municipalities of the Town of Westlake and the Town of Trophy Club. The Town of
Westlake has recently proposed that it, the Town of Trophy Club and the District enter into an agreement to abolish the District
with the District's assets and liabilities assumed by the two municipalities. The Board of Directors of the District has rejected that
proposal and stated that the District currently intends to continue to operate as a municipal utility district. As described above,
the District would have to separately agree to any abolition of the District. No representation is made concerning the ability of
the Town of Trophy Club and the Town of Westlake to make debt service payments on the Bonds should abolition occur at
some point in the future.
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Alteration of Boundaries
In certain circumstances, under Texas law the District may alter its boundaries to: 1) upon satisfying certain conditions, annex
additional territory; and 2) exclude land subject to taxation within the District that is not served by District facilities if the District
simultaneously annexes land of equal acreage and value that may be practicably served by District facilities. No representation
is made concerning the likelihood that the District would effect any change in its boundaries.
Registered Owners’ Remedies
If the District defaults in the payment of principal, interest or redemption price on the Bonds when due, or if it fails to make
payments into any fund or funds created in the Order, or defaults in the observation or performance of any other covenants,
conditions or obligations set forth in the Order, the registered owners may seek a writ of mandamus to compel District officials to
carry out their legally imposed duties with respect to the Bonds if there is no other available remedy at law to compel
performance of the covenants contained in the Bonds or in the Order and the District’s obligations are not uncertain or disputed.
The remedy of mandamus is controlled by equitable principles and rests with the discretion of the court. The issuance of a writ
of mandamus is controlled by equitable principles and rests with the discretion of the court, but may not be arbitrarily refused.
There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have
to be relied upon from year to year. The Order does not provide for the appointment of a trustee to represent the interest of the
bondholders upon any failure of the District to perform in accordance with the terms of the Order, or upon any other condition
and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by,
the registered owners. The Texas Supreme Court has ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) that a
waiver of sovereign immunity in a contractual dispute must be provided for by statute in “clear and unambiguous” language.
Therefore, bondholders may not be able to bring such a suit against the District for breach of the Bonds or Order covenants.
Even if a judgment against the District could be obtained, it could not be enforced by direct levy and execution against the
District’s property. Further, the registered owners cannot themselves foreclose on property within the District or sell property
within the District to enforce the tax lien on taxable property to pay the principal of and interest on the Bonds.
Bankruptcy Limitation to Registered Owners' Rights
The enforceability of the rights and remedies of Bondholders may be limited by laws relating to bankruptcy, reorganization or
other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. Texas law
requires a municipal utility district such as the District to obtain the approval of the TCEQ as a condition to seeking relief under
the Federal Bankruptcy Code.
If a petitioning district were allowed to proceed voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan
for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other things, affect
Registered Owners by reducing or eliminating the amount of indebtedness, deferring or rearranging the debt service schedule,
reducing or eliminating the interest rate, modifying or abrogating collateral or security arrangements, substituting (in whole or in
part) other securities, and otherwise compromising and modifying the rights and remedies of the Registered Owner's claim
against a district. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged
source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically
recognized as a security interest under Chapter 9 and such provision is subject to judicial construction. Chapter 9 also includes
an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by
creditors or Bondholders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of
Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could
require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides
for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond
Counsel will note that all opinions relative to the enforceability of the Bonds are qualified with respect to the customary rights of
debtors relative to their creditors.
A district may not be forced into bankruptcy involuntarily.
Continuing Compliance with Certain Covenants
The Order contains covenants by the District intended to preserve the exclusion of interest on the Bonds from the gross income
of the owners thereof for federal income tax purposes. (See "THE BONDS - Specific Tax Covenants “ herein.) Failure by the
District to comply with such covenants on a continuous basis prior to maturity of the Bonds could result in interest on the Bonds
becoming taxable retroactively to the date of original issuance. (See "TAX MATTERS “ herein.)
Future Debt
Currently the District has no plans to issue additional debt within the next twelve months.
Future and Proposed Legislation
Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the federal or state level, may
adversely affect the tax-exempt status of interest on the Bonds under federal or state law and could affect the market price or
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marketability of the Bonds. Any such proposal could limit the value of certain deductions and exclusions, including the exclusion
for tax-exempt interest. The likelihood of any such proposal being enacted cannot be predicted. Prospective purchasers of the
Bonds should consult their own tax advisors regarding the foregoing matters.
THE DISTRICT
Creation of the District
The District was created by the consolidation of two prior municipal utility districts, being Trophy Club Municipal Utility District
No. 1 (“Prior MUD 1”) and Trophy Club Municipal Utility District No. 2 (“Prior MUD 2” and collectively with Prior MUD 1, the “Prior
MUDs”). Prior MUD 1 was created as Denton County Municipal Utility District No. 1 by order of the Texas Water Rights
Commission (the “Commission”) on March 4, 1975 for the purpose of providing water and sewer facilities and other authorized
services to the area within the territory of Prior MUD 1. The name of Prior MUD 1 was changed to Trophy Club Municipal Utility
District No. 1 on April 1, 1983. Prior MUD 2 was created as a result of the consolidation of Denton County Municipal Utility
District No. 2 and Denton County Municipal Utility District No. 3, which were created by the Texas Commission on
Environmental Quality (“TCEQ”) for the purpose of providing water, sewer and drainage facilities and other authorized services
to the area. The creation of Prior MUD 2 was confirmed by its electorate at an election held on August 9, 1980.
On January 26, 2009, the Boards of the Prior MUDs entered into an agreement to consolidate the Prior MUDs into a single
Municipal Utility District covering the territory of the Prior MUDs, subject to the approval of the consolidation by the voters at an
election held for that purpose. On May 9, 2009, the voters approved the consolidation and the District became the Trophy Club
Municipal Utility District No. 1. Pursuant to the consolidation agreement, the District assumed the outstanding bonds, notes and
other obligations of the Prior MUDs and the authorized but unissued bonds, taxes and other obligations of the Prior MUDs and
became authorized to levy a uniform tax on all taxable property within the District. The functions performed by the District
include supplying water for municipal purposes; collecting, transporting, processing and disposing of wastes; establishing,
operating and maintaining a fire department; and performing other functions permitted by municipal utility districts under the
Texas Water Code.
Governance
The District is governed by a board of directors which has control over and management supervision of all affairs of the District.
There are five elected directors that serve four-year staggered terms. Directors receive no remuneration, except a Director's per
diem allowance of $100 per day on which necessary service is performed for the District. The District and all similar districts are
subject to the continuing supervision and filing requirements of the TCEQ, including the preparation and filing of an annual
independent audit report. All District facility plans are submitted to the TCEQ for review and approval.
Employees
The District has nineteen (19) full-time employees for water and wastewater services. The District is required to pay 50% of the
costs incurred by the Town (hereinafter defined) for salary, benefits and other compensation of employees who provide
firefighting and emergency medical services to both the District and the Town. The District’s liabilities under the Agreement for
Fire Personnel, including pension benefits, do not have a substantial impact on the District’s finances.
General
The District is comprised of 2,283.5 acres [approximately 449.9 acres in Town of Westlake (Solana)]. Of the developed acres
within the District, there are approximately 2,800 existing households, 136 apartment units and 42 townhouses.
Location
The District is located in southern Denton County and northern Tarrant County partially within the Town of Trophy Club (the
“Town”) and partially within the Town of Westlake. The District is directly adjacent to and accessible from State Highway 114,
north of and approximately mid-way between Dallas and Fort Worth. The District is approximately 27 miles from downtown
Dallas, 25 miles from downtown Fort Worth, 17 miles from Denton, 8 miles from Grapevine and 14 miles from the Dallas-Fort
Worth International Airport.
Major highways connecting these population centers, which will also serve the District, include State Highways 114, 170 and
377 and Interstate Highways 35E and 35W. State Highway 170 connects Trophy Club directly to Alliance Airport which is
located seven miles southwest of the District. (See "Vicinity Map" herein.)
Population
According to District officials, the current population of the District is estimated to be approximately 7,843 (2,801 occupied
homes times 2.8 persons per household) and the current population of the entire Town of Trophy Club, the District and the
Trophy Club PID No. 1 (the “Trophy Club Development”) is estimated at 11,127 (3,974 occupied homes times 2.8 persons per
household).
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Topography and Drainage
The land within the District has a gradual slope from the southeast to the northwest toward Marshall Creek, and from the west to
the east toward Marshall Creek. Runoff water enters Grapevine Reservoir just north of the District through Marshall Creek or
several other small tributaries. The maximum elevation in the area being developed is approximately 690 feet mean sea level
and the minimum elevation in the area being developed is approximately 576 feet mean sea level. The soil is sandy loam and
clay loam, and existing vegetation consists of native grasses and small oak trees. Areas which are subject to flooding by a 100-
year frequency flood are located in the flood plan of Marshall Creek and have been delineated by the Water Resources Branch
of the U.S. Geological Survey. Additional flood studies were made by the engineers to determine what areas may be subject to
flooding. It was determined that the area subject to flooding within the District is approximately 58.5 acres based on 100-year
flood frequency; however, 57.6 acres of this area is within the golf course area and is not intended to be developed for
residential land use.
Shopping and Commercial Facilities
A shopping center within the District has a major grocery store chain, a bank, a major chain drug store, several service
businesses, fast food outlets, and a beauty shop and a dry cleaners. Additionally there are several more businesses and
professional offices located in the District, at the primary entrance to the Town of Trophy Club. There are additional shopping
facilities in Roanoke, about two (2) miles west of the District and numerous shopping facilities in Southlake about five (5) miles
east of the District and in Grapevine about eleven (11) miles east of the District. Full metropolitan shopping facilities are
available in Dallas and Fort Worth, Texas which have their central business districts approximately 27 miles and 25 miles,
respectively from the District.
Fire Protection
The District operates its Fire Department (the “Department”) with an engine, a Quint, a brush truck and two support vehicles.
Currently the Department is staffed with fourteen (15) full-time firefighter / paramedics and one full-time Fire Chief. Operations
under the Department include fire suppression, fire prevention, emergency management, investigation/enforcement and
emergency medical response. The new $3.1 million fire station was completed and equipped in August 2011 with proceeds
from the sale of the District’s Series 2010 Bonds, replacing the previously existing facility. This Department serves the Town of
Trophy Club and area in the District that is not in the Town limits, and is currently financed by a combination of a $0.07727
maintenance tax assessment in the District, as well as a $0.07727 Public Improvement District (“PID”) assessment in Trophy
Club PID No. 1. The 2014-2015 annual operating budget is $1,383,940 with October 1, 2014 reserves of $528,633 (subject to
change).
Police Protection
Twenty-four hour security is provided by the Town of Trophy Club Police Department.
Schools
The Town is served by the Northwest Independent School District (the “School District” or “Northwest ISD”). Northwest ISD
covers approximately 234.71 square miles in Denton, Wise and Tarrant Counties. In addition to serving the Town, the School
District also serves the communities of Aurora, Fairview, Haslet, Justin, Newark, Northlake, Rhome, Roanoke and portions of
Flower Mound, Fort Worth, Keller, Southlake and Westlake. Northwest ISD is comprised of 17 elementary schools for grades
pre-kindergarten through fifth, 5 middle schools for grades sixth through eighth, 2 comprehensive high schools and one
accelerated high school for grades ninth through twelfth, and 2 alternative education campuses for grades seventh through
twelfth. One of the high schools, Byron Nelson High School, is located in the Town of Trophy Club. All campuses offer enriched
curricula with special programs for gifted/talented students as well as students achieving below grade level, and all are equipped
with computers and full cafeteria service. The School District serves a 2014-2015 estimated enrollment of 19,831 students (as
of October 27, 2014).
Recreational Opportunities
Recreational opportunities in Trophy Club are afforded by Lake Grapevine and its surrounding parks, which lie two miles north
and east of the District. The Town has several community parks, including facilities for soccer, baseball, softball, basketball,
tennis, a competitive swimming pool and playground amenities. The Town also operates an 877 acre Corps of Engineers park,
which features 100 acres of motorized trails, as well as many passive recreational opportunities such as fishing, hiking and
picnicking.
Status of Development of the District
The area in the District is locally known as “Trophy Club.” It is a residential and mixed-use development consisting of
approximately 2,283.5 acres. The District is a mature district with approximately 146 acres undeveloped, of which
approximately 96 acres are zoned residential and approximately 50 acres are available for commercial development. The
majority of the acres zoned residential are located in the Canterbury Hills addition. Home construction has begun in the
Canterbury Hills addition. There is substantial land left for commercial development in the Solana complex, which is located
within the Town of Westlake.
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Lot and custom home sales officially began in the District in mid-year 1975. Homes are currently being offered at prices ranging
from $200,000 to $1,000,000 and lots range in price from $35,000 to $200,000. The status of single-family home development
as of September 30, 2014 is shown below:
Status of Single-Family Home Development(b)
Houses Additional Total Multi-Family
Under Houses Total Developed Houses Units
Construction Occupied Houses Lots and Lots Completed (a)
24 2,801 2,825 156 2,981 178
(a) In addition to the single-family development, there are approximately 136 apartments and 42 completed townhouses, which
are occupied.
(b) Figures exclude development within the Public Improvement District, which is totally located within the Town of Trophy Club
and is not in the District.
Status of Business / Commercial Development
Solana business complex (“Solana”), a 900 acre tract located in the District and the Town of Westlake, has approximately 230
acres available for additional development. The existing 14 building campus style office development was originally owned by
Los Angeles based Maguire Thomas Partners and IBM Corporation. In September 2014, the Maguire Thomas Partners
properties in Solana were sold to BRE Solana LLC (Tarrant Appraisal District lists this taxpayer as 5 Village Circle Holding, LP.
Two other developers have bought undeveloped property in Solana and plan commercial and residential projects, which were
approved by the Town of Westlake in 2013.
The District has additional commercial property available for development in the Town of Trophy Club, which is approximately
52 acres of land along Highway 114. Current development includes a medical complex, hotels, restaurants and a short-stay
hospital facility. Additionally, the District currently has a small strip center along Highway 114 containing several food
establishments and professional offices.
Solana remains current in the payment of their property taxes, including the amount due for Tax Year 2013. The District cannot
predict the impact that any future events may have on the District’s financial condition.
Public Improvement District Description
Trophy Club PID No. 1 (the “PID”) consists of approximately 609.683 acres of land generally to the north of Oakmont Drive, Oak
Hill Drive and the Quorum Condominiums, east of the Lakes Subdivision and Parkview Drive, south of the Corps of Engineer’s
property, and west of the Town’s eastern limit. The PID is located entirely within the Town limits but outside the District. A
master-planned residential community (the “Property”) is under construction in the PID and at build-out will be comprised of
approximately 1,407 residential units located within the Property, which Property is zoned to permit such use pursuant to the
PID Zoning. As of September 30, 2014, 1,173 homes have been completed and are occupied and an additional 63 homes have
been permitted and are currently under construction. The PID is projected to build out as early as 2017. The District provides
emergency and fire protection services to the PID, and the PID pays the District an assessment for such services at the current
fire tax rate of $0.07727. The District also provides water and sewer service for the PID. The total billed for PID water and
sewer for fiscal year 2013-2014 was $1,408,037.
THE DISTRICT’S SYSTEM
The following information describes generally the water and wastewater systems for the District.
Description of the Water System
Sources of Water Supply: 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 10,000,000 gallons per day
of treated water from the City of Fort Worth facilities. Currently the District has a contract with the City of Fort Worth, which
expires September 30, 2031, for unlimited water services. Current maximum usage is approximately 5,500,000 gallons per day
(of which 4,500,000 is Fort Worth water). These sources, when combined, provide water which complies with the quality
requirements of the TCEQ and needs only chlorination at the District’s water plant facility.
Water Plant Facility: The present facility provides 900,000 gallons elevated and 6,000,000 gallons ground storage with
pumping/chlorination capacity of 10,000,000 gallons per day.
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Description of the Wastewater System
Wastewater Treatment Plant Facility: The wastewater treatment plant system has a permitted treatment/discharge capacity of
1,750,000 gallons per day from the TCEQ under TPDES Permit No. 11593-001. 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 of Trophy Club and is re-used for irrigating the golf course. The District’s application to the Texas
Commission on Environmental Quality (“TCEQ”) to issue up to $5,765,000 in Unlimited Tax Bonds and up to $9,230,000 in
water and sewer system revenue bonds for expansion of the wastewater treatment plant facility has been approved.
Construction is expected to begin as soon as possible.
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. 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 obligations, the principal and interest of which is guaranteed or insured by or
backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities,
including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith
and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state
rated as to investment quality by a nationally recognized investment rating firm not less than “A” or its equivalent; (6) bonds
issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements
of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code, as amended) (i) that are issued by or
through an institution that has its main office or a branch office in Texas and are guaranteed or insured by the Federal Deposit
Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations
described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits; or (ii) where (a) the
funds are invested by the District through (I) a broker that has its main office or a branch office in the State of Texas and is
selected from a list adopted by the District as required by law or (II) a depository institution that has its main office or a branch
office in the State of Texas that is selected by the District; (b) the broker or the depository institution selected by the District
arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever
located, for the account of the District; (c) the full amount of the principal and accrued interest of each of the certificates of
deposit is insured by the United States or an instrumentality of the United States, and (d) the District appoints the depository
institution selected under (a) above, a custodian as described by Section 2257.041(d) of the Texas Government Code, or a
clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and
Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the District with respect to the certificates
of deposit; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a
combination of cash and obligations described in clause (1) which are pledged to the District, held in the District’s name, and
deposited at the time the investment is made with the District or with a third party selected and approved by the District and are
placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing
business in the State; (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a
loan made under the program allows for termination at any time and a loan made under the program is either secured by (a)
obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank
that is continuously rated by a nationally recognized investment rating firm at not less than “A” or its equivalent or (c) cash
invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment
pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District’s name and deposited at the
time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program is
placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and
(iv) the agreement to lend securities has a term of one year or less; (10) certain bankers’ acceptances with the remaining term of
270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least “A-1” or “P-1” or the
equivalent by at least one nationally recognized credit rating agency; (11) commercial paper with a stated maturity of 270 days
or less that is rated at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b)
one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or
state bank; (12) no-load money market mutual funds registered with and regulated by the United States Securities and
Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment
objectives the maintenance of a stable net asset value of $1 for each share; and, (13) no-load mutual funds registered with the
United States Securities and Exchange Commission that have an average weighted maturity of less than two years, invest
exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one
nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested
in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of
credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds
invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.
The District may invest in such obligations directly or through government investment pools that invest solely in such obligations
provided that the pools are rated no lower than “AAA” or “AAAm” or an equivalent by at least one nationally recognized rating
service. The District may also contract with an investment management firm registered under the Investment Advisers Act of
1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its
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public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary
of its assets. In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution. The District
is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment
represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3)
collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage
obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.
Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of
principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment
management; and that include a list of authorized investments for District funds, the maximum allowable stated maturity of any
individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor
the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment
pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments
acquired with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. All District
funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each
fund’s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type,
(2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and
(6) yield.
Under Texas law, the District’s investments must be made “with judgment and care, under prevailing circumstances, that a
person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for
speculation, but for investment considering the probable safety of capital and the probable income to be derived.” At least
quarterly the District’s investment officers must submit an investment report to the Board 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, the ending market value and the fully accrued interest for the reporting period of each pooled fund group, (4) the book
value and market value of each separately listed asset at the end of the reporting period, (5) the maturity date of each
separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and
(7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person
may invest District funds without express written authority from the Board of Directors.
Under State law, the District is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt by
written instrument a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment
strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order,
ordinance or resolution; (3) require any investment officers with personal business relationships or relatives with firms seeking to
sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Board of
Directors; (4) require the qualified representative of firms offering to engage in an investment transaction with the District to: (a)
receive and review the District’s investment policy, (b) acknowledge that reasonable controls and procedures have been
implemented to preclude investment transactions conducted between the District and the business organization that are not
authorized by the District’s investment policy (except to the extent that this authorization is dependent on an analysis of the
makeup of the District’s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written
statement in a form acceptable to the District and the business organization attesting to these requirements; (5) perform an
annual audit of the management controls on investments and adherence to the District’s investment policy; (6) provide specific
investment training for the Treasurer, chief financial officer and investment officers; (7) restrict reverse repurchase agreements
to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the
reverse purchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the
District’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9)
require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and
advisory board requirements; and (10) at least annually review, revise and adopt a list of qualified brokers that are authorized to
engage in investment transactions with the District.
Current Investments
As of September 30, 2014 (unaudited) the District’s funds were invested in the District’s bank accounts and TexPool as shown
in the table that follows. The District does not currently own, nor does it anticipate the inclusion of long-term securities or
derivative products in its portfolio.
Fund and Investment Type Amount
Bank of the West Money Market Account - General Fund $1,504,702
First Financial Bank Accounts 587,297
First Financial - Debt Service 4,846
TexPool – General Fund 1,171,507
(Includes Operating Fund / Fire Dept. / Reserves for Future Asset Replacement )
TexPool - Debt Service 10,406
TexPool - Capital Projects Fund 152,090
Total Investments $3,430,848
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The Texas State Comptroller of Public Accounts exercises oversight responsibility over the Texas Local Government Investment
Pool ("TexPool"). Oversight includes the ability to significantly influence operations, designation of management and
accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed both of
participants in TexPool and of the other persons who do not have a business relationship with TexPool. The advisory Board
members review the investment policy and management fee structure. Finally, TexPool is rated AAA by S&P. TexPool operates
in a manner consistent with the SEC’s Rule 2a-7 of the Investment Company Act of 1940. As such, TexPool uses amortized
cost to report net assets and share prices since that amount approximates fair value.
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 and based upon examination of a transcript of the proceedings incident to
authorization and issuance of the Bonds, the approving legal opinion of Fulbright & Jaworski LLP, a member of Norton Rose
Fulbright ("Bond Counsel") to the effect that the Bonds are valid and binding obligations of the District payable from the sources
and enforceable in accordance with the terms and conditions described therein, except to the extent that the enforceability
thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or
the exercise of judicial discretion in accordance with general principles of equity. Bond Counsel's legal opinion will also address
the matters described below under "TAX MATTERS - Tax Exemption." Such opinions will express no opinion with respect to the
sufficiency of the security for or the marketability of the Bonds. In its capacity as Bond Counsel, Fulbright & Jaworski LLP has
reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions
of the Order.
The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are based upon a
percentage of Bonds actually issued, sold and delivered, and therefore, such fees are contingent upon the sale and delivery of
the Bonds. The legal opinion to be delivered concurrently with the delivery of the Bonds expresses the professional judgment of
the attorney rendering the opinion as to the legal issue explicitly addressed therein. In rendering a legal opinion, the attorney
does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the
future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal
dispute that may arise out of the transaction. Though it represents the financial Advisor and certain entities that may bid on the
Bonds from time to time in matters unrelated to the issuance of the Bonds, Bond Counsel has been engaged by and only
represents the District in connection with the issuance of the Bonds.
Litigation
On September 24, 2013, the District filed an application with TCEQ for expedited approval of a proposed engineering project
and the issuance of bonds to finance improvements to the District’s wastewater treatment plant. On February 6, 2014, TCEQ
issued an order approving the application and bond issuance. Seeking to overturn the order, Maguire Partners – Solana Land,
L.P. (“Maguire”) filed a Motion to Overturn with TCEQ, which was overruled by operation of law on May 2, 2014, and the
following two lawsuits:
(i) Maguire Partners – Solana Land, L.P. v. Texas Commission on Environmental Quality and Richard Hyde, in
his official capacity as Executive Director, Cause No. D-1-GN-14-000716, filed on March 7, 2014, in the 126th
Judicial District Court of Travis County, Texas (the “First State Court Action”); and
(ii) Maguire Partners – Solana Land, L.P. v. Texas Commission on Environmental Quality and Richard Hyde, in
his official capacity as Executive Director, Cause No. D-1-GN-14-001623, filed on May 30, 2014, in the 53rd
Judicial District of Travis County, Texas (the “Second State Court Action”; collectively with the First State
Court Action, the “Administrative Appeals”).
On June 23, 2014, the District filed a lawsuit under Chapter 1205 of the Texas Government Code to obtain judicial validation of
the TCEQ approved bonds. The lawsuit was styled Ex Parte Trophy Club Municipal Utility District No. 1, Cause No. D-1-GN-14-
001983, and was filed in the 201st Judicial District Court of Travis County, Texas (the “Chapter 1205 Suit”). Specifically, the
Chapter 1205 Suit sought an expedited declaratory judgment to conclusively establish that the District is authorized to issue and
to deliver the Bonds and up to $9,230,000 in revenue bonds to finance improvements to its wastewater treatment plant. On July
14, 2014, the Honorable Judge Lora Livingston entered an order that consolidated the Administrative Appeals with the Chapter
1205 Suit (the “Consolidated Action”).
On July 14, 2014, before Judge Livingston, and October 27, 2014, before the Honorable Judge Scott Jenkins of the 53rd
Judicial District Court of Travis County, Texas, a trial was conducted in the Consolidated Action. As a result, on October 29,
2014, Judge Jenkins entered an order requiring Maguire to post a $2,300,000 before the 11th day after the entry of that order,
otherwise Maguire would be dismissed from the action. Moreover, on October 30, 2014, Judge Jenkins further entered a final
judgment dismissing all of Maguire’s claims in the Consolidated Action with prejudice, and granting the District the relief it
requested in the Chapter 1205 Suit, including a declaration that the District is authorized to issue and deliver the Bonds and up
to $9,230,000 in revenue bonds to finance improvements to its wastewater treatment plant.
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On November 12, 2014, because Maguire failed to post the required bond, Judge Jenkins entered an order dismissing Maguire
with prejudice from the Consolidated Action.
The District can make no representations or predictions concerning any appeals that may be filed or any other action that could
be taken which could affect the District’s ability to deliver the Bonds on or about February 17, 2015 as anticipated.
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
Tax Exemption
The delivery of the Bonds is subject to the opinion of Bond Counsel to the effect that interest on the Bonds for federal income
tax purposes (1) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as
amended to the date of such opinion (the “Code”), pursuant to section 103 of the Code and existing regulations, published
rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners
thereof who are individuals or, except as hereinafter described, corporations. A form of Bond Counsel's opinion is reproduced as
Appendix C. The statutes, regulations, rulings, and court decisions on which such opinion is based are subject to change.
Interest on the Bonds owned by a corporation will be included in such corporation's adjusted current earnings for purposes of
calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a
real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust
(“FASIT”). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by
Section 55 of the Code will be computed.
In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the District made in a
certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the
Bonds and will assume continuing compliance by the District with the provisions of the Order subsequent to the issuance of the
Bonds. The Order contains covenants by the District with respect to, among other matters, the use of the proceeds of the
Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the
proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage
“profits” from the investment of proceeds, and the reporting of certain information to the United States Treasury. Failure to
comply with any of these covenants may cause interest on the Bonds to be includable in the gross income of the owners thereof
from the date of the issuance of the Bonds.
Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing
statutes, regulations, published rulings and court decisions and the representations and covenants of the District described
above. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to the matters addressed in the
opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS has an ongoing program of auditing
the tax-exempt status of the interest on tax-exempt obligations. If an audit of the Bonds is commenced, under current
procedures the IRS is likely to treat the District as the “taxpayer,” and the owners of the Bonds would have no right to participate
in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District
may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could
adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome.
Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax
consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition
or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations
such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance
companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S
corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits,
individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be
deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses
allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these
consequences to their particular circumstances.
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Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Bonds from gross
income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also
affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors
with respect to any proposed or future changes in tax law.
Tax Accounting Treatment of Discount and Premium on Certain Bonds
The initial public offering price of certain Bonds (the "Discount Bonds") may be less than the amount payable on such Bonds at
maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a
substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at
maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue
discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount
Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as
taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds
described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant
interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the
yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the
amount of the payment denominated as interest actually received by the initial purchaser during the tax year.
However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a
corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the
amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though
there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral
federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty
insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad
Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and
taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred
certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable
disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of
such 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 Discount Bond was held) is includable in gross income.
Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue
discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning
and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local
income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will
not be a corresponding cash payment.
The initial public offering price of certain Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds
at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a
substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at
maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a
Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no
federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in
basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax
purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year
by an initial purchaser is determined by using such purchaser's yield to maturity.
Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable
bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of
owning and disposing of Premium Bonds.
Qualified Tax-Exempt Obligations for Financial Institutions
Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible
from the gross income of the owner of such obligations. In addition, section 265 of the Code generally disallows 100% of any
deduction for interest expense which is incurred by “financial institutions” described in such section and is allocable, as
computed in such section, to tax-exempt interest on obligations acquired after August 7, 1986. Section 265(b) of the Code
provides an exception to this interest disallowance rule for interest expense allocable to tax-exempt obligations (other than
private activity bonds that are not qualified 501(c)(3) bonds) which are designated by an issuer as “qualified tax-exempt
obligations.” An issuer may designate obligations as “qualified tax-exempt obligations” only if the amount of the issue of which
they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds that are not
qualified 501(c)(3) obligations and other than certain refunding bonds) issued or reasonably anticipated to be issued by the
issuer during the same calendar year, does not exceed $10,000,000.
The District has designated the Bonds as “qualified tax-exempt obligations” and has certified its expectation that the above-
described $10,000,000 ceiling will not be exceeded. Accordingly, it is anticipated that financial institutions which purchase the
Bonds will not be subject to the 100% disallowance of interest expense allocable to interest on the Bonds under section 265(b)
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of the Code. However, the deduction for interest expense incurred by a financial institution which is allocable to the interest on
the Bonds will be reduced by 20% pursuant to section 291 of the Code.
CONTINUING DISCLOSURE OF INFORMATION
In the Order, the Issuer has made the following agreement for the benefit of the holders and beneficial owners of each of the
Bonds. The Issuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds.
Under the agreement, the Issuer will be obligated to provide certain updated financial information and operating data annually,
and timely notice of certain specified events, to the Municipal Securities Rulemaking Board (the “MSRB”).
Annual Reports
The Issuer will provide certain updated financial information and operating data to the MSRB. The District will provide all
quantitative financial information and operating data with respect to the District of the general type included in this Official Statement.
The information to be updated includes Tables 1, 2, 3, 4, 5, 8, 9 and 10 of Appendix A, and the annual audited financial statements of
the District. The Issuer will update and provide this information within six months after the end of each fiscal year ending in and
after 2015.
The financial information to be provided may be set forth in full in one or more documents or may be included by specific
reference to any document available to the public on the MSRB’s Internet Website or filed with the SEC, as permitted by SEC
Rule 15c2-12 (the “Rule”). The updated information will include audited financial statements for the Issuer, if the Issuer
commissions an audit and it is completed by the required time. If audited financial statements are not available by the required
time, the Issuer will provide unaudited financial statements by the required time and audited financial statements when and if
such audited financial statements become available. Any such financial statements will be prepared in accordance with the
accounting principles described in Appendix D or such other accounting principles as the Issuer may be required to employ from
time to time pursuant to State law or regulation.
The Issuer’s current fiscal year end is September 30. Accordingly, it must provide updated information by the last day in March
in each year, unless the Issuer changes its fiscal year. If the Issuer changes its fiscal year, it will notify the MSRB of the change.
Notice of Certain Events
The Issuer will also provide timely notices of certain events to the MSRB. The Issuer will provide notice of any of the following
events with respect to the Bonds to the MSRB in a timely manner (but not in excess of ten business days after the occurrence of
the event): (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled
draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial
difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the
Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or
other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax
status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers;
(9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes;
(12) bankruptcy, insolvency, receivership, or similar event of the Issuer, which shall occur as described below; (13) the
consummation of a merger, consolidation, or acquisition involving the Issuer or the sale of all or substantially all of its assets,
other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the
termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14)
appointment of a successor or additional trustee or the change of name of a trustee, if material. In addition, the Issuer will
provide timely notice of any failure by the Issuer to provide annual financial information or operating data in accordance with
their agreement described above under “Annual Reports”. Neither the Order nor the Bonds make any provision for debt service
reserves, redemption provisions, credit enhancement, or liquidity enhancement.
For these purposes, any event described in clause (12) of the immediately preceding paragraph is considered to occur when
any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Issuer in a proceeding under the
United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority
has assumed jurisdiction over substantially all of the assets or business of the Issuer, or if such jurisdiction has been assumed
by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court
or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or
governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Issuer.
Availability of Information from MSRB
The Issuer has agreed to provide the foregoing financial information and operating data only as described above. Investors will
be able to access continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org.
Limitations and Amendments
The Issuer has agreed to update information and to provide notices of certain specified events only as described above. The
Issuer has not agreed to provide other information that may be relevant or material to a complete presentation of its financial
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results of operations, condition, or prospects or agreed to update any information that is provided, except as described above.
The Issuer makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest
in or sell Bonds at any future date. The Issuer disclaims any contractual or tort liability for damages resulting in whole or in part
from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders
or beneficial owners of Bonds may seek a writ of mandamus to compel the Issuer to comply with its agreement.
The Issuer may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal
requirements, a change in law, or a change in the identity, nature, status, or type of operations of the Issuer, if the agreement,
as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with
the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such
changed circumstances, and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or
any person unaffiliated with the Issuer (such as nationally recognized bond counsel) determines that the amendment will not
materially impair the interests of the beneficial owners of the Bonds. The Issuer may also repeal or amend these provisions if
the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such
provisions of the Rule are invalid, but in either case only if and to the extent that the provisions of this sentence would not
prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds giving effect to (a) such
provisions as so amended and (b) any amendments or interpretations of the Rule. If the Issuer amends its agreement, it must
include with the next financial information and operating data provided in accordance with its agreement described above under
“Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the
type of information and data provided.
Compliance with Prior Agreements
For the last five years, the District has complied in all material respects with its previous continuing disclosure agreements made
in accordance with the Rule.
FINANCIAL ADVISOR
Southwest Securities, Inc. 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.
OFFICIAL STATEMENT
Updating the Official Statement During Underwriting Period
If, subsequent to the date of the Official Statement to and including the date the Initial Purchaser is no longer required to provide
an Official Statement to potential customers who request the same pursuant to Rule 15c2-12 of the federal Securities Exchange
Act of 1934 (the “Rule”) (the earlier of (i) 90 days from the “end of the underwriting period” (as defined in the Rule) and (ii) the
time when the Official Statement is available to any person from the MSRB, but in no case less than 25 days after the “end of
the underwriting period”), the District learns or is notified by the Initial Purchaser of any adverse event which causes any of the
key representations in the Official Statement to be materially misleading, the District will promptly prepare and supply to the
Initial Purchaser a supplement to the Official Statement which corrects such representation to the reasonable satisfaction of the
Initial Purchaser. (See "DELIVERY OF THE BONDS AND ACCOMPANYING DOCUMENTS” in the Official Notice of Sale
herein.) The obligation of the District to update or change the Official Statement will terminate 25 days after the date the District
delivers the Bonds to the Initial Purchaser (the “end of the underwriting period” within the meaning of the Rule), unless the Initial
Purchaser provides written notice to the District that less than all of the Bonds have been sold to ultimate customers on or
before such date, in which case the obligation to update or change the Official Statement will extend for an additional period of
time of 25 days after all of the Bonds have been sold to ultimate customers (but no longer than the earlier of (i) 90 days from the
"end of the underwriting period" (as defined in the Rule) and (ii) the time when the Official Statement is available to any person
from the MSRB, but in no case less than 25 days after the "end of the underwriting period" for the Bonds). In the event the Initial
Purchaser provides written notice to the District that less than all of the Bonds have been sold to ultimate customers, the Initial
Purchaser agrees to notify the District in writing following the occurrence of the “end of the underwriting period” as defined in the
Rule.
Forward-Looking Statements Disclaimer
The statements contained in this Official Statement, and in any other information provided by the District, that are not purely
historical, are forward-looking statements, including statements regarding the District's expectations, hopes, intentions, or
strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking
statements included in this Official Statement are based on information available to the District on the date hereof, and the
District assumes no obligation to update any such forward-looking statements. The District's actual results could differ materially
from those discussed in such forward-looking statements.
21
The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently
subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying
assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and
regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers,
suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials.
Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and
market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Official Statement will prove to be accurate.
OTHER MATTERS
Legal Investment and Eligibility to Secure Public Funds in Texas
Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are
negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments
for insurance companies, fiduciaries, and trustees, and for the sinking fund of municipalities or other political subdivisions or
public agencies of the State of Texas. In addition, various provisions of the Texas Finance Code provide that, subject to a
prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at least $1
million of capital and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the state,
its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. For political
subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment
Act (Texas Government Code, Chapter 2256), the Bonds may have to be assigned a rating of "A" or its equivalent as to
investment quality by a national rating agency before such obligations are eligible investments for sinking funds and other public
funds. (See “RATINGS” herein.)
No representation is made that the Bonds will be acceptable to public entities to secure their deposits or acceptable to such
institutions for investment purposes. The District has made no investigation of other laws, rules, regulations or investment
criteria which might apply to any such persons or entities or which might otherwise limit the suitability of the Bonds for any of the
foregoing purposes or limit the authority of such persons or entities to purchase or invest in the Bonds for such purposes. The
District has not made any review of the laws in other states to determine whether the Bonds are legal investments for various
institutions in those states.
Registration and Qualification of Bonds for Sale
No registration statement relating to the offer and sale of the Bonds has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds
have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein;
nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The District assumes no
responsibility for registration of the Bonds under the securities laws of any other jurisdiction in which the Bonds, may be offered,
sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition 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.
Certification as to Official Statement
At the time of payment for and delivery of the Bonds, the Purchaser will be furnished a certificate executed by the proper officials
of the District acting in their official capacity, to the effect that: (a) the descriptions and statements of or pertaining to the District
contained in its Official Statement relating to the Bonds, and any addenda, supplement or amendment thereto, on the date of
such Official Statement, on the date of the sale of said Bonds, and on the date of the delivery, were and are true and correct in
all material respects; (b) insofar as the District and its affairs, including its financial affairs, are concerned, such Official
Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in the light of the circumstances under which they were made, not
misleading; (c) to the best of their knowledge, insofar as the descriptions and statements, including financial data, or pertaining
to entities, other than the District and its activities, contained in such Official Statement are concerned, such statements and
data have been obtained from sources which the District believes to be reliable and the District has no reason to believe that
they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the
District since September 30, 2013, the date of the last audited financial statements of the Issuer provided in the Preliminary
Official Statement for the Bonds.
The Official Statement was approved as to form and content and the use thereof in the offering of the Bonds was authorized,
ratified and approved by the Board on the date of sale, and the Purchasers will be furnished, upon request, at the time of
payment for and the delivery of the Bonds, a certified copy of such approval, duly executed by the proper officials of the Issuer.
22
Concluding Statement
The financial data and other information contained in this Official Statement have been obtained from the District’s records,
audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the
assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents, orders and Orders
contained in this Official Statement are made subject to all of the provisions of such statues, documents, orders and Orders.
These summaries do not purport to be complete statements of such provisions and reference is made to such statutes,
documents, orders and Orders for further information. Reference is made to original documents in all respects.
This Official Statement was approved by the Board of the Issuer for distribution in accordance with the provisions of the Rule.
James Moss
President, Board of Directors
Trophy Club Municipal Utility District No. 1
Kevin Carr
Secretary, Board of Directors
Trophy Club Municipal Utility District No. 1
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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.)
[This page is intentionally left blank.]
REVENUE BOND DEBT DATA TABLE 1
Revenue Bond Debt Principal Outstanding: (As of January 1, 2015)
Revenue Notes, Series 2013 302,000$
Total Revenue Debt Principal Outstanding 302,000$
Current Issue Revenue Bonds Debt Principal:
Waterworks and Sewer System Revenue Bonds, Series 2015 (The Bonds)9,230,000$
Total Revenue Debt Principal Outstanding Following the Issuance of the Bonds 9,532,000$
CONDENSED WATER AND SEWER SYSTEM OPERATING STATEMENT TABLE 2
2014 2013 2012 2011 2010
Operating Revenues(a)
Water and Wastewater Charges 5,730,872$ (b)5,467,371$ 5,210,077$ 5,323,244$ 3,919,084$
Investment Income 6,071 4,641 5,706 5,534 6,171
Other Revenues and Fees 203,206 175,793 214,237 160,060 186,073
Total Operating Revenues 5,940,149$ 5,647,805$ 5,430,020$ 5,488,838$ 4,111,328$
Operating Expenses(c)
Operating and Maintenance Expenses 4,840,819$ 5,000,351$ 4,526,474$ 4,228,316$ 3,959,498$
Total Operating Expenses 4,840,819$ 5,000,351$ 4,526,474$ 4,228,316$ 3,959,498$
Net Revenues Available for Debt Service 1,099,330$ 647,454$ 903,546$ 1,260,522$ 151,830$
Supplemental Utility Fees(d)331,200$ 508,300$ 647,080$ 165,600$ 80,500$
Active Customer Count :
Water 4,339 (e)4,122 3,882 3,549 3,320
Sewer 4,344 (e)4,127 3,887 3,554 3,130
_________
(a) Includes water and sewer revenues and excludes ad valorem property tax revenues.
(b) 2014 Operating Revenues reflect an increase in water & sewer rates, effective July 1, 2014.
(See Water & Sewer Rates - Table 10.)
(c) Excludes depreciation, capital outlays, fire service expenses and ad valorem property tax-related expenses.
(d) Supplemental Utility Fees are generated under the terms of a contract with the Town of Trophy Club to serve homes in the Public Improvement
District (PID) and are based on a one time per new home permit charge of $2,300, for a total of 1,407 homes. The approximate number of
lots remaining in the PID development at 9-30-14 is 128.
(e) Customer count includes 1,259 connections served by the District but located in the Town of Trophy Club.
Sources: The Issuer's Comprehensive Annual Financial Reports and Other Information from the Issuer.
DEBT SERVICE COVERAGE TABLE 3
Fiscal Year Ended September 30, 2014 Net Revenues Available for Debt Service 1,099,330$
Following the Issuance of the Bonds:
Average Annual Principal and Interest Requirements (2015-2035)602,455$
Coverage of Average Requirements from FY 2014 Net System Revenues 1.82 X
Maximum Principal and Interest Requirements (2025) 650,475$
Coverage of Maximum Requirements from FY 2014 Net System Revenues 1.69 X
FINANCIAL INFORMATION OF THE ISSUER
Fiscal Year Ending September 30
A-1
OTHER OBLIGATIONS TABLE 4
Principal
Interest Average Outstanding
Year of Rate Final Annual Original
Description Issue Payable Maturity Payment Amount as of 9-30-14
Capital Lease
Fire Truck 2014 2.50% 2022 127,149$ 1,057,316$ 807,316$ (a)
Notes Payable:
Equipment (Vac Truck) 2010 3.90% 2015 201,318$ 179,955$ 35,991$
Total Other Obligations 843,307$
_______________
(a)The District paid $250,000 in a down payment on October 23, 2014. The Capital Lease calls for seven additional annual
payments of $127,149 scheduled for fiscal years 2016 through 2022.
FUND BALANCES TABLE 5
As of 9-30-14
Water and Sewer Operating Fund (Unassigned) 2,134,075$
Water and Sewer Operating Fund (Assigned / Non-Spendable Prepaids) 13,980
Water and Sewer Capital Projects Fund 10,268
Reserve Fund for Replacement of Infrastructure 109,270
Total 2,158,323$
___________
NOTE: The District will establish an Interest and Sinking Fund following the issuance of the Bonds.
Source: The Issuer
A-2
REVENUE BOND DEBT SERVICE REQUIREMENTS TABLE 6
Revenue Total
Fiscal Year Debt Service Combined
Ending 9-30 Outstanding Principal Interest Total Debt Service
2015 154,200.00$ -$ 136,988.54$ 136,988.54$ 291,188.54$
2016 153,406.00 210,000.00 234,837.50 444,837.50 598,243.50
2017 365,000.00 230,637.50 595,637.50 595,637.50
2018 - 375,000.00 223,337.50 598,337.50 598,337.50
2019 - 380,000.00 215,837.50 595,837.50 595,837.50
2020 - 390,000.00 208,237.50 598,237.50 598,237.50
2021 - 400,000.00 200,437.50 600,437.50 600,437.50
2022 - 410,000.00 192,437.50 602,437.50 602,437.50
2023 - 420,000.00 184,237.50 604,237.50 604,237.50
2024 - 435,000.00 175,837.50 610,837.50 610,837.50
2025 - 450,000.00 167,137.50 617,137.50 617,137.50
2026 - 460,000.00 157,012.50 617,012.50 617,012.50
2027 - 475,000.00 145,512.50 620,512.50 620,512.50
2028 - 490,000.00 133,637.50 623,637.50 623,637.50
2029 - 510,000.00 120,162.50 630,162.50 630,162.50
2030 - 525,000.00 106,137.50 631,137.50 631,137.50
2031 - 545,000.00 90,387.50 635,387.50 635,387.50
2032 - 565,000.00 74,037.50 639,037.50 639,037.50
2033 - 585,000.00 57,087.50 642,087.50 642,087.50
2034 - 610,000.00 39,537.50 649,537.50 649,537.50
2035 - 630,000.00 20,475.00 650,475.00 650,475.00
307,606.00$ 9,230,000.00$ 3,113,951.04$ 12,343,951.04$ 12,651,557.04$
PRINCIPAL REPAYMENT SCHEDULE TABLE 7
Outstanding Bonds Percent of
Fiscal Year Revenue The Total Unpaid at Principal
Ending 9-30 Debt Bonds Bonds End of Year Retired (%)
2015 150,000$ -$ 150,000$ 9,382,000$ 1.57%
2016 152,000 210,000 362,000 9,020,000 5.37%
2017 - 365,000 365,000 8,655,000 9.20%
2018 - 375,000 375,000 8,280,000 13.13%
2019 - 380,000 380,000 7,900,000 17.12%
2020 - 390,000 390,000 7,510,000 21.21%
2021 - 400,000 400,000 7,110,000 25.41%
2022 - 410,000 410,000 6,700,000 29.71%
2023 - 420,000 420,000 6,280,000 34.12%
2024 - 435,000 435,000 5,845,000 38.68%
2025 - 450,000 450,000 5,395,000 43.40%
2026 - 460,000 460,000 4,935,000 48.23%
2027 - 475,000 475,000 4,460,000 53.21%
2028 - 490,000 490,000 3,970,000 58.35%
2029 - 510,000 510,000 3,460,000 63.70%
2030 - 525,000 525,000 2,935,000 69.21%
2031 - 545,000 545,000 2,390,000 74.93%
2032 - 565,000 565,000 1,825,000 80.85%
2033 - 585,000 585,000 1,240,000 86.99%
2034 - 610,000 610,000 630,000 93.39%
2035 - 630,000 630,000 - 100.00%
302,000$ 9,230,000$ 9,532,000
The Bonds
Principal Repayment Schedule
A-3
HISTORICAL PRODUCTION AND CONSUMPTION DATA TABLE 8
2014 2013 2012 2011 2010
Production:
Gallons pumped into
System ( in 000 gallons) 937,819 984,981 990,456 1,005,000 771,254
Usage:
Water Active Meter Count 4,339 (a)4,122 (a)3,882 3,549 3,320
Total Gallons Billed
(in 000 gallons)888,962 900,766 914,365 927,407 686,750
Water Accountability Ratio 94.79% 91.50% 92.30% 92.30% 89.00%
Total Water Sales ($$)3,461,337$ 3,458,058$ 3,412,887$ 3,403,440$ 2,415,817$
Average Monthly Usage
Per User in Gallons 17,000 17,000 19,000 21,000 17,000
Average Monthly Bill
Per User ($$)66.47$ 61.26$ 69.11$ 75.71$ 61.26$
Percentage Water Loss
in System 5.21% 8.50% 7.70% 7.70% 11.00%
___________
(a) Customer count includes 1,259 connections served by the District but located in the Town of Trophy Club.
Source: The Issuer's annual audit reports (statistical information section) and the Issuer.
PRINCIPAL WATER/SEWER CUSTOMERS - As of September 30, 2014 TABLE 9
Average Monthly
Consumption Average
Name of Customer In Gallons Monthly Bill
Maguire Thomas/BRE Solana LLC 9,368,083 39,956$
Town of Trophy Club 2,149,500 9,012
Marriott-Solana 1,920,333 6,999
Byron Nelson High School 1,849,917 7,251
The Vineyards at Trophy Club 1,536,000 7,019
Lennar Homes 1,137,417 3,965
Value Place Hotel 587,833 2,131
Quorum Apts/Armore-Quorum LLC 496,667 2,703
Trophy Club Medical Center 589,500 2,141
Trophy Club Village Shops 551,333 1,958
Total 20,186,583 83,135$
Principal water/sewer customers for 2014 (Unaudited) represented 16.79% of the District's total annual revenue.
___________
Source: Issuer
Fiscal Year Ended September 30
A-4
WATER AND SEWER RATES TABLE 10
A Water and Sewer Rate Study was completed by J. Stowe & Co. and was presented to the Board on February 18, 2014
The study recommended both a new rate structure and new rates.
Water Base Rates Water Volumetric Rates
Rates per 1,000
Gallons Over
Meter Size Base Rate Base Gallons
5/8" 12.71$
1" 16.71 2.70$ 0 to 6,000
1.5" 26.42 3.14 6,001 to 17,000
2" 38.06 3.64 17,001 to 25,000
3" 65.23 4.23 25,001 to 50,000
4" 104.04 4.91 50,001 and Over
6" 201.06
Sewer Base and Volumetric Rates
Residential and Commercial Base Rate 14.58$
Residential Sewer volumetric Rate per 1,000 Gallons 2.50
Residential Sewer Cap in Gallons 18,000
Commercial Sewer volumetric Rate per 1,000 Gallons 2.50
Commercial Sewer Cap in Gallons None
NOTE: Out of district water and sewer rates are 1.15 times the "in town" rate.
Retail rates based on 5/8" meter:
(Most prevalent type of meter (if not a 5/8") - 1 inch
Rates per 1,000
Admin Minimum Gallons Over Usage
Fee Usage Minimum Levels
WATER 12.71$ 0 2.50$ 0 to 6,000 gallons
3.05 7,000 to 17,000 gallons
3.30 18,000 to 25,000 gallons
3.40 26,000 to 50,000 gallons
3.50 51,000 + gallons
NOTE: Out of district water rates are double the "in town" rate.
WASTEWATER 12.71$ 0 2.50$ 0 to 12,000 gallons
Caps at 12,000 gallons
GOLF COURSE Subject to peak draw rates from Ft. Worth water department.
Previous Rates
Effective February 1, 2012
Current Rates
Effective July 1, 2014
A-5
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APPENDIX B
SELECTED PROVISIONS OF THE ORDER
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41456400.1/11411680 C-1
SECTION 1: Definitions and Interpretations.
(a) Unless otherwise expressly provided or unless the context clearly requires
otherwise, in this Order the following terms shall have the meanings specified below:
"Additional Parity Obligations" means the additional parity obligations
permitted to be issued by Section 18 of this Order.
"Average Annual Debt Service Requirements" means that average
amount which, at the time of computation, will be required to pay the Debt
Service Requirement on all outstanding Bonds and Additional Parity Obligations
when due (either at Stated Maturity or mandatory redemption) and derived by
dividing the total of such Debt Service Requirement by the number of Fiscal
Years then remaining before Stated Maturity of such Bonds and Additional Parity
Obligations. For purposes of this definition, a fractional period of a Fiscal Year
shall be treated as an entire Fiscal Year. Capitalized interest payments provided
from bond proceeds and accrued interest on the Parity Revenue Obligations be
excluded in making the aforementioned computation.
"Closing Date" means the date of the initial delivery of and payment for
the Bonds.
"Code" means the Internal Revenue Code of 1986, as amended,
including applicable regulations, published rulings and court decisions relating
thereto.
"Construction Fund" means the construction fund established by Section
12 of this Order.
"Debt Service Requirements" means as of any particular date of
computation, with respect to any obligations and with respect to any period, the
aggregate of the amounts to be paid or set aside by the District as of such date
or in such period for the payment of the principal of, premium, if any, and interest
(to the extent not capitalized) on such obligations; assuming, in the case of
obligations without a fixed numerical rate, that such obligations bear interest
calculated by assuming (i) that the interest rate for every 12-month period on
such bonds is equal to the rate of interest reported in the most recently published
edition of The Bond Buyer (or its successor) at the time of calculation as the
“Revenue Bond Index” or, if such Revenue Bond Index is no longer being
maintained by The Bond Buyer (or its successor) at the time of calculation, such
interest rate shall be assumed to be 80% of the rate of interest then being paid
on United States Treasury obligations of like maturity and (ii) that the principal of
such bonds is amortized such that annual debt service is substantially level over
the remaining stated life of such bonds, and further assuming in the case of
obligations required to be redeemed or prepaid as to principal prior to Stated
Maturity, the principal amounts thereof will be redeemed prior to Stated Maturity
in accordance with the mandatory redemption provisions applicable thereto.
"Designated Payment/Transfer Office" means (i) with respect to the initial
Paying Agent/Registrar named herein, its designated office in St. Paul,
Minnesota, and (ii) with respect to any successor Paying Agent/Registrar, the
office of such successor designated and located as may be agreed upon by the
District and such successor.
"Event of Default" means any Event of Default as defined in Section 20 of
this Order.
"Existing Obligations" means the outstanding Trophy Club Municipal
Utility District No. 1 Revenue Note, Series 2013.
"Fiscal Year" means the twelve-month accounting period used by the
District currently ending on September 30 of each year.
"Government Securities" (i) direct noncallable obligations of the United
States of America, including obligations the principal of and interest on which are
unconditionally guaranteed by the United States of America, (ii) noncallable
obligations of an agency or instrumentality of the United States, including
obligations unconditionally guaranteed or insured by the agency or
instrumentality and on the date of their acquisition or purchase by the District are
rated as to investment quality by a nationally recognized investment rating firm
not less than AAA or its equivalent, (iii) noncallable obligations of a state or an
agency or a county, municipality, or other political subdivision of a state that have
been refunded and on the date of their acquisition or purchase by the District, are
rated as to investment quality by a nationally recognized investment rating firm
not less than AAA or its equivalent and (iv) any other then authorized securities
or obligations under applicable law that may be used to defease obligations such
as the Bonds.
"Initial Bond" means the Bond described in Section 9.
"Interest and Sinking Fund" means the interest and sinking fund
established by Section 12 of this Order.
"Interest Payment Date" means the date or dates upon which interest on
the Bonds is scheduled to be paid until the maturity of the Bonds, such dates
being March 1 and September 1 of each year commencing September 1, 2015.
"Net Revenues" and "Net Revenues of the System" mean all of the
revenues of every kind and nature received through the operation of the System,
less the expenses of operation and maintenance paid thereof, including salaries,
labor, materials, repairs and extensions necessary to render efficient service;
provided, however, that only such repairs and extensions as in the judgment of
the Board, reasonably and fairly exercised, are necessary to keep the System in
operation and render adequate service to the District and the inhabitants thereof,
or such as might be necessary to meet some physical accident or condition
which would otherwise impair the security of the Bond or the Additional Parity
Obligations shall be deducted in determining "Net Revenues".
"Bonds" means the District’s revenue bond entitled "Trophy Club
Municipal Utility District No. 1 Water and Sewer System Revenue Bonds, Series
2015" authorized to be issued by this Order.
"Order" means this Order.
"Outstanding" - When used in this Order with respect to Bonds or Parity
Revenue Obligations means, as of the date of determination, all Bonds
theretofore issued and delivered, except:
(1) those Bonds or Parity Revenue Obligations
cancelled by the Paying Agent/Registrar or delivered to the Paying
Agent/Registrar for cancellation;
(2) those Bonds or Parity Revenue Obligations paid or
deemed to be paid in accordance with the provisions of Section 22
hereof, or substantially similar provisions with respect to Parity
Revenue Obligations; and
(3) those Bonds or Parity Revenue Obligations that have
been mutilated, destroyed, lost, or stolen and replacement Bonds
have been registered and delivered in lieu thereof as provided in
Section 21 hereof or similar provisions with respect to Parity
Revenue Obligations.
"Parity Revenue Obligations" means the Bonds, the Existing Obligations,
and Additional Parity Obligations.
"Paying Agent/Registrar" means BOKF, NA dba Bank of Texas, Austin,
Texas, any successor thereto or an entity which is appointed as and assumes
the duties of paying agent/registrar as provided in this Order.
"Project" shall mean the acquisition, construction and equipment of
improvements to the District’s wastewater treatment facilities.
"Record Date" means the fifteenth (15th) day of the month next preceding
an Interest Payment Date.
"Reserve Fund" means the fund established in Section 12 of this Order.
"Required Reserve" means the amount required to be deposited and
maintained in the Reserve Fund under the provisions of Section 15 of this Order.
"System" means the District’s water and sewer system, including all
present and future extensions, additions, replacements and improvements
thereto.
(b) Unless the context requires otherwise, words of the masculine gender shall be
construed to include correlative words of the feminine and neuter genders and vice versa, and
words of the singular number shall be construed to include correlative words of the plural
number and vice versa.
(c) This Order and all the terms and provisions hereof shall be liberally construed to
effectuate the purposes set forth herein to sustain the validity of this Order.
SECTION 11: Pledge-Security for the Bonds.
(a) The Parity Revenue Obligations, including the Bonds, and the interest thereon,
and any and all other amounts payable thereunder, are and shall be secured by and payable
from a first lien on and pledge of the Net Revenues of the System (with the exception of those in
excess of the amounts required to establish and maintain the Interest and Sinking Fund
hereinafter provided); and the revenues herein pledged are further pledged to the establishment
and maintenance of the Interest and Sinking Fund hereinafter provided.
(b) The Bonds are special obligations of the District secured by and payable from a
first lien on and pledge of the Net Revenues of the System, as provided in this Order, and is not
a charge on the property of the District or on taxes levied by the District. No part of the
obligation evidenced by the Bonds, whether principal, interest or other obligation, shall ever be
paid from taxes levied or collected by the District.
(c) Chapter 1208, Texas Government Code applies to the issuance of the Bond and
the pledge of the Net Revenues granted by the District under Section 11(a) of this Order, and
such pledge, therefore, is valid, effective, and perfected. If Texas law is amended at any time
while the Bonds are outstanding and unpaid such that the pledge of the revenues granted by
the District under Section 11(a) above is to be subject to the filing requirements of Chapter 9,
Texas Business and Commerce Code, then in order to preserve to the registered owners of the
Bond the perfection of the security interest in said pledge, the District agrees to take such
measures as it determines are reasonable and necessary under Texas law to comply with the
applicable provisions of Chapter 9, Business and Commerce Code and enable a filing to perfect
the security interest in said pledge to occur.
SECTION 12: Funds. The District hereby creates the following special funds or
accounts:
(a) Trophy Club Municipal Utility District No. 1, Water and Sewer System Revenue
Bonds, Series 2015, Interest and Sinking Fund (the "Interest and Sinking Fund");
(b) Trophy Club Municipal Utility District No. 1, Water and Sewer System Revenue
Bonds, Series 2015, Reserve Fund (the "Reserve Fund");
(c) Trophy Club Municipal Utility District No. 1, Water and Sewer System Revenue
Bonds, Series 2015, Construction Fund (the "Construction Fund").
SECTION 13: Revenue Fund. A Revenue Fund has previously been established on
the books of the District in connection with the District’s Existing Obligations. All gross revenues
of every nature received from the operation and ownership of the System shall be deposited as
collected into the Revenue Fund, and the reasonable, necessary, and proper expenses of
operation and maintenance of the System shall be paid from the Revenue Fund. The revenues
of the System not actually required to pay said expenses shall be deposited from the Revenue
Fund into the interest and sinking funds as provided in the orders or resolutions authorizing the
Parity Revenue Obligations and the Reserve Fund to the extent provided hereunder for the
Bonds and in any order authorizing the issuance of Additional Parity Obligations. However, until
the Parity Revenue Obligations are retired, any surplus Net Revenues of the System not
required to be deposited in the funds and accounts established by the orders or resolutions
authorizing the Parity Revenue Obligations shall be deposited in the Revenue Fund; provided,
however, at such time as the Existing Obligations identified in Section 1 hereof are no longer
outstanding, the following provision shall be applicable to such excess Net Revenues:
Any Net Revenues remaining in the Revenue Fund after satisfying the foregoing
payments, or making adequate and sufficient provision for the payment thereof, may be
appropriated and used for any other District purpose now or hereafter permitted by law.
SECTION 14: Interest and Sinking Fund. (a) Net Revenues of the System shall be
deposited to the credit of the Interest and Sinking Fund at such times and in such amounts as
necessary for the timely payment of the principal of and interest on the Bonds.
(b) Money on deposit in the Interest and Sinking Fund shall be used to pay the
principal of and interest on the Bonds as such become due and payable.
SECTION 15: Reserve Fund. To accumulate and maintain a reserve for the payment of
the Bonds and Additional Parity Obligations (the Required Reserve) equal to the lesser of (i) the
Average Annual Debt Service Requirements (calculated on a Fiscal Year basis and determined
as of the date of issuance of the Bonds, the most recently issued series of Additional Parity
Obligations then Outstanding or, at the option of the District, at the end of each Fiscal Year) for
the Bonds and Additional Parity Obligations or (ii) the maximum amount in a reasonably
required reserve fund for the Bonds and Additional Parity Obligations, from time to time that can
be invested without restriction as to yield pursuant to section 148 of the Code (as defined in
Section 24), the District agrees to maintain the Reserve Fund at an official depository of the
District. All funds deposited into the Reserve Fund (excluding surplus funds which include
earnings and income derived or received from deposits or investments which will be transferred
to the Revenue Fund during such period as there is on deposit in the Reserve Fund the
Required Reserve) shall be used solely for the payment of the principal of and interest on the
Bonds and Additional Parity Obligations, when and to the extent other funds available for such
purposes are insufficient, and, in addition, may be used to retire the last stated maturity or
interest on the Bonds or Additional Parity Obligations.
Upon issuance of the Bonds, the total amount required to be accumulated and
maintained in the Reserve Fund is hereby determined to be $616,680 (the "Required Reserve"),
which is equal to not less than the Average Annual Debt Service for the Bonds, and on or before
the 1st day of the month next following the month the Bonds are delivered to the Purchasers
and on or before the 1st day of each following month, the District shall cause to be deposited to
the Reserve Fund from the Net Revenues of the System an amount equal to at least one-
sixtieth (1/60th) of the Required Reserve. After the Required Reserve has been fully
accumulated and while the total amount on deposit in the Reserve Fund is in excess of the
Required Reserve, no monthly deposits shall be required to be made to the Reserve Fund.
As and when Additional Parity Obligations are delivered or incurred, the Required
Reserve shall be increased, if required, to an amount calculated in the manner provided in the
first paragraph of this Section. Any additional amount required to be maintained in the Reserve
Fund shall be so accumulated by the deposit of the necessary amount of the proceeds of the
issue or other lawfully available funds in the Reserve Fund immediately after the delivery of the
then proposed Additional Parity Obligations, or, at the option of the District, by the deposit of
monthly installments, made on or before the 1st day of each month following the month of
delivery of the then proposed Additional Parity Obligations, of not less than 1/60th of the
additional amount to be maintained in the Reserve Fund by reason of the issuance of the
Additional Parity Obligations then being issued (or 1/60th of the balance of the additional
amount not deposited immediately in cash), thereby ensuring the accumulation of the
appropriate Required Reserve.
When and so long as the cash and investments in the Reserve Fund equal the Required
Reserve, no deposits need be made to the credit of the Reserve Fund; but, if and when the
Reserve Fund at any time contains less than the Required Reserve (other than as the result of
the issuance of Additional Parity Obligations as provided in the preceding paragraph), the
District covenants and agrees to cure the deficiency in the Required Reserve by resuming
monthly deposits to said Fund or account from the Net Revenues, or any other lawfully available
funds, such monthly deposits to be in amounts equal to not less than 1/60th of the Required
Reserve covenanted by the District to be maintained in the Reserve Fund with any such
deficiency payments being made on or before the 1st day of each month until the Required
Reserve has been fully restored. The District further covenants and agrees that, subject only to
the prior payments to be made to the Interest and Sinking Fund, the Net Revenues shall be
applied and appropriated and used to establish and maintain the Required Reserve and to cure
any deficiency in such amounts as required by the terms of this Order and any other order or
resolution pertaining to the issuance of Additional Parity Obligations.
During such time as the Reserve Fund contains the Required Reserve, the District may,
at its option, withdraw all surplus funds in the Reserve Fund in excess of the Required Reserve
and deposit such surplus in the System Fund, unless such surplus funds represent proceeds of
the Bonds, then such surplus will be transferred to the Interest and Sinking Fund.
The District, at its option and consistent with the provisions of this Section, may, to the
extent permitted by then-applicable law, fund the Reserve Fund at the Required Reserve by
purchasing an insurance policy that will unconditionally obligate the insurance company or other
entity to pay all, or any part thereof, of the Required Reserve in the event funds on deposit in
the Interest and Sinking Fund are not sufficient to pay the debt service requirements on the
Parity Revenue Obligations. All resolutions or orders adopted after the date hereof authorizing
the issuance of Additional Parity Obligations shall contain a provision to this effect.
In the event an insurance policy issued to satisfy all or part of the District’s obligation
with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to
exceed the Required Reserve, the District may transfer such excess amount to any fund or
account established for the payment of or security for the Parity Revenue Obligations (including
any escrow established for the final payment of any such obligations pursuant to Chapter 1207,
as amended, Texas Government Code) or use such excess amount for any lawful purpose now
or hereafter provided by law.
SECTION 16: Construction Fund.
(a) Money on deposit in the Construction Fund, including investment earnings
thereof, shall be used for the Project.
(b) All amounts remaining in the Construction Fund after the accomplishment of the
Project, including investment earnings of the Construction Fund, shall be deposited into the
Interest and Sinking Fund, unless a change in applicable law permits or authorizes all or any
part of such funds to be used for other purposes.
SECTION 17: Security of Funds – Investments.
(a) All moneys on deposit in the funds referred to in this Order shall be secured in
the manner and to the fullest extent required by the laws of the State of Texas for the security of
public funds, and moneys on deposit in such funds shall be used only for the purposes
permitted by this Order.
(b) Investments. (i) Money in the funds established by this Order, at the option of
the District, may be invested in such securities or obligations as permitted under applicable law.
(ii) Any securities or obligations in which money is so invested shall be kept and held
in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely
applied to the making of all payments required to be made from the fund from which the
investment was made.
(c) Investment Income. Interest and income derived from investment of any fund
created by this Order shall be credited to such fund.
SECTION 18: Additional Parity Obligations. In addition to the right to issue obligations
of inferior lien as authorized by the laws of this State, the District reserves the right to issue
notes, bonds and other obligations which, when duly authorized and issued in compliance with
law and the terms and conditions hereinafter appearing, shall be on a parity with the Parity
Revenue Obligations, payable from and equally and ratably secured by a first lien on and
pledge of the Net Revenues of the System; and the Parity Revenue Obligations shall in all
respects be of equal dignity. The Additional Parity Obligations may be issued in one or more
installments, provided, however, that none shall be issued unless and until the following
conditions have been met:
(a) A certificate is executed by the General Manager of the District and the President
of the Board to the effect that no default exists in connection with any of the covenants or
requirements of the Order or orders or resolutions authorizing the issuance of the Bonds and all
then outstanding Parity Revenue Obligations;
(b) A certificate is executed by the General Manager of the District and the President
of the Board to the effect that the Interest and Sinking Fund and Reserve Fund contains the
amount of money then required to be on deposit therein;
(c) A certificate is executed by a Certified Public Accountant to the effect that, in his
opinion, the Net Earnings of the System either for the last complete fiscal year of the District, or
for any twelve consecutive calendar month period ending not more than 90 days prior to the
passage of the Order authorizing the issuance of such Additional Parity Obligations, were at
least 1.20 times the average annual principal and interest requirements for the then outstanding
Parity Revenue Obligations and the Additional Parity Obligations then proposed to be issued.
At such time as the Existing Obligations are no longer outstanding, the Accountant, in
making a determination of the Net Earnings, may take into consideration a change in the rates
and charges for services and facilities afforded by the System that became effective at least
sixty (60) days prior to the last day of the period for which Net Earnings are determined and, for
purposes of satisfying the above Net Earnings test, make a pro forma determination of the Net
Earnings of the System for the period of time covered by his certification or opinion based on
such change in rates and charges being in effect for the entire period covered by the
Accountant's certificate or opinion.
PROVIDED, that the term "Net Earnings of the System" shall mean all of the Net
Revenues of the System, except that in calculating Net Revenues there shall not be deducted
as an expense of operation and maintenance any charge or disbursement for repairs or
extensions which, under standard accounting practice, should be charged to capital
expenditures; and PROVIDED FURTHER, that it shall not be necessary for the District to meet
the above requirements to issue Additional Parity Obligations if the District obtains the written
consent of all of the holders of all outstanding Parity Revenue Obligations.
SECTION 19: Representations and Covenants as to Payment.
(a) While the Bonds are outstanding and unpaid, there shall be made available to
the Paying Agent/Registrar, out of the Interest and Sinking Fund and Reserve Fund, if
necessary, money sufficient to pay the interest on and the principal of the Bonds, as applicable,
as will accrue or mature on each applicable Interest Payment Date.
(b) The District will faithfully perform at all times any and all covenants, undertakings,
stipulations, and provisions contained in this Order and in the Bonds; the District will promptly
pay or cause to be paid the principal of, interest on, and premium, if any, with respect to, the
Bonds on due dates and at the places and manner prescribed in such Bonds; and the District
will, at the times and in the manner prescribed by this Order, deposit or cause to be deposited
the amounts of money specified by this Order.
(c) The District is duly authorized under the laws of the State of Texas to issue the
Bonds; all action on its part for the creation and issuance of the Bond has been duly and
effectively taken; and the Bonds in the hands of the Owners thereof is and will be valid and
enforceable obligations of the District in accordance with their terms.
(d) The District will at all times collect for services rendered by the System such
amounts as will be at least sufficient to pay all expenses of operation and maintenance, and to
provide Net Revenues equal to 1.10 times the amount that is sufficient to pay the scheduled
principal of and interest on the Parity Revenue Obligations, plus one times the amount (if any)
required to be deposited in any reserve or contingency fund or account created for the payment
and security of the Parity Revenue Obligations;
(e) If the System should become legally liable for any other indebtedness, the
District shall fix, maintain, charge and collect additional rates and services rendered by the
System, sufficient to establish and maintain funds for the payment thereof.
SECTION 20: Default and Remedies.
(a) Events of Default. Each of the following occurrences or events for the purpose of
this Order is hereby declared to be an "Event of Default," to-wit:
(i) the failure to make payment of the principal of or interest on the
Bonds when the same become due and payable; or
(ii) default in the performance or observance of any other covenant,
agreement or obligation of the District, the failure to perform which materially,
adversely affects the rights of the Owners, including but not limited to, their
prospect or ability to be repaid in accordance with this Order, and the
continuation thereof for a period of 60 days after notice of such default is given
by any Owner to the District.
(b) Remedies for Default. (i) Upon the happening of any Event of Default, then
and in every case any Owner or an authorized representative thereof, including but not limited
to, a trustee or trustees therefor, may proceed against the District for the purpose of protecting
and enforcing the rights of the Owners under this Order, by mandamus or other suit, action or
special proceeding in equity or at law, in any court of competent jurisdiction, for any relief
permitted by law, including the specific performance of any covenant or agreement contained
herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of
the Owners hereunder or any combination of such remedies.
(ii) It is provided that all such proceedings shall be instituted and maintained for the
equal benefit of all Owners of the Bonds then outstanding.
(c) Remedies Not Exclusive. (i) No remedy herein conferred or reserved is
intended to be exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given hereunder or
under the Bonds or now or hereafter existing at law or in equity; provided, however, that
notwithstanding any other provision of this Order, the right to accelerate the debt evidenced by
the Bonds shall not be available as a remedy under this Order.
(ii) The exercise of any remedy herein conferred or reserved shall not be deemed a
waiver of any other available remedy.
SECTION 21: Mutilated, Destroyed, Lost and Stolen Bonds. In case any Bond shall be
mutilated, or destroyed, lost or stolen, the Paying Agent/Registrar may execute and deliver a
replacement Bond of like form and tenor, and in the same denomination and bearing a number
not contemporaneously outstanding, in exchange and substitution for such mutilated Bond; and
with respect to a lost, destroyed or stolen Bond a replacement Bond may be issued only upon
the approval of the District and after (i) the filing by the Holder with the Paying Agent/Registrar
of evidence satisfactory to the Paying Agent/Registrar of the destruction, loss or theft of such
Bond, and of the authenticity of the ownership thereof and (ii) the furnishing to the Paying
Agent/Registrar of indemnification in an amount satisfactory to hold the District and the Paying
Agent/Registrar harmless. All expenses and charges associated with such indemnity and with
the preparation, execution and delivery of a replacement Bond shall be borne by the Holder of
the Bond mutilated, or destroyed, lost or stolen.
Every replacement Bond issued pursuant to this Section shall be a valid and binding
obligation, and shall be entitled to all the benefits of this Order equally and ratably with all other
Outstanding Bonds; notwithstanding the enforceability of payment by anyone of the destroyed,
lost, or stolen Bonds.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all
other rights and remedies with respect to the replacement and payment of mutilated, destroyed,
lost or stolen Bonds.
SECTION 22: Satisfaction of Obligation of District. If the District shall pay or cause to
be paid, or there shall otherwise be paid to the Holders, the principal of, premium, if any, and
interest on the Bonds, at the times and in the manner stipulated in this Order, then the pledge of
taxes levied under this Order and all covenants, agreements, and other obligations of the
District to the Holders shall thereupon cease, terminate, and be discharged and satisfied.
Bonds or any principal amount(s) thereof shall be deemed to have been paid within the
meaning and with the effect expressed above in this Section when (i) money sufficient to pay in
full such Bonds or the principal amount(s) thereof at maturity or to the redemption date therefor,
together with all interest due thereon, shall have been irrevocably deposited with and held in
trust by the Paying Agent/Registrar, or an authorized escrow agent, or (ii) Government
Securities shall have been irrevocably deposited in trust with the Paying Agent/Registrar, or an
authorized escrow agent, which Government Securities have been certified by an independent
accounting firm to mature as to principal and interest in such amounts and at such times as will
insure the availability, without reinvestment, of sufficient money, together with any moneys
deposited therewith, if any, to pay when due the principal of and interest on such Bonds, or the
principal amount(s) thereof, on and prior to the Stated Maturity thereof or (if notice of
redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to
the Paying Agent/Registrar have been made) the redemption date therefor. The District
covenants that no deposit of moneys or Government Securities will be made under this Section
and no use made of any such deposit which would cause the Bonds to be treated as "arbitrage
bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended,
or regulations adopted pursuant thereto.
Any moneys so deposited with the Paying Agent/ Registrar, or an authorized escrow
agent, and all income from Government Securities held in trust by the Paying Agent/Registrar,
or an authorized escrow agent, pursuant to this Section which is not required for the payment of
the Bonds, or any principal amount(s) thereof, or interest thereon with respect to which such
moneys have been so deposited shall be remitted to the District or deposited as directed by the
District. Furthermore, any money held by the Paying Agent/Registrar for the payment of the
principal of and interest on the Bonds and remaining unclaimed for a period of three (3) years
after the Stated Maturity, or applicable redemption date, of the Bonds such moneys were
deposited and are held in trust to pay shall upon the request of the District be remitted to the
District against a written receipt therefor. Notwithstanding the above and foregoing, any
remittance of funds from the Paying Agent/Registrar to the District shall be subject to any
applicable unclaimed property laws of the State of Texas.
SECTION 23: Order a Contract - Amendments - Outstanding Bonds. This Order shall
constitute a contract with the Holders from time to time, be binding on the District, and shall not
be amended or repealed by the District so long as any Bond remains Outstanding except as
permitted in this Section and in Section 39 hereof. The District may, without the consent of or
notice to any Holders, from time to time and at any time, amend this Order in any manner not
detrimental to the interests of the Holders, including the curing of any ambiguity, inconsistency,
or formal defect or omission herein. In addition, the District may, with the written consent of
Holders holding a majority in aggregate principal amount of the Bonds then Outstanding
affected thereby, amend, add to, or rescind any of the provisions of this Order; provided that,
without the consent of all Holders of Outstanding Bonds, no such amendment, addition, or
rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and
interest on the Bonds, reduce the principal amount thereof, the redemption price, or the rate of
interest thereon, or in any other way modify the terms of payment of the principal of, premium, if
any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or
(3) reduce the aggregate principal amount of Bonds required to be held by Holders for consent
to any such amendment, addition, or rescission.
APPENDIX C
FORM OF LEGAL OPINION OF BOND COUNSEL
[This page is intentionally left blank.]
41328773.2/11411680
[LETTERHEAD OF BOND COUNSEL]
[Closing Date]
IN REGARD to the authorization and issuance of the “Trophy Club Municipal Utility District
No. 1 Water and Sewer System Revenue Bonds, Series 2015,” dated February 1, 2015, in the
principal amount of $9,230,000 (the “Bonds”), we have examined into their issuance by the
Trophy Club Municipal Utility District No. 1 (the “District”), solely to express legal opinions as to
the validity of the Bonds and the exclusion of the interest on the Bonds from gross income for
federal income tax purposes, and for no other purpose. We have not been requested to
investigate or verify, and we neither expressly nor by implication render herein any opinion
concerning, the financial condition or capabilities of the District, the disclosure of any financial or
statistical information or data pertaining to the District and used in the sale of the Bonds, or the
sufficiency of the security for or the value or marketability of the Bonds.
THE BONDS are issued in fully registered form only and in denominations of $5,000 or any
integral multiple thereof (within a maturity). The Bonds mature on September 1 in each of the
years specified in the order adopted by the Board of Directors of the District authorizing the
issuance of the Bonds (the “Order”), unless redeemed prior to maturity in accordance with the
terms stated on the Bonds. The Bonds accrue interest from the dates, at the rates, and in the
manner and interest is payable on the dates, all as provided in the Order.
IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified
copies of the proceedings relating to the issuance of the Bonds, including the Order and an
examination of the initial Bond executed and delivered by the District (which we found to be in
due form and properly executed); (ii) certifications of officers of the District relating to the
expected use and investment of proceeds of the sale of the Bonds and certain other funds of
the District and (iii) other documentation and such matters of law as we deem relevant. In the
examination of the proceedings relating to the issuance of the Bonds, we have assumed the
authenticity of all documents submitted to us as originals, the conformity to original copies of all
documents submitted to us as certified copies, and the accuracy of the statements contained in
such documents and certifications.
BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable laws of the
United States of America and the State of Texas in force and effect on the date hereof:
1. The Bonds have been duly authorized by the District and, when issued in
compliance with the provisions of the Order, are valid, legally binding and enforceable
obligations of the District and, together with the outstanding and unpaid “Parity Revenue
Obligations” (identified and defined in the Order), are payable solely from and equally and
ratably secured by a first lien on and pledge of the Net Revenues of the System (as defined in
the Order), except to the extent that the enforceability thereof may be affected by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights or the
exercise of judicial discretion in accordance with the general principles of equity.
Page 2 of Legal Opinion of Fulbright & Jaworski LLP
Re: “Trophy Club Municipal Utility District No. 1 Water and Sewer System Revenue Bonds,
Series 2015”
41328773.2/11411680
2. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to
the date hereof (the “Code”), and existing regulations, published rulings, and court decisions
thereunder, and assuming continuing compliance after the date hereof by the District with the
provisions of the Order relating to sections 141 through 150 of the Code, interest on the Bonds
for federal income tax purposes (a) will be excludable from the gross income, as defined in
section 61 of the Code, of the owners thereof, and (b) will not be included in computing the
alternative minimum taxable income of individuals or, except as hereinafter described,
corporations. Interest on the Bonds owned by a corporation will be included in such
corporation’s adjusted current earnings for purposes of calculating the alternative minimum
taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real
estate mortgage investment conduit, a real estate investment trust, or a financial asset
securitization investment trust (“FASIT”). A corporation’s alternative minimum taxable income is
the basis on which the alternative minimum tax imposed by section 55 of the Code will be
computed.
WE EXPRESS NO OPINION with respect to any other federal, state, or local tax consequences
under present law or any proposed legislation resulting from the receipt or accrual of interest on,
or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the
Bonds may result in collateral federal tax consequences to, among others, financial institutions,
life insurance companies, property and casualty insurance companies, certain foreign
corporations doing business in the United States, S corporations with subchapter C earnings
and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad
Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and
taxpayers who may be deemed to have incurred or continued indebtedness to purchase or
carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.
OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are
further based on our knowledge of facts as of the date hereof. We assume no duty to update or
supplement our opinions to reflect any facts or circumstances that may thereafter come to our
attention or to reflect any changes in any law that may thereafter occur or become effective.
Moreover, our opinions are not a guarantee of result and are not binding on the Internal
Revenue Service; rather, such opinions represent our legal judgment based upon our review of
existing law that we deem relevant to such opinions and in reliance upon the representations
and covenants referenced above.
APPENDIX D
EXCERPTS FROM THE DISTRICT’S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014
(Independent Auditor's Report, Management’s Discussion and Analysis, General Financial Statements and Notes to the Financial
Statements - not intended to be a complete statement of the Issuer's financial condition. Reference is made to the complete Annual
Financial Report for further information.)
[This page is intentionally left blank.]
TROPHY CLUB
MUNICIPAL UTILITY DISTRICT NO.1
BASIC FINANCIAL STATEMENTS
FOR THE FISCAL YEAR
ENDED SEPTEMBER 30,2014
ANNUAL FILING AFFIDAVIT
THE STATE OF TEXAS }
COUNTY OF DENTON }
I,---=--=-_---=-=-,--.,.--=---:-----:-=-:---:---:::-,--,--_
(Name of Duly Authorized District Representative)
Of the -'T'"'-r"'op"'h::'y:-'C"'I'-"u"'-b~M:':un"':"'ic~i'!"_pa':'I'-'U"'t""il""itv"---=D"'i"'st""ri"'ct"'N'-'-o"'.'--'l>--_
(Name of District)
Hereby swear,or affirm,that the district named above has reviewed and approved at a meeting
of the Board of Directors of the District on the 20th day of January,2015,its annual audit report
for the fiscal year or period ended September 30,2014 and that copies of the annual audit report
have been filed in the district office,located at 100 Municipal Drive,Trophy Club,Texas,76262.
The annual filing affidavit and the attached copy of the audit report are being submitted to the
Texas Commission on the Environmental Quality in satisfaction of the annual filing
requirements of Texas Water Code Section 49.194.
Date:,20_By:__----,------,--__
(Signature of District Representative)
(Typed Name &Title of above District Representative)
Sworn to and subscribed to before me this day of _
(SEAL)
(Signature of Notary)
My Commission Expires On:,--_
Notary Public in the State of Texas
CONTENTS
FINANCIAL SECTION Page
ANNUAL FILING AFFIDAVIT i
INDEPENDENT AUDITOR'S REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)3
BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements
Statement of Net Position 11
Statement of Activities 12
Fund Financial Statements
Governmental Funds
Balance Sheet 13
Reconciliation of the Governmental Funds Balance Sheet
To Statement of Net Position 14
Statement of Revenues,Expenditures and Changes in
Fund Balances 15
Reconciliation of the Statement of Revenues,Expenditures
And Changes in Fund Balances of Governmental Funds
To the Statement of Activities 16
Notes to Basic Financial Statements 17
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule -General Fund 35
Budgetary Comparison Schedule -Debt Service Fund 36
Schedule of Funding Progress -Texas County and District Retirement System 37
INDIVIDUAL SCHEDULES AND OTHER SUPPLEMENTARY INFORMATION
REQUIRED BY TEXAS COMMISSION ON ENVIRONMENTAL QUALITY (TCEQ)
TSI-1 Service and Rates 38
TSI-2 General Fund Expenditures and Other Financing Uses .41
TSI-3 Temporary Investments 42
TSI-4 Taxes Levied and Receivable .43
TSI-5 Long-Term Debt Service Requirements -By Year .44
TSI-6 Changes in Long-Term Bonded Debt .47
TSI-7 Comparative Schedules of Revenues and Expenditures -Five Years 48
TSI-8 Board Members,Key Personnel,and Consultants 50
REPORTS REQUIRED BY GOVERNMENTAL AUDITING STANDARDS
Independent Auditor's Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 52
Susan LaFoliett,CPA -Partner
Rod Abbott,CPA -Partner
'-JlA.<rtt and Abbott PLLC
Certified Public Ac=unlanls
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Trophy Club Municipal Utility District No.I
Trophy Club,Texas
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities,each major fund,
and the aggregate remaining fund information of Trophy Club Municipal Utility District No.1 (the
"District"),as of and for the year ended September 30,2014,and the related notes to the financial
statements,which collectively comprise the District's basic financial statements as listed in the table of
contents.
Mallagemellt's Respollsibility for the Fillallcial Statemellts
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America;this includes
the design,implementation,and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement,whether due to fraud or
error.
Allditor's Respollsibility
Our responsibility is to express opinions on these financial statements based on our audit.We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Stondards,issued by the
Comptroller General of the United States.Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements.The procedures selected depend on the auditor's judgment,including the
assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.
In making those risk assessments,the auditor considers internal control relevant to the entity's preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control.Accordingly,we express no such opinion.An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management,as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
LaFollett and Abbott PLLC
PO Box 717 .Tom Bean,TX .75489
903-546-6975'www.lafollettcpa.com
Opinions
In our opinion,the financial statements referred to above present fairly,in all material respects,the
respective financial position of the governmental activities,each major fund,and the aggregate remaining
fund information of the Trophy Club Municipal Utility District No.1,as of September 30,2014,and the
respective changes in financial position,for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Other Matters
Required Supplememary Information
Accounting principles generally accepted in the United States of America require that the management's
discussion and analysis,budgetary comparisons,and retirement system funding information on pages 3-
10 and 35-37 be presented to supplement the basic financial statements.Such information,although not a
pmt of the basic financial statements,is required by the Governmental Accounting Standards Board,who
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational,economic,or historical context.We have applied certain limited procedures to
the required supplementary information in accordance with auditing standards generally accepted in the
United States of America,which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management's responses to our
inquiries,the basic financial statements,and other knowledge we obtained during our audit of the basic
financial statements.We do not express an opinion or provide any assurance on the information because
the limited procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the Trophy Club Municipal Utility District No.l's basic financial statements.The
accompanying individual schedules and other supplementary information listed in the table of contents
are presented for purposes of additional analysis and are not a required part of the basic financial
statements.The accompanying individual schedules and other supplementary information are the
responsibility of management and were derived from and relate directly to the underlying accounting and
other records used to prepare the basic financial statements.Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and celtain additional
procedures,including comparing and reconciling such information directly to the underlying accounting
and other records used to prepare the basic financial statements or to the basic financial statements
themselves,and other additional procedures in accordance with auditing standards generally accepted in
the United States of America.In our opinion,the accompanying individual schedules and other
supplementary information are fairly stated in all material respects in relation to the basic financial
statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards,we have also issued our report dated January 20,
2015,on our consideration of Trophy Club Municipal Utility District No.l's internal control over
financial reporting and on our tests of its compliance with certain provisions of laws,regulations,
contracts,and grant agreements and other matters.The purpose of that report is to describe the scope of
our testing of internal control over financial reporting and compliance and the results of that testing,and
not to provide an opinion on internal control over financial reporting or on compliance.That report is an
integral palt of an audit performed in accordance with Government Auditing Standards in considering
Trophy Club Municipal Utility District No.I's internal control over financial reporting and compliance.
Tom Bean,Texas
January 20,2015 2
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Trophy Club Municipal Utility District No.I,Texas (the "District")Management's Discussion
and Analysis (MD&A)is a narrative overview and analysis designed to provide the reader a
means to identify and understand the financial activity of the District and changes in the
District's financial position during the fiscal year ended September 30,2014.
The Management's Discussion and Analysis is supplemental to,and should be considered along
with,the District's financial statements.
Financial Highlights
At the close of the fiscal year,the assets of the District exceeded its liabilities by
$16,804,343.Of this amount,$2,961,240 is unrestricted net position and may be used to meet
the District's ongoing commitments.
The District's net position increased by $1,654,193 during 2014.The increase is mostly
attr'ibutable to $936,481 of developer capital contributions to the District's water and
wastewater systems.
At the end of the fiscal year,the District's governmental type funds reported a combined
fund balance of $2,962,683.As of September 30,2014,the unassigned fund balance of the
General Fund was $488,818.
Long-term debt activity for the District included debt principal repayments totaling
$1,040,991.No new debt was issued by the District during 2014.
Overview of the Financial Statements
The MD&A is intended to introduce the reader to the District's basic financial statements,which
are comprised of three components:1.Government-Wide Financial Statements,2.Fund
Financial Statements,and 3.Notes to Basic Financial Statements.The report also contains other
required supplementary infOlmation in addition to the basic financial statements.
Government-Wide Financial Statements -the government-wide financial statements are
designed to provide the reader with a general overview of the District's finances in a way that is
comparable with financial statements from the private sector.
3
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Overview ofthe Financial Statements -continned
The government-wide financial statements consist of two statements:
I.The Statement of Net Position -(Page 11)this statement presents information on all of
the District's assets and liabilities;the difference between the two is reported as net
position.Over an extended period,the increase or decrease in net position will serve as a
good indicator of whether the financial position of the District is improving or
deteriorating.
2.The Statement of Activities -(Page 12)gives information showing how the District's net
position has changed during the fiscal year.All revenues and expenses are reported on
the full accrual basis.
Fund Financial Statements -Fund financial statements provide detailed information about the
most important funds and not about the District as a whole as in the government-wide financial
statements.
The District uses fund accounting to demonstrate compliance with finance related legal
requirements which can be categorized as governmental fund activities.
Governmental Funds -All of the District's activities are reported in governmental funds.They
are used to account for those functions known as governmental activities.But unlike
government-wide financial statements,governmental fund financial statements focus on how
monies flow into and out of those funds and their resulting balances at the end of the fiscal year.
Statements of governmental funds provide a detailed short-term view of the District's general
government operations and the basic services it provides.Such information can be useful in
evaluating a government's short-term financing requirements.
The District maintains three governmental funds.Information is presented separately in the
Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues,
Expenditures and Changes in Fund Balances for the General Fund,Debt Service Fund and
Capital Projects Fund.
The District adopts annual appropriated budgets for the General Fund and Debt Service Funds.A
budgetary comparison statement is provided for each annually budgeted fund to demonstrate
compliance with its budget.
Notes to the Basic Financial Statements -The notes provide additional information that is
essential to a full understanding of the data presented in the government-wide and fund financial
statements.The notes to the basic financial statements can be found on pages 17-34.
4
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Overview ofthe Financial Statements -continued
Government-wide Financial Analysis
The Management's Discussion and Analysis highlights the information provided in both the
Statement of Net Position and Statement of Activities in the government-wide financial
statements.It may serve over an extended period of time,as a useful indicator of the District's
financial position.At the end of the fiscal year,the District's assets exceeded liabilities by
$16,804,343.Of this amount,$13,843,103 (82%)reflects the District's investment in capital
assets (e.g.,land,buildings,machinery and equipment,net of accumulated depreciation),less
any related outstanding debt used to acquire those assets.The District uses these capital assets to
provide service to the community;therefore these assets are not available for future spending.
Table 1
Condensed Statements of Net Position
Governmental
Activities
2014
Governmental
Activities
2013
Current and other
Capital assets
Total Assets
Long-term liabilities
Other liabilities
Total liabilities
$4,485,026 $5,111,997
19,849,794 18,047,016
24,334,820 23,159,013
6,031,304 6,101,472
1,499,173 1,930,110
7,530,477 8,031,582
Net Position:
Net investment in capital assets
Unrestricted
Total Net Position $
5
13,843,103
2,961,240
16,804,343 $
10,886,696
4,240,735
15,127,431
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Overview of the Financial Statements -continued
District operational analysis -The following table provides a summary analysis of the District's
consolidated operations for the fiscal years ended September 30,2014 and 2013.Govermnental
activities have increased the District's net position by $1,654,193,which amounts to a 10.9%
increase in net position for the year ended September 30,2014.
Table 2
Changes in Net Position
Govermnental Govermnental
Activities Activities
2014 2013
Revenue:
Program revenue
Charges for services $6,150,179 $6,070,147
Grants and ContrIbutions 946,481 284,684
General Revenue
Ad valorem taxes 1,740,079 1,619,051
Unrestricted investment earnings 6,255 16,649
Miscellaneous 115,102 114,036
Total Revenue 8,958,096 8,104,567
Expenses:
Water &Wastewater operations 4,083,929 3,759,269
General govermnent 2,113,413 2,290,093
Fire 901,351 811,552
Interest charges 205,210 256,272
Total Expenses 7,303,903 7,117,186
Increase in net position $1,654,193 $987,381
6
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Financial analysis of the District's funds
Governmental Funds -the main focus of the District's governmental funds is to provide
information on the flow of monies to and from the funds,and to note the unassigned fund
balance,which is a good indicator of resources available for spending in the near term.The
information derived from these funds is highly useful in assessing the District's financial
requirements.The unassigned fund balance may serve as a useful measure of the government's
net resources available for use at the fiscal year-end.
At the end of the fiscal year,the District's governmental funds reported combined ending fund
balances of $2,962,683,of which 16%,or $488,818,is unassigned and available to the District
for future spending.
General Fund budgetary highlights
The most significant amendment to the General Fund 2014 budget involved increasing budgeted
capital expenditures by $868,681 for on-going water and wastewater system improvements.
Revenue:Revenues were $65,521 (0.8%)less than budgeted
•Water and wastewater charges were $120,058 (2.1 %)more than budgeted.
•Utility fees were $250,909 (43.1 %)less than budgeted.
Expenses:Expenses were $152,028 (1.8%)less than budgeted
•Water operations expenditures were $394,226 (9.6%)less than budgeted.
•Non-departmental expenditures were $394,226 (102.9%)more than budgeted and
attributable to budget overruns for legal expenses.
Debt Service Fund:
•Debt Service Fund budget versus actual results were generally in line with expectations.
The fund experienced a slight decrease in fund balance of $3,126 due to a small 0.9%
unfavorable budget variance for property tax revenue.
7
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Capital Asset and Debt Administration
The District's investment in capital assets for its governmental activities as of September 30,
2014 amounted to $19,849,794,net of accumulated depreciation.This represents a broad range
of capital assets including,but not limited to land,buildings,improvements,machinery and
equipment,vehicles,and water,wastewater treatment,and wastewater collection systems.
Capital assets increased 10%during 2014 primarily due to approximately $1.3 million of on-
going water and wastewater system improvements and $936,481 of capital contributions.
Additional information about capital assets may be found in Note 5 in the notes to [mUllcinl
statements.
Debt administration
Long-Term Liabilities -at the end of the current fiscal year,the District had $6,031,304 of
general obligation bonds,notes payable and accrued compensated absences,which is a decrease
of 15.8%from the previous fiscal year.Of this amount,$7,065,539 is backed by the full faith
and credit of the government.No new debt was issued for the District during 2014.
Table 3
Outstanding Debt at Year-end
General obligation bonds
Contractual obligations
Notes payable
Compensated absences
Total
$
$
Governmental
Activities
2014
5,668,700
337,991
24,613
6,031,304
8
$
$
Governmental
Activities
2013
6,111,557
70,000
883,982
94,781
7,160,320
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Economic factors and next year's budgets and rates:
General fund fiscal year 2015 budgetary highlights:
Revenue:The District's 2015 operational revenue is budgeted to mcrease by
$1,298,499.
•Property tax revenue is budgeted to increase from $1,026,805 for fiscal year 2014 to
$1,040,716 for fiscal year 2015.
•Water and wastewater revenue is budgeted to increase by $2,099,396 due to an increase in
the number of utility customers and to a rate increase that was effective July 1,2014.
•Utility fee revenue is budgeted to decrease by $398,109 due to slow down of expected
new home construction in the Public Improvement District.
•Reserve funds of$100,000 will be allocated to the Debt Service Fund.
Expenses:The District's 2015 operational expense is budgeted to increase by $1,298,499.
The wholesale water expense will increase by $589,835 due to an increase in
the cost of water purchased from wholesaler.
Overall:
The District's 2015 operational budget is anticipated to have expenses of $9,862,873 and
revenues of$9,862,873.
Debt Service Fund 2015 budget:
•Debt service revenues are budgeted to increase from $624,495 in fiscal year 2014 to
$1,078,256 in fiscal year 2015.This is an increase of $453,761 and is needed to cover
new debt service expenses.
•Property tax revenues are budgeted to increase by $76,803 due to an increase in taxable
property values.
•Reserve funds of$100,000 will be allocated to the Debt Service Fund in fiscal year 2015.
9
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30,2014
Economic factors and next year's budgets and rates:(Continued)
The consolidated District's overall budget for revenue increased from $9,188,869 in fiscal
year 2014 to $10,941,129,in fiscal year 2015,which is a 19.07%increase.The overall
budgeted expenses increased from $9,188,869 to $10,939,204,which is a 19.05%increase.
The O&M tax decreased and the debt service tax increased which resulted in the overall tax
rate remaining the same for 2015 as was assessed in 2014.
Requests for information
This financial report is designed to provide a general overview of the District's consolidated
finances for all interested parties.Questions concerning any of the information in this report or
requests for additional information should be directed to the Trophy Club Municipal Utility
District No.1,Finance Manager,100 Municipal Drive,Trophy Club,Texas 76262.
10
BASIC FINANCIAL STATEMENTS
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
STATEMENT OF NET POSITION
SEPTEMBER 30,2014
ASSETS
Cash and cash equivalents
Receivables
Accounts receivable,net
Taxes
Due from other govermnents
Prepaids
Non-depreciable capital assets:
Land
Construction in progress
Depreciable capital assets:(net)
Buildings and other improvements
Machinery,vehicles,and other equipment
Water system
Organization costs
TOTAL ASSETS
LIABILITIES
Governmental
Activities
$3,431,448
969,666
38,046
31,886
13,980
648,178
1,366,502
3,099,011
1,313,382
13,365,163
57,558
$24,334,820
Accounts payable
Accrued liabilities
Accrued interest payable
Customer deposits
Noncurrent liabilities:
Debt due within one year
Debt due in more than one year
TOTAL LIABILITIES
NET POSITION
Net investment in capital assets
Umestricted
TOTAL NET POSITION
$
$
1,148,882
35,418
14,876
299,997
625,991
5,405,313
7,530,477
13,843,103
2,961,240
16,804,343
The notes to financial the statements are an integral part of this statement.
11
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
STATEMENT OF ACTIVITIES
YEAR ENDED SEPTEMBER 30,2014
Governmental Activities
Net (Expenses)
Revenue and
Changes in Net
Program Revenues Assets
Operating Capital Grants
Charges for Grants and and Governmental
Program Activities Expenses Services Contributions Contribntions
Activities
Governmental Activities
General government $1,320,187 $419,307 $$$(900,880)
Water operations 3,160,821 3,534,240 224,812 598,231
Wastewater operations 688,212 2,196,632 711,669 2,220,089
Wastewater collection system 234,896 (234,896)
Non-Departmental 781,325 (781,325)
Directors 11,901 (11,901)
Fire 901,351 10,000 (891,351)
Interest on long term debt 205,210 (205,210)
Total governmental
activities $7,303,903 $6,150,179 $10,000 $936,481 $(207,243)
General Revenues:
Ad valorem taxes
Investment income
Miscellaneous
Total general revenues
Change in net position
1,740,079
6,255
115,102
1,861,436
1,654,193
Net Position -beginning of year 15,127,431
Prior period adjustments 22,719
Net Position -end of year =$~=1;;6;b,8;;0;;4,;;,3;;4;;,3=
The notes to the financial statements are an integral part of this statement.
12
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
BALANCE SHEET
GOVERNMENTAL FUNDS
September 30,2014
ASSETS
Debt Capital Total
Service Projects Governmental
General Fnnd Fnnd Fund Fnnds
Assets
Cash and cash equivalents $3,264,105 $15,253 $152,090 $3,431,448
Receivables:
Accounts receivables,net 969,666 969,666
Taxes 28,051 9,995 38,046
Due from other governments 31,886 31,886
Due from other funds 86,259 86,259
Prepaids 13,980 13,980
TOTAL ASSETS $4,393,947 $25,248 $152,090 $4,571,285
LIABILITIES,DEFERRED INFLOWS,AND FUND BALANCES
Liabilities
Accounts payable $1,092,819 $500 $55,563 $1,148,882
Accrued liabilities 35,418 35,418
Customer deposits 299,997 299,997
Due to other funds 86,259 86,259
Total liabilities 1,428,234 500 141,822 1,570,556
Deferred Inflows of Resources
Unavailable revenues -property taxes 28,051 9,995 38,046
Total deferred inflows of resources 28,051 9,995 38,046
Fund Balances
Non-spendable prepaids 13,980 13,980
Assigned-Capital outlays 2,434,864 10,268 2,445,132
Assigned-Debt service 14,753 14,753
Unassigned 488,818 488,818
Total fund balances 2,937,662 14,753 10,268 2,962,683
TOTAL LIABILITIES,DEFERRED
INFLOWS,AND FUND BALANCES $4,393,947 $25,248 $152,090 $4,571,285
The notes to financial statements are an integral part of this statement.
13
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
RECONCILIATION OF THE GOVERNMENTAL FUNDS
BALANCE SHEET TO STATEMENT OF NET POSITION
SEPTEMBER 30,2014
Total fund balances -governmental funds
Amounts reported for governmental activities in the statement of net position
are different because:
Capital assets used in governmental activities are not current financial
resources and,therefore,are not reported in the governmental funds balance sheet.
Unavailable tax revenues that are reported as deferred inflows of resources in the
governmental funds balance sheet is recognized as revenue in the government-wide
financial statements.
Interest payable on long term debt does not require current financial
resources;therefore interest payable is not reported as a liability in the
governmental funds balance sheet.
Accrued compensated absences do not require the use of current financial resources;
therefore accrued vacation is not reported as a liability in the governmental
funds balance sheet.
Long-term liabilities,including bonds payable are not due and payable in the
current period and,therefore,are not reported in the fund financial statements.
Net position of governmental activities
The notes to the financial statements are an integral patt of this statement.
14
$2,962,683
19,849,794
38,046
(14,876)
(24,613)
(6,006,691)
$16,804,343
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
STATEMENT OF REVENUES,EXPENDITURES
AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
For the Year Ended September 30,2014
Debt Capital Total
Service Projects Governmental
General Fnnd Fnnd Fnnd Fnnds
Revenues:
Water and wastewater charges $5,730,872 $$$5,730,872
Taxes 1,340,502 389,668 1,730,170
Utility Fees 331,200 331,200
Miscellaneous 115,102 115,102
Oversize meter reimbursements 77,380 77,380
Inspection and tap fees 10,725 10,725
Intergovernmental revenues 10,000 10,000
Investment income 6,071 97 87 6,255
Total Revenues:7,621,852 389,765 87 8,011,704
Expenditures
Water 3,031,672 3,031,672
Adminstration 990,577 990,577
Wastewater 621,108 621,108
Fire 879,830 879,830
Collections 185,561 185,561
Non-Departmental 776,992 776,992
Board of Directors 11,901 11,901
Capital Outlay 990,311 354,919 1,345,230
Debt Service
Principal 615,991 425,000 1,040,991
Interest and fiscal charges 26,656 197,195 223,851
Bond Administrative Fees 1,500 1,500
Total Expenditures:8,130,599 623,695 354,919 9,109,213
Excess (deficiency)of revenues
over (under)expenditures (508,747)(233,930)(354,832)(1,097,509)
Other Financing Sources (Uses)
Transfers in 230,804 120,000 350,804
Transfers out (350,804)(350,804)
Total Other Financing Sonrces (Uses):(350,804)230,804 120,000
Net change in fund balance (859,551)(3,126)(234,832)(1,097,509)
Fund Balances -beginning of year 3,797,213 17,879 245,100 4,060,192
Fund Balances -end of year $2,937,662 $14,753 $10,268 $2,962,683
The notes to financial statements are an integral part of this statement.
15
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
RECONCILIATION OF THE STATEMENT OF REVENUES
EXPENDITURES AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
YEAR ENDED SEPTEMBER 30,2014
Net change in fund balances -total governmental funds
Amounts reported for governmental activities in the statement ofactivities
are different because:
Depreciation expense on capital assets reported in the statement of activities
does not require the use of current financial resources,therefore,depreciation
expense is not reported as expenditures in the governmental funds.
Governmental funds report capital outlays as expenditures.However,in the
statement of activities the costs of those assets is allocated over their
estimated useful lives and reported as depreciation expense.This is the
amount of capital assets recorded in the current period.
Debt principal payments reduces long-term liabilities in the statement of net
position,but it is recorded as an expenditure in the governmental funds.
Current year contributions of capital assets are not recorded in the governmental funds,
but are recognized for the government-wide financial statements.
Governmental funds report the effects of debt premiums,debt discounts,and deferred
losses on refunding when debt is first issued,whereas the amounts are deferred
and amortized in the statement of activities.
Various other reclassifications and eliminations are necessary to convert from the
modified accrual basis of accounting to accrual basis of accounting.These include
recognizing the change in deferred revenue and various other items.The net effect
of these reclassifications is to decrease net position.
Current year changes in accrued interest payable do not require the use of current
financial resources and,therefore,are not rep0l1ed as expenditures in the
governmental funds.
Change in net position of governmental activities
The notes to the financial statements are an integral part of this statement.
16
$
$
(1,097,509)
(671,240)
1,345,230
1,111,159
936,481
17,857
9,931
2,284
1,654,193
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.General Statement
Denton County Municipal Utility District No.I (the District)was created by the Texas Water
Rights Commission (later known as Texas Commission on Environmental Quality (TCEQ))on
March 4,1975 and confirmed by the electorate of the District at a confirmation election on
October 7,1975.The Board of Director's held its first meeting on April 24,1975.The Bonds
were first sold on June 8,1976.The District operates pursuant to Article XVI,Chapter 59 of the
Texas Constitution and Chapter 54 of the Texas Water Code,as amended.Effective April I,
1983,the District's name was officially changed by order from Denton County Municipal Utility
District No.I to Trophy Club Municipal Utility District No.I.
On May 9,2009,citizens voted to consolidate the District and Trophy Club Municipal Utility
District No.2 (MUD2).As a result,the District reports consolidated activity and balances for the
District and the entities formerly known as MUD2 and the Trophy Club Master District Joint
Venture (a joint venture of MUD I and MUD2).
The Governmental Accounting Standards Board (GASB)is the accepted standard setting body for
the District.The financial statements of the District have been prepared in conformity with
generally accepted accounting principles (GAAP)as applied to government units.
B.Financial Reporting Entity
As required by accounting principles generally accepted in the United States of America,these
financial statements include the activities of the District and any organizations for which the
District is financially accountable or for which the nature and significance of their relationship
with the District are such that exclusion would cause the reporting entity's financial statements to
be misleading or incomplete.
The definition of the reporting entity is based primarily on the notion of fmancial accountability.
A primary government is financially accountable for the organizations that make up its legal
entity.It is also financially accountable for legally separate organizations if its officials appoint a
voting majority of an organization's governing body and either it is able to impose its will on that
organization or there is a potential for the organization to provide specific financial benefits to,0;:
to impose specific financial burdens on,the primary government.A primary government may also
be financially accountable for governmental organizations that are fiscally dependent on it.
A primary government has the ability to impose its will on an organization if it can significantly
influence the programs,proj ects,or activities of,or the level of services performed or provided by,
the organization.A financial benefit or burden relationship exists if the primary government (a)is
entitled to the organization's resources;(b)is legally obligated or has otherwise assumed the
obligation to finance the deficits of,or provide financial support to,the organization;or (c)is
obligated in some marmer for the debt of the organization.Some organizations are included as
component units because of their fiscal dependency on the primary government.An organization
is fiscally dependent on the primary government if it is unable to adopt its budget,levy taxes,set
17
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
rates or charges,or issue bonded debt without approval by the primary government.Accordingly,
the District has no component units.
C.Government-Wide and Fund Financial Statements
The government-wide financial statements (the statement of net position and the statement of
activities)report information on all of the activities of the District,except for fiduciary funds.The
effect of interfund activity has been removed from these statements.Governmental activities,
which normally are supported by taxes and intergovernmental revenues,are reported separately
from business-type activities,which rely to a significant extent on fees and charges for support.
The activities oftl;J.e District are comprised only of governmental activities.
The statement of activities demonstrates the degree to which the direct expenses of a given
program are offset by program revenues.Direct expenses are those that are clearly identifiable
with a specific program.Program revenues include 1)charges to customers or applicants who
purchase,use,or directly benefit from goods,services,or privileges provided by a given program
and 2)operating or capital grants and contributions that are restricted to meeting the operational or
capital requirements of a particular program.Taxes and other items not properly included among
program revenues are reported instead as general revenues.
Fund Financial Statements
The District segregates transactions related to certain functions or activities in separate funds in
order to aid fmancial management and to demonstrate legal compliance.These statements are
required to present each major fund in a separate column on the fund financial statements.For
fiscal year 2014,the major fund is the General Fund.The non-major funds are the Capital
Projects Fund and Debt Service Fund.
Governmental funds are those funds through which most governmental functions typically are
financed.The measurement focus of governmental funds is on the sources,uses and balance of
current financial resources.The District has presented the following governmental funds:
General Fund
The General Fund is the main operating fund of the District.This fund is used to account
for all financial resources not accounted for in other funds.All general tax revenues and
other receipts that are not restricted by law or contractual agreement to some other fund
are accounted for in this fund.General operating expenditures,fixed charges and capital
improvement costs that are not paid through other funds are paid from the General Fund.
Debt Service Fund
The Debt Service Fund is used to account for resources accumulated and payments made
for principal and interest on the long-term debt of governmental funds.
18
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Capital Projects Fund
The Capital Projects Fund is used to account for funds received and expended for the
acquisition and construction of infrastructure and other capital assets.
D.Measurement Focus and Basis of Accounting
Measurement focus refers to what is being measured;basis of accounting refers to when revenues
and expenditures are recognized in the accounts and reported in the financial statements.Basis of
accounting relates to the timing of the measurement made,regardless of the measurement focus
applied.
The government-wide statements are reported using the economic resources measurement focus
and the accrual basis of accounting.
The economic resources measurement focus means all assets and liabilities (whether current or
non-current)are included on the statement of net position and the operating statements present
increases (revenues)and decreases (expenses)in net total position.Under the accrual basis of
accounting,revenues are recognized when earned.Expenses are recognized at the time the liability
is incurred.
Governmental fund financial statements are reported using the current financial resources
measurement focus and are accounted for using the modified accrual basis of accounting.Under
the modified accrual basis of accounting,revenues are recognized when susceptible to accrual;
i.e.,when they become both measurable and available.
"Measurable"means the amount of the transaction can be determined and "available"mean8
collectible within the current period or soon enough thereafter to be used to pay liabilities of the
cunent period.The District considers receivables collected within sixty days after year-end to be
available and recognizes them as revenues of the current year.Expenditures are recorded when the
related fund liability is incuned.However,debt service expenditures are recorded only when
payment is due.
The revenues susceptible to accrual are interest income and ad valorem taxes.All other
governmental fund revenues are recognized when received.
E.Cash and Investments
The District's cash and cash equivalents are considered to be cash on hand,demand deposits,anel
short-term investments of three months or less from the date of acquisition.
19
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
E.Cash and Investments -Continued
The District's investment policy requires that all monies be deposited with the authorized District
depository or in (1)obligations of the United States or its agencies and instrumentalities;(2)direct
obligations of the State of Texas or its agencies;(3)other obligations,the principal of and interest
on which are unconditionally guaranteed or insured by the State of Texas or the United States;(4)
obligations of states,agencies,counties,cities,and other political subdivisions of any state having
been rated as to investment quality by a nationally recognized investment rating firm and having
received a rating of not less than A or its equivalent;(5)certificates of deposit by state and
national banks domiciled in this state that are (A)guaranteed or insured by the Federal Deposit
Insurance Corporation,or its successor;or,(B)secured by obligations that are described by (l)-
(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.
All investments are recorded at fair value based on quoted market prices.Fair value is the amount
at which a financial instrument could be exchanged in a cunent transaction between willing
parties.
F.Capital Assets
Capital assets,which include property,plant,and equipment,are reported in the government-wide
financial statements.All capital assets are valued at historical cost or estimated historical cost if
actual historical cost is not available.Donated assets are valued at their fair market value on the
date donated.Repairs and maintenance are recorded as expenses.Renewals and betterments are
capitalized.Interest has not been capitalized during the construction period on property,plant and
equipment.
Assets capitalized have an original cost of $5,000 or more and over one year of useful life.
Depreciation has been calculated on each class of depreciable property using the straight-line
method.Estimated useful lives are as follows:
Buildings
Improvements other than buildings
Machinery and equipment
Vehicles
Water and wastewater systems
20
50 Years
15 -30 Years
5 -15 Years
6 -12 Years
30 -65 Years
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
G.Accumulated Vacation Time
Employees earn vacation pay based upon seniority that accrues at various rates up to a maximum
four weeks per year.Upon termination,employees will be paid for their unused earned vacation.
The District records a liability for the value of these compensated absences.
H.Organizational Costs
The District,in conformance with requirements of the TCEQ,capitalized costs incurred in the
creation of the District.The TCEQ requires capitalization of organizational costs for the
construction period,amortized bond premium and discount losses on sales of investments,accrued
interest on investments purchased,attorney fees and some administrative expenses until
construction and acceptance or use of the first revenue producing facility has occurred.The
District amortizes the organizational costs using the straight-line method over a period of 22 to 45
years.
I.Net Position
Net position represents the difference between assets and liabilities.Net position invested in
capital assets,net of related debt consists of capital assets,net of accumulated depreciation,
reduced by the outstanding balances of any borrowing used for the acquisition,construction or
improvements of those assets,and adding back unspent proceeds.Net position is reported as
restricted when there are limitations imposed on their use either through the enabling legislations
adopted by the District or through external restrictions imposed by creditors,grantors or laws or
regulations of other governments.
J.Estimates
In preparing financial statements in conformity with accounting principles generally accepted in
the United States of America,management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities,the disclosures of contingent assets and
liabilities,and the reported amounts of revenue and expenses/expenditures.Actual results could
differ from those estimates.
K.Fund Balances
Governmental Accolillting Standards Board (GASB)Statement No.54,Fund Balance Reporting
and Governmental Fund Type Definitions (GASB 54)defines the different types of fund balances
that a governmental entity must use for financial reporting purposes in the fund financial
statements for governmental type funds.It does not apply for the government-wide financial
statements.
21
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
K.Fund Balances -Continued
GASB 54 requires the fund balance amounts to be properly reported within one of the following
fund balance categories:
Nonspendable -such as fund balance associated with inventories,prepaids,long-term loans and
notes receivable,and property held for resale (unless the proceeds are restricted,committed,or
assigned)
Restricted -fund balance category includes amounts that can be spent only for the specific
purposes stipulated by constitution,external resource providers,or through enabling legislation,
Committed -fund balance classification includes amounts that can be used only for the specific
purposes determined by a formal action of the Board of Directors (the district's highest level of
decision-making authority),
Assigned -fund balance classifications are assigned by the District Manager with the intentions to
be used by the government for specific purposes but do not meet the criteria to be classified as
restricted or committed,and
Unassigned -fund balance is the residual classification for the government's General Fund and
includes all spendable amounts not contained in the other classifications,and other fund's that
have total negative fund balances.
NOTE 2.CASH AND INVESTMENTS
The funds of the District must be deposited and invested under the terms of a contract,contents of
which are set out in the Depository Contract Law.The depository bank places approved pledged
securities for safekeeping and trust with the District's agent bank in an amount sufficient to protect
District funds on a day-to-day basis during the period of the contract.The pledge of approved
securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit
Insurance Corporation (FDIC)insurance.
At September 30,2014,the carrying amount of the District's deposits (cash,certificates of deposit,
and non-pooled savings accounts)was $2,096,845 and the bank balance was $2,078,148.The
District's cash deposits at September 30,2014,and during the year then ended were entirely covered
by FDIC insurance,pledged securities,or by a letter of credit pledged by the District's agent bank in
the District's name.
22
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 2.CASH AND INVESTMENTS -CONTINUED
The Public Funds Investment Act (Govemment Code Chapter 2256)contains specific provisions in
the areas of investment practices,management reports and establishment of appropriate policies.
Among other things,it requires the District to adopt,implement,and publicize an investment policy.
That policy must address the following areas;(1)safety of principal and liquidity,(2)portfolio
diversification,(3)allowable investments,(4)acceptable risk levels,(5)expected rates of return,(6)
maximum allowable stated maturity of portfolio investments,(7)maximum average dollar-weighted
maturity,allowed based on the stated maturity date for the portfolio,(8)investment staff quality and
capabilities,(9)and bid solicitation preferences for certificates of deposit.
Statutes and the District's investment policy authorized the District to invest in the following
investments as summarized below:
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity ofPortfulio In One Issuer
U.S.Treasury Obligations 2 years 50%NA
U.S.Agencies Securities 2 years 50%NA
State ofTexas Securities 2 years 50%NA
Certificates 0 fDeposits 2 years 90%NA
Money Market 2 years 90%NA
Investment pooIs 2 years 90%NA
The Act also requires the District to have independent auditors perform test procedures related to
investment practices as provided by the Act.The District is in substantial compliance with the
requirements of the Act and with local policies.
Cash and investments as of September 30,2014 are classified in the accompanying financial
statements as follows:
Statement of Net Position:
Primary Government:
Cash and cash equivalents
Total cash and investments
23
$3,431,448
$3,431,448
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 2.CASH AND INVESTMENTS -CONTINUED
Cash and investments as of September 30,2014 consist of the following:
Petty Cash
Deposits with financial institutions
Texpoo1 Investments
Total cash and pooled investments
Disclosures Relating to Interest Rate Risk
$600
2,096,845
1,334,003
$3,431,448
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of
an investment.Generally,the longer the maturity of an investment the greater the sensitivity of its
fair value to changes in market interest rates.One of the ways that the District manages its exposure
to interest rate risk is by investing mainly in investment pools which purchase a combination of
shorter term investments with an average maturity of less than 60 days thus reducing the interest rate
risk.The District monitors the interest rate lisk inherent in its portfolio by measuring the weighted
average maturity of its portfolio.The District has no specific limitations with respect to this metric.
As of September 30,2014,the District had the following investment:
Weighted
Average
Investment Type Amount Maturity
TexPoo1 $1,334,003 53 days
Total Investments $1,334,003
As of September 30,2014,the District did not invest in any securities which are highly sensitive to
interest rate fluctuations.
Disclosures Relating to Credit Risk
Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the
holder of the investment.This is measured by the assignment of a rating by a nationally recognized
statistical rating organization.Presented below is the minimum rating required by (where applicable)
the Public Funds Investment Act,the District's investment policy,or debt agreements,and the actual
rating as of year-end for each investment type.
24
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 2.CASH AND INVESTMENTS -CONTINUED
Investment Type
TexPool
Total Investments
Concentration of Credit Risk
Amount
$1,334,003
$1,334,003
Minimum
Legal
Rating
AAAm
Rating as
of Year
End
AAAm
The investment policy of the District contains no limitations on the amount that can be invested in
anyone issuer.As of September 30,2014,other than external investment pools,the District did
not have 5%or more of its investments with one issuer.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that,in the event of the failure of a depository financial
institution,a government will not be able to recover its deposits or will not be able to recover
collateral securities that are in the possession of an outside party.The custodial credit risk for
investments is the risk that,in the event of the failure of the counterparty to a transaction,a
government will not be able to recover the value of its investment or collateral securities that are
in the possession of another party.The Public Funds Investment Act and the District's investment
policy do not contain legal or policy requirements that would limit the exposure to custodial credit
risk for deposits or investments,other than the following provision for deposits:The Public Funds
Investment Act requires that a financial institution secure deposits made by state or local
governmental units by either 1)pledging securities in an undivided collateral pool held by a
depository regulated under state law (unless so waived by the governmental unit),or 2)an
irrevocable standby letter of credit with the District named as the beneficiary.The market value of
pledged securities in the collateral pool or the value of the letter of credit must equal at least the
bank balance less FDIC insurance at all times.
Investment in State Investment Pools
The District is a voluntary participant in TexPool.The State Comptroller of Public Accounts
exercises responsibility over TexPool.This oversight includes the ability to significantly influence
operations,designation of management,and accountability for fiscal matters.Additionally,the
State Comptroller has established an advisory board composed of both participants in TexPool and
other persons who do not have a business relationship with TexPool.TexPool operates in a
manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940.TexPool
uses amortized costs rather than market value to report net assets to compute share prices.
Accordingly,the fair value of the position in TexPool is the same as the value ofTexPool shares.
25
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 3.ACCOUNTS RECEIVABLE
Receivables as of year-end,including the applicable allowances for uncollectible accounts,are as
follows:
Accounts Receivable:
MUD water
MUD sewer
Unbilled receivables
Refuse (as agent for Town of Trophy Club)
Refuse tax (as agent for Town of Trophy Club)
Storm drainage (as agent for Town of Trophy Club)
Allowance for uncollectible accounts
Total (net)
Due from Other Governments:
Town of Trophy Club
NOTE 4.INTERFUND TRANSFERS
Transfers between funds during the year are as follows:
$
$
$
489,293
239,218
147,752
61,676
5,300
38,478
981,717
(12,051)
969,666
31,886
Transfer In Transfer Out Amount Purpose
Capital Projects General Fund $120,000 Capital Imp.Reimbursements
Debt Service General Fund 230,804 Debt service
Total $350,804
26
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 5.CAPITAL ASSETS
Capital asset activity for the year ended September 30,2014,was as follows:
Beginning Retirements/Ending
Balances Additions Transfers Balance
Governmental Activities:
Capital assets -Non-Depreciable
Land $648,178 $$$648,178
Construction in progress (restated)361,822 1,527,999 (523,319)1,366,502
Total capital assets
not being depreciated 1,010,000 1,527,999 (523,319)2,014,680
Capital assets -Depreciable
Buildings 3,344,790 3,344,790
hnprovements other than buildings 303,492 303,492
Machinery and equipment 1,651,136 15,505 1,666,641
Organization costs 2,331,300 2,331,300
Vehicles 1,477,017 1,477,017
Water system 9,720,832 412,091 214,566 10,347,489
Wastewater treatment system 5,663,320 341,641 6,004,961
Wastewater collection system 3,208,855 293,248 3,502,103
Total capital assets
being depreciated 27,700,742 753,732 523,319 28,977,793
Less accumulated
depreciation fur:
Buildings (258,974)(66,888)(325,862)
Improvements other than buildings (212,591)(10,819)(223,410)
Machinery and equipment (648,301)(89,690)(737,991)
Organization costs (2,229,494)(44,248)(2,273,742)
Vehicles (997,585)(94,701)(1,092,286)
Water system (3,081,035)(168,343)(3,249,378)
Wastewater treatment system (1,779,496)(140,977)(1,920,473)
Wastewater co llection system (1,263,964)(55,574)(1,319,538)
Total accumulated
depreciation (10,471,440)(671,240)(11,142,680)
Governmental activities capital
assets,net $18,239,302 $1,610,491 $$19,849,793
27
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 5.CAPITAL ASSETS -CONTINUED
Depreciation expense was charged as direct expense to programs of the primary government as
follows:
General government
Water operations
Fire department
Non-Departmental
Wastewater operations
Wastewater collection systems
Total depreciation expense
NOTE 6.LONG-TERM DEBT
$
$
360,484
148,114
21,521
4,333
80,436
56,352
671,240
At September 30,2014,the District's long-term debt payable consisted of the following:
Interest Year Average
Rate of Final Annual Original Outstanding
Description Payable Issue Maturity Payment Amount 9/30/2014
Tax and revenue bonds:
Improvements 3.50-5.00%2010 2031 148,205 2,000,000 $1,800,000
Refunding 2.00-3.00%2012 2023 251,373 2,355,000 1,980,000
Refunding 2.00-3.50%2013 2023 224,734 1,905,000 1,740,000
$5,520,000
Notes payable:
Equipment 3.90%2010 2015 201,318 179,955 $35,991
Water/Wastewater lrnp.'s 1.85%2013 2016 153,588 445,000 302,000
$337,991
28
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 6.LONG-TERM DEBT -CONTINUED
The following is a summary of long-term debt transactions of the District for the year ended
September 30,2014:
Beginning Ending Due Within
Balance Additions Reductions Balance One Year
Governmental Activities:
Tax,revenue,and refimding bonds $5,945,000 $$(425,000)$5,520,000 $440,000
Contractual obligations 70,000 (70,000)
Defurred loss on refimding (8,666)867 (7,799)
Premium on bonding 175,223 (18,726)156,497
6,181,557 (512,859)5,668,698 440,000
Notes payable 883,982 (545,991)337,991 185,991
Compensated absences 94,781 (70,168)24,613
Total Governmental Activities
Long-term Liabilities $7,160,320 $$(1,129,018)$6,031,302 $625,991
The annual requirements to amortize all debt outstanding as of September 30,2014,are as follows:
Tax,revenue,and refunding bonds:
Year Ending
September 30,Principal Interest Total
2015 $440,000 $178,508 $618,508
2016 450,000 168,658 618,658
2017 470,000 155,783 625,783
2018 480,000 142,309 622,309
2019 505,000 128,534 633,534
2020-2024 2,270,000 401,015 2,671,015
2025-2029 620,000 140,160 760,160
2030-2031 285,000 18,276 303,276
Total $5,520,000 $1,333,243 $6,853,243
29
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 6.LONG-TERM DEBT -CONTINUED
Notes payable:
Year Ending
September 30,
2015
2016
Total
Principal
$185,991
152,000
$337,991
$
$
Interest
5,623
1,406
7,029
$
$
Total
191,614
153,406
345,020
Tax Revenue Bonds
The tax revenue bonds are payable from the proceeds of arl valorem taxes levied upon all property
subject to taxation within the District,without limitation as to rate or amount,and are further payable
from,and secured by a lien on and pledge of the net revenue to be received from the operation of the
District's waterworks and sanitary sewer system.
The outstanding bonds are callable for redemption prior to maturity at the option of the District as
follows:
Series 2010 -All maturities from 2021 to 2025 are callable in principal increments of $5,000 on or
after September 1,2020 at par plus unpaid accrued interest to the fixed date for redemptions.
Series 2012 -All maturities from 2021 to 2023 are callable in principal increments of$5,000 on or
after September 1,2020 at par plus unpaid accrued interest to the fixed date for redemptions.
Series 2013 -The Series 2013 bonds are not subject to redemption prior to their stated maturity.
Contractual obligations and notes payable are liquidated from the General Fund.Tax and revenue
bonds are liquidated from the Debt Service Fund.
The provisions of the bond resolutions relating to debt service requirements have been met,and the
cash allocated for these purposes was sufficient to meet debt service requirements for the year ended
September 30,2014.
NOTE 7.PROPERTY TAXES
Propeliy 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 propeliy within the Appraisal District must be
reviewed every five years;however,the District may,at its own expense,require annual reviews of
appraised values.The District may challenge appraised values established by the Appraisal District
30
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 7.PROPERTY TAXES -CONTINUED
through various appeals and,if necessary,legal action.Property taxes for the District are not limited
as to rate or amount.In an election held October 7,1975,the electorate of the District authorized the
levy of up to $0.25 per $100 valuation for the operations and maintenance of the District.Property
taxes attach as an enforceable lien on property as of January 1,following the levy date.Taxes are due
by January 31,following the levy date.
Property taxes are recorded as receivables when levied.Following is information regarding the 2014
tax levies:
Adjusted taxable values
o &M and Fire tax levy
1&S tax levy
$0.09673/$100
$0.03666/$100
$1,275,127,821
1,316,961
383,932
Total tax levy $0.13339/$100 $1,700,893
NOTE 8.FUND BALANCE CLASSIFICATIONS
The District's authorized their Director to designate certain fund balances as assigned.Excluding
unassigned fund balances,the following describes the District's fund balance classifications at
September 30,2014:
Non-Spendable Fund Balances
The District's $13,980 non-spendable fund balance represents expenses prepaid at fiscal year-end.
Assigned Fund Balances
The District assigned a total of $2,434,864 of General Fund fund balances for the following future
capital outlays:$767,996 for wastewater system improvements,$810,100 for water system
improvements,$396,969 for vehicles,$308,906 for street projects,and $150,893 for other
improvements.Total fund balances for the Debt Service Fund and Capital Projects Fund have been
assigned by the District for those respective purposes.
31
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 9.RISK MANAGEMENT
The District is exposed to various risks of loss related to torts;theft of,damage to,and destruction of
assets;business interruption;errors and omissions;injuries to employees;employee health benefits;and
other claims of various nature.Commercial insurance is purchased for the risks of loss to which the
District is exposed.Any losses reported but unsettled or incurred and not reported,are believed to be
insignificant to the District's basic financial statements.
Additionally,the District must operate in compliance with rules and regulations mandated for public
water supply systems by federal and state governments.The District is subject to compliance oversight
by the Texas Commission on Environmental Quality (TCEQ).
NOTE 10.DUE TO AND FROM OTHER FUNDS
During the course of operations,the District has activity between funds for various purposes.Any
residual balances outstanding at year end are reported as due from/to other funds.While these balances
are reported in fund financial statements,balances between the funds included in governmental activitie~
(i.e.,the governmental funds)are eliminated for the Statement of Net Position presentation.
At September 30,2014,the General Fund was due $86,259 from the Capital Projects Fund for capital
proj ect expenditures paid for by the General Fund.
NOTE 11.RETIREMENT PLAN
Plan Description
The District participates in a cost-sharing multiple-employer defined-benefit group-te=life insurance
plan operated by the Texas County &District Retirement System (TCDRS).This plan is referred to as
the Group Te=Life Fund (GTLF).This optional plan provides group te=life insurance coverage to
current eligible employees and,if elected by employers,to retired employees.The coverage provided to
retired employees is a postemployment benefit other than pension benefits (OPEB).Retired employees
are insured for $5,000.The GTLF is a separate trust administered by the TCDRS Board of Trustees.
TCDRS issues a publicly available comprehensive annual financial report (CAFR)that includes
financial statements and required supplementary info=ation for the GTLF.This repOli is available at
www.tcdrs.org.TCDRS'CAFR may also be obtained by writing to the Texas County &District
Retirement System,P.O.Box 2034,Austin,TX 78768-2034,or by calling 800-823-7782.
Benefits
Members can retire at ages 60 and above with five or more years of service,with 20 years of service
regardless of age,or when the sum of their age and years of service equals 75 or more.Members are
vested after five years of service,but must leave their accumulated contributions in the plan to receiv('
any employer-financed benefit.Members who withdraw their personal contributions in a lump sum are
entitled to any amounts contributed by the District.
32
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 11.RETIREMENT PLAN -CONTINUED
Benefit amounts are determined by the sum of the employee's contributions to the plan,with interest
and employer-financed monetary credits.The level of these monetary credits is adopted by Board of
Directors,within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can
be expected to be adequately financed by the employer's commitment to contribute.At retirement,
death,or disability,the benefit is calculated by converting the sum of the employee's accumulated
contributions and the employer-financed monetary credits to a montWy annuity using annuity purchase
rates prescribed by the TCDRS Act.
Funding Policy
Each participating employer contributes to the GTLF at a contractually required rate.An annual
actuarial valuation is performed and the contractual rate is determined using the unit credit method for
providing one-year term life insurance.The District contributions to the GTLF for the year ended
September 30,2014 were $99,082,which equaled the contractually required contribution.
Annual Pension Cost
The required contribution was determined as part of the Dec.31,2013 actuarial valuation using the entry
age actuarial cost method.The actuarial assumptions at Dec.31,2013 included (a)8.0 percent
investment rate of return (net of administrative expenses),and (b)projected salary increases of 4.9
percent.Both (a)and (b)included an inflation component of 3.0 percent.The actuarial value of assets
was determined using techniques that spread the effects of short-term volatility in the market value of
investments over a thirty-year period.The unfunded actuarial accrued liability is being amortized as a
level percentage of payroll on an open basis.The remaining amortization period at Dec.31,2013 wa,
twenty-nine years.
Funding Progress
The schedule of funding progress,presented as Required Supplementary InfOlmation (RSI)following
the notes to the financial statements,presents multi-year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for
benefits.
NOTE 12.PRIOR PERIOD RESTATEMENTS
The following schedule itemizes the effects of prior period restatements on the government-wide
financial statements:
Government-wide effects
Net Position -beginning
Prior period adjustment -remove bond issuance costs per GASB 65
Prior period adjustment -unrecorded construction in progress
Net Position -beginning as adjusted
33
Governmental
Activities
$15,127,431
(169,567)
192,286
$15,150,150
TROPHY CLUB MUNICIPAL UTILITY DISTRICT NO.1
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30,2014
NOTE 13.SUBSEQUENT EVENTS
The District has evaluated all events and transactions that occurred after September 30,2014 up through
audit report date,which is the date the financial statements were issued.The District has the following
subsequent event:
On December 23,2014,the District issued Series 2014 Unlimited Tax Bonds of $5,765,000 to finance
wastewater plant expansion.The following schedule shows how this issuance will increase future
minimum debt service:
Fiscal Year
2015
2016
2017
2018
2019
2020-2024
2025-2029
2030-2034
Principal
$
235,000
240,000
245,000
250,000
1,360,000
1,575,000
1,860,000
$ 5,765,000
Interest
$105,476
148,325
144,800
141,200
137,525
618,024
446,675
194,588
$1,936,613
34
Total
$105,476
383,325
384,800
386,200
387,525
1,978,024
2,021,675
2,054,588
$7,701,613
REPORTS REQUIRED BY
GOVERNMENTAL AUDITING STANDARDS
Susan La Follett,CPA -Partner
Rod Abbott,CPA -Partner
tt and Abbott PLLC
Certified Public Ac=untanls
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED
ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
To the Board of Directors
Trophy Club Municipal Utility District No.I
Trophy Club,Texas
We have audited,in accordance with the auditing standards generally accepted in the United
States of America and the standards applicable to fmancial audits contained in Government
Auditing Standard issued by the Comptroller General of the United States,the financial
statements of the governmental activities,each major fund,and the aggregate remaining fund
information of Trophy Club Municipal Utility District No.I (the District),as of and for the year
ended September 30,2014,and the related notes to the financial statements,which collectively
comprise the District's basic financial statements,and have issued our report thereon dated
January 20,2015.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements,we considered the District's
internal control over financial reporting (internal control)to determine the audit procedures that
are appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements,but not for the purpose of expressing an opinion on the effectiveness of the District's
internal control.Accordingly,we do not express an opinion on the effectiveness of the District's
internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees,in the normal course of perfonning their assigned functions,to
prevent,or detect and correct,misstatements on a timely basis.A material weakness is a
deficiency,or a combination of deficiencies,in internal control,such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented,
or detected and corrected on a timely basis.A significant deficiency is a deficiency,or a
combination of deficiencies,in internal control that is less severe than a material weakness,yet
important enough to merit attention by those charged with governance.
52
La Follett and Abbott PLLC
PO Box 717 .Tom Bean,TX .75489
903-546-6975'www.lafollettcpa.com
Our consideration of internal control was for the limited purpose described in the first paragraph
of this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or,significant deficiencies.Given these limitations,during our audit we did
not identify any deficiencies in internal control that we consider to be material weaknesses.
However,material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the District's financial statements are
free from material misstatement,we performed tests of its compliance with certain provisions of
laws,regulations,contracts,and grant agreements,noncompliance with which could have a
direct and material effect on the detennination of financial statement amounts.However,
providing an opinion on compliance with those provisions was not an objective of our audit,and
accordingly,we do not express such an opinion.The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing
Standards.
We noted certain matters that we reported to management of the District in a separate letter dated
January 20,2015.
Purpose ofthis Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing,and not to provide an opinion on the effectiveness of
the entity's internal control or on compliance.This report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the entity's
internal control and compliance.Accordingly,this communication is not suitable for any other
purpose.
Tom Bean,Texas
January 20,2015
53
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