district no.1 - i
Transcription
district no.1 - i
This Preliminary Official Statement and the Information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 12, 2013 IN THE OPINION OF BOND COUNSEL THE BONDS ARE VALID OBLIGATIONS OF THE DISTRICT. 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 OF SUCH OPINION. SEE “LEGAL MATTERS” and “TAX MATTERS – TAX EXEMPTION” HEREIN FOR A DISCUSSION OF BOND COUNSEL'S OPINION, INCLUDING A DISCUSSION OF CERTAIN ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS The District will designate the Bonds as “Qualified Tax-Exempt Obligations” for financial institutions. See “QUALIFIED TAX-EXEMPT OBLIGATIONS” herein. NEW ISSUE - Book-Entry-Only $5,370,000* ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. 1 (A Political Subdivision of the State of Texas, located within Rockwall County) UNLIMITED TAX REFUNDING BONDS, SERIES 2013 Dated: April 1, 2013 Due: October 1, as shown below The above-described bonds (the “Bonds”) will be registered and delivered only in the name of Cede & Co., as nominee for the Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. Beneficial Owners (as defined herein under “BOOKENTRY-ONLY SYSTEM”) of the Bonds will not receive physical certificates representing the Bonds, but will receive a credit balance on the books of the DTC participants. So long as Cede & Co. is the registered owner of the Bonds, the principal of and interest on the Bonds will be paid by the Paying Agent, as herein defined, directly to DTC, which will, in turn, remit such principal and interest to its participants for subsequent disbursement to the Beneficial Owners. See “BOOK-ENTRY-ONLY SYSTEM.” Interest on the Bonds will accrue from April 1, 2013, and will be payable on April 1 and October 1 of each year, commencing October 1, 2013 (six months interest) until maturity or prior redemption. The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, will be the paying agent/registrar (sometimes hereinafter called the “Paying Agent,” “Paying Agent/Registrar” or “Registrar”). MATURITIES, AMOUNTS, INTEREST RATES AND INITIAL PRICES Initial Initial Maturity Principal Interest Reoffering Maturity Principal Interest Reoffering (October 1) Amount* Rate Yield (a) (October 1) Amount* Rate Yield (a) 2014 $ 35,000 ____% ____% 2023 (b) $345,000 ____% ____% 2015 35,000 ____% ____% 2024 (b) 355,000 ____% ____% 2016 265,000 ____% ____% 2025 (b) 370,000 ____% ____% 2017 270,000 ____% ____% 2026 (b) 395,000 ____% ____% 2018 280,000 ____% ____% 2027 (b) 410,000 ____% ____% 2019 290,000 ____% ____% 2028 (b) 435,000 ____% ____% 2020 300,000 ____% ____% 2029 (b) 455,000 ____% ____% 2021 (b) 315,000 ____% ____% 2030 (b) 485,000 ____% ____% 2022 (b) 330,000 ____% ____% ______________________________ (a) The initial reoffering yield has been provided by the Underwriter (defined herein) and represents the initial offering price to the public of a substantial amount of the Bonds for each maturity. (b) The Bonds maturing on October 1, 2021 and thereafter, are subject to redemption prior to maturity at the option of the District, as a whole or from to time in part, on October 1, 2020, or any date thereafter at a price equal to par, plus accrued interest to the date fixed for redemption. See “THE BONDS – Optional Redemption.” The proceeds of the Bonds will be applied to pay certain costs incurred in connection with the issuance of the Bonds, and to advance refund $5,205,000* in principal amount (the “Refunded Bonds”) of the District’s Unlimited Tax Bonds, Series 2006. The refunding of the Refunded Bonds is expected to result in annual and net present value savings in the District’s current annual debt service requirements. See “PLAN OF FINANCING.” The Bonds, when issued, constitute valid and binding obligations of the District, and will be payable from the proceeds of an annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property within the District. See “THE BONDS – Source of Payment.” Neither the State of Texas; Rockwall County, Texas; the City of Fate, Texas; nor any political subdivision other than the District shall be obligated to pay the principal of and interest on the Bonds. Neither the faith and credit nor the taxing power of the State of Texas nor Rockwall County, Texas, is pledged to the payment of the principal of and interest on the Bonds. THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN. The Bonds are offered subject to prior sale, when, as and if issued by the District and accepted by the Underwriter, subject among other things to the approval of the Attorney General of Texas and Kelly Hart & Hallman LLP, Fort Worth, Texas, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, McCall, Parkhurst & Horton L.L.P., Dallas, Texas. The Bonds in definitive form are expected to be available for delivery through DTC, on or about April 4, 2013. FIRSTSOUTHWEST _______________________________ * Preliminary, subject to change. TABLE OF CONTENTS Page USE OF INFORMATION IN OFFICIAL STATEMENT....................................................... 3 SALE AND DISTRIBUTION OF THE BONDS ...... 3 Underwriting........................................................... 3 Prices and Marketability......................................... 3 Securities Laws....................................................... 4 MUNICIPAL BOND GUARANTY INSURANCE .. 4 RATINGS....................................................................... 4 OFFICIAL STATEMENT SUMMARY.................... 5 INTRODUCTION....................................................... 10 THE BONDS................................................................ 10 General.................................................................. 10 Description............................................................ 10 Book-Entry-Only System..................................... 11 Use of Certain Terms in Other Sections of this Official Statement........................................ 12 Successor Paying Agent/Registrar ....................... 13 Registration, Transfer and Exchange................... 13 Replacement of Bonds ......................................... 13 Authorization of the Bonds .................................. 13 Source of Payment................................................ 13 Redemption of the Bonds..................................... 14 Remaining Outstanding Bonds ............................ 14 Defeasance............................................................ 14 Annexation and Consolidation............................. 15 Legal Ability to Issue Additional Debt ................ 15 Registered Owners' Remedies.............................. 15 Bankruptcy Limitation to Registered Owners' Rights........................................................... 16 Legal Investment and Eligibility to Secure Public Funds in Texas............................................. 16 PLAN OF FINANCING............................................. 17 Use and Distribution of Bond Proceeds............... 17 The Refunded Bonds............................................ 17 Remaining Outstanding Bonds ............................ 18 Escrow Agreement ............................................... 18 Sources and Uses of Funds .................................. 19 LOCATION MAP OF THE DISTRICT.................. 20 DISTRICT DEBT........................................................ 21 General.................................................................. 21 Bonded Indebtedness............................................ 21 Estimated Direct and Overlapping Debt Statement ..................................................... 22 Debt Ratios ........................................................... 22 Debt Service Requirement Schedule.................... 23 TAX PROCEDURES ................................................. 23 Authority to Levy Taxes ...................................... 23 Property Tax Code and County-Wide Appraisal District ......................................................... 23 Exempt Property................................................... 24 County-Wide Appraisal District .......................... 25 Assessment and Levy ........................................... 26 Page District and Taxpayer Remedies .......................... 26 Collection.............................................................. 26 District's Rights in the Event of Tax Delinquencies .............................................. 26 TAX DATA .................................................................. 27 General.................................................................. 27 Tax Rate Limitation.............................................. 27 Historical Values and Tax Collection History..... 27 Analysis of Tax Base............................................ 28 Tax Rate Distribution ........................................... 28 Principal 2012 Taxpayers..................................... 28 Tax Rate Calculations .......................................... 29 Estimated Overlapping Taxes .............................. 29 THE DISTRICT .......................................................... 29 General.................................................................. 29 Special District Agreements................................. 30 Location ................................................................ 30 Management of the District.................................. 30 DEVELOPMENT WITHIN THE DISTRICT........ 31 Current Status of Development............................ 31 Future Development............................................. 32 THE DEVELOPERS .................................................. 32 Role of the Developer........................................... 32 Description of the Current Developers ................ 32 Agricultural Waiver.............................................. 33 Utility Construction Agreements ......................... 33 HOMEBUILDERS WITHIN THE DISTRICT...... 34 THE SYSTEM ............................................................. 34 General.................................................................. 34 Special District Agreements................................. 34 Water System........................................................ 34 Wastewater System .............................................. 35 Drainage System................................................... 35 100-year Flood Plain ............................................ 35 Future Debt........................................................... 35 Historical Operations of the District .................... 36 INVESTMENT CONSIDERATIONS...................... 36 General.................................................................. 36 Factors Affecting Taxable Values and Tax Payments...................................................... 36 Tax Collection Limitations................................... 38 Registered Owners' Remedies and Bankruptcy... 38 Marketability ........................................................ 39 Future Debt........................................................... 39 Competitive Nature of Dallas Residential Market39 Continuing Compliance with Certain Covenants 39 Bond Insurance Risk Factors ............................... 39 Future and Proposed Legislation.......................... 40 LEGAL MATTERS.................................................... 41 Legal Opinions ..................................................... 41 Legal Review........................................................ 41 No-Litigation Certificate ...................................... 42 No Material Adverse Change............................... 42 TAX MATTERS ......................................................... 42 Opinion ................................................................. 42 Federal Income Tax Accounting Treatment of Original Issue Discount............................... 43 Collateral Federal Income Tax Consequences..... 43 State, Local and Foreign Taxes............................ 44 Qualified Tax-Exempt Obligations for Financial Institutions ................................................... 44 VERIFICATION OF MATHEMATICAL CALCULATIONS ............................................. 44 CONTINUING DISCLOSURE OF INFORMATION................................................ 45 Annual Reports..................................................... 45 Event Notices........................................................ 45 Availability of Information from MSRB ............. 46 Limitations and Amendments .............................. 46 Compliance with Prior Undertakings................... 46 OFFICIAL STATEMENT......................................... 46 General.................................................................. 46 Experts .................................................................. 47 Updating of Official Statement ............................ 47 Certification of Official Statement....................... 47 Official Statement “Deemed Final” ..................... 47 APPENDIX A - Financial Statements of the District APPENDIX B - Form of Bond Counsel Opinion 2 USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriter. This Official Statement does not constitute, and is not authorized by the District for use in connection with, an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not 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, resolutions, orders, contracts, audits, engineering and other related reports set forth in this 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 District upon payment of the costs for duplication thereof. 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 condition of the District or 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, the other matters described in this Official Statement until delivery of the Bonds to the Underwriter (hereinafter defined) and thereafter only as set forth herein under “OFFICIAL STATEMENT – Updating of Official Statement.” SALE AND DISTRIBUTION OF THE BONDS Underwriting First Southwest Company (referred to herein as the “Underwriter”) has agreed to purchase the Bonds from the District for $____________ (representing the principal amount of the Bonds, plus/less an original issue, premium/discount on the Bonds of $__________, less an underwriter’s discount of $__________) plus accrued interest on the Bonds from April 1, 2013, to the date of delivery. The Underwriter’s obligation is to purchase all of the Bonds, if any are purchased. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in the Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Underwriter on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have 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. The District has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriter at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriter. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriter after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. 3 IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the United States 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 or qualification 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 jurisdictions. MUNICIPAL BOND GUARANTY INSURANCE The District has made an application with Assured Guaranty Municipal Corp. (“AGM”) and Build America Mutual (“BAM”) for a commitment for municipal bond guaranty insurance on the Bonds. The purchase of such insurance, if available or advisable, and payment of all associated costs, including the premium charged by the insurer, will be paid from proceeds of the Bonds. See “INVESTMENT CONSIDERATIONS – Bond Insurance Risk Factors.” RATINGS Standard & Poor’s Ratings Services (“Standard & Poor’s”), a Standard & Poor’s Financial Services LLC business, is located at 25 Broadway, New York, New York 10004, telephone number (212) 208-8000 and has engaged in providing ratings for corporate bonds since 1923 and municipal bonds since 1940. Standard & Poor’s has assigned an underlying rating of “BBB+” to the Bonds. The rating fees charged by Standard & Poor’s will be paid from proceeds of the Bonds. An explanation of the significance of the foregoing ratings may only be obtained from Standard & Poor’s. The foregoing ratings express only the view of Standard & Poor’s at the time the ratings are given. Furthermore, a security rating is not a recommendation to buy, sell or hold securities. There is no assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Standard & Poor’s, if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. The District is not aware of any rating assigned the Bonds other than the ratings of Standard & Poor’s. 4 OFFICIAL STATEMENT SUMMARY The following summary of certain information contained herein is qualified in its entirety by the detailed information appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more detailed information. THE BONDS The Issuer ..................................................... Rockwall County Consolidated Municipal Utility District No. 1 (the “District”), a political subdivision of the State of Texas. Description ................................................... $5,370,000* Unlimited Tax Refunding Bonds, Series 2013 (the “Bonds”), are dated April 1, 2013, and mature on October 1 in each of the years and in the amounts set forth on the cover hereof. Interest on the Bonds accrues from April 1, 2013, and is payable on October 1, 2013 (six months interest), and each April 1 and October 1 thereafter until maturity or prior redemption. See “THE BONDS – General.” The Bonds will be issued pursuant to a bond order (the “Bond Order”) adopted by the Board of Directors of the District. The Bonds are being issued under the authority of Chapters 49 and 54 of the Texas Water Code, as amended, and Chapter 1207, Texas Government Code, as amended. Redemption................................................... Bonds maturing on and after October 1, 2021, are subject to redemption, in whole or from time to time in part, at the option of the District on October 1, 2020, and on any date thereafter at a price of par plus accrued interest from the most recent interest payment date to the date of redemption. See “THE BONDS - Redemption Provisions”. Source of Payment........................................ Principal of and interest on the Bonds are payable from the proceeds of an annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property within the District. The Bonds are obligations solely of the District and are not obligations of Rockwall County, Texas; the City of Fate, Texas; the State of Texas; or any political subdivision other than the District. See “THE BONDS Source of Payment,” “TAX DATA - Tax Rate Calculations,” and “INVESTMENT CONSIDERATIONS - Maximum Impact on District Tax Rates.” Book-Entry-Only System ............................. The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds and will be deposited with DTC. See “BOOK-ENTRY-ONLY SYSTEM.” Other Characteristics .................................... The Bonds will be issued in fully registered form in the denomination of $5,000 each, or integral multiples thereof. ______________________________ * Preliminary, subject to change. 5 Use of Proceeds ............................................ The proceeds of the Bonds will be applied to pay certain costs incurred in connection with the issuance of the Bonds, and to advance refund $5,205,000* in principal amount (the “Refunded Bonds”) of the District’s Unlimited Tax Bonds, Series 2006 (the “Series 2006 Bonds”). The refunding of the Refunded Bonds is expected to result in annual and net present value savings in the District’s current annual debt service requirements. See “PLAN OF FINANCING – Use and Distribution of Bond Proceeds.” Remaining Outstanding Bonds..................... The District has previously issued $6,500,000 Unlimited Tax Bonds, Series 2006 (the “Series 2006 Bonds”); $6,260,000 Unlimited Tax Bonds, Series 2007 (the “Series 2007 Bonds”); $2,750,000 Unlimited Tax Bonds, Series 2008 (the “Series 2008 Bonds”) aggregating $15,510,000 principal amount of bonds originally issued. As of January 1, 2013, $13,955,000 principal amount of bonds originally issued remain outstanding (the “Outstanding Bonds”). Following the issuance of the Bonds and the refunding of the Refunded Bonds, $8,750,000* principal amount of the Outstanding Bonds will remain outstanding (the “Remaining Outstanding Bonds”) and the District’s total bonded indebtedness, including the Bonds, will be $14,120,000*. See “THE BONDS - Outstanding Bonds.” Authorized but Unissued Bonds................... On May 15, 2004, the District authorized $53,315,000 in bonds for refunding purposes and $46,100,000 in bonds for the purpose or purposes of purchasing, constructing or otherwise acquiring a water, wastewater and drainage system for the District. The Bonds represent the first series of refunding bonds issued by the District. After the sale of the Bonds, $53,150,000* and $30,590,000 in original authorization for refunding purposes and water, wastewater and drainage facilities purposes, respectively, will remain authorized but unissued. Municipal Bond Insurance and Rating ......... An application has been made to Assured Guaranty Municipal Corp. and Build America Mutual for a commitment to issue a policy of municipal bond guaranty insurance on the Bonds. The Bonds were assigned an underlying rating of “BBB+” by Standard & Poor’s. See “MUNICIPAL BOND GUARANTY INSURANCE” and “RATINGS.” Qualified Tax-Exempt Obligations .............. The District will designate the Bonds as “qualified tax-exempt obligations” pursuant to Section 265 (b) of the Internal Revenue Code of 1986, as amended. See “TAX MATTERS – Qualified Tax-Exempt Obligation.” THE DISTRICT Description .................................................... Rockwall County Consolidated Municipal Utility District No. 1 was formed pursuant to a Consolidation Agreement dated April 5, 1976 among Rockwall County Municipal Utility District No. 1 (created by the Texas Water Rights Commission (“TWRC”) on February 29, 1972), Rockwall County Municipal Utility District No. 3 (created by the TWRC on June 19, 1972) and Rockwall County Municipal Utility District No. 4 (created by the TWRC on June 19, 1972). The District __________________________ *Preliminary, subject to change. 6 assumed the powers and functions of the individual districts. These districts were created for the purposes of providing, operating, and maintaining facilities to control storm water, distribute potable water, and to collect and treat wastewater. The District contains approximately 581 acres and is located entirely within Rockwall County, partially within Rockwall Independent School District, partially within Royse City Independent School District and entirely within the corporate boundaries of the City of Fate. See “THE DISTRICT – General.” Authority ...................................................... The rights, powers, privileges, authority and functions of the District are established by Article XVI, Section 59 of the Constitution of the State of Texas and the general laws of the State of Texas pertaining to municipal utility districts, particularly Chapters 49 and 54 of the Texas Water Code. See “THE DISTRICT - Authority.” Location........................................................ The District is located in Rockwall County approximately 27 miles northeast of downtown Dallas and on the west side of the downtown of City of Fate within the city limits of the City of Fate. The District is bounded by State Highway 66 on the South. Developers/Landowners ............................... The active developers within the District are JFB Woodcreek/2004, Ltd. (“JFB Woodcreek”); Fate Project Development Partners, Ltd. (“Fate Project”); JFB Fate/2003, Ltd. (“JFB Fate”); FateWoodcreek/2003, Ltd. (“Fate-Woodcreek”); and H4 Woodcreek, LLC (“H4 Woodcreek”). In addition, pursuant to contract, Provident Realty Advisors, Inc. (“Provident”) acts as Project Manager for the development of the District for the above listed entities with the exception of H4 Woodcreek. Provident is also controlled by Leon J. Backes. Provident, JFB/Woodcreek, Fate Project, JFB Fate, FateWoodcreek, and H4 Woodcreek are collectively referred to herein as the “Developers.” See “THE DEVELOPERS/LANDOWNERS” and “DEVELOPMENT WITHIN THE DISTRICT - Current Status of Development”. Development Within the District.................. Of the approximately 581 acres within the District, approximately 542 acres are developable under current land development regulations. As of January 1, 2013, water, wastewater and drainage facilities have been completed to serve approximately 1,491 lots on 404.12 acres within the District. To date, development within the District includes 1,335 completed single-family homes, 11 homes under construction, and approximately145 vacant developed single-family lots. In addition to the single-family home development, the development includes an amenity center and parks. The construction of 58 lots in Woodcreek Phase 1D-2 on approximately 13 acres is anticipated to begin in March 2013 with completion anticipated in August of 2013. The remaining land within the District includes approximately 124 remaining undeveloped acres and 39 undevelopable acres. See “DEVELOPMENT WITHIN THE DISTRICT – Current Status of Development.” Current Developers and Homebuilder.......... Homebuilders active within the District include Altura Homes, Drees Homes and Lionsgate Homes in Phases 1A, 1C, and 1D; Altura Homes and Drees Homes in Phases 2A, 2B, 2C, and 2D; Megatel Homes and Plantation Homes in Phases 3A, 3B, 3C and 4. Homes in Phase 1A, 1C and 1D are being marketed in the $150,000 to $300,000+ price 7 range and range in size from 1,800 to 3,400+ square feet. Homes in Phases 2A, 2B and 2C are being marketed in the price range of $140,000 to $200,000+ and range in size from 1,500 to 2,500+ square feet. Homes in Phases 3A, 3B, 3C and 4 are being marketed in the $165,000 to $240,000 price range and range in size from 1,600 to 3,300 square feet. See “THE DISTRICT – Homebuilders Within the District.” INVESTMENT CONSIDERATIONS THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS AS SET FORTH IN THIS OFFICIAL STATEMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY EXAMINE THE ENTIRE OFFICIAL STATEMENT BEFORE MAKING THEIR INVESTMENT DECISIONS, ESPECIALLY THE PORTION OF THE OFFICIAL STATEMENT ENTITLED “INVESTMENT CONSIDERATIONS.” 8 SELECTED FINANCIAL INFORMATION (Unaudited) 2012 Assessed Valuation ............................................................................................................ (100% of market value as of January 1, 2012) See “TAX DATA” and “TAXING PROCEDURES.” $239,132,056 (a) Direct Debt: Remaining Outstanding Bonds .................................................................................... The Bonds..................................................................................................................... Total............................................................................................................................ $ 8,750,000 *(b) 5,370,000 * $ 14,120,000 * Estimated Overlapping Debt ....................................................................................................... $ 15,602,975 (c) Direct and Estimated Overlapping Debt ..................................................................................... $ 29,722,975 * Debt Service Fund Balance (as of January 22, 2013) ................................................................ General Fund Balance (as of January 22, 2013)......................................................................... $ 2,396,833 (d) $ 371,434 Direct Debt Ratio : as a percentage of 2012 Assessed Valuation ($239,132,056).................................. See “DISTRICT DEBT.” 5.90 % Ratio of Direct and Estimated Overlapping Debt : as a percentage of 2012 Assessed Valuation ($239,132,056).................................. See “DISTRICT DEBT.” 12.43 % Percentage of Tax Collections (2007-2011) ............................................................................... 99.77 % 2012 Tax Rate per $100 of Assessed Valuation for Debt Service ................................................................................................................. Maintenance and Operation ......................................................................................... Total Tax Rate ......................................................................................................... $0.48 0.22 $0.70 Average Annual Debt Service Requirement of the Bonds and the Outstanding Bonds (2013-2030).................................................................................. Debt Service Tax Rate per $100 of Assessed Valuation Required to Pay Average Annual Debt Service Requirements of the Bonds and the Outstanding Bonds (2013-2030) at 95% Tax Collections Based on 2012 Assessed Valuation ($239,132,056) ................................................... Maximum Annual Debt Service Requirement of the Bonds and the Outstanding Bonds (2030) ........................................................................................... $ 1,144,508 * $0.51 $ 1,238,175 * Debt Service Tax Rate per $100 of Assessed Valuation Required to Pay Maximum Annual Debt Service Requirements of the Bonds and the Outstanding Bonds (2030) at 95% Tax Collections Based on the 2012 Assessed Valuation ($239,132,056) ............................................. $0.55 Single-Family Homes (including 11 homes under construction) as of January 1, 2013........... 1,346 Estimated Population as of January 1, 2013 ............................................................................... 4,711 (e) ___________________________ * Preliminary, subject to change. (a) Certified Taxable Assessed Value within the District as provided by the Rockwall Central Appraisal District (“RCAD”). See “TAXING PROCEDURES.” (b) Excludes the Refunded Bonds. (c) See “DISTRICT DEBT - Estimated Overlapping Debt.” (d) Neither Texas law nor the Bond Order requires that the District maintain any particular sum in the Debt Service Fund. (e) As of January 1, 2013. Based on 3.5 residents per completed single-family connection. 9 $5,370,000* ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. 1 (A Political Subdivision of the State of Texas Located in Rockwall County, Texas) UNLIMITED TAX REFUNDING BONDS SERIES 2013 INTRODUCTION This Official Statement provides certain information in connection with the issuance by Rockwall County Consolidated Municipal Utility District No. 1 (the “District”) of its $5,370,000 Unlimited Tax Refunding Bonds, Series 2013 (the “Bonds”). The Bonds are issued pursuant to (i) the Bond Order (“Bond Order”) adopted by the Board of Directors of the District on the date of the sale of the Bonds, (ii) the Constitution and general laws of the State of Texas, particularly Chapter 1207 of the Texas Government Code, as amended, and (iii) an election held within the boundaries on the District on May 15, 2004. Unless otherwise indicated, capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Bond Order. Included in this Official Statement are descriptions of the Bonds 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 at Kelly Hart & Hallman LLP, 201 Main Street, Suite 2500, Fort Worth, Texas 76102 or during the offering period from the District’s Financial Advisor, RBC Capital Markets Corporation, Attn: Jan Bartholomew, 1001 Fannin Street, Suite 1200, Houston, Texas 77002 upon payment of reasonable copying, mailing and handling charges. THE BONDS General The following is a description of certain terms and conditions of the Bonds, which description is qualified in its entirety by reference to the order of the Board of Directors of the District (the “Board”) authorizing the issuance of the Bonds (the “Bond Order”). A copy of the Bond Order may be obtained from the District upon request and payment of the costs for duplication thereof. The Bond Order authorizes the issuance and sale of the Bonds and prescribes the terms, conditions and provisions for the payment of the principal of and interest on the Bonds by the District. Description The Bonds are dated April 1, 2013, and will mature on October 1 in the years and in the principal amounts indicated on the cover page hereof. The Bonds will accrue interest from April 1, 2013 at the stated interest rates indicated on the cover page hereof. Interest on the Bonds is payable on October 1, 2013 (six months interest), and on each April 1 and October 1 (each an “Interest Payment Date”) thereafter until maturity or prior redemption. The Bonds will be issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Principal of the Bonds will be payable to the registered holder thereof (the “Registered Owner”) at maturity or earlier redemption upon presentation of Bonds at the principal payment office of The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, the paying agent/registrar (the “Paying Agent/Registrar,” “Paying Agent,” or “Registrar”). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Registrar to Registered Owners as shown on the records of the Registrar at the close of business on the 15th day of the calendar month next preceding each interest payment date (the “Record Date”), or by other such customary banking arrangements as may be acceptable to the Registrar and the Registered Owner at the expense and risk of the Registered Owner. ______________________________ * Preliminary, subject to change. 10 Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of and interest on the Bonds are to be paid to and credited by The Depository Trust Company (“DTC”), New York, New York, while the Bonds are registered in its nominee’s name. The information in this section concerning DTC and the Book-EntryOnly System has been provided by DTC for use in disclosure documents such as this Official Statement. The District believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurance that (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, 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. The Depository Trust Company (“DTC”), New York NY, 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 required by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world’s largest securities 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 bookentry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. 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 purchase of each Bond (“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 certificates 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 11 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 notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issue 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). 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 Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District 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 Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 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 form, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the book-entry system, and (ii) except as described above, notices that are to be given to registered owners under the Bond Order will be given only to DTC. The information concerning DTC and DTC's book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. 12 Successor Paying Agent/Registrar Provision is made in the Bond Order for replacing the Paying Agent/Registrar. If the District replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the District shall be a commercial bank; a trust company organized under the laws of the State of Texas; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Registration, Transfer and Exchange In the event the Book-Entry-Only system is discontinued, the Bonds are transferable only on the bond register kept by the Registrar upon surrender at the principal payment office of the Registrar in Dallas, Texas. A Bond may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Registrar. At any time after the date of initial delivery, any Bond may be transferred upon its presentation and surrender at the designated offices of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the Bondholder. The Bonds are exchangeable upon presentation at the designated office(s) of the Registrar, for an equal principal amount of Bonds of the same maturity in authorized denominations. To the extent possible, new Bonds issued in exchange or transfer of Bonds will be delivered to the Bondholder or assignee of the Bondholder within not more than three (3) business days after the receipt by the Registrar of the request in proper form to transfer or exchange the Bonds. New Bonds registered and delivered in an exchange or transfer shall be in the denomination of $5,000 in principal amount for a Bond, or any integral multiple thereof for any one maturity and shall bear interest at the same rate and be for a like aggregate principal or maturity amount as the Bond or Bonds surrendered for exchange or transfer. Neither the Registrar nor the District is required to issue, transfer, or exchange any Bond during a period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date or to transfer or exchange any Bond selected for redemption, in whole or in part, beginning fifteen (15) calendar days prior to, and ending on the date of the mailing of notice of redemption, or where such redemption is scheduled to occur within forty-five (45) calendar days. No service charge will be made for any transfer or exchange, but the District or Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. Replacement of Bonds In the event the Book-Entry-Only system is discontinued, the District has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the District and the Registrar of security or indemnity to hold them harmless. The District or the Registrar may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Authorization of the Bonds At an election held within the District on May 15, 2004, the voters authorized issuance of $53,315,000 unlimited tax bonds for refunding purposes and $46,100,000 for waterworks, sanitary sewer, and drainage facilities to serve the District. The Bonds constitute the first issuance of bonds from the refunding authorization and the fourth issuance of bonds altogether. The Bonds are issued pursuant to (i) the Bond Order (“Bond Order”) adopted by the Board of Directors of the District on the date of the sale of the Bonds, (ii) the Constitution and general laws of the State of Texas, particularly Chapter 1207 of the Texas Government Code, as amended, and (iii) the election held within the boundaries on the District on May 15, 2004. Source of Payment The Bonds, when issued, will constitute valid and binding obligations of the District, and the principal thereof and the interest thereon, together with the principal and interest on the Remaining Outstanding Bonds (hereinafter 13 defined) and such additional tax bonds of the District as may hereafter be authorized by District voters, if any, and subsequently issued, are payable from and secured by the proceeds of an annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property located within the District. See “TAXING PROCEDURES” and “TAX DATA - Tax Rate Calculations” for tax adequacy, manner of assessing and collecting taxes, and the remedy to the District in the event of tax delinquencies; and “Registered Owners' Remedies” below for the remedies available to Bondholders in the event of default in the performance of any of the covenants set forth in the Bond Order or in the event of default in the payment of principal of or interest on the Bonds. The Bonds are obligations solely of the District and are not obligations of Rockwall County, Texas; the City of Fate, Texas; the State of Texas; or any political subdivision other than the District. Redemption of the Bonds The District reserves the right, at its option, to redeem the Bonds maturing on and after October 1, 2021 prior to their scheduled maturities, in whole or in part, on October 1, 2020, or on any date thereafter, at a price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. Notice of the exercise of the reserved right of redemption will be given at least thirty (30) days prior to the redemption date by sending such notice by first class mail to the Registered Owner of each Bond to be redeemed in whole or in part at the address shown on the bond register. If less than all of the Bonds are optionally redeemed at any time, the particular maturities and amounts of Bonds to be optionally redeemed shall be selected by the District in integral multiples of $5,000 within any one maturity and if less than all of the Bonds within a maturity are to be redeemed, the Paying Agent/Registrar (or DTC in accordance with its procedures while the Bonds are in book-entry-only form) shall designate by method of random selection the Bonds within such maturity to be redeemed. The Registered Owner of any Bond, all or a portion of which has been called for redemption, shall be required to present same to the Paying Agent/Registrar for payment of the redemption price on the portion of the Bond so called for redemption and issuance of a new Bond in the principal amount equal to the portion of such Bond not redeemed. Remaining Outstanding Bonds The District has previously issued $6,500,000 Unlimited Tax Bonds, Series 2006 (the “Series 2006 Bonds”); $6,260,000 Unlimited Tax Bonds, Series 2007 (the “Series 2007 Bonds”); and $2,750,000 Unlimited Tax Bonds, Series 2008 (the “Series 2008 Bonds”) aggregating $15,510,000 principal amount of bonds originally issued. As of January 1, 2013, $13,955,000 principal amount of such bonds remains outstanding (the “Outstanding Bonds”). Following the issuance of the Bonds and the refunding of the Refunded Bonds (hereinafter defined), $8,750,000* principal amount of the Outstanding Bonds will remain outstanding (the “Remaining Outstanding Bonds”), and the District’s total bonded indebtedness, including the Bonds, will be $14,120,000*. Defeasance The Bond Order provides that the District may discharge its obligations to the Registered Owners of any or all of the Bonds to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Bonds to maturity or redemption of (ii) by depositing with any place of payment (paying agent) for obligations of the District payable from revenues or from ad valorem taxes or both or with a commercial bank or trust company designated in the proceedings authorizing such discharge, amounts sufficient to provide for the payment and/or redemption of the Bonds; provided that such deposits may be invested and reinvested only in (a) direct noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the District adopts or approves the _____________________________ * Preliminary, subject to change. 14 proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds. If any of such Bonds are to be redeemed prior to their respective dates of maturity, provision must have been made for giving notice of redemption as provided in the Bond Order. There is no assurance that the current law will not be changed in a manner which would permit other investments to be made with amounts deposited to defease the Bonds. Because the Bond Order does not contractually limit such investments, Bondholders may be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as currently permitted under Texas law. There is also no assurance that any investment held for such discharge will maintain its rating. Annexation and Consolidation 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 additional changes in its boundaries. The District has the legal authority to consolidate with other districts and, in connection therewith, to provide for the consolidation of its assets (such as cash and the utility system), and liabilities (such as the Bonds), with the assets and liabilities of districts with which it is consolidating. Although no consolidation is presently contemplated by the District, no representation is made concerning the likelihood of consolidation in the future. Legal Ability to Issue Additional Debt After the issuance of the Bonds, $53,150,000* of bonds for refunding purposes and $30,590,000 of bonds for water, sewer and drainage purposes will remain authorized but unissued. The Bond Order imposes no limitation on the amount of additional parity bonds which may be issued by the District. It is the opinion of the Engineer that the $30,590,000 remaining authorized but unissued bonds will be sufficient to complete construction of all water, sewer and drainage facilities in the District. See “INVESTMENT CONSIDERATIONS - Future Debt.” Before issuing any additional bonds for water, sewer and drainage facilities, the District would have to obtain approval of the Texas Commission on Environmental Quality (the “Commission” or “TCEQ”) for the issuance of such bonds and the projects to be financed thereby. In addition to the above-mentioned bonds, the District has the right to issue such additional tax bonds or combination tax and revenue bonds as may be hereafter approved by the voters of the District. The District also has the right to issue revenue notes, bond anticipation notes, and tax anticipation notes without the necessity of voter approval. In addition, the District has the right to enter into contracts and to pledge its taxing power to secure any payments the District is required to make under such contracts, provided the provisions of the contract are approved by the voters of the District. The District further has the right to issue refunding bonds without additional voter approval. The City provides the District with facilities for parks, roads and fire protection. Registered Owners' Remedies The Bond Order contains a covenant that while any part of the Bonds is outstanding, there shall be assessed, levied, and collected an annual ad valorem tax, without legal limit as to rate or amount, on all taxable property within the District, sufficient to pay principal of and interest on the Bonds, the Remaining Outstanding Bonds of any additional tax bonds when due and to pay the expenses necessary in collecting taxes. Texas law and the Bond Order provide that in the event that the District defaults in the payment of the principal of or interest on any of the Bonds when due, fails to make payments required by the Bond Order into the Debt Service Fund, or defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Bond Order, any Registered Owner shall be entitled at any time to a writ of mandamus from a court of competent jurisdiction compelling and requiring ______________________________ * Preliminary, subject to change. 15 the Board of Directors of the District to observe and perform any covenant, obligation, or condition prescribed by the Bond Order. Such right is in addition to all other rights the Registered Owners may be provided by the laws of the State of Texas. Except for mandamus, the Bond Order does not specifically provide for remedies to a Registered Owner in the event of a District default, nor does it provide for the appointment of a trustee to protect and enforce the interests of the Registered Owners. There is no acceleration of maturity of the Bonds in the event of default. Consequently, the remedy of mandamus is a remedy which may have to be relied upon from year to year by the Registered Owners. Even if the Registered Owners could obtain a judgment against the District, such judgment 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 in order to pay the principal of and interest on the Bonds. Certain traditional legal remedies also may be unavailable. The enforceability of the rights and remedies of the Registered Owners may be further limited by federal bankruptcy laws, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. See “Bankruptcy Limitation to Registered Owners' Rights.” Bankruptcy Limitation to Registered Owners' Rights Other than a writ of mandamus and other relief authorized by law, the Bond Order does not expressly provide a specific remedy for a default. Even if a registered owner could obtain a judgment against the District for a default in the payment of principal or interest, such judgment could not be satisfied by execution against any property of the District. If the District defaults, a registered owner could petition for a writ of mandamus issued by a court of competent jurisdiction requiring the District and the District’s officials to observe and perform the covenants, obligations or conditions prescribed in the Bond Order. Such remedy might need to be enforced on a periodic basis. The enforcement of a claim for payment on the Bonds would be subject to the applicable provisions of the federal bankruptcy laws, any other similar laws affecting the rights of creditors of political subdivisions, and general principals of equity. See “INVESTMENT CONSIDERATIONS - Registered Owners’ Remedies,” and “Bankruptcy Limitation to Registered Owners’ Rights.” Legal Investment and Eligibility to Secure Public Funds in Texas Pursuant to the Texas Bond Procedures Act, Chapter 1201, Texas Government Code, as amended, and Section 49.186, Texas Water Code, the Bonds, whether rated or unrated, are (a) legal investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees and (b) legal investments for the public funds of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than “A” or its equivalent to be legal investments for such entity’s funds. The Bonds are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code, to secure deposits of public funds of the State of Texas or any political subdivision or public agency of the State of Texas and are lawful and sufficient security for those deposits to the extent of their market value. The District has not reviewed the laws in other states to determine whether the Bonds are legal investments for various institutions in those states or eligible to serve as collateral for public funds in those states. The District has made no investigation of any other laws, rules, regulations or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above persons or entities to purchase or invest in the Bonds. 16 PLAN OF FINANCING Use and Distribution of Bond Proceeds The proceeds of the Bonds, will be applied to pay certain costs incurred in connection with the issuance of the Bonds, and to advance refund $5,205,000* in principal amount (the “Refunded Bonds”) of the District’s Unlimited Tax Bonds, Series 2006 (the “Series 2006 Bonds”). The refunding of the Refunded Bonds is expected to result in annual and net present value savings in the District’s current annual debt service requirements. The Refunded Bonds The principal amounts and maturity dates of the Refunded Bonds are set forth as follows: Series 2006 Refunded Bonds* Maturity Principal Date Amount 10/01/2016 10/01/2017 10/01/2018 10/01/2019 10/01/2020 10/01/2021 10/01/2022 *** 10/01/2024 10/01/2025 10/01/2026 10/01/2028 10/01/2030 Total 230,000 240,000 255,000 270,000 285,000 300,000 320,000 *** 695,000(a) 375,000 400,000 865,000(b) 970,000(c) $5,205,000 Redemption Date: October 1, 2013 Aggregate Principal Amount of Refunded Bonds $5,205,000* (a) Term Bond with scheduled mandatory redemption amounts as follows: Redemption Date 10/01/2023 10/01/2024 Amount $340,000 355,000 (b) Term Bond with scheduled mandatory redemption amounts as follows: Redemption Date 10/01/2027 10/01/2028 Amount $420,000 445,000 __________________________________ * Preliminary, subject to change. 17 (c) Term Bond with scheduled mandatory redemption amounts as follows: Redemption Date 10/01/2029 10/01/2030 Amount $470,000 500,000 Remaining Outstanding Bonds The District has previously issued the following bonds for waterworks, sanitary sewer and drainage facilities; recreational facilities and to refund bonds issued by the District: Series Series 2006 Bonds Series 2007 Bonds Series 2008 Bonds Principal Amount Originally Issued Outstanding Bonds Refunded Bonds* Remaining Outstanding Bonds* $ 6,500,000 6,260,000 2,750,000 $15,510,000 $ 5,820,000 5,595,000 2,540,000 $13,955,000 $ 5,205,000 -0-0$5,205,000 $ 615,000 5,595,000 2,540,000 $8,750,000 Escrow Agreement The District will enter into an escrow agreement (the “Escrow Agreement”) with The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the “Escrow Agent”), pursuant to which a portion of the proceeds of the Bonds will be deposited in cash or invested in certain securities of the United States of America (the “Escrowed Obligations”) and held in an escrow fund (the “Escrow Fund”) to provide for scheduled payments of principal of and interest on the Refunded Bonds until their redemption date. At the time of delivery of the Bonds, Grant Thornton L.L.P. will verify to the District, the Escrow Agent, Bond Counsel, and the Underwriter that the cash and the Escrowed Securities in the Escrow Fund is sufficient in principal amount to pay, when due, the principal of and interest on the Refunded Bonds. See “VERIFICATION OF MATHEMATICAL CALCULATIONS.” By the deposit of cash and the Escrowed Securities with the Escrow Agent pursuant to the Escrow Agreement, the District will have affected the defeasance of the Refunded Bonds pursuant to the terms of the order authorizing the issuance of the Refunded Bonds. In the opinion of Bond Counsel, as a result of such deposit, firm banking and financial arrangements will have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement, and such Refunded Bonds will be deemed under Texas law to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. ___________________________________ * Preliminary, subject to change. 18 Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Par Amount of Bonds................................................................................................... Plus: Net Premium on the Bonds ................................................................................ Accrued Interest............................................................................................................ Total Sources of Funds................................................................................................. $ $ USES OF FUNDS: Deposit to Redeem Refunded Bonds ........................................................................... Deposit Accrued Interest to Debt Service Fund .......................................................... Issuance Expenses and Underwriter Discount............................................................. Total Uses of Funds...................................................................................................... [Remainder of Page Intentionally Left Blank] 19 $ $ LOCATION MAP OF THE DISTRICT (taken August, 2012) 20 DISTRICT DEBT General The following tables and calculations relate to the Bonds. The District is empowered to incur debt to be paid from revenues raised by taxation against all taxable property located within the District, and various other political subdivisions of government which overlap all or a portion of the District are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the District. Bonded Indebtedness 2012 Assessed Valuation ............................................................................................................ (100% of market value as of January 1, 2012) See “TAX DATA” and “TAXING PROCEDURES” $239,132,056 (a) Direct Debt: Remaining Outstanding Bonds .................................................................................... The Bonds..................................................................................................................... Total........................................................................................................................... $ 8,750,000 *(b) 5,370,000 * $ 14,120,000 * Estimated Overlapping Debt ....................................................................................................... $ 15,602,975 (c) Direct and Estimated Overlapping Debt ..................................................................................... $ 29,722,975 Debt Service Fund Balance (as of January 22, 2013) ................................................................ General Fund Balance (as of January 22, 2013)......................................................................... $ 2,396,834 (d) $ 371,434 Ratio of Direct Debt to ....... :2012 Assessed Valuation ($239,132,056) ................................ 5.90 % Ratio of Direct and Estimated Overlapping Debt to ........... :2012 Assessed Valuation ($239,132,056) ................................ 12.43 % Estimated Population as of January 1, 2013 ............................................................................... 4,711 (d) __________________________ * Preliminary, subject to change (a) Certified Taxable Assessed Value within the District as provided by the Rockwall Central Appraisal District (“RCAD”). See “TAXING PROCEDURES.” (b) Excludes the Refunded Bonds. (c) See “DISTRICT DEBT - Estimated Overlapping Debt.” (d) Neither Texas law nor the Bond Order requires that the District maintain any particular sum in the Debt Service Fund. (e) As of January 1, 2013. Based on 3.5 residents per active single-family connection. 21 Estimated Direct and Overlapping Debt Statement The following statement indicates the direct and estimated overlapping debt of the District. The table includes the estimated amount of indebtedness of governmental entities overlapping the District, defined as outstanding bonds payable from ad valorem taxes, and the estimated percentages and amounts of such indebtedness attributable to property located within the District. This information is based upon data secured from the individual jurisdictions and/or the Texas Municipal Reports published by the Municipal Advisory Council of Texas. The calculations by which the statement was derived were made in part by comparing the reported assessed valuation of the property in the overlapping taxing jurisdictions with the 2012 Assessed Valuation of property within the District. No effect has been given to the tax burden levied by any applicable taxing jurisdiction for maintenance and operational or other purposes. Outstanding Debt as of 12/31/2012 $ 94,582,015 2,545,000 346,078,257 110,563,840 Taxing Body Rockwall County City of Fate Rockwall ISD Royse City ISD Overlapping Percent 3.80% 49.16 1.69 4.44 TOTAL ESTIMATED OVERLAPPING DEBT TOTAL DIRECT DEBT TOTAL DIRECT & ESTIMATED OVERLAPPING DEBT Amount $ 3,594,030 1,251,188 5,848,723 4,909,034 $15,602,975 14,120,000 * $29,722,975 __________________________ * Includes the refunding of the Refunded Bonds and the issuance of the Bonds. Preliminary, subject to change Debt Ratios Direct Debt Direct and Estimated Overlapping Debt % of 2012 Assessed Valuation 5.90% 12.43% Under Texas law ad valorem taxes levied by each taxing authority other than the District create a lien which is on a parity with the lien in favor of the District on all taxable property within the District. In addition to the ad valorem taxes required to retire the foregoing direct and overlapping debt, the various taxing authorities mentioned above are also authorized by Texas law to assess, levy and collect ad valorem taxes for operation, maintenance, administration and/or general revenue purposes. Certain of the jurisdictions have in the past levied such taxes. The District has the power to assess, levy and collect ad valorem taxes for operation and maintenance purposes, and such taxes have been authorized by the duly qualified voters of the District. The District has levied a maintenance tax since 1991, the initial year taxes were levied within the District. See “TAX DATA - Maintenance Tax”. 22 Debt Service Requirement Schedule The following schedule sets forth the debt service requirements on the Outstanding Bonds, less the debt service of the Refunded Bonds and the principal and estimated interest requirements on the Bonds, assuming the Bonds are issued at various interest rates. Year Ending December 31 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Current Debt Service Requirements $ 1,120,198 1,118,573 1,115,498 1,125,248 1,124,218 1,139,478 1,142,593 1,148,924 1,158,718 1,176,320 1,181,325 1,189,208 1,195,008 1,208,139 1,218,708 1,231,225 1,240,693 1,257,025 $ 21,091,093 Less: Debt Service on Refunded Bonds* 231,395 231,395 231,395 461,395 461,965 467,125 471,415 474,940 477,828 484,778 490,698 490,568 494,770 502,895 504,895 510,575 515,105 523,250 $8,026,385 Plus: -- The Bonds -Principal* Interest* $ $ $ 35,000 35,000 265,000 270,000 280,000 290,000 300,000 315,000 330,000 345,000 355,000 370,000 395,000 410,000 435,000 455,000 485,000 $5,370,000 103,688 177,750 177,050 176,350 171,050 165,650 160,050 151,350 142,350 132,900 123,000 112,650 102,000 87,200 71,400 55,000 37,600 19,400 $2,166,438 Average Annual Requirements - (2013-2030) ........................................................................... Maximum Annual Requirement - (2030) ................................................................................... Total New Debt Service $ 992,490 1,099,928 1,096,153 1,105,203 1,103,303 1,118,003 1,121,228 1,125,334 1,138,240 1,154,443 1,158,628 1,166,290 1,172,238 1,187,444 1,195,213 1,210,650 1,218,188 1,238,175 $20,601,145 $1,144,508* $1,238,175* See “TAX DATA - Tax Rate Calculations” and “INVESTMENT CONSIDERATIONS - Maximum Impact on District Tax Rates” for a discussion of the District's projected tax rates and the effect of the Bonds thereon. TAX PROCEDURES Authority to Levy Taxes The Board is authorized to levy an annual ad valorem tax on all taxable property within the District in an amount sufficient to pay the principal of and interest on the Bonds, and any additional bonds payable from taxes which the District may hereafter issue (see “INVESTMENT CONSIDERATIONS - Future Debt”) and to pay the expenses of assessing and collecting such taxes. The District agrees in the Bond Order to levy such a tax from year-to-year as described more fully herein under “THE BONDS - Source of and Security for Payment.” Under Texas law, the Board is also authorized to levy and collect an annual ad valorem tax for the operation and maintenance of the District and its water, wastewater and drainage system and for the payment of certain contractual obligations if authorized by its voters. See “TAX DATA - Tax Rate Limitation”. Property Tax Code and County-Wide Appraisal District The Texas Property Tax Code (the “Property Tax Code”) specifies the taxing procedures of all political subdivisions of the State of Texas, including the District. Provisions of the Property Tax Code are complex and are not fully summarized herein. ____________________________ * Preliminary, subject to change. 23 The Property Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property values and establishes in each county of the State of Texas an appraisal district with the responsibility for recording and appraising property for all taxing units within a county and an appraisal review board with the responsibility for reviewing and equalizing the values established by the appraisal district. The Rockwall County Appraisal District (the “Appraisal District” or “RCAD”) has the responsibility for appraising property for all taxing units within Rockwall County, including the District. Such appraisal values are subject to review and change by the Rockwall County Appraisal Review Board (the “Appraisal Review Board”). The appraisal roll as approved by the Appraisal Review Board must be used by the District in establishing its tax roll and tax rate. Exempt Property Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for the production of income, mobile homes and certain categories of intangible personal property with a tax situs in the District are subject to taxation by the District. Principal categories of exempt property include, but are not limited to: property owned by the State of Texas or its political subdivisions, if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies and personal effects; certain goods, wares, and merchandise in transit; certain farm products owned by the producer; certain property of charitable organizations, youth development associations, religious organizations, and qualified schools; designated historical sites; and most individually-owned automobiles. In addition, the District may by its own action exempt certain property owned by qualified organizations engaged primarily in charitable activities, residential homesteads of persons 65 years or older and certain disabled persons, to the extent deemed advisable by the Board of Directors of the District. For the 2012 tax year, the District has adopted an exemption of $10,000 from ad valorem taxation on residential homesteads of individuals who are 65 years or older and certain disabled persons. The District may be required to offer such exemptions if a majority of voters approve same at an election. The District would be required to call an election upon petition by twenty percent (20%) of the number of qualified voters who voted in the preceding election. The District is authorized by statute to disregard exemptions for the disabled and elderly if granting the exemption would impair the District's obligation to pay tax supported debt incurred prior to adoption of the exemption by the District. Furthermore, the District must grant exemptions to disabled veterans, or certain surviving dependents of disabled veterans if requested, but only to the maximum extent of $5,000 to $12,000 of assessed valuation depending upon the disability rating of the veteran. A veteran who receives a disability rating of 100% is entitled to an exemption for the full amount of the veteran’s residence homestead. Additionally, subject to certain conditions, the surviving spouse of a disabled veteran who is entitled to an exemption for the full value of the veteran’s residence homestead is also entitled to an exemption from taxation of the total appraised value of the same property to which the disabled veteran’s exemption applied. The Board may exempt up to 20% of the market value of residential homesteads from ad valorem taxation. Such exemption would be in addition to any other applicable exemptions provided by law. However, if ad valorem taxes have previously been pledged for the payment of debt and the reduction or cessation of the levy would impair the obligation of the contract by which the debt was created, then the Board may continue to levy and collect taxes against the exempt value of the homesteads until the debt is discharged. To date, the Board has not granted a residential homestead exemption. Rockwall County may designate all or part of the area within the District as a reinvestment zone, and Rockwall County, or the District may thereafter enter into tax abatement agreements with owners of real property within the zone with each taxing jurisdiction's agreement affecting its own tax roll. The tax abatement agreements exempt from ad valorem taxation by the applicable taxing jurisdiction (including the District with the District's consent) for a period of up to 10 years, all or any part of any increase in the assessed valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is executed, on the condition that the property owner make specified improvements or repairs to the property in conformity with a comprehensive plan. In certain instances, personal property also may be eligible for tax abatement. Each taxing jurisdiction has discretion to determine terms for its tax abatement agreements without regard to the terms approved by other taxing jurisdictions. 24 Freeport Goods and Goods-in-Transit Exemptions: A “Freeport Exemption” applies to goods, wares, merchandise, other tangible personal property and ores, other than oil, natural gas, and petroleum products (defined as liquid and gaseous materials immediately derived from refining oil or natural gas), and to aircraft or repair parts used by a certified air carrier acquired in or imported into Texas which are destined to be forwarded outside of Texas and which are detained in Texas for assembling, storing, manufacturing, processing or fabricating for less than 175 days. Although certain taxing units may take official action to tax such property in transit and negate such exemption, the District does not have such an option. A “Goods-in-Transit” Exemption is applicable to certain tangible personal property as defined by the Property Tax Code. The exemption excludes oil, natural gas, petroleum products, aircraft and certain special inventory including dealer’s motor vehicles, dealer’s vessel and outboard motor vehicle, dealer’s heavy equipment and retail manufactured housing inventory. For tax year 2011 and prior applicable years, the exemption applies to covered property if it is acquired in or imported into Texas for assembling, storing, manufacturing, processing, or fabricating purposes and is subsequently forwarded to another location inside or outside of Texas not later than 175 days after acquisition or importation, and the location where said property is detained during that period is not directly or indirectly owned or under the control of the property owner. For tax year 2012 and subsequent years, such Goods-in-Transit Exemption is further limited to tangible personal property acquired in or imported into Texas for storage purposes and which is stored under a contract of bailment by a public warehouse operator at one or more public warehouse facilities in Texas that are not in any way owned or controlled by the owner of such property for the account of the person who acquired or imported such property. A property owner who receives the Goods-in-Transit Exemption is not eligible to receive the Freeport Exemption for the same property. Local taxing units such as the District may, by official action and after public hearing, tax goods-in-transit personal property. For tax year 2012 and subsequent years, a taxing unit must exercise its option to tax goods-in-transit property before January 1 of the first tax year in which it proposes to tax the property at the time and in the manner prescribed by applicable law. However, taxing units who took official action as allowed by prior law before October 1, 2011, to tax goods-in-transit property, and who pledged such taxes for the payment of debt, may continue to impose taxes against the goods-in-transit property until the debt is discharged without further action, if cessation of the imposition would impair the obligations of the contract by which the debt was created. The District has taken official action to allow taxation of all such goods-in-transit personal property, but may choose to exempt same in the future by further official action. County-Wide Appraisal District Generally, property in the District must be appraised by the RCAD at market value as of January 1 of each year. Once an appraisal roll is prepared and formally approved by the Appraisal Review Board, it is used by the District in establishing its tax rolls and tax rate. Assessments under the Property Tax Code are to be based on one hundred percent (100%) of market value, as such is defined in the Property Tax Code. The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at its value based on the land’s capacity to produce agricultural or timber products rather than at its market value. The Property Tax Code permits, under certain circumstances, that residential real property inventory held by a person in the trade or business be valued at the price that such property would bring if sold as a unit to a purchaser who would continue the business. Landowners wishing to avail themselves of the agricultural use, open space or timberland designation or residential real property inventory designation must apply for the designation, and the appraiser is required by the Property Tax Code to act on each claimant's right to the designation individually. A claimant may waive the special valuation as to taxation by some political subdivisions while claiming it as to another. If a claimant receives the agricultural use designation and later loses it by changing the use of the property or selling it to an unqualified owner, the District can collect taxes based on the new use, including taxes for the previous three years for agricultural use and taxes for the previous five years for open space land and timberland. The Property Tax Code requires the RCAD to implement a plan for periodic reappraisal of property. The plan must provide for appraisal of all real property in the RCAD at least once every three years. It is not known what frequency of reappraisal will be utilized by the RCAD or whether reappraisals will be conducted on a zone or county-wide basis. The District, however, at its expense has the right to obtain from the RCAD a current estimate of appraised values within the District or an estimate of any new property or improvements within the District. While such current estimate of appraised values may serve to indicate the rate and extent of growth of taxable 25 values within the District, it cannot be used for establishing a tax rate within the District until such time as the RCAD chooses formally to include such values on its appraisal roll. Assessment and Levy The District is responsible for the levy and collection of its taxes unless it elects to transfer the collection functions to another governmental entity or private tax assessor/collector approved by the Board. Each year the rate of taxation is set by the Board based upon the valuation of property within the District as of the preceding January 1. Taxes are due when billed, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent. The delinquent tax also accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. In addition, if the District engages an attorney for the collection of delinquent taxes, the Board may impose a further penalty not to exceed twenty percent (20%) on all taxes, penalty and interest unpaid on July 1. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. District and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units (such as the District) may appeal the orders of the Appraisal Review Board by filing a timely petition of review in State district court. In such event, the value of the property in question will be determined by the court or by a jury if requested by any party. Additionally, taxing units may bring suit against the RCAD to compel compliance with the Property Tax Code. The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases by the District and provides for taxpayer referenda, which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. Collection The District is responsible for the levy and collection of its taxes unless it elects to transfer the collection functions to another governmental entity or private tax assessor/collector approved by the Board. Each year the rate of taxation is set by the Board based upon the valuation of property within the District as of the preceding January 1. Taxes are due when billed, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent. The delinquent tax also accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. In addition, if the District engages an attorney for the collection of delinquent taxes, the Board may impose a further penalty not to exceed twenty percent (20%) on all taxes, penalty and interest unpaid on July 1. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. District's Rights in the Event of Tax Delinquencies Taxes levied by the District are a personal obligation of the owner of the property as of January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the District, having power to tax the property. The District's tax lien is on a parity with tax liens of such other taxing units (see “FINANCIAL STATEMENT – Overlapping Taxes”). A tax lien on real property takes priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the 26 District is determined by applicable federal law. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights or by bankruptcy proceeding which restrict the collection of taxpayer debts. See “INVESTMENT CONSIDERATIONS General - Tax Collection and Foreclosure Remedies.” TAX DATA General Taxable property within the District is subject to the assessment, levy and collection by the District of an annual ad valorem tax, without legal limitation as to rate or amount, sufficient to pay principal of and interest on the Bonds (and any future tax-supported bonds which may be issued from time to time as authorized). Taxes are levied by the District each year against the District's assessed valuation as of January 1 of that year. Taxes become due October 1 of such year, or when billed, and generally become delinquent after January 31 of the following year. The Board covenants in the Bond Order to assess and levy for each year that all or any part of the Bonds remain outstanding and unpaid a tax ample and sufficient to produce funds to pay the principal of and interest on the Bonds. The actual rate of such tax will be determined from year to year as a function of the District's tax base, its debt service requirements and available funds. In addition, the District has the power and authority to assess, levy and collect ad valorem taxes, in an unlimited amount, for operation and maintenance purposes. The Board levied a 2012 tax rate for debt service purposes of $0.48 per $100 of assessed valuation and $0.22 per $100 of assessed valuation for operation and maintenance purposes for a total tax rate of $0.70 per $100 of assessed value. Tax Rate Limitation Debt Service: Maintenance: Unlimited (no legal limit as to rate or amount). Unlimited (no legal limit as to rate or amount). Historical Values and Tax Collection History The following statement of tax collections sets forth in condensed form the historical Assessed Valuation and tax collections of the District. Such summary has been prepared for inclusion herein based upon information obtained from District records. Reference is made to such records, including the District's annual audited financial statements, for more complete information. Tax Year Assessed Valuation Tax Rate/ $100(a) 2004 $ 8,143,410 $0.75 2005 41,089,158 0.75 2006 93,700,860 0.75 2007 147,540,066 0.75 2008 177,180,520 0.75 2009 202,520,991 0.72 2010 216,203,287 0.72 2011 231,170,379 0.72 2012 239,132,056 0.70 ____________________________ (a) See “- Tax Rate Distribution.” (b) In process of collection. Adjusted Levy $ 61,076 308,169 702,756 1,106,550 1,328,854 1,518,907 1,621,525 1,664,427 1,673,924 27 Current Year 99.60% 98.55 96.47 94.90 99.20 99.43 99.62 99.58 94.06 (b) Fiscal Year Ending 9/30 As of 2/5/2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 100.00% 100.00 100.00 99.89 99.87 99.77 99.74 99.58 94.06 (b) Analysis of Tax Base The following table illustrates the composition of property located within the District for the 2007-2012 tax years. 2012 Assessed Valuation Type of Property Land Improvements Personal Property Exemptions Total $ 42,616,747 197,326,128 743,140 (1,553,959) $239,132,056 2010 Assessed Valuation $ 42,734,077 188,806,772 776,080 (1,146,550) $231,170,379 2009 Assessed Valuation Type of Property Land Improvements Personal Property Exemptions Total 2011 Assessed Valuation 2008 Assessed Valuation $ 41,367,940 161,438,825 988,170 (1,273,944) $202,520,991 $ 42,078,762 174,500,995 947,260 (1,323,730) $216,203,287 2007 Assessed Valuation $ 40,792,440 136,396,721 1,098,390 (1,107,031) $177,180,520 $ 39,093,566 108,277,069 664,250 (494,819) $147,540,066 Tax Rate Distribution The following table illustrates the breakdown of the District's tax rate in the 2007-2012 tax years: Debt Service Maintenance 2012 2011 2010 2009 2008 2007 $0.48 0.22 $0.70 $0.50 0.22 $0.72 $0.54 0.18 $0.72 $0.54 0.18 $0.72 $0.59 0.16 $0.75 $0.59 0.16 $0.75 Principal 2012 Taxpayers Based upon information supplied by the District's Tax Assessor/Collector, the following table lists principal District taxpayers, type of property owned by such taxpayers, and the Assessed Valuation of such property as of January 1, 2012. The information reflects the composition of the Appraisal District's record of property ownership as of January 1, 2012. Taxpayers Property Description 2012 Assessed Value % of Assessed Value Fate Project Development Partners, Ltd. (a) JFB Fate/2003, Ltd. (a)(b) JFB Fate/2005, Ltd. (a)(b) Drees Custom Homes, LP Horizon Homes, Ltd. Weekley Homes, LP Woodcreek Fate Homeowners Assoc. Inc. PRA/Fate Development Corp. (a) Homeowner Homeowner Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements Land & Improvements $1,119,890 1,077,700 856,930 530,520 494,060 458,470 396,300 367,890 308,380 307,260 0.47% 0.45% 0.36% 0.22% 0.21% 0.19% 0.17% 0.15% 0.13% 0.13% $5,917,400 2.47% Total ____________________________ (a) See “THE DEVELOPERS” (b) Related entities. 28 Tax Rate Calculations The tax rate calculations set forth below are presented to indicate the tax rates per $100 of Assessed Valuation which would be required to meet certain debt service requirements if no growth occurs in the District's tax base beyond the District's 2012 Assessed Valuation. The calculations also assume collection of 95% of taxes levied, no use of District funds on hand, and no sale of additional bonds by the District. Average Annual Debt Service Requirements (2013-2030)................................................................... $1,144,508 Tax Rate of $0.51 on the 2012 Assessed Valuation ($239,132,056) produces .................................... $1,158,595 Maximum Debt Service Requirement (2030)........................................................................................ $1,238,175 Tax Rate of $0.55 on the 2012 Assessed Valuation ($239,132,056) produces .................................... $1,249,465 Estimated Overlapping Taxes Property located within the District is subject to taxation by several taxing authorities in addition to the District. Set forth below is a compilation of all 2012 taxes levied upon property located within the District. Under Texas law, ad valorem taxes levied by each taxing authority other than the District entitled to levy taxes against property located within the District create a lien which is on a parity with the tax lien of the District. In addition to the ad valorem taxes required to make the debt service payments on bonded debt of the District and of such other jurisdictions (see “DISTRICT DEBT- Estimated Direct and Overlapping Debt Statement”), certain taxing jurisdictions are authorized by Texas law to assess, levy and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. 2012 Tax Rate/ Per $100 of A.V. Taxing Jurisdiction Rockwall ISD Royse City ISD The District City of Fate Rockwall County Rockwall Independent School District Royse City Independent School District $0.7000 0.2463 0.3864 1.4700 -- $0.7000 0.2463 0.3864 -1.6700 Estimated Total Tax Rate $2.8027 $3.0027 THE DISTRICT General The District is a limited-purpose political subdivision of the State of Texas operating as a municipal utility district pursuant to Article XVI, Section 59 of the Texas Constitution and Sections 49 and 54 of the Texas Water Code. The District was formed pursuant to a Consolidation Agreement dated April 5, 1976 between Rockwall County Municipal Utility District No. 1 (created by the Texas Water Rights Commission (“TWRC”) on February 29, 1972), Rockwall County Municipal Utility District No. 3 (created by the TWRC on June 19, 1972) and Rockwall County Municipal Utility District No. 4 (created by the TWRC on June 19, 1972). The District assumed the powers and functions of the individual districts. The District is vested with all the rights, privileges, authority and functions conferred by the laws of the State of Texas applicable to municipal utility districts, including without limitation those conferred by Chapters 49 and 54, Texas Water Code, as amended. The District is empowered to purchase, construct, operate and maintain all works, improvements, facilities and plants necessary for the supply of water; the collection, transportation and treatment of wastewater; and the control and diversion of storm water, among other things. The District may also provide solid waste collection and disposal service and operate and maintain recreational facilities. Currently the District’s water and wastewater are provided by contract with the City of Fate, Texas (the “City”) as described under “Special District Agreements” below. The District may operate and maintain a fire department, independently or with one or more other conservation and reclamation districts, if approved by the voters and the TCEQ. The District does not operate and/or maintain a fire department. The District is subject to the continuing supervision of the TCEQ and is located exclusively within the corporate limits of the City. 29 Special District Agreements The District has entered into a Special District Agreement dated December 2, 2003 with the City and PRA/Fate (defined herein under “DEVELOPERS / LANDOWNERS”) that provides, in part, for the City to own, operate and maintain the internal and off-site water, wastewater and drainage facilities acquired from the proceeds of the Bonds, for the City to provide water and wastewater capacity to serve customers within the District, and that the City shall not exercise its right to dissolve the District until the Bonds and any additional debt of the District has been repaid. Pursuant to this Agreement, the District included the prohibition of dissolution in its bond election propositions and in the order authorizing the issuance and sale of the Refunded Bonds. The District has also entered into a Special District Agreement No. 2 dated May 17, 2006 with the City, PRA/Fate and Rockwall County Municipal Utility Districts 6, 7, 8 and 9 (the “New Districts”) which provides that the New Districts, in addition to the District, accept the obligations and provisions of the original Special District Agreement. Location The District is located in Rockwall County approximately 27 miles northeast of downtown Dallas, on the west side of downtown City of Fate within the corporate limits of the City of Fate. The District is bounded by State Highway 66 on the south. Management of the District - Board of Directors The District is governed by a board, consisting of five directors, which has control over and management supervision of all affairs of the District. Directors’ terms are four years with elections held within the District on the second Saturday in May in each even numbered year. All of the directors own property in the District. Name Position Term Expires May Bobby L. Jackson, Jr. President 2014 Burnis F. Turner Vice President 2016 Jo Carol McCormick Secretary 2016 Randy C. Roland Treasurer/Asst. Secretary 2014 Paul Wilson Assistant Secretary 2014 - Consultants Tax Assessor/Collector - Land and improvements in the District are being appraised by the Rockwall Central Appraisal District. The Tax Assessor/Collector is appointed by the Board of Directors of the District. Ray Helm, Chief Appraiser of the Rockwall Central Appraisal District, serves the District in this capacity under contract. Bookkeeper - The District contracts with Dye & Bloomfield, P.C. as Bookkeeper for the District. Engineer - The District's consulting engineer is Petitt Barraza LLC (the “Engineer”). Auditor - The District’s audited financial statements for the year ended September 30, 2012, were prepared by McCall, Gibson & Company, PLLC. See APPENDIX A for a copy of the District’s year end September 30, 2012, audited financial statements. 30 Bond Counsel & General Counsel - The District has engaged Kelly Hart & Hallman LLP (“Kelly Hart”), Fort Worth, Texas, as Bond Counsel in connection with the issuance of the District’s Bonds. The fees of Bond Counsel are contingent upon the sale of and delivery of the Bonds. Kelly Hart also serves as the District’s general counsel. Financial Advisor - The District has employed the firm of RBC Capital Markets, LLC as financial advisor to the District. Payment to the Financial Advisor by the District is contingent upon the issuance, sale and delivery of the Bonds. The Financial Advisor may also receive a fee for conducting a competitive bidding process regarding the investment of certain proceeds of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement. Special Consultants Related to Issuance of the Bonds Verification Agent – At the time of delivery of the Bonds, Grant Thornton LLP, Certified Public Accountants, will verify to the District, the Paying Agent/Registrar, Bond Counsel, and the Underwriter certain matters related to the issuance of the bonds and the refunding of the Refunded Bonds. See “VERIFICATION OF MATHEMATICAL CALCULATIONS.” DEVELOPMENT WITHIN THE DISTRICT Current Status of Development Of the approximately 581 acres within the District, approximately 542 acres are developable under current land development regulations. As of January 1, 2013, water, wastewater and drainage facilities have been completed to serve approximately 1,491 lots on 404.12 acres within the District as part of the single family subdivision know as Woodcreek. To date, development within the District includes 1,335 completed single-family homes, 11 homes under construction, and approximately 145 vacant developed single-family lots. In addition to the single-family home development, the development includes an amenity center and parks. The construction of 58 lots in Woodcreek Phase 1D-2 on approximately 13 acres is anticipated to begin in March 2013 with completion anticipated in August of 2013. The remaining land within the District includes approximately 124 remaining undeveloped acres and 39 undevelopable acres Woodcreek Phase 1A Phase 1B Phase 1C Phase 1D-1 Phase 1D-2 Phase 2A Phase 2B Phase 2C Phase 3A Phase 3B Phase 3C Phase 4 Total Total Developed Acres Total Developed Lots Total Acres Under Development Total Lots Under Development 67.41 11.81 55.18 3.30 177 N/A 164 17 13.06 58 54.15 46.97 44.35 40.26 22.36 45.68 12.65 228 218 205 154 96 186 46 ____ 404.12 1,491 13.06 31 Homes Remaining Developed Lots Completed Under Construction 173 0 4 __ 141 0 0 225 218 175 154 84 119 46 1 4 0 0 0 0 0 2 4 0 22 13 0 3 0 30 0 10 63 0 58 1,335 11 145 Future Development The construction of 58 lots in Woodcreek Phase 1D-2 on approximately 13 acres is anticipated to begin in March 2013 with completion anticipated in August of 2013. Additionally, approximately 124 acres within the District are undeveloped but developable. It is currently anticipated by the Developers that the homebuilding programs underway within the District will continue on the lots currently under design. THE DEVELOPERS Role of the Developer In general, the activities of a developer in a municipal utility district, such as the District, include the following: acquiring the land within the district; designing the subdivision, the utilities and streets to be constructed in the subdivision, and any community facilities to be built; defining a marketing program and building schedule; securing necessary governmental approvals and permits for development; arranging for the construction of roads and the installation of utilities; and selling improved lots and commercial reserves to builders and other developers or other third parties. Pursuant to the rules of the TCEQ, a developer can be required to pay up to thirty percent (30%) of the cost of constructing certain water, wastewater and drainage facilities in a municipal utility district. The relative success or failure of a developer to perform such activities in the development of property within a municipal utility district may have a profound effect on the security of the bonds issued by a district. A developer is generally under no obligation to a municipal utility district to develop the property that it owns in a district. Furthermore, there is no restriction on a developer's right to sell any or all of the land that the developer owns within a municipal utility district. Description of the Current Developers The land within the District was originally owned by Fate Land, L.P. (“Fate Land”). The general partner of Fate Land is Fate GP, L.L.C., and the limited partners are Jason Pettigrew, Robby Pettigrew, Charley Pettigrew, Ben Pettigrew, Amy Pettigrew and PRA Fate Investors, L.P. Subsequently, Fate Land sold 348 acres to PRA/Fate Development Corp. (“PRA/Fate”). PRA/Fate is owned by Leon J. Backes. PRA/Fate has sold sections to the following developers: JFB Woodcreek/2004, Ltd. (“JFB Woodcreek”) and JFB Fate/2003, Ltd. (“JFB Fate”), which are related entities; Fate Project Development Partners, Ltd. (“Fate Project”); Fate-Woodcreek/2003, Ltd. (“Fate-Woodcreek”); and H4 Woodcreek, LLC (“H4 Woodcreek”). In addition, pursuant to contract, Provident Realty Advisors, Inc. (“Provident”) acts as Project Manager for the development of the District for the above listed entities with the exception of H4 Woodcreek. Provident is also controlled by Leon J. Backes. Provident, JFB/Woodcreek, Fate Project, JFB Fate, Fate-Woodcreek, and H4 Woodcreek are collectively referred to herein as the “Developers.” Currently, there are approximately 124 acres of undeveloped but developable land, of which PRA/Fate owns 13 acres, Fate Project owns 45 acres, and H4 Woodcreek owns 62 acres. JFB Woodcreek, Fate Project, JFB Fate and Fate-Woodcreek have assigned their rights to reimbursement to PRA/Fate which has in turn assigned their rights to reimbursement to Fate Land. -JFB Woodcreek/2004, Ltd.Approximately 122.6 acres (341 lots) have been developed within the District by JFB Woodcreek as Woodcreek, Phases 1A and 1C. JFB Woodcreek is a Texas limited partnership whose general partner is J. Baker Corporation, a Texas corporation, and whose limited partner is the J. Faye Baker Trust. JFB Woodcreek does not currently own any acres of undeveloped but developable land within the District. -Fate Project Development Partners, Ltd.Approximately 145.5 acres (651 lots) have been developed within the District by Fate Project as Woodcreek, Phases 2A, 2B and 2C. Fate Project is a Texas limited partnership whose general partner is Fate/2003, L.L.C., a Texas limited liability company, and whose limited partners are Drees Custom Homes, L.P., Horizon Homes, Ltd. and Priority Development, LP. Fate Project currently own approximately 45 acres of undeveloped but developable land and approximately 27 single family lots within the District. 32 -JFB Fate/2003, Ltd.Approximately 108.3 acres (436 lots) have been developed within the District by JFB Fate as Woodcreek, Phases 3A, 3B and 3C. JFB Fate is a Texas limited partnership whose general partner is J. Baker Corporation, a Texas corporation, and whose limited partners are Glenn and Sherri Thurman, DP Custom Homes, Inc., Thrailkill Revocable Trust, William B. Thrailkill, Jr., Tipton Growth Partners, Ltd. and the J. Faye Baker Trust, an Oklahoma revocable trust. JFB Fate/2003, Ltd. does not currently own any acres of undeveloped but developable land or lots within the District. -Fate-Woodcreek/2003, Ltd.Approximately 12.7 acres (46 lots) have been developed within the District by Fate-Woodcreek as Woodcreek, Phase 4. Fate-Woodcreek is a Texas limited partnership whose general partner is Fairway/2000 Development Corporation and whose limited partner is Highland Homes, Ltd. Fate-Woodcreek/2003, Ltd. does not currently own any acres of undeveloped but developable land or lots within the District. - Provident Realty Advisors, Inc. Provident Realty Advisors, Inc. (“Provident”) is acting as the Project Manager for development activities in the District for all of the Developers except H4 pursuant to a fee contract. Provident has handled all negotiations with the City with respect to the acquisition of the water and sewer capacity from the City. As Project Manager, Provident is responsible for overseeing the installation of major roads, water, wastewater and drainage services and the amenities. The management contract is with Fate Land, L.P. -H4 WoodcreekH4 Woodcreek currently owns approximately 62 developable acres within in the District and is currently scheduled to begin development in March, 2013 of 58 single family lots on approximately 13 acres in Phase 1D-2 of Woodcreek. The remaining acreage is currently planned to be developed into an additional 170 single family lots. H4 Woodcreek is managed by Hillwood Residential Services L.P., a Perot Company, a Dallas company owned by H. Ross Perot, Jr., having over 25 years experience developing land in Texas. Hillwood Investment Services, LLC, a Texas limited liability company, provides asset management services to H4 Woodcreek. Hillwood Residential Services L.P. and Hillwood Investment Services, LLC are affiliates of Hillwood Development Company, LLC, which is a national real estate development company with development expertise and experience that encompasses diverse product types, including arenas, high-rise condominiums, offices, single-family residential communities, distribution centers, regional malls, mixed-use urban development, call centers, hotels, golf courses, airports, intermodal rail yards, corporate campuses and major air facilities H4 Woodcreek is financing its acquisition and future development of land within the District with a loan from Finance Partners LP, in the original amount of approximately $2,000,000. The interest rate on the loan is the 30day LIBOR rate plus 3.5%, with a minimum interest rate of 4.5%. Interest is paid monthly. Such loan is due on February 8, 2015 and is secured by the land, lots and reimbursements due to H4 Woodcreek from the bond proceeds of the District. Currently, the balance due on such loan is approximately $20,000. According to the Developer it is in compliance with all material terms of such loan. Agricultural Waiver On October 19, 2004, PRA/Fate, Fate Land, Fate Project, JFB Fate, Fate Woodcreek, and JFB Woodcreek executed a Waiver of Special Appraisal affecting all land within the District, which was recorded in the real property of Rockwall County and is a covenant running with the land, waiving the right to have undeveloped land located within the District classified as agricultural, open-space or timberland. In addition, such agreement waives the right of the Developers to have its lots and houses (if any) classified as business inventory. Such agreement may not be modified without approval of the TCEQ and is binding on purchasers of such land within the District. Utility Construction Agreements The District is a party to agreements for the construction and purchase of facilities and reimbursement for costs and amendment thereto with the Developers, which define the conditions under which the District will issue additional 33 bonds to reimburse such entity for the water, wastewater and drainage facilities within and outside the District. Under the terms of the agreements, the District has agreed to repay the cost of facilities through a series of bond sales over time. The District’s obligation to issue bonds and reimburse the entity for funds advanced for facilities is subject to various conditions, including approval of such facilities and bonds by the TCEQ and the Texas Attorney General and the recommendation of the District’s financial advisor that the sale of the bonds is feasible and prudent. HOMEBUILDERS WITHIN THE DISTRICT Homebuilders active within the District include Altura Homes, Drees Homes and Lionsgate Homes in Phases 1A, 1C, and 1D; Altura Homes and Drees Homes in Phases 2A, 2B, 2C, and 2D; Megatel Homes and Plantation Homes in Phases 3A, 3B, 3C and 4. Homes in Phase 1A, 1C and 1D are being marketed in the $150,000 to $300,000+ price range and range in size from 1,800 to 3,400+ square feet. Homes in Phases 2A, 2B and 2C are being marketed in the price range of $140,000 to $200,000+ and range in size from 1,500 to 2,500+ square feet. Homes in Phases 3A, 3B, 3C and 4 are being marketed in the $165,000 to $240,000 price range and range in size from 1,600 to 3,300 square feet. THE SYSTEM General The water, wastewater and drainage facilities, the purchase, acquisition and construction of which have been financed by the District with the proceeds of the Bonds, have been designed in accordance with accepted engineering practices and the recommendation of certain governmental agencies having regulatory or supervisory jurisdiction over construction and operation of such facilities, including, among others, the TCEQ. According to Petitt Barraza LLC (the “Engineer”), the design of all such facilities has been approved by all governmental agencies which have jurisdiction over the District. Operation of the District’s water, wastewater and drainage facilities is subject to regulation by, among others, the Environmental Protection Agency and the TCEQ. In many cases, regulations promulgated by these agencies have become effective only recently and are subject to further development and revision. Special District Agreements The District has entered into a Special District Agreement dated December 2, 2003 with the City and PRA/Fate that provides, in part, for the City to own, operate and maintain the internal and off-site water, wastewater and drainage facilities constructed with the proceeds of bonds issued by the District, for the City to provide water and sewer capacity to serve customers within the District, and that the City shall not exercise its right to dissolve the District until the Bonds and any additional debt of the District has been repaid. Pursuant to this Agreement, the District included the prohibition of dissolution in its bond election propositions and in the order authorizing the issuance and sale of the Refunded Bonds. The District has also entered into a Special District Agreement No. 2 dated May 17, 2006 with the City, PRA/Fate and Rockwall County Municipal Utility Districts 6, 7, 8 and 9 (the “New Districts”) which provides that the New Districts, in addition to the District, accept the obligations and provisions of the original Special District Agreement. Water System Water supply for District customers is provided pursuant to contracts with the City of Fate (the “City”). The City receives wholesale water from the North Texas Municipal Water District (“NTMWD”). The City has contracted with NTMWD to receive 1,420,556 gpd. Pursuant to a December 1, 2003 agreement among the City, PRA/Fate, the District, and Rockwall County Consolidated Municipal Utility District No. 2 (“RCCMUD#2”), the City has agreed to provide capacity for 1,300 ESFCs to the District and RCCMUD#2. By agreement dated December 14, 2004, between the District and RCCMUD#2, the District is entitled to all 1,300 ESFCs of capacity. Pursuant to the terms of the Special District Agreement No. 2, dated on May 17, 2006, the City agreed to provide an additional 1,000 residential water connections for a total of 2,300 ESFCs. 34 The City’s existing elevated storage tank is adjacent to the District. The District will not issue bonds or use other funds for water supply costs; water supply impact fees are to be paid directly by the builders to the City. Wastewater System Wastewater treatment for District customers is currently provided by the City through the North Texas Municipal Water District’s Regional Wastewater Treatment Plant. Pursuant to a December 1, 2003 agreement among the City, PRA/Fate, the District, and RCCMUD#2, the City has agreed to provide wastewater for 700 residential ESFCs to the District and RCCMUD#2. By agreement dated December 14, 2004, between the District and RCCMUD#2, the District is entitled to all 700 ESFCs of wastewater capacity. Pursuant to the terms of the Special Agreement No. 2, dated on May 17, 2006, the City agreed to provide an additional 500 residential wastewater connections, for a total of 1,200 ESFCs. The District will not issue bonds or use other funds for wastewater treatment costs except wastewater capacity fees paid by the Developers for the benefit of the District; wastewater treatment impact fees are to be paid directly by the builders to the City. Drainage System Stormwater from within the District currently drains through underground lines leading to natural tributaries, or through underground lines directly to natural tributaries, such as Parker Creek or Comp Creek. 100-year Flood Plain Approximately 16.97 acres of the District lie within the FEMA 100-year flood plain. This acreage has been planned as green space and will not be used for development. Future Debt After the issuance of the Bonds, $30,590,000 in unlimited tax bonds will remain authorized but unissued for the purposes of purchasing, constructing, or otherwise acquiring a water, wastewater, and drainage system for the District and $53,150,000* in unlimited tax bonds for refunding purposes will remain authorized but unissued. To date, according to the Developers, approximately $2,070,827 is owed to the Developers on current development. In the opinion of the District’s Engineer, the $30,590,000 of authorized but unissued bonds should be sufficient to fully reimburse and provide utility service to the remaining undeveloped but potentially developable acreage. [Remainder of Page Intentionally Left Blank] ______________________________ * Preliminary, subject to change. 35 Historical Operations of the District Fiscal Year Ended September 30, 2011 2010 2009 2012 REVENUES Property Taxes Penalty and Interest Investment Revenues Miscellaneous TOTAL REVENUES 2008 $506,762 3,248 906 223 $511,139 $ 389,252 2,044 -0-0$ 391,296 $363,657 2,286 6,778 -0$372,721 $285,167 3,393 1,585 564 $290,709 $224,105 2,854 2,280 -0$229,239 EXPENDITURES Professional Fees Contracted Services Repairs and Maintenance Other Capital Outlay Wastewater Treatment Center TOTAL EXPENDITURES $ 95,421 10,681 -0-0206,666 152,525 $479,152 $ 67,032 9,577 -013,363 -0600,000 $ 689,972 $100,678 11,096 -011,373 -063,373 $186,520 $ 65,925 12,280 -016,453 -0-0$ 94,658 $102,376 10,022 16,355 17,854 -0-0$146,607 NET CHANGE IN FUND BALANCE $ 31,987 $(298,676) $186,201 $196,051 $ 82,632 BEGINNING FUND BALANCE $233,260 $ 531,936 $345,735 $149,684 $ 67,052 ENDING FUND BALANCE $265,247 $ 233,260 $531,936 $345,735 $149,684 INVESTMENT CONSIDERATIONS General The Bonds, which are obligations solely of the District and are not obligations of Rockwall County, Texas; the City of Fate, Texas; the State of Texas; or any political subdivision other than the District, will be secured by an annual ad valorem tax, without legal limitation as to rate or amount, on all taxable property located within the District. See “THE BONDS - Source of Payment.” The ultimate security for payment of the principal of and interest on the Bonds depends upon the ability of the District to collect from the property owners within the District taxes levied against all taxable property located within the District or, in the event taxes are not collected and foreclosure are instituted by the District, upon the value of the taxable property with respect to taxes levied by the District and by other taxing authorities. The District makes no representations that over the life of the Bonds the property within the District will maintain a value sufficient to justify continued payment of taxes by the property owners. The potential increase in taxable valuation of District property is directly related to the economics of the residential development and construction industries, not only due to general economic conditions, but also due to the particular factors discussed below. Factors Affecting Taxable Values and Tax Payments Credit Markets and Liquidity in the Financial Markets: Interest rates and the availability of mortgage and development funding have a direct impact on the construction activity, particularly short-term interest rates at which developers are able to obtain financing for development costs. 36 Interest rate levels may affect the ability of a landowner with undeveloped property to undertake and complete construction activities within the District. Because of the numerous and changing factors affecting the availability of funds, the District is unable to assess the future availability of such funds for continued construction within the District. In addition, since the District is located approximately 27 miles from the central downtown business district of the City of Dallas, the success of development within the District and growth of District taxable property values are, to a great extent, a function of the Dallas metropolitan and regional economies and the national financial and credit markets. A continued downturn in the economic conditions of Dallas and the nation could adversely affect development plans in the District and restrain the growth of the District’s property tax base. National Economy: Nationally, there has been a significant downturn in new housing construction caused primarily by the unavailability of mortgage funds, resulting in a decline in housing market values. The Dallas/Fort Worth area, including the District, has experienced reduced levels of home construction. The District cannot predict what impact, if any, a continued downturn in the national housing market and financial markets might have on the Dallas/Fort Worth area market. Competition: The demand for and construction of single-family homes in the District, could be affected by competition from other residential developments, including other residential developments located in the northern portion of the Dallas area market. In addition to competition for new home sales from other developments, there are numerous previously-owned homes in the area of the District. Such homes could represent additional competition for new homes proposed to be sold within the District. The competitive position of a builder in the sale of single-family residential houses within the District is affected by most of the factors discussed in this section. Such a competitive position directly affects the growth and maintenance of taxable values in the District and tax revenues to be received by the District. Economic Factors: The rate of development of the District is directly related to the vitality of the future commercial, retail and multi-family industries. New commercial, retail and multi-family construction can be significantly affected by factors such as interest rates, construction costs, and consumer demand. Decreased levels of home construction activity would restrict the growth of property values in the District. Although, as described in this Official Statement under the captions “DEVELOPMENT OF THE DISTRICT,” and “THE DEVELOPERS” (i) the development of an aggregate of 2,049 single-family residential lots within the District has been completed, and (ii) as of January 1, 2013, the District contained approximately 1,335 single-family homes, the District cannot predict the pace or magnitude of any future development or home construction in the District other than that which has occurred to date. Maximum Impact on District Tax Rates: Assuming no further development, the value of the land and improvements currently within the District will be the major determinant of the ability or willingness of District property owners to pay their taxes. The 2012 Assessed Valuation, of property located within the District (see “TAX DATA”) is $239,132,056. After issuance of the Bonds, the maximum annual debt service requirement on the Bonds will be $1,238,175 (2030) and the average annual debt service requirements will be $1,144,508 (2013-2030, inclusive). Assuming no increase to nor decrease from the 2012 Assessed Valuation, tax rates of $0.55 and $0.51, respectively, per $100 of Assessed Valuation at a 95% tax collection rate would be necessary to pay the maximum annual debt service requirement and the average annual debt service requirements, respectively, on the Bonds. See “TAX DATA - Tax Rate Calculations.” The District levied a debt service tax rate of $0.48 per $100 of Assessed Valuation and a maintenance tax rate of $0.22 per $100 of Assessed Valuation for a total tax rate of $0.70 per $100 of Assessed Valuation for the 2012 tax year. However, the District can make no representation that the taxable property values in the District will increase in the future or will maintain a value sufficient to support the aforementioned tax rate or to justify continued payment of taxes by property owners. 37 Increases in the District's tax rate to substantially higher levels than the current rate of $0.70 per $100 of Assessed Valuation which the District presently levied may have an adverse impact upon future development of the District, the sale and construction of homes within the District, and the ability of the District to collect, and the willingness of owners of property located within the District to pay, ad valorem taxes levied by the District. In addition, the collection by the District of delinquent taxes owed to it and the enforcement by a Registered Owner of the District's obligations to collect sufficient taxes may be a costly and lengthy process. Developers Under No Obligation to the District: The Developers have informed the District of their current plans to continue to develop land in the District for residential and commercial purposes. However, the Developers are not obligated to implement such plan on any particular schedule or at all. Thus, the furnishing of information related to the proposed development by the Developers should not be interpreted as such a commitment. The District makes no representation about the probability of development continuing in a timely manner or about the ability of the Developers, or any other subsequent landowners to whom a party may sell all or a portion of their holdings within the District, to implement any plan of development. Furthermore, there is no restriction on the Developers’ right to sell their land. The District can make no prediction as to the effects that current or future economic or governmental circumstances may have on any plans of the Developers. Failure to construct taxable improvements on developed lots and tracts and failure of the Developers to develop their land would restrict the rate of growth of taxable value in the District. The District is also dependent upon the Developers (see “TAX DATA - Principal Taxpayers”) for the timely payment of ad valorem taxes, and the District cannot predict what the future financial condition of the Developers will be or what effect, if any, such conditions may have on their ability to pay taxes. See “THE DEVELOPERS,” “DEVELOPMENT WITHIN THE DISTRICT.” Tax Collection Limitations The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem taxes. Under Texas law, the levy of ad valorem taxes by the District constitutes a lien in favor of the District on a parity with the liens of all other state and local taxing authorities on the property against which taxes are levied, and such lien may be enforced by foreclosure. The District's ability to collect ad valorem taxes through such foreclosure may be impaired by (a) cumbersome, time-consuming and expensive collection procedures, (b) a bankruptcy court's stay of tax collection procedures against a taxpayer, or (c) market conditions affecting the marketability of taxable property within the District and limiting the proceeds from a foreclosure sale of such property. Moreover, the proceeds of any sale of property within the District available to pay debt service on the Bonds may be limited by the existence of other tax liens on the property, by the current aggregate tax rate being levied against the property, and by other factors (including the taxpayers' right to redeem property within six (6) months of foreclosure unless the property is his residence homestead or designated for agricultural use, in which case the taxpayer may redeem the property within two years of foreclosure). Finally, any bankruptcy court with jurisdiction over bankruptcy proceedings initiated by or against a taxpayer within the District pursuant to the Federal Bankruptcy Code could stay any attempt by the District to collect delinquent ad valorem taxes assessed against such taxpayer. The District's lien on taxable property within the District for taxes levied against such property can be foreclosed only in a judicial proceeding. Registered Owners' Remedies and Bankruptcy In the event of default in the payment of principal of or interest on the Bonds, the Registered Owners have a right to seek a writ of mandamus requiring the District to levy adequate taxes each year to make such payments. Except for mandamus, the Bond Order does not provide for remedies to protect and enforce the interests of the Registered Owners. 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. Based on recent Texas court decisions, it is unclear whether, §49.066, Texas Water Code, effectively waives governmental immunity of a municipal utility district for suits for money damages. Even if the Registered Owners could obtain a judgment against the District, such a judgment could not be enforced by a direct levy and execution against the District's property. Further, the Registered Owners cannot themselves foreclose on property within the District or sell property of the District in order to pay the principal of and interest on the Bonds. Since there is no trust indenture or trustee, the Registered 38 Owners would have to initiate and finance the legal process to enforce their remedies. The enforceability of the rights and remedies of the Registered Owners further 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. In this regard, should the District file a petition for protection from creditors under federal bankruptcy laws, a suit seeking the remedy of mandamus would be automatically stayed and could not be pursued unless authorized by a federal bankruptcy judge. See “THE BONDS - Bankruptcy Limitation to Registered Owners' Rights.” Marketability The District has no understanding (other than the initial reoffering yields) with the Underwriter regarding the reoffering yields or prices of the Bonds and has no control over the trading of the Bonds in the secondary market. There is no assurance that a secondary market will be made for the Bonds. If there is a secondary market, the difference between the bid and asked price of the Bonds may be greater than the bid and asked spread of other bonds generally bought, sold or traded in the secondary market. See “SALE AND DISTRIBUTION OF THE BONDS.” Future Debt The District has the right to issue the remaining $53,150,000* authorized but unissued bonds for refunding purposes, the remaining $30,590,000 authorized but unissued bonds for waterworks, sanitary sewer, and drainage facilities (see “THE BONDS - Legal Ability to Issue Additional Debt”), and additional bonds as may hereafter be approved by both the Board of Directors and voters of the District. The District also has the right to issue certain other additional bonds, special project bonds, and other obligations described in the Bond Order and under “THE BONDS - Legal Ability to Issue Additional Debt”. All of the remaining $53,150,000* in bonds for refunding purposes and $30,590,000 in bonds for waterworks, sanitary sewer and drainage facilities, which have heretofore been authorized by the voters of the District may be issued by the District from time to time as needed. The issuance of such $30,590,000 in bonds for waterworks, sanitary sewer and drainage facilities, is also subject to TCEQ authorization. . To date, according to the Developers, approximately $2,070,827 is owed to the Developers on current development. In the opinion of the District’s Engineer, the $30,590,000 of authorized but unissued bonds should be sufficient to fully reimburse and provide utility service to the remaining undeveloped but potentially developable acreage. If additional bonds are issued in the future and property values have not increased proportionately, such issuance may increase gross debt/property valuation ratios and thereby adversely affect the investment quality or security of the Bonds and the Outstanding Bonds. Competitive Nature of Dallas Residential Market The residential housing industry in the Dallas area is very competitive, and the District can give no assurance that the building programs which are planned by the Developer will be continued or completed. The respective competitive positions of the developers which might attempt future residential building or development projects in the District in the sale of residential housing are affected by most of the factors discussed in this section, and such competitive positions are directly related to tax revenues received by the District and the growth and maintenance of taxable values in the District. Continuing Compliance with Certain Covenants The Bond Order contains covenants by the District intended to preserve the exclusion from gross income of interest on the Bonds. 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.” Bond Insurance Risk Factors The District has applied for a bond insurance policy to guarantee the scheduled payment of principal and interest on the Bonds. The District has yet to determine whether any insurance will be purchased with the Bonds. If an insurance policy is purchased, the following are risk factors relating to bond insurance. 39 In the event of default of the payment of principal or interest with respect to the Bonds when all or some becomes due, any owner of the Bonds shall have a claim under the applicable Bond Insurance Policy (the “Policy”) issued by the insurer (the “Bond Insurer”) for such payments. Default of payment of principal and interest does not accelerate the obligations of the District or the Bond Insurer. The Bond Insurer may direct and must consent to any remedies that the Paying Agent exercises and the Bond Insurer’s consent may be required in connection with amendments to the Bond Order. In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the Bonds are payable solely from the moneys received by the Paying Agent pursuant to the Bond Order. In the event the Bond Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. The long-term ratings on the Bonds are dependent in part on the financial strength of the Bond Insurer and its claim paying ability. The Bond Insurer’s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See “MUNICIPAL BOND INSURANCE” and “RATINGS” herein. The obligations of the Bond Insurer are general obligations of the Bond Insurer and in an event of default by the Bond Insurer, the remedies available to the Paying Agent may be limited by applicable bankruptcy law or other similar laws related to insolvency. Neither the District nor the Underwriter has made an independent investigation into the claims paying ability of the Bond Insurer, and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the District to pay principal and interest on the Bonds and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See “MUNICIPAL BOND INSURANCE AND RATING” herein for further information provided by the Bond Insurer and the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer. Future and Proposed Legislation From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Bonds or otherwise prevent holders of the Bonds from realizing the full benefit, or any benefit, of the tax exemption of interest on the Bonds. Further, such proposals may impact the marketability or market value of the Bonds simply by being proposed. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The disclosures and opinions expressed herein are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds, and no opinion is expressed as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation. 40 LEGAL MATTERS Legal Opinions The District will furnish to the Underwriter a transcript of certain certified proceedings incident to the issuance and authorization of the Bonds, including a certified copy of the approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the Attorney General has examined a transcript of proceedings authorizing the issuance of the Bonds, and that based upon such examination, the Bonds are valid and binding obligations of the District payable from the proceeds of an annual ad valorem tax, without legal limitation as to rate or amount, levied upon all taxable property within the District. The District will also furnish the approving legal opinion of Kelly Hart & Hallman LLP, Fort Worth, Texas, Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds are valid and binding obligations of the District under the Constitution and laws of the State of Texas, except to the extent that enforcement of the rights and remedies of the Registered Owners of the Bonds 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. The legal opinion of Bond Counsel will further state that the Bonds are payable, both as to principal and interest, from the levy of ad valorem taxes, without legal limitation as to rate or amount upon all taxable property within the District, and that interest on the Bonds is excludable from gross income of the owners for federal income tax purposes under existing law and not subject to the alternative minimum tax on individuals, or, except as described therein, corporations. In addition to serving as Bond Counsel, Kelly Hart & Hallman LLP, also serves as counsel to the District on matters not related to the issuance of bonds. The legal fees to be paid to 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. Certain legal and disclosure matters will be passed upon for the Underwriter by its counsel, McCall, Parkhurst & Horton L.L.P., Dallas, Texas. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the 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. Legal Review Delivery of the Bonds will be accompanied by the approving legal opinion of the Attorney General of Texas to the effect that the Bonds are valid and legally binding obligations of the District under the Constitution and laws of the State of Texas payable from the proceeds of a continuing direct annual ad valorem tax levied, without legal limit as to rate or amount, upon all taxable property within the District and based upon their examination of a transcript of certified proceedings relating to the issuance and sale of the Bonds; the approving legal opinion of Bond Counsel, to a like effect, and to the effect that interest on the Bonds is excludable from gross income of the holders for federal tax purposes under existing law, and the Bonds are not “private activity bonds” under the Internal Revenue Code of 1986, as amended (the “Code”) and interest on the Bonds will not be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustments for corporations. In its capacity as Bond Counsel, Kelly Hart & Hallman LLP, has reviewed the information appearing in this Official Statement under the captioned sections “THE BONDS” (except for the subsection “Book-Entry-Only System”), “PLAN OF FINANCING – The Refunded Bonds” and “– Escrow Agreement,” “TAX PROCEDURES,” “THE DISTRICT – Authority,” “– Special District Agreements” and “– Management of the District – Bond Counsel & General Counsel,” “LEGAL MATTERS,” “TAX MATTERS” and “CONTINUING DISCLOSURE OF INFORMATION” solely to determine whether such information fairly summarizes the law and documents referred to therein. Such firm has not independently verified factual information contained in this Official Statement, nor has such firm conducted an investigation of the affairs of the District for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm’s limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the other information contained herein. 41 No-Litigation Certificate The District will furnish the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by both the President or Vice President and Secretary or Assistant Secretary of the Board, to the effect that no litigation of any nature has been filed or is to their knowledge then pending or threatened, either in state or federal courts, contesting or attaching 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 Underwriter to take up 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 financial condition of the District subsequent to the date of sale from that set forth in the Preliminary Official Statement, as it may have been finalized, supplemented or amended through the date of sale. TAX MATTERS Opinion On the date of initial delivery of the Bonds, Kelly Hart & Hallman LLP, Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof (“Existing Law”), (1) interest on the Bonds for federal income tax purposes will be excludable from the “gross income” of the holders thereof and (2) the Bonds will not be treated as “specified private activity bonds” the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the “Code”). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds. In rendering their opinion, Bond Counsel will rely upon (a) the District's federal tax certificate and the verification report prepared by Grant Thornton LLP, Certified Public Accountants and (b) covenants of the District with respect to arbitrage, the application of the proceeds to be received from the issuance and sale of the Bonds and certain other matter. Although it is expected that the Bonds will qualify as tax-exempt obligations for federal income tax purposes as of the date of issuance, the tax-exempt status of the Bonds could be affected by future events. However, future events beyond the control of the District, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Bonds to become taxable retroactively to the date of issuance. Bond Counsel’s opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel’s opinion is not a guarantee of a result. The law upon which Bond Counsel has based its opinion is subject to change by Congress, administrative interpretation by the Department of the Treasury and to subsequent judicial interpretation. There can be no assurance that such law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of ownership of the Bonds. A ruling was not sought from the Internal Revenue Service by the Issuer with respect to the Bonds or the Project. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the District as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. 42 Federal Income Tax Accounting Treatment of Original Issue Discount The Underwriters have represented that the initial public offering price to be paid for certain of the Bonds (the “Original Issue Discount Bonds”), as stated on the cover of the Official Statement, may be less than the principal amount thereof. As such, the difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Under Existing Law, such an owner is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period for which such Original Issue Discount Bond continues to be owned by such owner. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds. This discussion is based on Existing Law which is subject to change or modification retroactively. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, including financial institutions, life insurance and property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax, and individuals otherwise allowed an earned income credit. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM 43 THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Interest on the Bonds will be includable as an adjustment for “adjusted current earnings” to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a “market discount” and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to “market discount bonds” to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A “market discount bond” is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the “revised issue price” (i.e., the issue price plus accrued original issue discount). The “accrued market discount” is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. Qualified Tax-Exempt Obligations for Financial Institutions Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a “financial institution,” on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible by such taxpayer in determining taxable income. Section 265(b) of the Code provides an exception to the disallowance of such deduction for any interest expense paid or incurred on indebtedness of a taxpayer which is a “financial institution” allocable to tax-exempt obligations, other than “specified private activity bonds,” which are designated by a “qualified small issuer” as “qualified tax-exempt obligations.” A “qualified small issuer” is any governmental issuer (together with any subordinate issuers) who issues no more than $10,000,000 of tax-exempt obligations during the calendar year. Section 265(b)(5) of the Code defines the term “financial institution” as referring to any corporation described in section 585(a)(2) of the Code, or any person accepting deposits from the public in the ordinary course of such person's trade or business which is subject to federal or state supervision as a financial institution. The District has designated the Bonds as “qualified tax-exempt obligations” within the meaning of section 265(b) of the Code. In furtherance of that designation, the District has covenanted to take such action which would assure, or to refrain from such action which would adversely affect, the treatment of the Bonds as “qualified tax-exempt obligations.” Potential purchasers should be aware that if the issue price to the public exceeds $10,000,000, there is a reasonable basis to conclude that the payment of a de minimis amount of premium in excess of $10,000,000 is disregarded, however, the Internal Revenue Service could take a contrary view. Were the Internal Revenue Service to conclude that the amount of such premium is not disregarded, then such obligations might fail to satisfy the $10,000,000 limitation and the obligations would not be “qualified taxexempt obligations.” VERIFICATION OF MATHEMATICAL CALCULATIONS The arithmetical accuracy of certain computations included in the schedules provided by the Underwriter on behalf of the District relating to (a) computation of the adequacy of the bond proceeds along with certain available funds (if any) to pay, when due, the principal or redemption price of and interest on the Refunded Bonds, and (b) the computation of the yields on the Bonds was verified by Grant Thornton LLP. The computations were 44 independently verified by Grant Thornton LLP, based upon certain assumptions and information supplied by the Underwriter on behalf of the District, and the District. Grant Thornton LLP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions or the achievability of future events. CONTINUING DISCLOSURE OF INFORMATION In the Bond Order, the District has made the following covenants for the benefit of the holders of the Bonds. The District is required to observe these covenants for so long as it remains obligated to pay the Bonds. Under the covenants, the District will be obligated to provide certain updated financial information and operating data annually, as well as timely notice of specified events, to the Municipal Securities Rulemaking Board or any successor to its function as a repository (the “MSRB”), through its Electronic Municipal Market Access (“EMMA”) system. Annual Reports The District will provide certain financial information and operating data annually. The financial information and operating data which will be provided is found in the section titled “DISTRICT DEBT - Estimated Direct and Overlapping Debt,” “DISTRICT DEBT - Debt Service Requirement Schedule,” and “TAX DATA,” and “APPENDIX A - Financial Statements of the District.” The District will update and provide this information to the MSRB through its EMMA system within six months after the end of each of its fiscal years ending in or after 2013. The District may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by Rule 15c2-12 of the United States Securities and Exchange Commission (the “SEC”). The updated information will include audited financial statements if it commissions an audit and the audit is completed by the required time. If the audit of such financial statements is not complete within such period, then the District shall provide unaudited financial statements for the applicable fiscal year to the MSRB within such six month period, and audited financial statements when the audit report on such statements becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in the Bond Order or such other accounting principles as the District may be required to employ from time to time pursuant to state law or regulation. The District’s current fiscal year end is September 30. Accordingly, it must provide updated information by March 30 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change. Event Notices The District will provide timely notices of certain events to the MSRB, but in no event will such notices be provided to the MSRB in excess of ten days after the occurrence of an event. The District will provide notice of any of the following events with respect to the Bonds: (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-exempt status of the Bonds, or other events affecting the taxexempt status of the Bonds; (7) modifications to rights of beneficial owners 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 District or other obligated person within the meaning of SEC Rule 15c2-12; (13) consummation of a merger, consolidation, or acquisition involving the District or other obligated person within the meaning of such Rule or the sale of all or substantially all of the assets of the District or other obligated person within the meaning of such Rule, 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 to a decision to purchase or sell Bonds. The term “material” when used in this paragraph shall have the meaning ascribed to it 45 under federal securities laws. Neither the Bonds nor the Bond Order makes any provision for debt service reserves or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under “Annual Reports.” Availability of Information from MSRB The District has agreed to provide the foregoing information only to the MSRB. Investors will be able to access continuing disclosure information filed with the MSRB through its EMMA system at www.emma.msrb.org. Limitations and Amendments The District has agreed to update information and to provide notices of certain events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if by only (1) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of SEC Rule 15c2-12 to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any qualified professional unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. If the District so amends the agreement, it has agreed to include with any financial information or operating data next 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 financial information and operating data so provided. The District may also amend or repeal its continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of such rule are invalid, and the District also may amend its continuing disclosure agreement in its discretion in any other manner or circumstance, 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. Compliance with Prior Undertakings The District has complied in all material respects with its previous continuing disclosure agreement made in accordance with SEC Rule 15c2-12. OFFICIAL STATEMENT General The information contained in this Official Statement has been obtained primarily from the District's records, the Rockwall Central Appraisal District and other sources believed to be reliable; however, no representation is made as to the accuracy or completeness of the information contained herein, except as described below under “Certification of Official Statement.” The summaries of the statutes, resolutions and engineering and other related reports set forth herein are included 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 for further information. 46 The District's audited financial statements for the year ended September 30, 2012, were prepared by McCall, Gibson & Company, PLLC, Certified Public Accountant, and have been included herein as “APPENDIX A.” McCall, Gibson & Company, PLLC, Certified Public Accountant, has consented to the publication of such financial statements in this Preliminary Official Statement. Experts The information contained in this Preliminary Official Statement relating to engineering, to the description of the System generally and, in particular, the engineering information included in the section captioned “THE SYSTEM,” has been provided by Petitt Barraza, LLC. Such information has been included herein in reliance upon the authority of said firm as expert in the field of civil engineering. The information contained in this Preliminary Official Statement relating to assessed valuations of property generally and, in particular, that information concerning valuations contained in the sections captioned “TAX DATA” and “DISTRICT DEBT” has been provided by the Rockwall Central Appraisal District, in reliance upon the authority of said appraisal district as an expert in the field of tax assessing and real property appraisal. Updating of Official Statement The District will keep the 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, to the other matters described in the Official Statement, until the delivery of the Bonds to the Underwriter, unless the Underwriter notifies the District on or before such date that less than all of the Bonds have been sold to ultimate customers, in which case the District's obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the District delivers the Bonds) until all of the Bonds have been sold to ultimate customers. Certification of Official Statement At the time of payment for and delivery of the Bonds, the District will furnish the Underwriter a certificate, executed by the President and Secretary of the Board, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the information, descriptions and statements of or pertaining to the District contained in this Official Statement, on the date thereof and on the date of 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, this 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 herein or necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in this Official Statement, of or pertaining to entities other than the District and their activities are concerned, such statements and data have been obtained from sources which the District believes to be reliable and that the District has no reason to believe that they are untrue in any material respect or omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading; however, the District has made no independent investigation as to the accuracy or completeness of the information derived from sources other than the District. This Official Statement is duly approved by the Board of Directors of the District as of the date specified on the first page hereof. Official Statement “Deemed Final” For purposes of compliance with SEC Rule 15c2-12, this document, as the same may be supplemented or corrected by the District from time to time, may be treated as an Official Statement with respect to the Bonds described herein as has been “deemed final” by the District as of the date hereof (or of any such supplement or correction), except for the omission of certain information referred to in the succeeding paragraph. 47 The Official Statement, when further supplemented by adding information specifying the interest rates and certain other information relating to the Bonds, shall constitute a “final official statement” of the District with respect to the Bonds, as that term is defined in SEC Rule 15c2-12. /s/ ____________________________________________ President, Board of Directors Rockwall County Consolidated Municipal Utility District No. 1, of Rockwall County, Texas ATTEST: /s/ ____________________________________________ Secretary, Board of Directors Rockwall County Consolidated Municipal Utility District No. 1 of Rockwall County, Texas 48 APPENDIX A FINANCIAL STATEMENTS OF THE DISTRICT ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 ROCKWALL COUNTY, TEXAS ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2012 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1-2 MANAGEMENT'S DISCUSSION AND ANALYSIS 3-7 STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET 8-9 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 10 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES NOTES TO BASIC FINANCIAL STATEMENTS 11-12 13 14-26 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL-GENERAL FUND 28 SUPPLEMENTARY INFORMATION REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE NOTES REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE ( Included in the notes to basic financial statements) SERVICES AND RATES 30-31 GENERAL FUND EXPENDITURES 32-33 INVESTMENTS 34 TAXES LEVIED AND RECEIVABLE 35-36 LONG-TERM DEBT SERVICE REQUIREMENTS 37-40 CHANGE IN LONG-TERM BOND DEBT 41-42 COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND AND DEBT SERVICE FUND - FIVE YEARS 43-46 BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS 47-48 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants 13100 Worthanr Center Drive Suite 235 Houston, Texas 77065-5610 (713) 462-0341 Fax (713) 462-2708 E-Mail: [email protected] 111 Congress Avenue Suite 400 Austin, Texas 78701 (512) 610-2209 rururarngsbellc.conr Board of Directors Rockwall County Consolidated Municipal Utility District No. 1 Rockwall County, Texas Independent Auditor's Report We have audited the accompanying financial statements of the governmental activities and each major fund of Rockwall County Consolidated Municipal Utility District No. 1 (the "District"), as of and for the year ended September 30, 2012, which collectively comprise the District's basic financial statements as listed in the preceding table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit. We have conducted our audit in accordance with auditing standards generally accepted as promulgated within the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of September 30, 2012, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Member of American Institute ofCer7ified Public Accountants Texas Society of Certified Public Accountants Board of Directors Rockwall County Consolidated Municipal Utility District No. 1 Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis on pages 3 through 7 and the Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund on page 28 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our 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. Our audit was conducted for the purpose of forming opinions on the financial statements as a whole. The supplementary information required by the Texas Commission on Environmental Quality as published in the Water District Financial Management Guide is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the The underlying accounting and other records used to prepare the financial statements. supplementary information, excluding that portion marked "Unaudited" on which we express no opinion or provide any assurance, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 9AL774(wj 9 M /,/C C McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants January 22, 2013 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. X MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Management's discussion and analysis of Rockwall County Consolidated Municipal Utility District No. 1's (the "District") financial performance provides an overview of the District's financial activities for the fiscal year ended September 30, 2012. Please read it in conjunction with the District's financial statements, which begin on page 8. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The basic financial statements include: (1) combined fund financial statements and government-wide financial statements and (2) notes to the basic financial statements. The combined fund financial statements and government-wide financial statements combine both: (1) the Statement of Net Assets and Governmental Funds Balance Sheet and (2) the Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balances. This report also includes other supplementary information in addition to the basic financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS The District's annual report includes two financial statements combining the government-wide financial statements and the fund financial statements. The government-wide portion of these statements provides both long-term and short-term information about the District's overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of the government-wide statements is the Statement of Net Assets. This information is found in the Statement of Net Assets column on pages 8 and 9. The Statement of Net Assets is the District-wide statement of its financial position presenting information that includes all of the District's assets and liabilities, with the difference reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District as a whole is improving or deteriorating. Evaluation of the overall health of the District would extend to other non-financial factors. The government-wide portion of Statement of Activities on pages 11 and 12 reports how the District's net assets changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. FUND FINANCIAL STATEMENTS The combined statements also include fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District has two governmental fund types. The General Fund accounts for resources not accounted for in another fund, maintenance tax revenues, costs and general expenditures. The Debt Service Fund accounts for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and -3- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2012 FUND FINANCIAL STATEMENTS (Continued) collecting taxes. Governmental funds are reported in each of the financial statements . The focus in the fund statements provides a distinctive view of the District's governmental funds. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of the District and the commitment of spendable resources for the nearterm. Since the government-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. The adjustments columns, the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets on page 10 and the Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities on page 13 explain the differences between the two presentations and assist in understanding the differences between these two perspectives. NOTES TO THE BASIC FINANCIAL STATEMENTS The accompanying notes to the basic financial statements provide information essential to a full understanding of the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages 14 through 26 in this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information ("RSP'). The budgetary comparison schedule is included as RSI for the General Fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets may serve over time as a useful indicator of the District's financial position. In the case of the. District, liabilities exceeded assets by $10,128,706 as of September 30, 2012. The following is a comparative analysis of the government-wide changes in net assets: ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2012 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Summary of Changes in the Statement of Net Assets 2012 Change Positive (Negative) 2011 Current and Other Assets $ 4,618,800 $ 4,611,456 $ 7,344 Total Assets $ 4,618,800 $ 4,611,456 $ 7,344 $ 13,955,000 $ 14,395,000 $ 440,000 Long -Term Liabilities Total Liabilities Net Assets: Restricted (10,888) $ 14,747,506 $ 15,176,618 $ 429,112 $ 2,728,978 (12,857,684) $ 2,671,092 (13,236,254) $ 57,886 378,570 $ (10,565,162) $ 436,456 Unrestricted Total Net Assets 781,618 792,506 Other Liabilities $ (10,128,706) The followi-,tg table provides a summary of the District's operations for the years ended September 30, 2012, and September 30, 2011. The District increased its net assets by $436,456, accounting for a4.1% growth in net assets. Comparative data is presented below: Summary of Changes in the Statement of Activities 2011 2012 Revenues: Property Taxes Other Revenues Total Revenues $ $ Net Assets, Beginning of Year Net Assets, End of Year $ $ 1,251,283 Expenses for Services Change in Net Assets 1,663,401 24,338 1,687,739 $ 436,456 1,556,662 28,778 1,585,440 $ $ 1,497,288 $ 88,152 $ (10,565,162) 106,739 (4,440} 102,299 246,005 $ (10,653,314) (10,565,162) $ (10,128,706) Change Positive (Negative) 348,304 88,152 $ 436,456 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2012 FINANCIAL ANALYSIS OF THE DISTRICT'S GOVERNMENTAL FUNDS The District's combined fund balances as of September 30, 2012, were $3,321,935, an increase of $74,880 from the prior year. The General Fund fund balance increased by $31,987. The Debt Service Fund fund balance increased by $42,893, primarily due to the structure of the District's outstanding debt service. GENERAL FUND BUDGETARY HIGHLIGHTS The Board of Directors did not amend the budget during the current fiscal year. Actual revenues were $10,936 more than budgeted revenues. Actual expenditures were $351,549 more than budgeted. See the budget to actual comparison on page 28. CAPITAL ASSETS The District operates in contractual conjunction with the City of Fate, Texas (the "City"). In this arrangement, the facilities constructed by the District are conveyed to the City. The City maintains the facilities and operates the facilities for the benefit of the residents of the District. Therefore, the District does not have capital assets on its balance sheet. As of September 30, 2012, the District has recorded $11,711,533 in transfers to the City in relation to assets that have been conveyed to the City. LONG-TERM DEBT ACTIVITY At the end of the current fiscal year, the District had total bond debt payable of $14,395,000. The changes in the debt position of the District during the fiscal year ended September 30, 2012, are summarized as follows: Bond Debt Payable, October 1, 2011 $ Less: Bond Principal Paid Bond Debt Payable, September 30, 2012 14,810,000 415,000 $ 14,395,000 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2012 LONG-TERM DEBT ACTIVITY (Continued) The District's bonds carry an underlying rating of "BBB+". The Series 2006 bonds carry an insured rating of "BB-" by virtue of bond insurance issued by Radian Asset Assurance, Inc. (Radian). The Series 2007 bonds originally carried an insured rating by virtue of bond insurance issued by Ambac whose rating has been withdrawn. The Series 2008 bonds carry an insured rating of "AA-" by virtue of bond insurance issued by Assured Guaranty. Credit enhanced ratings provided through bond insurance policies are subject to change based on the rating of the bond insurance company. The ratings above include all rating changes through September 30, 2012. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the District ' s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Rockwall County Consolidated Municipal Utility District No. 1, c/o Kelly Hart & Hallman, LLP, 301 Congress , Suite 2000 , Austin, Texas 78701. ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET SEPTEMBER 30, 2012 Debt Service Fund General Fund ASSETS Cash, Note 5 Investments , Note 5 Cash with Fiscal Agent Receivables: $ 282,906 $ 4,612 Property Taxes Due from Other Funds, Note 11 Prepaid Costs Unamortized Bond Issuance Costs 53,209 2,216,376 780,418 12,708 5,571 1,114 Unamortized Bond Discount TOTAL ASSETS LIABILITIES Accounts Payable Accrued Interest Payable Due to Other Funds, Note 11 Deferred Revenues: Property Taxes Long Term Liabilities: $ 287,518 $ $ 12,088 $ 3,069,396 5,571 12,708 4,612 Bonds Payable, Due Within One Year, Note 3 Bonds Payable, Due After One Year, Note 3 $ TOTAL LIABILITIES 22,271 $ 12,708 $ 1,114 3,055,574 FUND BALANCES/NET ASSETS FUND BALANCES Nonspendable: Prepaid Costs Restricted for Debt Service Unassigned $ 265,247 TOTAL FUND BALANCES $ 265,247 $ 3,056,688 TOTAL LIABILITIES AND FUND BALANCES $ 287,518 $ 3,069,396 NET ASSETS Restricted for: Debt Service Unrestricted TOTAL NET ASSETS The accompanying notes to basic financial statements are an integral part of this report. -8- Total $ 336,115 2,216,376 780,418 Statement of Net Assets Adjustments $ $ 17,320 17,320 5,571 1,114 (5,571) 1,114 910,316 357,141 910,316 357,141 $ 336,115 2,216,376 780,418 3,356,914 $ 12,088 $ 1,261,886 5,571 340,418 (5,571) 17,320 (17,320) $ 4,618,800 $ 12,088 340,418 440,000 13,955,000 440,000 13,955,000 34,979 $ 14,712,527 $ $ 1,114 3,055,574 265,247 $ (1,114) (3,055,574) (265,247) $ $ 3,321,935 $ (3,321,935) $ $ 3,356,914 14,747,506 -0 2,728,978 (12,857,684) 2,728,978 (12,857,684) $ (10,128,706) $ (10,128,706) The accompanying notes to basic financial statements are an integral part of this report. -9- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 Total Fund Balances - Governmental Funds $ 3,321,935 Amounts reported for governmental activities in the Statement of Net Assets are different because: Unamortized bond issuance costs and bond discounts in governmental activities are not current financial resources and, therefore, are not reported as assets in the governmental funds. 1,267,457 Deferred tax revenues and deferred penalty and interest revenues on delinquent taxes for the 2011 and prior tax levies became part of recognized revenue in the governmental activities of the District. 17,320 Certain liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. These liabilities at year end consist of: Accrued Interest Payable Bonds Payable Within One Year Bonds Payable After One Year $ (340,418) (440,000) (13,955,000) Total Net Assets - Governmental Activities (14,735,418) $ The accompanying notes to basic financial statements are an integral part of this report. -10- (10,128,706) THIS PAGE INTENTIONALLY LEFT BLANK ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED SEPTEMBER 30, 2012 Debt Service Fund General Fund REVENUES Property Taxes Penalty and Interest Investment Revenues Miscellaneous Revenues TOTAL REVENUES EXPENDITURES/EXPENSES Service Operations: Professional Fees Contracted Services Other Wastewater Treatment Costs, Note 12 $ 506,762 3,248 906 223 $ 1,152,227 3,131 16,829 1 $ 511,139 $ 1,172,188 $ 95,421 10,681 13,859 152,525 $ 1,660 19,679 40 Capital Outlay 206,666 Debt Service: Bond Principal Bond Interest 415,000 692,916 TOTAL EXPENDITURES/EXPENSES $ 479,152 $ 1,129,295 NET CHANGE IN FUND BALANCES $ 31,987 $ 42,893 CHANGE IN NET ASSETS FUND BALANCES/NET ASSETS OCTOBER 1, 2011 233,260 FUND BALANCES/NET ASSETS SEPTEMBER 30, 2012 265,247 The accompanying notes to basic financial statements are an integral part of this report. - 11 - 3,013,795 $ 3,056,688 Total Statement of Activities Adjustments $ 1,658,989 6,379 17,735 224 $ 4,412 $ 1,663,401 6,379 17,735 224 $ 1,683,327 $ 4,412 $ 1,687,739 $ 97,081 30,360 13,899 152,525 206,666 $ 132,843 $ 229,924 30,360 13,899 226,348 73,823 (206,666) 415,000 692,916 (415,000) 57,836 750,752 $ 1;608,447 $ (357,164) $ $ 74,880 $ (74,880) $ 436,456 1,251,283 436,456 3,247,055 (13,812,217} (10,565,162) 3,321,935 $ (13,450,641) $ (10,128,706) The accompanying notes to basic financial statements are an integral part of this report. -12- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012 Net Change in Fund Balances - Governmental Funds $ 74,880 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report tax revenues when collected. However, in the Statement of Activities , revenue is recorded in the accounting period for which the taxes are levied. 4,412 Governmental funds report bond principal payments as expenditures. However, in the Statement of Net Assets, bond principal payments are reported as decreases in long-term liabilities. 415,000 tovernmental tunds report interest expenditures on long-term debt as expenditures in the year paid. However, in the Statement of Net Assets, interest is accrued on the long-term debt through fiscal year-end. (57,836) Change in Net Assets - Governmental Activities 436,456 The accompanying notes to basic financial statements are an integral part of this report. -13- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 1. CREATION OF DISTRICT Rockwall County Consolidated Municipal Utility District No. 1 (the "District") was formed pursuant to a Consolidation Agreement dated April 5, 1976 between Rockwall County Municipal Utility District No. 1 (created by the Texas Water Rights Commission ("TWRC") on February 29, 1972), Rockwall County Municipal Utility District No. 3 (created by the TWRC on June 19, 1972) and Rockwall County Municipal Utility District No. 4 (created by the TWRC on June 19, 1972). The District assumed the powers and functions of the individual districts. The TWRC is presently known as the Texas Commission on Environmental Quality (the "Commission"). Pursuant to the provisions of Chapters 49 and 54 of the Texas Water Code, the District is empowered to purchase, operate and maintain all facilities, plants, and improvements necessary to provide water, sanitary sewer service, storm sewer drainage, irrigation, solid waste collection and disposal, including recycling, and to construct parks and recreational facilities for the residents of the District. The District is also empowered to contract for or employ its own peace officers with powers to make arrests and to establish, operate and maintain a fire department to perform all fire-fighting activities within the District. The District was originally organized in 1972 but remained inactive until October 25, 2002, when the Commission confirmed the appointment of five temporary directors for the District and the District was reactivated. The District held its reorganizational meeting on February 5, 2003 and sold its first bonds on March 23, 2006. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board ("GASB"). In addition, the accounting records of the District are maintained generally in accordance with the Water District Financial Management Guide published by the Commission. The GASB has established the criteria for determining whether or not a given entity is a component unit. The criteria are: (1) is the potential component unit a legally separate entity, (2) does the primary government appoint a voting majority of the potential component unit's board, (3) is the primary government able to impose its will on the potential component unit, (4) is there a financial benefit or burden relationship. The District was created as an independent municipality. The District does not meet the criteria for inclusion as a component unit of any entity nor does any other entity meet the component unit criteria for inclusion in the District's basic financial statements. ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Statement Presentation These financial statements have been prepared in accordance with GASB Codification of Governmental Accounting and Financial Reporting Standards Part II, Financial Reporting. The GASB Codification sets forth standards for external financial reporting for all state and local government entities, which include a requirement for a Statement of Net Assets and a Statement of Activities. It requires the classification of net assets into three components: Invested in Capital Assets, Net of Related Debt; Restricted; and Unrestricted. These classifications are defined as follows: • Invested in Capital Assets, Net of Related Debt - This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. • Restricted Net Assets - This component of net assets consists of external constraints placed on the use of net assets imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or enabling legislation. • Unrestricted Net Assets - This component of net assets consists of net assets that do not meet the definition of "Restricted" or "Invested in Capital Assets, Net of Related Debt." When both restricted and unrestricted resources are available for use, generally it is the District's policy to use restricted resources first. Government-Wide Financial Statements The Statement of Net Assets and the Statement of Activities display information about the District as a whole. The District's Statement of Net Assets and Statement of Activities are combined with the governmental fund financial statements. The District is viewed as a specialpurpose government and has the option of combining these financial statements. The Statement of Net Assets is reported by adjusting the governmental fund types to report on the full accrual basis, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. Any amounts recorded due to and due from other funds are eliminated in the Statement of Net Assets. -15- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Government-Wide Financial Statements (Continued) The Statement of Activities is reported by adjusting the governmental fund types to report only items related to current year revenues and expenditures. Items such as capital outlay are allocated over their estimated useful lives as depreciation expense. Internal activities between governmental funds, if any, are eliminated to obtain net total revenues and expenses of the government-wide Statement of Activities. Fund Financial Statements As discussed above, the District's fund financial statements are combined with the governmentwide statements. The fund statements include a Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. Governmental Funds The District has two governmental funds and considers each to be a major fund. General Fund - To account for resources not required to be accounted for in another fund, maintenance tax revenues, costs and general expenditures. Debt Service Fund - To account for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. Basis of Accounting The District uses the modified accrual basis of accounting for governmental fund types. The modified accrual basis of accounting recognizes revenues when both "measurable and available." Measurable means the amount can be determined. Available means collectable within the current period or soon enough thereafter to pay current liabilities. The District considers revenue reported in governmental funds to be available if they are collectable within 60 days after year end. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, which are recognized as expenditures when payment is due. ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Accounting (Continued) Property taxes considered available by the District and included in revenue include taxes collected during the year and taxes collected after year-end, which were considered available to defray the expenditures of the current year. Deferred tax revenues are those taxes which the District does not reasonably expect to be collected soon enough in the subsequent period to finance current expenditures. Amounts transferred from one fund to another fund are reported as other financing sources or uses. Loans by one fund to another fund and amounts paid by one fund for another fund are reported as interfund receivables and payables in the Governmental Funds Balance Sheet if there is intent to repay the amount and if the debtor fund has the ability to repay the advance on a timely basis. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the government-wide Statement of Net Assets. 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 expenditures in the governmental fund incurred and as an expense in the government-wide Statement of Activities. Capital asset additions, improvements and preservation costs that extend the life of an asset are capitalized and depreciated over the estimated useful life of the asset. Interest costs, including developer interest, engineering fees and certain other costs are capitalized as part of the asset. Assets are capitalized, including infrastructure assets, if they have an original cost greater than $10,000 and a useful life over two years. Depreciation is calculated on each class of depreciable property using the straight-line method of depreciation. Estimated useful lives are as follows: Years Buildings Water System 40 10-45 Wastewater System 10-45 Drainage System All Other Equipment 10-45 3-20 To date all capital assets constructed by the District have been conveyed to the City of Fate, Texas for operations and maintenance , see Note 6. - 17 - ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Budgeting In compliance with governmental accounting principles, the Board of Directors annually adopts an unappropriated budget for the General Fund. The budget was not amended during the current fiscal year. Pensions The District has not established a pension plan as the District does not have employees. The Internal Revenue Service has determined that fees of office received by Directors are considered to be wages subject to federal income tax withholding for payroll tax purposes only. Measurement Focus Measurement focus is a term used to describe which transactions are recognized within the various financial statements. In the government-wide Statement of Net Assets and Statement of Activities, the governmental activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets, financial position, and cash flows. All assets and liabilities associated with the activities are reported. Fund equity is classified as net assets. Governmental fund types are accounted for on a spending or financial flow measurement focus. Accordingly, only current assets and current liabilities are included on the Balance Sheet, and the reported fund balances provide an indication of available spendable or appropriable resources. Operating statements of governmental fund types report increases and decreases in available spendable resources. Fund Balances GASB Statement No. 54, Fund Balance Reporting and Governmental Fund-type Definitions, requires the classification of fund balances in governmental funds using the following hierarchy: Nonspendable: amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted: amounts that can be spent only for specific purposes because of constitutional provisions, or enabling legislation, or because of constraints that are imposed externally. - l s- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balances (Continued) Committed: amounts that can be spent only for purposes determined by a formal action of the Board of Directors. The Board is the highest level of decision-making authority for the District. This action must be made no later than the end of the fiscal year. Commitments may be established, modified, or rescinded only through ordinances or resolutions approved by the Board. The District does not have any committed fund balances. Assigned: amounts that do not meet the criteria to be classified as restricted or committed, but that are intended to be used for specific purposes. The District has not adopted a formal policy regarding the assignment of fund balances and does not have any assigned fund balances. Unassigned: all other spendable amounts in the General Fund. When expenditures are incurred for which restricted, committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of restricted funds, then commmitted funds, then assigned funds, and finally unassigned funds. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. NOTE 3. BONDS PAYABLE Series 2006 Series 2007 Series 2008 Amount Outstanding September 30, 2012 $ Interest Rates 4.00% - 5.75% 4.00% - 5.00% 5.50% - 8.00% Maturity Date October 1, 2012/2030 October 1, 2012/2030 October 1, 2012/2030 Interest Payment Dates October 1/ April 1 October 1/ April 1 October 1/ April 1 October 1, 2013 October 1, 2015 October 1, 2016 'k• :t Callable Dates 6,005,000 -19- $ 5,775,000 $ 2,615,000 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 3. BONDS PAYABLE (Continued) Or any date thereafter at a price of par plus unpaid accrued interest in whole or in part, at the option of the District. Series 2006 term bonds maturing on October 1, 2024, October 1, 2028 and October 1, 2030, are subject to mandatory redemption by random selection beginning October 1, 2023, October 1, 2027, and October 1, 2029, respectively. Series 2007 term bonds maturing on October 1, 2027, are subject to mandatory redemption by random selection beginning October 1, 2026. Series 2008 term bonds maturing October 1, 2018, October 1, 2021, October 1, 2024, October 1, 2027, and October 1, 2030, are subject to mandatory redemption by random selection beginning October 1, 2017, October 1, 2019, October 1, 2022, October 1, 2025, and October 1, 2028. The following is a summary of transactions regarding bonds payable for the year ended September 30, 2012: Bond Debt Payable - October 1, 2011 $ 14,810,000 Less: Bond Principal Retirement - Series 2006 Series 2007 Series 2008 $ 175,000 170,000 70,000 415,000 Bond Debt Payable - September 30, 2012 Bond Debt Payable Due Within One Year Due After One Year 14,395,000 $ Bond Debt Payable - September 30, 2012 440,000 13,955,000 14,395,000 Original Bonds Voted $ 46,100,000 Original Bonds Approved $ 15,510,000 Original Bonds Issued $ 15,510,000 Refunding Bonds Voted $ 53,315,000 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 3. BONDS PAYABLE (Continued) As of September 30, 2012, the debt service requirements on the bonds outstanding were as follows: Fiscal Year 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2031 Principal Interest Total $ 440,000 465,000 490,000 515,000 550,000 3,235,000 4,290,000 4,410,000 $ 668,017 641,886 614,534 587,872 562,233 2,407,480 1,561,196 433,297 $ 1,108,017 1,106,886 1,104,534 1,102,872 1,112,233 5,642,480 5,851,196 4,843,297 $ 14,395,000 $ 7,476,515 $ 21,871,515 The bonds are payable from the proceeds of an ad valorem tax levied upon all property subject to taxation within the District, without limitation as to rate or amount. During the year ended September 30, 2012, the District levied an ad valorem debt service tax rate of $0.50 per $100 of assessed valuation, which resulted in a tax levy of $1,155,140 on the adjusted taxable valuation of $231,027,899 for the 2011 tax year. The bond order requires the District to levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due and the cost of assessing and collecting taxes, see Note 7 for maintenance tax levy. The District's tax calendar is as follows: Levy Date - October 1, or as soon thereafter as practicable. Lien Date - January 1. Due Date - Not later than January 31. Delinquent Date - February 1, at which time the taxpayer is liable for penalty and interest. ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 4. SIGNIFICANT BOND ORDER AND LEGAL REQUIREMENTS The bond orders state that the District is required by the Securities and Exchange Commission to provide continuing disclosure of certain general financial information and operating data with respect to the District to the state. information depository. This information, along with the audited annual financial statements, is to be provided within six months after the end of each fiscal year and shall continue to be provided through the life of the bonds. NOTE 5. DEPOSITS AND INVESTMENTS Deposits Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District's deposit policy for custodial credit risk requires compliance with the provisions of Texas statutes. Texas statutes require that any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of the District, having an aggregate market value, including accrued interest, at all times equal to the uninsured cash balance in the fund to which such securities are pledged. At fiscal year end, the carrying amount of the District's deposits was $2,552,491 and the bank balance was $2,283,571. Of the bank balance, $280,130 was covered by federal depository insurance and the balance was collateralized with securities held in a third party depository in the District's name. The carrying values of the deposits are included in the Governmental Funds Balance Sheet and the Statement of Net Assets at September 30, 2012, as listed below: Certificates of Deposit Cash GENERAL FUND $ DEBT SERVICE FUND TOTAL DEPOSITS 282,906 $ 336,115 $ $ 2,216,376 282,906 2,269,585 2,216,376 53,209 $ Total $ 2,552,491 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 DEPOSITS AND INVESTMENTS (Continued) NOTE 5. Investments Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity and that address investment diversification, yield, maturity, and the quality and capability of investment management, and all District funds must be invested in accordance with the following investment objectives: understanding the suitability of the investment to the District's financial requirements, first; preservation and safety of principal, second; liquidity, third; marketability of the investments if the need arises to liquidate the investment before maturity, fourth; diversification of the investment portfolio, fifth; and yield, sixth. 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." No person may invest District funds without express written authority from the Board of Directors. Texas statutes include specifications for and limitations applicable to the District and its authority to purchase investments as defined in the Public Funds Investment Act. Authorized investments are summarized as follows: (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) certain collateralized mortgage obligations, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its 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) certain A rated or higher obligations of states, agencies, counties, cities, and other political subdivisions of any state, (6) bonds issued, assumed or guaranteed by the State of Israel, (7) insured or collateralized certificates of deposit, (8) certain fully collateralized repurchase agreements secured by delivery, (9) certain bankers' acceptances with limitations, (10) commercial paper rated A-1 or P-1 or higher and a maturity of 270 days or less, (11) no-load money market mutual funds and no-load mutual funds with limitations, (12) certain guaranteed investment contracts, (13) certain qualified governmental investment pools and (14) a qualified securities lending program. As of September 30, 2012, the District had the following investments and maturities: Maturities in Years Less Than Fund and Investment Type DEBT SERVICE FUND Certificates of Deposit Fair Value 1 $ 2,216,376 $ 2,216,376 -23- $ 1-5 6-10 -0- $ -0- More Than 10 $ -0- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL, UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 5. DEPOSITS AND INVESTMENTS (Continued) Restrictions All cash and investment of the Debt Service Fund are restricted for payment of debt service and cost of assessing and collecting taxes. NOTE 6. CAPITAL ASSETS The District operates in contractual conjunction with the City of Fate, Texas (the "City"). In this arrangement , the facilities constructed by the District are conveyed to the City. The City maintains the facilities and operates the facilities for the benefit of the residents of the District. Therefore, the District does not have capital assets on its balance sheet . As of September 30, 2012, the District has recorded $11,711,533 in transfers to the City in relation to assets that have been conveyed to the City. NOTE 7. MAINTENANCE TAX On May 15, 2004, the voters of the District approved the levy and collection of a maintenance tax in an unlimited amount per $100 of assessed valuation of taxable property within the District. This maintenance tax is to be used by the General Fund to pay expenditures of operating the District's waterworks and wastewater systems. During the current fiscal year, the District levied an ad valorem maintenance tax at the rate of $0.22 per $100 of assessed valuation, which resulted in a tax levy of $508,262 on the adjusted taxable valuation of $231,027,899 for the 2011 tax year. NOTE 8. SPECIAL DISTRICT AGREEMENT The District, Rockwall County Consolidated Municipal Utility District No. 2 (District No. 2), the City of Fate, Texas (the "City") and PRA/Fate Development Corp., the Developer within the District, have entered into the Special District Agreement dated December 1, 2003. Pursuant to the terms of the agreement, the City agrees to provide retail water capacity to 1,300 residential units and sewer capacity to 700 residential units within the districts. The City agrees to own, operate and maintain the facilities and charge user fees equal to those charged others within its boundaries. Under the agreement, the Developer agrees to finance and construct on behalf of the districts the internal water, sewer and drainage facilities, see Note 9. -24- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 8. SPECIAL DISTRICT AGREEMENT (Continued) On May 17, 2006, the District, Rockwall County Municipal Utility District's No. 6, 7, 8 and 9 (District's No. 6, 7, 8 and 9), the City, and PRA/Fate Development Corp. entered into the Special District Agreement No. 2. This agreement noted that District No. 2 has become dormant and that District's No. 6, 7, 8 and 9 have been created over land comprising of District No. 2 and are now party to the original agreement in the place of District No. 2. It was also noted that the newly created districts have certain road powers that the District does not have and that the construction and acquisition of roads will be subject to the same rights and obligations as the water, sewer and drainage facilities referenced in the original agreement. Pursuant to the terms of the agreement, the City agrees to provide additional retail water capacity to 1,000 residential units and sewer capacity to 500 residential units with the districts. Pursuant to the Capacity Allocation Agreement between the District and District's No. 6, 7, 8 and 9 approved on September 19, 2006, the districts have agreed that all the water and sewer capacity mentioned in the Special District Agreement and the Special District Agreement No. 2 will be allocated to the District. The districts will cooperate with the Developer and the City for any additional water and sewer capacity that will be needed by any of the districts. NOTE 9. UNREIM 3URSED COSTS The District has executed development financing agreements with Developers within the District. These agreements call for the Developers to fund costs associated with water, sewer and drainage facilities and to advance monies to fund operations until such time as the District can sell bonds to reimburse the Developers. As of September 30, 2012, the Developers indicated that approximately $2,030,827 had been advanced on behalf of the District in connection with these agreements. Since any reimbursement is contingent upon a future bond sale, the District has not accrued a liability related to these items. NOTE 10. RISK MANAGEMENT The District is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, error and omission and natural disasters for which the District carries commercial insurance. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past three years. ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2012 NOTE 11. INTERFUND PAYABLES AND RECEIVABLES As of September 30, 2012, the District recorded interfund liabilities of $5,571 in the General Fund as due to the Debt Service Fund for debt service tax collections. NOTE 12. WATER AND WASTEWATER CAPACITY On June 24, 2003, the City and PRA/Fate Development Corp (the "Developer") entered into an agreement for certain off-site water and sewer improvements to serve the District (the "2003 Agreement"). The Developer agreed to pay the entire cost for the design and construction of the improvements and, as consideration for the construction of the improvements, the City shall provide access, capacity and rights to water and sewer services for the Developer to be used on the property provided by the improvements. In order to adequately serve the property with sewer service, the City has become a member of the Sabine Creek Wastewater System, which is owned and operated by North Texas Municipal Water District ("NTMWD"). The City's capacity contracts with NTMWD require annual debt service payments from the City to NTMWD. Any shortfall between the City's sewer revenue and the debt service payment to NTMWD related to the District would be paid by the Developer pursuant to the 2003 Agreement. On November 15, 2010, the 2003 Agreement was amended. The City will remain obligated to fully reimburse the Developer for remaining unreimbursed project costs. In consideration for the Developer funding the project costs and project improvements, the City agrees to provide the Developer, and in turn the District, with 2,300 residential units of water capacity and 1,200 residential units of wastewater capacity. In consideration for the provisions of wastewater service to the District and reservation of wastewater capacity for the District, the Developer had made and shall make annual payments to the City according to the following schedule; $400,000, 200,000, and $152,525 due on November 30, 2010, September 30, 2011 and September 30, 2012 respectively, for the debt service payments to NTMWD. As of September 30, 2012, the District paid $752,525 to the City for the payments due November 30, 2010, September 30, 2011 and September 30, 2012, in lieu of Developer payment or as reimbursement to the Developer for prior payments which are of benefit to the District. After payment of these amounts, the Developer and District have no other obligation to pay such shortfall amounts to the City. The term of the agreement is the earlier of 20 years or satisfaction of all terms and conditions by the parties to the agreement. -26- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2012 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2012 Variance Positive (Negative) Original and Actual Final Budget REVENUES Property Taxes Penalty and Interest Investment Revenues Miscellaneous Revenues $ 498,403 $ 506,762 3,248 906 223 $ 1,800 8,359 3,248 (894) 223 TOTAL REVENUES $ 500,203 $ 511,139 $ 10,936 EXPENDITURES Services Operations: Professional Fees $ 98,500 12,100 17,003 $ 95,421 10,681 13,859 152,525 206,666 $ 3,079 1,419 3,144 (152,525) (206,666) TOTAL EXPENDITURES $ 127,603 $ 479,152 $ (351,549) NET CHANGE IN FUND BALANCE $ 372,600 $ 31,987 $ (340,613) $ (340,613) Contracted Services Other Wastewater Treatment Costs Capital Outlay FUND BALANCE - OCTOBER 1, 2011 FUND BALANCE - SEPTEMBER 30, 2012 233,260 $ 605,860 233,260 $ See accompanying independent auditor's report. -28- 265,247 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I SUPPLEMENTARY INFORMATION REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE SEPTEMBER 30, 20X2 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. 1 SERVICES AND RATES FOR THE YEAR ENDED SEPTEMBER 30, 2012 1. SERVICES PROVIDED BY THE DISTRICT DURING THE FISCAL YEAR: Retail Water Wholesale Water Drainage Retail Wastewater Parks/Recreation Solid Waste/Garbage Wholesale Wastewater Fire Protection Flood Control Irrigation Security Roads Participates in joint venture, regional system and/or wastewater service (other than emergency interconnect) X 2. 3. 4. 5. Other: The District operates in contractual conjunction with the City of Fate RETAIL SERVICE PROVIDERS (NOT APPLICABLE) TOTAL WATER CONSUMPTION DURING THE FISCAL YEAR ROUNDED TO THE NEAREST THOUSAND: (NOT APPLICABLE) STANDBY FEES (authorized only under TWC Section 49.231): Does the District have Debt Service standby fees ? Yes- No X Does the District have Operation and Maintenance standby fees? Yes- No ,X LOCATION OF DISTRICT: Is the District located entirely within one county? Yes X No County or Counties in which District is located: Rockwall County, Texas Is the District located within a city? Entirely X Partly Not at all See accompanying independent auditor's report. -30- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I SERVICES AND RATES FOR THE YEAR ENDED SEPTEMBER 30, 2012 5. LOCATION OF DISTRICT : (Continued) City or Cities in which District is located: City of Fate, Texas Are Board Members appointed by an office outside the District? Yes No X See accompanying independent auditor's report. -31- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I GENERAL FUND EXPENDITURES FOR THE YEAR ENDED SEPTEMBER 30, 2012 PROFESSIONAL FEES: Auditing $ 15,650 Engineering 10,897 Legal 68,874 TOTAL PROFESSIONAL FEES $ CONTRACTED SERVICES: Arbitrage Compliance $ Bookkeeping 95,421 2,950 7,731 TOTAL CONTRACTED SERVICES $ UTILITIES - Electricity $ -0- REPAIRS AND MAINTENANCE $ -0- ADMINISTRATIVE EXPENDITURES: Director Fees $ Election Costs Insurance Payroll Taxes Travel and Meetings Other 10,681 6,750 75 4,981 525 1,363 165 TOTAL ADMINISTRATIVE EXPENDITURES See accompanying independent auditor's report. -32- $ 13,859 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I GENERAL FUND EXPENDITURES FOR THE YEAR ENDED SEPTEMBER 30, 201.2 CAPITAL OUTLAY: Capitalized Assets Expenditures Not Capitalized 206,666 TOTAL CAPITAL OUTLAY $ 206,666 SOLID WASTE DISPOSAL $ -0- SECURITY $ -0- FIRE FIGHTING -0- PARKS AND RECREATION -0- OTHER EXPENDITURES: Wastewater Treatment Costs 152,525 TOTAL EXPENDITURES 479,152 See accompanying independent auditor 's report. -33- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 INVESTMENTS SEPTEMBER 30, 201.2 und DEBT SERVICE FUND Certificate of Deposit Certificate of Deposit Certificate of Deposit Certificate of Deposit Certificate of Deposit Identification or Certificate Number Interest Rate Maturity Date 9400639 9400640 8401731 8401802 8401803 0.45% 0.45% 0.45% 0.45% 0.45% 03/27/13 03/27/13 06/29/13 06/29/13 06/29/13 TOTAL DEBT SERVICE FUND See accompanying independent auditor's report. -34- Balance at End of Year Accrued Interest Receivable at End of Year $ 481,086 220,498 1,256,500 168,190 90,102 $ $ 2,216,376 $ -0- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED SEPTEMBER 30, 2012 Debt Service Taxes Maintenance Taxes TAXES RECEIVABLE OCTOBER 1, 2011 $ 3,112 $ 9,796 Adjustments to Beginning $ Balance Original 2011 Tax Levy Adjustment to 2011 Tax Levy $ 508,575 (313) TOTAL TO BE ACCOUNTED FOR 3,112 $ $ 508,262 $ 1,155,852 (712) 511,374 9,796 1,155,140 $ 1,164,936 TAX COLLECTIONS: Prior Years Current Year $ $ 645 506,117 TAXES RECEIVABLE SEPTEMBER 30, 2012 TAXES RECEIVABLE BY YEAR: 2011 2010 2009 2008 2007 506,762 $ 4,612 $ 2,145 1,962 1,150,266 1,152,228 12,708 $ 2,981 2,531 1,349 973 994 843 366 264 $ TOTAL 4,612 See accompanying independent auditor's report. -35- 4,874 $ 12,708 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED SEPTEMBER 30, 2012 2011 PROPERTY VALUATIONS: Land Improvements Personal Property Exemptions TOTAL PROPERTY VALUATIONS $ 2010 42,734,077 188,806,772 776,080 (1,289,030) $ 2009 42,078,762 174,489,935 947,260 (1,328,230) $ 2008 41,367,940 161,424,165 988,170 (1,439,274) $ 40,792,440 136,338,191 1,098,390 (1,120,693) $ 231,027,899 $ 216,187,727 $ 202,341,001 $ 177,108,328 $ 0.50 0.22 $ 0.54 0.18 $ 0.54 0.18 $ 0.59 0.16 TOTAL TAX RATES PER $100 VALUATION $ 0.72 $ 0.72 $ 0.72 $ 0.75 ADJUSTED TAX LEVY* $ 1,663,402 $ 1,556,551 $ 1,456,856 $ 1,328,312 TAX RATES PER $100 VALUATION: Debt Service Maintenance PERCENTAGE OF TAXES COLLECTED TO TAXES LEVIED 99.58 % 99.74% 99.77 % Based upon the adjusted tax levy at the time of the audit for the fiscal year in which the tax was levied. Maintenance Tax - Maximum tax rate of unlimited amount per $100 of assessed valuation approved by voters on May 15, 2004. See accompanying independent auditor ' s report. -36- 99.87 % ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I LONG-TERM DEBT SERVICE REQUIREMENTS SEPTEMBER 30, 2012 SERIES-2006 Due During Fiscal Years Ending September 30 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Principal Due October 1 $ Interest Due October 1/ April 1 185,000 195,000 205,000 215,000 230,000 240,000 255,000 270,000 285,000 300,000 320,000 340,000 355,000 375,000 400,000 420,000 445,000 470,000 $ 500,000 267,314 256,633 245,632 235,695 226,680 217,045 206,770 195,677 183,884 171,302 157,738 143,132 127,669 111,333 93,895 75,235 55,340 34,178 11,625 6,005,000 3,016,777 See accompanying independent auditor 's report. -37- Total $ 452,314 451,633 450,632 450,695 456,680 457,045 461,770 465,677 468,884 471,302 477,738 483,132 482,669 486,333 493,895 495,235 500,340 504,178 511,625 9,021,777 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 LONG-TERM DEBT SERVICE REQUIREMENTS SEPTEMBER 30, 2012 SERIES-2007 Principal Interest Due Years Ending Due October I/ September 30 October 1 April 1 Due During Fiscal 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 $ 180,000 190,000 200,000 210,000 225,000 235,000 250,000 260,000 275,000 290,000 310,000 325,000 345,000 360,000 380,000 400,000 425,000 445,000 470,000 $ Total 9,987 422,484 423,234 423,483 423,758 429,534 430,334 435,571 435,146 439,112 442,423 449,973 451,715 457,645 457,750 462,025 465,450 472,919 474,432 479,987 2,701,975 8,476,975 242,484 233,234 223,483 213,758 204,534 195,334 185,571 175,146 164,112 152,423 139,973 126,715 112,645 97,750 82,025 65,450 47,919 29,432 5,775,000 See accompanying independent auditor ' s report. -38- $ ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 LONG-TERM DEBT SERVICE REQUIREMENTS SEPTEMBER 30, 2012 SERIES-2008 Due During Fiscal Years Ending Principal Interest Due Due October 1/ September 30 October 1 April 1 2013 $ $ Total 2027 175,000 55,004 2028 2029 190,000 44,281 200,000 215,000 32,700 20,250 230,000 6,900 233,219 232,019 230,419 228,419 226,019 224,469 228,694 227,434 225,825 228,794 231,113 227,919 229,294 229,991 230,004 234,281 232,700 235,250 236,900 1,757,763 4,372,763 75,000 158,219 2014 80,000 152,019 2015 2016 85,000 145,419 90,000 138,419 2017 95,000 131,019 2018 100,000 124,469 2019 110,000 118,694 2020 2021 115,000 120,000 112,434 2022 130,000 98,794 2023 140,000 91,113 2024 145,000 2025 155,000 82,919 74,294 2026 165,000 64,991 2030 2031 2,615,000 105,825 $ See accompanying independent auditor's report. -39- $ ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 LONG-TERM DEBT SERVICE REQUIREMENTS SEPTEMBER 30, 2012 ANNUAL REQUIREMENTS FOR ALL SERIES Due During Fiscal Years Ending September 30 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Total Interest Due Total Principal Due $ Total Principal and Interest Due 440,000 465,000 490,000 515,000 550,000 575,000 615,000 645,000 680,000 720,000 770, 000 810,000 855,000 900,000 955,000 $ 668,017 641,886 614,534 587,872 562,233 536,848 511,035 483,257 453,821 422,519 388 ,824 352,766 314,608 274,074 230,924 $ 1,108,017 1,106,886 1,104,534 1,102,872 1,112,233 1,111,848 1,126,035 1,128,257 1,133,821 1,142,519 1,158,824 1,162,766 1,169,608 1,174,074 1,185,924 2028 1,010,000 184,966 1,194,966 2029 2030 2031 1,070,000 1,130,000 1,200,000 135,959 83,860 28,512 1,205,959 1,213,860 1,228,512 14,395,000 $ 7,476,515 See accompanying independent auditor's report. -40- $ 21,871,515 ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 CHANGE IN LONG-TERM BOND DEBT FOR THE YEAR ENDED SEPTEMBER 30, 2072 Original Bonds Issued Description Rockwall County Consolidated Municipal Utility District No. 1 Unlimited Tax Bonds - Series 2006 $ 6,500,000 Bonds Outstanding October 1, 2011 $ 6,180,000 Rockwall County Consolidated Municipal Utility District No. 1 Unlimited Tax Bonds - Series 2007 6,260,000 5,945,000 Rockwall County Consolidated Municipal Utility District No. 1 Unlimited Tax Bonds - Series 2008 2,750,000 2,685,000 $ TOTAL 15,510,000 Tax Bonds* Bond Authority: $ Amount Authorized by Voters 46,100,000 $ 14,810,000 Refunding Bonds $ 53,315,000 15,510,000 Amount Issued $ Remaining to be Issued 30,590,000 53,315,000 Includes all bonds secured with tax revenues. Bonds in this category may also be secured with other revenues in combination with taxes. Debt Service Fund cash, investments and cash with paying agent balances as of September 30, 2012: Average annual debt service payment (principal and interest) for remaining term of all debt: See Note 3 for interest rate, interest payment dates and maturity dates. See accompanying independent auditor ' s report. -41 - $ 3,050,003 1,151,132 Current Year Transactions Retirements Bonds Sold Principal $ $ 175,000 Interest $ 170,000 -0- $ 415,000 277,663 $ 251,234 70,000 $ Bonds Outstanding September 30, 2012 164,019 $ 692,916 $ 6,005,000 The Bank of New York Mellon Trust Company, N.A. Dallas, TX 5,775,000 The Bank of New York Mellon Trust Company, N.A. Dallas, TX 2,615,000 The Bank of New York Mellon Trust Company, N.A. Dallas, TX 14,395 ,000 See accompanying independent auditor's report. -42- Paying Agent ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND - FIVE YEARS Amounts 2012 REVENUES Property Taxes Penalty and Interest Investment Revenues Miscellaneous Revenues TOTAL REVENUES EXPENDITURES Service Operations: Professional Fees Contracted Services 2011 2010 $ 506,762 3,248 906 223 $ 389,252 2,044 $ 363,657 2,286 6,778 $ 511,139 $ 391,296 $ 372,721 $ 95,421 10,681 $ 67,032 9,577 $ 100,678 11,096 Repairs and Maintenance Other Wastewater Treatment Costs Capital Outlay 13,859 152,525 206,666 13,363 600,000 11,373 63,373 TOTAL EXPENDITURES $ 479,152 $ 689,972 $ 186,520 NET CHANGE IN FUND BALANCE $ 31,987 $ (298,676) $ 186,201 BEGINNING FUND BALANCE 233,260 531,936 345,735 ENDING FUND BALANCE 265,247 233,260 531,936 See accompanying independent auditor's report. -43- Percentage of Total Revenue 2008 2009 $ 2011 2012 2010 224,105 2,854 2,280 99.2 % 0.6 0.2 99.5 % 0.5 97.6 % $ 229,239 100.0 % 100.0 % $ 102,376 10,022 16,355 17,854 18.7 % 2.1 17.1 % 2.5 285,167 3,393 1,585 564 $ $ 290;709 $ 65,925 12,280 16,453 2009 2008 98.1 % 1.2 0.5 0.2 97.8 % 1.2 1.0 100.0 % 100.0 % 100.0 % 27.0 % 3.0 22.7 % 4.2 44.7 % 4.4 7.1 7.8 0.6 1.8 2.7 29.8 40.4 3.4 153.3 3.1 17.0 5.7 $ 94,658 $ 146,607 93.7 % 176.3 % 50.1 % 32.6 % 64.0 % $ 196,051 $ 82,632 6.3 % (76.3) % 49.9 % 67.4 % 36.0 % 149,684 67,052 345,735 149,684 See accompanying independent auditor's report. -44- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES DEBT SERVICE FUND - FIVE YEARS Amounts 2012 REVENUES Property Taxes Penalty and Interest $ Interest on Investments 2011 1,152,227 3,131 $ 16,829 Miscellaneous Revenues 1,168,075 8,862 2010 $ 17,866 1,092,020 10,195 45,467 1 TOTAL REVENUES 5,086 $ 1,172,188 $ 1,194,803 $ 1,152,768 $ 20,079 415,000 694,216 $ 30,793 390,000 718,141 $ 22,480 310,000 777,626 TOTAL EXPENDITURES $ 1,129,295 $ 1,138,934 $ 1,110,106 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 42,893 $ 55,869 $ 42,662 $ 4,201 $ $ 4,201 $ $ 60,070 $ EXPENDITURES Tax Collection Expenditures Debt Service Principal Debt Service Interest and Fees OTHER FINANCING SOURCES (USES) Transfers In Long-Term Debt Issued TOTAL OTHER FINANCING SOURCES (USES) $ NET CHANGE IN FUND BALANCE $ BEGINNING FUND BALANCE -0- 42,893 3,013,795 ENDING FUND BALANCE $ 3,056,688 2,953,725 $ 3,013,795 -0- 42,662 2,911,063 $ 2,953,725 TOTAL ACTIVE RETAIL WATER CONNECTIONS N/A N/A N/A TOTAL ACTIVE RETAIL WASTEWATER CONNECTIONS N/A N/A N/A See accompanying independent auditor ' s report. -45- Percentage of Total Revenue 2009 $ 2008 2012 2011 2010 2009 2008 826, 388 15 ,896 57,126 23 98 .3 % 0 .3 1.4 97.8 % 0.7 1.5 94.7 % 0.9 3.9 0.5 94.0 % 2.0 4.0 91.8 % $ 899,433 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % $ 17,099 2.6 % 32.6 60.1 2.0 % 26.9 67.5 2.4 % 1.9 % 451,868 1.7 % 35.4 59.2 50.8 50.2 1,051,553 22,210 44,396 36 $ $ 1,118,195 $ 26,389 568,282 1.8 6.4 $ 594,671 $ 468,967 96.3 % 95.3 % 96.4 % 53.2 % 52.1 % $ 523,524 $ 430,466 3.7 % 4.7 % 3.6 % 46.8 % 47.9 % 302,500 $ 302,500 $ 826,024 $ 430,466 1,654,573 2,085,039 2,911,063 -0- $ 2,085,039 NIA NIA N/A N/A See accompanying independent auditor ' s report. -46- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. I BOARD MEMBERS , KEY PERSONNEL AND CONSULTANTS SEPTEMBER 30, 2012 District Mailing Address - Rockwall County Consolidated Municipal Utility District No. 1 c/o Kelly Hart & Hallman, LLP 301 Congress, Suite 2000 Austin, TX 78701 District Telephone Number oard Members: - (214) 954-6300 Term of Office (Elected or Appointed) Fees of Office for the year ended September 30, 2012 Expense Reimbursements for the year ended September 30, 2012 itle Bobby L. Jackson, Jr. 05/2010 05/2014 (Elected) $ 1,350 $ 349 President Burnis Frederick Turner 05/2012 05/2016 (Elected) $ 750 $ 23 Vice President Jo Carol McCormick 05/2012 05/2016 (Elected) $ 750 $ Randy C. Roland 05/2010 05/2014 $ 1,200 $ -0- 244 (Elected) Paul Wilson 05/2010 05/2014 Secretary Treasurer/ Assistant Secretary $ 1,350 $ 315 Assistant Secretary (Elected) Notes: No Director has any business or family relationships (as defined by the Texas Water Code) with major landowners in the District, with the District 's developers or with any of the District' s consultants. Submission date of most recent District Registration Form (TWC Sections 36.054 and 49.054): May 25, 2012. The limit on Fees of Office that a Director may receive during a fiscal year is $3,500 as set by Board Resolution (TWC Section 49.060) on May 17, 2005. Fees of Office are the amounts actually paid to a Director during the District's current fiscal year. See accompanying independent auditor's report. -47- ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO.1 BOARD MEMBERS , KEY PERSONNEL AND CONSULTANTS SEPTEMBER 30, 2012 ate Hired onsultants: Fees / Compensation for the year ended September 30, 2012 itle Kelly Hart & Hallman, LLP 301 Congress, Suite 2000 Austin, TX 78701 05/15/07 $ 68,873 Attorney McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants 13100 Wortham Center Drive, Suite 235 Houston, TX 77065-5610 03/29/05 $ 15,650 Auditor Dye & Bloomfield, LLC 2309B Coit Road, Suite B Plano, TX 75075 01/01/08 $ 7,756 Bookkeeper Legislative Action/ 09/21/04 $ 19,494 Central Appraisal District/Tax Assessor/ Collector Petitt & Associates, Inc. 300 Municipal Drive Richardson, TX 75080 02/05/03 $ 3,412 Engineer RBC Capital Markets 1001 Fannin, Suite 1200 Houston, TX 77002-6707 11/18/03 $ -0- Financial Advisor Kathi Dye 2309 Coit Road, Suite B Plano, TX 75075 02/26/08 $ -0- Investment Officer Rockwall Central Appraisal District 841 Justin Road Rockwall, TX 75087 See accompanying independent auditor's report. -48- APPENDIX B FORM OF BOND COUNSEL OPINION Proposed Form of Opinion of Bond Counsel An opinion in substantially the following form will be delivered by Kelly Hart & Hallman LLP, Bond Counsel, upon the delivery of the Series 2013 Refunding Bonds, assuming no material changes in facts or law. WE HAVE EXAMINED certified copies of proceedings relating to the authorization and issuance by Rockwall County Consolidated Municipal Utility District No. 1(the “Issuer” or the “District”) of its bonds dated April 1, 2013 in the amount of FIVE MILLION THREE HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($5,370,000.00), being more particularly described as follows: ROCKWALL COUNTY CONSOLIDATED MUNICIPAL UTILITY DISTRICT NO. 1 UNLIMITED TAX REFUNDING BONDS, SERIES 2013, dated April 1, 2013 (the “Series 2013 Bonds”) in the original principal amount of $5,370,000.00, payable as specified in a Bond Order of the governing body of the Issuer, dated March 5, 2013, authorizing the issuance of the Series 2013 Bonds (the “Bond Order”) bearing interest at the rates per annum specified in the Bond Order. OUR EXAMINATION into the legality and validity of the Series 2013 Bonds included a review of a transcript of certified proceedings of the Issuer relating to the authorization and issuance of the Series 2013 Bonds, including the Bond Order, and customary certifications and opinions of officials of the Issuer and other pertinent showings. WE ALSO HAVE EXAMINED the Constitution and laws of the State of Texas, the Internal Revenue Code of 1986 as amended to the date hereof (the “Code”), the regulations of the United States Department of the Treasury adopted thereunder, rulings and procedures thereunder pertinent to this opinion, such other materials as we deemed necessary to render the opinions hereinafter expressed and the initially executed and delivered Bonds of the Series 2013 Bonds. BASED ON OUR EXAMINATION, it is our opinion that: 1. The Series 2013 Bonds and Bond Order are duly authorized and issued in conformity with the Constitution and laws of the State of Texas now in force and are valid and legally binding obligations of the District in accordance with their terms and conditions, except as limited by: (i) State and federal laws, regulations, rulings and court decisions relating to applicable bankruptcy, insolvency, reorganizations, moratoriums and the enforcement of creditors’ rights generally; and (ii) Equitable principles which could limit specific performance. FORT WORTH OFFICE | 201 MAIN STREET, SUITE 2500 | FORT WORTH, TX 76102 | TELEPHONE: (817) 332-2500 | FAX: (817) 878-9280 AUSTIN OFFICE | 301 CONGRESS, SUITE 2000 | AUSTIN, TX 78701 | TELEPHONE: (512) 495-6400 | FAX: (512) 495-6401 Kelly Hart & Hallman, a Limited Liability Partnership | www.kellyhart.com RCCMUD1 Series 2013 Page 2 of 3 2. The Series 2013 Bonds are full faith and credit obligations of the District. The District is obligated to exercise its ad valorem taxing power without legal limitation as to rate or amount, upon all taxable property within the District to pay both the principal of and interest on the Series 2013 Bonds. 3. Under the terms and conditions of the Bond Order, the District has the right to issue additional bonds payable from the same source, secured in the same manner and in all things on a parity with the Series 2013 Bonds. 4. Assuming compliance by the Issuer with the provisions of the Bond Order, the interest paid by the Issuer on the Bonds and received by the owners of the Bonds is, under existing laws, regulations, court decisions and Internal Revenue Service rulings, (i) excluded from the gross income of the recipient of those payments for federal income tax purposes and (ii) not treated as a “preference item” for calculation of the alternative minimum tax imposed on individuals and corporations under Section 57(a)(5) of the Code. Interest on the Series 2013 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. 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 form the receipt or accrual of interest on, or the acquisition or disposition of, the Series 2013 Bonds. Ownership of tax-exempt obligations such as the Series 2013 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, Subchapter S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement Benefits, 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, taxexempt obligations. IN PROVIDING THE FOREGOING OPINIONS, we have relied upon representations of the Issuer with respect to matters solely within the knowledge of the Issuer, which we have not independently verified, and we have assumed the accuracy and completeness of, and the Issuer’s continuing compliance with, the representations and covenants contained in the Bond Order pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Series 2013 Bonds for federal income tax purposes. In the event that such representations are determined to be inaccurate or incomplete, or the Issuer fails to comply with the foregoing provisions Kelly Hart & Hallman, a Limited Liability Partnership RCCMUD1 Series 2013 Page 3 of 3 of the Bond Order, interest on the Series 2013 Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. 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 (the “Service”); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Series 2013 Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Series 2013 Bonds as includable in gross income for federal income tax purposes. OUR SOLE ENGAGEMENT in connection with the issuance of the Series 2013 Bonds is as bond counsel for the Issuer and, in that capacity, we have been engaged by the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the Series 2013 Bonds and the organization of the District under the Constitution and laws of the State of Texas, and for no other reason or purpose. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of the result. We have not been requested to investigate or verify, and have not investigated or verified, any records, data or other material relating to the Issuer or to the financial condition or capability of the Issuer, and we have not assumed any responsibility, and we express no opinions, with respect thereto. We express no opinion and make no comment with respect to the marketability of the Series 2013 Bonds. Kelly Hart & Hallman, a Limited Liability Partnership