FALCON TRACE COMMUNITY DEVELOPMENT DISTRICT
ORANGE COUNTY, FLORIDA FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

FALCON TRACE COMMUNITY DEVELOPMENT DISTRICT ORANGE COUNTY, FLORIDA

TABLE OF CONTENTS

INDEPENDENT AUDITOR'S REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements: Statement of Net Assets
Statement of Activities Fund Financial Statements:
Balance Sheet - Governmental Funds
Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Assets
Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities
Notes to the Financial Statements

REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund
Notes to Required Supplementary Information

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

MANAGEMENT LETTER REQUIRED BY CHAPTER 10.550 OF THE RULES OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA

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fJ Grau& Associates

2700 North Military Trail • Suite 350
Boca Raton, FIMda 33431
(561) 994-9299 • (800) 299-4728

CERTIFIED PUBLIC ACCOUNTANTS

Fax(561)994-5823
www.graucpa com

INDEPENDENT AUDITOR'S REPORT
To the Board of Supervisors
Falcon Trace Community Development Distrlct Orange County, Florida
We have audited the accompanying financial statements of the governmental activities, each majorfund, and the remaining fund information of Falcon Trace Community Development District, Orange County, Florida (the "District'') as of and for the fiscal year ended September 30, 2012, which collectively comprise the District's basic financial statements as listed in the table of contents. Thesefinancial statements are the responsibility of the District's manaflement. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit fn accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reaso11able assurance-about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements_ An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We belfeve 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 financlal position of the governmental activities, each major fund, and the remaining fund information of the District as of September 30, 2012, and the respective changes in financial position thereof for the fiscal year then ended in conformity with accounting principtes generally accepted in the United States of America.
In accordance with GovemmentAuditingStandards, we have also issued ourreport dated January 25, 2013, on our consideration ofthe District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, agreements, and other matters. The purpose of that report is to describe thescopeof our testing of internal control over financial reporting and compliance andthe results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and important for assessing the results of our audit.

A_-f�

Accounting principles generally accepted in the United States of America require that the mana_gement's discussion and analysis and budgetary comparison information bepresented to supplement the basic finandal 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 preparfng ttie fnformation and comparing the information for consfstency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained durlng 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.

�uary 25, 2013

MANAGEMENT'S DISCUSSION AND ANALYSIS
Our discussion and analysis of Falcon Trace Community Development District, Orange County, Florida ("District") provides a narrative overview of the District's financial activities for the fiscalyear ended September 30, 2012. Please read it in conjunction with the Distrlct's Independent Auditor's Report, basic financial statements, accompanying notes and supplementary information to the basic financial statements.
FINANCIAL HIGHLIGHTS
The liabilities of the District exceeded its assets at the close of the fiscal year ended September 30, 2012 resulting in net asset deficit balance of ($1,100,179).
The change in the District's total net assets in comparison with the prior fiscal year was $235,081, an increase. The key components of the District's net assets and change in net assets are reflected in the table in the government-wide financial analysis section.
At September 30, 2012, the District's governmental funds reported combined ending fund balances of

$514,725, an increase of $35,975 in comparison with the prior fiscal year. A portion of fund balance is restricted for debt serviceand capital projects, non-spendable for prepaid items, and the remainder is unassigned fund balance which is available for spending at the District's discretion.
OVERVIEW OF FINANCIAL STATEMENTS
This discussion and analysis are intended to serve as the introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: 1) government­ wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
Government-Wide Financial Statements
The government-wide financial statements are designed to provide readers with a broad overview of the District's finances, in a manner similar to a private-sector business.
The statement of net assets presents information on all the District's assets and liabilities, with the difference between the two 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 is improving or deteriorating.
The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods.
The government-wide financial statements include all governmental activities that are principally supported by special assessment revenues. The District does not have any business-type activities. The governmental activities of the District include the general government (management) and maintenance functions.
Fund Financial Statements
A fund is a g rouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The District has one fund category: governmental funds.

OVERVIEW OF FINANCIAL STATEMENTS (Continued)
Governmental Funds
Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a District's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it ls useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the District's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.
The District maintains three individual governmental funds. Information is presented separately in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, debt service fund and capital projects fund. The general and debt service funds are considered to be major funds and the capital projects fund is considered to be a non­ major fund.
The District adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with the budget.
Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.
GOVERNMENT-WIDE FINANCIAL ANALYSIS

As noted e arlier, net assets may serve over time as a useful indicator of an entity's financial position. In the case of the District, liabilities exceeded assets at the close of the fiscal year ended September 30, 2012.
Key components of the District's net assets are reflected in the following table:

NET ASSETS SEPTEMBER 30,
 	2012	2011	
Assets, excluding capital assets	$	681,800	$	666,521	
Capital assets, net of depreciation	 	917,176	975,832 	
Total assets	 	1,598,976	1,642,353 	
Liabilities, excluding long-term llabi!ities	52,165	56,495	
Long-term liabilities	 	2,646,990	2,921,118 	
Total liabilities	 	2,699,155	2,977,613 	
Net Assets		
Invested in capital assets, net of related debt	(1,537,873)	(1,731,987)	
Restricted for debt service	154,520	149,557	
Unrestricted	283,174	247,170	
Total net assets (deficit)	$	(1,100,179)	$	(1,335,260)	

GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued)
The District's net assets reflects its investment in capital assets (e.g. land, land improvements, and infrastructure); less any related debt used to acquire those assets that is still outstanding. These assets are used to provide services to residents; consequently, these assets are not available for future spending. Although the District's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
The restricted portion of the District's net assets represents resources thatare subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets may be used to meet the District's other obligations.
The District's net assets increased during the most recent fiscal year. The majority ofthe increase represents the extent to which ongoing program revenues exceeded the cost of operations and depreciation expense.
Key elements of the change in net assets are reflected in the following table:

CHANGES IN NET ASSETS
FOR THE FISCAL YEAR END SEPTEMBER 30,
    201 2	201 1	

Revenues:

Program revenues
Charges for services	$	787,695	$	792,610 	
Operating grants and contributions	1 90	203	
Capital grants and contributions	16 	19 	
General revenues	4,007	4,270	
Total revenues	791, 908	797, 1 02	
Expenses:			
General government	1 06,692	121 ,234	
Maintenance and operations	284,447	244,865	
Interest	1 65,688	1 77,297	
Total expenses	 	556,827	543,396 	
Change in net assets	 	235,081	253,706 	
Net assets (deficit) - beginning	(1 ,335,260)	(1 ,588,966)	
Net assets (deficit) - ending	$	(1 ,1 00, 179)  $	(1 ,335,260)	

As noted above and in the statement of activities, the cost of all governmental activities during the fiscal year ended September 30, 2012 was $556,827. The costs of the District's activities were paid primarily by program revenues. Program reven ues, comprised primarily of assessments, decreased minimally from the prior fiscal year. The District also received funds from investment earnings and miscellaneous revenues which are also included in program revenues.
GENERAL BUDGETING HIGHLIGHTS
An operating budget was adopted and maintained by the governing board for the District pursuant to the requirements of Florida Statutes. The budget is adopted using the same basis of accounting that ls used in preparation of the fund financial statements.	The legal level of budgetary cont rol, the level at which expenditures may not exceed budget, is in the aggregate. Any budget amendments that increase the . aggregate budgeted appropriations must be approved by the Board of Supervisors. Actual general fu nd expenditures did not exceed appropriations for the fiscal year ended Septem ber 30, 2012.
Actual general fund expendltures for the fiscal year ended September 30, 2012 were less than appropriations due primarily to anticipated costs which were not incu rred in the current fiscal year.

CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets

At Sep tember 30, 2012, the District had $ 1 ,747,669 invested in recreational facilities an d equipment for its governmental activities. In the government-wide financial statements, depreciatlon of $830,493 has been taken, which resulted in a net book value of $91 7,176. More detailed information abou t the District's capital assets is presented in the notes of the financial statements.
Capital Debt

AtSeptember 30, 2012, the District had $2,770,000 in Bonds outstan ding for its governmental activities. More detailed information about the District's capital debt is presented in the notes of the financial statements.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT
This financial reportis desig ned to p rovide our citizens, land owners, customers, investors and creditors with a general overview of the Distrlct's finan ces and to demonstrate the District's accountability for the financial reso urces it manages and the stewardship of the facilities it maintains. If you havequestions about this report or need a dditional financial information, contact the Falcon Trace Community Development District's Finance Department at 1 3574 Village Park Drive, Suite 265, Orlan do , Florida 32837.

FALCON TRACE COMMUNITY DEVELOPMENT DISTRICT ORANGE COUNTY, FLORIDA
STATEMENT OF NET ASSETS SEPTEMBER 30, 2012

Governmental

ASSETS		
Cash	$	241 ,711 	
I nvestments	22,41 1	
Prepaids and other assets	20, 605	
Deferred charges	165,522	
Restricted assets:		

 	Activities	

Temporarily restricted I nvestments
Ca pital assets: Depreciable, net
Total assets

231 ,551

917,1 76

1, 598, 976

LIABILITIES
Accounts pa yable	
1,553	
Accrued interest payable	50,612	
N on-cu rrent liabilities:
Due within one year	
295,000	
Due in more than one year	2,351 ,990	
Total liabiltties	2,699, 1 55	
N ET ASSETS
Invested in capital assets, net of related debt	
(1, 537, 873)	
Restricted for debt service	1 54,520	
Unrestricted	 	283, 1 74 	
Total net assets ( deficit)	$	(1,100,179)	

See notes to the financial statements

FALCON TRACE COMMUNITY DEVELOPMENT DISTRICT ORANGE COUNTY, FLORIDA
STATEMENT OF ACTIVITIES

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

 		Program Revenues		 Charges		Operating	Capital

Net (Expense) Revenue and Changes ln Net Assets

for	Grants and	Grants and	Governmental

Functions/Programs Primary government
Governmental activities:

Expenses

       Se::..:....:...rvi:..::....:;.ces ;;......_

Contributlons   Contributions  ----Ac-tiv-itie-s   --

General g overnment	$	1 06, 692	$	1 06,692	$	
Maintenance and operations	284,447	257 ,788		
Interest on long-term debt	 	1 65,688	423, 215 	 	1 90 	

$	$
16 

Total governmental activities

 	556,827	787,695

General revenues:
Unrestricted investment earnings Miscellaneous
Total general revenues Change in net assets
Net assets (deficit) - beginning

1 90	16 

 	231 ,074 

12 
 	3,995 

4, 007
235,081 
(1 , 335,260)

Net assets (deficit) - ending

See notes to the flnancial statements

$	(1 ,1 00, 179)

7

BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

ASSETS

Non-Major
 	Major Funds	Fund		Total

Debt	Capital	Governmental
  General	Service	Projects	Funds	

Cash	$	241,711	$	$	$	24 1, 711
Investments	22,411	205,1 32	26,419	253,962
Prepalds and other assets	 			20,605							20,605 Total assets		$	284,727	$	205,132	$	26,419	$	516,278

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable	 $	1 ,553	$	$	$	1,553 

Total lia bilities	 	1,553	1 ,553 

20,605

205,132

20,605

205, 132
26,419	26,419

 	262,569	262, 569 
 	283,174	205, 132	26,419	514,725 

$

284, 727

$

205, 1 32

$

26,419

$

516,278

Fund balances: Nonspendable:
Prepaid items Restricted for:
Debt service Capital projects
Unassigned
Total fund balances
Total liabilities and fund balances

RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS
SEPTEMBER 30, 2012

Fund balance - governmental funds
Amounts reported for governmental activities in the statement of net assets are different because:
Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in the governmental funds. The statement of net assets includes those capital assets, net of any accumulated depreciation, in the net assets of the government as a whole.
Cost of capital assets Accum ulated depreciation
Bond issuance costs are not fi nancial resou rces and , therefore are not repo rted as assets in the governmental funds. The statements of net assets  i ncludes  these  costs,  net  of am o rtization.
Bond issuance costs Accumulated amortization

Liabilities not due and payable from current available resou rces are not reported as li abilities in the governmental fund statements. All liabilities, both current and long-term, are repo rted in the government-wide financial statem ents.

1, 747,669
(830,493)

277,651
(112,129)

$	514, 725

917 ,1 76

165,522

Deferred amount on refundi ng
Amortization of deferred amount Accrued interest payable	206,338
(83, 328}
(50,612) 		
B onds p ayable	(2,770,000)
	(2,697,602)	
Net assets of governmental activiti es		$ ( 1 ,100,1 79)	

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

Non-Major
----Ma�jor -Fun-ds-------Fu n-d -

Total

REVENUES

Interest	1 2	190	16	218 	
Miscellaneous revenue	3,995			3 ,995	

Assessments

Debt	Capital	Governmental

$	364,480	$	423 ,2 15	$

$	787,695

 	General	Service	Projects	Funds	

Total revenues EXPENDITU RES

General government	1 06,692	1 06,6 92	
Maintenance and operations	225,791	225,791 	
Principal
Interest	290,000
1 33,450		290, 000
1 33,450	
Total expenditures	332,483	423 ,450			
Excess {deficiency) of revenues
over (under) expenditures	36, 004	
(45)	
1 6	
35,975	

Current:

 	368,487	423,405	16	791 ,908 

755,933 

Debt Service:

OTHER FINANCING SOU RCES (USES)
Transfers in (out)

 	16	(16) -----

Total other financing sources (uses)

 	,	1 6__ 

1_6_,_) -----

Net change in fund balances

36,004

(29)

35,975

Fund balances - b eginning Fund balances - ending

 	247,1 70	205,16 1	26,41 9	478,750 

=$=====2=8=3,=1 7=4==$====2=0=5,=13=2==$====2=6,=4=1 9=   $	514, 725

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 201 2

N et change in fund balances - total governmental fun ds
Amounts reported for governmental activities in the statement of activities are different because:
Depreciation on capital assets is not recognized in the g overnmental fund statements but is reported as an expense in the statement of activities.
Repayment of long-term liabllities are reported as expenditures in the governmental fu nd statement but such repayments reduce liabilities in the statement of net assets and are eliminated in the statement of activities.
Amortization of deferred charges is not recognized in the governmental
fund statements, but is reported as an expenses in the statement of activities.
The change in accrued inte rest on long-term liabilities between the current
and prior fiscal year is recorded in the statement of activities but not in the fund financial statements.
Change in net assets of governmental activities

$	35,975

(58,656)

290,000

(37 ,230)

$	235,081

4,992

FALCON TRACE COMMUNITY DEVELOPMENT DISTRICT . ORANGE COUNTY, FLORIDA
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND REPORTING ENTITY

Falcon Trace Community Development District ("District") was established on April 8, 1998 by the Orange Cou nty Board of County Commissioners, Orange County Ordinance 98-10 and 98-30, pursuant tothe Uniform Community Development District Act of 1980, ot herwise known as Chapter 1 90, Florida Statutes. The Act provides, among other things, the power to manage basic services for community development and to levy and assess non-ad valorem assessments for the financing and maintenance of improvements.
The District is governed by the Board of Supervlsors ("Board") which is composed of five members. The Supervisors are elected on an at large basis by the qualified electors residing within the Dlstrict. The Board of Supervisors of the District exercise all powers granted to the District pursuant to Chapter 190, Florida Statutes.
The Board has the responsibility for:
Allocating and levying assessments.
Approving budgets.
Exercising control over facilities and properties.
Controlling the use of funds generated by the District.
Approving the hiring and firing of key personnel.
Financing improvements.
The financial statements were prepared in accordance with Governmental Accounting Standards Board ("GASB"} Statement 14, and Statement 39, an amendment of GASB Statement 14. Under the provisions of those standards, the financial reporting entity consists of the primary government, organizations for which the District Board of Supervisors is consldered tobe financially accountable, and other organizations for which the nature and significance oftheir relationship with the District are such that, if exduded, the financial statements of the D istrict would be considered incomplete or misleading. There are no entities considered to be component units of the District; therefore, the financial statements include only the operations of the District.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Government-Wide and Fund Financial Statements
The basic financial statements incl ude both government-wide and fund financial statements.
The government-wide financial statements (i.e., the statement of net assets and the statement of activities} report information on all ofthe non-fiduciary activities ofthe primary govern ment. For the most part, the effect of interfund activity has been removed from these statements.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific fu nction or segment. Program revenues include 1) charges to customers who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment Operating-type special assessments for maintenance and debt service are treated as charges for services; and 2} grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Other items not included among program revenues are reported instead as general revenues.

Measurement Focus, Basis of Accounting and Financial Statement Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrualbasis ofaccounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Assessments are recognized as revenues in the year for which they are levied. Grants and similaritems are to be recognized as revenueas soon as all eligibility requlrements imposed by the provider have been met.

Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available whenthey are collectible within the cu rrent period or soon enough th ere after to pay liabilities of the current period. For this pu rpose, the governm ent consid ers
revenues to be available if they are coll ected within 60 days of the end of the current fiscal period. Expenditures are r ecorded when a liability is incurred, as under accrual accounting. However, debt service expenditu res are recorded only when payment is due.
Ass essments
Assessments are non-ad vaforem assessments on benefited pro perty within the District. Operating and maintenance assessments are based u pon the adopted budget and levied annually at a public hearing of the District. Debt service assessments are levied when Bonds are issued and assessed and collected on an annual basis. The District may collect assessments directly or utilize th e uniform method of collection u nder Florida Statu tes. D irect collected assessments are due as determined by annual assessment resolution ad opted by the Board of Supervisors. Assessments collected u nder the uniform method are mailed by the Cou nty Tax Collector on November 1 and due on or before M arch 31 of each year. Property owners m ay pre pay a portion or all of the debt service assessments on their property subj ect to various provisions in the Bond docum ents.
Assessments and interest associated with the current fiscal period are considered to be susceptible to accru al and so h ave been recognized as revenues of the current fiscal period. The portion of assessments receivable due within the current fiscal period is considered to be susceptible to accru al as revenue ofthe current period. All other revenue items are considered to be measurable and available only when cash is received by the government.

The District reports the following major governmental funds:

General Fund
The general fund is the general operating fund of the District. It is used to account for all finan ci al resources except those required to be accounted for in another fund.

Debt Service Fund
The debt service fund is used to account for the accumulation of resources for the annual payment of principal and interest on long-term debt.

The District also reports the following non-major governmental fund:

Capital Projects Fund
This fund accounts for the financial resources to be used for the acquisition or construction of m ajor infrastructure within the District.

As a general rule, the effect of interfund activity has been eHminated from the government-wide financial statements.
When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first for qu alifying expenditures, then unrestricted resources as they are needed .

Assets, Liabilities and Net Assets or Equity

Restricted Assets
These assets represent cash and investments set aside pursu ant to Bond covenants or other contractual restrictions.

Assets. Liabilities and Net Assets or Equity (Continued)
Deposits and I nvestments
The District's cash and cash equivalents are considered to be cash on hand and demand deposits (interest and non-interest bearing).

The District has elected to proceed under the Alternative Investment Guidelines as set forth in Section 21 8.415 (1 7) Florida Statutes. The District may invest any surplus public fu nds in the following:
The Local Government Surplus Trust Funds, or any intergovernmental inves tment pool authorized pursu ant to the Florida lnterlocal Cooperation Act;
Securities and Exchange Commission registered money market fun ds with the h ighest cred it qu ality rating from a nationally recogn ized rating agency;
Interest bearing time deposits or s avings accounts in qu alified public depositories;
Direct obligations of the U.S. Treasury.
Secu rities listed in p arag raph c and d sh all be invested to provide sufficient liquidity to pay obligations as they come due. In addition, surplus funds may be deposited into certificates of deposit which are insured and any unspent Bond proceeds are required to be held in investments as specified in the Bond Indenture.
The District records all interest revenue related to investment activities in the respective funds and reports investments at fair value.

Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.
Capital Assets
Capital assets which inclu de property, plant and equ ipment, and infrastructure assets (e.g., roads, sidewalks and similar items) are reported in the government activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5, 000 ( amount not rounded) and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are no t capitalized. M ajor outlays for capital assets and improvements are capitalized as projects are constructed.

Property, p lan t and equipment of the District are depreciated us ing the straigh t-line methodover the following estimated useful lives:

Assets Infrastructure - recreational facilities
Equipment - recreational facilities

Years 30
10 

In the governmental fund financial statements, amounts incurred for the acquisition of capital assets are reported as fund expenditures. Depreciation expense is not reported in the governmental fund financial statements.
Deferred Charges
In  a prior fiscal  year,  in connection with the issuance of certain debt,  the District incurred costs totaling
$277, 651. In the government-wide financial statements, that amo unt has been capitalized and amortized over the estimated life of th e Bonds. At September 30, 2012 , the District reported accumulated amortization of
$ 11 2, 1 29.

Assets, Liabilities and Net Assets or Equity (Continued)

D eferred Amount on Refunding
For c urrent advance refundings res ulting in defeasance of debt, the difference between the reacquisition price and the net carrying am o unt of the old debt is deferred and amortized using the effective interest methodover the remaining life of the old debt or the life of the new debt, whichever is s horter. The deferred amount is offset against the new Iiabllity.

In connection with the refunding, the deferred amo unt on the refunding was $206,338 and is being amortized over the life of the Bonds. Accum ulated amortization ofthe deferred amo unt is $83 , 328 at September 30, 2012 .

Deferred Revenue
Go vern mental funds report deferred revenue in connection with receivables for revenues that are not consideredto be available to liquidate liabilities of the current period. Governm ental fun ds also defer revenue recognition in connection with resources that have been received, but not yet earned.

Long-Term Obligations
In the go vernment-wide financial statements, lon g-term debt and other long-term obligations are reported as liabili ties in the statem ent of net assets. Bond premiums and discounts , as well as iss uance costs, are to be deferred and amortized ratably over the life of the Bonds. Bonds pay able are reported net of applicable premiums or disco unts.
In the fund fin ancial statements, go vernmental fund types recognize prem iums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reportedas other financing sources while disco unts on debt issuances are reported as other financing uses. Issuance costs, whether or notwithheld from the actual debt pro ceeds received, are reported as debt service expenditures.
Fund Equity/Net Assets
In the fund financial statements, go vernmental funds report non spendable and restricted fund ba lance for amo unts that are not available for appropriation or are legally restricted by o utside parties for use for a specific purpose. Assign ments of fund balance represent tentative managem ent plans that are s ubject to change. The District can establish limitations on the use of fund balance as follows:
Committed fund balance - Arnaunts that can be used only for the spedfic purposes determined by a formal actio n (resolution) of the Board of Supervisors. Commitments m ay be changed or lifted only by the Board of Supervisors taking the same formal action (resolution) that imposed the constraint originally. Resources accumulated pursuant to stabilization arrangements sometimes are reported in this category.
Assigned fund balance - Incl udes spendable fund balance amounts that are intended to be used fo r specific purposes that are neither considered restricted nor committed. The Board may also assign fund bal an ce as it does when appropriating fun d balance to cover differences in estim ated revenue and appropriations in the subsequent year's appro priated budget. Assignments are generally tem porary and norm ally the same formal action need not be taken to remove the assignment.
The District uses restricted amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal agreements that prohibit doing this, such as in grant agreements requiring dollar for dollar s pending. Additionally, the District would first use comm itted fund balance, followed by assigned fund balance and then unassigned fun d balance when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used.

Net assets in the govern ment-wide financial statements are categorized as invested in capital assets, net of related debt, restricted or unrestricted. Invested in capital assets, net of related deb t represents net assets related to infrastructure and property, plant and equipment, net of any related debt. Restricted n et assets represent the assets restricted by the District's Bond covenants or other contractual restrictions.

Other Disclosures
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts 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 cou ld differ from those estimates.

NOTE 3 - BUDGETARY INFORMATION

The District is required to establish abudgetary system and an approved Annual Budget. Annual Budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. All annual appropriations lapse at fiscal year end.
The District follows these procedures in establishing the budgetary data reflected in the financial statements.
Each year the District Manager submits to the District Board a proposed operating budget for the fiscal year commencing the following October 1.
Public hearings are conducted to obtain comments.
Prior to October 1, the budget is legally adopted by the District Board.
All budget changes must be approved by the District Board.
The budgets are adopted on a basis consistent with generally accepted accounting principles.
Unused appropriation for annually budgeted funds lapse at the end of the year.

NOTE 4 - DEPOSITS AND INVESTMENTS
Deposits
The District's cash balances were entirely covered by federal depository insu rance or by a col lateral pool pledged to the State Treasurer. Florida Statutes Chapter 280, "Florida Security for Public Deposits Act", requires all qualified depositories to deposit with the Treasurer or another banking institution eligible collateral equal to various percentages of the average daily balance for each month of all public deposits in excess of any applicable deposit insu rance held. The percentage ofeligible collateral (generally, U.S. Governmental and agency secu rities, state or local government debt, or corporate bonds) to public deposits is dependent u pon the depository's financial history and its compliance with Chapter 280. In the event of a fail u re of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses.
Investments
The District's investments were held as follows at September 30, 2012:
Fair Value	Credit Risk	Maturities

$	253, 962

Weighted average of the
First American Prime Ob ligation Fund Class Z	S&P AAAm	fund portfolio: 50 days

Custodial risk - For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recoverthe value ofthe investments or col lateral securities that are in the possession of an outside party. The District has no formal policy for custodial risk. The money market mutual funds are not evidenced by securities that exist in physical or book entry form.
Credit risk - For investments, credit risk is generally the risk thatan issuer of an investment will not fulfill its obligation to the holder of the investment. This is measu red by the assignment of a rating by a nationally recognized statistical rating organization. Investment ratings by investment type are included in the preceding summary of investments.

Investments (Continued)
Concentration risk - The District places no limit on the amount the District may invest in any one issuer.
Interest rate risk - The Dis trict does not have a formal policy that li mits investment m aturities as a means of managing exposu re to fair value losses aris ing from increasing interest rates.
However, the Bond Indenture limits the type of investments held using unspent proceeds.
NOTE 5 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended September 30, 2012 was as follows:

Governmental activities
Capital assets, being depreciated	Beginning
Balance	Additions	Reductions	Ending Balance	
Infrastructure - recreational facilities	$	1,741 ,669	$	$	$	1 ,741 ,669	
Equipment - recreational facilities	 	6,000	6,000 	
Total capital assets, being depreciated	1,747,669	1,747,669	
Less accumu lated depreciation for:		
Infrastructure - recreational faci lities	(770,037)	(58,056)	(828,093)	
Equipment - recreational facilities	(1,800)	(600)	(2,400)	
Total accumu lated depreciation	(771,837)	(58,656)	(830,493)	
Total capital assets, being depreciated, net	975,832	(58,656)	917,176	
Governmental activities capital assets, n et	$	975,832	$	(58,656)   $	$	917,1 76	

Depreciation was charged to main tenance and operations during the fiscal year ended September 30, 2012.
NOTE 6- LONG-TERM LIABILITIES
On J uly 1, 2007, the Dis trict issued $4, 085, 000 of Speci al Assessment Refunding Bonds. The Series 2007 Bondswere applied together with other legally available funds to refund the Series 1999 SpecialAsses sment Bonds. The Series 2007 Bonds bear interest at rates from 4.00% to 4 .50%. Interest is paid semi annually on each May 1 and N ovember 1, commencing N ovember 1, 2007. Principal on the 20 07 Bonds is paid serially and commences on May 1, 2008. The Bonds mature at various dates through M ay 1, 2020.

The Series 2007 Bonds are subject to redemption prior to maturity at the opt[on of the D istrict, in whole or in part at an y time on or after May 1, 201 7 at a redemption price asset forth in the Bond Indenture. In addition, the Bonds are subject to extraordinary mandatory redemp tion prior to m aturity in the manner determined by the Bond Registrar if certaln events occurred as outlined in the Bond In denture.

The Bond Indenture established a debt service reserve requirement whichwas satisfied through the purchase of a surety bond and has certain other restrictions and requirements relating principally to the use of proceeds to redeem the Series 1999 Bon ds an d the p rocedures to be followed by the District on assessments to property owners. In addition, the District ag rees to levy special assessmen ts in annual amounts a deq uate to provide payment of debt service and to meet the reserve requirements. The District is in compliance with the req uirements of the Bond Indenture as of September 30, 2012.

NOTE 6 - LONG-TERM LIABILITIES (Continued)
In the prior fiscal year, Stan dard & Poor' s Rating Services ("S&P") lowered its lo ng-term rating on the Series 2007 Bonds from " A-" to "BB" while affirming the stable outlook. The change is due to S&P' s view th at the Bonds have inadeq u ate funding of their debt servlce reserve funds (DSR), which provides addi tional liq uidity if assessments are not received in full or on a timely basis. The DSR ls funded by a surety bond provided by Radian    Asset    Assurance    Inc. ,     which     is     c urrently     rated     BB-/Negative     by     S&P. The current credit q uality of this DSR provider rai sed con cerns aboutthe availability ofthis liq uidity should it be needed to m ake debt service payments and weakened a security feat ure th at S&P deem s essential to m aintaining i nves tment grade ratings on the Bonds.

Changes in long-term liability activity for the fiscal year ended September 30, 2012 were as follows:

Beginning	Ending	Due Within

$   3,060,000	$

$

(290, 000)	2,770,000

$

$	295,000

 	(1 38,882)	15,872	(1 23,01 0)	
$

2,921,118 

$

$

(274, 1 28)	2,646,990

$

$	295,000

Balance	Additions	Reductions	Balance	One Year
Governmental activities Bonds payable:
Series 2007
Less: Deferred amount on refunding

At September 30, 2012, the scheduled debt service requirements on the lon g-term debt were as follows:

 	Governmental Activities	

Year ending
September 30:	Principal	Interest	Total	
201 3	$	295,000	$	121 ,469	$	41 6,469	
2014 	31 0,000	108,931	418,931	
2015 	325,000	95,756	420,756	
201 6	335,000	81 ,944	416,944	
201 7	350,000	67,288	417,288	
2018 - 2020	1, 1 55,000	1 05,300	1, 260,300	
Total	$	2,770,000	$	580,688	$ 3, 350,688	

NOTE 7 - MANAGEMENT COMPANY
The District h as contracted with a m an agement com p any to perform m anagement advisory services, which include financial and accounting services. Certain employees of the management company also serve as officers of the District. Under the agreement, the District compensates the  management company for m anagement, accounting, financial reportin g, com p uter and other administratlve costs.

NOTE 8 - RISK MANAGEMENT
The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The District h as obtained commercial insurance from indepen dent third parties to mitigate the costs of these risks; coverage may not exten d to all situations. There have been no claim s over the past three years.

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

	Variance	
	with Final	
	Budgeted		Budget -	
	Amounts	Actual	Positive	
	Original & Final	Amounts	(Negative)	
REVENUES
Assessments	
$	355,855	
$	364,480	
$	8,625	
Interest	50	12 	(38)	

Miscellaneous revenue	 	1 ,000	3,995	2,995 

Total revenues

EXPENDITURES

Current:

356,905

368,487

 	11 ,582

General government	11 9,439	1 06,692	12,747	
Maintenance and operations	 	237,466	225,791	11 ,675	
Total expend itures	 	356,905	332,483	24,422 	
Excess (deficiency) of revenues over (under) expenditures	
$	36,004	
$	36,004	
Fund bala nce - beginning	247, 1 70		
Fund balance - ending	$	283, 1 74		

See notes to required supplementary information

NOTES TO REQUIRED SUPP LEMENTARY INFORMATION

The District is req uired to establ ish a budgetary system and an approved Annual Budget for the general fund. The District's budgeting process is based on estimates of cash receipts and cash expenditures which are approved by the Board. The budget approximates a basis consistent with accounting principles generally accepted in the United States of America (generally accepted accounting principles).
The legal level of budgetary control, the level at which expenditures may not exceed appropriations, is in the aggregate. Any budget amendmentthat increases the aggregate budgeted appropriations must be approved by the Board of Supervisors. Actual general fund expenditures did not exceed appropriations for the fiscal year ended September 30, 2012. 
Actual general fund expenditu res for the fiscal year ended September 30, 2012 were less than appropriations due primarily to anticipated costs which were not incurred in the current fiscal year.

Grau&. 1.L\.ssodates
CERTIFIED  PUBLIC ACCOUNTANTS

2700 North MilitaryTrail • Suite 350 Boca Raton, Florida33431 (561)994-9299 • (800) 299-4728
Fax (561) 994-5823
www.graucpa.com

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of Supervisors
Falcon Trace Comtnunity Development District Orange County, Florida
We have audited thefinancial siatements ofthe governmental activities, each major fund, and the remaining fund information of Falcon Trace Community Development District, Orange County, Ftorida (''District") as of and for the fiscal year ended September 30, 2012, which collectively compri-se the District's basic financial statements and have issued our report ihereon dated January 25, 2013. We conducted our audlt in accordance with auditing standards generally accepted in the United States of America and the standards appHcableto financial audits contained in GovernmentAuditing Standards, issued by the ComptrollerGeneral of the United States.
Internal Control Over Financial Reporting
Management of the District is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the District's internal control over financial reporting as a basis for designing our auditing procedures forthe purpose ofexpressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control ove.r financial repo1iing. Ac-cordingty, we do not express an opinlon on the effectiveness of the District's internal control overfinancial reporting.

A deficiencyin internal control exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a time[y basis. A material weakness ls a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement ofthe entity's financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control overfinancial reporting was forthe limited purpose described In the first paragraph of this section and was not designed to identify all deficiencfes in internal control over financial reportfng that might be deficiencies, significant deficiencies, or material weaknesses, We did not identify any deficiencies in internal control over financial reporting tl1atwe consider to be material weaknesses, as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compl[ancewith ceitain provisions of laws, regulatlons, and contracts, and agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofouraudit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance orother matters that are required to be reported under GovernmentAuditing Standards.
This report is intended for the information of the management, Board of Supervisors of Falcon Trace Community Development District, Orange County, Florida and the Auditor General of the .State of Florida and is not intended to be and should not be used by anyone other tfian these specified parties.

January 25, 2013

21

Grau & Associates
CERTIFIED PUBLIC ACCOUNTANTS

2700 North Military Trail • Suite350 Boca Raton, Florida 33431
(561} 994-9299 • (800) 299-4728
Fax(561) 994-5823
www.graucpa.com

MANAGEMENT LETTER PURSUANT TO THE RULES OF THE AUDITOR GENERAL FOR THE STATE OF FLORIDA
To the Board of Supervisors
Falcon Trace Community Development District Orange County, Florida
We have audited the accompanying basic financial statements of Falcon Trace Community Development District ("District") as ofand forthe fiscal year ended September 30, 2012, and have issued our report thereon dated January 25, 2013.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Govemment Auditing Standards, issued bythe Comptroller General of the United States; and Chapter 10.550, Rulesofthe Florida Auditor General. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
In addition, we have issued our Report on Internal Control over Financial Reporting and Compliance and Other Matters based on an audit of the financial statements performed in accordance with Government Auditing standards and Chapter 10.550, Rules ofthe Florida Auditor General (as applicable) dated January 25, 2013. Disclosures in that report should be considered in conjunction with this management letter.
The purpose of this letter is to comment on those matters required by Chapter 1 0.550 of the Rules of the Auditor General for the Stateof Florida. Accordingly, in connection with our audit ofthe financial statements of the District, as described in the first paragraph, we report the following:
Current year findings and recommendations.
Status of prior year findings and recommendations.
Ill. Compliance with the Provisions ofthe Auditor General of the State of Florida.
Pursuant to Chapter 119, Florida Statutes, this management letter is a public record and its distribution is not limited. This letter is intended for the information and use of management, Board of Supervisors of Falcon Trace Community Development Dfstrict, Orange County, Florida and the Auditor General of the State of Florida and is not intended to be and should not be used by anyone other than these specified parties.
We wish to thank Falcon Trace Community Development District, Orange County, Florida and the personnel associatedwith it, forthe opportunity to be ofservice tothem in this endeavor aswellas future engagements, and the courtesies extended to us.

�,.  ✓     �
January 25, 2013

22

REPORT TO MANAGEMENT

CURRENT YEAR FINDINGS AND RECOMMENDATIONS
None
PRIOR YEAR FINDINGS AND RECOMMENDATIONS
N one
Ill. COMPLIANCE WITH THE PROVISIONS OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA
Unless otherwise required to be reported in the au ditor's report on compliance and internal controls, the management letter shall inclu de, but not be limited to the following:

A statement as to wh ether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit re port.

There were no s ignificant findings and recommendati ons made in the preceding annual financial audit report for the fiscal year ended Se ptember 30, 2011 .

A statement as to whether or not the local g overnmental entity complied with Section 218.41 5, Florida Statutes, regarding the investment of public funds.

The District complied with Section 218.415, Florlda Statutes, regarding the investment of public funds.
Any recommendations to improve the local governmental entity's financial management.

There were no such matters discovered by, or that came to the attention of, the auditor, to be reported for the fiscal year ended September 30, 2012.
Violations of provisions of contracts or g rant agreements, or abuse, that have occu rred, or are likely to have occurred, that ha ve an effect on th e fina ncial statements that Is less than material but m ore than inconsequential.

There were no such matters discovered by, or that came to th e attention of, th e auditor, to be reported,  fo r th e fiscal year ended September 30, 201 2.
F or ma tters th at h ave an i nconseq uential effect on the financial statements, consldering both quantitati ve and qualitative factors, the following may be reported based on professional judgment:

Violations of provisions of contracts or g rant agreements, fraud, illegal acts, or abuse.
Deficiencies in internal control that are not sig nificant deficiencies.
There were no such matters discovered by, or that came to the attention of, th e audito r, that, in our judgment, are requ ired to be reported, for the fiscal year ended September 30, 2012.
The name or official title and legal authority of the District are disclosed in the notes to the financial statements.
The financial report filed with the Flori da Department of Financial Services pursuant to Section 218. 32(1 )(a), F lorida Statutes agrees with the Septemb er 30, 2012 financial audit report.

REPORT TO MANAGEMENT (Continued)

The District has not met one or more of the financial emergency conditions described in Section 21 8.503(1), Florida Statutes.
We applied financial condition assessment procedures pursuant to Rule 10. 556(7) and no deteriorating financial conditions were noted. It is management's responsibility to monitor financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same.