DART Retirement Plan and Trust. Financial Statements as of and for the Years Ended December 31, 2016 and 2015, and Independent Auditor s Report

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2 DART Retirement Plan and Trust Financial Statements as of and for the Years Ended December 31, 2016 and 2015, and Independent Auditor s Report

3 DART RETIREMENT PLAN AND TRUST FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT... 1 Page MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED)... 2 BASIC FINANCIAL STATEMENTS: STATEMENTS OF NET POSITION... 4 STATEMENTS OF CHANGES IN NET POSITION

4 Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board of Directors Dallas Area Rapid Transit Dallas, Texas Report on the Financial Statements We have audited the accompanying financial statements of the DART Retirement Plan and Trust (the Plan ) as of and for the years ended December 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the Plan s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Plan s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Plan as of December 31, 2016 and 2015, and the changes in financial position for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 2-3 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by 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 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. Dallas, Texas July 7, 2017 Crowe Horwath LLP 1

5 DART RETIREMENT PLAN AND TRUST MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) December 31, 2016 and 2015 (In Thousands) As management of Dallas Area Rapid Transit (DART), we offer readers of the DART Retirement Plan and Trust (the Plan) financial statements this narrative overview and analysis of the financial activities of the Plan for the years ended December 31, 2016 and FINANCIAL HIGHLIGHTS The Plan s total investment income increased by $15,480 from 2015 to 2016 compared to a decrease of $10,359 from 2014 to The Plan s total net position increased by $20,780 in 2016 compared to an increase of $1,750 in The Plan s employer contributions were $15,540 in 2016 compared to $14,757 in Benefit payments and administrative expenses decreased by $2,755 in 2016 compared to an increase of $2,979 in OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Plan s basic financial statements. The Plan s financial statements are composed of financial statements and notes to the financial statements. Financial Statements. The financial statements are designed to provide readers with an overview of the Plan s finances. The statements of net position present information on all of the Plan s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Plan is improving or deteriorating. The statements of changes in net position present information showing how the Plan s net position change during the most recent two calendar years. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows except for benefit payments. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. FINANCIAL ANALYSIS The Plan s assets include investments reported at fair value, with the exception of Vanguard Retirement Savings Trust which is reported at contract value, as of December 31, 2016 and These assets are held in trust for pension benefits. The Plan s net position increased by $20,780 in 2016 compared to an increase of $1,750 in The table on the following page shows a summary of the Plan s net position as of December 31, 2016 and 2015, with comparative information for

6 DART RETIREMENT PLAN AND TRUST MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) December 31, 2016 and 2015 (In Thousands) Plan Net Position Total Investments $219,688 $198,908 $197,158 Net position $219,688 $ $197,158 The following table shows a summary of changes in plan net position for the years ended December 31, 2016 and 2015 with comparative information for Changes in Plan Net Position Investment Income $14,345 $(1,135) $9,224 Employer Contributions 15,540 14,757 14,660 Other Additions 12-8 Total Additions 29,897 13,622 23,892 Benefit Payments and Administrative Expenses (9,117) (11,872) (8,893) Net Increase (Decrease) in Net Position 20,780 1,750 14,999 Beginning Net Position 198, , ,159 Ending Net Position $219,688 $198,908 $197,158 REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Plan s finances. If you have questions concerning any of the information provided in this report or need additional financial information, contact the Chief Financial Officer at Dallas Area Rapid Transit, 1401 Pacific Avenue, P.O. Box , Dallas, TX

7 DART RETIREMENT PLAN AND TRUST STATEMENTS OF NET POSITION December 31, 2016 and 2015 (In Thousands) ASSETS Investments, Reported at Contract Value: (Note 3) Vanguard Retirement Savings Trust $37,847 $37,638 Investments, Reported at Fair Value: (Note 3) Morgan Stanley Institutional Fund Int l Equity Portfolio: Class R Vanguard Explorer Fund 1 - Vanguard Inflation-Protected Securities Fund Investor Shares 10,128 9,271 Vanguard Mid-Cap Value Index Fund Investor Shares 12,077 6,966 Dodge & Cox International Stock Fund 17,541 16,685 Metropolitan West Total Return Bond Funds: Class I shares 29,867 32,203 Vanguard REIT Index Fund Investor Shares 10,959 12,304 Vanguard Short-Term Bond Index Fund Investor Shares 25,817 28,878 Vanguard Small-Cap Value Index Fund Investor Shares 12,469 6,228 Vanguard Total Bond Market Index Fund 2 - Vanguard Total International Stock Index Fund 16,299 17,339 Vanguard Windsor II Fund 11,707 6,450 Vanguard Total Stock Market Index Fund Investor Shares 23,384 17,984 Vanguard PRIMECAP Fund 11,589 6,962 Total Investments reported at fair value 181, ,270 Total Investments 219, ,908 NET POSITION HELD IN TRUST FOR PLAN BENEFITS $219,688 $198,908 The accompanying notes are an integral part of these statements. 4

8 DART RETIREMENT PLAN AND TRUST STATEMENTS OF CHANGES IN NET POSITION Investment Income: Interest and Dividend Income $6,134 $4,476 Net Appreciation (Depreciation) in Fair Value of Investments 8,211 (5,611) Total Investment Income 14,345 (1,135) Employer Contributions 15,540 14,757 Other Additions 12 Net Additions 29,897 13,622 Deductions: Benefit Payments 9,069 11,818 Administrative Expenses Total Deductions 9,117 11,872 CHANGE IN NET POSITION 20,780 1,750 NET POSITION: BEGINNING OF YEAR 198, ,158 END OF YEAR $219,688 $198,908 The accompanying notes are an integral part of these statements. 5

9 DART RETIREMENT PLAN AND TRUST 1. DESCRIPTION OF THE PLAN The DART Retirement Plan and Trust (the Plan) is a single-employer defined contribution plan designed to provide retirement benefits to employees of Dallas Area Rapid Transit (DART). Participants should refer to the Plan Document for more detailed information. Participation Prior to March 1, 2002, all DART employees were eligible to participate in the Plan, other than those former Dallas Transit System (DTS) employees who, as of October 1, 1987, were and will remain participants in the DART Employees' Defined Benefit Retirement Plan and Trust. Effective March 1, 2002 only full time employees are eligible to participate. Effective September 30, 2002 an eligible employee must be employed one hundred and eighty (180) days before they can become a Participant in the Plan. The number of participants was 3,710 of which 3,421 were active and 289 were retirees, beneficiaries, and terminated vested employees as of December 31, The number of participants was 3,552 of which 3,299 were active and 253 were retirees, beneficiaries, and terminated vested employees as of December 31, Contributions - DART contributes 7.7% of compensation to the retirement account of each participant. Participants are neither required nor permitted to make contributions to the Plan. The DART Retirement Committee (the Committee ) directs the allocation of contributions to different investment options. Participant Accounts Individual accounts are maintained for each Plan Participant. Each participant s account is credited with DART s contributions and Plan earnings, and charged with withdrawals and an allocation of Plan losses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant s vested account. Vesting - Participants hired after December 31, 2005 become 100% vested in DART s contributions to the Plan only after completing five years of service. These participants do not become vested in any portion of DART s contribution to the Plan during the first five years of service. Participants hired before December 31, 2005 become 25% vested in DART's contributions to the Plan after two years of service, and thereafter vesting increases 25% for each year of additional service until they are 100% vested. A vesting year of service is each vesting computation period during which a participant completes at least 1,000 hours of service. In the event of death, disability, or termination after age 60, a participant would be 100% vested. Forfeitures and the Effect of Re-employment - The non-vested portion of a terminated participant's account becomes forfeiture upon the participant s termination of employment. If the non-vested portion of the participant's account was forfeited upon receipt of a complete distribution of the vested portion of the account, such forfeiture may be restored if the participant is later re-employed before having five consecutive one-year breaks in service, and repays the earlier distribution within five years of re-employment. Forfeitures are used to reduce DART's current contribution and pay administrative expenses. Employer contributions were reduced by forfeitures of approximately $157 and $331 for the years ended December 31, 2016 and 2015, respectively. Administrative expenses of $35 and $53 for the Plan years ended December 31, 2016 and 2015, respectively, were paid using forfeitures. At December 31, 2016 and 2015, accumulated forfeitures of $13 and $0, respectively, were available for future use. Disability Retirement - Benefits begin as soon as administratively feasible after receipt by the Committee of the participant s application for Disability Retirement and approval of disability retirement benefits by the Social Security Administration. "Disabled" or "Disability" means the participant has terminated employment because of a physical or mental condition that results in the participant being awarded disability retirement benefits by the Social Security Administration. If the participant terminates employment for any other reason, his/her benefits will generally begin as of the date authorization is received by the Trustee from the Retirement Committee. 6

10 DART RETIREMENT PLAN AND TRUST Benefit Payment Options - In the event of death, disability, retirement or termination, participants (or their beneficiaries in the event of death) may elect a lump sum or installment method of payment. Plan Administration The Plan is administered by a retirement committee consisting of eight members appointed by the President/Executive Director of DART. Substantially all administrative expenses are paid by the Plan. These expenses include investment management, trustee, record keeping, and pension consulting fees. Texas state law authorizes state and local governments and political subdivisions, like DART to establish retirement plans under Texas Government Code Accordingly, DART can also amend the benefit terms of the Plan. Plan Amendment - The Employer has the right to amend this Plan to the extent that it may deem advisable, provided; that no such amendment shall impair or adversely affect the right of any Participant which has matured and no such amendment shall increase the duties or responsibilities of the Trustee without its consent given in writing. Plan Termination - Although the employer has not expressed any intent to discontinue the Plan, it reserves the right in its sole discretion to terminate the Plan. In such event, each participant shall have a non-forfeitable right in one hundred percent (100%) of his/her account balance. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The Plan is maintained on the full accrual basis of accounting and the economic resources measurement focus. All economic resources, including financial and capital assets and related liabilities, both current and long-term, and the changes therein are reported in the Plan s financial statements. Revenues, including contributions, are recognized when they are earned and expenses are recognized when the underlying transaction or event occurs, regardless of the timing of related cash flows. The Plan applies the Governmental Accounting Standards Board pronouncements applicable to benefit plan accounting and reporting. Investments and Income Recognition Vanguard Fiduciary Trust Company (the Trustee) has discretionary control over investments and the reporting of investment transactions. Investment options include Vanguard funds. Investment transactions are accounted for on the trade-date basis (date the investments are purchased or sold). The specific identification method is used by the Trustee to determine the cost of investments sold. Realized and unrealized gains and losses are calculated using the revalued cost method. With the exception of the Vanguard Retirement Savings Trust, investments are stated at fair value as determined by the mutual fund s quoted prices in active markets for identical assets at year-end and therefore are Level 1 assets. Fair value of a financial instrument is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Interest income is accrued when earned and dividend income is recorded on the ex-dividend date. The Vanguard Retirement Savings Trust is a common collective trust fund that holds underlying investments in investment contracts and is valued based on contract value as determined by Vanguard. Fair values of the Vanguard Retirement Savings Trust were $38,165 and $38,277 at December 31, 2016 and 2015, respectively. The Vanguard Retirement Savings Trust ( RST ) is sponsored by Vanguard Fixed Income Group. Participants do not have a beneficial ownership in specific underlying securities in the fund, but have an interest therein represented by units valued on a daily basis. Units are issued and redeemed daily at the RST s constant net asset value ( NAV ) of $1 per unit. Distributions to the RST s unit holders are declared daily from the net investment income and automatically reinvested in the RST, when paid. It is the policy of the RST to use its best efforts to maintain a stable net asset value of $1 per unit; although there is no guarantee that the RST will be able to maintain this value. 7

11 DART RETIREMENT PLAN AND TRUST Participants ordinarily may direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the RST, plus earnings, less participant withdrawals and administrative expenses. The RST imposes certain restrictions on the Plan, and the RST itself may be subject to circumstances that impact its ability to transact at contract value; however, Plan management believes that the occurrence of events that would cause the RST to transact at less than contract value is not probable. Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires the Plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. Risks and Uncertainties- The Plan utilizes various investment securities including mutual funds and a common collective trust fund. Investment securities, in general, are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the financial statements. 3. INVESTMENTS The assets of the Plan are held in the DART Retirement Plan and Trust. With the exception of the Vanguard Retirement Savings Trust, which is held at contract value, the Plan s investments are stated at fair value. During the years ended December 31, 2016 and 2015, DART s contributions were allocated among the following investment options, as described in the respective fund s prospectus, as directed by the Committee. Vanguard Retirement Savings Trust: Invests primarily in investment contracts issued by insurance companies, banks or other financial institutions, including investment contracts backed by high-quality fixed income securities. The fund seeks to achieve its objective by diversifying among high credit-quality investments and investment contracts which are structured to smooth market gains and losses over time. Morgan Stanley Institutional Fund Int l Equity Portfolio: Class R-4: Seeks a measure of downside protection. Applies strict investment criteria to help identify attractive businesses at a discount to their long-term fair value. Indepth fundamental company research is paramount to the fund s bottom-up stock selection process with emphasis on companies with high or improving Returns on Operating Capital Employed, recurring cash flows and capable management. This investment discipline is maintained by strict adherence to the investment team s longstanding investment process and cash-flow-based valuation criteria. Vanguard Explorer Fund: Invests mainly in the stocks of small companies. These companies tend to be unseasoned but are considered by the fund s advisors to have superior growth potential. Also, these companies often provide little or no dividend income. The fund uses multiple investment managers. Vanguard Inflation-Protected Securities Fund Investor Shares: Invests at least 80% of its assets in inflationindexed bonds issued by the U.S. government, its agencies and instrumentalities, and corporations. The fund may invest in bonds of any maturity; however, its dollar-weighted average maturity is expected to be in a range of 7 to 20 years. At a minimum, all bonds purchased by the fund will be rated investment grade or, if unrated, will be considered by the advisor to be investment grade. Vanguard Mid-Cap Value Index Fund Investor Shares: Employs an indexing investment approach designed to track the performance of the CRSP US Mid Cap Value Index, a broadly diversified index of value stocks of midsize U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. 8

12 RETIREMENT PLAN AND TRUST Dodge & Cox International Stock Fund: Seeks long-term growth of principal and income. The fund invests primarily in a diversified portfolio of equity securities issued by non-u.s. companies from at least three different countries, including emerging markets. It will invest at least 80% of its total assets in common stocks, preferred stocks, securities convertible into common stocks, and securities that carry the right to buy common stocks of non- U.S. companies. The fund invests primarily in medium-to-large well established companies based on standards of the applicable market. Metropolitan West Total Return Bond Funds: Class I shares: Seeks to maximize long-term total return by investing, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities or unrated securities. It may also invest up to 20% of the fund's net assets in securities rated below investment grade. Vanguard REIT Index Fund Investor Shares: Invests in stocks issued by equity real estate investment trusts (known as REITs) in an attempt to parallel the investment performance of the MSCI US REIT Index. Vanguard Short-Term Bond Index Fund Investor Shares: Seeks to track the performance of a market-weighted bond index with a short-term dollar-weighted average maturity. Vanguard Small-Cap Value Index Fund Investor Shares: Employs an indexing investment approach designed to track the performance of the CRSP US Small Cap Index, a broadly diversified index of stocks of smaller U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. Vanguard Total Bond Market Index Fund: Employs an indexing investment approach designed to track the performance of the Barclays U.S. Aggregate Float Adjusted Bond Index. This index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. The fund invests by sampling the index, meaning that it holds a range of securities that, in the aggregate, approximate the full index in terms of key risk factors and other characteristics. All of the fund s investments will be selected through the sampling process, and at least 80% of the fund s assets will be invested in bonds held in the index. The fund maintains a dollar-weighted average maturity consistent with that of the index, which currently ranges between 5 and 10 years. Vanguard Total International Stock Index Fund: Employs an indexing investment approach to track the performance of the FTSE Global All Cap ex US Index, a free-float-adjusted market-capitalization-weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The index includes more than 5,300 stocks of companies located in 46 countries. The fund invests substantially all of its assets in the common stocks included in its target index. Vanguard Windsor II Fund: Invests mainly in large- and mid-capitalization companies whose stocks are considered by an advisor to be undervalued. Undervalued stocks are generally those that are out of favor with investors and the advisor feels are trading at prices that are below average in relation to such measures as earnings and book value. These stocks often have above-average dividend yields. The fund uses multiple investment advisors. Vanguard Total Stock Market Index Investor Shares: Employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and NASDAQ. The fund invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics. These key characteristics include industry weightings and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield. 9

13 DART RETIREMENT PLAN AND TRUST Vanguard PRIMECAP Fund: Invests in stocks considered to have above-average earnings growth potential that is not reflected in their current market prices. The fund s portfolio consists predominantly of mid- and largecapitalization stocks. Credit Risk Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. This is measured by the assignment of ratings by nationally recognized rating agencies such as S&P and Moody s. The following tables show the ratings of the underlying investments of the investment funds held by the Plan as of December 31, 2016 and Investment Type Total Amount Credit rating as of December 31, 2016 Aa+/ Below Aaa Aa A Baa Baa Not Rated Short-term $37,847 $26,606 $4,542 $3,823 $2,876 $ - $ - investments Bonds 65,814 48,332 2,969 6,929 6, Domestic Equity 72, $72,725 (Stocks) International Equity 32, ,343 (Stocks) Real Estate Funds 10, ,959 Total Investments $219,688 $74,938 $7,511 $10,752 $9,624 $836 $116,027 Investment Type Total Amount Credit rating as of December 31, 2015 Aa+/ Below Aaa Aa A Baa Baa Not Rated Short-term investments $37,638 $24,464 $5,570 $4,931 $2,673 $ - $ - Bonds 70,352 43,509 1,917 7,774 12,450 4,702 - Domestic Equity 45, $45,942 (Stocks) International Equity 32, ,671 (Stocks) Real Estate Funds 12, ,305 Total Investments $198,908 $67,973 $7,487 $12,705 $15,123 $4,702 $90,918 10

14 DART RETIREMENT PLAN AND TRUST Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. brokerdealer) to a transaction, the Plan will not be able to recover the value of its investment or collateral securities that are in the possession of another party. All of the Plan s investments are in open-ended mutual funds and a common collective trust fund. The existence of these investments is not evidenced by securities that exist in physical book entry form and therefore, they are not exposed to custodial credit risk. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the Plan s investments in a single issuer. All of the investments held for the Plan are in mutual funds or a common collective trust fund. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. The Plan s equity, real estate funds and short-term investments portfolio was $153,874 (70.0%) in 2016 compared to $128,556 (64.6%) in Debt securities were $65,814 (30.0%)in 2016 compared to $70,352 (35.4%) in Information about the sensitivity of the fair values of the Plan s investments to market interest rate fluctuation as of December 31, 2016 and 2015 is shown as follows: Investment Type Total Amount <1 Year 1-5 Years Maturity in Years as of December 31, Years Years Years >30 Years N/A Short-term Investments $37,847 $6,169 $22,784 $ 8,818 $76 $ - $ - $ - Bonds 65,814 2,575 39,376 16,444 3,562 3, Domestic Equity (Stocks) 72, ,725 International Equity ,343 (Stocks) 32,343 Real Estate Funds 10, Total $219,688 $8,744 $62,160 $25,262 $3,638 $3,857 $ - $116,027 Investment Type Total Amount <1 Year 1-5 Years Maturity in Years as of December 31, Years Years Years >30 Years N/A Short-term Investments $37,638 $5,382 $24,276 $7,980 $ - $ - $ - $ - Bonds 70,352 2,758 42,766 17,033 3,959 3, Domestic Equity (Stocks) 45, $45,942 International Equity (Stocks) 32, ,671 Real Estate Funds 12, ,305 Total $198,908 $8,140 $67,042 $25,013 $3,959 $3,836 $ - $90,918 11

15 DART RETIREMENT PLAN AND TRUST Foreign Currency Risk Foreign Currency Risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. The Plan s foreign currency net position (foreign currency denominated investments) were $32,343 (14.72%) in 2016 as compared to $32,671 (16.43%) in The Plan s exposure to foreign currency risk as of December 31, 2016 and 2015 is shown below. The amounts are shown in U.S. Dollars. Investment Type Currency 2016 Fair Value (USD) 2015 Fair Value (USD) International Equity (Stocks) Australian Dollar $829 $802 Brazil Real 1, British Pound 4,361 4,918 Canadian Dollar 1,471 1,182 Chilean Peso Chinese Yuan Renminbi 1, Colombian Peso Czech Koruna 7 6 Danish Krone Egyptian Pound European Monetary Unit (Euro) 7,697 8,021 Hong Kong Dollar Hungarian Forint 10 8 Indian Rupee Indonesian Rupiah Israeli New Shekel Krone 17 - Japanese Yen 5,546 5,561 Malaysian Ringgit Mexican Peso New Zealand Dollar Norwegian Kroner Peruvian Nuevo Sol 9 6 Philippine Peso Polish Zloty Russian Ruble Qatari Riyal 13 Singapore Dollar South African Rand 1,415 1,440 South Korean Won 1,338 1,318 Swedish Krona Switzerland Franc 2,265 2,692 Taiwan New Dollar Thai Baht Turkish Lira United Arab Emirates Dirham Total $32,343 $32,671 12

16 DART RETIREMENT PLAN AND TRUST The plan categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. The following tables show the fair value measurements of the underlying investments of the investment funds held by the plan as of December 31, 2016 and Fair Value Measurements as of December 31, 2016 Investment Type Total Amount Level 1 Level 2 Level 3 Short-term Investments $37,847 N/A N/A N/A Bonds 65,814 $65, Domestic Equity (Stocks) 72,725 72, International Equity (Stocks) 32,343 32, Real Estate Funds 10,959 10, Total $219,688 $181,841 $ - $ - Fair Value Measurements as of December 31, 2015 Investment Type Total Amount Level 1 Level 2 Level 3 Short-term Investments $37,638 N/A N/A N/A Bonds 70,352 $70, Domestic Equity (Stocks) 45,942 45, International Equity (Stocks) 32,671 32, Real Estate Funds 12,305 12, Total $198,908 $161,270 $ - $ - 13

17 DART RETIREMENT PLAN AND TRUST 4. TAX STATUS OF PLAN The Internal Revenue Service (IRS) has determined and informed DART by letter dated July 9, 2009, that the Plan and related trust were designed in accordance with applicable regulations of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter and DART has been notified by letter dated March 30, 2017, that The Internal Revenue Service (IRS) has determined that the amended Plan and related trust are currently designed and operated in compliance with the applicable requirements of the IRC. The Plan and related trust continue to be tax-exempt. The Plan is subject to routine audits by the IRS; however, there are currently no audits for any tax periods in progress. 5. RELATED PARTY TRANSACTIONS The Plan invests in funds managed by the Trustee. These transactions are therefore related party transactions, but are exempt from prohibited transaction rules. 14

18 DART Capital Accumulation Plan and Trust Financial Statements as of and for the Years Ended December 31, 2016 and 2015, and Independent Auditor s Report

19 DART CAPITAL ACCUMULATION PLAN AND TRUST FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT... 1 Page MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED)... 2 BASIC FINANCIAL STATEMENTS: STATEMENTS OF PLAN NET POSITION... 4 STATEMENTS OF CHANGES IN NET POSITION HELD IN TRUST FOR PLAN BENEFITS

20 Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board of Directors Dallas Area Rapid Transit Dallas, Texas Report on the Financial Statements We have audited the accompanying financial statements of the DART Capital Accumulation Plan and Trust (the Plan ) as of and for the years ended December 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the Plan s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Plan s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Plan as of December 31, 2016 and 2015, and the changes in financial position for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 2-3 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by 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. Dallas, Texas July 7, 2017 Crowe Horwath LLP 1

21 DART CAPITAL ACCUMULATION PLAN AND TRUST MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) December 31, 2016 and 2015 (In Thousands) As management of Dallas Area Rapid Transit (DART), we offer readers of the DART Capital Accumulation Plan and Trust (the Plan) financial statements this narrative overview and analysis of the financial activities of the Plan for the years ended December 31, 2016 and FINANCIAL HIGHLIGHTS The Plan s total investment income increased by $16,108 from 2015 to 2016 compared to a decrease by $14,888 from 2014 to The Plan s total net position increased by $19,038 in 2016 compared to an increase of $716 in The Plan s employer and participant contributions were $19,457 in 2016 compared to $18,699 in Benefit payments and administrative expenses decreased by $1,427 in 2016 compared to an increase of $5,869 in OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Plan s basic financial statements. The Plan s financial statements are composed of financial statements and notes to the financial statements. Financial Statements. The financial statements are designed to provide readers with an overview of the Plan s finances. The statements of net position present information on all of the Plan s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Plan is improving or deteriorating. The statements of changes in net position benefits present information showing how the Plan s net position changed during the two most recent calendar years. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows, except for benefit payments. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. FINANCIAL ANALYSIS The Plan s assets include investments in mutual funds, a common collective trust fund, and notes receivable from participants as of December 31, 2016 and These assets are held in trust for pension benefits. The Plan s net position increased by $19,038 in 2016 compared to an increase of $716 in The following table shows a summary of the Plan s net position as of December 31, 2016 and 2015, with comparative information for

22 DART CAPITAL ACCUMULATION PLAN AND TRUST MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) December 31, 2016 and 2015 (In Thousands) Plan Net Position Total Investments $217,422 $198,461 $198,671 Total Receivables 15,941 15,864 14,938 Net position available for benefits $233,363 $214,325 $213,609 The following table shows a summary of changes in plan net position for the years ended December 31, 2016 and 2015, with comparative information for Changes in Plan Net Position Investment Income $14,923 $(1,185) $13,703 Employer and Employee Contributions 19,457 18,699 18,151 Notes Receivable Interest Income Other Additions Total Additions 35,057 18,162 32,464 Benefits Payments and Administrative Expenses (16,019) (17,446) (11,577) Net Increase (Decrease) in Net Position 19, ,887 Beginning Net Position 214, , ,722 Ending Net Position $233,363 $214,325 $213,609 REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Plan s finances. If you have questions concerning any of the information provided in this report or need additional financial information, contact the Chief Financial Officer at Dallas Area Rapid Transit, 1401 Pacific Avenue, P.O. Box , Dallas, TX

23 DART CAPITAL ACCUMULATION PLAN AND TRUST STATEMENTS OF NET POSITION ASSETS Investments, Reported at Contract Value: (Note 3) Vanguard Retirement Savings Trust $37,938 $37,608 Investments, Reported at Fair Value: (Note 3) Diamond Hill Small-Mid Cap Fund; Class Y 3,150 - Dodge & Cox International Stock Fund 4,339 4,623 Metropolitan West Total Return Bond Fund: Class I Shares Vanguard 500 Index Fund 13,781 12,673 Vanguard Explorer Fund - 2,971 Vanguard Global Equity Fund Vanguard Life Strategy Moderate Growth Fund 3,392 3,686 Vanguard Mid-Cap Value Index Fund Investor Shares 4,650 4,193 Vanguard Small-Cap Value Index Fund Investor Shares 1,993 1,457 Vanguard Total Bond Market Index Fund 18,482 16,623 Vanguard Total International Stock Index Fund 11,060 9,185 Vanguard Windsor II Fund 18,140 17,256 Vanguard PRIMECAP Fund 23,323 22,677 Vanguard Treasury Money Market Fund 1 - Vanguard Total Stock Market Index Fund Investor Shares 11,971 9,703 Vanguard Target Retirement 2010 Fund Vanguard Target Retirement 2015 Fund 6,556 6,407 Vanguard Target Retirement 2020 Fund 7,058 6,750 Vanguard Target Retirement 2025 Fund 15,911 13,522 Vanguard Target Retirement 2030 Fund 6,924 5,661 Vanguard Target Retirement 2035 Fund 10,349 8,889 Vanguard Target Retirement 2040 Fund 3,772 3,174 Vanguard Target Retirement 2045 Fund 6,298 5,089 Vanguard Target Retirement 2050 Fund 3,450 2,697 Vanguard Target Retirement 2055 Fund 1, Vanguard Target Retirement 2060 Fund Vanguard Target Retirement Income Fund 1,542 1,129 Total Investments reported at fair value 179, ,853 Total Investments 217, ,461 4

24 DART CAPITAL ACCUMULATION PLAN AND TRUST STATEMENTS OF NET POSITION Receivables: Notes Receivable from Participants $15,941 $15,864 Total Receivables 15,941 15,864 NET POSITION $233,363 $214,325 The accompanying notes are an integral part of these statements 5

25 DART CAPITAL ACCUMULATION PLAN AND TRUST STATEMENTS OF CHANGES IN NET POSITION HELD IN TRUST FOR PLAN BENEFITS Investment Income: Interest and Dividend Income $6,503 $7,305 Net Appreciation (Depreciation) in Fair Value of Investments 8,420 (8,490) Total Investment Income (Loss) 14,923 (1,185) Employer Contributions 5,121 4,986 Participant Contributions 14,336 13,713 Total Contributions 19,457 18,699 Notes Receivable Interest Income Total Additions 20,134 19,347 Net Additions 35,057 18,162 Deductions: Benefit Payments 15,710 17,160 Administrative Expenses Total Deductions 16,019 17,446 CHANGE IN NET POSITION 19, NET POSITION HELD: BEGINNING OF YEAR 214, ,609 END OF YEAR $233,363 $214,325 The accompanying notes are an integral part of these statements 6

26 DART CAPITAL ACCUMULATION PLAN AND TRUST 1. DESCRIPTION OF THE PLAN The DART Capital Accumulation Plan and Trust (the Plan) is a single employer defined contribution retirement plan designed to provide retirement benefits to all full-time employees of the Dallas Area Rapid Transit (DART). Participants should refer to the Plan Document for more detailed information. Participation The number of participants was 3,959 of which 3,673 were active and 286 were retirees, beneficiaries, and terminated vested employees as of December 31, The number of participants was 3,793 of which 3,555 were active and 238 were retirees, beneficiaries, and terminated vested employees as of December 31, Employee Contributions Upon employment participants may elect to contribute before-tax salary deferral contributions from 2% to 50%. If not already contributing, employees are automatically enrolled in the Plan one hundred and eighty (180) days after the first day the employee performs an hour of service as a regular, full-time employee of DART at a before-tax salary deferral rate of 4%. Participants may opt out of participation. Auto-enrolled participants contribution percentages increase by 1% each year up to 6%. For each calendar year, no participant shall contribute an amount through salary deferral that exceeds the maximum calendar year limit allowed by the Internal Revenue Service. Such excess deferrals, if any, plus or minus net earnings allocable thereto, shall be distributed back to participants no later than April 15 following the calendar year in which the excess deferral was made. DART Contributions Employees may contribute to the Plan immediately; however, they do not receive DART matching contributions until one hundred and eighty (180) days after the first day the employee performs an hour of service as a regular, full-time employee of DART. DART matches 50% of the first 6% of before-tax salary deferral contributions of eligible participants. DART contributions are made as soon as administratively feasible, but not later than fifteen (15) days after the close of the pay period. Participant Accounts Individual accounts are maintained for each Plan Participant. Each participant s account is credited with the participant s and DART s contributions and Plan earnings, and charged with withdrawals and an allocation of Plan losses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant s vested account. Vesting - Participants hired after December 31, 2005 become 100% vested in DART s contributions to the Plan only after completing five years of service. These participants do not become vested in any portion of DART s contribution to the Plan during the first five years of service. Participants hired before December 31, 2005 become 25% vested in DART's contributions to the Plan after two years of service, and thereafter vesting increases by 25% for each year of additional service until they are 100% vested. A vesting year of service is each vesting computation period during which a participant completes at least 1,000 hours of service. In the event of death, disability, or termination after age 60, a participant would be 100% vested. Forfeitures and the Effect of Re-employment - The non-vested portion of a terminated participant's account becomes a forfeiture upon the participant s termination of employment. If the non-vested portion of the participant's account was forfeited upon receipt of a complete distribution of the vested portion of the account, such forfeiture may be restored if the participant is later re-employed before having five consecutive one-year breaks in service, and repays the earlier distribution prior to the said five consecutive one-year breaks in service. DART contributions were reduced by forfeitures of approximately $99 and $70 for the Plan year ended December 31, 2016 and 2015, respectively. Administrative expenses of $54 and $48 for the Plan years ended December 31, 2016 and 2015, respectively, were paid using forfeitures. At December 31, 2016 and 2015, accumulated forfeitures of $15 and $4, respectively, were available for future use. 7