BKD,.,CPAS & Advisor

. :.,, , ,

Harris County Municipal Utility District No. 359August 3'1,2014

Contents

Independent Auditor's Report. ......................"1

Management's Discussion and 4na1ysis............ ............3

Basic Financial $tatements

Statement of Net Position and Governmental Funds Balance Sheet......"... ......"..".".".....9

Statement of Activities and Governmental Funds Revemes,Expenditures and Changes in Fund Balances .................11

Notes to Financial Statements ...."....12

Requir*d Supplernentary Inforrnation

Budgetary Comparison Schedule * Geleral Fund "......... ......25

Notes to Required Supplementary lnformation...."......... ."."...26

Supplernentary Inlormation

Supplementary Schedules Insluded Wirhin This Repcrt ...."..27

Schedule of Services and Rates... ........."...".".......78

Schedule of General Fund Expenditures........ .............,......"..29

Schedule cf ?emporary lnvestments ....."""..."."....30

Analysis of Taxes Levied and Receivable...."........ ...............31

Schedule of Long-term Debt Service Reqriirements by Years".....".. ...."...33

Changes in Long-terrn Bonded Debt........... .......36

Cornparative Schedule af Revenues and Expenditures * General Fundand Debt Service Fund - Five Years ...".......37

Bca:d Members" Kev Personnel aad Consultants "............"...39

BKD.,,GPAS & Advisors

2800 Post Oak Boulevard, Suite 3200 // Houston, fX77056-6167

Q li3.+ee.+ooo // 1ax713.49.4699 // bkd.com

lndependent Aud itor's Report

Board of DirectorsHarris County Municipal Utility District No. 359Harris County, Texas

We have audited the accompanying financial statements of the governmental activities of HarrisCounty Municipal Utility District No. 359 (the District), which are comprised of a statement of netposition as of August3l,2014, and a statement of activities for the year then ended; as well as theaccompanying financial statements of each major fun{ which for governmental funds are comprisedof a balance sheet as of August 31,2014, and a statement of revenues, expenditures and changes infund balances for the year then ended, and the related notes to the financial statements, whichcollectively comprise the Disfrict's basic financial statements listed in the table of contents.

Manag ement's Resp onsibility for the Financial S tatements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; thisincludes the design, implementation and maintenance of internal control relevant to the preparationand fair presentation of financial statements that are free from material misstatement, whether due tofraud or error.

A uditor's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. Weconducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers intemal control relevant to ttre entity'spreparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal conhol. Accordingly, we express no such opinion. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overall presentationof the financial statements.

Praxitv:MFMDER .

GIOBAL A!LIAI{CE OFIt{D€PEt{0ENT FlRttlS

Board of DirectorsHaris Cr:unty Municipal Utiiily District l.lo. 359Pzse2

We believe that ths audit evidence wo have obtained is sufficient and appropriate tc provide a basisfor our audit opinians.

Opinions

kt our opinion, the financial statements re&rred tc above present fairly, in all material respects, therespective financial position of the governmental activities, and each major fund cf the District as ofAugust 3I, 24tr4, and the respective change s in financial position thereof for the year then ended inaccordance with accounting principles generally accepted in the United States r:f America.

Emphasis of Mutter

As discussed in Note 10 to the financial statements, inZ?l4" the District adopted the new accountingguidance included in Governmental Accounting Standards Board Statemenl Na. 65, Itews PreviouslyReported as Assets and Liabilities. Our opinion is not modified with respect to this matter.

Required S upplementary Informa{i*n

Accounting principles generaltry accepted in the United States of America require that themanagement's discussian and analysis and budgetary informatinn listed in the table of contents bepresented to supplement the basic financial stateme;ris. Such information, allhough nct part of thetrasic {inancial statemeats, is required by;he Governmental Accounting Slandards Bcard, whoconsiders it to be an essential part of financial reporting for placing the basic financial statements inan appropriate operational, economic or historical context. We have applied certain limitedprocedures to the required supplementary irformation in accordance with auditing standards generallyaccepted in the United States r:f America, which consisted of inquiries of management about themethods of preparing the informaticn and comparing the information for consistency withrnanagement's responses to cur inquiries, the basic financial statements and other knowledge weobtained during our audit of the basic financial statements. We do not express an opinion or provideany assurance on the infcrmation because :he lirnited procedures do not provide us with suf{icientevidence to express al opinion or prcvide any assurance.

S app lement ury Infonnation

Our audit was conducted fcr the plrpose of forming opinicns on the basic financial staternents as awhale. The accompanying supplementary in{brmation listed in the table of ccntents is presented forpurposes of additional analysis and is not a required part of the basic financial statements. Suchinformation has not been sr:bjected to the auditing procedures applied in the a:rdit cf the basicfinancial statements, and accordingly, we do not express an opinion or provide any assurance an it.

&co, t reHouston, TexasJanuary 7,2015

Harris County Munieipal Utility District l,lo. 359l$anagement's Discussion and Analysis

August 31,2414

$veryiew of the trinatcial Sta

This discussion and analysis is intended to serve as an introduclion to the District's basic financial statements.The District's basic financial statements are comprised of three compone{rts: l} government-wide financialslatercents, 2) fund financial staternents and 3) notes to financial statements. This report alsr: containssupplernentary information required by the Gcyernmental Accounting Standards Board {GASB) and othersupplementary information required by the District's state oversight agency, the Texas Commissi*n anEnvironmental Qualiry {the Cornmission}.

ln asccrdance with required reporting standards, the Distriet repcrts its financial activities as a special-purposegovemm*nt. Special-puryose governments are governmrntal entities which engage in a single govemmentalprogram, such as the provision of water, sanitary $ewer and drainagc services, Other activities, slch as theprovisior: cf recreation facilities and solid waste collection, are minor activities and are nct budgeted craccounted for as separate programs. The fi:rancial statements of special-purpose goveiaments combins terotypes of financial statements into one statement. These two fypes of financial statements are thegovernrnent-wide fmancial statements and the fund financial statements. The fund financial statements are

presented on the left side of the statements, a column for adustments is to the right of the fund financialstatements ard the government-wide financial slatements are presented tc the right side of the adjustmentscolumn. The following sections descrihe the measurement focus of the two types of statements and thesignificant differences in the infornation they prcvide.

Gov*rnment-:ryi$q Finaneial Stat$m$*ts

The fccus of government-wide financial statemenls is on the overall f,nancial position and activities of theDistrict. The Dislrict's government-wide financial statements include the statement of net position andstatement of activities, which are prepared using accounting principles that are similar 1o commercialenterprises. The purpose of the statement of net position is to atternpt to report all af the assets, liabilities, anddeferred inflows and cutflows of resources af the District- The District reports all of its assets whei: it acquiresor begins ta maintain the assets and:eports a1l cf its liabilities when {hey are insurred.

The difference between the District's assets, liabilities, and deferred inflows and outflows of resources is labeledas net position and this differenee is si:nilar to the total stockholders' equity presented by a commercialenterprise.

The purpose of the statement of activities is to present the revenues and expenses of the District. Again, theitems presented tn the statement of activities are measured in a manner similar to the approach used by acommercial enterprise in that tevenues are recognized whel earned ar established criteria are satisied andexpenses are reported when incuned by the Diskict. All changes in net position are reported when theunderlyiag event giving rise tc the change occurs, regardless of the tirning of related cash flows. Thus, revenues

are reported even when they rnay nct be collected for several months or years afler the end of ths accountingperiod and expenses are recorded even though they may nr:t have ased cash during the current year.

Harris County Municipal Utllity Sistrict No. 3SgManagernent's *iscuesion and Analysis (Ccntinued)

August 31,2*14

Although the statement *f activities lccks diflerent frcm a commercial enterprise's statement *f income, thefinancial statement is different cnly in funnal, nat substance. Whereas the bcttom iine in a eommerciatrenterprise is its net ineome, the District rcports an amcu*l described as ehange in aet pcsition, esseittially thesamc thing.

Fund Financial S1*tements

Unlike government-wide finaneial statemsr:as, the fbcus of fund financial statements is directed ta sp*cificactivities of the District rather than the l)istri*t as a wh*le. Xxcept for the general fund, a specific fuld isestablished to satisfy managerial control cver r€so::rces or to satis$ finance-related legal requirernentsestablished by exteraal parties or govemmental statutes or regulati*ns.

GovernmeukLl lunds

Governmental-fund financial statements co*si*t *f a balance sheet and a statement of revenues, expendituresand changes in fund balances ald are prepar*d sn an &eco*nting basis that is significantly different from thatus*d to prepare the g*vemment-wide financial statements.

In general, these financial statements have a short-term emphasis and, fbr the most patt, measure and account fcrcash and olher assets that *an easily be converted into eash. For example, anounts reported on the balance sheetinclude items such as cash and reeeivabl*s collectible within a very short period of time, but do not includecapilal assets such as land and wate:, $ewer and drainage systems. Fun<l liabilities inciude amounts that ars r*be paid within every short period aft*r the end of the {scal year. The difference between a fund's assets,liabilities, and d*ferred inflows and oulflows of resourees i: labeted the fund balance and generally indicates theamo::at that cax be use* ta finaree thc next fiscal year's activities. Likewise, the operating statemeat forgovernmental funds repcrts c*ly those r*venu6s and expenditr:res that were collected in cash or paid with cash,respectively, during the c*rrent period or very sho*ly after the end cf the {iscal year.

Bscause the focus of the gcvemment-wide and fund financial statements is different, there are significaatdifferetces between the totals presented in these financial statements. For this reason, there is an analysis in thenotes tc fina.ncial statem*nts that describes the adjustments ts fund balances to arrive at net position presented inthe governmental activities column on the statement of net position. Alsc, there is an analysis in the notes tofinancial statemelts that reconciles the t*tal change in fund balances for all gcvemrnental funds tc the change innet position, as reported in the governrnental activities column in the statement of activities.

Notqs to Sinancial Statemeats

The notes to fir:ancial statements provide additional information that is essential to a full understa:rdins of thedata found in the government*wide a:rd fund finaneial statements.

Management's Siscussion and Analysis {eontinued}August 31,2414

Financial AASJysis of tltg Sistrict as a Whole

Effrctive September 7,2AI3, the District adopted lhe new aecounting and financial reporting guidance includedin GASB Staternent No. 65 {Statement No. 65), ftems Previously Reported as Assets arcd Liabifities"

Staiement i.{o. 65 establishes accouating and financiatr repcrting standards that reclassify cedain iternspreviously reported as assets and liabilities tc de{brred outflaws or inflows of resources and reccgnizas as

expenses or reyenues certain items thal were previously reported as assets and liabilities. The adjustments

required for the District's 2013 finaacial statements, nol presented herein, fa: adoption of Statement No. 55,include reducing carrent and other assets for previously capitalized debt issuance costs, reducing debt service

expenses far debt issuance costs previously amortized during 2A13, and classifying deferred amounts on debt

refundings as deferred out{lcws of resources and deferred properfy tax revenues as deferred inflows cfresources. The District's 2013 summarized financial informaticn presented bel*w has been resiated to reflectthe adopticn of Statement No. 65.

The District's overall {inancial position and aotivities for the past two yea:s are summarized as follcws, based onthe information included in the goverrment-wide financial statements"

$ummarv pJ Net Position

Harris County Municipal Utility District No. 359

2A'14

3estated201 3

Current and cther assets

Capital assets

Total assets

Deferred outflows of resources

Total assets and defen'ed outflaws of resourcgs

Long-term liabilitiesOther liabililies

Total liabilities

Net posilion:Reslricted

Unrestricted

Total net position

$ 2,509, l3 I3,064,190

2,246,964

3,066,470

3s2,7 57

),JIJ JJ+

283,085

5,926,478 5,596,419

6,379,93&

92,687

6,630,000

91,437

6,412,525 6,711,437

1,674,924

{2,ry1",?7.1)

1,474,192

t2,589:zt?)

$ {1,1 15,0 t 8)_g_:*_lrytp-

Management's Siscussion and Analycis {Continued}August 31,2A14

The total net pcsition *f the District increased by $568,57i, cr approximately 51 percent. The rnajorily of theincrease in net position is related to tax revenues and rebates from the City of Xoustcn {th* City} intended to payprincipal ar: the listrict's bonded indebtedness, which is shown as long-term liabilities in the government-widefina:r,cial statements. Althar:gh the District's investment in its capital assets !s repcrted net of related debt, itshculd be n*ted that the r*sources needed to repay this debt rnust tre pr*vided flom other ssurees, since thecapital assets thernselves cannot be used to liquidate these liabilities.

At August 31,2414, uxeskicted net positicn was ${?,221,3?1). This amcunt was negative because pursuant taa eontraet betwsen the Distriet and ths Cify, all water, sanitary se\ryer aad stcrm sawer faeilities pu:chased ore*nstructed by the District or its dsvelcpers are co:rveyed to the City. ln accordance with CAS3 $tatementNo- 34, expenditures for bond issuance costs priar to the irnplementatior of GASB Statement No. 34 onSepte:nber t,20*3, were n*t recorded as defurred charges, wl:ieh would *ffset the relate<i liabilig, of long-te:mdebt.

Summarv of Chanqes in Net Position

l'larris C*unty llllunicipal Utility District Hs. 3Sg

2014Restated

2*13Revenues:

Freipefiy laxes

City rebat*sOther revenues

Tsta! revenues

Expenses:

Services

Deprecialion

Debt service

Total expenses

Change in net position

N*t position, beginning of year

Net position, end cf year

$ 685,545

520,648

16,610

\,?.3z,ggz

256,713

2,290

395,239

654,232

696,2',12

56S,685

1V "544

1,290,601

?Q9,862

2,ZgA

317.728

529,862

569,571

. .(1,115,019)

$ {546,447}

75*,739

(i,965,?5?)

$ (1,1 15,019)

Fit:allcial Analysis of the ]istrict's F*nds

Th* District's combined fund balances as of the end of the fiscal year ended August 31,2014,w*re$;2,40r=2*g,an increase *f $266,939 from the prior year.

Harris County MunicipaN Utility District No. 359Managernent's Discussion and Analysis {Continued}

August 31,2814

The general fund's fund i:alance increased by $52,602 primarily due to properfy tax revenue being greater thanoperating expenditures.

The debt seryice fund's fund balance increased by $214,375 because City rebates and property tax revenueswere greater than principal and interest requirements"

The capital projects fund's fund balaace decrease{t by $38.

GenergL f'rrnd Buileetary Hishlistrrts

There we:e several differences between the final budgetary amounts and actnal a:nounts. The major differencesbetween budget and actual were due to properfy tax revenues being greater than anticipated and otherexpenditures being less than expected. The fund balance as of Argust31,2Al4, was expected to be $693,830and the actual end-of-vear fund balance was $?29,700.

Carital Ass€:[q"and Rsl"*ed Detrt

Capital Asssts

Capital assets held by the District at the end of the curent and previous fiscal years are summarized below:

Capilal Assets {Het qf Acc{rnulats

2814 2013

Land and improve:nentsWastewater facilities

Long-term debt payable, beginning ofyearIncreases in long-term debtDecreases in long-term debt

Long-term debt payable, end ofyear

3,000,890 3,000,99065.580

Total capital assets $ 3,064,]?q .

During the cunent year, there were no additions to capital assets,

Debt

$ 3.066.470

The changes in the debt pcsition of the District during the fiscal year ended August 31,2014, are sumrnarized as

follows:

63"300

$ 6,630,0006,244,939

. {6,495,000)

$ 6,37%8*38

Harris Caunty Municipal Utility Eli*trict No. 35SManagement'$ Discussisa and Analysis {Continued)

August 31,2814

At August 31,,2814, the District had $7,010,000 of unlimited tax bonds authorized, but unissaed, for thepurposes of acquiring, ccnstructing and improving the water, sanitary sewer and drainage systems within theDistrict.

During the fis*al year ended August 31,2.014" the Distrist issxed $6,100,000 in unlimited tax refunding bonds torefund $465,000 of outstanding $*ri*s 1998 bonds, $1,530,000 of outstanding S*ries 2S*4 refunding bands and$4,025,000 of outstanding Series 2il05 refunding bo:lds" The listrict refunded the bonds to reduce total deblservice payn:ents over future years by $384,902 and ta *btain an e*cnomi* gain {difference between the preseirtvalues of the debt s*rvice payments *nd the old and new debt) af $335,463.

The District's bonds carry an und*rlying rating of "A*." ?he Series 2005 bonds cany a "AA" rating by virtue ofl:ond insurance issued by Assur*d Guaranty Municipal Ccrporation. The Series 2014 bonds aarry e "AA" ratingby virtue of bond ir:surance issued by Build America Mutual Assuratrcs Company.

Other Relevant Factors

Contract With tbe Cit-v of Hc*stcn

Irr 1992, the District's developer entered into a 4$-year ccntract with th* Cif, which was assigned by thedeveloper to the Districl *n March t, 1994, and amended in 1997, to provide water, wastewater and drainageservices to custcmers within and adjacent to the $istrict. Under the terms of the contract, the District willcanstruct or purchase all faeilities ne*essary ta p:cvide wat*r, wastewater and drainage serviees and e*nveythase facilities t* tle Ci:y" The District retains a securify itterest in the facilities.

The City is the owner and operat*r *f the focilities and is respansible for all cperating costs. ?he City also billsall custome:s within ths )islrict's boundaries at rates c*mparable to cther in-City customers.

The contract provides fbr monthly revenus payments 1o be paid to the District by the City based o* net revenuesecllected, and, also provides fbr annual tax payments to be paid to the District by the City. Both types ofpayments are calculated based on fcrmulas set forth in the conkact" Iuring the current year- the Districtrec*rded revenus of $520,648 from the Citv.

Harris County Municipal Utility ilistrict No. 359$tatement of Net Position and Governmental Funds Balance Sheet

August 31,20tr4

Gens:al

Fund

9ebt

Service

Fund

Capilal

Projeets

iund Adjuatments

Stater:tenl

o,f Net

PosiiionTotal

Assets

Cash

Certificates ofdeposit

Receivables:

Property taxes

Tax rebates

Accrued penalty and interest

Accrued interesl

lnlerfund receivable

Capilal assets (net ofaccumulated

depreciaiinn):

Land and improvements

hfiastructrire

Total assats

Deferred Outflows 0f Re$oursss

Dsferred amom{ on debi refundings

Total assets and deferred

outflows ofresources

742,446 1.598.946 96,3?4 { 5?'l 1?1

3s2,7s7 352,?57

$ 2"437,966 $ 3,488,112 $ 5,926,A78

133,843 $

600.00fi

?,361-

7Ql

5,541

220,779 $

1,370,000

5,468

2,699

96,574- $ 451,196 $

I "970,000

7,829

3,400

5,541

72,842

3,864

(5"541)

3,000,890

63,300

451,196

1,970,*AA

7,829

72,842

3,864

3,400

3,000,890

53.300

0

_!_-?1r,446_ $ t,598,946 S 96,514

See Nofes ta Financial Statements

Harris County Municipal Utllity *istrict No. 359$taternent af Net Position and Governmental Funds

August 31,2414Ealance $heet {Continued}

6ensrulFund

Seht

$ervics

Fund

Capital

Projects

Fund Total

$latement

of Net

Adjuskncnts Po*itiol

Liabilities

Acccunts payable

Accrued inlerest payable

Interlund payable

Lang-term liabilities:

Du* within one year

Dxe after cne year

Total li*bilities

Deferred lnflaw* of Rescurces

Defened prope*y tax revenues

Fund Balanceslf{et Positlon

Fund balances:

Restricted:

Debt service on unlimited tax bords

Water, sewer and drainage

Utassig:ed

Total iund balar:ces

Total liabili:ies, defened inflows ofresource$ and S.rnd balances

Net po$ilior:

Reslrictsd 1br debt sen,iee

Resiricted lor capital projects

Unrestricaed

Total net position

10,3*5 $ 1,005 $

4,997

5,541

-,} t 1,390 $

4,997

5,541

- $ 1i,390

?6,300 &1,797

i5,541i

540,000 540,0**

5,839,838

6,4sA,sg7 6,472"52s10,385 I 1,543

2,36L 5,46* 0

21,928

7,829 {7,q??)

96,574

r,581,935 {1,5Sr,935}

96,s74 (96,574)

'72e,7*4"" _ . {122,70*}

Q,448,709)

6 2"437,966

0

1)O 1hn

1,58 r,935

--*----*J-

1,581,935729,748

9, 10 446 $ r Sqf, q46rcrc

t,587,809 1,587,809

87,1 15 87,115

(2,221,171) (2,721,371)

$ {s46,!47} $**J:4q&A

Sss ,Vofes ta Financial Sfalemenfs 10

Harris County Municipal Utility District No. 359Staternent of Activities and Goyernmental Funds Revenues,

Expenditures and Changes in Fund SalancesYear Ended August 31, 2014

nebtGeneral Seryicefund Fund

Capital

PrsjectsFrnd Adjustments

Statemenlol

Activities

Aevesues

Propcrty laxes

Penalty and interest

Investment income

City of Houslon rebates

Totai revenues

{xpenditareslExpexses

Service operations:

Professional fees

Contracied services

Repairs and maintenance

Other expendilures

Capital outlay

I)epreciaticn

Debt service:

D';^^l-.1 rotiro'-ont

Interest and lees

Bond issuance cosis

Debt deleasance

Total expendifureslexpenses

Exeess {Delicierey) of Revenues OverExpenditrrcs

Otler Financing Scurc*s (Uses)

General obligation bonds issued

Premium on debt irsued

Deposit with escrow agent

?otal other finalcing sources

Excess fDeficieney) of Revenues and

Other Fina*cixg Sources Over

$xpenditlres and 01her linancing Uses

Change in Net Pasiliol

Fund Balances,{.{ea Position

Beginning ofyear, as pleviously reported

Adjustmenl for adopiion ofnew

accounling stand&d {}{0te l 0)

Beginning ofyear, as resaated

End ofyear

$ 276,191 $ 415"172

- 8,946

2,124 5,770

520?0q,1 ,

27 8,31s 949,969 _ 1,2?9508 (5,89t) 1,222:8y*

)t+

691,363

8,946

&.218

$ {5,818)

{s54)

567

685,545

8"392

8,218

JZ+

87,287

fi3A934,511

50,606

2,726

1 8,889

475,040

145,440

204,558

94.000

90"013

72,t98

34,511

59,629

)0/

475"040

1/.{ /On

204.558

362

{362)2,2&0

(47s,000)

45,2&1

90"013

72,564

34,511

<o Kro

2,280

190"681

244.558

362

11\ 7I \ 949.596

52,642

52,602

6,1 00,000

144"838

{6,030,835)

2t4,AA2

214,375

677 ,098 1.367,560

$ ." 729,7A* S 1,s81,:35"

94,000 (94,000)

1,17s,671 ts2t:439) 6s4,232362

s2,937 ts2,937)

5" t 00,000

144,838

{6,100"000)

{144,838)

i38) 266,939

95,612 2,141,210

$__3193,w

" {6,030,835) 6.0:99:!_

" 2X,94"? t214,082)

{266,939)

$0

s68,571,

t8$"411)

.{?21'e41}

(fJ 15t18)

s {s46,44}}

See lVcfss to Finaneial Statements

& 96,574

tt

Harris Caunty Municipal Utility District No. 359Hates tc Financial $tatements

August 31,2974

Note l: l*ature of Operaticns and $ummary of Significant Aecounting Policies

Harris Cor:nty Municipal Utili? Distr"ict No" 359 {the }istrict) was created by an *rder of the ToxasWater Commission, now known as the Tsxas Ccmrnission on Environmental Quality {theCornmission), effective June 24, 1993, in a*:c*rdance with the Texas Water Code, Chapter 54. TheDistrict operates in accordalee with Chaptcrs 49 and 54 r:f the Texas Watsr Code and is subject tothe continuing supervisian of the Cornmissir::r. The principal funelians of the District are to {inanceand eonstruct waterwcrks" wastewater anel drainage facilities and t* prcvide sueh facilities andservices tc the eust*mers of the Dislrict.

The Diskict lies within the corporate linits af the Cig' cf Houstan {the City}. The District hascontracted rrith tha Cify to supply wafer and wastewate; treatmenl services t* the District'scustomers.

The Distriet is governed by a Soard *f )irectors (the Board) consisting af five individuals wh* areresidents or owners of properg within the Distri*t and are elected by vcters within the listrict. T:leBoard sets the policies of the Distriet. ?he aceaunting *nd reporling pr:licies of ths District *onformto accounting principles generally aceepted i* the United States of Am*rica for state and localgcvernments, as defined by the Gcvernmental Accounting Stand*rds Board. The following is astrmmary *f the significalt accounting and reporting policies of the District:

Reparting Entity

The accompanying govexmenl-wid* finaneial staternents present the financial statements cf theDistriot. ?here are $c component units that aro legally sepa:ate entities for which the District isconsidered to be fin*"&*ially accountable. Aeeountabiligr is defined as the Disbict's substantiveappointment olthe vcting m*jority of the component unit's govemir:g board. Fr:fihermcre, to befinancially accountable, the Dislrict msst be able to impose its will upon the compolent urit or theremust be a possibility that the rcmpcnent unit rnay pr*vide specific financial benefits to, or imp*sespeeific financial burdens on, the Dislrict.

6 ov a rn m e nt-w i d e a * d F u n d F i n a n c i a I Stafernenfs

In aeccrdancs with required repcrling standards, the Diskict repo$s its financial activities as aspecialpurpose govemment. Special-purpcse gavernments are govemmental entitiss which engagein a single govetnmental prcgram, such as the provisior of water, wa$tewater, drainage and otherrelated services. The financial statements of special-purpose govemments combine two lypes offinancial statemsnts ilto one statement. Thsse two fypes of financial statements are thegover*mett-wide financial statements and the fund fina::cial statemerls. The fund financialstatemsnts are presented wi:h a cclunn for adjustments tc convert to the governm*nt-wide financialstatements.

tz

Harris County Municipal Utility Sistrict No. 359Notes to Financial $tatements

August 31,2814

?he government-wide financial statements repod infarmatian on all of the activities of the Dis{rict.As a general rule, ihe effect of interfund activity has besn eliminated frcm the govcrnment-widelnancial staternents. Governmental activities generally are {inanced through taxes, charges forservices and iatergovernmental revenues. The statement of activities reflects the revenues andexpenses of the Districl"

The fund financial staxernents provide information about the District's governmentai funds. Separatestatements for each goverrune:rtal fund are presented. The emphasis of find finaneial statemsnts isdirected to specific activities of ths Diskict.

The District presents the following major governmental funds:

Gener{tl Fund *The general fund is the primary operating fund of the District, which accounts fbr allfinancial rcsorrces not accounted fcr in another fund. Revenres are derived primarily from propertytaxes, charges for services and interest incorne.

Debt Service Fund * The debt service fund is used to ac*ount for finalcial resources tbat arere*tricted, committed or assigned to expenditures for principal and interest related costs, as well asths financial resources being accumulated for future debt service.

Capital Prajects Fund - The capital projects fund is uspd tc account for finaacial resources that arereskicted, comrnitted or assigned to expenditures for capital cutlays.

Fund Ealances * Governmental Funds

The fund balagces fo: the District's governmental funds can be displayed in up to five campanents:

Nanspendable - Afftounts that are not in a spendable form or are required to be maintained intact.

Restricted * Amounts that can be spent only for the specific purposes stipulated by exlemal resourceproviders, constitutionally or lluough enabling legislation" Restrictions may tre changed cr liftedcnly with the consent q:f resource providers.

Committed * Amounts that can be used only for the specific p:rrposes detennined by resolulion oithe Board. Commitmenls may be changed or li&ed only try issuance of a resolution by the District'sBaard.

Assigned * Arncunts intended to be used by the Distriet fr:r specifie p:rrposos as determined bymanagement. In govemmental funds other than the general fund, assigned fund balance representsthe arnount that is not restricted or committed. This indicates that resources in other eovemmsntalfunds aro, at a rninimum, intended to be used for the purpose of that fund.

Unassigned * The residual classification fbr the general fund and includes all amounts not containedin the olher classifications"

4e

Xarris County Municipal Utllity District No. 359Notes to Fina*cial Staternent*

August 31,281&

The District considers restricted amounts to have been spent when al expenditure is incurred forpurposes fcr whieh both restricted *nd unrestricted fund balance is available. ?he District appliescommitted amounts irst, fcllowed by assigned amcunts, and then unassigned amounts when anexpenditure is incurred fcr purp*ses fcr whieh amounts in any of thcse unrestricted fund balanceclassificaticns cculd be used.

Measurement Facu* and Easrs af Accounting

Gcverrmext-widc Finaneial $t*tements

The goverxment-wids financial statements are repafied using the *c*n*mic tesources measurementfbcus ant! *ecrual basis *f acccunting. Reveaaes are record*d when aarned and expenses arereeorded al the time liabilities are incurred, regardless of the tirning cf related cash flows.

N*texch&nge transactions, in which the Diskict recei.ves {or gives} valae without directly giving {orreeeiving) equal value in exchange, include prcperty taxes and d*nations. Recognition standards arebased o* the characteristics and elasses *f nonexchange transactior:s. Revenues from pr*perty taxesare recognized in the period for:shich the tax*s are levied. Intergovernmental revetues ar6reccgnized as revenuc$, nel *f estimated refuads and uncr:llectible am*unts, in the acccrnting periodwhen an enfcrceabl* legal claixr t* the assets arises and the use ofresources is required ar is firstpen:ritted. Dcnatic:rs are reeagnized as revenues, n€t of estimated ulccllectibl* amounts, as sos::asall eligibility requir*m*nts imposed by the provider have been met. Amounts received befbre alleligibility requireme:rts have been met are reported as deferred inflows of resources.

Fund Finalcial $t*ten:er:ts

Govemmental fur:ds are repcrted using the current financial resorrces rneas::rernent focus and themodified accruai basis of accounting. With this measurement focus, olly current assets andliabilities are generally included on the balance sheet. Thc statement cf gov*rnmental firndsrsvenugs, *xpe::ditr:res a:rd changes in fund balances presents ilcreases {revenues and otherfinancing sourcas) and decreases (expe:rditures and other financing uses) in spendable resources.General capital asset acquisitions are reported as expenditures and proceeds oflong*term debt arereported as other financing sources. Under the mcdified accrual basis of accounting, revenues arereccgnized when both measurable ard available. The District considers revenlies reported in thegcvernmental funds to be available if they are coll*ctible within 6t) days afler year-end. Principalreventle sources considered susceptible to accrual include taxes, cha:ges for services and investmentincome. Other revenues ar€ r:onsidered to be measurable and available cnly when cash is recsivedby the Diskiet. Expenditures ars recorded when the related fuld liability is incu:red, except forprincipal and interest cn general long-term debt, which aro recognized as expenditures whenpayment is due"

Harris County Municipal Utility District No. 359Notes ta Financial Statements

August 31,2914

Deferred Aa#laws and lnflaws of Resorrces

A deferred outflow of resources is a ccnsumption of net position that is applicable to a fi:turereporting period and a d*ferred in{low of resources is an acquisition of net position that is applicableto a fiture reporting period.

I nterfu n d Transacti o ns

Transfers from one fund ta another fund are reported as interfund receivables and payables if there isintent to repay the arnount and if there is the ability to r*pay the advancs on a timely basis.Operating transfers represenl legally authorized transfers from the fund receiving resourcss to thefund through which the resources are to be expended.

Pensian Ccsfs

The District daes not participate in a pension plan and, therefore, has no pension casts.

Use of fsffmafes

The preparation af financial statements in confoffnity with accounting p:inciples generally acceptedk the United States of America req*ires management to mak* estimates and assumptions that affectthe reported amounts of assets, liabilities, and defer:red inflows and outflows of resources anddisclosure of contingent assets and liabilities at the date of the financial statements and the repcrledamounls of reveaues a:rd expenseslexpenditures during the reporling period. Actual results coulddiffer frcm those estimates.

I nvestrn ents and I nvestment lncome

Investrnents in certifisates of deposit, mutual funds, lJ.S. Covernment and agency securities, andpooled funds, which have a remaining maturity of one ye*r or less at the date of purchase, are

recorded at amortized cost. A11 other investments are carried at fair value. Fair value is determinedusing quoted market valaes.

Investrnent incr:me isclades dividends and interest income ald the net change for the year in the fairvalue of investments carried at fair value, Investment income is credited to the fund in which theinvestment is :ecorded.

Fraperty laxes

An appraisal district annually prepares appraisal records listing all prcperty within the District and

the appraised value of each parcel or item as of January 1. Addititnally, on January 1, a tax lienattaches ta property to secure the payment *f all taxes, penalty and interest ultimately imposed for

1A

Harris Ccunty Municipal Utility District No. g5gNotes to Financial $tatenrents

August 31,2A14

the y*ar on the propergr. After the Dishict receives its certified appraisal rcll fram the appraisaldistrict, the rate of laxation is set by the Board of the Diskict based upon th* aggregat* appraisalvalue. Taxes are due and payable October I or when billed, whichever is later, and becomedelinqu*nt after January 3 t cf the fallowing year.

In the gcvernmental funds, properfy taxes are initially recorded as receivables and deferred infl*wscf :esources at the time the tax lely is billed. Revenues recag:ized dxring the fiscal yea: end*dAugust 31,2*tr4, i::clude collections during the currert peri*d or within 60 days of year-end:elatedtc the 20i3 and priar years' tax levies.

k: the government-wide s1atemcnt of net posilior, prcperly taxes are considered earned in the b:idgeiyear fbr whi*h they are levied. For the District's fiscal year ended A*gust 3l,z}t{,the 2013 1axlely is ccnsidered sarrted durir:g the current fiseal year. ln additir:n ta property taxes levied, anydelinquent taxes are reeorded n*t sf amaunts s*nsidered uncollectible.

Capital.Assefs

Capital assets, which include pr*perfy, plxnt, equipment and infrastructure, are reported in thegovsmment*wide financial slatements, Capital assets are defined by the District as assets with anindivielual c*st cf $5,000 or more and an estir::ated useful life of fwo ysars cr more. purchased orconstructed capital assets are report*d at c*st or estimated historical cosi. Donated capital assets a.:erecorded at thek estimated fair valu* at the dat* af donation.

The oosl cf n*rmal rnaintenance and repairs that d* not add t* the value of the asset or materiallvextend the asset lives are nct eapitalized.

Capital assets are depreciated using the skaighl-lina rneth*d over their estimated useful lives asfirllcws:

Y*ars

Wastewater collecticn and keatment facilities 10-45

Beferred Atrrount on Aeht Refundings

ln the government-wide financial statements, the differsnce between the reacquisition price and thenet carrying amount r:f the old debt in a debt refunding is defened and amortized ta interest expenseusiag the effective interest rat* method over the remaini*g life of the old debt or the life of ths newdebt, whichever is shorter. Such amounts are classi{ied as defeffed outflows or inflows cf resources.

16

Harris Ccunty Municipal Utility Distri*t No. 359Nates to Financial $tatements

August 3't,2814

Oe'ht /ssuance 6os{s

Debt issuanca costs, other than prepaid insurance, do nst meet the definition of an asset or deferredo:rtflows of rescurces since the costs are not applicable to a futur* period and, therefore, arerecognized as an experse/expenditure in the period incurred.

Lang-term AHigations

Ia the governmsnt-wide {inancial statements, long-term debt and other lcng-term obligations arereported as liabilities. Premiums and discounts on bonds are recognized as a component oflcng-term liabilities and araortized over the life af the related debt using the effective interest ratemethod. Bonds payable are repcrted net of the applicable bond premirrm or discount.

In the fund financial statemenls, governmental fund types recognize bond premiurns and discauntsduring the current period. The face amocnl of debt issued is roported as other financing sources.Premiuns received on debt issuances are reported as other financing sourc€s while discouats on debtissuancss are reported as oiher financing uses. Issuance costs, whether or nol withheld from theactaal debt proceeds received, are repoded as debt service expendifures.

Net PasitianlFund Ealanees

Fund balances and net position are repcrted as restricted when constraints placed an them are eitherexternally in:pcsed by creditors, grantors, contritrutcrs, or laws or regulaticns of other governments,or are imposed by law through colstitutional provisions *r enabling legislation.

When both restricted and unrestricted resources are available for use, generally, it is the District'spolicy to use restricted resources first.

The ccmponents of unrestr"icted net position at August 31,2814, are as follows:

General fund, unrestricted fund balance including deferred taxes $ 732,A61

Long-term debt in exress cfcapital assets and unexpended

bond proceeds t2,953,432)

Total s (2,221,371\

The District has financed watet, wastewater and drainage facilities, which have been conveyed tc theCity pursuant to a contract belween the City and the Diskict, which has caused l*ng-1erm debt t* bein excsss ofcapital assets.

17

Harris Ccunty Municipal Utility $istrict No. 359l,{otes ta Financial $tatements

August 31,2*74

Recsnciliatian sf Governm*nt-*ride and Fund Financial $tafernerfs

Amounts reported for n*t pcsiticn *f gcvenmental activities in the stalement af net positi*n andfund balances in the gcvemmental funds balanc* sheet are differsnt because:

Capital assels used in govenmental activities ar€ not financial res*urcesaxd a:e not reported in the funds. $ 3,064.190

Froperty taxss revsnue reccgrition and the related reduction of deferredinflows of resources are subjecl to avaiiabilif of fulds i:r the fundfinancial statements. 7 "&Zg

Penalty a:rd inter*st on delinquenl taxes is not receivable in the currentperiod and is not repcr!*d in the Jrnds. 3,964

Defeffsd amount on debt refundings fc: govemmcntal activities ars no1 financialressur.es and ar* not reported in the funds. 352,757

Accrued inter*st cn long-te*n liabilities is not payable with current financialresourees and is nol repr:rted in th* funds. {?6,300}

Tax rebates receivable ars not receivabie in lh* current period and are no1

rep*rt*d in the fi:nds. 72"&42

Long-t*rm debt cbligations are not due and payable in the eurrenl periodand are not report*d in the funds. {6,3?g,gj8)

Adjustment to fund balances to arrive a1 n*t pcsition. $ {2,954,6j6}

Am*unts reported for change in aet position of gcvernmental activities in the statement of activitiesare different from change in fund balances in the govemrnental funds statement of revenues,expenditres and changes in fund balances because:

Chanse in fi:nd balances. $ 266,939

Governmental fi:nds report capital outlays as expendihrres. Hcwever, forgoverrrment*wide llnancial statements, the cost of capitalized assels isallocated over their estimated useful lives ar:d reported as depreciationexpense. ?his is the am*unt cf depreciation expenditures in the currentryear. {2.28a}

18

Notes t$ Financial $tatementsAugu*t 31,2014

Governmental funds report the effect of premiums when debt is firstissued, whereas these amounts ar* deferred and arnortized in trhe

staternent ofaciivities" $ {144,838}

Govemmental fuads repart proceeds of bonds and bond anticipation notesbecause they provide current financial resources to governmental funds.Principal payments on debt are recorded as expenditures. None of thesetransactions, however, have any effect on net position. 499,836

Revenues coilected in ths current year, which have previously treenreported in the statement cfaclivities, are reported as revenues inthe governmental funds. i5,805)

Harris County Munieipal Utility District No. 359

Some expenses reported in the slatement of activilies do not require the use ofcurrent financial resorircfs and, therefore, are not reported as expenditures ingovernmental funds"

Change in net position of govemmental activities.

,,," . (45,2811"

$ 568,5?1

Reclassifications

Certain reclassifications have been made to the August 31, 2013 amounts, presented herein, toconform to the 2A14 {t*ancial statement presentatioa. These reclassifications had no sffect onchange in net positicn.

Hote 2: Deposits, Inyestments and Investment Income

Oeposifs

Custodial credit risk is the risk that, in the event of a bank failure, a govefftment's deposits may notbe retumed to it. The Diskict's deposit policy for custodial credit risk requires compliance with theprovisions of state law"

State law requires collateralizaticn of ail deposits with foderal depositary insuranee; a surety bnnd;bonds and other obligations af the U.S. Treasury, U"S. agencies or instrumentalities of the State ofTexas; or certain collateralized mcrtgage obligations directly issued by a federal agency orinstrumentality of the United $tates, the *nderlying security for which is guaranteed by an agency rrinstrumentality of the United States.

Al August 31,2414, ncne of the District's b,ank balances \i/ere exposed to custodial credil risk.

Harris County Municipal Utility Sistrict No. 359Notes ta Financial $tatements

August 31,2814

lnyesfmenfs

The Distriet may legally invest i:r obligaticns *f the United $lates ar its agencies andinstrumentalities, dire*t obligations of Texas *r its ag*ncies or ins*umentalities, collateralizedmortgag* oblig*ticns directly issued by a federal ag€ncy or inslrumentality of the United States, th*unde:lying secxrity fcr which is guaranieed by an agsncy *r inslrumentality of the United States,other obligations guaranteed as to principal and interest by the Stale af Texas or the United States ortheir agencies and i::strumentalities, including obligati*ns that are fully guaranteed or insured by theFederal $eposit lnsurance Corporatir:n o: by the explicit full faith and crsdit of the United Stat*s,obligations of states, agencies and countiss and c&er pclitical s::bdivisions with an investment ratingnct less than "4," insured or collateralized certificates af dep*sil, and eertain bankers'acceptances,repurchase agreernents, rnutual funds, com:nercial paper, guaranteed inveslment eontracts andinves*nent p*ais.

Th* Distriet's investment policy may be mors restrictive than the Publie Funds lnvestment Act.

At Augast 31",2*14, the Distriot had no investments, olher thaa c*rliJicates of deposit.

lnvestm*nt lncsme

Invcstmect income of $8,21 I fbr the year ende d August 3 1 , 2S 14, ccnsisted of interest incame.

Ncte 3: Capital Ass*ts

A summary cf changcs i* capital assets for the year ended August 31,2*74, is presented below:

Governmental Activities

Balances,Eeginning

of Year Additions

Balanees,End

of Year

Capital assets, non-depreciable:Land and irnprovements

Capitat assets, depreciable:

S/astewater collection and treatment facilities

Less aco*rnulated depreciationlW*stewater coilection and treatment facilities

Total governrnental activilies, net

{37,010} (2,?84) $9,29A}

{**J966*?q_ *g*-**_g/q0)_ *g*_rgq{,1:L

$ 3,000,890 $

102,590

- $ 3,000,890

- 102,590

2A

Harris County Municipal Utility Dlstrict No. 359ilates tc Financial Statements

August 3't,2914

Note 4: Long-term Liabilities

Changes in long-term liabilities for the year ended August 31,2A14, wers as follows:

Balances, Balances, AmountsBeginning End Du* in

Governmental Activitiss of Year Increases Dscreases of Year One Year

Bonds payable:

General obligation bonds $ 6,630,000 $ 6,100,000 $ 6,495,000 $ 6,235,008 $ 540,CI00

Add premiums on bonds - 144,838 144,838

Total gcvernmental

activities long-termliabilities $6,630,000 $5,ry4,838 $6,495,000 $6,3?9,838 $ 540,000

General Obtigation Eonds

Refunding RefundingSeries 2005 $erles 2014

Amounts outstanding, August 31, 2At4

Interest rates

Maturity dates, seriallybeginninlending

Interest payment dates

Callable dates*

December 1/ June 1 December 1/ June 1

June 1,2014

s135,000

4.04%

June 1,

2015

$5,100,000

2.40% to 3.00%

June l,zAt5n023

Iune 1,2021

*Or any date therea{ler; callable at par plus accrued interest to the date of redemption.

Annual frebt Service Requir*ments

The sched*le on the following page shows the annual debt service requirements ta pay principal and

interest on general obligation br:nds outstanding at Argust 31.,2014.

Harris Caunty Municipal Utility District No. 359Ngtes ta Financial $tatements

August 31,2*14

Year Frincipal lnterest Total

2At52416

2017

2*182419

2020-2*23

Tctal

540,0*0

555,000

775,40A

795,0*0

395,000

192,775

141,800

134,7*B

115,200

99,300

26*"6*A

7?)'17<

695,800

905,700

Ita,2a*4943*A

175_000 3,435,600

6,235,*04 940,375 I ,1',7 5,37 5

The b*nds are payablc fi*rn the p:oceeds of an ad valorem tax levied upol all property :vithin theDistrict subject tc taxati*n, without limitation *s to rate cr amount.

Bonds v*t*dBonds sold

Refunding bonds vot*dRefuadiaa bond authorization used

$ 20,790,000

13,780,S00

2*,79Q,4*0

I,A7g,1]A

Xote $: $ignificant Band Order and C*mrcission Requirements

The B*nd Orders require that the Diskict levy and eollect an ad val*rem debt ssryice tax sufficient topay interest and princip*.l on bands wh*x due" $uring the year ended August 31,2814, the Diski*tlevicd an ad valorem debt service tax at the rate of $0. 1 800 per $ 100 of assessed valmtion, whiehresulted in atax levy af $411,631 onthe taxable valuation *f $228,6&5,250 forthe 2013 taxyear.The interest and principal requirements to be paid from the tax revenues are $601"635 of which$486,510 has been paid ar:d $1 15,125 is due $ecember 1,2014. The District will utilize contractualpayments from the City and available debt service fund resources to satis$ the requirements.

Xote 6: Maintenance Taxes

At an election held November 2,1993, voters authorized a maintenance tax not to exceed $0.50 pe:$100 valuation cn all property within the District sutlject to taxaticn" During the year endedAugust 31,2414, the District levied an ad valcrem rnaintenance tax at the rate of $0.1200 per $100of assessed valuation, which re sllted in a tax levy *t $274,421 anthe taxable valuation of9228,685,750 for the 2A13 bx year. The rnaintenance tax is being used by the general fund to payexpenditures of *perating the }istrict.

lz

Harris County Municipal Utility District No. 359Notes to Financial Statements

August 31,2Q14

Note 7: Contract With the City of Hsuston

hlt992, the Diskict's developer entered into a 40-year coatraet with the City, whieh was assigned bythe devel*per tc the District on March 1, 1994, and amended in 1997 , tc provide water, wastewaterand storm sewer services to custcmers of the )iskict. Under the tetms of the contract, the Distri*twill canstmct or purchase all facilities necessary ta provide water supply, wastewatsr and drai:rageservices and convey thcse facilities tc the City. The District retains a security interest in thefacilities.

The City is the owner and operator of the facilities and is respolsible for all operating costs. TheCity also bills all customers within the Dis*ict's bcundaries at rates comparable to other in-Citycustomers.

The contract provides for monthly r€v€nue payments to be paid to the Dist:iet by the City based onnet revenues coliected and also provides for annual tax payments to be paid to the District by theCity. Both {pes of payments are calculated based upon furmulas set forth in the contract. Duringthe eurrsnt year, the District recorded reyenue of $520,648 frorn the Cif and recorded $72,842 as areceivable from the Citv.

Nate 8: Risk Managem€nt

The Diskict is exposed to various risks of loss related to torts; theft of, damage 1o and deskuction ofassets; e:Tors and omissions; and natural disasters for which the District participates, along with otherentities, in the Texas Municipal League's Intergavernrnental Risk Pool (the Pool). The Poolpurchases commercial insurance at grcup rates for participants in the Pool. The District has ncadditional risk or responsibility to the Pool, outside of payment of insurance prerniurns. The Districthas not significantly redr:ced insurance coverage or had settlements which exceeded covsragearnounts in the oast three fiscal vsars"

Ncte 9: Refunding Bonds

During the fiscal year ended August 31,2A14, the District issued $6,100,000 in unlimited taxrefunding bonds tc refund $465,000 of outstanding Series 1998 bcnds, $1,530,000 of ontstandingSeries 2004 refuirding bonds a:rd $4,025,000 of outstanding Series 2005 re*rnding bonds. TheDiskict refunded the bonds to reduce total debt seryice payments over fufure years try $384,902 andto obtain an economic gain (difference between the present values cf the detrt service payments andthe old and new debO of $335,453"

23

Harris County Municipal Utility District No. 359Notes to Financial $taternents

August 31,28''t4

Note 10: Adoption of New Accounting $tandard

Effective September 1,2A13" the }istrict adcpted the new accounting and financial repo:tingguidance included in Govemrnental Accounting Standards Board Statement No. 55 dstatementNc. 65), Items Previously Reported as Assets and Ziabilities.

Statemeni Na. 65 establishes accoulting and financiai reporti*g staldards that re*lassi{y ce*ainitems previously report** as assets and liabilities to defe:red outflaws of resources or defen-edinflaws of resour*es and recoglizes as *xpe:lss$ sr revenues eerfain items that were previc::slyreported as assets and liabilities.

Th* fr:llowing takrle reconciiss beginning ne1 positicn as pr*vicusly rep**ed ta the beginning n*tpositicn as restated to reflect the accau*ting changes adopted tc confam ic the provisions ofStat*m*nt N*. 65" Th* restat*ment:esults from the provisions in Statement Xa. 65 requiring theexpensing of detlt issxatlce costs previ*usly classified as an asset on the Distdct's governm€nt-vridefinancial statern*nts.

$epternber 1,291&,N*t Positicnas Freviously

Govsrn*ent'wide Repo(ed

Statementt*lo.6$

Adoptiln

September 1,2013,Net Positionas Restat*d

Governmental aetiviti gs _$***____lg13,gi]l _s*_--*glt3tr _g*__:_&ui*gIn additi*n, $tatement No. 65 requires amounts previcusly rep***d as assets and liabilities fcr thedeferr*d am*uat on debt refundings to be classified as de&rred outflows of resources ald deferredprcperty tax reveaues t* be classified as deferred iaflows *f resources.

24

Required Supplementary lnformation

Harris County Municipal Utility Sistrlct No. 359Sudgetary Comparison $chedule - Seneral Fund

Year Ended August 31,2014

OriginalBudget Actual

VarianeeFavorable

{Unfavorable}

Revenues

Property taxes

lnvestment income

Total revenues

SxpendituresService operations:

Professional fees

Contracted services

Repairs and maintenance

Other expenditures

Total expenditures

Excess af Revenaes Over Expenditures

Fund Balance, Beginning of Year

Fund Balanceo [nd of Year

244,417 276,191 g 31,774

1242.000 a laAL"ILA

246.417 278.315 31,898

7734053,000i? q:5

87,287

s334934,51150,6066s.850

(9,987)(30e)

{e76)15,244

229.685 225.713 3^972

16,732

677,098

52,602

677,098

35,870

$ 693,830 729"744 35,874

t4

Harris County Municlpal Utility Sistrict No. 359Xotes to Required $upplementary lnformation

August 31,2414

&udgets and Eudgetary Acc*unting

An annual oper*ting budget is prepared for the general fund by the Distriet's eonsultants. ?he budgetreflscts resources expected to be received d:ring the year and expenditures expected to be incun*d. TheBoard cf Directors is required to ad*pt the budget pri*r to the start of its fiseal year. The budget is not aspending limitation ia legally reslrieted appropriation). The criginal budget cf the gen*:al fund was notarn*xd*d d*ring fiscal 20 14.

?he Ilistrict prepares its annual operating budget on a basis consistent with *ccounting principlesgererally accepted in ihe United States of Ax*rica. ?he Budgetary Comparison Schedule - Gene:alFund pres*nts the original and revised budget &rnounfs, if r*vi**d, e*n":pared to the actual amounts cfrsvenu*s and expendit*res for the current year.

26

$upplementary lnformation

Harris County Municipal Utility District No" 3Sg$upplementary Schedules Included Within This Report

August 3'1,2914

{Schedules included are checked or explanatory noles provided for omitted schednles.)

lX] Notes Required by the Watcr Sistrict Acc*untiag l\{anualSee "Notes to I'inancial Statenents." Yases 12-24

lxl Schedule of Services and Rates

lxl Schedule of General Fund Expenditures

lX] Schedule of Temporary lavestments

lxl Analysis of Taxes Levied and Receivable

lX] Schedule of Lcng-term Debt Service Requirements by Years

lxl Changes in Long-terrn Bonded Debt

lX] Comparative Schedule of Revenues and Expenditures - General Fund and Detrt Service Fund -Five Years

lX] Board Members, Key Persannel and Ccnsultants

Harris County Municipal Utility Sistrict No. 359$chedule of $ervices and Rates

Year Ended August 31,2014

l. Services provided by the }is:rict:

Retail Water Wholesale WaterRetail Wastewater Wholesale Wastewater

Drainage

IrrigatianSecu:ityParks,&.ecrealion Fi:e Prclection

Saiid Waste/Carbase Slocd Conkal RoadsParticipates in joint venfure, regicnal sysler$ and/or wastswaler service (other than omergency bt*rc*nnect)Other The )istrict provides water, v/astelilater and sl*rrn sewer services to its eustomers throush a

ccntract with the Cifv 0f H*uston.

2B

Harris County Municipal Utility District No. 359Schedule of General Fund Expenditures

Year Ended August 31,2844

Personnel {including benefits)

Professional Fees

AuditingLegalEngineeringFinancial advisor

Purchased Services f,or ResaleBulk water and wastewater service purchases

Regional Water Fee

Co*tracted ServicesBookkeepingGeneral &anagerAppraisal districtTax collectarSecxilyOther contracted serviees

Utilities

Repairs and Mxintenance

Administrative OxpenditlresSirectors'feesOffice supplies

InsuranceOther adminiskative expenditares

Capital OutlayCapitalized assets

Expenditwes not capitalized

?ap Co,nnection Expenditures

Solid \{aste l}isposal

Fire Sighting

Parks and Recrealion

Other Sxpendit*res

s 14,300

6t,gg51A,gg2

17,405-

35,904

9,0002,1792,857

3q,5?q

87,287

5? ?Oq

34,511

50,606

225?otal expendifures

29

713

Harri* County Municipal Utility District No. 359$chedule of Temporary Investments

August 31,2814

lntere*tRate

MaturityDate

FaceAmount

AccruedInter*st

ReceivableGeneral Fund

Certificaies of DepcsilNc.100211192&No.1002329555No. 100141683

X*.9009S10231No.9009010400No. 90090104 l6Nc.636$47},tro. 636654

No.31I50}ZB22No. 32i6000020Nc.3216000019

a.2B%

*.24%a.4a%

A35Ya

0.35%435%g3a%

A30Ys

8.33%4358jo

*.35%

8.45%435%8.95%4.95%a.9s%432%4.25%

t1la8,l1409/051i4

*51*2115

0611 5ll 5a*221r5*3116i 15

04/r*115*2115115

t*t14t1412t29t14

r2/8U14

rU12tt405fttt15t1laat\41UzAt14

05nat15Bsl19lr5a3/2"4115

iCIO,0*0

50,000

50,000

50,000

50,s00

5S,000

50,000

50,000

50,000

50,000

50"000

110

ttA'7

0

50

3^L

,4)

108-a

86

600.000 ?*1

lebt Service FundCertificates ol Deposit

No. 100135241

Na.237339No. 530851

No" 53?090

No. 50fi304993

Na" 4188581

Nc.2003061

Totals

160,000

24B,AB8

160,000

150,000

2i0,000210,000

67,.

444

624

294zol239

1240.000

370,000 ) 6qq

1.970.000 ? 400

?n

Harris County Municipal Utility District No. 359Analysis of Taxes l-evied and Receivable

Year Ended August 31, 2014

MaintenanceTaxes

Rereivable, Beginning of YearAdditions and correetions to prior years'laxes

Adjusted receivable, beginning of year

2013 Original Tax LelyAdditions and correclions

Adjusted tax levy

Totai to be accounted for

?ax collections: Current year

Prior years

Receivable, end afyear

Receivable, by Years2413

2At2

2011

2010

2009

2008

2407

2406

Rec*ivable, end ofyear

DebtServiceTaxes

$ 4,3i6(1 qi)

4.131

256,743

17,678-

274"421

278,552

t273,763)

* {2,42&)

fi 7,361

2"367

$ 9,331

. , t3?2),

9.009

385,1 15

26.516

41 I ,631

4?4,640

(410,645)

". t4,527")

$ 5,468

987

1,048

998

467

445

5S9

485

469

5,468

658 $

591

452

181

16s

136

s494

31

Harris County Municipal Utility Sistrict No. 3SgAnalysis of Taxes Levied and Receivable {Continued}

Year Ended August 31,2A14

2013 2412 2011Fr*perty Valuations

Land

Imp:ovements

Fersanal prspe:1y

Exemptions

Total property valuations

Tax Ratcs per $1{}0 Val*ati*nDebt servics tax rates

Maintenancs tax rates*

T*tal tax rates per $100 valuation

Tax Levy

F*rcent af ?axes Collected toTaxes Levied**

2010

$ 58,969,723

778,911,944

3,634,751

({,q111q8)

l*?**sgg

$ 58,981,770

171,027,111

2,349,451

{3,413,569}

$ 22&,944,&23

s 5a,212"220

17l,&gg,g21

3,085,051

i5,132,148)

$ 230,063,950

$ 60,st?,81?

l?1,562,&gc

3,224,574

V, g?'577j

g 23*,77&,704

$ 0.1800

0.1200

$ 0.3000

s s.195*0.1 100

$ 0.2100

0"0950

$ 0.2200

0.0850

$ 0"3050 $ 0.3050 $ 0.3050

s 686,052 g 698,277 $ 701,690 g 7A2346

99% 99% 99%99%

*Maximum tax fate approved by vaters: $0.50 an Novembe: 2,1993**Calculateel as taxes collected lbr a iax year divided by taxes levied fo: that tax year.

??

Due *uringFiscalYears

Fnding August 31

Harris Ccunty Municipal Utility District No. 359$chedule cf Lcng-term Oebt $ervice Requirements by Years

August 31,2014

Refunding Serias 2005

Principal Int*rcst *ueDue Se*enber {.

Juns 1 June { Total

2415 $ 135,S00 $ 5,400 $ 140,400

??

Harris County Municipal Utillty District No. 359$chedule of l*ong-term Debt $ervice Requirements by Years {Continued}

August 31,2*14

Refunding $eries 2914

Due DuringFiscal Years

Ending August 3'N

FrincipalDue

June 1

lnterest DueOecember l,

June I Tatal

2Al5zCI16

2477

2018

2419

20202421

2022

2423

$ 405,000

555,000

7?5,0*0

795,000

395,000

385,000

900,000

930,000

960,00CI

$ 597,375

696,9*0

905,7*0

91S,20c

4943A*4',76,444g&3,740

986,744

988,800

187,375

141,800

i30,?001 15,200

99,300

91"4**83,?00

56,744

28,800

Tatals 6,100.000 934"975 7,434,975

ai

Harris County Munieipal Utility Oistrict No. 359Schedule of Long-term Debt Service Requirements by Years {Continued}

August 31, 2814

Annual Requirements Fcr All Series

Due iluringFiscal Years

Fndlng August 31

fotalPrincipal

Due

TatalIntersst

Due

TotalPrincipalandInterest Due

2Al520162417

201 I2419

24702021

20222423

540,000

555,000

775,404

?95,000

395,000

385,000

900,000

930,000

192,775

141,800

130,700

115,200

99,300

91,40083,700

56,700

732,775

695,800

905,700

9i0,200494,3*8

476,480

983,700

986,704

988,800960.000 28.800

Totals 6,23s,000 94437s 7,175,375

Harris County Municipal Utility listrict No. 359Changes in Long-terrn Bcnded Sebt

Year Ended August 31,28',4

Bond lssues

Iateresl rates

Dates interest payable

Maturiiy dates

Bor:ds outslardi:rg, beginning ofcuxenl year

Bonds refunded during current year

Bonds sold during currenl year

Retirements, principai

Bonds cutstaxding, end ofcurrent year

Irterest paid during cunent ysar

Paying agenl's name and address:

$eries {998Refunding Relunding

Eeries 2004 Series 2005Refunding

$*ries 2014 Tctals

4.25%

Oecember 1l

June I

$ 465,000

465,000

3.60Yoto

4.W%

December l/June 1

$ 1,8?5,oos

i,530,0s0

345,000

4.AA%

Decemler 1/

June I

Ji:ne l,2015

$ 4,290,000

4,425,044

| 10 0n0

-::i3:::_

?.0**/a tQ

3.40%

Deeember 1l

June I

June 1,

20r5t2423

b-

6,100"000

-$-*-il!ssqq-

$0

$ 6,630,000

6,020,000

5,100,000

475,**A

*:-13W:__e_*-j*sl-

$ 0 $ 135,000

c d? 6q{ q at )o0

Series 2005 - The Bank of New York Mel}*l Trust C*mpany, N.A., Dallas, Texas

$*rics 2014 - The Bank olNew York Mellon T:ust Companv, N.A., Dallas, Texas

B*nd authority;

Amaunt auihorized by voters

At:rount iss*ed

&emaiaing ta be issued

D*bt service fur:d cash and temporary investmeni tralances as olAugust 31,2A14:

Average annual debt service payment {principa} and ilterest) fcr remaining lenn ofall debt:

Tax B*ndsRefunding

Other Bonds Bonds

s 20,?90"000

$ 13,780,000

$ 7,010,000

$ 2o,79q,qqq

$ 1,079,1?*

$ 19,710,930

$ l,5go,7?g

$ 797,264

JO

(THtS pAGE 'NTTNTtoNALLy

LEFT ELANK)

Harris County Municipal Utility Oistrict No. 359Ccmp*rative Schedule of Revenues and Exp*nditures - General Fund

Five Years Ended August 31,

Arr:ou11ls

2A14 2*13 7t12 241','

General Fuxd

Revenues

Property:ar*s

klvgstmenl ircoIne

Other ineome

Tolal revenues

Expcnditures

Service operations:

Professional fees

Contracted sarvises

R enairs and ma inlcnance

0:her expenditur*s

Capital *utlay

Total expenditures

&xcess $efieieney) *f Revenues **'crExpexditur*s

Othsr Fin*reilg So*rees

Irterfirnd transJbrs in

lx*css {}ciicicncy} *f Revc**e* *:dTrsnsf*rs Ir Ove: Sxpe*ditures*ld Tr*nsfr:e Oxt

Fund Bal*x*en 3egi:ning *fYe*r

Fund B*l*nce, End rfYear

Tolal Aetive Refail Water C*llsetisrs

Total Aetive Retail lVastewater Csntrecfiors

225,713

52,642 72,341

52"64? ]2"341

6'77 "098 604,757

$ 729,704 $ 6??,098

N/.4.

?3t,qf? 18?,3{l_

10,5 17 ( 16,141) 6,t70

2C,517 (r6,r 4 r )

114 | A1

11)4.251"2]1

2"146

85

251,462

66,411

{t d1d

'1n d 1q

32"831

NJA

$ 216,319

3,185

25,*11

244,576

99"89?

52,139

32,742

49,321_

196,444

5,056

187,649

5,85s

11

?0"1 I I54,694

30,455

29,737

278.315

87,287

53"309

34,5 1 I

50,606

5 I '154

44,490

30, I 40

N/A NIA N/A N/A

sg4,z4a 600,381

g 6a4"757 $ 584,240

N/A N/A

&"178

594"211

$ 500,381

}I/A

N/A

Percent of Fund Total Revenues

2013 2012

99.2 %

0.8

100.0

99.1 %

0.9

0.0

8&.4 %

1.3

r03

97.5 %2.5

100.0

97.0

3.0

0.0

100.0 100.c 100.0

31.4

19.1

12.4

1&.2

zb.t

20.3

12.4

:3.0

40.8

z t.3

13.4

24.2

4).O

25.5

21.9

15"0

36.2

26.2

15.7

15.4

f.i

108.0 96.8

18.9 % 28.5 % 4.3 % -* {8.0) % 3.2 %

J/

Harris County Municipal Utility District No, 359Ceimparative $chedule of Revenues and

Five Years EndedFxpenditurc$ - Debt $ervice FundAugust 31,

Arnounts

201 3 2012 2010

Drbt Servicc Fuad

Rcvenues

Property taxes

Fenally and inleresl

Inves|ment incol]1e

Cily of }loustoa rebates

T0tal revenues

Expenditures

CulTent:

Prafessional fees

Contracted services

Other expenditures

Debt service:D-,-.;-.1 .-rj.-*ent

lnterssl and lbes

Dsbt dsf€asanc*

trebl issue ccsts

5 446,542

8,444

6,350

520,081 508,428

ff 415,172

8,946

5,710

$ 478,503

7,7*4

7,791

s50.044

1,444,122

1"7&4

r6"078

7,258

6 1 5,000

312,426

s s0?,870

I 1,053

I r,093

$ s05,5?2

9,436

15,094

_--!sg!ls_ 503,206

994,5n r "033,308-__34r36e_

,69"724

2,726

18,889

9"*23

475"0r0

145,400

204,558

* *?4?"t?q

(6,030,836)

144,838

5, I 00"000

214,042

214,375

95 8,451

91,576

2,851

1 9,1 70

6394

64i),000

294,*40

3,462

24,422

14,262

595"000

334,57*

1 t))19,144

9,784

570,000

356"1 59

Total expenditures

Excess of Revelues Ov*r Expendit*res

Oib*r Fin*neing $ources {Uscs}

Paymenis to escrow agenl

Premium on debt issued

General abligation bonds issued

Tltal other filancing sources

Excess of &evenues *nd Ofher FinancingScurces Sver Xxpenditures and OtherFinancilg Uses

Fund Balanee, Begiaaing ofYe*r

Fuad }al*nce, End ofYcar

3t3

s67,324 qqt ins

23,1 88 74.803

11,773 9\,576

1,264,711,

23,1 88 74,843

1,367,564 1356,287 1.241.523 1.166.720

$ 1"581,935 $ 1,36?,560 $ 1,356,287 $ 1,264.711 $ 1,24i.523

Pertent gt Fund Total Revenres

2413 2912 2011

43.7 Vo

0.9

0.6

54.8

46.4 %

0.9

0.7<1 A

48"9 %

0.9

1.5

48.1

100.0

51.3 %

1.1

i.l46.5

100.0

48.9

4.9

48'l

100.0 100.0 100.0

0.3

2.4

0.9

50.0

15.3

zt.)9"9

0.3

2.8

a.'7

65.9

29.9

0.2

1.5

0.7

58.9

29"9

0.3

2.4

14

60.1

33.8

0.3

10

0.9

55.2

34.5

99.S 98.8 91.2

8.8 %

97.6 92.8

0.1 % 1.2 % 7.4 Yr 7.2 %

Harris County Municipal Utility District No. 359Board Members, K*y Personnel and Consultants

Year Ended August 31,2&14

Cornplete District mailing address: Han'is Courty Municipal Ulility Districr No. 359c/o Schwa*2, Page & Harding, L.L.P.1300 Post Oak Boulevard, Suite 1400Houston, Texas 77056

Districtbusinesstelephanenumber: 713.623"4531

Submissicn date of the ffiost recent District Registratian Form

{TWC Sections 36.054 and 49"054): September 3, 2S1

Linit on fees cf office that a director may receiv* during a fiscal year: $ ?,200

Soard Mernbers

Term crfOffice

Elected &Ixpires Feeg*

ExpenseReimbursements

Title atYear-end

Marilyn Keys

Janice Webb-McCann

Srisan Rathgeber

Ann Ambrosi

Barbara Trebins

Zu Broadwater

M. Cracie Jones

W*nda Kras

Electeda5/14-05/l 8

Elected

03114-

05ll Ifllo..to..{

$5/14-05/1 8

0lscted05/12-051r5

Electeda5/12-04/14

Elected05110-

a5/14

Elected05/10-0s/r4

AppointedBsl12-05114

621l9S0

450

r,950

1,500

I 500

I,800

258

President

VicsPresident

Secretary

AssistantSecretary

Resigned

TemExpired

TermExpired

TennExpired

900

161

124

118

*Fees are the amounis aetually paid :o a director during the District's fiscal year.

1,001

Harris County Municipal Utility District Ns. 359Board Members, Key Personnel and Csnsultants {Continued}

Year Ended Auguat 37,2A14

Consultants Bate Hired

Fees andExpense

Reimbursements Iitle

BKD, LLP

First Southwest Company

Haris County Appraisal District

Municipai Accounts & Coasulting, L.P"

Perdue, Brandcn, Fielder, Collins & Mott, L.L.P.

R.O. Miller 9ngineers, Inr,

Schwarlz, ?age & Harding, L.L.P.

Scli.warfz, Page & Harding, L.L.P.

Wheeler & Associates, Inc.

Investment Officerg

Mark M. Blrton and Ghia Lewis

48t19t94

rU06/02

LegislativeAction

07/29t93

04/t3l9s

a8t19t94

a7/29!93

a7129193

ntas/a7

14,300

54,875

\ ?4\

20,358

I,tzo

12,45A

82,906

49,976

22,706

Auditor

FinancialAdvisor

Appraiser

Bookkeeper

DeliaquentTax Aflomey

tr--i---.

Attorney

Boad Couasei

Tax Assessor/

Collectcr

Bookkeepers08/04/04

4n