CIPAL UTILITY DISTRICT

CORNERSTONES MUNICIPAL UTILITY DISTRICT

Minutes of Meeting of Board of Directors

The Board of Directors of Cornerstones Municipal Utility District (the “District”) met at 805 Hidden Canyon, Katy, Harris County, Texas at 7:00 p.m. on August 16, 2004, in accordance with the duly posted notice of said meeting, with a quorum of directors present as follows:

Tony Garza, President

Gary Hughes, Vice President

E.C. Norris, Secretary - Arrived at 8:00 pm

John Irwin, Assistant Secretary

Darryl Box, Investment Officer - Arrived at 7:15pm

Also present were Kathie Naumow - Recording Secretary, Mary Jarmon of Myrtle Cruz, Inc., Dusty Lane of Eco-Resources, Inc., Bob Leared of Bob Leared Interests, Marvin Zahradnik of Landev Engineers, Inc., Mark Brooks of Young & Brooks, Doug Knopka of Cinco, LTD., and resident Bryan Yonan.

The President called the meeting to order and declared it open for such business as might come before it.

APPROVAL OF MINUTES

After discussion, upon motion duly made, seconded and unanimously carried, the minutes of the July 19, 2004 and July 26, 2004 board meetings were approved as presented.

QUESTIONS/COMMENTS FROM THE PUBLIC

No questions from the public.

CONSIDER YONAN TAX PAYMENT PROPOSAL

Carl Sandin sent letter to Yonan's following last month's meeting to again initiate collection efforts. Mr. Yonan would like the board to consider an offer of $20,000.00 to settle the $27,521.70 actual amount that is due. After discussion, upon motion duly made, seconded and unanimously carried, the board voted not to accept offer and proceed with termination notice. The vote was 3 to 0 in favor of not accepting the offer.

AUTHORIZE PUBLICATION OF PROPOSED TAX RATE

Postponed to next month's meeting.

TAX ASSESSOR/COLLECTOR'S REPORT

Bob Leared of Bob Leared Interests, Inc., the District's tax assessor, reported as to the status of District's tax collections. Taxes Receivable 8/31/2003: $39,272.72, adjustments $6,128.96, total $45,401.68. Original 2003 Tax Levy: $1,181,410.10, adjustments $65,066.80, total $1,246,476.90. Total Taxes Receivable: 1,291,878.58. Prior years taxes collected $16,832.85, 2003 taxes collected $1,228,314.11, Total $1,245,146.96. Taxes Receivable at 7/31/2004: $46,731.62. 2003 Receivables: Debt Service $13,440.46, Maintenance $4,722.33. Month of July 2004: beginning cash balance $28,602.23 total receipts $11,028.85, total disbursements $3,958.67, cash balance at 7/31/2004 $35,672.41. Total Disbursements for month of August 2004 $18,772.27, remaining cash balance $16,900.14. The district is 99.472% collected for 2001 taxes, 99.563% for 2002 taxes and 98.543% for 2003 taxes. Upon motion duly made, seconded and unanimously carried, the board approved the tax assessor/collector's report and payment of the tax bills presented. Should be ready next month for tax rate.

FINANCIAL ADVISOR

OPERATOR'S REPORT

Dusty Lane of Eco-Resources, Inc., the District's operator, reported as to District operations and facilities and presented the July 2004 Operations Report. Total connections for July 2004 were 1487. Meter installations and inspections for June 14 - July 13: New taps Installed - 1; Sewer inspections completed - 2; Builder Inspections completed - 4; Customer Service inspections completed - 0; Net Rental Meter Change - 0. The required 7 samples were taken during 7/2004. TCEQ Chemical Analysis: Metals 8/25/99; Radio-Chemicals 10/29/02; Volatile Organic Chemicals 10/29/02; Minerals 3/23/04. Water production: Pumped 25,507,000 at Water Plant #1, Total supplied - 25,507,000, Daily Average - 822,806. Subsidence Information: Estimated number of months available - 10.2, Permit months remaining - 5, Percent of permitted production - 40.67. Water Accountability is at 93% Year to Date. Total Operations Charges $20,831.49. Actual work related expenses - $13,738. Total Current billing $48,618.02. Total Aged Receivables $11,813.08. Total Accounts Receivables $60,431.10. Facility Checklist completed: Water Plant #1 on 7/21/2004. Inspections Completed: Fire Hydrants on 6/7/2004. Total Deposits for July 2004 $50,691.90. Disconnects/Reconnects income: $175.00. Pull Fees: $70.00. Provided Discharge Monitoring Report, number exceeded all zero. Reported on repairs made and also presented the board with a copy of the Cornerstones M.U.D. Delinquent list. No Customer requests. Lights reported out by Ms. Adams are HL&P and they are having them repaired. Separation of EMS voluntary donation turned over to collections to see what can be done. Went over list of repairs/upgrades to the plant. Waiting on process for some. ISO test - great residual flow.

Upon motion duly made, seconded and unanimously carried, the board approved the operator's report.

ENGINEER'S REPORT

Marvin Zahradnik presented the Engineers Report. No new requests received. Project stopped on the office complex north of Highland Knolls on Mason next to Block Buster. TV report on sanitary line still pending.

Upon motion duly made, seconded and unanimously carried, the board approved the Engineers report.

BOOKKEEPER'S REPORT

Mary Jarmon of Myrtle Cruz, Inc., the District's bookkeeper, presented the monthly report. Debt service funds available August 16, 2004 - $3,497,522.09. Total Debt Service Requirements for 2004: $1,371,182.50. Capital projects funds available August 16, 2004 - $299,040.56. General Operating: Previous cash balance July 19, 2004 - $2,018.61, total deposits $65,433.07, beginning cash balance August 16, 2004 - $64,114.56. General Operating Funds available August 16, 2004 - $1,278,633.91. Included copy of budget for fiscal year ending September 30, 2004, Investment Report and Tex Pool Performance sheet. Upon motion duly made, seconded and unanimously carried, the board approved the Bookkeepers monthly report. After discussion, upon motion duly made, seconded and unanimously carried, the board approved said bills and ordered checks issued on the appropriate District accounts in payment thereof.

Mary will bring back budget next month to make any changes.

CONDUCT HEARING ON TERMINATION OF WATER AND SEWER SERVICE

The board conducted a hearing on the termination of utility service. The operator presented a list of delinquent utility accounts that were delinquent by more than 60 days and reported that the customers have been given written notice 10 days prior to this meeting and the opportunity to appear before the board of directors to explain, contest or correct the utility service bill and to show reason why the utility service should not be terminated for nonpayment. None of the customers on the list were present or have presented any statement on the matter. After discussion, upon motion duly made, seconded and unanimously carried, the board authorized the operator to terminate utility service to the unpaid accounts in accordance with standard procedures.

AUTHORIZE ANY NECESSARY ACTIONS IN CONNECTION WITH RECENT VULNERABILITY ASSESSMENT

Waiting on report, pended until next month.

AUTHORIZE ANY NECESSARY ACTIONS WITH RESPECT TO HCFCD DITCH MOWING

The ditches were mowed on July 10th. No action necessary.

AUTHORIZE ANY NECESSARY ACTIONS WITH RESPECT TO GREENBELT TRACTS OR OTHER DISTRICT LAND

Mark wrote letter regarding barricade and right of way. Barricade repaired and submitted ROW request to downtown. This will take time.

PENDING BUSINESS

Letter received from Allen Boone Humphries LLP showing breakdown of districts for proposed Fort Bend County Regional Water Authority. Copies of the letter were given to board members. Brown & Gay made recommendation to Cinco on the rehab issues there. Total cost $663,350. Percentage based on ownership. Our max should be 33%.

ATTORNEY PERFORMANCE REVEIW

No problems reported, relationship improved and more involved. Great communications between board and attorney.

After concluding and there being no further business to come before the board, the meeting was adjourned.

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Attachments: Bookkeeper's Report