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 April 17, 2006, 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

John Irwin, Assistant Secretary

Darryl Box, Investment Officer

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

The meeting was called to order at 7:00 and declared open for such business as might come before it.

APPROVE MINUTES OF PRIOR MEETINGS

After discussion, upon motion duly made, seconded and unanimously carried, the minutes of the March 20, 2006 meeting were approved.

QUESTIONS/COMMENTS FROM THE PUBLIC

TAX ASSESSOR/COLLECTOR'S REPORT

Bob Leared presented the Tax Assessor/Collector report. Taxes Receivable 8/31/2005: $16,911.61, adjustments $635.83. Original 2005 Tax Levy: $1,172,903.87, adjustments $84,812.49. Total Taxes Receivable: $1,274,787.86. Prior years taxes collected $8,206.23, 2005 taxes collected $1,202,073.17. Taxes Receivable at 3/31/2006: $64,508.46. 2005 Receivables: Debt Service $42,016.28; Maintenance $13,626.91. Month of 3/2006: beginning cash balance $46,146.77, total receipts $21,647.05, total disbursements $19,529.57, cash balance at 3/31/2006 $48,264.25. Additional disbursements for the month of March, 2006 $574.63. Total Disbursements for the month of April, 2006 $18,578.61, remaining cash balance $29,685.64. The district is 99.978% collected for 2001 taxes, 99.921% for 2002 taxes, 99.956% for 2003 taxes, 99.480% for 2004 and 95.576% for 2005. If taxes not paid by July 1st penalty and interest will be assessed.

Upon motion duly made, seconded and unanimously carried, the board approved the tax assessor/collector's report and payment of the tax bills presented.

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 March 2006 Operations Report. Total connections were 1493. Meter installations and inspections for Feb 14 - Mar 13: New taps Installed - 0; Abandoned connections - 0; Sewer inspections completed - 0; Builder Inspections completed - 0; Customer Service inspections completed - 0; Net Rental Meter Change - 0. Wastewater treatment; Permitted Average Daily Flow - 3,000,000GPD. The required 7 samples were taken during 3/2006. TCEQ Chemical Analysis: Metals 8/25/99; Radio-Chemicals 08/11/05; Volatile Organic Chemicals 8/11/05; Minerals 8/11/05. Water production: Pumped 21,243,000 at Water Plant #1, Total supplied - 21,243,000, Daily Average - 685,285. Subsidence Information: Estimated number of months available - 14.9, Permit months remaining - 9, Percent of permitted production - 16.75. Water Accountability is at 95% Year to Date. Total Operations Charges $13,850.36. Actual work related costs - $6,449.00. Total Current billing - $53,224.69. Total Aged Receivables $18,234.33. Total Accounts Receivables $71,459.02. Facility Checklist completed: Water Plant #1 on 3/21/2006. Inspections Completed: Fire Hydrants on 12/28/2005. Total Deposits for March 2006 - $62,792.19. Disconnects/Reconnects income: $150.00. Pull Fees: $0.00. Provided Discharge Monitoring Report, number exceeded all zero. Updated the board on the chlorine level due to failure in chlorine system. Harris County control feed regulator was plugged up. Responded in writing to Harris County. Gave the board a copy of the CCR report that will be mailed out. Reported on repairs made and also presented the board with a copy of the Cornerstones M.U.D. Delinquent list. Everyone has been duly notified of situation and it is being addressed. Had one customer request. They had a leak and would like an adjustment made.

Upon motion duly made, seconded and unanimously carried, the board approved the operator's report and deny customer request for adjustment.

ENGINEER'S REPORT

Marvin reported on activities in the district. No new requests.

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

BOOKKEEPER'S REPORT

Terry Holland of Myrtle Cruz, Inc., the District's bookkeeper, presented the monthly report. Debt service funds available April 16, 2006 - $2,809,531.20. Total Debt Service Requirements for 2006: $1,349,070.00. Capital projects funds available April 16, 2006 - $140,165.54. General Operating: Previous cash balance March, 2006 - $5,570.72 total deposits $738574.39. Beginning cash balance April 16, 2006 - $67,334.36. General Operating Funds available April 16, 2006 - $1,796,042.12. Included copy of budget for fiscal year ending September 30, 2006, Investment Report and Tex Pool Performance sheet. Pledge security report in good shape. Discussed budget for plant upgrades which will be paid over two fiscal budgets. Tony will have Doug Baker send over bid docs. Will place on next month's agenda to discuss. After discussion, upon motion duly made, seconded and unanimously carried, the board approved report and said bills and ordered checks issued on the appropriate District accounts in payment thereof.

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.

CINCO REGIONAL OPERATING COMMITTEE REPORT

Tony gave updates of meeting from Cinco Regional Operating Committee. Work should start soon. Informed board of Equestrian Center tap into plant. Were getting service under Memorial and had planned to use Cinco. In the process of connecting and will pay $2500 in back fees and $500.00 per month for six to eight months then will go offline.

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

PENDING BUSINESS

Gary reported that the landscapers had traffic stopped during rush hour to blow grass off the street.

After concluding and there being no further business to come before the board, the meeting was adjourned at 7:35 p.m.

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Attachments: Bookkeeper's Report