CORNERSTONES MUNICIPAL 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 November 20, 2006, in accordance with the duly posted notice of said meeting, with a quorum of directors present as follows:

Tony Garza, President

John Irwin, Secretary

Darryl Box, Investment Officer

Gary Hughes, Vice President

E.C. Norris, Assistant Secretary

Also present were Kathie Naumow, Recording Secretary; Terry Holland of Myrtle Cruz, Inc.; Rusty 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

Correction made to October minutes: Memorial MUD has agreed to share cost of storm sewer along Mason Road per Harris County requirements. After discussion, upon motion duly made, seconded and unanimously carried, the minutes of the October 16, 2006 meeting were approved pending correction.

QUESTIONS/COMMENTS FROM THE PUBLIC

TAX ASSESSOR/COLLECTOR'S REPORT

Rusty Leared presented the Tax Assessor/Collector report. Taxes Receivable 8/31/2006: $26,036.43, reserve for uncollectables $635.83; adjustments $5.00. Original 2006 Tax Levy: $889,423.03, adjustments $113,176.94. Total Taxes Receivable: $1,027,995.57. Prior years taxes collected $6,332.11, 2006 taxes collected $0.0. Taxes Receivable at 10/31/2006: $1,021,663.46. 2006 Receivables: Debt Service $0.00; Maintenance $0.00. Month of 10/2006: beginning cash balance $20,790.40 total receipts $2,966.11, total disbursements $11,421.91, cash balance at 10/31/2006 $12,334.60. Total Disbursements for the month of November 2006 $3,833.37, remaining cash balance $8,501.23. The district is 99.995% collected for 2000, 99.978% for 2001 taxes, 99.930% for 2002 taxes, 99.957% for 2003, 99.845% for 2004 and 98.823 for 2005. Rusty presented board with a list of the top delinquent taxpayers.

After discussion and 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 October 2006 Operations Report. Total connections were 1494. Meter installations and inspections for Sep 14 - Oct 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 10/2006. TCEQ Chemical Analysis: Metals 8/25/99; Radio-Chemicals 08/11/05; Volatile Organic Chemicals 8/11/05; Minerals 5/18/06. Water production: Pumped 20,319,000 at Water Plant #1, Total supplied - 20,319,000, Daily Average - 655,451. Subsidence Information: Estimated number of months available - 3.3, Permit months remaining - 2, Percent of permitted production - 74.86. Water Accountability is at 95% Year to Date. Total Operations Charges $14,589.77. Actual work related costs - $6,827.00. Total Current Billing $70,726.87. Total Aged Receivables $11,280.91. Total Accounts Receivables $82,007.78. Facility Checklist completed: Water Plant #1 on 10/10/2006. Inspections Completed: Fire Hydrants on 6/15/2006. Total deposits for October $68,856.16. Disconnects/Reconnects income was $425.00. Provided Discharge Monitoring Report, number exceeded all zero. Dusty 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. Discussed EMS collections vs. checks paid out.

Self reported two violations. Cinco Ranch US Storage - $8,016 paid in error, will reimburse. No cut-offs until after Thanksgiving.

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

ENGINEER'S REPORT

Marvin reported on activities in the district. No request for water/sewer utilities or service this month. Has preliminary cost estimate on Knopka acreage for extension of utilities and drainage for commercial tract adjacent to Royal Montreal. Doug Knopka will provide estimated values and get with Bob Leared to get tax base on property.

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 November 20, 2006 - $1,730,202.64. Total Debt Service Requirements for 2007: $1,354,107.50. General Operating: Previous cash balance October 16, 2006 - $2,298.06. Total deposits $188,884.68. Beginning cash balance November 20, 2006 - $189,708.74. General Operating Funds available November 20, 2006 - $1,737,770.12. Included copy of budget for fiscal year ending September 30, 2006, Investment Report and Tex Pool Performance sheet.

Mark will contact the financial advisor to determine what it would cost to pay off Bond Series 1996.

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.

AUTHORIZE ANY NECESSARY ACTIONS IN CONNECTION WITH DISTRICT WEBSITE

Chip discovered the Webmaster that set up the web site is no longer doing this business. The Board will look at other options.

CINCO REGIONAL OPERATING COMMITTEE REPORT

Tony reported 60% completed on wastewater treatment plant improvement project. Everything is moving along as scheduled. Annual Cinco Christmas Dinner is the 2nd Thursday in December.

AUTHORIZE ANY NECESSARY ACTIONS WITH RESPECT TO GREENBELT TRACTS

No actions necessary.

PENDING BUSINESS

Reminder that AWBD is January 26th & 27th.

After concluding and there being no further business to come before the board, the meeting was adjourned at 8:05 p.m.

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Attachments: Bookkeeper's Report