omcIAL STATEMENT

$4,320,000

CINCO MUNICIPAL UflLITY

DISTRICT NO. 2

(A Political Subdivision of the State of Texas

Located in Fort Bend County, Texas)

UNLIMITED TAX BONDS, SERIES 1992

WILUAlllSllUAG :
WILLIAMUURG
MAU.
PfUME-WEST
TO HOUSTON

110
_ _ _ _.__.
PMXTEN

WEST
MEMORIAL MASON .,,
PARK WEST NOTTIMGHAM ~
COUNTRY

GA!!~ J.
TR:J.
I

CUU.EN-BARKER PARK
1MER

FORESTVIEW

CLAYTON
WINGATE

MISSION BEND

FM1093

Legg Mason Wood Walker

Incorporated
1111 Bagby, Suite 1400
Houston, Texas 77002

Financial Advisor to the District

 OFFICIAL STATEMENT DATED NOVEMBER 10, 1992
IN THE OPINION OF BOND COUNSEL. INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL
INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS. SEE "LEGAL MA'ITERS-
TAX EXEMPTION" HEREIN FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL. INCLUDING A DESCRIPTION OF ALTERNA-
TIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS.
THE BONDS ARE "QUALIFIED TAX-EXEMPT OBUGATIONS" FOR FINANCIAL INSTITUTIONS.
NEW ISSUE
$4,320,000
CINCO MUNICIPAL UTILITY DISTRICT NO. 2
(A Political Subdirision of the State of Texas Located in Fort Bend County, Texas)
UNLIMITED TAX BONDS, SERIES 1992
Dated: December 1, 1992 Due: September 1, as shown below
The bonds described above (the "Bonds") are obligations solely of Cinco Municipal Utility District No. 2 (the
"District") and are not obligations of the State of Texas, Fort Bend County, the City of Houston or any entity other than
the District.
The Bonds will be issued in fully registered form only, in denominations of $5,000 or any integral multiple thereof.
Principal of the Bonds will be payable upon presentation of the Bonds at the principal corporate trust office of Ameritrust
Texas, National Association (the "Registrar"), in Houston, Texas. Interest on the Bonds will be payable by check or
draft, dated as of the interest payment date, and mailed by the Registrar to the registered owners as shown on the Bond
register kept by the Registrar (the "Registered Owners") on the fifteenth (15th) day (whether or not a business day) of
the month prior to each interest payment date or by such other customary banking arrangements as may be agreed upon
by the Registrar and the Registered Owners at the risk and expense of the Registered Owners. Interest accrues from
December l, 1992, and is payable September 1, 1993 (nine months' interest), and each March 1 and September 1
thereafter until the earlier of maturity or redemption.
MATURITIES
(Due September 1st)
Principal lnteftlt Principal Interest
Amoat Rate(a) Due Yield(b) AIDOllt Rate(a) Due Yield(b)
$ 95,000 7.00% 1996 5.50% $200,000 6.75% 2006* 6.80%
100,000 7.00% 1997 5.15% 225,000 6.75% 2007* 6.85%
100,000 7.00% 1998 5.90% 250,000 6.80% 2008* 6.875%
125,000 7.00% 1999 6.10% 250,000 6.80% 2009* 6.90'li
125,000 7.00% 2000 6.30% 275,000 6.75% 2010 7.00%
150,000 7.00% 2001 6.40% 300,000 6.75% 2011 7.00%
150,000 7.00% 2002 6.50% 325,000 6.75% 2012 7.00%
150,000 6.50% 2003* 6.60% 350,000 6.75% 2013* 7.00%
175,000 6.60% 2004* 6.70% 375,000 6.75% 2014* 7.00%
200,000 6.70% 2005* 6.75% 400,000 6.75% 2015* 7.00%

Option Redemption Provisions: The District reserves the right to redeem, prior to maturity, in integral multiples of $5,000, those Bonds maturing
September 1, 2003 through 2015, both inclusive, in whole or from time to time in part, on September l, 2002, and on any date thereafter at a price
of par plus accrued interest from the most recent interest payment date to the date fixed for redemption. See "THE BONDS - Redemption
Provisions."
(a) After requesting competitive bids for purchase of the Bonds, the District has accepted the lowest bid to purchase the Bonds, bearing interest as
shown, at a price of 97 .0045% of par plus accrued interest to the date of delivery, resulting in a net effective interest rate to the District of
6.956428%.
(b) The initial reoffering yield represents the lower of the yield resulting when priced to maturity, or the first call date. The initial yields at which the
Bonds will be priced will be established by and will be the sole responsibility of the Initial Purchaser. The yields may be changed at any time at the
discretion of the Initial Purchaser. Accrued interest from December 1, 1992 to the date of delivery of the Bonds to the Initial Purchaser is to be
added to the price.

The Bonds, when issued, will constitute valid and legally binding obligations of the District and will be payable from
the proceeds of an annual ad valorem tax, without legal limitation to rate or amount, levied against taxable property within
the District. THE BONDS ARE SUBJECT TO SPECIAL RISK FACTORS DESCRIBED HEREIN. See "RISK
FACTORS" herein. Bond purchasers are encouraged to read this Official Statement prior to making an investment
decision.
The Bonds are offered by the Initial Purchaser subject to prior sale, when, as and if issued by the District and
accepted by the Initial Purchaser, subject, among other things to the approval of the Initial Bonds by the Attorney
General of Texas and the approval of certain legal matters by Vinson & Elkins L.L.P., Houston, Texas, Bond Counsel.
Delivery of the Bonds is expected on or about December 15, 1992, in Houston, Texas.
 USE OF INFORMATION IN OFFICIAL STATEMENT
No dealer, broker, A1aman or ocher pcnon hM been authorized to 1ive any infonnalion or to make any rcpre.cnlalioaa ocbcr than tboec contained in this Official
Statcmcot, and if 1ivcn or made, 1uch other information or repl"CIClltationa muat not be relied upon u havin1 been authorized by the Diatrict.

Thia Official Statement doea not alone cODltitutc, and ii not authorized by the Diltrict for uac in connection with, an offer to acU or the aolicilation of any offer to
buy in any llatc in which 1uch offer or aolicilation ii not authorized or in which the pcnon makin1 1uch offer or aolicitation ii not qualified to do ao or to any pcnon
to whom it ii unlawful to make 1uch offer or aolicitation.

AU of tbc 1wnmaria of tbc 1latuta, rcaolutiona, contracta, rccorda, and en1incering and other related rcporll act forth in the Official Statement arc made 1ubjcct
to all of the proviaiom of auch docwncntl. Thac 1wnmarica do not purport to be complete 1tatcmenll of 1ucb prov iaiom. and reference ia made to 1uch documcntl,
copia of which arc available from the Financial Adviaor, for further information.

The Official Statement containa, in part, atimata, uaumptiona and maa.cn of opinion which arc not intended u 1tatemcnt1 of fact, and no rcprcecntation ia made
u to the correctncll of 1uch atimata, uaumptiona, or maa.cn of opinion, or that they will be realized. Any information and exprcuion of opinion herein contained
arc aubjec:t to cbanae without notice, and neither the delivesy of thia Official Statement nor any aalc made hereunder lhall, under any cimamtancea, create any
implication that there baa been no chan1e in the affain of the Diatrict or other maa.cn dacribed herein 1ince the date hereof. However, the Diatrict baa qrced to
keep this official Statement" current by amendment or lticlcer to reflect material chan1a in the affain of the Diatrict and to the extent that information actually
coma to ill aa.cntion, other maa.cn dacribed in the "Official Statement" until delivesy of the Bonda to the Initial Purchaacr and thereafter only u apecified in
"OFFICIAL STA TEMENT - Updating the Official Statement.
TABLE OF CONTENTS

MATURITIES 1 Lepl Counael . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S

USE OF INFORMATION IN OFFICIAL STATEMENT . . . . . . . . . . . . 2 Financia.I Adviaor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S
OFFICIAL STATEMENT SUMMARY . . . . . ......... . 3 Engineer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S
THE FINANCINO . . . . . . . . . . . . . . . . . Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S
THE BONDS . . . . . . . . . . . . . . . . . . . . 4 DEBT SERVICE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . 26
SELECTED FINANCIAL INFORMATION... . ......... . .5 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CINCO RANCH DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . 6 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Facton Affecting Taxable Value and Tax Paymenta . . . . . . . . . . . . 27
0-ral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Overlapping Diltrict Taxea and Functiona . . . . . . . . . . . . . . . . . . 21
Cinco Ranch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Water and Sewer Revenuea . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Stlllul o( Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Undeveloped Acrmge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Homebuilden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maaen Relat.ed lo tbe Developer . . .. . . .. . . .. . . .. . . . . . .. . 30
FlllW'o Development . . . . . . . . . . . . 9 Dependence on Principal Taxpayen . . . . . . . . . . . . . . . . . . . . . . 31
THE DEVELOPER . . . . . . . . . . . . . . 9 Tax Collec:tionl Llmilationa and Foreclosure Remecliea . . . . . . . . . . 31
Role o( a Developer . . . . . . . . . . . 9 Regiatered Owner' Remecliea . . . . . . . . . . . . . . . . . . . . . . . . . . 31
American General Realty lnveatment BankNptcy Limitation lo Regiatered Owner' Righta . . . . . . . . . . . . 31
Corporation/Cinco Ranch . . . . . . . . 9 Future Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Financing of tbe Development . . . . . . . . . . . . . . . 10 Financial lnatitutioaa and Recovery Act . . . . . . . . . . . . . . . . . . . . 32
Financial Information . . . . . . . . . . . . . . . . . . . . 10 Marbtability o( the Bonda . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
UTILITY AOREEMENT WITH REGIONAL DISTRICT . . . . . . . . . . 11 Continuing Compliance with Cerlain Covenanta . . . . . . . . . . . . . . . 33
THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . 12 THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Water, Sani1ary Sewer and Drainage Syatem . . . . . . . . . . . . . . . . 12 Deacription . . . . . . . . . . . . . . . . . .. . . . . . . . . . " . . . . . . . . 33
Uae and Diltributioa o( Boad Proceecla . . . . . . . . . . . . . . . . . . . . 13 Method o( Payment o( Principal and lntereat . . . . . . . . . . . . . . . . 33
UNLIMITED TAX BONDS AUTHORIZED BUT UNISSUED . . . . . . . . 14 Source of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FINANCIAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Fundl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Caah and lnveatmeat Balancea . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Redemption ProviaiCllll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ESTIMATED OVERLAPPINO DEBT STATEMENT ........... 1.5 Authority for l11uance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Overlapping Taxea for 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Re~ and Tranafer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TAX DATA . . . . . . . . . . . . . . . . . . . . . . . . ............. 17 Replllcement of Replnlr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3'
Cluaific:atioa of Aueaeecl Valuation . . . . . . . . . . . . . . . . . . 17 I.oat. Stolen or Deatroyecl Bonda . . . . . .. . . . .. . .. . . . 35
Tax Collectioaa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 laauance of Additional Debt . . .. . . . .. . .. . . . . . . .. .. . .. . . 35
Diltrict Tax Ratea .. .. .. .. .. . .. . .. ............ 17 Annexation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Debt Service Tax . . . . . . . . . . . . . . . .. 17 Conlolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Maintenance Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Remecliea in Event o( Default . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Contract Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Lepl lnveatment and Eligibility to Secure
Tax ExemptiCllll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Public Fundl in Telllll . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Principal Taxpayen . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Def-.ice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Tax Acieciuacy for Debt Service . . . . . . . . . . . . . . . . . . . . . . 19 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Dellt Service Fund Management Index . . . . . . . . . . . . . . . . . . 19 Lcpl Proceedinp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
TAXING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . 19 Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Authority lo Levy Taxea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Tax Accounting Tre11tment of Original l11ue DilccNnt Bonda . . . 39
Property Tax Code and County-Wide Apprailal Diltrict . . . . . . . . . . 19 Qlalified Tax-Exempt Obliptiona . . . . . . . . . . . . . . . . . . . . . . . 40
Property Subject lo Taxation by the Diltrict . . . . . . . . . . . . . . . . 3> N~Litiptioa Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Tax Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3> INITIAL PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Valuatioa of Property for Taxation . . . . . . . . . . . . . . . . . . . . . 21 PRICES AND MARKETABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 40
Diltrict and Taxpayer Remecliea . . . . . . . . . . . . . . . . . . . . . . . . 21 SECURITIES LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Levy and Collection o( Taxa . . . . . . . . . . . . . . . . . . . . . . . . . . 21 MUNICIPAL BOND RATINO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Diltrict Rigbta in the Event of Tax Delinquenciea . . . . . . . . . . . . . . 22 FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
WATER AND SEWER OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 22 OFFICIAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
0-ral . . . . . . . . . . . . . . . . . . . . ......... 22 Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Rate and Fee Schedule . . . . . . . . . . . . . 22 Experta . . . ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Water and Sewer (monthly billing) . . . . . . . 22 Updatinc the Official Slatement . . . . . . . . . . . . . . . . . . . . . . . . . 42
Water and Sewer Prior to Initial Occupancy ' ........ 23 Official Slatement "Deemed Final" . . . . . . . . . . . . . . . . . . . . . . . 42
Waterworb and Sewer Operating Slatement 23 Certification aa lo Official Statement . . . . . . . . . . . . . . . . . . . . . . 42
Cullomer Count . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
MANAOEMENT . . . . . . . . . . . . . . . . . ........... 24 PHOTOORAPHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Board of Directors . . . . . . . . . . . . . 24 AERIAL PHOTOORAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Tax ~/Collector . . . . . . . . . . 24 APPENDIX A Excerpta o( Diltrict'1 Audited Financial
Syatem Operator . . . . . . . . . . . . . . 24 Slatementa aa of September 30. 1991
Booklteeper . . . . . . . . . . . . . . . . . 24 APPENDIX B - Financial Information Concerning tbe Developer

2

The following material is qualified in its entirety by the detailed information and financial statements appearing
elsewhere in this Official Statement.
The Issuer . . . . . . . . . .
The Developer . . . . . . .
Legal Opinion . . . . . . .
Financial Advisor . . . . .
Engineer . . . . . . . . . . .
The Issue . . . . . . . . . .
Municipal Bond
Rating . . . . . . . . . . .
Use of Proceeds . . . . . .
OFFICIAL ST ATE'MENT SUMMARY
THE FINANCING
Cinco Municipal Utility District No. 2 (the "District"), a political subdivision of the
State of Texas, is located in northeast Fort Bend County approximately two miles
southwest of the intersection of Interstate Hiahway 10 ("IH 10") and Mason Road
and is situated approximately 25 miles west of downtown Houston. The District is
located entirely within the extraterritorial jurisdiction of the City of Houston.
Property within the District is bein& developed as a part of Cinco Ranch, a S,400-
acre master planned mixed-use development. The District contains approximately
657 acres of which approximately 216.3 acres have been developed as 1) the
residential subdivision of South Lake Village, Sections 1 through S (approximately
204 acres, platted as 463 single family lots) and 2) an approximate 12.3 acre site for
the University of Houston West Houston Institute. As of Aupst 31, 1992, the
Diltrict contained 209 completed sinale family homes, 62 homes under constJUction,
192 vacant single family lots, a 40,000 square foot building which houses the
University of Houston West Houston Institute and approximately 273 net developable
acres yet to be provided with utility facilities. See "THE DISTRICT."
The developer of land withdi the District is American General Realty Investment
Corporation (" AGRIC" or "Developer") currently doing business as Cinco Ranch.
The Developer is also developing the 4,800 acre Cinco Ranch project. AGRIC is
a wholly~ed subsidiary of American General Investment Corporation(" AGIC"),
which in tum is a wholly-owned subsidiary of American General Corporation
("American General"). American General, with assets of more than $36 billion and
equity of $4.3 billion, is one of the nation's largest consumer financial services
organiations. Headquartered in Houston, American General is a leadina provider
of retirement annuities, consumer loans, and life insurance. American General
common stock is listed on the New York, Pacific, London, and Swiss stock
excbanaes. and American General is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission
("SEC"). American General throu1h various subsidiaries has been involved in the
development of Cinco Ranch since 1984. See "THE DEVELOPER."
Vinson & Elkins, L.L.P. Bond Counsel, Houston, Texas.
Legg Mason Wood Walker, Inc .. Houston, Texas.
Turner Collie & Braden, Inc., Houston, Texas.
$4,320,000 Unlimited Tax Bonds, Series 1992 (the "Bonds"), issued pursuant to a
resolution of the District's Board of Directors (the "Bond Resolution").
The District has not made application for an investment grade rating on the Bonds,
nor is it expected that an investment grade rating would have been received b8d an
application been made.
Proceeds from sale of the Bonds will be used: (1) to reimburse AGRIC for funds
advanced on behalf of the District for the construction of water distribution,
wastewater collection and stonri'drainage facilities to serve South Lake Villaae,
Sections 1 through Sand water and storm facilities to serve 12.3 acres which is the
site of the University of Houston West Institute; (2) to pay constJUction costs on
future projects; (3) to reimburse the Developer for certain creation and operatin&
3

Payment Record . . . . . .
Description . . . . . . . . .
Qualified Tax-Exempt
Obligations . . . . . . . .
Authority for
Issuance . . . . . . . . . .
Source of Payment . . . .
Risk Factors . . . . . . . .
costs as well as interest accrued on funds advanced on behalf of the District, (4) to
capitalize approximately eighteen months' interest requirement on the Bonds, and (5)
to pay certain costs associated with the issuance of the Bonds. See "THE PROJECT
- Use and Distribution of Bond Proceeds."
This is the initial series of bonds issued by the District, and therefore, the District
has no prior debt history.
THE BONDS
The Bonds are serial bonds in the aggregate principal amount of $4,320,000 maturing
annually in varying amounts from 1996 through 2015. Bonds maturing in the years
2003 through 2015, inclusive, are subject to redemption in whole or from time to
time in part at the option of the District on September 1, 2002, and on any date
thereafter, at par plus accrued interest from the most recent interest payment date to
the date of redemption. The Bonds are offered in fully registered form in integral
multiples of $5,000 for any one maturity. See "THE BONDS."
The District has designated the Bonds as "qualified tax-exempt obligations" pursuant
to section 265(b) of the Internal Revenue Code of 1986 as amended and will
represent that the total amount of tax-exempt bonds (including the Bonds) issued by
it during calendar year 1992 is not reasonably expected to exceed $10,000,000. See
"LEGAL MATTERS-Qualified Tax-Exempt Obligations."
The Bonds are the first installment of $17,900,000 bonds authorized at an election
held within the District on January 20, 1990, for the purpose of purchasing and
constructing a water, wastewater and/or storm drainage system. The Bonds are
issued pursuant to an order of the Texas Water Commission, the Bond Resolution,
the Texas Constitution and the general laws of the State of Texas. See "THE
BONDS-Authority for Issuance-Issuance of Additional Debt." After sale of the
Bonds, $13,580,000 bonds will remain authorized but unissued. See "UNLIMITED
TAX BONDS AUTHORIZED BUT UNISSUED" and "RISK FACTORS-Future
Debt."
The Bonds are payable from an ad valorem tax levied upon all taxable property
within the District, which under Texas law is not limited as to rate or amount (see
"TAXATION"). The Bonds are obligations solely of Cinco Municipal Utility
District No. 2 and are not obligations of the State of Texas; Fort Bend County,
Texas the City of Houston, Texas or any other entity other than the District. See
"THE BONDS - Source of Payment."
The purchase and ownership of the Bonds involve certain risk factors, and all
prospective purchasers are urged to examine carefully the Official Statement,
including particularly the section captioned "RISK FACTORS," with respect to the
investment security of the Bonds.
4
 SELECTED FINANCIAL INFORMATION
(Unaudited as of September 30, 1992)
1992 Assessed Valuation
(100 9' of estimated marlc:et value) . . . . . . . . . . . . . . . . . . . $50,964,020 (a)

Estimated Assessed Valuation as of August 1, 1992

(1009' of estimated market value) . . . . . . . . . . . . . . . . . . . . . $65,402,270 (b)

Gross Debt Outstanding (after issuance of the Bonds) . . . . . . . . . . . . . . s 4,320,000

Ratio of Gross Debt to 1992 Assessed Valuation . . . . . . . . . . . . . . . . . 8.489'
Ratio of Gross Debt to Estimated Assessed Valuation as of August 1, 1992 . 6.619'

Tax Rates
Debt Seryice Maintenance Imai
1991 $ -0- $0.25 $0.25/$100 A.V.
Proposed 1992 $0.43 . 07 $0.50/$100 A.V .

Avera1e percentage of current tax collections - 199011991 . . . . . . . . . . . 100.009'

Average percentage of total tax collections - 199011991 . . . . . . . . . . . . . 100.009'

Average Annual Debt Service Requirement

(1996/2015) of the Bonds( Average Requirement) $ 405,208

Tax rate required to pay Average Requirement based upon

1992 Assessed Valuation at 95 9' collections . . . . . . . . . . . . . . . $0. 84/$ 100 A. v.

Tax Rate required to pay Average Requirement based upon

Estimated Assessed Valuation as of August l, 1992
at 95 9' collections . . . . . . . . . . . . . . . . . . . . . . . . . . $0.66/$100A.V.

Maximum Annual Debt Service Requirement (2014)

of the Bonds (Maximum Requirement) . . . . . . . . $ 427,313

Tax Rate required to pay Maximum Requirement based upon

1992 Assessed Valuation @ 95 9' collections . . . . . . . . . $0.89/$100A.V.

Tax Rate required to pay Maximum Requirement based on

Estimated Assessed Valuation as of August 1, 1992
at 95 9' collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.69/$100A.V.

Number of active water and sewer connections as of October 1, 1992.

Single Family . . . . . . . . . . . . . . . . . . . . . . . 283
Co111111Crcial . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (c)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1 (d)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . li!
Estimated 1992 population (August 31, 1992) . . . . . . 732 (e)

(a) Aa certifaed by the Fort Bend Cen&nl AppraiMI Diltrict (fBCAD). See "TAXING PROCEDURES.
(b) Aa etlimaa.d by the FBCAD and ia included 10lely for pul'pC* of illuatntioa. Such aanou reftecll aa ellimale of the taxable value
within lbe Diltrict on the dale indicated, and i1 bject IO review and chanse by the FBCAD and lbe Fort Bend Coullly Appniaal
Review &o.rd. No tax will be levied on such amount unleu it i1 certifaed by the FBCAD. lncreuu in value which occurred between
Ja....ry 1, 1992 and Aupa l, 1992, will not be a. .ued and certified for purposes of taxation until January 1, 1993.
(c) Includes a 40,000 square fooc buildins which i1 the site of the Univenity of Housaon Well HOUICOn lnllitute.
(d) Includes recreational center, irri1ation mcten etc.
(e) Baaed on 3.5 residents per sinsle family connection.

5
 CINCO RANCH DEVELOPMENT

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6
 THE DISfRICT

General

The District was created by legislation enacted by the 69th Texas State Legislature effective May 24, 1985. The
creation of the District was confirmed at an election held within the District on January 20, 1990. The District
operates as a municipal utility district pursuant to the provisions of Chapter 54 of the Texas Water Code and other
general statutes of the State of Texas applicable to municipal utility districts and is subject to the continuing
supervision of the Texas Water Commission (the "Commission").

The District is empowered, among other things, to purchase, construct, operate and maintain all works,
improvements, facilities and plants necessary for the supply and distribution of water; the collection, transportation
and treatment of wastewater; and the control and diversion of storm water. The District may issue bonds and other
forms of indebtedness to purchase or construct such facilities. The District is also empowered to establish, operate
and maintain fire-fighting facilities, independently or with one or more conservation and reclamation districts, after
approval by the City of Houston, the Commission and the voters of the District.

The District originally contained approximately 417. 9 acres and presently encompasses approximately 657 .4 acres
due to annexations ofland in 1990 (196.8 acres) and 1991(42.7 acres). The District, located in northeast Fort Bend
County, lies approximately 25 mile west of downtown Houston and is situated approximately two miles southwest
of the intersection of Interstate Highway 10 ("Katy Freeway") and Mason Road. Principal access to the District
is provided by the Katy Freeway and Fry, Mason and Peek Roads, major thoroughfares in the community. The
District lies entirely within the extraterritorial jurisdiction of the City of Houston.

Cinco Ranch

The District is one of thirteen municipal utility districts (the "Cinco MUDs") created to serve an approximate 5,416
acre tract of land purchased by Cinco Ranch Venture ("CRV") in June, 1984. CRV, succeeded by American
General Realty Investment Corporation doing business as Cinco Ranch (the "Developer"), conveyed approximately
526 acres located in Cinco MUD No. 's 3,5 and 6 and 206 acres located in Cinco MUD No. 8 to the former venture
partners of CRV. In addition to the Cinco MUDs, Willow Fork Drainage District ("Willow Fork") was formed
to serve approximately 5,700 acres of land, including approximately 5,312 of the approximately 5,416 acres
originally purchased by CRV.

Major water, wastewater and drainage improvements constructed to date within the Cinco MUDs and Willow Fork
includes the construction of (i) major outfall drainage facilities and trunk storm sewer facilities constructed by CRV
and financed or to be financed by Willow Fork, and (ii) major water supply and trunk water distribution facilities
and major wastewater treatment and trunk wastewater collection facilities constructed by CRV to be financed by
Cinco Municipal Utility District No. 1 ("Cinco MUD l" or the "Regional District".) See "UTILITY
AGREEMENT WITH REGIONAL DISTRICT."

The Developer also has completed the construction or is in the process of constructing underground utilities and
street paving to serve 1,073 single-family residential lots (approximately 611 acres) in Cinco Ranch, including the
District. According to the Developer, such lots will accommodate the construction of homes ranging in prices from
$95,000 to over $400,000. Willow Fork Associates, Ltd., the developer of Cinco MUD Nos. 3 and 5, and a
portion of Cinco MUD No. 6, has completed the construction of underground utilities and street paving to serve
450 single-family residential lots on approximately 129 acres.

Recreational amenities available to Cinco Ranch residents, include the Willow Fork Country Club and Golf Course,
located in Cinco MUD No. 3, No. 5 and No. 6, which includes a 16,000 square foot clubhouse, pro shops, 5
lighted tennis courts, and a swimming pool. The Great Southwest Equestrian Center, located within Cinco Ranch
MUD No. 3, is a 107 acre facility including a building of 670,000 square feet and includes stalls for 836 horses
and a 3.5 acre show arena which seats 4,500 people. Located to the east of and adjacent to Cinco Ranch is the
9,900 acre Cullen Barker Park which includes numerous recreational facilities. Other amenities for Cinco Ranch
include a 2,900 square foot visitors center and central sales office, an 18 acre lake system, beach club and
swimming lagoon, two lighted tennis courts an extensive greenbelt system, a neighborhood recreation center, and
children's playgrounds. Currently under construction is an 18 hole pay for play golf course, most of which is
located within Cinco MUD No. 2.

7
Statm of Development

Development within the District began in 1990 and as of October 1, 1992 approximately 204 acres have been
developed as the residential subdivision of South Lake Village, Sections 1, 2, 3, 4 and 5 (204 acres platted as 463
single family lots). Utility facilities and street paving to seive South Lake Village Sections l, 2, 3, 4 and 5 were
completed in November, 1991. In addition, the Developer recently received bids for the construction of the
underground utilities to seive North Lake Village, Section 1, a subdivision intended to include 53 single family
home lots on approximately 21 acres.

The following chart more completely describes the status of residential development within South Lake Village as
of August 31, 1992.

Platted Completed Homes Under Vacant

Section Acreage Lots Homes Construction Ym..
1 46.2 37 14 13 10
2 39.0 92 29 18 45
3 42.5 101 92 0 9
4 29.5 81 38 27 16
5 46.6 152 .12 ...4 ill
-
203.8 ~
-209 62
=== -
192

Homebuilders

The Developer has entered into lot sales contracts with the following builders: David Weekley Homes, Village
Builders, Period Classics, Jim Frankel Custom Homes, Custom Classics, Carmichael & Dame Builders, and Bayou
Bend Homes. Each lot sales contract requires the homebuilder to purchase a minimum number of lots during a
specified time period quarter with any excess purchase counting as a credit against the following requirement.
Failure of a homebuilder to purchase lots as required by its contract can result in the Developer terminating the lot
sales contract. According to the Developer, each of the homebuilders is in compliance with the requirements of
its contract. A description of the homebuilders active within each subdivision and the price range of homes is
provided below:

South Lake Village, Sections 3, 4 & 5 are being marketed as South Lake Pointe and South Lake Cove. Homes
within such subdivisions are being constructed by David Weekley Homes and Village Builders. Homes within South
Lake Pointe range in price from the $160,000's to the $190,000's. Homes within South Lake Cove range in price
from the $190,000's to the $220,000's.

South Lake Village, Section 2 is being marketed as South Lake Landing. Homes within such subdivision are being
constructed by Bayou Bend Homes, Carmichael & Dame Builders, Custom Classics, Jim Frankel Custom Homes
and Period Classics. Homes within South Lake Landing range in price from the $230,000's to the $300,000's.

South Lake Village, Section 1 is being marketed as South Lake Estates. The price of homes within South Lake
Estates starts at $300,000.

8
Future Development

The District contains approximately 273 net acres remaining to be developed with water distribution, wastewater
collection and storm drainage facilities. Such acreage is expected to be developed as future sections of South Lake
Village and North Lake Village and the District expects to finance the development of such acreage from additional
bond proceeds as development warrants. The Developer recently received bids for construction of the underground
utilities to serve North Lake Village, Section l, a subdivision proposed to contain 53 lots on approximately 26 acres.
According to the Developer, it intends to begin construction of such facilities within the next 60 days. In addition,
the Developer has begun the design of additional sections of North Lake Village. The District makes no
representation as to when, if ever, such acreage will be developed or if any future development will be consistent
with the type of development the District presently contains.

THE DEVELOPER

Role of a Developer

In general, the activities of a landowner or developer in a municipal utility district such as the District include
designing the project, defining a marketing program and setting building schedules; securing necessary governmental
approvals and permits for development; arranging for the construction of roads and the installation of utilities; and
selling or leasing improved tracts or commercial reserves to other developers or third parties. In most instances,
a landowner or developer will be required by the Commission to pay up to thirty percent (30 %) of the cost of
constructing the water distribution, wastewater collection, and storm drainage facilities in a district, exclusive of
water supply and storage and wastewater treatment plants of which the district finances one hundred percent ( 100 %)
of the cost. Pursuant to Commission rules, the District is exempt from the thirty percent (30 %) developer
contribution requirement due to the District's bonded debt to assessed value ratio of 8.48 %. While a developer is
required by the Commission to pave streets, a developer is under no obligation to a district to undertake
development activities according to any particular plan or schedule. Furthermore, there is no restriction on a
developer's right to sell any or all of the land which the developer owns within a district. In addition, the developer
is ordinarily the major taxpayer within the district during the early stages of development. The relative success or
failure of a developer to perform in the above described capacities may affect the ability of a district to collect
sufficient taxes to pay debt service and retire its bonds.

Neither American General nor any of its subsidiaries are obligated to pay principal of or interest on the Bonds. See
"RISK FACTORS - FACTORS AFFECTING TAXABLE VALUES AND TAX PAYMENTS - Developer Under
No Obligation to the District." Furthermore, the Developer has no binding commitment to the District to carry out
any plan of development, and the furnishing of information relating to the proposed development by the Developer
should not be interpreted as such a commitment. Nevertheless, the Developer has advised the District that it has
the present intention to carry out the development of Cinco Ranch according to the plans presented herein.
Prospective purchasers are invited to inspect the District in order to acquaint themselves with the nature of
development that has occurred or is occurring within its boundaries. See "THE DISTRICT."

American General Realty Investment Corporation/Cinco Ranch

The Developer of the District is American General Realty Investment Corporation (" AGRIC") currently doing
business as Cinco Ranch (the "Developer"). AGRIC is a wholly-owned subsidiary of American General Investment
Corporation(" AGIC"), which in tum is a wholly-owned subsidiary of American General Corporation(" American
General"). American General, with assets of more than $36 billion and equity of $4.3 billion, is one of the nation's
largest consumer financial services organii.ations. Headquartered in Houston, it is a leading provider of retirement
annuities, consumer loans, and life insurance. American General common stock is listed on the New York, Pacific,
London, and Swiss stock exchanges, and American General is subject to the information reporting requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports and other information
with the Securities Exchange Commission ("SEC"). American General through various subsidiaries has been
involved in the Cinco Ranch development since 1984. In 1984 the Cinco Ranch Venture (the "CRV"), a three-party
joint venture that included Atlas Realty Company ("Atlas"), a subsidiary of AGIC, was formed for the purpose of
acquiring and developing the approximate 5,416 acres of Cinco Ranch which included the 657 acres currently within
the District's boundaries. Subsequent to the original CRV purchase, in 1986 and 1988, the joint venture partners
withdrew from the partnership leaving Atlas as the sole partner and developer of the remaining land owned by CRV
in Cinco Ranch. As of October 19, 1992, the Developer owned approximately 3,261 acres of the original 5,416
acres. Atlas was subsequently renamed AGRIC. The Developer succeeded CRV.

9
American General and various of its subsidiaries have been active in recent years in real estate development in the
Houston area. Some of these developments include Greatwood (Fort Bend County MUD Nos. 108 and 109),
Greengate Place (Tattor Road MUD), Fairwood (Northwest Harris County MUD No. 5), Pecan Grove (Pecan
Grove MUD) and Cutten Green (Northwest Harris County MUD No. 6). Circumstances surrounding development
of the District differ from circumstances surrounding development within these other districts including economic
conditions, various other developers and financial partners involved, various builders involved, location and market
area. No representation is made that any of the projects mentioned above have been successful. Prospective
purchasers are invited to inspect the District in order to acquaint themselves with the nature of development that
bas occurred and is occurring within its boundaries.

Financing of the Development

The Developer is dependent upon its affiliates, including AGIC, for financing. Such financing has been made in
the form of intercompany loans, some of which have been secured. However, fundings on all loans to the
Developer are approved on a case-by-case basis and neither AGIC nor any other affiliate of the Developer is
obligated to continue to provide such loans. Any loans by AGIC are ultimately subject to approval by American
General.

As of September 30, 1992 the Developer has expended approximately $3,027 ,00 to pay for improvements on behalf
of the District; this figure does not include amounts expended by the Developer to pay for paving, landscaping and
other activities for which it cannot be reimbursed by the District, nor does it include amounts advanced to the
Developer to cover its operating costs. The Developer and its affiliates have expended over $200,000,000 in
acquiring the land, interest and tax carry, and developing Cinco Ranch as a whole. See "APPENDIX B" for
financial information relating to AGIC.

Financial Infonnation

AGIC bas delivered the unaudited financial information dated December 31, 1991, and June 30, 1992, and the
audited financial information dated December 31, 1990, included in" APPENDIX B," to the District for publication
in connection with the District's offer and sale of the Bonds. The financial information has been included herein
solely as additional information concerning AGIC, its financial condition and its source of funds as it relates to the
Developer. Such financial information is relevant, among other reasons, to the Developer's ability to continue
developing its land within the District and to pay ad valorem taxes thereon. The Developer and AGIC are not
responsible for, liable for, and have not made any commitment for payment of the Bonds or any other obligation
of the District, and inclusion of the financial information herein should not be construed as an implication to that
effect.

American General is subject to the information reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information
may be inspected at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington,
D. C. 20549 and at the following regional offices of the SEC: 26 Federal Plaz.a, New York, New York 10007, and
Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604. Copies of such material can be obtained
at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, such reports, proxy statements and other information can be inspected at the library of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which exchange the
Common Stock and old notes are listed.

10
 UTILITY AGREEI\IENT WITH REGIONAL DISTRICT

On February 20, 1990, the District executed a "Contract for Financing and Operation of Regional Waste Collection,
Treatment and Disposal Facilities and Regional Water Supply and Delivery Facilities" (the "Regional District
Contract") with Cinco Municipal Utility District No. 1 ("Cinco MUD 1" or the "Regional District"). The Regional
District Contract was approved by the voters of the District at an election held on January 20, 1990. The Regional
District Contract provides that the District and all other districts that execute similar contracts with the Regional
District shall pay a pro rata share of debt service on Regional District bonds based upon certified assessed valuation.
The District is obligated to pay its pro rata share from the proceeds of ad valorem taxes levied for such purpose
( the "Contract Tax"), revenues derived from the operation of the District's water distribution system and
wastewater collection system or from any legally available funds of the District. The Regional District Contract
also provides for operation and maintenance expenses for facilities constructed pursuant to the Regional District
Contract; duties of the parties; establishment and maintenance of funds; assignment; arbitration; amendments; force
majeure; insurance; and other provisions.

The Regional District Facilities (hereinafter defined) have been constructed with funds provided by the Developer
and such funds will be reimbursed to the Developer with future proceeds from revenue bonds sold by the Regional
District. The Regional District is authorized to issue contract revenue bonds sufficient to complete acquisition and
construction of the Regional District Facilities. The District's pro rata share (and that of all other Cinco MUDs
which are parties to similar Regional District Contracts) of the debt service requirements on the Regional District's
contract revenue bonds shall be determined by dividing the District's certified appraised value by the cumulative
total of the certified appraised values of all the Cinco MUDs which are parties to similar Regional Contracts. The
Regional District Contract obligates the District to pay its pro rata share of debt service requirements on the
Regional District contract revenue bonds from the proceeds of the Contract Tax, revenues derived from the
operation of the District's water distribution and wastewater collection system or from any other legally available
funds of the District. To date, the Regional District has not sold any bonds; therefore, the District will not levy
a 1992 Contract Tax. See "RISK FACTORS - Overlapping District Taxes and Functions."

The Regional District will own and operate the Regional District's trunk wastewater collection system, the Regional
District's trunk water distribution system, the water supply system and the wastewater tre.atment system (all
hereinafter referred to collectively as the "Regional District Facilities"). Each Cinco MUD within the service area
will own and operate the internal water distribution, wastewater collection and storm drainage lines within each
district. The Regional District Facilities will be constructed in stages to meet the needs of a continually expanding
population within the Regional District. In the event that the Regional District fails to meet its obligations to
provide Regional District Facilities as required by the District, the District has the right, pursuant to the Regional
District Contract, to design, acquire, construct, or expand the Regional District Facilities needed to provide service
to the District, and convey such Regional District Facilities to the Regional District in consideration of payment by
the Regional District of the actual reasonable necessary capital costs expended by the District for such Regional
District Facilities.

The District is further obligated to pay monthly charges to the Regional District for water and sewer service
rendered pursuant to the Regional District Contract. The monthly charges to be paid by the District to the Regional
District will be used to pay the District's share of operation and maintenance expenses and to provide for an
operation and maintenance reserve equal to three (3) months of operation and maintenance expenses. The District's
share of operation and maintenance expenses and reserve requirements are calculated by the Regional District and
expressed in terms of "cost per equivalent single-family residential connection." The District's monthly payment
to the Regional District for operation and maintenance expenses will be calculated by multiplying the number of
equivalent single-family residential connections reserved to the District on the first day of the previous month by
the unit cost per equivalent single-family residential connection. See "RISK FACTORS - Water and Sewer
Revenue."

11
Pursuant to the Regional District Contract the District is obligated to establish and maintain rates, fees and charges
for services provided by the District's water distribution system and wastewater collection system, together with
taxes levied and funds received from any other lawful sources, sufficient at all times to pay the District's operation
and maintenance expenses, and the District's obligations pursuant to the Regional District Contract, including the
District's pro rata share of the Regional District's debt service requirements and monthly charges. All sums payable
by the District to the Regional District pursuant to the Regional District Contract are to be paid by the District
without set off, counterclaim, abatement, suspension or diminution. If the District fails to pay its share of these
costs in a timely manner, the Regional District Contract, provides that the Regional District shall be entitled to
cancel, in whole or in part, any reservation or allocation of capacity in the Regional District Facilities by the District
in addition to the Regional District's other remedies. As a practical matter, the District has no alternative provider
of these services rendered by the Regional District under the Regional District Contract.

THE PROJECT

Water, Sanitary Sewer and Drainage System

The Bonds will constitute the initial installment of bonds of the District and are being issued for the purpose of
reimbursing AGRIC for funds advance.d on behalf of the District for the construction of water distribution,
wastewater collection and storm drainage facilities to serve South Lake Village, Sections 1 through 5 (204 acres,
platte.d as 463 single-family lots) and water and storm drainage facilities for an approximately 12.3 acres which is
the site of the University of Houston West Houston Institute. See "Use and Distribution of Bond Proceeds" below.
The utility facilities described above together with the Regional District Facilities (see "UTILITY AGREEMENT
WITH REGIONAL DISTRICT") constitute the District's system (the "System") which has been designed to be in
conformity with the requirements of the City of Houston, Fort Bend and Harris Counties, Texas, the Commission
and the Texas Department of Health.

Water Supply: The water supply facilities of the Regional District currently consist of one 1,500 gallon per
minute ("gpm") water well; a 1,800,000 gallon ground storage tank; booster pump capacity of 4,030 gpm; and
all related appurtenances. In addition, the Regional District has emergency water supply interconnects with
Cornerstones Municipal Utility District and Via Ranch Municipal Utility District No. 2. The Regional District's
facilities will adequately serve 2,500 equivalent single-family connections and have reserved capacity for 2,618
equivalent single-family connections of which 916 are reserved for the District. As of September l, 1992,
1,067 equivalent single-family connections were active in the Regional District's service area, including 503
active equivalent single family connections in the District. These connections include irrigation connections.

In order to provide water supply to serve the total development of the District, the Regional District's Facilities
will need to be expanded. An expansion to the Regional District's water supply system is expected to begin
in late 1992. The master water plan for the Regional District is designed to serve approximately 22,500
equivalent single-family connections which will require the construction of twelve ( 12) 1,500 gpm water wells;
three (3) elevated storage tanks totalling 4,300,000 gallons; five (5) ground storage tanks totalling 8,500,000
gallons; and booster pump capacity totalling 18,470 gpm. According to Turner Collie & Braden Inc., the
Regional District's engineer, it is planned that new facilities will be constructed in timely phases prior to
demand for such facilities.

Wastewater Treatment: The wastewater treatment facilities of the Regional District consist of two plants with
a combined capacity of 800,000 gallons per day ("gpd") and 250,000 gpd of capacity leased by the Regional
District from Memorial Municipal Utility District ("Memorial"). Current wastewater treatment capacity at the
Regional District's plants will serve 2,286 equivalent single family connections and the leased capacity in the
Memorial wastewater treatment plant will serve 714 equivalent single-family connections for a total of 3,000
equivalent single-family connections. The Regional District has reserved capacity for 2,301 equivalent single-
family connections, including 722 reserved for the District. As of September l, 1992, 750 equivalent single-
family connections were active in the service area, including 309 active equivalent single family connections
in the District.

12
 The Developer's plans indicate that the District will ultimately require 2,148 equivalent single-family
connections (excludina irriaation connections). In order to fully provide wastewater treatment services to the
District, the Reaional District's facilities will therefore need to be expanded in the future so that the connections
reserved by the Reaional District for the District's use may be increased. The master wastewater plan for the
Regional District is designed to serve 22,000 equivalent single-family connections which will require the
construction of 6,100,000 gpd of capacity to the existing wastewater treatment plants; and 660,000 gpd of leased
capacity from Memorial.

Flood Protection and Drainage: Willow Fork has financed the construction of certain outfall drainage
improvements to accommodate storm water drainage from lands within Willow Fork, including the District.
Such improvements include (i) the rectification of a portion of Willow Fork Bayou from within Barker
Reservoir to the west property line of Cinco Ranch, (ii) construction of the south diversion ditch, (iii)
restoration of a Harris County Flood Control ditch within Barker Reservoir, (iv) construction of major lateral
drainage channels, (v) construction of a bridge and related appurtenances within Barker Reservoir, (vi)
construction of an all-weather access road to the bridge, and (vii) certain oil and gas pipeline adjustments. Such
improvements are sufficient, together with the drainage components of the District's system, to provide adequate
storm water drainage to the entire District at full development. See "RISK FACTORS - Overlapping District
Taxes and Functions."

According to the Engineer, the Flood Insurance Map published by the Federal Emergency Management Agency
currently in effect, dated September 30, 1992, which covers the land located in the District, indicates that none
of the land located in the District is located within the 100-year flood plain of any body of water, except the
area contained within the banks of drainage channels.

Regulation: Construction and operation of the District's water, wastewater and storm drainage system as it
now exists or as it may be expanded from time to time is subject to regulatory jurisdiction of federal, state and
local authorities. The Commission exercises continuing supervisory authority over the District. Discharge of
treated sewage into Texas waters is also subject to the regulatory authority of the Commission and the United
States Environmental Protection Agency. Construction of drainage facilities is subject to the regulatory
authority of Willow Fork, the Fort Bend County Drainage District and the Harris County Flood Control District
(where appropriate). Fort Bend County, Harris County (where appropriate), The City of Houston, and the
Texas Department of Health also exercise regulatory jurisdiction over the System.

Use and Distribution of Bond Procee~

Proceeds from the Bonds will be used: (1) to reimburse AGRIC for funds advanced on behalf of the District for
the construction of water distribution, wastewater collection and storm drainage facilities to serve 204 acres located
in South Lake Village, Sections 1 through 5 and water and storm drainage facilities to serve 12.3 acres which is
the site of the University of Houston West Houston Institute; (2) to pay the construction costs on future projects;
(3) to reimburse the Developer for certain creation and operation costs as well as interest accrued on funds advanced
on behalf of the District; (4) to capitalize approximately eighteen (18) months' interest requirement on the Bonds;
and (5) to pay certain costs associated with the issuance of the Bonds.

13
The construction costs below were compiled by Turner, Collie & Braden, Inc., the District's engineer (the
"Engineer"), based on the actual cost of completed facilities, plus estimated cost of future projects, and was
submitted to the Commission in the District's Bond Application. Non-construction costs are based upon either
contract amounts, or estimates of various costs by the Engineer and the Financial Advisor. The actual amounts to
be reimbursed to the Developer and the non-construction costs will be finalized after the sale of the Bonds and
review by the District's auditor. Any surplus funds remaining may be expended for any lawful purpose for which
surplus construction funds may be used, if approved by the Commission, where required.

Construction Costs:

Water distribution, Wastewater Collection

and Storm drainage facilities

South Lake Village, Section 1 $278,032

South Lake Village, Section 2 465,243
South Lake Village, Section 3 548,490
South Lake Village, Section 4 301,480
South Lake Village, Section 5 471,455
University of Houston West Houston Institute 40,069
Future Projects 261,421 (a)
Engineering 414. 111
Total Construction Costs $2,780,301

Nonconstrction Costs:

Legal Fees $ 86,400

Financial Advisory Fees 86,400
Capitalized Interest 439,838
Developer Interest 411,000
Bond Discount 129,406
Operating Costs 188,655
Creation Cost 28,444
Bond Application Report Costs 30,000
Administrative Costs 50,000
Texas Water Commission 10,800
Contingency 78.756 (b)
Total Nonconstruction Costs $1.539.699

TOTAL BOND ISSUE $ 4.320.000

(a) To be escrowed by the District pending Commission receipt and approval of appropriate documentation for a beneficial purpose.
(b) In its order approving the issuance of the Bonds, the Commi11ion directed that any surplus bond proceeds resulting from the sale of
the bonds at a lower interest rate (than originally proposed in the bond application) be shown as a contingency line item in the cost
summary and shall be subject to approval pursuant to Commission rules on surplus funds.

UNLIMITED TAX
BONDS AUTHORIZED BUT UNISSUED

Date Vg~ mued

Aulbgdytign Fgr A11imt Purpose Aythorized to Date llni~yed
1120/90 4 0 Water, Sanitary
Sewer & Drainage $17 '900,000 $4,320,000* $13 ,580,000

1/20/90 4 0 Refunding Bonds $10, 740,000 -0- $10, 740,000

The Bonds.

14
 FINANCIAL STATEMENT
(Unaudited as of September 30, 1992)

1992 Assessed Valuation (100% of estimated market value) . . . . . . . . . . . . . . . $50,964,020 (a)

Estimated Assessed Valuation as of August l, 1992 (100% of estimated market value) $65,402,270 (b)

Debt Service
General Obligation Bonds Fund Outstanding

Unlimited Tax Bonds

(after issuance of the Bonds) $439,838 (c) $4,320,000

GROSS DEBT .......................... . $4,320,000

Ratio of Gross Debt to 1991 Assessed Valuation , . . . . . . . . . 8.48%

Ratio of Gross Debt to Estimated Assessed Valuation
as of August 1, 1992 . . . . . . . . . . . . . . . . , . , . . . . . . . 6.61 %

Area of District: 657. 4 acres

Estimated 1992 District Population: 732

(a) A1 certified by the Fort Bend Central Appraisal District ("FBCAD"). See "TAXING PROCEDURES."
(b) A estimated by the FBCAD and is included solely for purposes of illustration. Such amount reflects an estimate of the taxable value
within the District on the date indicated, and is subject to review and change by the FBCAD and the Fort Bend County Appraisal Review
Board. No tax will be levied on such amount unleu it is certified by the FBCAD. Increases in value which occurred between January
l, 1992 and August 1, 1992, will not be aaaeaaed and certified for purposes of taxation until January l, 1993.
(c) Represents approximately eighteen months capitalized interest included in the Bonda; does not include $22,225 in the Operating Fund,
as of September 30, 1992 (unaudited).

Cash and Investment Balances (Unaudited at September 30, 1992)

Operating Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,225

Debt Service Fund . . . . . . . . . . . . . . . . . . . . . . $439,838*

Capitalized Interest included in Bond proceeds.

ESTIMATED OVERLAPPING DEBT STATEMENT

Other governmental entities whose boundaries overlap the District have outstanding bonds payable from ad valorem
taxes. The following statement of direct and estimated overlapping ad valorem tax debt was developed, unless
otherwise indicated, from information contained in the "Texas Municipal Report," published by the Municipal
Advisory Council of Texas. Except for the amount relating to the District, the District has not independently
verified the accuracy or completeness of such information, and no person is entitled to rely upon such information
as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional bonds
since the dates stated in this table, and such entities may have programs requiring the issuance of substantial amounts
of additional bonds, the amount of which cannot be determined. Political subdivisions overlapping the District are
authorized by Texas law to levy and collect ad valorem taxes for operation, maintenance and/or general revenue
purposes in addition to taxes for payment of their debt, and some are presently levying and collecting such taxes.

15
 % Amount
Net D~bt Overlpg. Overlpg.
Taxing Body Amount As of Net Debt Net Debt

Fort Bend Co. $ 67 ,342,823 12/31/91 0.58 $ 390,588

Katy Independent School District 119 ,557 ,282 08/30/90 1.36 1,625,979
Willow Fork Drainage District 10,576,776 3.779.082
Total Net Overlapping $ 5,795,649

The District (includes the Bonds) $ 4,320,000 12/01/92 100.00 4.320.000

Total Direct & Overlapping Debt $10.115.649

Ratio of Direct & Overlapping Net Debt to 1992 A. V. 19.85%

Overlapping Taxes for 1992

1992
Tax Rate
Per $100 Average
Assessed Tax
Overlapping Entitv Valuation Bill Ca>

Fort Bend County $0.66 $1,080

Katy Independent School District 0.79 (b) 1,293

Willow Fork Drainage District 1.00 (b) 1,636

Cinco MUD No. 1 (c) -0-

Harris County Education District .78 (b) 1,276

The District ~ _ill

Total $ 3.73 $ 6.103

(a) Ba1ed single family home with an avera1e as.eased value of $163,632.
(b) 1991 Tax Rate; as of the date hereof 1992 tax rate has not been established.
(c) Has not levied a tax; but has the authority to levy a tax on property within the District. See "UTILITY AGREEMENT WITH
REGIONAL DISTRICT."

16
 TAX DATA

Cl&Mification of As.wssed Valuation

1222 1991 1990

Amount ~ Amount ~ Amount ~
Residential real estate,
single family . . . . . . . . . $25,420,052 49.88 $ 5,488,811 21.92 $ -0- 0.00
Acreage and commercial
reserves . . . . . . . . . . . . . 10,777 ,850 21.10 8,776,860 35.05 10,062,630 73.25
Vacant lots . . . . . . . . . . . . 14,277,378 28.02 10,612,559 42.38 3,670,600 26.72
Personal Property . . . . . . . . 528.740 1.04 162.570 _QM 4.660 0.03

Total . . . . . . . . . . . . . .

Less: Exemptions . . . . . . . . (40.000)

-
$51,004.020 100.00% $25 .040, 800

-0-
~% $13.737.890

-0-
-
100.00%

Net Taxable Value ~50 1 964 1 020 ~2510401800 ~13.737.890

Tax Collectiom

The following statement of tax collections sets forth in condensed form the historical tax collection experience of
the District. Such summary has been prepared by the Financial Advisor for inclusion herein based upon information
from District audits and records of the District Tax Assessor/Collector. Reference is made to such audits and
records for further and more complete information.

Tax ~eel Tax Tax Cyrr~nl Coll~tign Tomi C2ll~ti2n Tax Year
Xmr Valyatfon Rate Levy Amount Percent Amount Percent Ending

1990 13,737,890 0.25 34,345 34,345 100.00 34,345 100.00 09/30/91

1991 25,040,800 0.25 62,602 62,602 100.00 62,602 100.00 09/30/92*

Unaudited.

District Tax Rates

Proposed
1992

Debt Service $0.43 $-0- $-0-

Maintenance & Operation 0.07 0.25 ~
Total $0.50 $0.25 $0.25

Debt Service Tax

The District's tax rate for debt service on the Bonds is legally unlimited as to rate or amount.

Maintenance Tax

The Board of Directors of the District has the statutory authority to levy and collect an annual ad valorem tax for
planning, maintaining, repairing and operating of the District's improvements, if such maintenance tax is authorii.ed
by a vote of the District's electors. Such tax is in addition to taxes which the District is authorii.ed to levy for
paying principal of and interest on the Bonds, and any tax bonds which may be issued in the future. At an election
held within the District on January 20, 1990, voters of the District authorized the levy a maintenance tax not to
exceed $0.25/$100 assessed valuation. As illustrated above the District levied a maintenance tax in 1990 and 1991.

17
Contract Tax

The Regional District's Facilities have been constructed with funds provided by the Developer and such funds will
be reimbursed to the Developer with future proceeds from revenue bonds sold by the Regional District. The
Regional District is authorized to issue contract revenue bonds sufficient to complete acquisition and construction
of the Regional District Facilities. The District's pro rate share (and that of all other Cinco MUDs which are parties
to similar Regional District Contracts) of the debt service requirements on the Regional District's contract revenue
bonds shall be determined by dividing the District's certified appraised value by the cumulative total of the certified
appraised values of all the Cinco MUDs which are parties to similar Regional District Contracts. The Regional
District Contract obligates the District to pay its pro rata share of debt service requirements on the Regional District
contract revenue bonds from the proceeds of the Contract Tax, revenues derived from the operation of the District's
water distribution and wastewater collection system or from any other legally available funds of the District. To
date, the Regional District has not sold any bonds; therefore the District will not levy a 1992 Contract Tax. See
"RISK FACTORS -- Overlapping District Taxes and Functions."

Tax Exemptions

As discussed in the section titled "Taxing Procedures" herein, certain property in the District may be exempt from
taxation by the District. The District does not exempt any percentage of the market value of any residential
homesteads from taxation, except $10,000 of the appraised value of resident homesteads of persons who are disabled
or over 65 years of age. Church and public school facilities located in the District are also exempt from taxation
by the District.

Principal Taxpayers

The following list of principal taxpayers was provided by the District's Tax Assessor/Collector based on the 1992,
1991 and 1990 tax rolls of the District, which reflect ownership as of January 1 of each year shown. Ownership
changes subsequent to January 1, 1992 are not known to the District.

Taxpayer TxB PruBd! 1992 122! 1220

Cinco Ranch Venture (a) Acreage/Lots $ 9,614,150 $ 8,212,670 $ 5,740,830
American General Realty (b) Acreage/Lots 7,201,530 6,794,810 6,208,440
Weekley Homes, Inc. Lots & Homes 2,562,670 654,160
Friendswood Development Co. Lots & Homes 2,522,640 737,760
Westheimer/Cinco J.V. Acreage 1,530,150 *
Carmichael & Dame Builders Lots & Homes 699,600 *
Bayon Bend Homes Lots & Homes 541,570 *
L/P/W Cinco Venture Acreage 457,380 457,380 304,920
Hector R. Pierantoni Lot & Home 405,070 290,030
Gerald & Barbara Burger Lot & Home 395,800 *
Country Traditions Homes Lots & Homes * 432,750 *
Shell Oil Co. Acreage * 393,280 262,190
Clinton & Nancy Bearden Lot & Home * 237,140
Alexander & Martha Thorne Lot & Home * 229,980 *
Hadco Inc. Acreage * * 1,200,350
Automotive Rentals, Inc. Lot * * 12,500
Craig Bailey Directors Lot * * 1,000
Randal G. Rockett Directors Lot * * 1,000
Bari Pace Directors Lot * 1,000
Robert S. Parsley Directors Lot * 1.000
$25.930,560 $18.439.960 $13.733.230

Percentage of Assessed Valuation 50.88% 73.64% 99.97%

Not a principal taxpayer in that year .

(a) AGRIC succeeded to the interests of CRV.
(b) An affiliate of AGRJC.

18
Tax Adequacy for Debt Service

The calculations shown below assume, solely for purposes of illustration, no increase or decrease in assessed
valuation over the 1992 assessed valuation and the estimated assessed valuation as of August 1, 1992, and utilize
tax rates adequate to service the District's total debt service requirements. No available debt service funds are
reflected in these computations. See "RISK FACTORS - FACTORS AFFECTING TAXABLE VALUE AND
TAX PAYMENTS - Maximum Impact on District Tax Rates."

Average Annual Debt Service Requirements on the

Bonds (1996 through 2015) . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . $405,208

$0.84 Tax Rate on 1992 Assessed Valuation of $50,964,020

@ 95 % collections produces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $406,693

$0.66 Tax Rate on Estimated Assessed Valuation as of August l, 1992 of

$65,402,270@ 95% collections produces . . . . . . . . . . . . . . . . . . . . . . . . . $410,072

Maximum Annual Debt Service Requirements on the Bonds (2014) . . . . . . . . . . . . $427 ,313

$0.89 Tax Rate on 1992 Assessed Valuation of

$50,964,020@ 95% collections produces . . . . . . . . . . . . . . . . . . . . . . . . . $430,901

$0.69 Tax Rate on Estimated Assessed Valuation as of August 1, 1992 of

$65 ,402,270 @ 95 % collections produces . . . . . . . . . . . . . . . . . . . . . . . . . $428,712

Debt Se"ice Fund Management Index

Debt Service Requirement for year ending (12/31193) $219,919

Debt Service Fund Balance . . . . . . . . . . . . . . . . . . . . . . . . . $439,838(a)

1992 Debt Service Fund Tax Levy @ 95 % collections produces . . 208.188(b) $648,026

(a) Capitalized Interest included in Bond proceeds (eiahteen months' interest).

(b) Propoacd 1992 debt service tax rate: $0 .43/$100 assessed valuation.

TAXING PROCEDURES

Authority to Levy Taxes

The Board is authorized to levy an annual ad valorem tax, without legal limitation as to rate or amount, on all
taxable property within the District in an amount sufficient to pay the principal of and interest on the Bonds and any
additional bonds payable from taxes which the District may hereafter issue (see "RISK FACTORS - Future Debt")
and to pay the expenses of assessing and collecting such taxes. The District agrees in the Bond Resolution to levy
such a tax from year-to-year as described more fully herein under "THE BONDS - Source of Payment." Under
Texas law, the Board may also levy and collect an annual ad valorem tax for the operation and maintenance of the
District and its water and wastewater system and for the payment of certain contractual obligations. See "TAX
DATA - Debt Service Tax - Maintenance Tax and - Contract Tax."

Property Tax Code and County-Wide Appraisal District

The Texas Property Tax Code (the "Property Tax Code") specifies the taxing procedures of all political subdivisions
of the State of Texas, including the District. Provisions of the Property Tax Code are complex and are not fully
summarized here.

19
The Property Tax Code requires, among other matters, county-wide appraisal and equali:zation of taxable property
values and establishes in each county of the State of Texas an appraisal district with the responsibility for recording
and appraising property for all taxing units within a county and an appraisal review board with the responsibility
for reviewing and equalizing the values established by the appraisal district. The Fort Bend Central Appraisal
District (the "Appraisal District") has the responsibility for appraising property for all taxing units within Fort Bend
County, including the District. Such appraisal values are subject to review and change by the Fort Bend County
Appraisal Review Board (the "Appraisal Review Board").

Property Subject to Taxation by the District

Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for
the production of income, mobile homes and certain categories of intangible personal property with a tax situs in
the District are subject to taxation by the District. Principal categories of exempt property include, but are not
limited to: property owned by the State of Texas or its political subdivisions if the property is used for public
purposes; property exempt from ad valorem taxation by the federal law; certain household goods, family supplies,
and personal effects; certain goods, wares and merchandise in transit; farm products owned by the producer; certain
property of charitable organizations, youth development associations, religious organizations, and qualified schools;
designated historical sites; and most individually owned automobiles. In addition, the District may by its own action
exempt residential homesteads of persons sixty-five (65) years or older and of certain disabled persons to the extent
deemed advisable by the Board. The District may be required to offer such an exemption if a majority of voters
approve it at an election. The District would be required to call such an election upon petition by twenty (20)
percent of the number of qualified voters who voted in the preceding election. The District is authorized by statute
to disregard exemptions for the disabled and elderly if granting the exemption would impair the District's obligation
to pay tax supported debt incurred prior to adoption of the exemption by the District. Furthermore, the District
must grant exemptions to disabled veterans or certain surviving dependents of disabled veterans, if requested, but
only to the maximum extent of $3,000 of taxable valuation. See "TAX DATA - Classification of Assessed Value."

Residential Homestead Exemptions: The Property Tax Code authorizes the governing body of each political
subdivision in the state of Texas to exempt up to twenty (20) percent of the appraised value of residential
homesteads from ad valorem taxation. Where ad valorem taxes have previously been pledged for the payment
of debt, the governing body of a political subdivision may continue to levy and collect taxes against the
exempt value of the homesteads until the debt is discharged, if the cessation of the levy would impair the
obligations of the contract by which the debt was created. The adoption of a homestead exemption may be
considered each year, but must be adopted by May 1. See "TAX DATA."

Freeport Goods Exemption: Freeport goods are goods, wares, merchandise, other tangible personal property
and ores, other than oil, natural gas and other petroleum products, which have been acquired or brought in
the state for assembling, storing, manufacturing, repair, maintenance, processing or fabricating or used to
repair or maintain aircraft of a certified air carrier, and shipped out of the state within one hundred seventy-
five (175) days. As the result of a state constitutional amendment passed by Texas voters on November 7,
1989, goods in transit ("freeport goods") are exempted from taxation by the District effective January 1, 1990.

Tax Abatement

Fort Bend County may designate all or part of the area within the District that is within their respective jurisdiction
as a reinvestment z.one. The City of Houston also may designate property within its boundaries or its extraterritorial
jurisdiction ("ETJ") as a reinvestment z.one. Thereafter, Fort Bend County, the Katy Independent School District,
the District, or the City of Houston (after annexation of the District) at the option and discretion of each entity, may
enter into tax abatement agreements with owners of property within the z.one. Prior to entering into a tax abatement
agreement, each entity must adopt guidelines and criteria for establishing tax abatement, which each entity will
follow in granting tax abatement to owners of property. The tax abatement agreements may exempt from ad
valorem taxation by each of the applicable taxing jurisdictions, including the District, for a period of up to ten (10)
years, all or any part of any increase in the assessed valuation of property covered by the agreement over its
assessed valuation in the year in which the agreement is executed, on the condition that the property owner make
specified improvements or repairs to the property in conformity with the terms of the tax abatement agreement.
The terms of all tax abatement agreements must be substantially the same.

20
Valuation of Property for Taxation

Generally, property in the District must be appraised by the Appraisal District at market value as of January 1 of
each year. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by
the District in establishing its tax rolls and tax rate. Assessments under the Property Tax Code are to be based on
one hundred percent (100%) of market value, as such is defined in the Property Tax Code.

The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at
its value based on the land's capacity to produce agricultural or timber products rather than at its fair market value.
The Property Tax Code permits, under certain circumstances, that residential real property inventory held by a
person in the trade or business be valued at the price all such property would bring if sold as a unit to a purchaser
who would continue the business. Provisions of the Property Tax Code are complex and are not fully summarized
herein. Landowners wishing to avail themselves of the agricultural use, open space or timberland designation or
residential real property inventory designation must apply for the designation, and the appraiser is required by the
Property Tax Code to act on each claimant's right to the designation individually. A claimant may waive the special
valuation as to taxation by some political subdivisions while claiming it as to another. If a claimant receives the
agricultural use designation and later loses it by changing the use of the property or selling it to an unqualified
owner, the District can collect taxes based on the new use, including taxes for the previous three (3) years for
agricultural use and taxes for the previous five (5) years for open space land and timberland.

The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to
update appraisal values. The plan must provide for appraisal of all real property in the Appraisal District at least
once every three (3) years. It is not known what frequency of reappraisal will be utilized by the Appraisal District
or whether reappraisals will be conducted on a zone or county-wide basis. The District, however, at its expense
has the right to obtain from the Appraisal District a current estimate of appraised values within the District or an
estimate of any new property or improvements within the District. While such current estimate of appraised values
may serve to indicate the rate and extent of growth of taxable values within the District, it cannot be used for
establishing a tax rate within the District until such time as the Appraisal District chooses formally to include such
values on its appraisal roll.

District and Taxpayer Remedies

Under certain circumstances, taxpayers and taxing units (such as the District) may appeal the orders of the Appraisal
Review Board by filing a timely petition of review in State district court. In such event, the value of the property
in question will be determined by the court or by a jury if requested by any party. Additionally, taxing units may
bring suit against the Appraisal District to compel compliance with the Property Tax Code.

The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases by the District and
provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code
also establishes a procedure for notice to property owners of reappraisals reflecting increased property value,
appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll.

Levy and Collection of Taxes

The District is responsible for the levy and collection of its taxes unless it elects to transfer such functions to another
governmental entity. By September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set
by the Board based upon the valuation of property within the District as of the preceding January 1. Taxes are due
October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year.
A delinquent tax incurs a penalty of six percent (6 %) of the amount of the tax for the first calendar month it is
delinquent, plus one percent ( 1 %) for each additional month or portion of a month the tax remains unpaid prior to
July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes
delinquent, the tax incurs a total penalty of twelve percent (12 %) regardless of the number of months the tax has
been delinquent and incurs an additional penalty of up to fifteen percent (15 %) if imposed by the District. The
delinquent tax also accrues interest at a rate of one percent ( 1 %) for each month or portion of a month it remains
unpaid. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payment
and the postponement of the delinquency date of taxes under certain circumstances.

21
District Rights in the Event of Tax Delinquencies

Taxes levied by the District are a personal obligation of the owner of the property as of January 1 of the year for
which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all
state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor
of the State of Texas and each local taxing unit, including the District , having power to tax the property. The
District's tax lien is on a parity with tax liens of such other taxing units (see "TAX DATA - Overlapping Taxes for
1992"). A tax lien on real property takes priority over the claim of most creditors and other holders of liens on
the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax
lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the District
is determined by applicable federal law. Personal property under certain circumstances is subject to seizure and
sale for the payment of delinquent taxes, penalty, and interest.

At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing
payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real
property, the District must join other taxing units that have claims for delinquent taxes against all or part of the
same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other
taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a
taxpayer may redeem property within two (2) years after the purchaser's deed issued at the foreclosure sale is filed
in the county records) or by bankruptcy proceeding which restrict the collection of taxpayer debts. See "RISK
FACTORS - General - Tax Collection Limitations and Foreclosure Remedies."

WATER AND SEWER OPERATIONS

General

The Bonds are payable from the levy of an ad valorem tax, without legal limitation as to rate or amount, upon all
taxable property in the District. See "THE BONDS-Source of Payment."

Rate and Fee Schedule

The Board of Directors of the District establishes rates and fees for water and sewer service. The rates are subject
to change from time to time. The following rates were approved on October 28, 1992.

Water and Sewer (monthly billing)

Each user within the District will be charged for water and sewer on a monthly basis according to volume of water
used and in accordance with the following schedule:

$13.00 Base water and sewer rate for 1,000 gallons

$1.05 Water rate per 1,000 gallons of metered water for usage between 1,000 and 30,000 gallons

$1.50 Water rate per 1,000 gallons of metered water for usage over 30,000 gallons

$1.45 Sewer rate per 1,000 gallons of metered water usage for over 1,000 gallons

The District's bills for sewer services during the months of April through September are averaged so that the usage
fees for each such month do not exceed the non-summer month's average.

22
Water and Sewer Prior to Initial Occupancy (monthly billing) $16.00 Flat Rate

Tap Fees - Water

Residential

5/8" tap $610.00

1" tap $940.00
Over 1" tap Cost plus 100% (not to be less than $940)

Non Residential $0.06 per square foot of land served

Sewer Impection Fees $50.00

Facility Impection Fees $25.00

Waterworks and Sewer Operating Statement

The following statement sets forth in condensed form the historical results of operation of the District's water and
sewer system. Such summary has been prepared by the Financial Advisor for inclusion herein, based upon
information obtained from the District's audited financial statements. Reference is made to such statements for
further and more complete information.

Fiscal Year Ended

09/30/92(a) 9/30/91(b) 9/30/90(b)
Revenue
Property Taxes . . . . . . . . . . . . . $ 63,009 $34,404 $-0-
Water and Sewer . . . . . . . . . . . 107 ,218 59,640 15,515
Tap Connection . . . . . . . . . . . . 159,638 117,153 17,610
Interest Income . . . . . . . . . . . . 1,236 1,694 -0-
Other . . . . . . . . . . . . . . . . . . 2.212 295 ---1
Total Revenues $333,313 $213,186 $33,141

Expenditures
Purchased Services $140,072 $133,150 $ 77,116
Professional Fees . . . . . . . . . . . 42,504 39,299 -0-
Contracted Services . . . . . . . . . . 30,485 26,058 4,617
Repairs & Maintenance . . . . . . . 11,551 6,545 20
Other . . . . . . . . . . . . . . . . . . 12,572 9,816 14,063
Capital Outlay . . . . . . . . . . . . . 85.415 75.516 12.962
Total Expenditures . . . . . . . . $322,599 $290,384 $108,778

NET REVENUES (DEFICIT) .... $ 10.714 ${77.198) $<75.637)

(a) Unaudited.
(b) Audited.

23
Customer Count

The following is the number of active water and sewer service customers of the District as of the dates indicated.

9/30/92 9/30/91 9/30/90

Single Family 283 125 14

Commercial 2 2 39
Other (a) 63 59 -1
Total 348 186 55

(a) Includes recreational center, irrigation meters, etc ..

MANAGEMENT

Board of Directors

The District is governed by a Board of Directors, which consists of five (5) directors and which has control over
and management supervision of all affairs of the District. The Directors and officers of the District are listed
below:

Name Title Tenn Expires Occupation

Randal Rockett . . . . . . . . . President 5-7-94 Real Estate Broker

Bari Pace ............ Vice President 5-4-96 Senior Power Consultant

John A. Carter . . . . . . . . . Secretary /Treasurer 5-4-94 Civil Engineer

Stephen D. Crow ....... Asst. Vice President 5-7-94 Vice President of Manufacturing

Debbie Hester ......... Asst. Secretary /Treasurer 5-7-96 Office Manager

Directors are elected to staggered four-year terms. Elections are held in the spring of even-numbered years. None
of the Directors listed above reside in the District. However, all of the Directors own land within the District,
subject to a note and deed of trust in favor of the Developer.

Tax A~essor/Collector

Land and improvements in the District are being appraised for taxation by the Fort Bend Central Appraisal District.
The Tax Assessor/Collector is appointed annually by the Board of Directors of the District. Ed Grosso of Tax Tech
currently serves the District in this capacity under contract. In addition, members of Tax Tech serve approximately
32 other special districts as Tax Assessor/Collector.

System Operator

The District contracts with Am-Tex Corporation ("Am-Tex") to operate and maintain the District's System. Am-
Tex serves in this capacity for approximately 140 similar districts. The District pays a pro rata share of cost of the
operation and maintenance of the Regional District Facilities which is also operated and maintained by Am-Tex.
See "THE PROJECT -- Water, Sanitary Sewer and Drainage System."

Bookkeeper

District Data Services, Inc. ("District Data") acts a bookkeeper for the District. District Data performs similar
service for 94 other utility districts.

24
Legal Coumel

The District employs Vinson & Elkins, L.L.P., Houston, Texas as Bond Counsel in connection with the issuance
of the District's Bonds. The fees of Bond Counsel are contingent upon the sale and delivery of the Bonds.

Financial Advisor

Legg Mason Wood Walker, Inc. services as the District's financial advisor (the "Financial Advisor"). The fee for
services rendered in connection with the issuance of the Bonds is based on the percentage of the Bonds actually
issued, sold and delivered and, therefore, such fee is contingent upon the sale and delivery of the Bonds. The
Financial Advisor has been authorized through a resolution of the Board to submit a bid for the purchase of the
Bonds.

Engineer

The District's consulting engineer is Turner Collie & Braden Inc. (the "Engineer"). Such firm serves as consulting
engineer to more than 30 other special districts in the Houston metropolitan area, including Cinco Municipal Utility
District Nos. 1, 2, 9 and the Willow Fork Drainage District.

Auditor

White Petrov & McHone ("WPM"), Certified Public Accountants performed the audit of the District's financial
statements for the fiscal year ended September 30, 1991, and such firm has been engaged to perform the audit of
the District's financial statements for the fiscal year ended September 30, 1992. WPM serves as auditor to
approximately 180 other special districts.

25
 DEBT SERVICE REQUIREMENTS
$4,320,000
CINCO MUNICIPAL UTILITY DISTRICT NO. 2
UNLIMITED TAX BONDS, SERIES 1992
Issue Dated: December 1, 1992
First Interest Payment Due: September 1, 1993

Year Total
Ending Principal Interest Interest Debt Service
12/31 (Due 09/01) Rate (Due 03/01) (Due 09/01) Total Requirement

1993 so $219,919 $219,919 $219,919

1994 146,613 146,613 293,225 293,225
1995 146,613 146,613 293,225 293,225
1996 $95,000 7.00% 146,613 146,613 293,225 388,225
1997 100,000 7.00% 143,288 143,288 286,575 386,575
1998 100,000 7.00% 139,788 139,788 279,575 379,575
1999 125,000 7.00% 136,288 136,288 272,575 397,575
2000 125,000 7.00% 131,913 131,913 263,825 388,825
2001 150,000 7.00% 127,538 127,538 255,075 405,075
2002 150,000 7.00% 122,288 122,288 244,575 394,575
2003 150,000 6.50% 117,038 117,038 234,075 384,075
2004 175,000 6.60% 112,163 112,163 224,325 399,325
2005 200,000 6.70% 106,388 106,388 212,775 412,775
2006 200,000 6.75% 99,688 99,688 199,375 399,375
2007 225,000 6.75% 92,938 92,938 185,875 410,875
2008 250,000 6.80% 85,344 85,344 170,688 420,688
2009 250,000 6.80% 76,844 76,844 153,688 403,688
2010 275,000 6.75% 68,344 68,344 136,688 411,688
2011 300,000 6.75% 59,063 59,063 118,125 418,125
2012 325,000 6.75% 48,938 48,938 97,875 422,875
2013 350,000 6.75% 37,969 37,969 75,938 425,938
2014 375,000 6.75% 26,156 26,156 52,313 427,313
2015 4001000 6.75% 13~00 13~00 272000 4271000
S4J20.000 S2.185J06 S2.405 :l.25 S4.S9C>.S31 $8.910.SJl

26
 RISK FACTORS

General

The Bonds are obligations solely of the District and are not obligations of the State of Texas, Fort Bend County,
the City of Houston, or any entity other than the District. Payment of the principal and interest on the Bonds
depends upon the ability of the District to collect taxes levied on taxable property within the District in an amount
sufficient to service the District's bonded debt or in the event of foreclosure, on the value of the taxable property
in the District and the taxes levied by the District and other taxing authorities upon the property within the District.
See "THE BONDS--Source of Payment. " The collection by the District of delinquent taxes owed to it and the
enforcement by Registered Owners of the District's obligation to collect sufficient taxes may be a costly and lengthy
process. Furthermore, the District cannot and does not make any representations that continued development of
taxable property within the District will accumulate or maintain taxable values sufficient to justify continued payment
of taxes by property owners or that there will be a market for the property. See "Registered Owners' Remedies"
below.

Factors Affecting Taxable Value and Tax Payments

Economic Factors and Interest Rates A substantial percentage of the taxable value of the District results from
the current market value of single-family residences and developed vacant lots presently located in the District. The
market value of such homes and lots is related to many economic conditions that affect the demand for and thus the
market value of homes, including such factors as interest rates, credit availability, construction costs, energy
availability, and the general economic conditions and demographic characteristics of the Houston metropolitan area.
Decreased construction activity also would tend to restrict the growth of property values in the District or could
adversely impact existing values. Interest rates and the availability of mortgage and development funding could
directly impact construction activity, particularly short-term interest rates at which developers are able to obtain
financing for development costs. Lenders have been selective in recent years in making real estate loans in the
Houston area because of the negative impact of such loans to their real estate portfolios. Interest rate levels may
affect the ability of a landowner with undeveloped property to undertake and complete construction activities within
the District. Because of the numerous and changing factors affecting the availability of funds, the District is unable
to assess the future availability of such funds for continued development and construction within the District.

Competition The demand for and construction of single-family homes in the District could be affected by
competition from other residential developments in the general vicinity of Cinco Ranch, many of which have a more
mature development status. In addition, demand for single family homes could be affected by competition from
other residential developments located in other utility districts in Cinco Ranch.

The competitive position of the Developer (in the sale of developed lots and of prospective builders in the
construction of single-family residential houses within the District) as well as the position of homeowners in reselling
homes, is affected by most of the factors discussed in this section. The growth and maintenance of taxable values
in the District and tax revenues to be received by the District will be greatly affected by both the competitive
position of the Developer and the resale values of homes in the District. The District can give no assurance that
building and marketing programs in the District by the Developer will be implemented or, if implemented, will be
successful.

Developer/Landowners Under No Obligation to the District There is no commitment from or obligation of the
Developer to proceed at any particular rate or according to any specified plan with the development of land or the
construction of homes in the District, and there is no restriction on any landowner's right to sell its land. Failure
to construct taxable improvements on developed lots and tracts and failure of landowners to develop their land would
restrict the rate of growth of taxable value in the District. The District is also dependent upon the Developer and
the other principal taxpayers for the timely payment of ad valorem taxes, and the District cannot predict what the
future financial condition of either will be or what effect, if any, such financial conditions may have on their ability
to pay taxes. See "THE DEVELOPER" and "TAX DATA - Principal Taxpayers."

27
Maximmn Impact on District Tax Rates... Assuming no further development, the value of the land and
improvements currently within the District will be the major determinant of the ability or willingness of owners of
property within the District to pay their taxes. The 1992 Certified Assessed Valuation is $50,964,020. After
issuance of the Bonds, the maximum annual debt service requirement will be $427,313(2014), and the average
annual debt service requirement will be $405,208 (1996/2015, inclusive). Assuming no increase or decrease from
the 1992 Certified Assessed Valuation, the issuance of no additional debt, and no other funds available for the
payment of debt service, tax rates of $0.89 and $0.84 per $100 of assessed valuation at a ninety five percent (95%)
collection rate would be necessary to pay the maximum annual debt service requirement and the average annual debt
service requirement, respectively. The Estimated Assessed Valuation as of August 1, 1992, within the District of
$65,402,270 reduces the tax rate calculations above to $0.69 and $0.66, respectively. The District expects to levy
a debt service tax rate of $0.43 per $100 of Assessed Valuation for 1992. Such levy will be the District's initial
debt service tax levy. The District anticipates that future increases in taxable values will enable it to meet debt
service requirements on the Bonds without increasing the tax rate above the rate which the District intends to levy
for 1992; however, the District can make no representation that the taxable property values in the District will
increase in the future or will maintain a value sufficient of support the aforementioned tax rate or to justify
continued payment of taxes by property owners. See "DEBT SERVICE REQUIREMENTS" and "TAX DATA-
Tax Adequacy for Debt Service."

The District's property owners are also expected in the future to begin payment of a contract tax (the "Contract
Tax") levied by the District to cover the District's pro rata share of bonds expected to be issued by Cinco MUD
No. 1 for the Regional District Facilities. See "Overlapping District Taxes and Functions" below. The District
also lies wholly within the Willow Fork Drainage District ("Willow Fork"), and is subject to taxation by Willow
Fork. Willow Fork levied a 1991 total tax rate of $1.00. As represented in Willow Fork's $9, 140,000 Series 1992
Bond Application to the Commission, Willow Fork anticipates levying the same tax rate for 1992, and reducing such
tax rate to $0.50 for 1993 and thereafter. Willow Fork's assessed value must increase approximately $342,000,000
over the next several years in order for Willow Fork to lower its total tax rate to $0.50 and continue serving debt
currently outstanding and $9,140,000 of additional debt (see "Overlapping District Taxes and Functions" below).
The growth of Willow Fork's assessed value is contingent upon continued development in the District and Cinco
MUD No. 9 which are being developed by the Developer and Cinco MUDs No. 3, No. 5 and No. 6, which are
being developed by Willow Fork Associates, Ltd. In the event that Willow Fork's tax rate of $1.00 per $100 of
assessed valuation proves to be insufficient to meet debt service requirements on its indebtedness and/or its
maintenance and operating requirements, Willow Fork would be required to increase its tax rate to a level sufficient
to meet such requirements. Willow Fork's 1992 Certified Assessed Valuation is $180,570,690. Assuming no
increase thereto, and a 90% tax collection rate for Willow Fork, Willow Fork would have to establish a tax rate
of $1.12 per $100 of Assessed Valuation to pay the maximum annual debt service on its outstanding bonds,
including the $9,140,000 expected to be sold in 1992. The District cannot represent whether any of the land
development projects which are planned for or are underway in any of the Cinco MUDs , including the District,
will be successful or whether the assessed valuation of property located within Willow Fork will increase sufficiently
to justify continued payment of the Willow Fork tax by property owners within Willow Fork. Increases in Willow
Fork's tax rate to levels substantially higher than $1.00 per $100 of assessed valuation would have an adverse impact
upon future development within Willow Fork and the District, on home sales within the District, and the ability of
the District to collect, and the willingness of owners of property located within the District to pay ad valorem taxes
levied by the District. In addition, property located within the District is subject to taxation by various other
governmental entities. See "ESTIMATED OVERLAPPING DEBT STATEMENT." The aggregate amount of
taxes imposed by such entities could materially adversely affect development and the sale of homes in the District.

Overlapping District Taxes and Functiom

The District lies wholly within Willow Fork, a drainage district which covers approximately 5,700 acres of land.
All of the acreage in the District is served by major drainage facilities provided by Willow Fork. Willow Fork has
financed the construction of certain improvements to accommodate storm water drainage within its boundaries,
including the District, and is expected to finance the acquisition and/or construction of additional drainage facilities
in the future, with the proceeds of unlimited tax bonds issued by Willow Fork. Willow Fork has to date sold
$11,900,000 Unlimited Tax Bonds, Series 1986 and plans to sell an additional $9, 140,000 of unlimited tax bonds
in 1992. The principal of and interest on Willow Fork bonds are payable from the proceeds of a continuing, direct
annual ad valorem tax, without legal limit as to rate or amount, levied against all taxable property located within
Willow Fork, including the District. Willow Fork levied a total 1991 tax of $1.00 per $100 Assessed Valuation.

28
Since Willow Fork's debt is payable from an unlimited tax, the full and timely payment of such tax by the owners
of property located within Willow Fork will directly affect Willow Fork's ability to meet its debt obligations.
Furthermore, the absence of continued development and the absence of the growth of taxable values in Willow Fork
or other factors could result in increases in Willow Fork's tax rate. The District cannot predict what tax rates
Willow Fork will levy for 1992 or in future years.

The District bas executed a contract for Financing and Operation of Regional Waste Collection, Treatment and
Disposal Facilities and Regional Water Supply and Delivery Facilities" (the Regional District Contract") with
Cinco Municipal Utility District No. I, ("Cinco MUD No. I" or the "Regional District). The District does not
have its own water production or wastewater treatment facilities. Instead, it is dependent upon Cinco MUD No.
1 to provide those services. The Regional District Contract defines the means by which the District's pro rata share
(and that of all other Cinco MUDs which are parties to contracts with the Regional District) of bonds to be issued
by the Regional District in the future will be determined, and obligates the District to pay its pro rata share from
the proceeds of ad valorem taxes levied by it for such purpose (the contract Tax) or from any other lawful source
of District income. The District's pro rata portion of the Contract Tax is a function of the taxable assessed valuation
located in the District compared to the taxable assessed valuation of property located in all of the participating Cinco
MUDs. Therefore, if the Regional District issues bonds in the future and if adequate additional development does
not occur in the other participating Cinco MUDs, the District may bear a disproportionate share of such Contract
Tax. Currently, voters within Cinco MUD Nos. 3,5,6,8,9 and the District have authorized the Regional District
Contract and the Contract Tax. Currently no development is occurring in the other seven (7) Cinco MUDs. It is
anticipated that once development of such Cinco MUDs commences, the Regional District Contract and the Contract
Tax will be submitted to the voters of such districts for approval. The District cannot represent the likelihood of
whether the voters of any of the Cinco MUDs which have not yet considered the Regional District Contract Tax
will authorize the Regional District Contract and the Contract Tax when they are considered by such voters at
elections.

The District is further obligated to pay monthly charges to the Regional District for water and sewer services
rendered pursuant to the Regional District Contract. The monthly charges to be paid by the District to the Regional
District will be used to pay the District's share of operations and maintenance expenses and to provide for an
operation and maintenance reserve equivalent to three (3) months of operation and maintenance expenses. The
District's share of maintenance expense and reserve requirements is based upon a "unit cost of operation and
maintenance expense and reserve requirements, calculated by the Regional District and expressed in terms of cost
per equivalent single-family residential connection." The District's monthly payment to the Regional District for
operation and maintenance expenses will be calculated by multiplying the number of equivalent single-family
residential connections reserved to the District on the first day of the previous month by the unit cost per equivalent
single-family residential connection. If the District fails to pay its share of these costs in a timely manner, the
Regional District Contact provides that the Regional District shall be entitled to cancel, in whole or in part, any
reservation or allocation of capacity in the Regional District's facilities by the District in addition to the Regional
District's other remedies. See UTILITY AGREEMENT WITH REGIONAL DISTRICT.

The Developer's projections for the District and the other Cinco MUDs call for the District's tax rate (or the tax
rate of any of the other Cinco MUDs), the Contract Tax and the Willow Fork tax rate to total less than $1.50 per
$100 of assessed valuation. However, the tax rate that may be required to service debt on any bonds issued by a
special district, including the District, is subject to numerous uncertainties such as the growth of taxable values
within such district, the amount of the bonds issued, regulatory approvals, construction costs and market interest
rates. There can be no assurances that composite tax rates imposed by overlapping jurisdictions on property situated
in the Cinco MUDs, will be competitive with the tax rates of competing projects. To the extent that such composite
tax rates are not competitive with competing developments, the growth of property tax values in the District and
the investment quality or security of the Bonds could be adversely affected. The combined 1992 tax levies of the
District (expected 1992 District tax of $0.50 per $100 of assessed valuation) and Willow Fork are $1.50 per $100
of assessed valuation. Such a combined tax levy is higher than the tax levy of many municipal utility districts in
the Houston metropolitan area providing comparable services.

29
The current Commission rules regarding the feasibility of a bond issue for utility districts in Fort Bend County limits
the projected combined total tax rate of entities levying a tax for water, wastewater and drainage to $1.SO per $100
of assessed valuation. The total combined tax rate for the District includes the District's projected debt service tax
rate, the Contract Tax and Willow Fork's projected tax rate. The Developer's projections for the District and other
Cinco MUDs is consistent with the rules of the Commission. If the total combined tax rate of the District should
ever exceed $1.SO, the District and Willow Fork could be prohibited from selling additional bonds. See "Factors
Affecting Taxable Values and Tax Payments - Maximum Impact on District Tax Rates."

Water and Sewer Revenues

The District's main sources of revenue will come from the sale of water and wastewater services provided by the
District, as well as tap fees. In the Regional District Contract, the District agreed that it would establish, maintain
and from time to time adjust the rates, fees and charges for its wastewater collection system and water distribution
system, or the availability of such services, so that the gross revenues therefrom together with any taxes levied in
support thereof and funds received from any other lawful source would be sufficient at all times to pay all operation
and maintenance expenses of the District's wastewater collection system, the District's water distribution system
and all the District's obligations to the Regional District under the Regional District Contract, including the
District's obligation to pay its pro rata share of the debt service requirements on the Regional District's bonds.

Recent data indicates that receipts from tap fees and water and wastewater services have been insufficient to cover
the District's expenses. As of September 30, 1991, the District had an unaudited operating cash balance of $22,225.
It is anticipated by the District that the Developer will advance the amounts necessary to cover the District's deficits;
however, the Developer is under no obligation to do so. See "THE DEVELOPER - Financing of the
Development."

The District pays to the Regional District the District's pro rata share of operating costs of the Regional District
facilities. The District pays such costs with revenues generated by its water and wastewater system. However, to
date, the District's revenues have been insufficient to pay such costs; therefore, the District relies on advances from
the Developer to pay these charges. Developer advances for such purposes totaled $178,942 for the fiscal year
ended September 30, 1991 and total $198,042 for previous years. The District intends to reimburse the Developer
for such advances with bond proceeds to the extent allowed by the Commission.

Undeveloped Acreage

There are approximately 431 acres of land in the District which have not been provided with water supply and
distribution, wastewater collection and treatment and/or storm drainage facilities. Approximately 158 of such acres
consist of streets, drainage and other easements and recreational open spaces which are not developable or currently
planned for development and approximately 273 acres, owned by the Developer, will require utility service.
Although it is believed that such undeveloped acreage will be developed, the District makes no representation as
to when, if ever, such development will occur. See "THE DISTRICT - Future Development."

Matters Related to the Developer

The Developer has represented that it intends to sell developed lots to homebuilders. See "THE DISTRICT - Status
of Development, - Homebuilders, and - Future Development" and "THE DEVELOPER." However, the Developer
has no legal obligation to the District to carry out its current plans or any other plans of development within the
District. Furthermore, there is no restriction on the Developer or other landowner to sell its land. The District
can make no prediction as to the effects that inflation, interest rates, a depressed economy, falling energy prices,
potential transportation problems, flooding or other factors, whether economic, governmental or otherwise, may
have on the plans of the Developer. See "Factors Affecting Taxable Values and Tax Payments" above.

30
Neither American General nor any of its subsidiaries is obligated to pay principal of or interest on the Bonds.
Furthermore, the Developer has no binding commitment to the District to carry out any plan of development, and
the furnishing of information relating to the proposed development by the Developer should not be interpreted as
such a commitment. Nevertheless, the Developer has advised the District that it bas the present intention to carry
out the development of Cinco Ranch according to the plans presented herein. See "THE DISTRICT - Cinco
Ranch," "THE DEVELOPER," and "APPENDIX B - Financial Information Concerning AGIC."

Dependence on Principal Taxpayers

Approximately 33 % ($16,815,680) of the taxable value of the property within the District is owned by the
Developer and related companies. In the event that the Developer should default in the payment of taxes in an
amount which exceeds the District's debt service fund surplus, the ability of the District to make timely payment
of debt service on the Bonds will be dependent on its ability to enforce and liquidate its tax lien, which is a time-
consuming process, or to sell tax anticipation notes. Failure to recover or borrow funds in a timely fashion could
result in an increase in the District's tax rate. The District is not required by law or the Bond Resolution to
maintain any specified amount of surplus in its Debt Service Fund for such purposes. See "TAX DATA - Principal
Taxpayers" and "TAXING PROCEDURES - District Rights in the Event of Tax Delinquencies."

Tax Collections Limitations and Foreclosure Remedies

The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem
taxes. Under Texas law, the levy of ad valorem taxes by the District constitutes a lien in favor of the District on
a parity with the liens of all other local taxing authorities on the property against which taxes are levied, and such
lien may be enforced by judicial foreclosure. The District's ability to collect ad valorem taxes through foreclosure
may be impaired by (a) cumbersome, time-consuming and expensive collection procedures, (b) a bankruptcy court's
stay of tax collection procedures against a taxpayer, or (c) market conditions affecting the marketability of taxable
property within the District and limiting the proceeds from a foreclosure sale of such property. Moreover, the
proceeds of any sale of property within the District available to pay debt service on the Bonds may be limited by
the existence of other tax liens on the property (see "ESTIMATED OVERLAPPING DEBT STATEMENT"), by
the current aggregate tax rate being levied against the property, and by other factors (including the taxpayers' right
to redeem property within two years of foreclosure). Finally, any bankruptcy court with jurisdiction over
bankruptcy proceedings initiated by or against a taxpayer within the District pursuant to the Federal Bankruptcy
Code could stay any attempt by the District to collect delinquent ad valorem taxes assessed against such taxpayer.

Registered Owner's Remedies

Remedies available to Registered Owners of Bonds in the event of a default by the District of one or more of its
obligations under the Bond Resolution are limited. Although state law and the Bond Resolution provide that the
Registered Owners may obtain a writ of mandamus requiring performance of such obligations, such remedy must
be exercised upon each default and may prove time-consuming, costly and difficult to enforce. The Bond Resolution
does not provide for acceleration of maturity of the Bonds, appointment of a trustee to protect the interest of the
Registered Owners or any other additional remedy in the event of a default by the District and consequently, the
remedy of mandamus may have to be relied upon from year-to-year. Since there is no trust indenture or trustee,
the Registered Owners would have to initiate and finance the legal process to enforce their remedies. The Bonds
are not secured by an interest in the improvements financed with Bond proceeds or any other property of the
District. No judgment against the District is enforceable by execution of a levy against the District's public purpose
property. Further, the Registered Owners themselves cannot foreclose on property within the District or sell
property within the District in order to pay the principal of and interest on the Bonds. See "Bankruptcy Limitation
to Registered Owners' Rights" below.

Bankruptcy Limitation to Registered Owner's Rights

The enforceability of the rights and remedies of Bondholders may be limited by laws relating to bankruptcy,
reorgani:iation or other similar laws of general application affecting the rights of creditors of political subdivisions
such as the District. Texas law requires a municipal utility district such as the District to obtain the approval of
the Commission as a condition to seeking relief under the Federal Bankruptcy Code.

31
If a petitioning district were allowed to proceed under Chapter 9 of the Federal Bankruptcy Code, it could file a
plan for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other
things, affect Registered Owners by reducing or eliminating the amount of indebtedness, deferring or rearranging
the debt service schedule, reducing or eliminating the interest rate, modifying or abrogating collateral or security
arrangements, substituting (in whole or in part) other securities, and otherwise compromising and modifying the
rights and remedies of the Registered Owners' claim against a district.

Future Debt

The District has the right to issue obligations other than the Bonds, including tax anticipation notes and bond
anticipation notes, and to borrow for any valid corporate purpose. After the issuance of the Bonds, $13,580,000
principal amount of unlimited tax bonds will remain authori7.ed and unissued. The District anticipates that it will
issue such remaining authorized bonds over the next several years. Any future bonds sold will be on a parity with
the Bonds. In addition, voters of the District have authorized $10,740,000 principal amount of Refunding Bonds.

The Developer has advanced approximately $3,027 ,000 for construction of utilities on the District's behalf and after
the issuance of the Bonds, no monies will remain owing to the Developer for such facilities. In order to fully
reimburse the Developer for utility service to the remaining undeveloped but developable land within the District
(273 acres), the Districts anticipates that it will issue the full principal amount of authorized but unissued bonds
($13,580,000) in installments over the next several years. Each future issue of bonds is intended to be sold at the
earliest practicable date consistent with the maintenance of a reasonable tax rate in the District (assuming projected
increases in the value of taxable property made at the times of issuance of the bonds are accurate). The District
does not employ any formula with respect to assessed valuation, tax collections or otherwise to limit the amount
of parity bonds which it may issue. The issuance of additional bonds is subject to approval by the Commission
pursuant to its rules regarding issuance and feasibility of bonds. See "Factors Affecting Taxable Values and Tax
Payments - Maximum Impact on District Tax Rate" above and "THE BONDS -Issuance of Additional Debt."

Financial Institutions and Recovery Act

The "Financial Institutions Reform, Recovery and Enforcement Act of 1989" ("FIRREA "), enacted on August 9,
1989, contains certain provisions which affect the time for protesting property valuations, the fixing of tax liens,
and the collection of penalties and interest on delinquent taxes on real property owned by the Federal Deposit
Insurance Corporation ("FDIC") and the Resolution Trust Corporation ("RTC") when the FDIC/RTC is acting as
the conservator or receiver of an insolvent financial institution.

Under FIRREA real property held by the FDIC/RTC is still subject to ad valorem taxation, but such act states (i)
that no real property of the FDIC/RTC shall be subject to foreclosure or sale without the consent of the FDIC/RTC
and no involuntary liens shall attach to such property, (ii) the FDIC or RTC shall not be liable for any penalties
or fines, including those arising from the failure to pay any real or personal property tax when due and (iii)
notwithstanding failure of a person to challenge an appraisal in accordance with state law, such value shall be
determined as of the period for which such tax is imposed.

There has been little judicial determination of the validity of the provisions of FIRREA or how they are to be
construed and reconciled with respect to conflicting state laws. However, certain recent federal court decisions have
held that the FDIC/RTC is not liable for statutory penalties and interest authori7.ed by State property tax law, and
that although a lien for taxes may exist against real property, such lien may not be foreclosed without the consent
of the FDIC/RTC, and no liens for penalties, fines, interest, attorneys fees, costs of abstract and research fees exist
against the real property for the failure of the FDIC/RTC or a prior property owner to pay ad valorem taxes when
due. It is also not known whether the FDIC/RTC will attempt to claim the FIRREA exemptions as to the time for
contesting valuations and tax assessments made prior to and after the enactment of FIRREA. Accordingly, to the
extent that the FIRREA provisions are valid and applicable to any property in the District, and to the extent that
the FDIC/RTC attempts to enforce the same, these provisions may affect the timeliness of collection of taxes on
property, if any, owned by the FDIC/RTC in the District, and may prevent the collection of penalties and interest
on such taxes.

32
Marketability of the Bonm

The District bas no understanding with the Initial Purchaser regarding the reoffering yields or prices of the Bonds
and bas no control over trading of the Bonds in the secondary market. Moreover, there is no assurance that a
secondary market will be made in the Bonds. If there is a secondary market, the difference between the bid and
asked price of the Bonds, may be greater than the difference between the bid and asked price of bonds of
comparable maturity and quality issued by more traditional issuers as such bonds are more generally bought, sold
or traded in the secondary market.

Continuing Compliance with Certain Covenants

Failure of the District to comply with certain covenants contained in the Bond Resolution on a continuing basis prior
to the maturity of the Bonds could result in interest on the Bonds becoming taxable retroactive to the date of original
issuance. See "LEGAL MATIERS"

THE BONDS

Description

The Bonds will be dated December l, 1992, with interest payable each September 1 and March l, beginning
September 1, 1993 (the "Interest Payment Date"), and shall mature on the dates and in the amounts shown on the
cover page hereof. The Bonds are issued in fully registered form, in denomination of $5,000 or any integral
multiple of $5,000.

Method of Payment of Principal and Interest

In the Bond Resolution, the Board bas appointed Ameritrust Texas, National Association, in Houston, Texas as
paying agent/registrar for the Bonds (the "Registrar"). The principal of the Bonds shall be payable, without
exchange or collection charges, in any coin or currency of the United State of America which, on the date of
payment,is legal tender for the payment of debt due the United State of America, upon presentation and surrender
as they respectively become due and payable, at the principal corporate trust office of the Registrar. The interest
on each Bond shall be payable by check on the Interest Payment Date, mailed by the Registrar, on each Interest
Payment Date to the Registered Owner of record as of the February 15 or August 15 immediatecy preceding each
Interest Payment Date (the "Record Date"), to the address of such Register Owner as shown on the Registrar's
records (the "Register") or by such other customary banking arrangements as may be agreed upon by the Registrar
and the Registered Owners at the risk and expense of the Registered Owners.

If the date for payment of the principal of or interest on any Bonds is not a business day, then the date for such
payment shall be next succeeding business day, as defined in the Bond Resolution.

Source of Payment

While the Bonds or any part of the principal thereof or interest thereon remain outstanding and unpaid, the District
covenants to levy and annually assess and collect in due time, form and manner, and at the same time as other
District taxes are assessed, levied and collected, in each year, beginning with the current year, a continuing direct
annual ad valorem tax, without limit as to rate, upon all taxable property in the District sufficient to pay the interest
the Bonds as the same becomes due and to pay each installment of the principal of the Bonds as the same matures,
with full allowance being made for delinquencies and costs of collection. In the Bond Resolution, the District
covenants that said taxes are irrevocably pledged to the payment of the interest on and principal of the Bonds and
to no other purpose.

The Bonds are obligations of the District and are not the obligations of the State of Texas, Fort Bend County, the
City of Houston, or any entity other than the District

Funm

In the Bond Resolution, the Debt Service Fund is created, and the proceeds from all taxes levied, assessed and
collected for and on account of the Bonds authorized by the Bond Resolution shall be deposited, as collected, in such
fund.

33
Accrued interest on the Bonds and eighteen (18) months' capitalized interest shall be deposited into the Debt Service
Fund upon receipt. The remaining proceeds of sale of the Bonds, including interest earnings thereon, shall be
deposited into the Capital Projects Fund, which is created by the Bond Resolution, to be used for the purposes
described therein. Any monies remaining in the Capital Projects Fund after completion of construction of the entire
System will be transferred to the Debt Service Fund. See THE PROJECT for complete description of the use
of Bond proceeds and the projects related thereto.

Redemption Provisions

The District reserves the right, at its option, to redeem the Bonds "maturing on or after September 1, 2003
($3,475,000 principal amount), prior to their scheduled maturities, in whole or in part, in integral multiples of
$5,000 on September 1, 2002, or any date thereafter, at a price of par value plus accrued interest on the principal
amount called for redemption to the date fixed for redemption. If less than all of the Bonds are redeemed at any
time, the particular Bonds to be redeemed shall be selected by the District.

If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed,
but only in integral multiples of $5,000. Upon surrender of any Bond for redemption in part, the Registrar shall
authenticate and deliver in exchange therefor a bond or Bonds of like maturity and interest rate in an aggregate
principal amount equal to the unredeemed portion of the Bond so surrendered.

Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Registrar
at least thirty (30) days prior to the date fixed for redemption by sending written notice by first class mail to the
Register Owner of each Bond to be redeemed in whole or in part at the address shown on the Register. Such
notices shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered
for payment and, if less than all the Bonds outstanding are to be redeemed, the numbers of the Bonds or the portions
thereof to be redeemed. Any notice given shall be conclusively presumed to have been duly given, whether or not
the Registered Owner receives such notice. By the date fixed for redemption, due provision shall be made with the
Registrar for payment of the redemption price of the Bonds or portions thereof to be redeemed plus accrued interest
to the dated fixed for redemption. When Bonds have been called for redemption in whole or in part and due
provision has been made to redeem the same as herein provided, the Bonds or portions thereof so redeemed shall
no longer be regarded as outstanding except for the purpose of receiving payment solely from the funds so provided
for redemption, and the rights of the Registered Owners to collect interest which would otherwise accrue after the
redemption date on any Bond or portion thereof called for redemption shall terminate on the date fixed for
redemption.

Authority for Issuance

At a bond election held within the District on January 20, 1990, the voters of the District authorized the issuance
of $17,900,000 principal amount of unlimited tax bonds. See issuance of Additional Debt" below.

At a hearing conducted on October 14, 1992, the Commission authorized the District to sell the Bonds subject to
certain restrictions, including the use of Bond proceeds as summarized in "THE PROJECT -- Use and Distribution
of Bond Proceeds and recommended , among other things, the levy of a debt service tax rate of at least $0.468
per $100 of assessed valuation in the initial year of the Bonds, which is 1992.

The Bonds are issued by the District pursuant to an Order of the Commission, the terms and conditions of the Bond
Resolution, Article XVI, Section 59 of the Texas Constitution, Chapter 54 of the Texas Water Code, and general
laws of the State of Texas relating to the issuance of bonds by political subdivisions of the State of Texas.

Before the Bonds can be issued, the Attorney General of Texas must pass upon the legality of certain related
matters. The Attorney General of Texas does not guarantee or pass upon the safety of the Bonds as an investment
or upon the adequacy of the information contained in this OFFICIAL STATEMENT.

Registration and Transfer

So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal corporate trust office
and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and
transfer of Bonds in accordance with the terms of the Bond Resolution.

34
Each Bond shall be transferable only upon the presentation and surrender of such Bond at the principal corporate
trust office of the Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the
Registered Owner or his authori.zed representative in form satisfactory to the Registrar. Upon due presentation of
any Bond in proper form for transfer, the Registrar has been directed by the District to authenticate and deliver in
exchange therefor, within three (3) business days after such presentation, a new Bond or Bonds, registered in the
name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal
amount and paying interest at the same rate as the Bond or Bonds so presented.

All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of
the Registrar for a Bond of the same maturity and interest rate and in any authorized denomination in an aggregate
amount equal to the unpaid principal amount of the Bonds or Bonds presented for exchange. The Registrar is
authorized to authenticate and deliver exchange Bonds. Each Bonds delivered shall be entitled to the benefits and
security of the Bond Resolution to the same extent as the Bond or Bonds in lieu of which such Bond is delivered.

Neither the District nor the Registrar shall be required to transfer or to exchange any Bond during the period
beginning on a Record Date and ending the next succeeding Interest Payment Date or to transfer or exchange any
Bond called for redemption during the thirty (30) day period prior to the date fixed for redemption of such Bond.

The District or the Registrar may require the Registered Owner of any Bond to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond(s).
Any fee or charge of the Registrar for such transfer or exchange shall be paid by the District.

Replacement of Registrar

Provision is made in the Bond Resolution for replacement of the Registrar. If the Registrar is replaced by the
District, the new registrar shall act in the same capacity as the previous Registrar. Any registrar selected by the
District shall be a national or state banking institution, a corporation organized and doing business under the laws
of the United States of America or of any State, authorized under such laws to exercise trust powers, and subjecc
to supervision or examination by federal or state authority, to act as Registrar for the Bonds.

Lost, Stolen or Destroyed Bonds

Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver
in exchange therefore a replacement Bond of like maturity, interest rate and principal amount, bearing a number
not contemporaneously outstanding. If any Bond is lost, apparently destroyed, or wrongfully taken, the District,
pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has
been acquired by a bona fide purchaser, shall, upon receipt of certain documentation from the Registered Owner
and an indemnity bond, execute and the Registrar shall authenticate and deliver a replacement Bond of like
maturity, interest rate and principal amount bearing a number not contemporaneously outstanding.

Registered Owners of lost, stolen or destroyed Bonds will be required to pay the District's cost to replace such
Bonds. In addition, the District or the Registrar may require the Registered Owner to pay a sum sufficient to cover
any tax or other governmental charge that may be imposed.

muance of Additional Debt

The District may issue additional bonds, with the approval of the Commission, necessary to provide and maintain
improvements and facilities consistent with the purposes for which the District was created. See "THE DISTRICT--
General." The District's voters have authori.zed the issuance of $17,900,000 of unlimited tax bonds and could
authori.ze additional amounts. Any additional Bonds sold would be on a parity with the Bonds. Following the
issuance of the Bonds, the District will have $13,580,000 of unlimited tax bonds authori.zed but unissued.

The Bond Resolution imposes no limitation on the amount of additional parity bonds which may be authorized for
issuance by the District's voters or the amount ultimately issued by the District. See "RISK FACTORS--Future
Debt."

The District is also authori.zed by statute to engage in fire fighting activities, including the issuance of bonds payable
from taxes for such purpose. Before the District could issue fire-fighting bonds payable from taxes, the following
actions would be required: (a) amendments to the existing City of Houston ordinance specifying the purposes for

35
which the District may issue bonds; (b) authorimtion of a detailed master plan and bonds for such purpose by the
qualified voters in the District; (c) approval of the master plan and issuance of bonds by the Commission; and (d)
approval of bonds by the Attorney General of Texas. The Board has not considered calling an election at this time.
Issuance of bonds for fire-fighting activities could dilute the investment security for the Bonds.

Annexation

Chapter 42, Local Government Code, provides that, within the limits described therein, the unincorporated area
contiguous to the corporate limits of any city comprises that city's extraterritorial jurisdiction. The size of the
extraterritorial jurisdiction depends in part on the City's population. For the City of Houston, the extraterritorial
jurisdiction consists of all the contiguous unincorporated areas, not a part of any other city limits or city's
extraterritorial jurisdiction, within five (5) miles of the corporate limits of the City of Houston. With certain
exceptions, a city may annex territory only within the confines of its extraterritorial jurisdiction. When a city
annexes additional territory, the city's extraterritorial jurisdiction expands in conformity with such annexation.

Under existing Texas laws, since the District lies wholly within the extraterritorial jurisdiction of the City of
Houston, the District must conform to City of Houston consent ordinance. In addition, the District may be annexed
by the City of Houston without the District's consent; however, under Texas law, the City cannot annex territory
within the District unless it annexes the entire District. If the District is annexed, the City of Houston will assume
the District's assets and obligations (including the Bonds) and dissolve the District . Annexation of territory by the
City of Houston is a policy-making matter within the discretion of the Mayor and City Council of the City of
Houston, and therefore, the District makes no representation that the City of Houston will ever annex the District
and assume its debt. Moreover, no representation is made concerning the ability of the City of Houston to make
debt service payments should annexation occur.

Comolidation

A district (such as the District) bas the legal authority to consolidate with other districts and, in connection
therewith, to provide for the consolidation of its assets, such as cash and the utility system, with the water and
wastewater systems of districts with which it is consolidating as well as its liabilities (which would include the
Bonds). No representation is made concerning the likelihood of consolidation.

Remedies in Event of Default

Other than a writ of mandamus, the Bond Resolution does not provide a specific remedy for a default. Although
a Registered Owner could presumably obtain a judgement against the District for a default in the payment of
principal or interest, such judgement could not be satisfied by execution against any property of the District. If the
District defaults, a Registered Owner could petition for a writ of mandamus issued by a court of competent
jurisdiction compelling and requiring the District and the District's officials to observe and perform the covenant,
obligations or conditions prescribed in the Bond Resolution. Such remedy might need to be enforced on a periodic
basis. The enforcement of a claim for payment on the Bonds would be subject to the applicable provisions of the
federal bankruptcy laws, any other similar laws affecting the rights of creditors of political subdivisions, and general
principles of equity. See "RISK FACTORS-Registered Owners' Remedies-Bankruptcy Limitation to Registered
Owners' Rights."

Legal Investment and Eligibility to Secure Public Funds in Texas

Over a period of years, the Texas Legislature has enacted four statutes which pertain to the eligibility of bonds
issued by a municipal utility district as investments for certain entities and as security for deposits of public funds:
Section 54.515 of the Water Code; Article 717k-6, Vernon's Texas Civil Statutes; Article 842a-2, Vernon's Texas
Civil Statues ("Public Funds Investment Act"); and Article 2529d, Vernon's Texas Civil Statues ("Public Funds
Collateral Act"). Reconciliation of these four conflicting statutes leads to the following conclusions: (1) banks,
savings and loan associations, insurance companies, fiduciaries, trustees and the State of Texas may invest in unrated
bonds; (2) bonds may not be used to secure the deposit of public funds unless they have been rated by a nationally-
recognized investment rating firm and received a rating of not less than A or its equivalent; and (3) political
subdivisions of the State of Texas may not invest in bonds unless they have been rated by a nationally-recognized
investment rating firm and received a rating of not less than A or its equivalent.

36
The District makes no representation that the Bonds will be acceptable to banks, savings and loan association or
public entities for investment purposes or to secure deposits of public funds. The District has made no investigation
of other laws, regulations or investment criteria which might apply to or otherwise limit the availability of the Bonds
for investment or collateral purposes. Prospective purchasers are urged to carefully evaluate the investment quality
of the Bonds as to the acceptability of the Bonds for investment or collateral purposes.

Defeasance

The District may defease the provisions of the Bond Resolution and discharge its obligations to the Registered
Owners of any or all of the Bonds to pay principal, interest and redemption price thereon in any manner permitted
by law, including without limitation by depositing with the Registrar, or with the State Treasurer of the State of
Texas, either (i) cash in an amount equal to the principal amount and redemption price of the Bonds plus interest
thereon to the date of maturity or redemption , or (ii) pursuant to an escrow or trust agreement, cash and /or direct
obligations the principal and interest of which are guaranteed by the United States of America, in principal amounts
and maturities and bearing interest rates sufficient to provide for the timely payment of the principal amount and
redemption price of such Bonds plus interest thereon to the date of maturity or redemption;provided, however, that
if any of such Bonds are to be redeemed prior to their respective dates of maturity, provision shall have been made
for giving notice of redemption as provided in the Bond Resolution. Upon such deposit, such Bonds shall no longer
be regarded to be outstanding or unpaid.

LEGAL MA TIERS

Legal Proceedings

Delivery of the Bonds will be accompanied by the unqualified approving legal opinion of the Attorney General of
Texas to the effect that the Bonds are valid and legally binding obligations of the District under the Constitution and
laws of the State of Texas payable from the proceeds of an annual ad valorem tax levied, without limit as to rate
or amount, upon all taxable property within the District, and, based upon their examination of a transcript of
certified proceedings relating to the issuance and sale of the Bonds, the approving legal opinion of Bond Counsel,
to a like effect and to the effect that (i) interest on the Bonds is excludable from gross income of the holders for
federal tax purposes under existing law, (ii) certain original issue discount on the Bonds maturing September 1, 2003
through 2015, both inclusive, (the original Issue Discount Bonds) is excludable from gross income for federal
income tax purposes under existing law as described more fully below in Tax Accounting Treatment of Original
Issue Discount Bonds and (iii) the Bonds are not private activity bonds" under the Internal Revenue Code of 1986
as amended (the code) and interest on the Bonds will not be subject to the alternative minimum tax on individuals
and corporations, except as described below in the discussion regarding the adjusted current earnings adjustments
for corporations.

Bond Counsel has reviewed the information appearing in this Official Statement under THE BONDS, "THE
DISTRICT--General,. TAXING PROCEDURES,. unLITY AGREEMENT WITH REGIONAL DISTRICr
and LEGAL MATIERS solely to determine whether such information fairly summarizes matters of law and the
provisions of the documents referred to therein. Bond Counsel has not, however, independently verified any of the
factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the
District or the Developer for the purpose of passing upon the accuracy or completeness of this Official Statement.
No person is entitled to rely upon Bonds Counsel's limited participation as an assumption of responsibility for or
an expression of opinion of any kind with regard to the accuracy or completeness of any information contained
herein.

Vinson & Elkins L.L.P., also serves as general counsel to the District on matters other than the issuance of bonds.
The legal fees paid to Bond Counsel for services rendered in connection with the issuance of the Bonds are based
on a percentage of the bonds actually issued, sold and delivered and, therefore, such fees are contingent upon the
sale and delivery of the Bonds.

37
Tax Exemption

In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Bonds is excludable from gross income
for federal income tax purposes under existing law, (ii) certain original issue discount on the Bonds maturing
September 1, 2003 through 2015, both inclusive, (the original Issue Discount Bonds) is excludable from gross
income for federal income tax purposes under existing law as described more fully in Tax Accounting Treatment
of Original Issue Discount Bonds below and (iii) the Bonds are not private activity bonds" under the Code and
interest on the Bonds will not be subject to the alternative minimum tax on individuals and corporations, except as
described below in the discussion regarding the adjusted current earnings adjustment for corporations.

The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such
as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include
limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment of bond
proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of bond proceeds be
paid periodically to the United States and a requirement that the issuer file an information report with the Internal
Revenue Service. The District has covenanted in the Bond Resolution that it will comply with these requirements.

Bond Counsel's opinion will assume continuing compliance with the covenants of the Bond Resolution pertaining
to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal
income tax purposes and, in addition, will rely on representations by the District with respect to matters solely
within the knowledge of the District, which Bond Counsel has not independently verified. If the District should fail
to comply with the covenants in the Bond Resolution or if the foregoing representations should be determined to
be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds,
regardless of the date on which the event causing such taxability occurs.

The Code also imposes a twenty percent (20 %) alternative minimum tax on the "alternative minimum taxable
income" of a corporation (other than any S corporation, regulated investment company, REIT, or REMIC), if the
amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. The
"Superfund Revenue Act of 1986" also imposes an additional .12 % "environmental tax" on the alternative minimum
taxable income of a corporation in excess of $2,000,000. Generally, for taxable years beginning after 1989, a
corporation's alternative minimum taxable income includes seventy-five percent (75%) of the amount by which a
corporation's "adjusted current earnings" exceed its other alternative minimum taxable income. Because interest
on tax-exempt obligations, such as the Bonds, is included in a corporation's adjusted current earnings, ownership
of the Bonds could subject a corporation to alternative minimum tax consequences.

Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest
on the Bonds, received or accrued during the year.

Except as stated above and as stated below in Tax Accounting Treatment of Original Issue Discount Bonds" and
"Qualified Tax-Exempt Obligations--Purchase of Bonds by Financial Institutions," Bond Counsel will express no
opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on,
or disposition of, the Bonds.

Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in
collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance
companies, certain S corporation with Subchapter C earnings and profits, individual recipients of Social Security
or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to
purchase or carry tax-exempt obligations. In addition, certain foreign corporations doing business in the United
States may be subject to the branch profits tax" on their effectively-connected earnings and profits, including tax-
exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own
tax advisors as to the applicability of these consequences.

The Bonds may be issued with an initial long interest payment period (i.e., the period from the issue date of the
Bonds to the first interest payment may be longer than the period between subsequent interest payment dates).
Under a possible interpretation of proposed Treasury Regulations, this long period may cause certain interest
payments on the Bond to be treated as original issue discount. In general, such characteriz.ation would result in
more of the interest on such Bonds being allocated to the initial long interest payment period and less interest being
allocated to the subsequent period. See the discussion immediately below for the treatment of original issue
discount.

38
Tax Accounting Treatment of Original mue Discount Bonch

The initial offering price for the Bonds maturing September l, 2003 through 2015, both inclusive, is less than the
principal amount thereof (the"Original Issue Discount Bonds"). In such case, Bond Counsel, under existing law
and based upon the assumption hereinafter stated, will render an opinion to the effect that:

(a) The difference between (i) the principal amount payable at the maturity of each Original Issue Discount Bond,
and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue
discount with respect to such Original Issue Discount Bond in the hands of an owner who has purchased such
Original Issue Discount Bond in the initial public offering of the Bonds; and

(b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount
of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such
original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned
by such owner.

In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated
maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond
in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for
which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. (Because
original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on
the Bonds under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original
issue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the initial offering
price in the initial public offering of the Bonds, and should be considered in connection with the discussion in this
portion of the Official Statement.)

In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Initial
Purchaser, that (a) the Initial Purchaser has purchased the Bonds for contemporaneous sale to the public and (b) all
of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof
has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being
included) not more than the initial offering prices thereof stated on the cover page of this Official Statement.
Neither the District nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in
accordance with such assumptions. Certain of the representations of the Initial Purchaser, upon which Bond
Counsel will rely in rendering the foregoing opinion, will be based upon records or facts the Initial Purchaser had
no reason to believe were not correct.

Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated
maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the
semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the
accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of
determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition
thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the
amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on
the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual
period) less (b) the amounts payable as current interest during such accrual period on such Bond.

The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of
Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be
determined according to rules which differ from those described above. All owners of Original Issue Discount
Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income
tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds
and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption,
sale or other disposition of such Original Issue Discount Bonds.

39
Qualified Tax-Exempt Obligations

The Code requires a pro rata reduction in the interest expense deduction of a financial institution to reflect such
financial institution's investment in tax-exempt obligations acquired after August 7, 1986. An exception to the
foregoing provision is provided in the Code for "qualified tax-exempt obligations" which include tax-exempt
obligations, such as the Bonds, (a) designated by the issuer as "qualified tax-exempt obligations" and (b) issued by
a political subdivision for which the aggregate amount of tax-exempt obligations (not including private activity bonds
other than qualified SOl(c) (3) bonds) to be issued during the calendar year is not expected to exceed $10,000,000.

The District has designated the Bonds as "qualified tax-exempt obligations" and has represented that the aggregate
amount of tax-exempt bonds (including the Bonds) issued by the District and entities aggregated with the District
under the Code during calendar year 1992 is not expected to exceed $10,000,000 and that the District and entities
aggregated with the District under the Code have not designated more than $10,000,000 in "qualified tax-exempt
obligations" (including the Bonds) during calendar year 1992.

Based on the foregoing representations, Bond Counsel's opinion will state that the Bonds are "qualified tax-exempt
obligations" under existing law.

Notwithstanding this exception, financial institutions acquiring the Bonds will be subject to a twenty percent (20%)
disallowance of allocable interest expense.

No-Litigation Certificate

The District will furnish the Initial Purchaser a certificate, executed by both the President and Secretary of the
Board, and dated as of the date of delivery of the Bonds, to the effect that there is not pending, and to their
knowledge, there is not threatened, any litigation affecting the validity of the Bonds, or the levy and/or collection
of taxes for the payment thereof, or the organization or boundaries of the District, or the title of the officers thereof
to their respective offices, and that no additional bonds or other indebtedness have been issued since the date of the
statement of indebtedness or nonencumbrance certificate submitted to the Attorney General of Texas in connection
with approval of the Bonds.

INITIAL PURCHASER

After requesting competitive bids for the Bonds, the District has accepted the bid of a syndicated led by Rauscher
Pierce Refsnes, Inc. (the "Initial Purchaser") to purchase the Bonds at the interest rates shown on page 1 of this
Official Statement at a price of 97 .0045 % of par plus accrued interest to date of delivery. No assurance can be
given that any trading market will be developed for the Bonds after their sale by the District to the Initial Purchaser.
The District has no control over the price at which the Bonds are subsequently sold, and the initial yields at which
the Bonds are priced and reoffered are established by and are the sole responsibility of the Initial Purchaser.

PRICES AND MARKET ABILITY

The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by
the Initial Purchaser on or before the date of delivery of the Bonds stating the prices at which a substantial amount
of the Bonds of each maturity has been sold to the public. For this purpose, the term "public" shall not include any
person who is a bond house, broker or similar person acting in the capacity of underwriter or wholesaler.
Otherwise, the District has no understanding with the Initial Purchaser regarding the reoffering yields or prices of
the Bonds. Information concerning reoffering yields or prices is the responsibility of the Initial Purchaser.

The prices and other terms with respect to the offering and sale of the Bonds may be changed from time to time
by the Initial Purchaser after the Bonds are released for sale, and the Bonds may be offered and sold at prices other
than the initial offering prices, including sales to dealers who may sell the Bonds into investment accounts. In
connection with the offering of the Bonds, the Initial Purchaser may over - allot or effect transactions which stabilize
or maintain the market prices of the Bonds at levels above those which might otherwise prevail in the open market.
Such stabilizing, if commenced, may be discontinued at any time.

40
The District has no control over trading of the Bonds in the secondary market. Moreover, there is no guarantee
that a secondary market will be made in the Bonds. In such a secondary market, the difference between the bid
and asked price of utility district bonds may be greater than the difference between the bid and asked price of bonds
of comparable maturity and quality issued by more traditional municipal entities, as bonds of such entities are more
generally bought, sold or traded in the secondary market.

SECURITIES LAWS

No registration statement relating to the offer and sale of the Bonds bas been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder.
The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various
exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other
jurisdiction. The District assumes no responsibility for registration of the Bonds under the securities laws of any
other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of
responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an
interpretation of any kind with regard to the availability of any exemption from securities registration or qualification
provisions in such other jurisdiction.

MUNICIPAL BOND RATING

No application has been made to a rating service, nor is it expected that the District would have been successful
in obtaining an investment grade rating had such application been made.

FINANCIAL ADVISOR

The Official Statement was compiled and edited under the supervision of Legg Mason Wood Walker, Inc. (the
"Financial Advisor"), which firm was employed in 1991 as Financial Advisor to the District. The fees paid the
Financial Advisor for services rendered in connection with the issuance and sale of the Bonds are based on a
percentage of the Bonds actually issued, sold and delivered, and therefore such fees are contingent on the sale and
delivery of the Bonds. The Financial Advisor has requested the right to bid on the Bonds, and the District has given
its consent.

omCIAL STATEMENT

Preparation

The information in this Official Statement was compiled and edited by the Financial Advisor. In addition to
compiling and editing such information, the Financial Advisor bas obtained the information set forth herein under
the captions indicated from the following sources:

"THE DISTRICT - AGRIC (the "Developer"), Turner Collie & Braden, Inc. ("Engineer"), Katy
Independent School District, and various area commercial and retail establishments; "THE DEVELOPER
- AGRIC; "THE PROJECT" - Engineer; "UNLIMITED TAX BONDS AUTHORIZED BUT
UNISSUED" -- Records of the District ("Records"), "FINANCIAL STATEMENT" -- Fort Bend Central
Appraisal District and Tax Tech, Inc.; "ESTIMATED OVERLAPPING DEBT STATEMENT" -
Municipal Advisory Council of Texas and Financial Advisor; "TAX DATA" and wATER AND
SEWER OPERATIONS" - Audits and Records; "MANAGEMENT" - District Directors; "DEBT
SERVICE REQUIREMENTS" -- Financial Advisor.

The summaries include herein of the Bond Resolution, the Bonds, the Regional District Contract and the District's
legal affairs have been reviewed by Vinson & Elkins, L.L.P., the District's general counsel and bond counsel.

41
Experts

In approving this Official Statement, the District has relied upon the following experts in addition to the Financial
Advisor.

The Engineer: The information contained in the Official Statement relating to engineering and to the
description of the System and, in particular, that information included in the section entitled "THE
PROJECT," has been provided by Turner Collie & Braden, Inc., and bas been included in reliance upon
the authority of said firm as experts in the field of civil engineering.

Appraisal District: The information contained in the Official Statement relating to the historical Certified
Taxable Assessed Valuations has been provided by the Fort Bend Central Appraisal District and has been
included herein in reliance upon the Authority of such entity as experts in assessing the values of property
in Fort Bend County, including the District.

Tax Assessor/Colkctor: The information contained in this Official Statement relating to principal
taxpayers, historical tax collection rates and make-up of taxable property within the District including
such information included in the Section entitled "TAX DATA" has been provided by Ed Grosso in
reliance upon his authority as an expert in the field of appraising and tax assessing.

Auditor: The District's financial statements are audited by White Petrov and McHone, Certified Public
Accountants, and excerpts of the District's Audited Financial Statements as of September 30, 1991 have
been included as Appendix A in reliance upon their authority as experts in the field of accounting.

Updating the Official Statement

If, subsequent to the date of the Official Statement, the District learns, through the ordinary course of business and
without undertaking any investigation or examination for such purposes, or is notified by the Initial Purchaser, of
any adverse event which causes the Official Statement to be materially misleading, and unless the Initial Purchaser
elects to terminate its obligation to purchase the Bonds, the District will promptly prepare and supply to the Initial
Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the Initial Purchaser
provided, however, that the obligation of the District to so amend or supplement the Official Statement will
terminate when the District delivers the Bonds to the Initial Purchaser, unless the Initial Purchaser notifies the
District on or before such date that less than all of the Bonds have been sold to ultimate customers, in which case
the District's obligations hereunder will extend for an additional period of time (but not more than 90 days after the
District delivers the Bonds) until all of the Bonds have been sold to ultimate customers.

Official Statement "Deemed Final"

For purposes of compliance with Rule 15c(2)-12 of the Securities and Exchange Commission, this document, as
the same may be supplemented or corrected by the District from time-to-time, may be treated as an Official
Statement with respect to the Bonds described herein "deemed final" by the District as of the date hereof (or of any
such supplement or correction) except for the omission of certain information referred to in the succeeding
paragraph.

The Official Statement, when further supplemented by adding information specifying the interest rates and certain
other information relating to the Bonds, shall constitute a "Final Official Statement" of the District with respect to
the Bonds, as that term is defined in Rule 15c(2)-12.

Certification as to Official Statement

The District, acting by and through its Board of Directors in its official capacity, in reliance upon the experts listed
above, hereby certifies, as of the date hereof, that to the best of its knowledge and belief, the information,
statements and descriptions pertaining to the District and its affairs herein contain no untrue statements of a material
fact and do not omit to state any material fact necessary to make the statements herein, in light of the circumstances
under which they were made, not misleading. The information, description and statements concerning entities other
than the District, including particularly other governmental entities, have been obtained from sources believed to
be reliable, but the District has made no independent investigation or verification of such matters and makes no
representation as to the accuracy or completeness thereof.

42
 MISCELLANEOUS

All estimates, statements and assumptions in this OFFICIAL STATEMENT and the APPENDICES hereto have
been made on the basis of the best information available and are believed to be reliable and accurate. Any
statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated,
are intended as such and not as representations of fact, and no representation is made that any such statements will
be realized.

This Official Statement was approved by the Board of Directors of Cinco Municipal Utility District No. 2, as of
the date shown on the first page hereof.

Isl Randal Rockett

President, Board of Directors
Cinco Municipal Utility
District No. 2

Isl John A. Carter

Secretaryrrreasurer, Board of Directors
Cinco Municipal Utility
District No. 2

43
 PHOTOGRAPHS
The following photographs were taken in the District in October, 1992. The homes shown in the photographs are
representative of the type of construction presently located within the District, and these photographs are presented
solely to illustrate such construction. The District makes no representation that any additional construction such
as that as illustrated in the following photographs will occur in the District. See "THE DISTRICT."

44
AERIAL PHOTOGRAPH
(As of October 12, 1992)

45
 APPENDIX A

Audited Financial Statements

The information contained in this appendix has been excerpted from the audit report of Cinco Municipal Utility
District No. 2 for the fiscal year ended September 30, 1991. Certain information not considered to be relevant to
this financing has been omitted; however, complete audit reports are available upon request.

CINCO MUNICIPAL UTILITY

DISTRICT NO. 2

FORT BEND COUNTY, TEXAS

ANNUAL FINANCIAL REPORT
SEPTEMBER 30, 1991
 C0 NT ENT S

Page
Number
AUDITORS' REPORT 1
GENERAL PURPOSE FINANCIAL STATEMENTS
COMBINED BALANCE SHEET, ALL FUND TYPES AND
ACCOUNT GROUPS 2
COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND
CHANGES IN FUND BALANCES, GOVERNMENTAL FUND TYPE 3
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND
BALANCE, BUDGET AND ACTUAL, GENERAL FUND 4
NOTES TO FINANCIAL STATEMENTS 5-9
SUPPLEMENTAL INFORMATION
AUDITORS' REPORT 10
SUPPLEMENTAL SCHEDULES INCLUDED WITHIN THIS REPORT 11
SCHEDULE OF SERVICES AND RATES 12-13
SCHEDULE OF GENERAL FUND EXPENDITURES 14
ANALYSIS OF CHANGES IN CASH AND TEMPORARY INVESTMENTS,
GOVERNMENTAL FUND TYPE 15
ANALYSIS OF TEMPORARY INVESTMENTS 16
ANALYSIS OF CHANGES IN PROPERTY TAXES RECEIVABLE 17
ANALYSIS OF CHANGES IN ORGANIZATIONAL COSTS AND
GENERAL FIXED ASSETS 18
STATEMENT OF REVENUES AND EXPENDITURES, GENERAL FUND 19
INSURANCE COVERAGE 20
BOARD MEMBERS, KEY PERSONNEL, AND CONSULTANTS 21-22
QUESTIONNAIRE TO BE COMPLETED BY AUDITOR 23-26
CERTIFICATE OF THE BOARD OF DIRECTORS 27
MANAGEMENT LETTER 28
 . r I'I\
\\(ii

WHITE PETROV M:HONE

INDEPENDENT AUDITORS' REPORT

January 6, 1992

Board of Directors
Cinco Municipal Utility
District No. 2
Fort Bend County, Texas

We have audited the accompanying general purpose financial statements of

CINCO MUNICIPAL UTILITY DISTRICT NO. 2 as of and for the year ended
September 30, 1991, as 1i sted in the tab 1e of contents. These genera 1
purpose financial statements are the responsibility of the Board of
Directors. Our responsibility is to express an opinion on these general
purpose financial statements based on our audit.
We conducted our audit in accordance with genera 11 y accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the general purpose financial
statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in
the general purpose financial statements. An audit also includes assess-
ing the accounting principles used and significant estimates made by the
Board of Di rectors, as we 11 as eva 1uat i ng the over a11 genera 1 purpose
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the general purpose financial statements referred to
above present fairly, in all material respects, the financial position of
CINCO MUNICIPAL UTILITY DISTRICT NO. 2 as of September 30, 1991, and the
results of its operations for the year then ended, in conformity with
generally accepted accounting principles.
 CINCO MUNICIPAL UTILITY DISTRICT NO. 2
COMBINED BALANCE SHEET, ALL FUND TYPES AND ACCOUNT GROUPS
SEPTEMBER 30, 1991

Governmental Account
Fund T~ge Groug
General Totals
Fixed (Memorandum
General Assets Onlvl
ASSETS
Cash, Note 3 s 21,338 s s 21,338
Certificates of deposit, Note 3 40,626 40,626
Accrued interest receivable 69 69
Service accounts receivable 6,554 6,554
Operating deposit, Note 6 35,018 35,018
General fixed assets, Note 4 88,478 88.478
TOTAL ASSETS $103, 605 $88.478 $192;083

LIABILITIES AND FUND EQUITY

LIABILITIES
Accounts payable s 8,530 $ $ 8,530
Due to other district 35,018 35,018
Deferred tap revenue 13.950 13.950
TOTAL LIABILITIES 57.498 -0- 57.498

FUND EQUITY
Investment in general fixed
assets 88,478 88,478
Unreserved, undesignated 46, 107 46.107
TOTAL FUND EQUITY 46,107 88.478 134.585
TOTAL LIABILITIES AND
FUND EQUITY $103;605 $88;478 $192; 083

The accompanying notes are an integral part of the financial statements.

-2-
 CINCO MUNICIPAL UTILITY DISTRICT NO. 2
COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND
CHANGES IN FUND BALANCE, GOVERNMENTAL FUND TYPE
FOR THE YEAR ENDED SEPTEMBER 30, 1991

General
Fund
REVENUES
Property taxes s 34,404
Water service 50' 102
Sewer service 9,538
Penalty and interest 295
Tap connection and inspection fees 117' 153
Interest on deposits 1.694
TOTAL REVENUES 213,186

EXPENDITURES
Current:
Purchased services, Note 6 133,150
Professional services 39,299
Contracted services 26,058
Repairs and maintenance 6,545
Other expenditures 9,816
Capital outlay 75.516
TOTAL EXPENDITURES 290,384
EXCESS EXPENDITURES ( 77,198)

OTHER FINANCING SOURCES

Developer advances, Note 7 178.942
EXCESS SOURCES 101,744

FUND BALANCE (DEFICIT), BEGINNING OF YEAR ( 55.637)

FUND BALANCE, END OF YEAR s 46.107

The accompanying notes are an integral part of the financial statements.

-3-
 CINCO MUNICIPAL UTILITY DISTRICT NO. 2
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES
IN FUND BALANCE, BUDGET AND ACTUAL, GENERAL FUND
FOR THE YEAR ENDED SEPTEMBER 30, 1991

Variance-
Over
Budget Actual (Under)
REVENUES
Property taxes s 33,000 s 34,404 s 1,404
Water and sewer services 42,000 59,935 17,935
Tap connection and inspection fees 5,600 117' 153 111, 553
Interest on deposits 1.694 1,694
TOTAL REVENUES 80,600 213,186 132,586

EXPEND !TURES
Current:
Purchased services 136,517 133,150 { 3 '367)
Professional services 40,500 39,299 { 1,201)
Contracted services 15,590 26,058 10,468
Repairs and maintenance 6,545 6,545
Other expenditures 9,800 9,816 16
Capital outlay 2.350 75,516 73,166
TOTAL EXPENDITURES 204,757 290.384 85,627
EXCESS EXPENDITURES (124,157) { 77' 198) 46,959

OTHER FINANCING SOURCES

Developer advances 124.157 178.942 54,785
EXCESS SOURCES s -0- 101,744 $101. 744

FUND BALANCE (DEFICIT), BEGINNING OF YEAR ( 55.637)

FUND BALANCE, END OF YEAR $ 46 1 107

The accompanying notes are an integral part of the financial statements.

-4-
 CINCO MUNICIPAL UTILITY DISTRICT NO. 2
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1991

I NOTE 1: CREATION OF DISTRICT

Cinco Municipal Utility District No. 2 (the District) was created by a

special act of the Texas Legislature on May 24, 1985, in accordance with
the Texas Water Code, Chapter 54. The Board of Directors held its first
meeting on February 4, 1988. The District is empowered, among other
things, to purchase, to construct, to operate, and to maintain all works,
improvements and facilities necessary for the supp 1y of water, for the
collection and processing of wastewater, and for the control and diver-
sion of storm water.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity
The accompanying financial statements include all funds and account
groups maintained by the District and subject to oversight responsibility
and control by the publicly elected Board of Directors. The District
receives its water and sewer services from a separate master district
which has its own Board of Directors. The financial activity of the mas-
ter district is not included in these financial statements (see Note 6).
No other entity exists that should be considered for inclusion as a com-
ponent unit in accordance with criteria adopted by the Governmental
Accounting Standards Board.
Basis of Presentation
The accounts of the District are organized on the basis of funds and
account groups, each of which is considered to be a separate accounting
entity. The operations and financial position of each fund are accounted
for by providing a separate set of self-balancing accounts which are com-
prised of assets, liabilities, fund equity, revenues, and expenditures.
Account groups are used to establish accounting control and accountabil-
ity for the District's general fixed assets and general long-term liabil-
ities. The transactions of the District are accounted for in the fund
type and account group as shown on the following page.

-5-
 NOTES TO FINANCIAL STATEMENTS (Continued)

Governmental Fund Type

General fund--To account for all revenues and expenditures not required
to be accounted for in other funds. The primary sources of revenue
are customer fees and property taxes.
Account Group
General fixed assets--To account for the facilities of the District.
Memorandum Totals
The memorandum totals represent the aggregate amount of all governmental
fund types and account groups included in the statements. No elimina-
tions have been made, and these totals do not present consolidated finan-
cial information.
Basis of Accounting
The accompany; ng fi nanci a1 statements have been prepared in conformity
with generally accepted accounting principles included in the Codifica-
tion of Governmental Accounting and Financial Reporting Standards and
other statements issued by the Governmental Accounting Standards Board.
All governmental fund types are accounted for using the modified accrual
basis of accounting. Under this basis of accounting, revenues are recog-
nized when they become measurable and available to finance expenditures
of the current period. In addition, expenditures are recognized when the
liability is incurred with the exception of unmatured principal and in-
terest on general long-term debt, which is recognized when due.
Measurement Focus
Governmental fund types are accounted for on a spending or financial flow
measurement focus. Accordingly, only current assets and current liabili-
ties are inc 1uded on the ba 1ance sheet, and the reported fund ba 1ances
provide an indication of available spendable or appropriable resources.
Operating statements of governmental fund types report increases and de-
creases in available spendable resources. Fund balances are included on
the balance sheet as follows:

-6-
 NOTES TO FINANCIAL STATEMENTS {Continued)

Reserved:
To indicate fund equity which is legally segregated for a specific
future use.
Unreserved:
Designated--To indicate fund equity for which the District has made
tentative plans.
Undesignated--To indicate fund equity which is available for use in
future periods.
General Fixed Assets
General fixed assets are stated at the full cost of assets owned by the
District. The cost of the general fixed assets includes all costs asso-
ciated with the construction of facilities including infrastructure
(immovable) assets which are of value only to the District. Repairs are
not capitalized, and replacements of general fixed assets are capitalized
only to the extent that they materially exceed the cost of the original
assets. Depreciation is not recorded on general fixed assets.
Budget
The Board of Di rectors adopts an annua 1 nonappropri ated budget for the
general fund in accordance with the accounting principles applicable to
this fund.

INOTE 3: SECURITY FOR DEPOSITS

State statutes authorize the District to invest in certificates of de-

posit of financial institutions domiciled in Texas. The District may
also invest in certain obligations of the United States or its agencies
and certain bankers' acceptances and convnerci a1 paper. The District's
po 1icy is to ho 1d a11 investments unt i 1 maturity. State statutes a1so
require that the District obtain a valid pledge of securities for any de-
posits in financial institutions in excess of federal insurance. At the
ba 1ance sheet date, the carrying amount of the District's deposits was
$61,964, and the bank balances were $65,707. The bank balances were ade-
quately secured by federal insurance.

-7-
 NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4: CHANGES IN INVESTMENT IN GENERAL FIXED ASSETS

The changes in general fixed assets for the current year are as follows:
Balances, Balances,
Beginning of Year Additions End of Year
Water facilities $12,962 $75,516 $88,478

INOTE 5: MAINTENANCE TAXES

An e1ect ion he 1d January 20, 1990, authorized a maintenance tax not to

exceed S0.25 per $100 valuation on all property within the District sub-
ject to taxation. During the year ended September 30, 1991, the District
levied an ad valorem maintenance tax at the rate of $0.25 per $100 as-
sessed valuation, which resulted in a tax levy of $34,404 on the taxable
valuation of $13,737,890 for the 1990 tax year. This maintenance tax is
being used by the general fund to pay expenditures of operating the Dis-
trict's waterworks and sanitary sewer system.

NOTE 6: FINANCING AND OPERATION OF REGIONAL FACILITIES

On February 20, 1990, the District entered into a regional contract with
Cinco Municipal Utility District No. 1 (District No. 1) whereby District
No. 1 agreed to provide or cause to be provided the regional water supply
and delivery facilities and the regional waste collection, treatment, and
disposal facilities necessary to serve the District and other adjacent
districts. Under the terms of the regional contracts, which is in effect
for forty years, District No. I charges the participants a monthly opera-
tional fee calculated by multiplying the unit cost per connection, by the
number of equivalent single family residential connections reserved to
each participant. For the year ended September 30, 1991, the District
incurred operating costs of $133,150 under this agreement.

-8-
 NOTES TO FINANCIAL STATEMENTS (Continued)

During the current year, District No. 1 bi 11 ed the District $35, 018 for
its share of the operating reserve. In addition, District No. 1 is
authorized to issue contract revenue bonds sufficient to complete acqui-
sition and construction of the facilities as needed to serve all dis-
tricts in the service area. Once bonds are issued, each participating
district would contribute to the debt service requirements of the bonds.
As of September 30, 1991, District No. 1 had not sold bonds.

INOTE 7 : CONTINGENCIES

The major developer of the District has constructed water supply, sewage
treatment, and underground facilities within or for the benefit of the
District. The District has agreed to reimburse the developer for these
construction and related costs plus interest from the proceeds of future
bond sales. These amounts are to be reimbursed to the extent approved by
the Texas Water Convni ss ion. The engineer estimates that costs incurred
through September 30, 1991, exceed $2,600,000. This amount has not been
recorded in the financial statements since it relates to physical facil-
ities to which the District does not have ownership.
During the current year, the developer of the District advanced $178,942
to pay operational costs of the District. Cumulative advances total
$198,942. As of September 30, 1991, the District does not have suffi-
cient funds nor are anticipated revenues sufficient to liquidate these
advances during the forthcoming fiscal year. Due to the uncertain reim-
bursement date, these amounts have been recorded as other financing
sources in accordance with standards adopted by the Governmental Account-
ing Standards Board.

INOTE 8: ECONOMIC DEPENDENCY

In the current year, the District has been dependent upon its major de-
veloper for operating advances (see Note 7). The developer continues to
own a substantial portion of the taxable property within the Di strict.
The developer's willingness to make operating advances will directly
affect the District's ability to meet its future financial obligations.

-9-
S U P P L E ME N T A L
I N F 0 R MA T I 0 N
 CINCO MUNICIPAL UTILITY DISTRICT NO. 2
ANALYSIS OF CHANGES IN PROPERTY TAXES RECEIVABLE
FOR THE YEAR ENDED SEPTEMBER 30, 1991

Maintenance
Taxes
1990 ORIGINAL TAX ROLL $39,334
Additions and corrections ( 4.930)
Adjusted tax roll 34,404
Current tax collections (34.404)

1990 TAXES RECEIVABLE, END OF YEAR $ -0-

1990
PROPERTY VALUATIONS
Land $13,698,190
Improvements 35,040
Personal property 4.660
TOTAL PROPERTY VALUATIONS $13, 737 .890

MAINTENANCE TAX RATE PER $100 VALUATION s__....0.....2....s

TAX ROLL $ 34.404

For the year ended September 30, 1991:

Percent of current taxes collected
to current taxes levied (as adjusted) 100.0%

See accompanying auditors' report.

-17-
 APPENDIXB
Financial Information Concerning the Developer
American General Realty Investment Corporation ("AGRIC"), currently doing business as Cinco Ranch (the
"Developer"), is a wholly-owned subsidiary of American General Investment Corporation ("AGIC"). AGIC has
delivered the unaudited fmancial information dated December 31, 1991, and June 30, 1992, and the audited financial
information dated December 31, 1990, included in this Appendix (the "Financial Information") to the District for
publication in connection with the District's offer and sale of the Bonds. The Financial Information has been included
herein solely as additional information concerning the Developer's parent (AGIC), its fmancial condition and its
source of funds. Such Financial Information is relevant, among other reasons, to the Developer's ability to continue
developing its land within the District and to pay ad valorem taxes thereon. The Developer and AGIC are not
responsible for, liable for, and have not made any commitment for payment of the Bonds or any other obligation of the
District, and the inclusion of the Financial Information herein should not be construed as an implication to that effect.
The Developer has no legal commitments to the District or owners of the Bonds to continue development of its land
within the District and may sell or otherwise dispose of its property within the District, or any of its other assets, at any
time. Further, the Developer's and AGIC's financial conditions are subject to change, and no fmancial information
concc~ the Developer will be provided by the District after the sale of the Bonds. Therefore, the District cautions
that the Fmancial Information should not be construed or interpreted as an indication of the creditworthiness of the
Bonds.

The Developer and AGIC have each represented to the District that the Financial Information pertaining to
AGIC has been prepared from their respective books and records in conformity with generally accepted accounting
principles and fairly represents, in all material respects, the fmancial condition of each as of the dates indicated and
that there has not been any material adverse change in the financial conditions of the Developer or AGIC since the
dates at which the Financial Information is presented.

The December 31, 1990 audited financial statements contain all disclosures required by generally accepted
accounting principles. For the December 31, 1991 and June 30, 1992 fmancial statements, AGIC has elected to omit
all of the disclosures and the statement of cash flows required by generally accepted accounting principles. If the
omitted disclosures and statement of cash flows were included in these financial statements they might influence the
user's conclusions about the company's financial position, results of operations, and cash flows. Accordingly, the
December 31, 1991 and June 30, 1992 financial statements are not designed for those who are not informed about such
matters.

American General is subject to the information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of the Commission: 26 Federal Plaza, New
York, New York 10007, and Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604. Copies of such
material can be obtained at prescribed rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, such reports, proxy statements and other information can be
inspected at the library of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
exchange the Common Stock and the old notes are listed.
CONSOLIDATED BALANCE SHEET

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

(In Thousands)
JUNE
-UNAUDITED- 30, 1992

ASSETS
Cash and cash equivalents $ 3,649
Loans to joint vermres, joint ventLre partners, construction
loans and other notes receivable, less allowance
for possible losses of $1 ,045 117,537
Real estate investments and related receivables
Land under development and held for sale 684,221
Income properties held for investment, less
accumulated depreciation of $12,853 167,299
Less valuation allowance (58,385)
Receivables from municipal utility districts 53,526
Investment in joint ventures, less valuation allowance of $2,554 11,206
Other assets 16,413

$ 995.466

LIABIUTITES AND SHAREHOLDER'S EQUITY

LIABIUTITES
Commercial paper net of prepaid interest of $1,404 $ 573,961
Long term notes payable to third parties 45,464
Estimated obligations on sold real estate 32,262
Accounts payable, and other liabilities 25,786
Accrued interest payable 3,844
Federal income taxes payable to parent 3,604
Notes and accounts payable to affiliates 2,973
TOTAL LIABILITIES 687,894

DEFERRED FEDERAL INCOME TAXES 52,511

DEFERRED INCOME 1,970

MINORITY INTERESTS 43,177

SHAREHOLDER'S EQUITY
Common stock, par value $1 per share - 1,000 shares
authorized, issued and outstanding 1
Additional paid-in and contributed capital 189,244
Retained earnings 20,669
TOTAL EQUITY 209,914

$ 995,466
CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

(In Thousands) SIX MONTHS

ENDED JUNE
-UNAUDITED- 30, 1992

Income:
Real estate sales $ 30,159
Cost of sales net of $2,338 adjustment (19,846)
GROSS PROFIT ON SALES 10,313

Rental income 8,168

Interest income 3,561
Servicing , loan placement and commitment fees 2,163
Management fees from affiliates 1,071
Other 2,146
TOTAL INCOME 25,276

Expenses:
Provision for losses on real estate and joint ventures 41,117
General, administrative, and other operating expenses 23,072
Interest expense to third parties, net of capitalized
interest of $11,401 4,421
Interest expense to affiliates 162
Depreciation expense 2,368
Management fee expense 1,027
TOTAL EXPENSES 72,167

Minority interest in net loss of consolidated joint ventures 247

(LOSS) BEFORE EQUITY IN EARNINGS

OF UNCONSOLIDATED JOINT
VENTURES AND INCOME TAXES (44,498)

Equity in earnings (loss) of unconsolidated joint ventures (1, 110)

(LOSS) BEFORE INCOME TAXES (45,608)

(Benefit) for federal income taxes:

Current (3,212)
Deferred (12, 147)
(15,359)

NET (LOSS) (30,249)

Retained earnings at beginning of year 50,918

RETAINED EARNINGS AT END OF YEAR $ 20,669

CONSOLIDATED BALANCE SHEET

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

(In Thousands)

-UNAUDITED- DECEMBER
31, 1991
ASSETS
Cash $ 1,018
Loans to joint ventures, joint venture partners,
construction loans and other notes receivable, less
allowance for possible losses of $1,045 152,602
Real estate investments and related receivables
Land under development and held for sale 635,540
Income properties held for investment, less accumulated
depreciation of $9, 783 111,541
Less valuation allowance {19,043)
Receivables from municipal utility districts 50,030
Investment in joint ventures, less valuation allowance of $1,446 19,188
Other assets 15,613

$ 966,489

LIABILITITES AND SHAREHOLDER'S EQUITY

LIABILITITES
Commercial paper net of prepaid interest of $1,545 $ 582,780
Estimated obligations on sold real estate 30,025
Accounts payable and other liabilities 29,756
Long term notes payable to third parties 6,623
Accrued interest payable 2,418
Notes and accounts payable to affiliates 1,649
Federal income taxes payable to parent 962
TOTAL LIABILITIES 654,213

DEFERRED FEDERAL INCOME TAXES ss,no

DEFERRED INCOME 3,811

MINORITY INTERESTS 44,532

SHAREHOLDER'S EQUITY
Common stock, par value $1 per share - 1,000 shares,
authorized, issued and outstanding 1
Additional paid-in and contributed capital 157,244
Retained earnings 50,918
TOTAL EQUITY 208,163

$ 966,489
CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES
YEAR ENDED
(In Thousands) DECEMBER
-UNAUDITED- 31, 1991

Income:
Real estate sales $ 56,375
Cost of sales (30,786)
GROSS PROFIT ON SALES 25,589

Rental income 8,584

Interest income 7,971
Servicing, loan placement and commitment fees 4,681
Management fees from affiliates 1,757
Gains on sale of joint venture interest and other assets 70
Other 3,018
TOTAL INCOME 48,652

Expenses:
General, administrative, and other operating expenses 39,607
Provision for losses on real estate, loans and other 7,202
Interest expense to affiliates 3,948
Interest expense to third parties, net of capitalized
interest of $30,801 3,043
Depreciation expense 3,084
Management fee expense 1,557
TOTAL EXPENSES 58,441

Minority interest in net loss of consolidated joint ventures 50

(LOSS) BEFORE EQUITY IN EARNINGS

OF UNCONSOLIDATED JOINT
VENTURES AND INCOME TAXES (9,739)

Equity in earnings (loss) of unconsolidated joint ventures (1,509)

(LOSS) BEFORE INCOME TAXES (11,248)

Provision (benefit) for federal income taxes:

Cllrent (15, 197)
Deferred 10,075
(5,122)

NET (LOSS) (6, 126)

Retained earnings at beginning of year 59,626

Cash dividends (5,600)

RETAINED EARNINGS AT END OF YEAR $ 47,900

=======
Audited Consolidated Financial Statements
and Other Financial Information

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

December 31, 1990

Audited Consolidated Financial Statements

Repon of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Consolidated Balance Sheets . . . . .. . .. . . .. . . .. . . .. . .. . . . . . . .. . . . . . .. . . .. . .. . . . . . . . . . .. . . .. . . .. . . . 2
Consolidated Statements of Income and Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . .. . . .. . . . . . . . . . . . . . . . . . . .. . . . . . . .. . . .. . . . . . . . . . . . . 8

Other Financial Information

Repon of Independent Auditors on Other Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Details of Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Details of Consolidated Statement of Income and Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 25
i.!/ ERNST & YOUNG Suite 3100
333 Clay Street
Phone: 713 751 1200

Houston. Texas 77002

Report of Ipdcpendcnt Auditors

Bomd of Directors
American General Investment Corporation

We have audited the accompanying consolidated balance sheets of American General

lnvesanent Corporation (a wholly owned subsidiary of American General Corporation) and
its subsidiaries (the "Corporation'') as of Decembet 31, 1990 and 1989, and the related
consolidated statements of income and retained earnings and cash flows for the years then
ended. These financial statements arc the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes exam-
ining, on a test basis, evidence supponing the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial swement presen-
tation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American General Investment
Corporation and subsidiaries at December 31, 1990 and 1989, and the consolidated results
of their operations and their cash flows for the years then ended in conformity with gener-
ally accepted accounting principles.

March 31, 1991

- 1-
CONSOLIDATED BALANCE SHEETS

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

(In Thousands)

December31
1990 1989

ASSETS
Cash and cash equivalents $ 6,543 $ 9,595
Real estate investments and related receivables:
Land under development 431,574 368,254
Land held for sale 97,240 79,766
Income properties held for invesonent, less accumulated
depreciation of $7,709 and $5,935 in 1990 and 1989,
respectively 75,396 50,231
Receivables from municipal utility districts 46,564 38,356
Less valuation allowance 00.772) (10.094)
640,002 526,513

Investment in and loans to unconsolidated joint ventures and

partners-Note B:
Acquisition and development loans to joint ventures 87,746 44,450
Investment in joint ventures 82,710 72,340
Loans to joint venture partners 3,971 4,463
Less valuation allowance (6.831) (683)
167,596 120,570

Mortgage loans held for sale 63,334

Construction and other notes receivable, less allowance for
possible losses of $449 and $559 in 1990 and 1989,
respectively-Note C 47,676 34,737
Other assets 15,434 17,902

$877 ,251 $772.651

-2-
 December31
1990 1989

LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES
Commercial paper, net of prepaid interest of $1, 699 and
$2,471in1990 and 1989, respectively-Note D $488,417 $384,529
Estimated obligations on sold real estate-Note H 25,664 37,225
Income taxes payable to parent 33,778 28,508
Accounts payable and other liabilities 29,025 28,504
Accrued interest payable 18,511 17,438
Notes payable to third parties-Note D 9,464 12,798
Notes and accounts payable to affiliates-Note F 71J~B 61876
TOTAL LIABILITIES 612,217 515,878

DEFERRED INCO?vffi TAXES PAY ABLE TO PARENT 27 ,511 28,272

DEFERRED INC01\1E 8,177 5,286

MINORITY INTERESTS 44,476 42,103

SHAREHOLDER'S EQUITY
Common stock, par value $1 per share-1,000 shares
authorized, issued, and outstanding l 1
Additional paid-in and contributed capital 125,243 125,243
Retained earnings 59.626 551868
TOTAL EQUITY 184,870 181,112

CO:MMITMENTS AND CONTINGENCIES-Note H

$877 ,251 $772,651

See notes to consolidated financial statements.

-3-
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
AMERICAN GENERAL INVESTMENT
CORPORATION AND SUBSIDIARIES
(In Thousands)
Year Ended December 31
1990 1989
Income:
Real estate sales $ 49,601 $114,267
Cost of sales (24.526) (f22.Q71)
GROSS PROFIT ON SALES 25,005 52,196

Gain on sale of joint venture interests-Note B 25, 156

Gain on sale of servicing rights-Note E 6,545
Interest income 8,728 7,090
Rental income 6,731 6,223
Servicing, loan placement, and commitment fees-
Note E 4,954 5,991
Management fees-Note F 2,292 2,594
Other 2.815 l.4Q7
TOTAL INCOME 75,681 82,046
Expenses-Note F:
General, administrative, and other operating expenses 19,245 17,442
Salaries and other employee costs 12,921 12,210
Provision for losses on real estate 6,980 6,000
Management fee expense 1,829 2,833
Depreciation expense 1,774 1,497
Interest expense to third parties 868
Interest expense to affiliates 761 217
TOTAL EXPENSES 44,378 40,899
Minority interest in net earnings of consolidated joint
ventures (2.637) (4.584)

EARNINGS BEFORE EQUITY IN EARNINGS

OF UNCONSOLIDATED JOINT VENTURES
AND INCOME TAXES 28,666 36,563
Equity in earnings of unconsolidated joint ventures-
Note B 2.45Q 2.281
EARNINGS BEFORE INCOME TAXES 31,116 46,544
Provision for income taxes:
CUITCnt 10,919 11,373
Deferred (261) 5.Q41
lQ.158 lf2.414
NET EARNINGS 20,958 30,130

Retained earnings at beginning of year 55,868 44,738

Cash dividends Cl 7.2QO) Cl 9.000)

RETAINED EARNINGS AT END OF YEAR $ 592626 $ 552868

See notes to consolidated financial statements.

-4-
CONSOLIDATED STATEMENTS OF CASH
FLOWS

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

(In Thousands)

Year Ended December 31

1990 1989

OPERATING ACTIVITIES
Net earnings $ 20,958 $ 30, 130
Adjustments to reconcile net earnings to net cash used in
operating activities:
Real estate cost of sales for land under development and
held for sale 14,129 51,585
Provision for losses on real estate 6,980 6,000
Amortization of provision for losses on real estate (155)
Gain on sale of income propeny (17,514)
Gain on sale of servicing rights (6,545)
Gain on sale of joint venture interests (25,156)
Depreciation 1,774 1,497
Provision (benefit) for deferred income taxes (761) 5,041
Increase in deferred income 2,891 2,724
Distributions received in excess of earnings of
unconsolidated joint ventures 8,504 6,867
Undistributed earnings of minority partners 3,396 4,584
Changes in operating assets and liabilities:
Additions to land under development and held for sale (103,707) (100,672)
(Increase) decrease in mongage loans held for sale to
investors 63,334 (62,393)
Increase in receivables from municipal utility districts (8,208) (4,857)
Decrease in receivable on sale of real estate 10,457
(Increase) decrease in other assets 2,470 (2,921)
Increase (decrease) in estimated obligations on sold
real estate (11,561) 11,748
Increase (decrease) in income taxes payable to parent 9,361 (16,597)
Increase in accrued interest payable 2,944 2,530
Increase (decrease) in accounts payable and other
liabilities .522 (6.521)
NET CASH USED IN OPERATING ACTIVITIES (12,285) (84,927)

-5-
CONSOLIDA1EDSTA1ErvIBNTSOFCASH
FLOWS-Continued

AMERICAN GENERAL INVESTh1ENT

CORPORATION AND SUBSIDIARIES

(In Thousands)

Year Ended December 31

1990 1989

INVESTING ACTIVITIES
Contributions to unconsolidated joint ventures (21,555) (9,341)
Capitalized interest on unconsolidated joint ventures (890)
Additions to propenies held for invesnnent (27,409) (1,670)
Collections on acquisition and development loans to joint
ventures and loans to joint venture partners 15,219 18,476
Advances on acquisition and development loans to joint
ventures and loans to joint venture partners (58,021) (42,765)
Collections on construction and other notes receivable 10,004 9,614
Advances on construction and other notes receivable (14, 159) (8,463)
Proceeds on sale of income property 470 6,257
Proceeds on sale of servicing rights 6,545
Proceeds on sale of joint venture interests 28.725
NET CASH USED IN INVESTING ACTIVITIES (67,616) (2 L~47)

FINANCING ACTIVITIES
Proceeds from commercial paper and notes payable
borrowings 565,240 361,855
Principal payments on commercial paper and notes payable
borrowings (464,687) (272,719)
Proceeds from transactions with affiliates 348,258 164,919
Payments relating to transactions with affiliates (353,738) (119,766)
Dividends paid (17,200) ( 19,000)
Distributions to minority panners (11Q24) (21~99)
NET CASH PROVIDED BY FINANCING ACTIVITIES 7!21849 1121690
INCREASE (DECREASE) IN CASH (3,052) 6.416

CASH AND CASH EQUIVALENTS AT BEGINNING OF

YEAR 91595 31179

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6%543 $ 9,595

-6-
CONSOLIDATED STATEMENTS OF CASH
FLOW~ontinued

AMERICAN GENERAL INVESTiv1ENT

CORPORATION AND SUBSIDIARIES

(In Thousands)

Supplemental Schedule of Noncash Investing and Financing Activities and Other Required
Disclosures:

In 1990, the Corporation acquired $1.2 million in land under development and held for sale
through foreclosure on other notes receivable. In 1989, the Corporation acquired
$3.2 million in land under development and held for sale through foreclosure on acquisi-
tion and development loans to joint ventures and other notes receivable.

During 1990, the Corporation obtained the remaining ownership interest in a consolidated
joint venture resulting in a $.8 million increase to land under development and held for sale
and a corresponding increase in minority interest. During 1989, the Corporation obtained
the remaining ownership interest in two unconsolidated joint ventures resulting in a
$6.5 million increase to land under development and held for sale and a corresponding
decrease in acquisition and development loans to joint ventures.

During 1990, the Corporation sold land under development and held for sale having a cost
basis of approximately $10 million in exchange for approximately $3. 7 million in cash
and approximately $10 million in notes receivable.

During 1990, the Corporation reclassed approximately $4.1 million from income taxes
payable to parent and approximately $1.9 million from accrued interest payable to accounts
payable to affiliates due to payment by an affiliate of taxes owed on the settlement of prior
years' returns previously under dispute with the IRS.

During 1989, the Corporation sold a 50 percent interest in a wholly owned shopping cen-
ter having a cost basis of $10.5 million in exchange for a $21.7 million note receivable
plus $6.3 million in cash. In conjunction with this transaction, the Corporation formed a
joint venture in which it retained majority control. As a result, a $28 million increase in
minority interest and the related income propeny was recorded upon consolidation.

The Corporation paid $38.7 million and $28.5 million in interest during 1990 and 1989,
re spec ti vel y.

The Corporation made federal income tax payments to its parent of $1.6 million and
$28.8 million during 1990 and 1989, respectively.

See notes to consolidated financial statements.

-7-
NOTES TO CONSOLIDATED FINANCIAL
STATEI\IBNTS

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

December 31, 1990

NOTE A-SIGNIFICANT ACCOUNTING POLICIES

Or:&anization: American General Investment Corporation (the "Corporation") was incorpo-

rated in Delaware in 1939 to develop and manage real estate properties and to place and
service mongage loans.

Basis of Consolidation: The consolidated financial statements include the accounts of

American General Investment Corporation (a wholly owned subsidiary of American
General Corporation), its wholly owned subsidiaries, and their controlled real estate joint
ventures (American Newland Associates-75 percent owned by the Corporation and
Green Hills Associates--50 percent owned by the Corporation). All material intercompany
accounts and transactions have been eliminated upon consolidation. See Notes Band F.

Real Estate lnvesunents and Related Receivables: Investments in real estate assets are
stated at the lower of cost or net realizable value. The cost of real estate assets includes
land acquisition and development costs, indirect costs related to development, and interest
and propeny taxes incurred during the development period. Interest and propeny taxes
incurred after the propeny is substantially complete and ready for its intended use are
charged to expense. Interest incurred during 1990 and 1989 was approximately
$39 million and $31 million, respectively, of which approximately $37 million and
$30 million, respectively, was capitalized to properties under development.

Income properties held for investment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method at rates considered sufficient to
amortize the cost over the estimated useful lives.

Expenditures for the development of drainage and water and sewer utility systems are
reflected as municipal utility district receivables and are considered to be fully recoverable
from municipal utility districts.

Joint Ventures: All majority-owned and controlled joint ventures have been consolidated.
Investments in and acquisition and development loans to other joint ventures are accounted
for by the equity method and are carried at cost plus equity in undistributed net earnings or
losses. All significant joint ventures are involved in real estate development and income

-8-
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-Continued

AMERICAN GENERAL INVESTh1ENT

CORPORATION AND SUBSIDIARIES

NOTE A-SIGNIFICANT ACCOUNTING POLICIES-Continued

propeny management and use the same accounting practices as the Corporation. The
majority of the Corporation's loans to unconsolidated joint ventures are currently accounted
for as acquisition development or construction (ADC) loan arrangements. The Corporation
has properly deferred the related interest income on these loans. Interest is capitalized on
investments in and acquisition and development loans to unconsolidated joint ventures
during the period the venture is under development. See Note B.

Moniaie Loans Held for Sale: The mortgage loans are recorded at the lower of cost or
market All mortgage loans held for sale are committed to American General affiliates.

Reco&nition of Real Estate Sales and Allocation of Costs: As property is developed and
sold, acquisition, development, and holding costs are allocated to land on the relative sales
value basis or by specific identification, where appropriate. Revenue and profit from sales
of real estate are recognized upon closing, which is when title, possession, and other
attributes of ownership have been transferred to the buyer and the buyer tenders payment in
full or an adequate cash down payment. For sales which do not meet these criteria,
amounts received are accounted for under the installment or deposit methods until the crite-
ria for full profit recognition are satisfied.

The Corporation is obligated to perform cenain development activities in accordance with

provisions of the sales agreements for various sold properties. The estimated amounts of
these commitments are charged to cost of sales as the properties are sold and included as a
liability for estimated obligations on sold real estate. The profit on the sales is recognized
by the percentage-of-completion method as development and construction proceed, pro-
vided that cost and profit can be reasonably estimated

Rental Income: Rental receipts are recorded as income on a straight-line basis over the
terms of the leases.

Seryicin&. Loan Placement. and Committnent Fees: Loan servicing fees represent a panic-
ipation in interest collections on loans serviced for investors and normally are based on a
stipulated percentage of the outstanding monthly principal balances of such loans. Loan
servicing fees are credited to income as monthly principal and interest payments are col-
lected from mortgagors, and costs of loan servicing are expensed as incurred. See Note E.

-9-
N01ES TO CONSOLIDATED FINANCIAL
STA1EMENTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE A-SIGNIFICANT ACCOUNTING POLICIES-Continued

The Corporation receives loan placement and comminnent fees on loans arranged for affili-
ated companies. Loan placement fees are received and recognized at the time a loan is
funded Commitment fees are deferred and recognized when a loan is funded or the related
commitment expires. Other than the aforementioned fees, the Corporation does not incur a
gain or loss on loans arranged for affiliated companies. See Note E.

Income Taxes: The Corporation files its income tax returns with its parent on a consoli-
dated basis. The parent's allocation of income taxes to each subsidiary is based on a com-
putation of the tax that would be payable by each subsidiary assuming each subsidiary filed
a separate tax return. Income tax expense includes deferred tax provisions relating to
treatment of several items of income and expense (principally interest and property taxes,
unused net operating loss benefits, provisions for losses on real estate, and depreciation)
recognized in a different year for financial reporting purposes than for income tax pur-
poses. Income tax expense also includes a provision for current and deferred state income
taxes. At December 31, 1990, operating loss carryovers totaled $7.8 million which, if
unused, will expire in years 2003 and 2004.

In 1987, the Financial Accounting Standards Board issued SFAS 96, "Accounting for
Income Taxes," changing the way income tax expense is determined for financial reporting
purposes. The Corporation must adopt this new statement by first quarter 1992, with
restatement of prior periods optional. The Corporation has preliminarily estimated the
effect of adopting this statement and determined that approximately $4 million would be
recognized into income. The Corporation has not yet decided whether to implement SF AS
96 using the restatement or cumulative effect method.

The Internal Revenue Service (IRS) has examined the parent company's returns through
1983 and is disputing the parent's tax treatment of some items. Some of the issues may
require litigation to resolve. No significant adverse adjustment to the Corporation's consol-
idated financial position is expected to result from settlement of the open tax issues.

Financial Instruments: In March 1990, the Financial Accounting Standards Board issued
Statement No. 105, "Disclosure of Information about Financial Instruments with Off-
Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk." The
Corporation has provided additional disclosures related to financial instruments with off-
balance sheet risk and concentrations of credit risk in the current year. See Notes B. C, D,
E, and H.

- 10 -
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-Continued

AMERICAN GENERAL INVESThffiNT

CORPORATION AND SUBSIDIARIES

NOTE A-SIGNIFICANT ACCOUNTING POLICIES-Continued

Postrctirement Benefits: In December 1990, the Financial Accounting Standards Board

issued Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires accrual of a liability for postretirement benefits other than pen-
sions through a cumulative adjustment or prospectively. This statement must be adopted
by 1993. For the Corporation, these benefits consist primarily of health care benefits.
Adoption is not expected to materially impact operating results or shareholders' equity.

Mereer: Effective December 31, 1989, South Padre Land Company, GULFCO Capital
Management, Inc., and Gulf Life Center Development Company (the "Merged
Companies") were merged with the Corporation. Prior to this combination, the Merged
Companies were wholly owned subsidiaries of American General Corporation. This trans-
action between enterprises under common control was accounted for at historical cost in a
manner similar to that in a pooling of interests. All information in the financial statements
is presented as if the merger had been completed by December 31, 1989, and retroactive to
January 1, 1989. All material intercompany accounts and transactions have been elimi-
nated. Total income and net earnings (loss) for the 12 months ended December 31, 1989,
were $147 million and $31 million for the Corporation and $.4 million and $(.9) million
for the Merged Companies. Additional paid-in and contributed capital increased by $11.4
million. Retained earnings decreased by $1.3 million.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks
and amounts invested in repurchase agreements.

Reclassifications: Cenain amounts previously reponed in 1989 have been reclassified to

conform with 1990 presentation. Such reclassifications did not affect earnings or retained
earnings previously reported.

NOTE B-SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED

JOINT VENTURES

At December 31, 1990 and 1989, the Corporation's investments in joint ventures are rep-
resented by ventures engaged in the development and sale of land and the ownership, man-
agement, and development of income properties. The Corporation's role in the ventures is
to panicipate in major decisions and provide or obtain interim and permanent financing

- 11 -
NOTES TO CONSOLIDATED FINANCIAL
STATE~NTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE B-SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED

JOINT VENTURES-Continued

while the other venture panners are responsible for the management of construction and
operation of the properties. The Corporation occasionally sells propeny to ventures. The
Corporation's profit from such sales is deferred until the venture has sold the propeny to a
third pany. The following summarizes the type of unconsolidated ventures, the Corpora-
tion's percentage ownership, and the number of ventures at December 31:

Land development, including land held for sale:

60 percent owned 2 1
50 percent owned 11 12
35 percent owned 1
20 percent owned 1

Income propenies, including office buildings, apartments, airpon

facilities, and shopping centers:
55 percent owned 4 1
50 percent owned 11 9
25 percent owned 1

Propenies sold-venture in process of liquidation:

50 percent owned 6 4
49 percent owned 1 1
20 percent owned _1

The Corporation has a majority ownership interest (greater than 50 percent) in six ventures
in 1990 and two joint ventures in 1989, as shown above; however, these ventures were not
consolidated because the Corporation does not have majority voting control.

- 12 -
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-Continucd

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE B-SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED

JOINT VENTURES-Continued

At December 31, 1990, the Corporation had investments in and loans to unconsolidated
joint ventures and partners which were primarily located in the states of Tennessee
(29 percent), Texas (21 percent), South Carolina (21 percent), and Aorida (7 percent).

The following presents the combined financial position (100 percent basis) of joint ven-
tures in which the Corporation panicipates at December 31, 1990 and 1989, res pee ti vel y,
(in thousands):

1990 1989
ASSETS
Cash $ 2,060 $ 16,539
Notes receivable and other assets 11,865 16,539
Propeny held for development and sale or investment 240.748 159.550

$254z673 $176.645

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
Accounts payable and other liabilities $ 13,673 $ 12,741
Notes payable:
To the Corporation 87,746 44,450
To unafffiliated parties 52A7~ 3f211Q7
147219 8Q.557

TOTAL LIABILITIES 160,892 93,298

PARTNERS' CAPITAL
The Corporation:
Aggregate equities 84,052 69,242
Aggregate deficits (2.915) (3.417)
81,137 65,825
Other venturers:
Aggregate equities 15,627 22,075
Aggregate deficits (21983) (4.553)
12.644 171522
23.781 83347

$254,673 $176,645

- 13 -
N01ES TO CONSOLIDATED FINANCIAL
STATE!\IBNTS-Continued

AMERICAN GENERAL INVESTh1ENT

CORPORATION AND SUBSIDIARIES

NOTE B-SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED

JOINT VENTIJRES-Continued

The following presents the combined results of operations (100 percent basis) of joint
ventures in which the Corporation participates for the year ended December 31, 1990 and
1989, respectively, (in thousands):

1990 1989

Sales and rental of propeny and other $ 29,726 $ 66,796

Cost of sales (10,833) (20,807)

Other (11.425) (11.245)
(28.258) (38.052)

$ 1,468 $ 28.744

Allocation of net earnings:

The Corporation $ 1,168 $ 14,690
Other venturers 300 14.054

$ 12468 $ 282744

The Corporation's investment in joint ventures includes an unamortized balance of

$. 7 million and $6.5 million at December 31, 1990 and 1989, respectively, which
represents the difference between the purchase price and the net assets of acquired joint
ventures. This amount is being amortized using the same amortization method as the
related assets. Amortization totalled $88 thousand and $4. 7 million in 1990 and 1989,
respectively. At December 31, 1990, the Corporation's investment in joint ventures
includes interest of $.9 million capitalized by the Corporation. The Corporation's equity in
the earnings of joint ventures includes $1.3 million of additional earnings from
reclassifications made in the application of acquisition, development, or construction loan
accounting.

The Corporation's investment in joint ventures is net of a provision for losses of $6.8 mil-
lion and $.7 million at December 31, 1990 and 1989, respectively. These reserves repre-
sent allowances for possible losses on the Corporation's investment in joint ventures.

- 14 -
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE B-SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED

JOINT VENTIJRES-Continued

These reserves are being amonized as sales occur. Amortization totaled $115 thousand in
1990.

The provision provided in 1990 was primarily due to a change in estimate on an unconsoli-
dated joint venture which resulted in a valuation allowance of $5.5 million. The venture
was not achieving the projected sales results, thus a marketing study was commissioned to
assist in the review of the mix, pricing, and timing of sales. The result of this study and
management's review of the venture propeny resulted in a downward revision in projec-
tions for future sales.

Interest incurred by the ventures during 1990 and 1989 totaled $14 million and
$10 million, respectively, on debt payable to the Corporation. Interest capitalized during
1990 and 1989 by the ventures on debt payable to the Corporation which related to real
estate propenies under development totaled $10 million and $8 million, respectively.

Substantially all of the ventures' propenies were pledged as collateral on notes and mort-
gage notes payable to the Corporation and unaffiliated parties. The Corporation has loans
to joint ventures totaling $29.5 million which are subordinate to mongage notes payable to
unaffiliated panics.

The Corporation is committed to form up to six joint ventures and to loan the joint ventures
up to $31.5 million after the performance by the other venture panners and construction
lenders of cenain obligations.

During 1990, the Corporation sold its ownership interest in two income propeny joint
ventures having a cost basis of approximately $3.5 million in exchange for approximately
$28.7 million in cash.

NOTE C-CONSTRUCTION AND OTHER NOTES RECEIVABLE

Construction and other notes receivable represent first mongage liens primarily on residen-
tial construction and commercial retail propeny. These notes bear interest at rates ranging
from 9 percent to prime plus 2 percent and are due at various times through 1998.

- 15 -
NOTES 10 CONSOLIDATED FINANCIAL
STATEMENTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARJES

NOTE C-CONSTRUCTION AND OTIIER NOTES RECEIVABLE-Continued

At December 31, 1990, the Corporation's construction and other notes receivable were
primarily located in the states of Tennessee (45 percent), Texas (29 percent), California
(15 percent), and Florida (9 percent).

N01E D-COMMERCIAL PAPER AND NOTES PAYABLE TO TIIlRD PARTIES

At December 31, 1990, commercial paper, which is guaranteed by the Corporation's par-
ent, bears interest at rates ranging from 7. 7 percent to 9 .5 percent per annum and matures
at various times through February 12, 1991.

The Corporation has entered into interest conversion agreements, with a bank, which have
the effect of limiting interest payments on $100 million of floating interest rate commercial
paper obligations to no more than 9.5 percent. The interest conversion agreements expire
August 31, 1991 and 1992, and the costs associated therewith are amortized using the
interest method over the terms of the agreements. The Corporation is exposed to credit loss
in the event of nonperformance by the other party to the interest rate swap agreements.
However, the Corporation does not anticipate nonperformance by the counterparties. Any
such nonperformance would not have a material impact on net earnings.

Notes payable consist of various notes due to third parties which are secured by land car-
ried at $16.3 million. The interest on third-party notes ranges from 7.5 percent to
12 percent. The annual maturities of these notes for the next five years are as follows (in
thousands of dollars): 1991-$2,954; 1992-$2,863; 1993-$2,254; 1994-$1,063;
1995-$286; thereafter-$44.

NOTE E-SERVICING VOLUME

The following presents the number and principal balances of mortgages serviced by the
Corporation as of December 31, 1990 and 1989, and the number and principal balances of

- 16 -
NOTES TO CONSOLIDATED FINANCIAL
STATE:MENTS-Continucd

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE E-SERVICING VOLUME-Continued

mortgages arranged for affiliated companies during the year. The Corporation services
primarily commercial loans (83 percent) and conventional single-family residential loans.

122Q 1282
Principal Principal
Balance Balance
Number Cin millions) Number (in millions)

Mortgages serviced:
For affiliated companies:
Direct servicing 1,146 $1,664 1,189 $1,583
Master (correspondent) servicing 13,621 2,894 15,933 2,705
For others 17 14 1.931 63

142784 $4572 192053 $4,351

Mongages arranged for affiliated
companies 122 $ 567 195 $ 574

All mortgages arranged for affiliates are transferred at cost. Servicing fees are charged to
affiliates at normal industry rates and totaled $4.5 million and $4.8 million in 1990 and
1989, respectively. Additionally, the Corporation held $4.6 million and $1.5 million in
1990 and 1989, respectively, of escrow funds related to the above loans in separate
accounts for payment of property taxes and insurance on behalf of the related mortgagors.
Any foreclosure costs incurred by the Corporation are reimbursed in full by affiliated or
third-party investors.

During 1989, the Corporation sold the servicing rights to $514 million of single-family
first lien mortgages to a correspondent servicer for a gain of $6.5 million. The single-
family first lien mortgages are owned by affiliated companies and the Corporation will con-
tinue to act as the master servicer for those loans.

At December 31, 1990 and 1989, errors and omissions insurance coverage totaled
$5 million, and fidelity bond coverage totaled $50 million.

- 17 -
NOTES TO CONSOLIDATED FINANCIAL
STATE:MENTS-Continued

AMERICAN GENERAL INVESTh1ENT

CORPORATION AND SUBSIDIARIES

NOTE F-RELATED PARTY TRANSACTIONS

American General Corporation and other companies within the American General Group
have allocated certain expenses to the Corporation. Those expenses totaled $1.5 million
and $1.4 million in 1990 and 1989, respectively. The Corporation received $2.3 million
and $2.6 million from affiliates during 1990 and 1989, respectively, for the management
of mortgage loans held by the affiliates.

During 1990 and 1989, the Corporation was charged $1.5 million and $2.6 million,
respectively, in management fee expenses by a joint venture panner. The Corporation was
allocated $6.6 million and $5.4 million, respectively, of expenses by this joint venture
panner as well. The allocated expenses related primarily to salaries and other employee
costs.

Payables to affiliates averaged $8.3 million and $9.6 million in 1990 and 1989, respec-
tively. Receivables from affiliates averaged $375 thousand in 1989. The loans are unse-
cured and bear interest at American General Corporation's commercial paper rate plus 25
basis points. The Corporation incurred interest of $761 thousand and $917 thousand on
payables to affiliates during 1990 and 1989, respectively, and received interest of
$35 thousand on receivables from affiliates in 1989.

The Corporation occasionally lends to panners in its joint ventures. Loans to joint venture
panners represent first mongage liens on joint venture investments, bear interest at prime
plus 2 percent, and are due at various times through 1995.

The Corporation leases office space from several affiliates. The leases are month-to-month
operating leases.

NOTE G-PENSION PLAN

The Corporation is a member of the American General Corporation noncontributory,

defined-benefit pension plan which covers all of the Corporation's employees. Pension
benefits are based on the participant's average monthly compensation and length of credited
service offset by an amount that complies with federal regulations. The funding policy for
the Plan provides for annual contributions of no more than the maximum amount which can
be deducted for federal income tax purposes. American General Corporation uses the pro-
jected unit-credit method for computing pension expense.

- 18 -
NOlES TO CONSOLIDATED FINANCIAL
STATE:MENTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE G-PENSION PLAN-Continued

The components of pension expense for 1990 and 1989 for the Corporation were as fol-
lows (dollars in thousands):

Service cost-benefits earned during period $ 161 $ 167

Interest cost on projected benefit obligation 183 182
Actual return on plan assets 144 (794)
Amortization of unrecognized net assets existing at date of initial
application (151) (151)
Amonization of unrecognized prior service cost 36 20
Amortization of (gain) loss (28)
Deferral of net asset gain (loss) _ill]_)

TOT AL PENSION EXPENSE (CREDIT) $(182) $ (84)

Assumptions for 1990 and 1989 were as follows:

Weighted average discount rate on benefit obligation 7 1/2% - 8 1/4%

Rate of increase in compensation levels 5% -5 1/2%

Expected long-term rate of return on plan assets 8 1/2% - 10%

- 19 -
NOTES TO CONSOLIDATED FINANCIAL
STATE?vffiNTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE G-PENSION PLAN-Continued

The following table sets forth the funded status and amounts recognized by the Corporation
in its consolidated balance sheet at December 31, 1990 and 1989, for its pension plan
(dollars in thousands):

1990 1989
Actuarial present value of benefit obligation:
Vested benefit obligation $1,433 $1,477
Nonvested benefit obligation Hl3 245
ACCUMULATED BENEFIT OBLIGATION 1,536 1,722

Effect of increase in compensation levels 337 703

Projected benefit obligation 1,873 2,425
Plan assets at fair value 3.595 4.426
Plan assets in excess of projected benefit obligation 1,722 2,001
Unrecognized net gain (653) (873)
Unrecognized prior service cost 223 119
Unrecognized net asset at January 1, net of amonization (548) <730)

NET PENSION ASSETS $ 744 $ 517

More than 91 percent of the plan assets at the Plan's most recent balance sheet date were
invested in readily marketable stocks and bonds. The remaining plan assets consisted pri-
marily of cash equivalents and invesonent-related receivables.

The pension plans have purchased annuity contracts from several of American General's
life insurance subsidiaries that provide benefits to cenain retirees. During 1990 and 1989,
these annuity contracts provided $34 million and $31 million, respectively, in benefits to
American General Corporation retirees.

NOTE H-COMMITh1ENTS AND CONTINGENCIES

The Corporation is contingently liable under various letters of credit totaling $49.8 million
issued or guaranteed on behalf of various joint ventures to secure performance for comple-
tion of certain paving, drainage, and landscaping obligations. The letters of credit expire at
various times through 2000.

- 20 -
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-Continued

AMERICAN GENERAL INVESTMENT

CORPORATION AND SUBSIDIARIES

NOTE H-COMMITMENTS AND CONTINGENCIES-Continued

The Corporation has guaranteed a cash-on-cash return of 7 1/2 percent to a third party on
behalf of a subsidiary on an investment of $25 million. The guarantee is for a period of
57 months from April 1, 1987, resulting from the sale of an interest in 7 partnerships in
California. At December 31, 1990, the Corporation has accrued $1.8 million to cover its
estimated obligations under this agreement.

At December 31, 1990, the Corporation, together with American General Corporation and
American General Finance, Inc. (a wholly owned subsidiary of American General
Corporation), maintained unsecured credit agreements with a total of 40 domestic and for-
eign banks that provide for borrowings of up to $2.8 billion. There were no borrowings
under these facilities by the Corporation at December 31, 1990.

In accordance with the provisions of the sales agreements for various sold properties, the
Corporation is obligated to petfonn cenain development activities. At December 31, 1990,
the estimated amounts of these commitments totaled $25. 7 million. During 1990, the Cor-
poration recorded a $7.4 million reduction in estimated obligations on sold real estate and a
corresponding reduction in cost of sales. This adjustment resulted from a change in esti-
mate of development costs (actual costs were less than originally estimated development
costs) on propenies sold between 1987 and 1990.

The Corporation has a committnent to a former partner to distribute certain future income
from the sale of the former partnership's assets. The Corporation will accrue its obligation,
if any, at the time such future income is realized.

The Corporation is committed to purchase ten development sites for a total of $7 million
and lease them back to the seller under long-term leases.

The Corporation has guaranteed payment of approximately $2 million in ground lease obli-
gations of cenain joint ventures, expiring at various times through 2027.

The Corporation is subject to lawsuits and claims which arise out of the normal course of
business. In the opinion of management, the disposition of any and all such actions of
which it is aware will not have a material effect on the financial position of the Corporation.

- 21 -
 LEGG
MASDr\J
Legg Mason Wood Walker, Inc.
Public Finance Department

Heritage Plaza. Suite 1400

1111 Bagby Street
Houston. TX 77002)510
c 13) 1 50-699l)
Member New York Stock Exchange, Inc.