Pheasant Lake Townhome Association

Tinley Park, Illinois 60487 March 27, 2015

Dear Townhome Owner:

The Pheasant Lake Townhome Association Board is providing the December 31, 2014 financial statements for your review. Also provided is a history of the association’s reserves and net assets from December 31, 2000 to December 31, 2014, which is helpful to all townhome owners, but especially new townhome owners.

The 2014 financial statements have been prepared by me as Board Treasurer based upon data provided by EPI. I have made sure that all major 2014 expenses have been included in the 2014 financial statements. These financial statements have not been subjected to an independent, external audit. The current board concurred that the cost of an external audit (that would involve a review of only a sample of the 2014 transactions) was not necessary. The primary reason for not having an external audit is that I have co-signed all checks in accordance with the requirements of the by-laws. As a result, in 2014, we have had 100% review of all invoices by both EPI and a Board member serving as Treasurer prior to their payment. (Prior to 2003, only people from our management company signed our checks.) In addition, all board members get a list of the checks issued and signed by the Treasurer and EPI. There are also a number of other internal controls in place that protect the Association’s primary asset (the assessments collected) and control the expenses paid with those funds, including preparation of monthly bank reconciliations.

Townhome owners should know that an external audit does not alleviate any concerns about improprieties by the Board or our management company. Not even an external audit that involves a review of 100% of the transactions could alleviate that concern if people collude to create fraudulent transactions. However, that risk is minimized by obtaining multiple bids that are reviewed by Board members at their public meetings and by requiring two signatures for all bank account withdrawals or checks.

Townhome owners should know that for any organization, the primary responsibility for the financial statements lies with the management of the company, not its auditors. Management (for us, all of our Board members) is responsible for ensuring that its financial statements are free from material misstatements based on their understanding of the internal controls in place.

Be sure to check out the financial statement footnotes on the next page, which include information about the roof assessments that were put in place (as you all know) effective January 2012.

The volunteers must be acknowledged for their continuous efforts that have resulted in considerable cost savings in 2014. As in past years, the volunteers are one of the primary reasons why the Association’s expenses came in under budget for 2014. The volunteers continue to provide considerable savings, especially in the area of sprinkler repairs and maintenance, landscaping, general maintenance, miscellaneous expenses, and accounting fees.

If you have any questions regarding the financial statements, please feel free to let the Board know by coming to a Board meeting (next board meeting is Monday, April 13, 2015, at 7 pm at the Village of Tinley Park) or contacting the Board through EPI at 708-396-1800 or via email at epi@epimanagement.com . Since we do not issue monthly newsletters, if you plan to attend future board meetings, please confirm the date and location with EPI in advance of the meeting OR you can check the notification board by the bench at the south end of the lake OR check the Pheasant Lake website at http://plta60487.wordpress.com .

Owners are also encouraged to check out the Association’s website because it provides copies of our declaration, rules and regulations, exterior modification request forms, the ACH form for electronic processing of assessments, minutes of meetings (after approved by the board) and policies for exterior lights, delinquent assessments, satellite dishes, and dog feces.

Sincerely,

Elizabeth A. Murphy, Ph.D., MBA, C.P.A. Treasurer, Pheasant Lake Townhome Association

2014 Year End Financials – Notes/Explanations for Owners

The 2014 year-end financial statements are included on the next few pages. Please notice that we came in under budget in 2014 by $40,003.09 due to some line items coming in under budget (primarily sprinkler repairs by $6,666.08 thanks to our volunteers, roof repairs by $5,682.77, general maintenance by $10,078.40, exterior painting by $4,753.99, and legal and accounting by $6,282.50). Even though the reserve study cost was budgeted for 2014, the company selected was hired late in 2014 with the reserve study work and cost actually being incurred in 2015. Therefore, legal and accounting fees are shown as being under budget for 2014, but this line item will be over budget in 2015 due to paying the 2014 budgeted amount in 2015. There were no corporate income taxes in 2014 due to interest income being much lower than prior years (due to lower interest rates). (FYI, only interest income is taxable for the association after deducting related expenses.)

Landscape replacement costs were over budget; the costs incurred in 2014 totaled $17,154.80: (1) $6,570 was billed in 2014 for dead bush removal and bush replacements (some of which

must still be done in 2015); the entire bill is not being paid until 2015 after all work is inventoried to make sure it is complete.

(2) $10,584.80 was spent on tree and stump removal for evergreen trees damaged by storms and on tree and stump removal of dead ash trees (other than those in the parkways which are the responsibility of the Village of Tinley Park).

(3) Only $5,000 was budgeted for landscape replacement, so the actual amount over budget in 2014 was $12,154.80. However, the board approved use of unspent mulch reserves of $9,015 to help cover landscape replacement costs; this resulted in landscape replacements being over budget for only $3,139.80.

The only other line item significantly over budget is snow removal by $971.05, primarily due to the extra charge of $806.25 on 1/27/14 due to removal of extra snow due to significant snow drifts.

A unit foreclosed in early 2014, and an estimated write-off of uncollectible assessments was recorded in 2013 since some of the assessments prior to foreclosure could not legally be collected; the unit has been sold in 2015 and the actual amount collected was more than expected. Therefore, bad debt expense is really income of $2,270.50 for 2014 due to the adjustment of the prior year’s overestimated bad debt (uncollectible account) expense.

In addition to showing the balance sheet and assessments versus expenses for the year ended Dec. 31, 2014, a historical perspective is provided by summarizing the assessments versus expenses from 2001 to 2014, as well as the reserves collected and spent from 2001 to 2014. We thought this information would be helpful for all owners, but especially those who are new to the association. You can see that from 2001 to 2014, we have spent a total of $217,407.28 less than the amounts budgeted, again due primarily to the work done by volunteers. This includes recovering from deficit spending in 2000 and 2001. Thus, the Association not only has this $217,407.28 of unspent budgeted amounts available for future spending, but also the unspent budgeted unrestricted reserves collected as part of the assessments of $33,546.49, and $2,250 reserved for mulch. These are the balances available AFTER having already spent $59,901 in 2014 to replace chimney caps prior to the roofing project being conducted.

ROOFING PROJECT: $195 MONTHLY ASSESSMENTS COLLECTED THROUGH DECEMBER 2015

The most significant association expenditure is for new roofs, which are being replaced in 2015. As townhome owners already know, the board had consistently planned (since 2006) to replace the roofs in 2014 (after the oldest units are 20 years old). At the November 2011 board meeting, many unit owners attended the board meeting requesting that the board figure out a way to lower the roof assessments that were beginning in 2012. Assuming that the roofs would have been replaced in 2014, and based on roof replacement estimates received in late 2011, the board estimated that the assessment per owner per month of $220 would have to be collected in 2012, 2013, and 2014.

However, in an attempt to lower the monthly costs to owners, the roof replacement project was deferred to 2015; this allowed collection of lower roof assessments over a 4-year period (from Jan. 1, 2012 through December 31, 2015). For 2012, this meant that the monthly roof assessment was $170 per month. Roof replacement estimates obtained in 2012 provided evidence that an increase in roof assessments to $195 was needed in 2013; updated estimates obtained in 2013 and the evaluation of the 2014 approved bid resulted in keeping the roof assessment at $195 for 2014 and 2015.

Thus, roof replacement assessments began in 2012 totaling $187,680, but $12 out of the regular $165 was also allocated to roof reserves, for a total of $200,928 assessed for roof reserves. For both 2013 and 2014, roof reserves assessed totaled $215,280, which is $195 for 92 owners for 12 months; again in 2013 and 2014, $12 out of the regular monthly $165 assessment was allocated to roofs, for a total of $228,528 for roof reserves for both 2013 and 2014. Thus, the roof assessments for 2012, 2013, and 2014 total $657,984. Another $228,528 is being assessed in 2015, resulting in a grand total of roof assessments of $886,512 for January 2012 through December 2015.

Since the base contract roofing replacement costs are $935,490 (WITHOUT including contract extra costs primarily for wood repairs), it is clear that at least $48,978 of unspent unrestricted reserves will be needed to cover the base roof contract costs. The unspent unrestricted reserves will also be needed to cover the contract extras (which is primarily wood repairs). The estimated cost range for contract extras previously reported to owners at the 2014 annual meeting was from a low of $32,250 to a high of $104,400; however, the actual wood repair costs will not be known until the old roofs are removed. Finally, the unspent unrestricted reserves will also be needed to cover uncollected roof assessments; however, all legal avenues are being pursued to collect both regular and roof assessments.

PLEASE NOTE: Regardless of when in 2015 that your building’s roof is replaced, the $195 monthly roof assessment is due from all owners through December 2015. As is clear from the data provided above about the roofing project costs. ALL 12 MONTHS of the 2015 roof assessments WILL be needed from owners to pay the roofing contractor.

ADEQUACY OF RESERVES The previously-mentioned unrestricted reserves were used in 2010 & 2011 for the expenditures

for the 88th Ave. fence installed behind the Hummingbird units at the same time that the Village of Tinley Park installed a fence along 183rd Street when 183rd street was extended to LaGrange Road. We also upgraded the 183rd Street (and 88th Avenue) fence material. The remaining unrestricted reserves are available for any unforeseen operating contingencies.

However, the remaining 12/31/14 unrestricted reserves are NOT adequate for addressing all of the future costs estimated to be incurred for major repairs/replacements, including some of the roof replacement costs to be incurred in 2015, driveways, riprap replacement, tuck pointing, etc. In accordance with the by-laws, the reserves should be evaluated annually to determine their adequacy for meeting these anticipated long-term major replacement costs. A firm was approved by the board in 2014 to conduct a complete reserve study (and the cost was included in the 2014 annual budget); however, at the time of the preparation of these financial statements, the results of that reserve study are not yet available. For the cost/maintenance items that are subject to a board vote per the declaration, the board will be using the financial data from the reserve study; therefore, independent factual data will be available when these decisions are made.

Another primary reason for conducting a full-blown reserve study at this time is to determine what reserve amounts should be included in the assessment payments starting in 2016. In other words, the $195 roof assessment will go away after 2015; however, we need to estimate what amounts should be collected for reserves in 2016 and going forward in order to pay for the other costs that are the association’s responsibility (outside of the annual operating budget). Currently, $12 out of the $165 was being collected for reserves, but all of it has recently been going to the roof replacement project. The reserve study will help us to determine what amount will be replacing the $12 in the regular 2016 assessment that will be assigned to reserves.

Pheasant Lake Townhome Association Statement of Assessments & Other Income and Expenses – Budget versus Actual

For Year Ended December 31, 2014

Actual Budgeted Budget 2014 2014 Amount Amounts Amounts Per Owner 1/1 to 12/31 12 months Per Month ASSESSMENTS - Regular $182,160.00 $182,160.00 $165.00 ASSESSMENTS - Roofs 215,280.00 215,280.00 $195.00 Interest Income 2,762.56 0 Late Fees 1,740.00 0 Miscellaneous Income 100.00 0 Total Income $402,042.56 $397,440.00 $360.00

OPERATING & ADMINISTRATIVE EXPENSES:

Electric $2,793.80 $3,400.00 $ 3.08 Scavenger Service 11,000.00 11,335.00 10.26 General repairs & maintenance 4,921.60 15,000.00 13.59 Roof repairs 9,317.23 15,000.00 13.59 Landscape maintenance 24,088.86 23,233.00 21.04 Landscape replacement (spent $17,154.80, but $9,015 covered by mulch reserves; see prior notes) 8,139.80

5,000.00 4.53

Lake maintenance 3,503.61 3,431.00 3.11 Sprinkler system repair & maintenance 2,333.92 9,000.00 8.15 Snow removal 23,559.05 22,588.00 20.46 Exterior painting 18,105.01 22,859.00 20.71 Driveway maintenance 45.28 2,000.00 1.81 Total operating expense $107,808.16 $132,846.00 $120.33

Insurance $2,586.00 $ 2,450.00 $ 2.22 Management company fee 12,883.68 12,884.00 11.67 Legal & Accounting 717.50 7,000.00 6.34 Corporate Income Tax 0.00 1,000.00 0.91 Misc fees/bank/postage 2,786.63 3,732.00 3.38 Bad debt expense (see prior notes for explanation) (2,270.50) 0.00 0.00 Volunteer appreciation 0.00 0.00 0.00 Total administrative expense $16,703.31 $27,066.00 $24.52

Total of all expenses $124,511.47 $159,912.00 $144.85

Less: Reserves - Mulch $9,000.00 $9,000.00 $ 8.15 Less: Reserves - Roofs - from roof assessments 215,280.00 215,280.00 195.00 Less: Reserves - Roofs - from regular assessments 13,248.00 13,248.00 12.00 Total Reserves $237,528.00 $237,528.00 $215.15

Income minus expenses minus reserves* *$40,003.09 $0.00 $0.00

*NOTE: Pheasant Lake would have $9,220 more in expenses if these specialized services provided by volunteers had to be paid:

Sprinkler system repairs (~50 sprinkler heads replaced X $112 each) + $1,120 start up $6,720 Year end audit and preparation of tax return $2,500

Pheasant Lake Townhome Association Balance Sheet

At December 31, 2014

Assets: Liabilities: Checking Account Balance $ 66,723.34 Accounts Payable $ 7,628.54 Marquette Money Market - Regular 5.286.41 2015 Assessments Paid in 2014 18,573.00 Marquette Money Market - Roofs 231,456.89 Total Liabilities $26,201.54 1st Merchant Money Market - Roofs 250,501.83 Net Assets: US Bank Money Market - Roofs 32,068.39 Unspent Reserves - Unrestricted $33,546.49 US Bank Money Market - Regular 90,341.50 Unspent Reserves - Mulch 2,250.00 United Trust CD - Regular 148,608.80 Unspent Reserves - Roof Replacement 657,984.00 United Trust CD - Roofs 102,488.82 Prior Years Under Budget - Unrestricted 177,404.19 Accounts Receivable* 9,913.33 2014 Amount Under Budget-Unrestricted 40,003.09 Total Net Assets $911,187.77 Total Assets $937,389.31 Total Liabilities & Net Assets $937,389.31

*$6,914.50 of the accounts receivable total above has been collected in January and March of 2015.

Pheasant Lake Townhome Association Statement of Changes in Unrestricted Net Assets Generated from Coming Under Budget

(All Other Reserves Summarized on Next Page) For Years Ending Dec. 31, 2001 through 2014

Net Assets as of December 31, 2000 $ 4,735.54 Expenses exceeded Assessments for 2001 (15,336.13) Net Assets as of December 31, 2001 ($ 10,600.59) Assessments exceeded expenses for 2002 3,960.04 Net Assets as of December 31, 2002 ($ 6,640.55) Adjustments to 2002 expenses 327.16 Assessments exceeded expenses for 2003 15,247.77 Net Assets as of December 31, 2003 $ 8,934.38 Adjustments to 2003 expenses 250.00 Assessments exceeded expenses for 2004 20,161.93 Assessments exceeded expenses for 2005 30,616.46 Assessments exceeded expenses for 2006 30,884.33 Adjustments to 2006 expenses 239.20 Assessments exceeded expenses for 2007 20,698.75 Expenses exceeded Assessments for 2008 (20,467.81) Assessments exceed expenses for 2009 20,154.12 Adjustment to 2009 expenses (47.00) Assessments exceed expenses for 2010 23,254.26 Assessments exceed expenses for 2011 13,479.77 Assessments exceed expenses for 2012 7,102.65 Adjustment to 2012 expenses (227.50) Assessments exceed expenses for 2013 22,370.65 Net Assets as of December 31, 2013 $177,404.19 Assessments exceed expenses for 2014 40,003.09 Net Assets Unrestricted as of December 31, 2014 $217,407.28

Pheasant Lake Townhome Association Statement of Changes in Reserves Collected from Monthly Assessments

Includes Unrestricted Reserves and Reserves Restricted for Mulch & Roof Replacements For Years Ending Dec. 31, 2001 through 2014

Unrestricted Reserves & Reserves

Restricted for Mulching

Roof Replacement

Reserves Reserves as of Dec. 31, 2001 $11,499.96 Reserves collected in 2002 11,499.96 Reserves as of Dec. 31, 2002 $22,999.92 Reserves collected in 2003 11,040.00 Reserves as of Dec. 31, 2003 $34,039.92 Reserves collected in 2004 11,040.00 Reserves spent in 2004 (aerator replacement - deposit) (1,738.86) Reserves collected in 2005 12,144.00 Reserves spent in 2005 (aerator replacement – remaining balance) (8,589.23) Reserves collected in 2006 13,248.00 Reserves collected in 2007* 23,248.08 Reserves spent in 2007 (down payment on new pump) (7,043.00) Reserves collected in 2008* 23,248.08 Reserves spent in 2008 (balance due on new pump) (7,751.00) Reserves spent in 2008 (mulching costs) (16,704.00) Reserves collected in 2009* 22,248.00 Reserves collected in 2010* 22,248.00 Reserves spent in 2010 (mulching costs) (12,960.00) Reserves spent in 2010 (183rd Street Fence Upgrade) (9,333.00) Reserves spent in 2010 (88th Avenue Fence) (10,707.50) Reserves collected in 2011* 22,248.00 Reserves spent in 2011 (183rd Street Fence - special drilling) (3,708.00) Reserves collected in 2012 (roof assessments were $170/mo. per owner) 9,000.00 $200,928.00 Reserves spent in 2012 (mulching costs) (12,300.00) Reserves collected in 2013* 9,000.00 228,528.00 Reserves as of Dec. 31, 2013 $110,877.49 $429,456.00 Reserves collected in 2014* 9,000.00 228,528.00 Reserves spent in 2014 (mulching costs) (15,975.00) Reserves spend in 2014 (chimney costs) (59,091.00) Board approved transfer from mulch reserves to landscape replacement (9,015.00) Reserves as of Dec. 31, 2014** $ 35,796.49 $657,984.00

* Includes $9,000 in reserves collected for mulching, $200,928 from roof assessments ($195 X 92 owners X 12 months = $215,280) PLUS $13,248 from regular assessments assigned to roofs ($12 X 92 owners X 12 months = $13,248) = $228,528 total for roof reserves

** $2,250 of the $35,796.49 is reserved for mulching; the rest of the $35,79.49, or $33,546.49, is unrestricted reserves.