Pheasant Lake Townhome Association Tinley Park, Illinois 60487

April 13, 2016

Dear Townhome Owner:

The Pheasant Lake Townhome Association Board is providing the December 31, 2015 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, 2015, which is helpful to all townhome owners, but especially new townhome owners.

The 2015 financial statements have been prepared by me as Board Treasurer based upon data provided by EPI. I have made sure that all major 2015 expenses have been included in the 2015 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 2015 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 2015, 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 that start on the next page. These footnotes include information about the reserve study completed in 2015 and the adequacy of the reserves; they also note the fact that the 2016 assessments DO NOT include any reserves earmarked for the next roof replacement estimated to occur 30 to 40 years from 2015.

The volunteers must be acknowledged for their continuous efforts that have resulted in considerable cost savings in 2015. As in past years, the volunteers are one of the primary reasons why the Association’s expenses came in under budget for 2015. 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, June 13, 2016, at 7 pm) 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

2015 Year End Financials – Notes/Explanations for Owners

The 2015 year-end financial statements are included on the next few pages. Please notice that we came in under budget in 2015 by $22,571.30 due to some line items coming in under budget [primarily sprinkler repairs by $6,104.80 thanks to our volunteers, general maintenance by $4,671.34 (which also considers drain tile repairs and wood repairs expenses originally included in general repairs and maintenance budget), driveway maintenance by $10,000 since driveway replacements are beginning in 2016, and lake maintenance by $4,304.45]. There were no corporate income taxes in 2015 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.) The only line item that was significantly over budget was landscape replacement costs, which were over budget by $7,053.15.

In addition to showing the balance sheet and assessments versus expenses for the year ended

Dec. 31, 2015, a historical perspective is provided by summarizing the assessments versus expenses from 2001 to 2015, as well as the reserves collected and spent from 2001 to 2015. We thought this information would be helpful for all owners, but especially those who are new to the association. You can see that from 2002 to 2015, we have spent a total of $205,945.57 less than the amounts budgeted, again due primarily to the work done by volunteers. When budgeting, we still assume that the work done by the volunteers has a cost, just in case the volunteers are no longer willing or able to perform their volunteer work. This cumulative under-budget amount also includes recovering from deficit spending in 2000 and 2001. The Association also has $11,250 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, as well as $68,219 to cover roof replacement costs in 2015 that were not covered by the roof assessments.

ROOFING PROJECT

The most significant association expenditure is for new roofs, which were 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 was 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 were $935,490 (WITHOUT including contract extra costs primarily for wood repairs), at least $48,978 of unspent unrestricted reserves was needed to cover the base roof contract costs. The unspent unrestricted reserves were also needed to cover the contract extras (which were primarily wood repairs). Finally, the unspent unrestricted reserves were needed to cover uncollected roof assessments; however, all legal avenues are being pursued to collect both regular and roof assessments. The actual unrestricted reserves spent in 2015 to cover the roof replacement costs was a total of $68,219.00; again, this amount covered the roof deck wood replacement costs and the portion of the base contract not covered by the roof assessments charged to owners.

ADEQUACY OF RESERVES NOTE: A new menu item with more detailed reserve information is available at

the Pheasant Lake website at: https://plta60487.wordpress.com/reserves-info-whats-isis-not-covered/

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 unrestricted reserves were also used to replace the sprinkler system pump in 2007/2008.

The unrestricted reserves were also used to cover the roofing projects costs that were not

covered by the roof assessments. See Roofing Project comments above. 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 comprehensive reserve study (and the cost was included in the 2014 annual budget); however, the results of the reserve study were not available until 2015. The results of the 2015 study were needed when preparing the 2016 budget, when the roof assessment was no longer being assessed. Instead, the board needed to determine the reserves needed to cover costs going forward after the roofs were replaced. The board instructed the firm conducting the reserve study to consider all possible maintenance items, regardless of whether the items are required or discretionary per the declaration in terms of the association being responsible for covering the cost. For the cost/maintenance items that are discretionary and subject to a board vote per the declaration, the board used the financial data from the reserve study; therefore, independent factual data was available when these decisions were made.

The board held discussions in 2015 at their public meetings and voted unanimously that the

following discretionary items per the declaration would be covered by the individual unit owners (not by the Association’s annual budget or the reserves):

o Concrete repairs or replacement (owners have paid for these in the past) o Water/sewer repairs from house to main

Therefore, the reserve study data could exclude the above two items whose costs will be borne by individual owners (as well as replacement of windows, skylights/sun tunnels, exterior doors (front, patio, garage, & storm doors), exterior lights, mailboxes, attic fans and satellite dishes).

The board did approve the replacement of driveways, as well as drainage repairs for existing drainage, as costs to be assumed by the association rather than individual owners. Thus, these discretionary costs were included in the reserve study data.

ADEQUACY OF RESERVES (continued) The board discussions in 2015 also revealed that no costs have been incurred by the

association since its inception for cosmetic garage door repairs or pond sediment removal. The only pond sediment removal costs incurred were borne by the original developer, and this work was done when the association was transitioned from the developer in 2000/2001. Due to the durable nature of the garage door material, the association has not incurred any cosmetic garage door repairs to date. Some owners have had to replace their garage doors since the damages to the doors were not just cosmetic. Therefore, the board assigned a cost of zero for cosmetic garage door repairs and pond sediment removal in the reserve study.

The board has been budgeting for wood repairs on an annual basis. Wood repairs are identified

and made each year when one third of the units are painted. Wood repairs are also made when identified by inspections of the property conducted by EPI. The firm doing the engineering study included wood repairs as part of the reserve study. Since the association budgets for these wood repairs annually as operating costs, the board assigned a cost of zero for wood repairs in the reserve study.

The board’s review of the reserve study revealed that the remaining siding replacements had to

be incorporated into the firm’s reserve study earlier than 24 years from now due to the need to replace the wood gable vents. The engineering firm revised the reserve study accordingly.

At the September 2015 annual meeting, owners were given the results of the reserve study and

the implications for the 2016 assessments. The owners were clearly concerned about the resulting increase in assessments needed to fund the reserves so that all of the required items per the declaration were covered (report showed an increase in assessments to fund the reserves of $121 per the study versus the $12 included in the current assessments or a total increase of $109 to regular assessments, before considering any possible increase in the operating budget). The owners indicated that collection of reserves for the next roof replacement should be deferred and paid by future owners, not the current owners who paid for the 2015 roof replacement. As a result, the next projected roof replacement costs of $2,032,794 (projected by the engineering firm to occur in 2039) were changed to zero in the current reserve study data when determining the needed increase to assessments to cover reserves. THEREFORE, THE NEXT ROOF REPLACEMENT COSTS OF $2,032,794 PROJECTED FOR 2039 ARE NOT BEING COVERED BY THE RESERVES CURRENTLY BEING COLLECTED IN 2016. AS A RESULT, THE RESERVE COLLECTIONS CURRENTLY PLANNED ARE NOT ADEQUATE FOR COVERING THE NEXT ROOF REPLACEMENT.

When working on the 2016 budget, the Association’s Treasurer requested that a driveway

replacement bid be obtained rather than rely solely on the driveway replacement cost estimated in the reserve study. The reason for getting the estimate was the driveway replacements were projected to begin in 2016 and be done over a 3-year period. The estimate received from the contractor doing all of the driveway work in the past revealed that the annual estimate in the reserve study prepared by the engineering firm was considerably higher (by about $45,000). Therefore, the estimates for the driveway replacement costs included in the reserve study were lowered to match the bid received in October 2015 (but the estimated driveway replacement costs also include the 3% annual cost increase assumed for all projected costs in the reserve study).

The engineering firm doing the reserve study indicated that landscaping costs are typically not

included in reserve studies. Therefore, the reserve study’s projected landscaping costs are $0. The board does budget annually for landscape replacements in its annual operating budget; however, costs for any major landscape replacements or costs are not included in reserves.

ADEQUACY OF RESERVES (continued) The 2016 monthly assessments of $170 per month include $46.19 for reserves; $8.15 is for

reserves for mulch, and $38.04 per month is for the driveway replacement. This $38.04 is based on projecting the costs for all of the items whose costs need to be covered by the reserves going forward for the next 30 years (AND EXCLUDING THE ITEMS DISCUSSED ABOVE). The reserve study assumes that the annual amounts collected from owners for non-mulch reserves will increase by 3% each year and projected costs increase annually by 3%. The items whose costs ARE expected to be covered by these reserves are as follows:

! Vinyl fencing ! Brick columns (connected to vinyl fencing) ! Pond shoreline rehabilitation ! Pond aerator fountain ! Irrigation system pump ! Monument tuckpointing and repair ! Bench ! Brick tuckpointing & repair on owner buildings & pump house ! Siding and gable vents ! Concrete & metal chimney caps ! Asphalt driveways

The costs associated with these items listed below are NOT covered by reserves collected from owners (AND THUS, THE RESERVES WILL NOT BE ADEQUATE FOR COVERING THESE COSTS):

! Next roof replacement costs (as previously discussed) ! Costs to be covered by individual owners: (per board of director vote)

o Concrete repairs or replacement (owners have paid for these in the past) o Water/sewer repairs from house to main o Costs decided by boards prior to 2015 to be covered by owners:

• Windows & skylight/sun tunnel replacements • Exterior door replacements (front door, storm door, patio door, garage door) • Exterior light fixture replacements • Mailbox replacements • Attic fan replacements • Satellite dishes

! Costs expected to be $0: o Cosmetic garage door repairs o Pond sediment removal

! Cost covered by annual operating budget: o Wood repairs

! Landscape replacement costs in excess of annual budgeted costs*

* Please note that the board of directors voted in 2014 to use $9,015 of mulch reserves for unexpected landscaping tree-removal costs incurred in 2014 when many ash trees died and evergreen trees were uprooted/destroyed by a July 2014 storm.

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

For Year Ended December 31, 2015

Actual Budgeted Budget 2015 2015 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 1,512.56 0.00 Late Fees 400.00 0.00 Miscellaneous Income 74.00 0.00 Total Income $399,426.56 $397,440.00 $360.00

OPERATING & ADMINISTRATIVE EXPENSES:

Electric $3,140.12 $3,000.00 $2.72 Scavenger Service 11,260.80 11,592.00 10.50 General repairs & maintenance (See * below.) 1,720.26 15,000.00 13.59 Roof repairs 532.50 2,000.00 1.81 Landscape maintenance 32,162.00 31,124.00 28.19 Landscape replacement 12,053.15 5,000.00 4.53 Drain Tile Repairs (*part of general repairs budget) 4,350.00 * 0.00 Wood Repairs (*part of general repairs budget) 4,258.40 * 0.00 Lake maintenance 1,135.55 5,440.00 4.93 Sprinkler system repair & maintenance 1,895.20 8,000.00 7.25 Snow removal 23,000.00 23,000.00 20.83 Exterior painting 21,329.00 21,329.00 19.32 Driveway maintenance 0.00 10,000.00 9.06 Total operating expense $116,836.98 $135,485.00 $122.72

Insurance $2,546.36 $2,700.00 $2.45 Management company fee 12,883.68 12,884.00 11.67 Legal & Reserve Study Fees 4,360.00 5,000.00 4.53 Corporate Income Tax 0.00 273.00 0.25 Misc fees/bank/postage 2,865.24 3,570.00 3.23 Bad debt expense (165.00) 0.00 0.00 Volunteer appreciation 0.00 0.00 0.00 Total administrative expense $22,490.28 $24,427.00 $22.13

Total of all expenses $139,327.26 $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** $22,571.30 $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 Statement of Net Assets At December 31, 2015

Assets: Liabilities: Checking Account Balance $ 59,556.50 Accounts Payable $ 5,620.43 Marquette Money Market - Regular 166,513.30 2016 Assessments Paid in 2015 5,798.00 Marquette Money Market - Roofs 0 Total Liabilities $11,418.43 1st Merchant Money Market - Roofs 0 US Bank Money Market - Roofs 0 Net Assets: US Bank Money Market - Regular 0 Unspent Reserves - Mulch $ 11,250.00 United Trust CD - Regular 0 Unspent Reserves - Roof Replacement 0 United Trust CD - Roofs 0 Prior Years Under Budget - Unrestricted 183,374.27 Accounts Receivable* 2,544.20 2015 Amount Under Budget-Unrestricted 22,571.30 Total Net Assets $217,195.57 Total Assets $228.614.00 Total Liabilities & Net Assets $228,614.00

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 2015

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 Adjustment to 2014 assessments minus expenses 639.50 Unrestricted net assets used to cover roof costs ($34,672.51) Assessments exceed expenses for 2015 $22,571.30 Net Assets Unrestricted as of December 31, 2015 $205,945.57

NOTE: Cost savings to date from volunteers doing sprinkler repairs and accounting work is estimated at $128,000, which represents 62% of the 12/31/15 reserves of $205,945.57.

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 2015

Unrestricted Reserves & Reserves

Restricted for Mulching

Roof Replacement

Reserves Reserves as of Dec. 31, 2001 (Equals ≈ $10.42 per owner per month) $11,499.96 Reserves collected in 2002 (Equals ≈ $10.42 per owner per month) 11,499.96 Reserves as of Dec. 31, 2002 $22,999.92 Reserves collected in 2003 (Equals $10.00 per owner per month) 11,040.00 Reserves as of Dec. 31, 2003 $34,039.92 Reserves collected in 2004 (Equals $10.00 per owner per month) 11,040.00 Reserves spent in 2004 (aerator replacement - deposit) (1,738.86) Reserves collected in 2005 (Equals $11.00 per owner per month) 12,144.00 Reserves spent in 2005 (aerator replacement – remaining balance) (8,589.23) Reserves collected in 2006 (Equals $12.00 per owner per month) 13,248.00 Reserves collected in 2007* ($12/month unrestricted, ≈ $9.06 for mulch) 23,248.08 Reserves spent in 2007 (down payment on new pump) (7,043.00) Reserves collected in 2008* ($12/month unrestricted, ≈ $9.06 for mulch) 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* ($12/month unrestricted, ≈ $8.15 for mulch) 22,248.00 Reserves collected in 2010* ($12/month unrestricted, ≈ $8.15 for mulch) 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* ($12/month unrestricted, ≈ $8.15 for mulch) 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* (roofs: ($195 + $12) X 92 owners X 12 mos.) 9,000.00 228,528.00 Reserves as of Dec. 31, 2013 $110,877.49 $429,456.00 Reserves collected in 2014* (roofs: ($195 + $12) X 92 owners X 12 mos.) 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 Reserves collected in 2015* (roofs: ($195 + $12) X 92 owners X 12 mos.) 9,000.00 228,528.00 Subtotals $ 44,796.49 $886,512.00 Reserves spent for 2015 Roof Replacement (33,546.49) (886,512.00) Reserves as of Dec. 31, 2015** $11,250.00 $ 0.00

* Includes $9,000 in reserves collected for mulching, which is ≈ $8.15/month/owner; 2013 to 2015 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.

** $11,250 is reserved for mulching