the 'Villages Golf and Country Club May 24, 2013 TO: MEMBERS OF THE VILLAGES ASSOCIATION AND THE VILLAGES GOLF AND COUNTRY CLUB

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1 the 'Villages Golf and Country Club 5000 CRIBARI LANE SAN JOSE, CALIFORNIA PHONE: 408/ FAX: 408/ May 24, 2013 TO: MEMBERS OF THE VILLAGES ASSOCIATION AND THE VILLAGES GOLF AND COUNTRY CLUB HEIGHTS Enclosed are pro forma budget documents and related information for the fiscal year , which begins July 1, Included are: Assessment Description (Club and Association) Pg. 1 Status of Prior Operating Surpluses and Deficits (Association) Pg. 2 Schedule of Fees and Charges (Club and Association) Pgs. 3-4 Association Budget Message Pgs Association Expense and Revenue Comparison Pg.19 *Association District Operating and Maintenance Budget Summary Pg. 20 Association Residential Reserve Replacement Funds Pg. 21 Association Consolidated 10-Year Reserve Spending Plan Pg. 22 *District 10 Year Reserve Spending Plan Pg. 23 *District Master Component Analysis Pg. 23-A *District Assessment and Reserve Funding Disclosure Summary Pgs *Association District Components of Assessment Change Pg. 26 Association Comparative Budgets Pg. 27 *Association District Comparative Budgets Pg. 28 *Budget Summary for Association District and Club Pg. 29 Association Annual Notices and Disclosures: Availability of Minutes Pg. 30 Notification of Monetary Penalty Pg. 30 Notification of Collection Rights Pgs Insurance Summary Pgs Architectural Guidelines and Procedures Pgs Secondary Address Notification Request Pgs Association Policies: Assessment Collection Policy Pgs Replacement Reserve Policy Pg. 44 Dispute Resolution (IDR) Pgs Disclosure Document Index Pg. 46 Delivery of Association Documents by Pg. 46 Dispute Resolution (ADR) Pg. 47 Club Budget Message Pgs Club Expense and Revenue Comparison Pg. 58 Club Operating and Assessment Summary Pg. 59 Club Operating Assessment Budget Pg. 60 Club Replacement Reserve Fund Policy and Commentary Pg. 61 Club Replacement Reserve Fund Summary Pg. 62 Club Consolidated 10-Year Reserve Spending Plan Pg. 63 Club Special Reserve Funds (Capital Improvement Fund) Pg. 64 Capital Improvement Fund Pg. 65 Club Assessment Cost Components (Pie Chart) Pg. 66

2 Pro Forma Budget-FY May 24, 2013 Page two The attached information culminates a budget development process that began in December. Over the past months, department managers have together with me, the Boards of Directors, and Board Committees established requirements for maintenance, services and programs for the next fiscal year. The Finance Committee, DACs, and the Boards of Directors in noticed meetings in January through April reviewed the respective corporations' budgets on a line-by-line basis. The Club and Association Boards approved their budgets on April 30, The Budget Message at the front of each budget document (Association Budget Message, page 5; Club Budget Message, page 48) provides explanation of significant changes from the current year budget and assessments. The Association is required by law to provide the listed annual notices and disclosures. The budget data included offers a summary view of the forecasted operations for the Association and Club. The pages marked with an asterisk " a" contain information for your specific district. The combined FY 13/14 Club and Association assessments for your Villa are itemized on page 29; the assigned AFA for your villa can be found at the top right hand corner of your monthly billing statement. A copy of the certified audit for fiscal year 2012/2013 will be submitted to you within 120 days after the end of the fiscal year (June 30). Attached to aid your understanding of the budget information is a general description of Assessment Charges and Status of Prior Operating Surpluses and Deficits. Also included is the consolidated Schedule of Fees and Charges for the Club and Association. Bold type indicates a change in fee amount from the current year. Our business office staff is available to address any questions you might have about the enclosed materials. Sincerely, Darren Shaw General Manager Attachments

3 THE VILLAGES GOLF AND COUNTRY CLUB THE VILLAGES ASSOCIATION NOTICE REGARDING DISCRIMINATORY RESTRICTIONS (California Government Code ) "If this document contains any restriction based on race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, familial status, marital status, disability, genetic information, national origin, source of income as defined in subdivision (p) of Section 12955, or ancestry, that restriction violates state and federal fair housing laws and is void, and may be removed pursuant to Section of the Government Code. Lawful restrictions under state and federal law on the age of occupants in senior housing or housing for older persons shall not be construed as restrictions based on familial status."

4 The Villages Golf and Country Club The Villages Association FISCAL YEAR 2013/2014 BUDGETS SUMMARY ASSESSMENT DESCRIPTION Upon purchase of a villa in The Villages, the owner becomes a member of two corporations The Villages Association (condominium association) and The Villages Golf and Country Club (Club). Each corporation has separate operating and reserve budgets and assessment charges. The separate assessment charges are shown on the member's monthly billing statement. The Association is a Common Interest Development as defined by the State of California Civil Code 1351 and, as such, is subject to the provisions of the Davis- Stirling Common Interest Development Act (Civil Code ). Civil Code 1366 limits the annual increase in regular assessments (combined District Operating and Reserve assessment) to 20 percent without member approval. The Villages Golf and Country Club is not a Common Interest Development (CID) as defined by the Act and, therefore, is not subject to the Davis-Stirling CID Act. For villa (condominium) owners, the monthly billing statement includes the following assessment charges: Club Operating Budget: Is funded by a monthly assessment to support the entire operating budget of the Club. This assessment is uniform (or proportionately spread) among all 2,536 members (villa and single-family homeowners). Club Reserve Fund: Is funded by a monthly assessment that provides for the repair, replacement and improvement of existing Club infrastructure and assets; this assessment is uniform to all members. Club Capital Improvement Fund: An assessment to provide for new construction and/or capital improvements. Expenditures are determined by the Board of Directors and, in cases of large amounts, are subject to member approval by written ballot. This assessment is uniform to all members. Due to a Bylaw amendment voted on and passed by the membership in 2012, the current $8 per month assessment cannot be increased for a period of five years (or until 2017). District Operating: This assessment is based on the adjusted floor area (AFA) of a villa or condominium to support the entire operating budget for each of the 12 districts. The AFA is a measurement that was calculated by the developer at the time of construction to specify the villa's relative size (AFA is roughly equal to the square footage of the villa plus one-half of a garage and/or carport, if there is one). The assigned villa AFA is shown at the top right corner of the monthly billing statement. The AFA assigned to the villa cannot be changed and is not affected by subsequent villa modifications. Page 1

5 District Reserve: An assessment based on the adjusted floor area (AFA) of a villa to maintain the Association's replacement reserve fund for future property repair and replacement needs within the district. A 30-year replacement reserve plan is established for each district, which determines its individual funding requirements and the associated assessment. The Villages Association STATUS OF PRIOR OPERATING SURPLUSES AND DEFICITS Annual operating surpluses (gains) or deficits (losses) inevitably occur to the extent that actual results for a year may vary from budgeted amounts. As it relates to the Association's 12 districts, surpluses and deficits for a given year's operation must be reflected in the next applicable assessment budget for the entity involved. As to these surpluses or deficits, the CC&Rs provide for reflecting them in the first budget after a year's results are known. For instance, the results of Fiscal 2012, which will not be known until sometime in Fiscal 2013, will be reflected in the Fiscal 2014 budget. Thus, the operating surpluses/deficits for this budget fiscal year of district accounting (which is FY 2014) reflect the final results of FY The Assessment Summary, as well as the Monthly Assessment Summary pages (see Table of Contents for page numbers), indicate the amount of surplus or deficit applicable to each district. Operating surpluses were applied first toward operations, then toward reserves. The information may also be found on each district's Budget Summary. Page 2

6 The Villages Golf and Country Club FY 14 Schedule of Fees and Charges FY 14 FY 13 Amount Amount Diff New Member Records Fee $ $ $0.00 Rental Unit Annual Fee* $50.00 $50.00 $0.00 Resale Transfer Fee $ $ $0.00 Late Charges: Interest Rate 10 % APR + $10 late fee per month Over 60 Days Lien process Over 90 Days Foreclosure Returned Check/Debit Fee $30.00 $30.00 $0.00 Bar Code (Member/Guest) $7.50 $7.50 $0.00 Bar Code Renewal (Guest) $5.00 $5.00 $0.00 Golf Cart Handicap Decal $5.00 $5.00 $0.00 Architectural Control Application Fees: Standard Alteration $15.00 $15.00 $0.00 Non-standard Alteration $30.00 $30.00 $0.00 Common Area Property Exam $50.00 $50.00 $0.00 HOA Documents: CC & R's $23.00 $23.00 $0.00 Bylaws $23.00 $23.00 $0.00 Rules $25.00 $25.00 $0.00 Budget $70.00 $70.00 $0.00 Budget Summary $14.00 $14.00 $0.00 Articles of Incorporation $7.00 $7.00 $0.00 Audited Financial Report $10.00 $10.00 $0.00 CC & R Package with Rules $85.00 $85.00 $0.00 CC & R Package $65.00 $65.00 $0.00 Minutes (per month) $15.00 $15.00 $0.00 Minutes ( 12-month package) $ $ $0.00 HOA Certification-Villages Standard Form $55.00 $55.00 $0.00 HOA Certification-Lender Custom Form $65.00 $65.00 $0.00 Enforcement Assessments-Club: Traffic Violation 1st Offense 2nd Offense 3rd Offense (30-day Privilege Suspension) Rule Violation 1st Offense 2nd Offense 3rd Offense (30-day Privilege Suspension) Parking Violation 1st Offense 2nd Offense 3rd Offense (30-day Privilege Suspension) $30.00 $30.00 $0.00 $50.00 $50.00 $0.00 $75.00 $75.00 $0.00 N/A N/A $50.00 $50.00 $0.00 $75.00 $75.00 $0.00 $15.00 $15.00 $0.00 $25.00 $25.00 $0.00 $50.00 $50.00 $0.00 Enforcement Assessments-Association/Homeowners: 1st Offense N/A N/A 2nd Offense $50.00 $ rd Offense (Plus Privilege Suspension) $ $ Age Restriction Violations 1st Offense N/A N/A 2nd Offense $1, $1, rd Offense (and Subsequent Violations) $2, $2, $0.00 $0.00 $0.00 $0.00 Billable services: Materials/Parts Cost + 10 % Service Labor (Per Hour) Landscape Labor (Per Hour) Janitorial Labor (Per Hour) Trash Disposal (Per Cubic Yard/Non-hazardous) $55.00 $55.00 $0.00 $30.00 $30.00 $0.00 $30.00 $30.00 $0.00 $25.00 $25.00 $0.00 Laundry Room Charges (Per Cycle): Wash $1.25 $1.00 $0.25 Dry $0.75 $0.75 $0.00 * New tenants at rental units are subject to $250 fee Page 3

7 The Villages Golf and Country Club FY 14 Schedule of Fees and Charges FY 14 FY 13 Amount Amount Duff Third Resident Association Fee (Per Month) $55.00 $55.00 $0.00 Fourth Party Club Fee (Per Month) $ $ $0.00 Stabling Fee (Per Month) $ $ $0.00 R.V. Storage Fees (Per Month): 20 Feet or Less $21.25 $21.25 $ to 25 Feet $25.00 $25.00 $ to 30 Feet $27.50 $27.50 $ Feet or More $30.25 $30.25 $0.00 RV Lot Electricity Connection $10.00 $10.00 $0.00 Guest Rooms (Daily Rate): Single $85.00 $85.00 $0.00 Double $96.00 $96.00 $0.00 (Includes 10% Room Tax) Facility Use: Deposit (Varies with Facility) Clean-up Charge (Per Hour, 1/2 Hr Min.) $35.00 $35.00 $0.00 Rental Fee (Varies with Facility) Refer to published rates Key Purchase Refer to published rates Equipment rental Refer to published rates The Villager Newspaper: Display Advertising (Per Inch) $10.00 $10.00 $0.00 Non-Resident Subscription (Per Year) $85.00 $85.00 $0.00 Inserts (Per 1000) $ $ $0.00 Classified Ad/Resident (Minimum) $5.00 $5.00 $0.00 Classified Ad/Non-Resident (Minimum) $10.00 $10.00 $0.00 Telephone Directory $10.00 $10.00 $0.00 Golf Cart Fees (Per Month): Golfer's Trail Fee $16.00 $16.00 $0.00 Storage $2.00 $2.00 $0.00 Electricity $7.00 $7.00 $0.00 Green Fees: Member, Regular 18 $26.00 $25.00 $1.00 Member, Regular 9 $16.00 $15.50 $0.50 Member, Short 9 $9.00 $9.00 $0.00 Member, Twilight $16.00 $15.50 $0.50 *Guest, Regular 18-Weekday (Monday-Thursday) $46.00 $46.00 $0.00 "Guest, Regular 18-Weekend (Friday-Sunday) $51.00 $51.00 $0.00 *Guest, Regular 9-Weekday (Monday-Thursday) $36.00 $36.00 $0.00 *Guest, Regular 9-Weekend (Friday-Sunday) $38.00 $38.00 $0.00 *Guest, Short 9 $15.00 $15.00 $0.00 *Guest Day, Regular 18 $35.00 $35.00 $0.00 *Guest Day, Regular 9 $22.00 $22.00 $0.00 *Guest Day, Short 9 $9.00 $9.00 $0.00 *Guest Team Play/Invitational, Regular 18 $26.00 $25.00 $1.00 *Guest, Team Play/Invitational, Regular 9 $16.00 $15.50 $0.50 *Family & Friends, Regular 18-Weekend $40.00 $40.00 $0.00 *Family & Friends, Regular 9-Weekend $27.00 $27.00 $0.00 *Outside Tournament $50.00 $50.00 $0.00 Private Club-Reciprocal $50.00 $50.00 $0.00 "Golf Cart Rental: Member $25.00 $25.00 $0.00 Guest $35.00 $35.00 $0.00 *Fees subject to change, check with Pro Shop Page 4

8 THE VILLAGES ASSOCIATION PRO FORMA BUDGET SUMMARY FOR FISCAL YEAR 2013/2014 In accordance with the Association's governing documents (Article 6 Section 5 of the Declaration of Covenants, Conditions and Restrictions), and in compliance with California Civil Code 1365(a)4, the Board-approved 2013/2014 operating and reserve budgets are herewith provided for your review. The following commentary is intended to provide you with a basic overview of the budget and its development process. Background The annual budget development process begins in November each year and is one of the most important responsibilities of your Board of Directors. The development process itself is delegated by the Board of Directors to the General Manager; however, not without direction and overview; and, of course final approval. The purpose of the Association's pro forma budget is to forecast expenses and revenue and to set the monthly assessment for the members. The Association is comprised of 2,309 villas in 12 distinct "villages." Each village is a separate assessment district; that is, each district is responsible for all costs associated with the management, maintenance and replacement of the common property within their respective district. The amount of the assessment varies from district to district, due to differences in property age, condition, size, architecture and special features that may apply to the district, and of course the specific AFA for each condominium or villa. In the fall of 2000, the Board of Directors created District Advisory Committees (DACs) for each of the 12 districts. The purpose of these committees is to advise the Board on matters pertaining to the management and maintenance of the district which they serve and to communicate to their district residents. The DACs continually interact with staff and the Board of Directors and are informed of, and are frequently involved with, the day-to-day business of their respective districts. DACs serve as a conduit for information traveling back and forth between staff, the Board of Directors and members of their respective district. While DACs do not normally make decisions, their input and recommendations have influence on decisions made by the Board of Directors with regard to the districts. The budget development schedule was adopted by the Board of Directors in October In November, all 12 DACs were contacted and asked for their opinions and input regarding the ensuing year's budget all DACs responded favorably and provided valuable insight to staff. On January 10 and 11, staff met with representatives from all 12 DACs to review the budget development process and to discuss budget related concerns and/or to receive input. In February, operating and reserve funded landscape plans were developed, and the master insurance package was renewed, which decreased 7.8 percent or $96,200 in comparison to last year's budget allocation. By the end of February, all DACs received a draft budget (operating and reserve) and were asked to respond with comments in early March. A series of meetings were then conducted with DACs that needed to work through various concerns. Page 5

9 By April 15, all 12 DACs provided written approval for their respective district's operating budget/reserve plan and the associated monthly assessment. The complete draft operating budget/reserve plan was then presented to the Board of Directors at an April 16 board study session. The operating budget and reserve plan were then approved by the Board of Directors on April 30, at its regularly scheduled board meeting. Budget Snapshot From an operating expense perspective, total expenses are increasing $230,342 (3.3 percent), from $6,932,940 for fiscal year 2012/2013 to $7,163,282 for fiscal year 2013/2014. It should be noted that the ensuing year's operating budget is less than the 2010 operating budget ($7,297,740). From a reserve plan funding perspective, the annual reserve contribution is decreasing over the prior year period by $4,625 (0.1 percent), from $5,103,490 to $5,099,225. In the aggregate, the complete budget (operating and reserves) will increase by 1.9 percent from the current fiscal year to the next, beginning July 1, 2013 (see table 1 below). Table Change $ % Change Operating Assessment 6,892,737 6,750,740 6,932,940 7,163, , % Reserve Assessment 4,785,280 4,982,468 5,103,490 5,099,225 (4,625) 0.1% Total Association 11,678,017 11,733,208 12,036,430 12,262, , % Operating Budget The increase in the operating element of the budget (and associated assessment) was driven by a few key factors. From an expense standpoint, water is projected to increase in comparison to current year's budgeted numbers by 7.8 percent ($105,100) the water company is requesting a 9 percent rate increase from the City; the outcome of which is yet to be determined. The landscape maintenance contract with TruGreen will increase by two percent, or $32,146. TruGreen will enter its last year of a five-year contract in June. The expense category "legal/other" increased from $7,250 to $28,100; the increase is attributed to the deer management program. Finally, "general and administrative charges" increased by 1.5 percent ($18,162). General and administrative charges represent legal expenses, "bad debt" write offs, and expenses associated with Building A. There are two operating expense lines we expect to decrease with this budget, they are: Insurance (reducing by $96,200 or 7.8 percent), and Repair-Maintenance/Pest Control (reducing by $14,284 or 3.7 percent). Details about the community's insurance program Page 6

10 are part of this budget packet and are also available upon request. Please refer to table 2 below to compare the current year's operating budget with the ensuing year's budget. From a revenue standpoint, other than that generated from the monthly assessments, the Association will realize additional revenue from laundry rooms (Cribari, Montgomery and Hermosa), as well as from "third party" (more than two people residing in the villa) fees. Additional revenue is projected to be $50,890, up from the current year's budget of $49,270 (3.3 percent). In terms of how the operating expense increase from this year to the next affects the monthly assessment, looking at the Association as one community versus 12, a condominium or villa with an AFA of 1,000 will see an increase of $5.12 to the monthly assessment, from $ to $ Table 2 Association Overall Description FY 14 FY 13 Change Per Cent Landscape Contract 1,639,486 1,607,340 32, Landscape Extras 785, , Club Maint/Landscape/G&A 1,231,592 1,213,430 18, Water 1,448,200 1,343, , Trash 537, ,489 1, Insurance 1,133,000 1,229,200 (96,200) (7.8) Gas/Electric 114, ,380 7, Repairs a Maint/Pest Control 371, ,500 (14,284) (3.7) Legal/Other 28,100 7,250 20, Total Expense 7,289,165 7,214,374 74, Less Fee Income 50,890 49,270 1, Assessment Base 7,238,275 7,165,104 73, Monthly Per 1000 AFA Prior (Surplus)/Deficit (1.67) (5.16) 3.49 (67.6) Net Monthly Per 1000 AFA Prior (Surplus)/Deficit (74,993) (232,164) A 30-year plan for the replacement and repair of major property components has been prepared for each district, which is customarily prepared on an annual basis, versus the three-year requirement per Civil Code. This plan was recently updated to reflect replacements and repairs accomplished during the current year, as well as changes in components' condition and useful life projections, repair costs and inflationary factors, to determine current and future year funding needs. A new element added to the reserve study update last year was the use of third-party consultants Page 7

11 whose services were engaged to estimate the useful life of all roofing components, as well as exterior coatings (paint) on all building structures. Third party consultants also provided current pricing on the aforementioned, all of which was factored into the 30-year plan. This comprehensive update and inspection of building components fulfills (and exceeds) the Board's responsibility as defined in Civil Code (e). From a reserve funding plan perspective in general, the reserve plan is in solid shape and as far as we know, anticipates the funding needs of each of the 12 districts over the course of the next 30-year period. The funding plans for each of the districts are being managed to maintain constant-togradual fluctuations in the funding requirements from year to year. This is a preferred method of managing the reserve's funding levels from year to year to avoid the risk of high spikes (either up or down). The Association utilizes a "cash flow" method of funding its reserves versus the "depreciating" or "straight line" method. Theoretically, the difference between the two is that the cash flow method only funds what needs to be funded at a specific time in the future, versus accumulating excess funds and holding large balances in the reserve, which can happen when utilizing the depreciating and straight-line method of funding the reserve plan. The Association, in totality, is scheduled to maintain a reserve fund balance of $9.5 million at the end of the 2013/2014 fiscal year (ending June 2014). Table 3 below provides a five-year outlook of the reserve fund balances and overall funding adjustments from year to year over that period. Table / / / / /2019 Funding Plan Ending Balance Funding Adjustment $5,201,200 $5,325,500 $4,356,700 $4,007,900 $2,903,200 $9,584,525 $9,818,899 $10,514,623 $11,489,797 $13,530, % 3.7% 4.2% -8.2% -1.6% District Assessments Assessment amounts shown below in Table 4 are per 1,000 AFA (adjusted floor area). The AFA assigned to your villa can be found on your monthly billing statement just below your account number. The district assessment that relates to your size villa Page 8

12 can be found at the bottom of the Budget Summary (page 29). Tab te 4 MONTHLY ASSOCIATION ASSESSMENTS PER 1000 AFA District Operating District Reserve District Total District FY14 FY13 $ Change % Change FY14 FY13 $ Change % Change FY14 FY13 $ Change % Change Cribari , Montgomery Heights , , Hermosa , Verano 160, ,9 Del Lago Highland , Glen Arden , Olives ,6 Fairways Sonata , Valle Vista ,

13 District Summaries Village Cribari: The total monthly assessment on a standard 1,000 AFA unit will increase from $ to $ Annual operating expense increases are as follows: landscape maintenance contract with TruGreen (contract term) by $4,065 or 2 percent (to $207,336), club maintenance/general and administrative by $4,334 or 1.5 percent (to $296,618), water by $19,200 or 8.1 percent (to $256,400) and legal/other by $2,700 or 180 percent (to $4,200). Operating expense reductions are expected in the following areas: insurance (by $18,600 or 7.9 percent to $218,100), gas/electric (by $700 or 3.8 percent to $17,600), and; finally, repairs/maintenance and pest control expenses slightly reduce by $450 or 0.6 percent. The operating expense portion of the monthly assessment increases $2.96 per 1,000 AFA. The new monthly operating assessment of $ is less than it was in 2007 when it was $ From a reserve standpoint, $1,318,500 is being set aside for various reserve projects. The most significant project in terms of cost is the second phase of a three-year deck repair and recoating project ($643,700). Over its three-year period, the total project is estimated to cost roughly $1.3 million. Other reserve funding applies to the following: walkway, concrete and patio replacement ($132,200), second year of three-year tree reduction plan ($45,100), irrigation system upgrades ($50,000) and building components associated in part with the deck repair and recoating project ($269,100), domestic water plumbing repairs ($40,000) and administration ($102,900) to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, and various building component repairs. The fund's ending balance in 2013/2014 is expected to be $721,150 and the following year $673,950. According to today's reserve fund model, through the plan's 30-year life, a five percent assessment increase is planned the next three years, before a 23.7 percent decrease is realized. Then, the annual assessment increases year-to-year between two and three percent for the remainder of the plan. The reserve assessment portion of the monthly assessment increases by $5.45 per 1,000 AFA. It should be noted that the monthly assessment (operating and reserves) for Cribari has increased only $10 over the last four budget cycles ($2.50 per month per year). Village Montgomery: The total monthly assessment on a standard 1,000 AFA unit will increase 0.78 percent (to $310.52) over the prior year's monthly assessment ($309.74). The only operating expense reduction is insurance, which reduces 7.8 percent or $13,400 (to $157,400). Expense increases are associated with the following expense categories: landscape maintenance contract by $3,764 or 2 percent (to $191,977), club maintenance/general and administrative by $2,634 or 1.5 percent (to $179,739), water Page 10

14 by $22,200 or 12.5 percent (to $199,300), gas and electric by $470 or 3.8 percent (to $12,950), repairs/maintenance/pest control by $916 or 1.6 percent (to $58,916) and legal/other by $2,000 or percent (to $3,500 deer management program). At $160.29, the monthly assessment for operating expenses remains about the same as it was in 2007 ($160.18). From a reserve standpoint, $883,700 is being set aside for various reserve projects. The most significant project in terms of cost is an exterior painting project for wood and iron surfaces ($365,000). In addition, funding is earmarked for the following: landscape improvement projects ($100,000), concrete/driveway/parking/patio work ($63,300), various building components ($152,500) much of which is associated with the painting project, tree management plan ($18,600) the second year of a three-year plan, domestic plumbing contingency funds ($40,000), tile roof preventative maintenance and repair ($47,000) and administration ($62,700) to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks. Also, of notable interest is the loan repayment program (for roof replacement) the annual principal and interest payment is $500,000. According to the current schedule, the loan is satisfied in Through 2037, the reserve portion of the monthly assessment, according to today's model, does not look to increase by more than 3 percent per year. The fund's ending balance in 2013/2014 is expected to be $759,500 and the following year $682,300. The plan balance falls slightly below the minimum target balances (established by policy) in Since 2008, the monthly reserve assessment has increased from $ to $ ($0.70 per year). It should be noted that the total monthly assessment for Montgomery is $4.58 less than it was in the 2008 fiscal year, when it was $ Village Heights: The total monthly assessment for a standard 1,000 AFA unit will reduce by $7.47 ($ to $264.07) the third straight year of reductions. The operating expense-related monthly assessment increases from $ to $160.25; the reserve fund contribution reduces from $ to $ Operating expense reductions are associated with the following categories: insurance by $3,100 or 7.8 percent (to $36,400). Operating expense lines that increased are as follows: landscape contract with TruGreen (contract term) by $1,129 or 2 percent (to $57,593), club maintenance/general and administrative by $579 or 1.5 percent ($39,082), water by $2,600 or 5.6 percent (to $48,700), gas/electric by $71 or five percent (to $1,496) and finally the legal/other category, which increases by $750 or 300 percent (to $1,000 deer management program. Total operating expenses will reduce from $243,176 to $242,405. A prior year operating surplus (smaller than last year's) increased the operating assessment by $3.81. The monthly operating assessment is $160.25, which is still lower than it was in 2007 when it was $ Page 11

15 From a reserve standpoint, $107,400 is being set aside for various reserve projects. The most significant project in terms of cost is a landscape improvement project ($40,000). In addition, other funding is earmarked for the following: building component repair ($33,300), walkway replacement ($4,000), drainage/earth slippage ($7,000) and administration ($12,600) to oversee the foregoing projects, and to oversee other day-today maintenance-related tasks. Next year (2015), a complete exterior painting project is scheduled. According to the current reserve fund model, through 2031 the reserve portion of the monthly assessment looks to maintain a three percent annual increase. And from 2032 through the remainder of the 30-year plan, the assessment increase shows 0 percent. The fund's ending balance in 2013/2014 is expected to be $397,000, and the following year $280,800. The reserve fund portion of the monthly assessment is $103.82; in 2005 it was $105. Village Hermosa: The total monthly assessment for a standard 1,000 AFA unit will increase by $19.35 from the prior fiscal year (from $ to $362.16). The operating expense related monthly assessment increases from $ to $ and reserve related monthly assessment increases from $ to $ (primarily due to an acceleration of the concrete tile roof replacement project to 2017/2018). The only operating expense categories that decrease this fiscal year are as follows: gas/electric by $1,150 or 13 percent (to $7,700), and insurance by $8,300 or 7.8 percent (to $97,900). Operating expense categories that increased are as follows: landscape contract with TruGreen (contract term) by $3,313 or 2 percent (to $168,941), club maintenance/general and administrative by $1,553 or 1.5 percent (to $105,150), water by $7,700 or six percent (to $136,500), and legal/other by $2,200 or 440 percent (to $2,700 deer management program). Overall, from an operating perspective, the total dollar increase in annual expenses (less fee income) equals $4,106 from $710,813 to $714,919. The operating portion of the monthly assessment at $ is less than it was in 2008 when it was $ From a reserve standpoint, $291,000 is being set aside for various reserve projects. The most significant project in terms of cost is a landscape improvement project ($84,900). In addition, other funding is earmarked for the following: roof repair and preventative maintenance ($47,000), driveway and patio replacement ($9,600), tree management plan ($27,000 second year of three-year plan), retaining walls ($11,200), building component repair ($21,500) electrical and domestic water contingencies ($30,000), The administrative cost to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, is funded at $35,200. In 2015, the district's building exteriors are scheduled to be painted. According to today's reserve fund model, through 2018, nine percent annual adjustments to the reserve portion of the monthly assessment are expected. In 2019 and 2021 funding levels are expected to reduce by 20.5 percent and 33.7 percent respectively. The fund then levels out through its 30 year cycle at less three percent adjustments per year. The fund's ending balance in 2013/2014 is expected to be Page 12

16 $1,501,900 and the following year $1,630,300. The replacement of all roofs is scheduled in 2017 and 2018 at an estimated cost of $3,334,700. Village Verano: The total monthly assessment for a standard 1,000 AFA unit will reduce by $7.42 from the prior fiscal year ($ to $251.99). This is the third consecutive year of assessment reduction. The operating expense related monthly assessment increases from $ to $ and the reserve fund related assessment decreases from $ to $ Operating expense reductions are associated with the following expense categories: insurance by $9,700 or 7.8 percent (to $115,200), and building repair/maintenance and pest control by $2,000 or 6 percent (to $31,600). Operating expense categories that increase are as follows: landscape contract with TruGreen (contract term) by $3,011 or two percent (to $153,581), club maintenance/general and administrative by $1,678 or 1.5 percent, water by $9,200 or 6.5 percent (to $149,900), gas /electric by $6,385 or 42.6 percent (to $21,385) and legal/other by $2,000 or 400 percent (to $2,500 deer management program). Overall, from an operating perspective, the total dollar increase in annual expenses (less fee income) equals $11,318 (from $732,757 to $744,075). Since 2008, the monthly operating assessment has decreased from $ to $ From a reserve standpoint, $672,500 is being set aside for various reserve projects. The most significant projects in terms of cost are 1) a complete exterior painting project ($445,000) and, 2) a landscape improvement project ($86,900). In addition, other funding is earmarked for the following: driveway/concrete/walkway replacement ($8,400), tree management plan ($16,600 second year of three-year plan), building component repair ($39,100 associated in part with the painting project) and domestic plumbing repair ($10,000). The administrative expense to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, is funded at $37,400. According to today's reserve fund model, the annual reserve fund assessment increase is expected to be 3 percent per year or less through the life of the 30-year plan. The fund's ending balance in 2013/2014 is expected to be $439,800 and in 2014/2015 $485,200. Since 2008, the monthly reserve assessment has decreased from $99 to $ Village del Lago: The total monthly assessment for a standard 1,000 AFA unit will increase by $10.84 from the prior fiscal year (from $ to $286.14). The operating expense related monthly assessment decreases from $ to $ and the reserve fund related assessment increases from $ to $ In terms of the operating budget, three expense categories were reduced, those are: insurance by $7,600 or 7.9 percent (to $88,800), gas/electric by $565 or 2.2 percent (to $25,435) and repairs/ maintenance/pest control by $2,600 or 6.6 percent. Page 13

17 Operating expense categories that increased are as follows: landscape contract with TruGreen (contract term) by $3,425 or two percent (to $174,669), club maintenance/general and administrative by $1,430 or 1.5 percent (to $96,344), water by $7,400 or 8.7 percent (to $92,700) and legal/other by $2,275 or 455 percent (to $2,775 deer management program). Overall, from an operating perspective, the total dollar increase in annual expenses (less fee income) equals $3,765, 0.6 percent (from $613,693 to $617,458). Prior year surpluses added $2.33 to the operating assessment. In 2004 the operating portion of the monthly assessment was $175.58; it will be $ beginning July 1, From a reserve standpoint, $563,600 is being set aside for various reserve projects. The most significant project in terms of cost is the painting of all building exteriors ($341,000). In addition, other funding is earmarked for the following: landscape improvement project ($70,000), driveway/parking/walkway area replacement ($7,000), tree management plan ($17,300 final year of two year plan), building repair components ($50,200 some which is associated with the painting project) and a domestic water plumbing contingency ($10,000). The administrative expense to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, is funded at $30,800. In ensuing years, the reserve portion of the monthly assessment looks to increase by 10 percent annually through 2015 before it levels out at a three percent annual increase through 2032 then 0 percent through The fund's ending balance in 2013/2014 is expected to be $96,700 and the following year $295,800 (both years fall below the policy required minimum target balance of $289,400 the funding plan is still approved by the Board). No other time in the next 30 years does the plan fall below the minimum target balance. Since 2005, the monthly reserve assessment has increased from $10.01 (far less than adequate) to $ Village Highland: The total monthly assessment for a standard 1,000 AFA unit will increase by $9.33 from the prior fiscal year (from $ to $322.39). The operating expense-related monthly assessment increases from $ to $ and the reserve fund related assessment increases from $ to $ Only one expense category decreased from the prior year: insurance by $9,200 or 7.8 percent (to $108,500). Operating expense categories that increased are as follows: landscape contract with TruGreen (contract term) by $3,915 or two percent (to $199,657), club maintenance/general and administrative by $1,681 or 1.5 percent (to $113,539), water by $12,600 or 8.4 percent (to $162,600), gas/electric by $190 or 5.1 percent (to $3,890) and legal/other by $2,600 or 520 percent deer management program) Overall, from an operating perspective, the total dollar increase in annual expenses (less fee income) equals $11,126 from $741,490 to $752,616. The monthly assessment for operations is $173; in 2010 it was $ From a reserve standpoint, $1,630,200 is set aside for various reserve projects. The most significant project in terms of cost is the three-year roof replacement project that started May, This year, $1,404,200 is allocated to that project ($1,446,300 in Page 14

18 2015 and $1,489,700 in 2016). Reserve funding is also earmarked for the following: wood deck coating ($15,000), walkway replacement ($19,200), driveway/parking repairs and replacement ($20,800), tree management plan ($7,800 five years remaining), building components ($88,300 some of which is contingency for roof project), and a domestic water/plumbing contingency ($10,000). The administrative cost to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, is forecast at $37,400. The current reserve fund model shows the monthly assessment increasing three percent per year through 2017, then a reduction of 52.3 percent in 2018, then three percent per year for the remainder of the 30-year plan. The fund's ending balance in 2013/2014 is expected to be $1,022,900 and the following year $1,214,300. Village Glen Arden: The total monthly assessment for a standard 1,000 AFA unit will reduce by $5.16 ($ to $203.46); the monthly assessment in 2008 was The operating expense-related monthly assessment increases from $ to $ and the reserve fund related monthly assessment decreases from $87.55 to $ Operating expense categories that decreased in cost are as follows: insurance by $5,700 or 7.8 percent (to $67,500) and repairs/maintenance and pest control by $1,500 or 10.3 percent (to $13,000). Operating expense categories that increased in cost are as follows: landscape contract with TruGreen (contract term) by $1,393 or 2 percent (to $71,031), club maintenance/general and administrative by $877 or 1.5 percent (to $59,984), water by $4,400 or 8.3 percent, gas/electric by $225 or 50 percent (to $675), and legal/other by $925 or 185 percent (to $1,425). Overall, from an operating perspective, the total annual dollar increase is $620 (from $337,713 to $338,333). Prior year operating surpluses reduced the monthly assessment by $3.12. The monthly operating assessment is $123.19; in 2008 it was $ From a reserve standpoint, $49,100 is set aside for various reserve projects. There are no significant projects identified in this year's reserve plan. Allocations are set aside as follows: wood deck coating ($5,000), retaining walls ($2,000), building components ($2,800) and contingencies for domestic plumbing, sewer, storm drain electrical and earth slippage ($17,000). The administrative cost to oversee the foregoing projects and to oversee other day-to-day maintenance-related tasks is forecast at $21,400. According to today's reserve fund model, through the remainder of the 30-year plan, the annual reserve fund increase adjustment is level at 3 percent per year. The fund's ending balance in 2013/2014 is expected to be $1,094,900 and the following year $1,202,400. The monthly reserve assessment is $80.27; in 2008 it was $ Village Olivas: The total monthly assessment for a standard 1,000 AFA unit will increase $9.41 from the prior fiscal year ($ to $267.45). The operating expense Page 15

19 related monthly assessment increases from $ to $ and the reserve fund related monthly assessment remains the same ($94.98). Operating expense reductions are associated with the following: insurance by $10,700 or 7.8 percent (to $126,400) and repairs/maintenance and pest control by $4,500 or 12.8 percent (to $30,750). Operating expense categories that increased are as follows: landscape contract with TruGreen (contract term) by $4,479 or 2 percent (to $228,453), club maintenance/general and administrative by $1,798 or 1.5 percent (to $120,248), water by $18,100 or 10.4 percent (to 191,400), trash by $1,040 or 1.7 percent (to $63,856), gas/electric by $2,100 or 14 percent (to $17,100) and legal/other by $2,975 or 595 percent (to $3,475). Overall, from an operating perspective, the total dollar increase in annual operating expenses equals $15,292 ($843,732 to $859,024). A prior year operating surplus carry forward increased the monthly assessment by $1.22. The monthly operating assessment is $172.47; in 2009 it was $ From a reserve standpoint, $81,800 is set aside for various reserve projects. The most significant project in terms of cost is a landscape improvement project ($78,800). There are no significant projects this year planned for Olivas. Reserve fund allocations include the following: driveway and parking area replacement ($10,000), walkway replacement ($1,600), building components ($3,500), utility related contingencies ($21,500) and earth slippage ($7,000). The administrative cost to oversee the foregoing projects and to oversee other day-to-day maintenance-related tasks is forecast at $37,400. According to today's reserve fund model, through the life of the 30-year plan, the annual assessment increase is set at three percent per year. The fund's ending balance in 2013/2014 is expected to be $1,322,900 and the following year $1,613,700. The monthly reserve assessment is $94.98 and has remained the same for three years. Village Fairways: The total monthly assessment for a standard 1,000 AFA unit will decrease by $5.30 from the prior fiscal year ($ to $260.17). The operating expense related monthly assessment decreases from $186 to $ and the reserve fund related monthly assessment decreases from $79.47 to $ Operating expense reductions are associated with the following: insurance by $1,000 or 7.9 percent (to $11,700) and repairs/maintenance and pest control by $300 or 5.4 percent (to $5,300). Operating expense lines that increased are as follows: landscape contract with TruGreen (contract term) by $565 or two percent, club maintenance/general and administrative by $185 or 1.5 percent, water by $300 or 1.7 percent (to $18,000), trash by $216 or 2.7 percent (to $8,176) and legal/other by $375 or percent (to $575). Overall, from an operating perspective, the total dollar increase in annual expenses equals $351 compared to the current year's operating expense budget ($92,630 to $92,981). Prior year operating surpluses decreased the monthly assessment by $ The monthly operating assessment is $183.92; in 2007 it was $ From a reserve standpoint, $12,300 is set aside for various reserve projects. Just completing an exterior painting project in 2013 (wood only and privacy fences), there is no significant work planned in this year's reserve schedule. Funding is earmarked for Page 16

20 the following: walkway replacement ($800), building component repair ($1,100) and contingency funding ($6,600). The administrative cost to oversee the foregoing projects, and to oversee other day-to-day maintenance-related tasks, is forecast at $3,800. According to today's reserve fund model, the fund's ending balance in 2013/2014 is expected to be $53,700 and in 2015 $71,100. Over the course of the 30-year plan, the monthly increase to the reserve related assessment is between 2.8 and 3.1 percent per year. Village Sonata: The total monthly assessment for a standard 1,000 AFA unit will increase by $8.48 from the prior year ($ to $191.45); in 2007, the monthly assessment was $ The operating expense related monthly assessment increases from $ to $ and the reserve fund related monthly assessment increases from $30.98 to $ Operating expense reductions are associated with the following: insurance by $4,500 or 7.9 percent (to $52,800) and repairs/maintenance and pest control by $250 or 1.5 percent (to $16,250. Operating expense lines that increased are as follows: landscape contract with TruGreen (contract term) by $1,694 or two percent (to $86,390), club maintenance/general and administrative by $834 or 1.5 percent, water by $6,100 or 9.7 percent, gas/electric by $75 or 2.8 percent and legal/other by $1,125 or 375 percent (to $1,425 deer management program). From an operating perspective, expenses (less fee income) increased by $4,418 ($328,134 to $332,552). The operating monthly assessment is $158.15; in 2008 it was $ From a reserve standpoint, $62,400 is being set aside for various reserve projects. Just completing an exterior painting project in 2013 (wood only), there is no significant work planned in this year's reserve schedule. Reserve fund allocations include the following: driveway and parking area replacement ($14,000), walkway replacement ($800), building component repair ($16,000), contingency funds for utilities ($7,000) and earth slippage/drainage $6,000). The administrative cost to oversee the foregoing projects and to oversee other day-to-day maintenance-related tasks is forecast at $18,200. According to today's reserve fund model through the remainder of the 30-year reserve plan, the annual fund increase adjustments appear constant at 7.5 percent. The fund's ending balance in 2013/2014 is expected to be $896,450 and the following year $904,350. In 2004, the monthly reserve assessment was $35.99; this year it is $ Village Valle Vista: The total monthly assessment for a standard 1,000 AFA unit will decrease the current fiscal year by $4.42 (from $ to $156.33); in 2007 the monthly assessment was $ This is the third straight year with no increase to the monthly assessment. As part of the total monthly assessment, the operating expenserelated assessment decreased from $ to $ and the reserve fund related assessment increased from $22.10 to $ Reductions to operating expense categories are as follows: insurance by $4,400 or 7.8 percent (to $52,300), water by $4,700 or 6.6 percent and repairs/maintenance and pest Page 17

21 control by $800 or 7 percent (to $10,700). Operating expense categories that increased are as follows: landscape contract with TruGreen (contract term) by $1,393 or two percent (to $71,031), club maintenance/general and administrative by $579 or 1.5 percent (to $39,083), gas/electric by $575 or 24 percent (to $2,975) and legal/other by $925 or 185 percent (to $1,425 deer management program). Overall, from an operating perspective, the total dollar decrease in annual operating expenses equals $6,428, compared to the prior year's operating expense budget of $298,906. A prior year operating surplus carry forward reduced the monthly assessment by $7.39. The monthly operating assessment is $133.57; in 2007, it was $ From a reserve standpoint, $50,300 is set aside for various reserve projects. Just completing an exterior painting project in 2013 (wood only), there is no significant work planned in this year's reserve schedule. Reserve fund allocations include the following: TREX deck coating for 11 decks ($15,000), building component repairs ($14,500), utility related contingency funds ($4,500) and earth slippage/drainage ($3,500). The administrative cost to oversee the foregoing projects and to oversee other day-to-day maintenance-related tasks is forecast at $12,600. According to today's reserve fund model, through the remainder of the 30-year reserve plan, the annual fund increase adjustments are constant, between 2.9 and three percent. The fund's ending balance in 2013/2014 is expected to be $447,225 and the following year $458,225. The reserve fund monthly assessment is $22.76; in 2007 it was $ SUMMARY The underlying objective with this budget development process was to bring a responsible operating budget and adequately funded reserve plan to the membership that did not substantially increase assessments over the prior year that objective was achieved. Considering the impacts on Villagers due to the economic environment, our goal again this year was to contain and reduce expenses anywhere we could, without reducing levels of service to which Villagers have become accustomed. We believe this budget addresses the fiduciary requirement of the Board to present a budget that preserves, enhances and protects the Association's property and the owners' investment. The attached exhibits are intended to provide you with an overview of the budget's details. Also provided in this packet of information are mandated disclosures (required by California Civil Code) and other information pertinent to your ownership of property in a common interest development. Darren Shaw General Manager Page 18

22 The Villages Association Expense and Revenue Comparison 30-Apr-13 FY 2014 FY 2013 (Budget) (Budget) Change Operating Expenses Association Current Year 7,289,165 7,214, % Association ( Surplus ) Deficit (74,993) (232,164) -67.7% TOTAL OPERATING 7,214,172 6,982, % Reserve Requirements ( Annual funding) Association Annual Reserve 5,099,225 5,103, % TOTAL RESERVE 5,099,225 5,103, % TOTAL COST BASE/BUDGET 12,313,397 12,085, % FEES AND ASSESSMENTS Operating Fees and Revenue 50,890 49, % Operating Assessments 7,163,282 6,932, % Reserve Assessments 5,099,225 5,103, % TOTAL FEES & ASSESSMENTS 12,313,397 12,085, % Page 19

23 THE VILLAGES ASSOCIATION OPERATING & MAINTENANCE BUDGET 30-Apr-13 FY FY 14 Monthly Landscape & Prior Assessment FY 13 Per Assessment Administration Maintenance Gas/ Repairs/ G & A Total Fees & Surplus/ Per/1000 Last Cent District Transfer Transfer Electric Water Trash Insurance Maintenance Legal/Other Allocation Expense Income (Deficit) Balance AFA Year Change Cribari District 391, ,781 17, ,400 87, ,100 69,250 4, ,775 1,300,445 30,020 10,447 1,259,977 $ $ % Montgomery District -* 321,585 65,296 12, ,300 82, ,400 58,916 3,500 85, ,532 5,862 (19,896) 1,001,566 $ $ % The Heights District - 96,626 12,636 1,496 48,700 15,251 36,400 12,700 1,000 17, , , ,524 $ $ %..1l-k , Hermosa District.. 281,777 35,660 7, ,500 59,230 97,900 49,000 2,700 47, ,370 3,452 20, ,735 $ $ % Verano District Del Lego I District Illhe ** _ -- _ ,852 37,444 21, ,900 52, ,200 31,600 2,500 50, ,052 2,976 12, ,789 $ $ % 259,091 30,828 25,435 92,700 40,785 88,800 36,500 2,775 42, ,439 1,980 8, ,241 $ $ % Highlands District,,,,.. 298,884 37,443 3, ,600-51, ,500 37,250 3,100 51, , ,980 7, ,860 _ $ $ % Glen Arden District 114,053 dne -- 21, ,600 33,978 _, 67,500 13,000 1,425 29, , 338, , ,961._ $ $ ,8% *KR _ *Mr Olives District 338,010 --, 37,442 17, ,400-63, ,400 30,750 3,475 50, ,024 0 (6,100) 865,124 $ $ % I Ont Fairways District 39,877 3, ,000 8,176 11,700 5, ,377 92, ,349 85,632 $ $ % *** Sonata District 126,697 18,194 2,725 69,100 22,411 52,800 16,250 1,425 24, ,531 1, ,737 $ $ % Valle Vista District....* 110,582 12,636 2,975 66,000 19,584 52,300 10,700 1,425 17, ,798 1,320 15, ,136 $ $138,65-3.7% 2,664, , ,066 1,448, ,620 1,133, ,216 28, ,322 7,289,169 50,890 74,993 7,163,282 FY BUDGET 2,628, , ,380 1,343, ,489 1,229, ,500 7, ,410 7,214,377 49, ,164 6,932,940 CHANGE: 1.4% 1.7% 7.2% 7.8% 0.2% -7.8% -3.7% 287.6% 1.2% 1.0% 3.3% -67.7% 3.3% 1.":7 CrO ro tv

24 The Villages Association ASSESSMENT AND RESERVE FUNDING DISCLOSURE Disclosure of the status and adequacy of replacement reserves for common interest developments ("CID") was made mandatory by the California State Legislature in July Recent changes in the law require a new disclosure form to be provided and that is found on pages 24 and 25. The content of this disclosure relates specifically to the district in which your property is located. On page 22 you will find a copy of the Association's Reserve Replacement and Spending/Funding plan that has been adopted by your Board of Directors for the new budget year. This plan, that displays the next 10 years of a 30 year plan, provides estimates of annual repairs/replacements and related reserve assessment levels necessary to fund those repairs and replacements. The full reserve funding plan is available upon request of an owner. Your District Reserve Replacement and Spending/Funding plan can be found on page 23 and contains the estimates used to develop your district reserve assessment for the coming budget year. Page 21

25 Estimated Replacement Reserve Expenses at Future Costs Approved 04/30/2013 Consolidated Paint Stucco Paint 215,000 87, ,800-15, , ,300 - Siding Paint 310, , ,400 32, , , , ,000 39,100 Trim Paint 560, , , , , , , , ,700 Iron Rail Paint 70,000 5,200 15,900 10,900 5,600 27,800 83,600 6,100 19,000 13,000 Deck Coating 678, , , ,300 22,500 30,200 23,900 54,000 25,400 33,900 Roofs Fiat Roof PM & Repair 7,000 90,700 7,400 10,900 95,800 11,600 8, ,200 8,900 13,000 Shake Roof PM & Repair - 2,700 2,300 2,900 2,500 3,200 - Tile Roof PM & Repair 87, ,300 15,900 51, ,900 17,400 56, ,600 19,000 61,300 Comp. Roof PM & Repair _ 58,700 11,700-64,200 12,800 70,100 13,900 - Flat Roof Replacement - 171, ,000 Shake Roof Replacement 7,000 7,200 7, , , Tile Roof Replacement 1,404,200 1,446,300 1,489,700 1,750,100 1,692,000 - Comp. Roof Replacement , ,800 Gutter & Spout Replacement 4,200 3,900 4,000 4,200 4,200 4,200 4,300 4,400 4,600 4,700 Concrete DrivewaylTElParking 161,400 98, , , ,800 88,700 91,400 94,100 96,900 99,800 Walkway Replacement 99,200 50,700 52,100 53,800 55,400 35,200 36,200 37,300 38,100 39,300 Patio Replacement 13,600 24,400 25,200 26,000 26,700 18,900 19,600 20,200 20,700 21,500 Asphalt Driveway Patch & Seal 17,500 48,500 45,500 46,900 48,300 14,600 15,000 20,600 16,000 16,400 Walkway Patch & Seal - - 9,500 13,400 11,300 Landscape Improvement Project 381, , , , , , ,200 Water Feature Restoration ,300 16, , ,800 26,100 Tree Management Plan 132, ,600 8,300 8,500 8, Lawn Irrigation Upgrade 50,000 51,500 53,000 - Structure Components Area Lighting 7,600 29,100 29,900 31,000 31,600 77,800 80,100 82,700 85,200 87,600 Mailbox Stand 6,600 8,600 8,800 9,400 9,400 26,400 27,300 28,200 28,700 29,800 Retaining Walls 27,200 20,900 21,500 22,200 22,800 18,800 19,500 20,100 20,500 21,100 Building Components 691, , , , , , , , ,000 1,017,500 Contingency Pump/Motor Replacement 16,000 16,600 17,000 17,600 18,100 18,600 19,200 19,700 20,200 20,800 Electrical Distribution 48,500 50,200 51,500 53,200 54,400 56,400 58,100 59,200 61,300 63,100 Domestic Water Plumbing 145, , , , , , , , , ,100 Sewer Renovation 37,500 38,700 39,800 41,100 42,300 43,600 45,000 46,000 47,400 48,800 Storm Drain Renovation 33,500 34,600 35,500 36,800 37,800 38,900 40,200 41,100 42,400 43,600 Irrigation Control Replacement 16,300 16,700 17,300 17,500 18,500 18,800 19,600 20,000 20,600 21,600 Earth Slippage/Foundation/Drainage 80,500 82,800 85,400 87,700 90,800 93,500 96,500 98, , ,700 Administration 412, , , , , , , , , ,600 5,722,800 5,201,200 5,325,500 4,356,700 4,007,900 2,903,200 3,749,400 3,324,600 4,437,000 3,439,200 Estimated beginning balance 9,785,600 8,754,125 9,584,525 9,818,899 10,514,623 11,489,797 13,530,971 14,628,845 16,508,486 17,705,760 Assessments 5,099,225 5,340,700 5,539,700 5,772,400 5,299,400 5,216,100 5,072,600 5,219,100 Loan proceeds/payments 5,270,300 5,434,100 (500,000) 600,000 (264,426) (1,018,176) (639,426) Less expenses (639,426) (639,426) (472,759) (5,722,800) (5,201,200) (139,426) (5,325,500) (139,426) (4,356,700) Net interest income(expense) (4,007,900) (2,903,200) 92,100 (3,749,400) (3,324,600) 90, ,600 (4,437,000) 298,200 (3,439,200) Ending cash balance 323, ,700 8,754, ,100 9,584, ,900 9,818,899 10,514, ,400 11,489, ,800 13,530,971 14,628,845 16,508,486 17,705,760 20,118,034 1-Z1 01:1. ti

26 Approved 04/30/2013 Heights Estimated Replacement Reserve Expenses at Future Costs Paint Stucco Paint 35, Siding Paint 49, ,000 - Trim Paint 51, ,500 - Iron Rail Paint 5,200-6,100 Deck Coating - 53, Roofs Flat Roof PM & Repair 3,100-3,300 3,500 3,700-3,900 Shake Roof PM & Repair Tile Roof PM & Repair 2, Comp. Roof PM & Repair 7,200-7,900 8,600 - Flat Roof Replacement Shake Roof Replacement Tile Roof Replacement - 107, Comp. Roof Replacement Gutter & Spout Replacement Concrete - - _ DrivewayfTE/Parking 4,100 4,200 4,400 4, ,000 1,000 1,000 1,000 Walkway Replacement 4, Patio Replacement Asphalt - Driveway Patch & Seal Walkway Patch & Seal - - 3,200-3,800 Landscape CICIO Improvement Project 40, N Water Feature Restoration t'`' Tree Management Plan Backflow Structure Components Area Lighting 500 4,900 5,000 5,200 5,300 3,000 3,100 3,200 3,300 3,400 Mailbox Stand 1,000 1,100 1,100 1, Retaining Walls Building Components 33,300 79,500 49,100 16,900 17,400 35,700 36,700 37,800 39,000 40,100 Contingency Pump/Motor Replacement Electrical Distribution 1,000 1,000 1,100 1,100 1,100 1,200 1,200 1,200 1,300 1,300 Domestic Water Plumbing 4,000 4,100 4,200 4,400 4,500 4,600 4,800 4,900 5,100 5,200 Sewer Renovation 2,000 2,100 2,100 2,200 2,300 2,300 2,400 2,500 2,500 2,600 Storm Drain Renovation 2,000 2,100 2,100 2,200 2,300 2,300 2,400 2,500 2,500 2,600 Irrigation Control Replacement Earth Slippage/Foundation/Drainage 7,000 7,200 7,400 7,600 7,900 8,100 8,400 8,600 8,900 9,100 Administration 12,600 13,000 13,400 13,800 14,200 14,600 15,100 15,500 16,000 16, , ,100 90, ,500 69,800 77,000 75, ,900 80,400 90,400 Estimated beginning balance 350, , , , , , , , , ,300 Assessments 150, , , , , , , , , ,700 Special assessments Less expenses (107,400) (274,100) (90,800) (227,500) (69,800) (77,000) (75,900) (216,900) (80,400) (90,400) Net interest income(expense) 3,700 3,400 9,400 9,800 10,600 13,900 17,300 18,900 20,600 24,400 Ending cash balance 397, , , , , , , , , ,000 Estimated assessment per 1000 AFA

27 The Villages Association Heights District Replacement Reserve Fund FY 14 Estimated Remaining Unit Replace Useful Useful Cost Cost Life Life Annual Provision Required Ending FY 14 Balance Item Unit Units Paint Stucco Paint Sq. Ft. 56, , ,900 31,900 Siding Paint Villa , ,000 40,000 Trim Paint Sq. Ft. 116, , ,300 41,500 Iron Rail Paint Villa , ,000 Deck Coating Villa , , ,600 Roofs Flat Roof PM & Repair Sq. Ft. 14,000 18, ,400 Shake Roof PM & Repair Sq. Ft. Tile Roof PM & Repair Comp. Roof PM & Repair Sq. Ft , ,200 27,600 Flat Roof Replacement Sq. Ft. 14, , , ,300 Shake Roof Replacement Sq. Ft. Tile Roof Replacement Sq. Ft. 85,478 98, ,500 92,500 Comp. Roof Replacement Sq. Ft. ;utter & Spout Replacement 10% Concrete Driveway/TE/Parking Villa 72 44, ,500 27,000 Walkway Replacement Villa 72 10, ,000 Patio Replacement Asphalt Driveway Patch & Seal Walkway Patch & Seal 14, ,400 7,200 Landscape Improvement Project Villa 72 40, ,000 40,000 Water Feature Restoration Tree Management Plan 1-1 Backflow Structure Components Area Lighting Villa 72 37, ,300 32,500 Mailbox Stand Villa 72 8, ,900 Retaining Walls Building Components Villa 72 1,515, , ,000 Other Property Components Pump/Motor Replacement Villa Electrical Distribution Villa 72 30, ,000 1,000 Domestic Water Plumbing Villa , ,000 4,000 Sewer Renovation Villa 72 60, ,000 2,000 Storm Drain Renovation Villa 72 60, ,000 2,000 gation Control Replacement Villa 72 15, Earth Slippage/Foundation Villa , ,000 7,000 Contingency Villa 72 10% 16, ,100 3,126, ,500 1,695,000 Number of Villas 72 Adjusted Floor Area ,400 District Basic This Fiscal Year 2014 Est. Net interest Monthly Per 1000 AFA 177,500 $ (3,700) ($2.56) Net District Assess: 173,800 $ Page 23-A

28 The Villages Association, Heights District Assessment and Reserve Funding Disclosure Summary (Civil Code ) 1. Effective July 1, 2013 the monthly reserve assessment per villa will be $ per 1,000 AFA. See below rates for villa sizes in the Heights district: Size in AFA Monthly reserve assessment in dollars 1, , , , , Special assessments, if any, that have been approved by the board and members and scheduled to be imposed, regardless of the purpose: Due date Purpose: Amount per villa NONE 3. Based upon the most recent reserve study and other information available to the board of directors, will currently projected reserve account balances be sufficient at the end of each year to meet the association's obligation for repair and/or replacement of major components during the next 30 years? Yes X No 4. If the answer to #3 is no, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years? Due date Total due Amount per villa per month NONE 5. The following major components, if any, that are included in the reserve study, are NOT included in the existing reserve funding: Major component Useful remaining life in years Why not included NONE Page 24

29 6. Based on the method of calculation in paragraph (4) of subdivision (b) of Section , the required amount in the reserve fund at June 30, 2013 is $1,517,500. This amount is calculated based on the last reserve study or update that was completed in March 2013 by the managing agent, The Villages Golf & Country Club. The projected balance in the reserve fund at June 30, 2013 is $350,700 resulting in reserves being 23.1% funded at this date. The resulting deficiency per villa using this method is $9,691 per 1,000 AFA. The method referred to in paragraph 6 is the "straight-line method." The alternate "cash-flow" method, which we utilize, projects that future fund balances will meet projected expenses. 7. Attached please find a ten year reserve plan that contains estimates of related assessments and reserve fund balances. The full 30 year reserve plan is available upon request. SEE ATTACHED NOTE: The financial representations included in this summary are based on the best estimates of the preparer. These estimates are subject to change. DISCLAIMER: The information contained in this disclosure is a PROJECTION ONLY. Because the reserve study is a projection, the estimated lives and costs of components will likely change over time depending on a variety of factors such as future inflation rates, levels of maintenance required by future boards, unknown defects in materials that may lead to premature failures, etc. As a result, some components may experience longer lives while others will experience premature failures. Some components may cost less at the time of replacement while others may cost more. Page 25

30 THE VILLAGES ASSOCIATION MONTHLY ASSESSMENT CHANGE (PER 1000 AFA) District FY14 OPERATING RESERVE TOTAL CHANGE FY13 $ Change % Change FY14 FY13 $ Change % Change FY14 FY13 $ Change 4/30/13 % Change Cribari Montgomery Heights Hermosa Verano Del Lago Highland Glen Arden Olivas Fairways Sonata Valle Vista ti

31 District Comparative Budgets Approved 04/30/2013 Description Landscape Contract Landscape Extras Club Maint/Landscape/G&A Transfers Water Trash Insurance Gas/Electric Repairs & Maint/Pest Control Legal/Other Total Expense Association Total FY 14 FY 13 Change Per Gent 1,639, ,685 1,231,592 1,448,200 1,607, ,685 1,213,430 1,343,100 32, , , '''' , ,489 1, ,133,000 1,229,200 (96,200) (7.8) e 114, ,216 28,100 7,289, , ,500 7,250 7,214,374 7,686 (14,284) 20,850 74, (3.7) Less Fee Income Assessment Base 50,890 49,270 1,620 7,238,275 7,165,104 73, Monthly Per 1000 AFA Prior (Surplus)/Deficit Net Monthly Per 1000 AFA Prior (surpius)deficit (1.67) (5.16) (74,993) (232,164)

32 District Comparative Budgets Approved 04/30/2013 Heights Description FY 14 FY 13 Change Per Cent Cost per Month Per 1000 Landscape Contract 57,593 56,464 1, Landscape Extras 30,183 30, Club Maint/Landscape/G&A Transfers 39,082 38, Water 48,700 46,100 2, Trash 15,251 15, Insurance 36,400 39,500 (3,100) (7.8) Gas/Electric 1,496 1, Repairs & Maint/Pest Control 12,700 15,500 (2,800) (18.1) 8.79 ag Legal/Other 1, coo Total Expense 242, ,176 (771) (0.3) Less Fee Income (660) NA 0.46 Assessment Base 241, ,176 (111) Monthly Per 1000 AFA (0.99) (0.6) Prior (Surplus)/Deficit (7.07) (11.87) Net Monthly Per 1000 AFA Prior (surplus)deficit (10,221) (17,155)

33 The Villages Budget Summary FY 14 The Villages Golf and Country Club Approved 04/30/2013 This Last Per Budget Budget Change Cent This Budget Last Budget Change Per Cent Members 2,536 2, % Operations: Replacement: Total Assess 7,023,791 6,810, , % Total Assess 2,042,020 1,890, , % Monthly Assess $ $ $ % Monthly Assess $67.10 $62.11 $ % I THE VILLAGES ASSOCIATION: HEIGHTS DISTRICT Villas % Adjusted Floor Area(AFA) 120, , % Operations: Replacement: Expense 241, ,176 (1,431) -0.6% Income N/A Basic Assess 241, ,176 (1,431) -0.6% Annual Reserve Assess 150, ,300 (16,300) -9.8% (Surplus)/Deficit(1) (10,221) (17,155) 6,934 N/A Deferred N/A Total Assess 231, ,021 5, % Total Assess 150, ,300 (16,300) -9.8% Monthly Assess $ $ $ % Monthly Assess $ $ ($11.28) -9.8% (1) See budget text for information on surpluses or deficits from prior years. Monthly Assessments Villa District Club Per AFA Operating Replace Operating Replace FY 2014 FY 2013 Change Cent 1500 $ $ $ $67.10 $ $ $ % 1600 $ $ $ $67.10 $ $ $ % '-t $ $ $ $67.10 $ $ ($0.70) -0.1% z on 1800 $ $ $ $67.10 $ $ ($1.44) -0.2% ta 2000 $ $ $ $67.10 $ IN..) $ ($2.94) -0.4%

34 The Villages Association AVAILABILITY OF MINUTES Civil Code Section d provides that "the minutes, minutes proposed for adoption that are marked to indicate draft status, or a summary of the minutes, of any meeting of the Board of Directors of the Association, other than executive session, shall be made available to members (emphasis added) within 30 days of the meeting." The law provides for annual notice of this requirement - this notification within the budget documents qualifies as such notice - and provides that "the minutes, proposed minutes, or summary minutes shall be distributed to any member of the Association upon request and upon reimbursement of the Association's costs for making that distribution." Requests may be made at the Business Office during normal business hours. There will be a $15 handling fee. Also, a copy will be available in the library for inspection or copying by interested parties. NOTIFICATION OF MONETARY PENALTY As of January 1, 1994, Civil Code Section 1363(f) requires notification to owners of changes in monetary penalties for violation to provisions of CC&Rs and Rules. The Board of Directors approved revision of its Rules Document effective July 1, Copies of the updated rules were distributed to the members and notices of subsequent new rules and rule revisions approved by the Board during the fiscal year were also distributed to members as well as published in The Villager. Rule enforcement procedures are outlined in the Introduction section of the Association's Rule Document. The Board is authorized under the CC&Rs to impose monetary penalties or fines as Enforcement Assessments in accordance with a schedule adopted by the Board and distributed to the Members. The Board may also levy an assessment against a member found in violation of the CC&Rs and Rules to recover costs for repair to damage to common area property and attorney fees and other charges incurred by The Association as a result of the member's violation. NOTICE OF COLLECTION RIGHTS AND OBLIGATIONS - NOTICE - ASSESSMENTS AND FORECLOSURE This notice outlines some of the rights and responsibilities of owners of property in common interest developments and the associations that manage them. Please refer to the sections of the Civil Code indicated below for further information. A portion of the information in this notice applies only to liens recorded on or after January, You may wish to consult a lawyer if you dispute an assessment. Page 30

35 ASSESSMENTS AND FORECLOSURE Assessments become delinquent 15 days after they are due, unless the governing documents provide for a longer period. Failure to pay Association assessments may result in the loss of an owner's property through foreclosure. Foreclosure may occur either as a result of a court action, known as judicial foreclosure or without court action, often referred to as nonjudicial foreclosure. For liens recorded on and after January 1, 2006, an association may not use judicial or nonjudicial foreclosure to enforce that lien if the amount of the delinquent assessments or dues, exclusive of any accelerated assessments, late charges, fees, attorney's fees, interest, and costs of collection, is less than one thousand eight hundred dollars ($1,800). For delinquent assessments or dues in excess of one thousand eight hundred dollars ($1,800) or more than 12 months delinquent, an association may use judicial or nonjudicial foreclosure subject to the conditions set forth in Section of the Civil Code. When using judicial or nonjudicial foreclosure, the Association records a lien on the owner's property. The owner's property may be sold to satisfy the lien if the amounts secured by the lien are not paid. (Sections 1366 and and of the Civil Code) In a judicial or nonjudicial foreclosure, the association may recover assessments, reasonable costs of collection, reasonable attorney's fees, late charges, and interest. The association may not use nonjudicial foreclosure to collect fines or penalties, except for costs to repair common areas damaged by a member or a member's guests, if the governing documents provide for this. (Sections 1366 and of the Civil Code) The Association must comply with the requirements of Section of the Civil Code when collecting delinquent assessments. If the Association fails to follow these requirements, it may not record a lien on the owner's property until it has satisfied those requirements. Any additional costs that result from satisfying the requirements are the responsibility of the Association. (Section of the Civil Code) At least 30 days prior to recording a lien on an owner's separate interest, the Association must provide the owner of record with certain documents by certified mail, including a description of its collection and lien enforcement procedures and the method of calculating the amount. It must also provide an itemized statement of the charges owed by the owner. An owner has a right to review the Association's records to verify the debt. (Section of the Civil Code) If a lien is recorded against an owner's property in error, the person who recorded the lien is required to record a lien release within 21 days, and to provide an owner certain documents in this regard. (Section of the Civil Code) The collection practices of the Association may be governed by state and federal laws regarding fair debt collection. Penalties can be imposed for debt collection practices that violate these laws. PAYMENTS When an owner makes a payment, he or she may request a receipt, and the Association is required to provide it. On the receipt, the Association must indicate the Page 31

36 date of payment and the person who received it. The Association must inform owners of a mailing address for overnight payments. (Section of the Civil Code) An owner may, but is not obligated to, pay under protest any disputed charge or sum levied by the association, including, but not limited to, an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure, and by so doing, specifically reserve the right to contest the disputed charge or sum in court or otherwise. (Section of the Civil Code) An owner may dispute an assessment debt by submitting a written request for dispute resolution to the Association as set forth in Article 5 (commencing with Section ) of Chapter 4 of Title 6 of Division 2 of the Civil Code. In addition, an Association may not initiate a foreclosure without participating in alterative dispute resolution with a neutral third party as set forth in Article 2 (commencing with Section ) of Chapter 7 of Title 6 of Division 2 of the Civil Code), if so requested by the owner. Binding arbitration shall not be available if the Association intends to initiate a judicial foreclosure. An owner is not liable for charges, interest, and costs of collection, if it is established that the assessment was paid properly on time. (Section of the Civil Code) MEETINGS AND PAYMENT PLANS An owner of a separate interest that is not a time-share may request the Association to consider a payment plan to satisfy a delinquent assessment. The Association must inform owners of the standards for payment plans, if any exist. (Section of the Civil Code) The Board of Directors must meet with an owner who makes a proper written request for a meeting to discuss a payment plan when the owner has received a notice of a delinquent assessment. These payment plans must conform with the payment plan standards of the Association, if they exist. (Section of the Civil Code) The Villages Association Insurance Coverage Summary "This summary of the association's policies of insurance provides only certain information, as required by subdivision (f) of Section 1365 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association's insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association's policies of insurance may not cover your property, including personal property or, real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage." Page 32

37 I. PROPERTY Insurance Company: Policy Number: Policy Term: Coverage: Limits: Deductibles: Philadelphia Insurance Company PHPK March 1, 2013 to March 1, 2014 Insurance that covers direct physical loss to property; Replacement Cost Valuation. Covers all common areas and condominium units including all internal and external permanently attached items. Buildings $522,726,260 Business Personal Property $850,000 Business Income and Extra Expense $500,000 $5,000 per Occurrence, All Other Causes of Loss except: 24 hours Business Income Waiting Period II. GENERAL LIABILITY Insurance Company: Philadelphia Insurance Company Policy Number: PHPK Policy Term: March 1, 2013 to March 1, 2014 Coverage: Pays on behalf of the Named Insured all sums which the insured is legally obligated to pay as damages because of bodily injury or property damage to third parties, including defense costs. Limits: General Aggregate $2,000,000 Each Occurrence $1,000,000 Products / Completed Operations Aggregate $2,000,000 Personal & Advertising Injury $1,000,000 Fire Damage -. Any One Fire $ 100,000 Medical Expense Any One Person $ 5,000 Deductible: None III. BUSINESS AUTO Insurance Company: Policy Number: Policy Term: Coverage: Limits: Deductibles: Philadelphia Insurance Company PHPK March 1, 2013 to March 1, 2014 Pays on behalf of the Named Insured all sums which the insured is legally obligated to pay as damages because of bodily injury or property damage to third parties arising out of the ownership, maintenance or use of any auto, including defense costs. Each Accident Combined Single Limit for Bodily Injury & Property Damage $1,000,000 Each person Medical payments, Owned Autos Only $ 5,000 Each Accident Uninsured Motorist Bodily Injury Liability $1,000,000 Each Accident Underinsured Motorist Bodily Injury Liability $1,000,000 Auto Comprehensive $ 500 Auto Collision $ 1,000 Page 33

38 IV. UMBRELLA LIABILITY Insurance Company: Policy Number: Policy Term: Coverage: Limits: V. CRIME Philadelphia insurance Company PHUB March 1, 2013 to March 1, 2014 Provides liability limits in excess of underlying General Liability, Automobile Liability, Employer's Liability and Directors & Officers Liability Each Occurrence $25,000,000 Products/Completed Operations Aggregate $25,000,000 General Aggregate $25,000,000 Insurance Company: Policy Number: Policy Term: Coverage: Limit: Deductible: Philadelphia Insurance Company PHPK March 1, 2013 to March 1, 2014 Coverage for employee theft of money, securities, or property caused by theft or forgery by any employee. Employee Dishonesty $ 250,000 Each Loss $ 1,000 V. EXCESS CRIME / FIDELITY BOND Insurance Company: Policy Number: Policy Term: Coverage: Limit: Deductible: Travelers Casualty & Surety Company (first layer) Hiscox Insurance Company (second layer) & UC October 25, 2012 to October 25, 2013 Coverage for employee theft of money, securities, or property caused by theft or forgery by any employee. Employee Dishonesty $ 12,500,000 ERISA $ 500,000 Employee Dishonesty $ 250,000 VI.FIDUCIARY LIABILITY Insurance Company: Policy Number: Policy Term: Coverage: Limit: Deductible: Travelers Casualty & Surety Company March 1, 2010 to October 25, 2013 Covers damage for wrongful acts involving breach of fiduciary duty as respects The Villages Golf & Country Club's Employee Benefit Plans. Annual Aggregate $1,000,000 Each Claim $ 5,000 VII. Earthquake & Flood (including earthquake sprinkler leakage): Insurance Company: Various Policy Number: Various Policy Term: March 1, 2013 to March 1, 2014 Page 34

39 Fiscal Year 2013/2014 Budgets Suninmny Coverage: Limit of Liability: Earthquake & Flood on Buildings, Business Property, Electronic Data Processing, Business Income / Extra Expense $2,000,000 Primary Layer - Per Occurrence and Annual Aggregate $10,000,000 Self Insured Retention $28,000,000 Secondary Layer Per Occurrence and Annual Aggregate Primary Deductible: 10% per Building as respects Earthquake $250,000 in respect to Flood VIII. DIRECTORS & OFFICERS LIABILITY Insurance Company: RSUI Indemnity Company Policy Number: NHP Policy Term: March 1, 2013 to March 1, 2014 Coverage: protects insured directors or officers against claims involving allegations of wrongful acts occurring while performing their respective duties. Limits: Annual Aggregate *$3,000,000 Deductible: Each Claim $25,000 *Umbrella Liability policy attaches at $3,000,000 and extends coverage. This document is a synopsis of coverage only; the individual Policies contain exclusions and / or limitations not shown here. It is not intended to replace, alter or extend the coverages afforded by an actual policy. Hays Companies is also available to assist you: To obtain certificates or proof of property insurance, please send your request to: FAX: Telephone: Your Hays Companies contacts are: Christa Groves (503) od roves(&.ha yscom pan ies.com Certificate Requests Jennifer Webber (503) jwebberhayscompanies.com General Inquiry Randy Hughes (503) rhugheshayscompanies.com General Inquiry Page 35

40 The Villages Association ARCHITECTURAL GUIDELINES AND PROCEDURES Owner Alterations and Improvements. Except for improvements made or constructed by or on behalf of the Association, no landscaping, walkway, and no building, fence, wall, obstruction, balcony, screen, patio cover, tent, awning, carport cover, improvement or other structure of any kind shall be installed, commenced, erected, painted, or maintained within the Condominium Development, nor shall any exterior addition to or change or alteration therein be made, until the plans and specifications showing the nature, kind, shape, color, height, size, materials, and location of the same shall have been submitted to an approved in writing by the Architectural Committee, subject to the Board's right to review, modify or overrule the Committee's decision. Committee approvals shall specify whether work shall be performed by a properly licensed and insured contractor. The Architectural Committee may, from time to time, and subject to the Board's approval, adopt, amend, and repeal rules and regulations to be known as "Architectural Rules." The Architectural Rules shall set forth the standards and procedures for Architectural Committee review and guidelines for architectural design, placement of buildings and other structures, landscaping, color schemes, exterior finishes and materials, and similar features which are recommended for use in the Condominium Development. Architectural Committee ("AC") Review and Approval Procedure. 1. Written Request for Approval. Any Owner proposing to perform any work of any kind that requires prior approval by the AC shall apply for approval by notifying the AC in writing ("Application") of the nature of the proposed work and furnishing such information and documentation as the AC may require. Application forms may be obtained from the AC Administrator at the Maintenance Services Department office. An application fee may apply. 2. Grant of Approval. The AC shall grant the requested approval only if: a. The Owner shall have complied with all requirements of the AC, including, as may be required by the AC, acknowledgement that the work will be performed by a licensed and insured contractor. b. The AC shall find that the plans and specifications conform to the Architectural Rules in effect at the time plans were submitted. c. The AC shall determine that the proposed improvements are consistent with the standards of the Condominium Development as to quality of design and materials, as to harmony of exterior design with existing structures, and as to location with respect to topography and finished grade elevations. 3. AC Review Meetings. AC review meetings for building alteration applications are held on the first Thursday of the month, and for landscape on the third Tuesday of the month. Changes to meeting times are posted in The Villager and on Channel 26. Page 36

41 4. Decisions in Writing. All approvals and rejections of requests for approval shall be in writing and shall be issued by the AC within forty-five (45) days from the date of submission of a complete application. If a request is rejected, the decision shall include an explanation of the AC's decision and a notice describing the Owner's right to request reconsideration by the AC and the Board. 5. Internal Dispute Resolution. If the AC shall fail to act on a request for approval within the time specified or if the AC or Board shall fail to reconsider the Owner's request in a timely fashion, or if a request for approval is rejected by the Board, the Owner shall be entitled to invoke internal dispute resolution pursuant to Civil Code section and Board Policy APo Preliminary Approval. Any Owner proposing construction improvements requiring AC approval may apply to the AC for preliminary approval by submission of preliminary drawings of the proposed improvements in accordance with the Architectural Rules. The AC shall consider and act upon such request within forty-five (45) days of receipt. Any preliminary approval granted by the AC shall be effective for a period of ninety (90) days. In no event shall preliminary approval be deemed to an approval authorizing installation or construction of the subject improvements. The Villages Association ASSESSMENT COLLECTION POLICY This document sets forth the procedures to be followed regarding the collection of assessments pursuant to California Civil Code 1366 through and the Association's governing documents. 1. Assessments in General. The Association has a duty to levy regular (or "annual") assessments and special assessments sufficient to perform its obligations under the governing documents and California law. Regular assessments are levied annually and are payable during the year in equal monthly installments or at such other intervals as the Association Board of Directors (Board) shall designate. Special assessments shall be due and payable on the due date specified by the Board. The Board also has the authority to levy (1) reimbursement assessments, (2) enforcement assessments, and as provided in and under the circumstances set forth in the Association's Bylaws and CC&Rs. The term "assessments" as used in this Policy shall mean any or all of the following: (1) regular (or "annual") assessments, (2) special assessments, (3) reimbursement assessments, (4) enforcement assessments. 2. Use and Service Charges for Club Amenities. Association Owners are also members of The Villages Golf & Country Club (the "Club"). As such, the Owners are obligated to pay to the Club all use and service charges levied by the Club for certain Club amenities enjoyed by the Owner and/or their designated guest(s) (collectively, "Club Charges") in accordance with the Club's rules and schedules. Page 37

42 3. Obligation to Pay Assessments. Each assessment is an obligation of the Owner at the time it is levied. Each assessment is also a lien on the Owner's Villa from and after the time the Association causes a Notice of Delinquent Assessment to be recorded with the County Recorder's Office. 4. Notice of Assessments. Not less than 30 days nor more than 90 days prior to the beginning of each fiscal year, the Board shall send to each Owner a notice of the amount of the annual assessment, except that if there is an increase in the annual assessment over the previous year, the notice shall be mailed by first class mail to the Owner not less than 30 days and not more than 60 days before the due date of the increased annual assessment. Upon the imposition of a special assessment or an increase in a special assessment, notice shall be sent by first class mail to each Owner not less than 30 days and not more than 60 days prior to the due date of the special assessment. Thereafter, the Board may elect to provide additional periodic statements of assessments and charges, but lack of such statements does not relieve the Owners of the obligation to pay assessments. 5. Designation of Agent. The Board of Directors may designate an agent or agents to collect assessment payments and administer this Assessment Collection Policy. Such designated agent may be an officer of the Association, manager, banking institution, law firm or other appropriate agent. 6. Due Date/Delinquency Date of Assessments. An assessment is due and payable on the date specified by the Association. An assessment is delinquent if not received as directed by the Board or its designated agent fifteen (15) days after it becomes due. 7 Late Charges/Interest. An assessment, or any portion thereof, that is delinquent shall incur a late charge of $ Beginning thirty (30) days after the assessment becomes due, the entire unpaid balance of an assessment account shall bear interest at a rate of ten percent (10%) per annum (or.83% monthly). 8. Collection Expenses. Any costs and fees incurred in processing and collecting delinquent amounts, including, without limitation, late and interest charges, charges for preparation of delinquency notices or referral for collection, postage and copies, and attorneys' fees and costs, shall become an additional charge against the Owner and the Owner's Villa and shall be subject to collection action pursuant to this Policy. 9. Application of Payments. Payments shall be applied first to principal owed. Payments on principal shall be applied to the Owner's account by the "balance forward payment" method, i.e., in reverse order so that the oldest arrearages of the principal are retired first, then to interest and collection charges, or any other amount due to the Association which result in continued delinquencies. Page 38

43 10. Secondary Address. Upon receipt of a written request by an Owner identifying a secondary address for the purposes of assessment collection notices, the Association shall send additional copies of any collection notices required by this Policy to the secondary address provided in addition to the Owner's primary address shown in the Association's records. The Owner's notice of a secondary address must be in writing, signed by the Owner, and mailed to the Association in a manner that shall indicate receipt by the Association. An Owner may identify or change a secondary address at any time. The Association shall only send notices to the designated secondary address from the point the Association receives the written request. 11. Meet and Confer (Internal Dispute Resolution Process) and Alternative Dispute Resolution. The Association shall offer to meet and confer with a delinquent Owner to resolve any dispute related to the total amount due from the delinquent Owner to the Association ("Meet and Confer Offer") prior to recording a Delinquent Assessment Lien ("lien") and prior to initiating foreclosure of a lien, as set forth in Paragraphs 14 and 17 below. The Association shall also offer to participate in Alternative Dispute Resolution with a delinquent Owner prior to initiating foreclosure, as set forth in Paragraph 17 below. 12. Initial Delinquency Notice. Once an assessment, or any portion thereof, has become delinquent, the Owner shall receive an initial delinquency notice stating all amounts past due and any known collection charges imposed as of the date of the initial notice. The initial notice may be in the form of a letter, monthly statement, past due notice, or any other form of writing or notice from the Association or its designated agent. 13. Notice of Intent to Lien. If an assessment account remains unpaid for 45 days after its original due date, the Association or its agent shall notify the Owner of intent to lien by regular first-class mail and certified mail, return receipt requested. The Notice of Intent to Lien ("pre-lien notice") shall provide at least thirty (30) days written notice to a delinquent Owner prior to recording a lien and further provide an itemized statement of charges owed, including a breakdown of: a) the principal amount owed; b) any late charges with the method of calculation used to determine such charges; c) any attorney's fees incurred; d) a description of collection practices, including the right of the Association to the reasonable costs of collection; e) a statement that the Owner shall not be liable to pay the charges, interest, and costs of collection, if it is determined the assessment was paid on time to the Association; f) a statement that the Board may schedule a Show Cause Hearing to consider suspension of the Owner's privileges; g) a statement of the Owner's right to submit a written request to meet with the Association to discuss a payment plan for the debt; Page 39

44 h) a statement of the Owner's right to dispute the assessment debt by submitting a written request for dispute resolution pursuant to Association Policy APo 109; i) a statement of the Owner's right to request alternative dispute resolution with a neutral third party pursuant to Civil Code before the Association may initiate foreclosure against the Owner's separate interest; j) a statement in 14-point boldface type in capital letters: "IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT COURT ACTION." A copy of the Association's Assessments and Assessment Collection Policy shall be attached to the pre-lien notice. Payment may be required in certified funds. Notwithstanding the time periods specified in this Paragraph, a pre-lien notice may be sent to a delinquent Owner at any time during an open escrow involving the Owner's Villa or should any special assessment become delinquent. 14. Pre-Lien Meet and Confer Offer. The Association shall offer to meet and confer with a delinquent Owner to resolve any dispute related to the total amount due from the delinquent Owner to the Association prior to recording a lien. The Association's Meet and Confer Offer shall either be placed within the Association's pre-lien notice or in a separate written communication to the delinquent Owner. An Owner who wishes to accept the Meet and Confer Offer must do so by submitting his/her/its written request to facilitate the meet and confer with the Association, which written requests must be received by the Association within fifteen (15) days of the date of the Meet and Confer Offer. The Association shall designate a prompt date and time to meet and confer at the location of the Association's principal office. The Board may designate a committee of one or more members, along with the General Manager to participate in the meet and confer with the delinquent Owner. The meet and confer meeting shall follow the implementation procedure stated in Board Policy APo 109. Prior to recording a lien, the Association shall participate in any meet and confer so accepted by the delinquent Owner, provided, however, that the Owner's acceptance of the Association's Meet and Confer Offer is made within fifteen (15) days of the date of the Meet and Confer Offer. 15. Show Cause Hearing. The Association may give the delinquent Owner written notice (either in the pre-lien notice or in a separate letter) of a hearing before the Board of Directors, wherein the Owner shall be invited to show good cause why (a) the Owner's Association voting privileges should not be suspended; and (b) recommendation should not be made to the Club for suspension of the delinquent Owner's Club privileges for non-payment of the delinquent assessments ("Show Cause Hearing"). The notice and hearing procedures shall be in accordance with Board Policy APo104, and attached procedure APr Appeal Hearings Disciplinary Page 40

45 Fiscal Year 2013/2014 BudgeLs. Summary Appeals. The Board shall hold the hearing in Executive Session; provided, however, if the Board is requested by the Owner to have his/her matter be heard in an open Board meeting, then the matter must be heard in an open Board meeting and not in Executive Session. In the event good cause is not shown and the Owner's account has not been brought current, then the Board may suspend any of the Owner's Membership Privileges and make recommendations to the Club Board to suspend the Owner's Club Membership Privileges. 16. Delinquent Assessment Lien. a) If the delinquent Owner does not bring his/her account current within the deadline set forth in the pre-lien notice, the Board of Directors shall approve the recordation of a Delinquent Assessment Lien ("lien") against the delinquent Owner's Villa. The Board's decision to record the lien shall be by a majority vote of a quorum of the Board members at an open Board meeting. The Board's action should refer to the address, account number or parcel number of the property that is delinquent, rather than the name of the Owner. The itemized statement of charges sent with the pre-lien notice shall be recorded with the lien. b) After making the decision to record a lien, the Association shall advise the Association's collection agent that it should accept no further monies from the delinquent Owner until the lien has been paid in full. Owners shall not send, nor will the Association accept any assessment payments to the Association once the matter has been turned over to the Association's agent for collection. c) Upon the recording of a lien, the Association may, at its option declare due and payable the entire balance of all sums then due or to become due from the Owner, including the balance of the annual assessment and of any special assessment. This total sum may be included in any foreclosure proceeding or collection action except where prohibited by law. 17. Pre-Foreclosure Offer to Meet and Confer or Participate in Alternative Dispute Resolution. The Association shall offer to meet and confer or participate in Alternative Dispute Resolution ("ADR") with a delinquent Owner to resolve any dispute related to the total amount due from the delinquent Owner to the Association prior to initiating foreclosure of a lien. The Association's Meet and Confer and ADR Offer ("Offer") shall either be sent with a copy of the recorded lien or in a separate written communication to the delinquent Owner. An Owner who wishes to accept the Offer must do so by submitting his/her/its written request to facilitate the meet and confer or participate in ADR with the Association, which written request must be received by the Association within fifteen (15) days of the date of the Offer. The Association shall designate a prompt date and time to meet and confer, mediate or arbitrate at the location of the Association's principal office. The Board may designate a committee of one or more members, along with the General Manager, to participate in Page 41

46 the meet and confer, mediation or arbitration with the delinquent Owner. Any meet and confer meeting shall follow the implementation procedure stated in Board Policy APo 109. Prior to initiating foreclosure of a lien, the Association shall participate in any meet and confer, mediation or arbitration so accepted by the delinquent Owner, provided, however, that the Owner's acceptance of the Association's Offer is made within fifteen (15) days of the date of the Offer. 18. Foreclosure of Lien. After the lien is recorded and at least thirty (30) days have elapsed, foreclosure proceeding may commence when assessment principal either exceeds the amount, or remains unpaid for the time period, specified in state law. The Board's decision to initiate foreclosure shall be made in executive session and reflected in the minutes of the Board's next open meeting by reference to the parcel number of the lot rather than the name of the Owner in order to maintain the confidentiality of the Owner. IMPORTANT NOTICE: IF AN OWNER'S VILLA IS PLACED IN FORECLOSURE BECAUSE THE OWNER IS BEHIND IN PAYMENT OF ASSESSMENTS, THE VILLA MAY BE SOLD WITHOUT COURT ACTION. 19. Dishonored Checks. At any time that the Association or its agent receives a check dishonored by the bank for any reason, a charge as set forth in the Association's annual fee schedule shall be imposed. The Association may also seek damages in accordance with California Civil Code section Receipts. Owners may request and receive a receipt upon making an assessment payment. The receipt will indicate the date the payment was received and the name of the person who received it. 21. Payment Agreements. Neither the Association nor its designated agent is obligated to accept partial payments on an assessment account and may return to Owners payments of less than the full amount owed. However, the Board, in its sole discretion, may enter into a written payment agreement with the Owner for periodic partial payments on the balance of the assessment account, in amounts and on a payment schedule agreed to by the Board. The agreement shall include payment of accruing assessments and late charges shall not accrue so long as the Owner is complying with the terms of the agreement. The Association has no obligation to enter into such an agreement, and any agreement entered into with the Owner shall be reasonable, as determined by the Board in its sole discretion, and for the sole purpose of assuring that the best interests of the Association are served. The payment agreement shall be in writing and a provision shall be included that failure to meet any term of the agreement shall give the Board the right to immediately continue the collection process without further notice to the Owner. 22. Release of Lien. A Release of Lien will not be recorded until the entire balance of the Owner's account is paid. All charges incurred in recording the Release, including reasonable attorney's fees, will be charged to the Owner's account. Upon satisfaction in full of the entire balance owing, the Association shall within twenty-one (21) days record or cause to be recorded a Release of Lien. Page 42

47 23. Other Remedies. The Association reserves the right to avail itself of any other remedy permitted by law and the Association's governing documents to collect assessments and related costs and charges, including but not limited to bringing an action in Small Claims or Superior Court. Such remedies may be taken in addition to or in lieu of any action already taken, and commencement of one remedy shall not prevent the Association from electing at a later date to pursue another remedy. Such remedies include the right to collect the rents, issues and profits of a unit as further provided in the CC&Rs. 24. Address of the Association and the Board of Directors. Owners should respond in writing or make payments to the address directed by the designated agent. If no address is given, correspondence and petitions should be mailed to the Association at the following address: Board of Directors The Villages Association cio General Manager 5000 Cribari Lane San Jose, CA Unless another address is given by the Association or its designated agent, the address noted above may be used for overnight payments. 25. Sufficiency of Notice. Except for notice that under California law must be sent by certified mail, notice is sufficient if either hand delivered or mailed first class, postage prepaid, to the Owner at the address on the membership register at the time of notice. 26. Pay under Protest. If a dispute exists between the owner and The Association regarding any disputed charge or sum levied by The Association, including, but not limited to, an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure, and the amount in dispute does not exceed the jurisdictional limits stated in Sections and of the Code of Civil Procedure, the owner may pay under protest the disputed amount and all other amounts levied, including any fees and reasonable costs of collection, reasonable attorney's fees, late charges, and interest, if any, and commence an action in small claims court. (Sections and of the Civil Code) 27. Void Provisions. If any provision of this Policy is determined to be null and void, all other provisions of the Policy shall remain in full force and effect. Page 43

48 The Villages Association ASSOCIATION REPLACEMENT RESERVES POLICY The Board collects funds for the Association's Reserves Fund to ensure that monies are available as required to maintain, repair, replace, or restore Association property components in a safe condition and good appearance. The Board will determine the contribution required from the owners each fiscal year based upon Reserve Study information and other factors the Board considers relevant. LIMITATIONS: 1. Reserves monies collected are to be used only for the purpose of maintenance, restoration, repair or replacement, or litigation involving such items for which the Association is responsible. 2. The Association shall maintain one reserves fund account; but each district's financial balance will be recorded in a separate sub-account. Each district's annual funding requirements shall be collected from owners within the district on the basis of assigned villa adjusted floor area (AFA). 3. The Board shall review the Reserves Study annually and at least once every three years conduct a reasonably thorough visual inspection of property components to update the Study. The Board may, at its sole discretion, submit the Study to independent review by a Reserves Study specialist. 4. Reserves Study detailed and summary reports shall be available to the District Advisory Committees (DACs) for their review and recommendations. 5. The Board's objective is to maintain adequate reserve funds for each district to accomplish all planned repairs and replacements in accordance with the Reserves Study schedule while providing sufficient contingency for emergency repairs. To meet this objective, the reserve balance for a given district at the beginning of the fiscal year, plus the proposed assessment, should be sufficient to meet the estimated expenditures for that fiscal year. If a district has insufficient funds to meet its estimated expenditures for that fiscal year, the Board may, at its sole discretion, authorize a loan to that district from the Association Reserve Fund, or levy a special assessment against the owners in that district. Funds borrowed by a district shall be subject to repayment with interest within one (1) calendar year. Special Assessments levied by the Board are subject to the requirements of Civil Code In addition to the above objective, a year end reserve amount has been established for each district which is a reserve balance amount that, as a goal, should not be less than the Annual Provision Amount (APA). APA is the sum of the replacement cost for all reserve components, after each has been divided by its useful life. It is recalculated each year and maybe adjusted as needed by the Board. Page 44

49 The Villages Association DISPUTE RESOLUTION In compliance with California Civil Code and , the following information is provided describing the processes that are available to a member and the Association for dispute resolution. More detailed description of the processes can be found in the referenced Civil Code sections. INTERNAL DISPUTE RESOLUTION By action taken April 25, 2005, (with revisions approved July 26, 2011) the Board of Directors approved Policy APo 109-Internal Dispute Resolution Process setting forth the following process for internal resolution of disputes between the Association and a member involving their rights, duties, or liabilities under Civil Code through , and , under the Nonprofit Mutual Benefit Corporation Law (part 3 commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code), or under the governing documents of the Association. Internal Dispute Resolution Process: 1. This IDR Process applies to the Association as well as an Owner as a prerequisite to the filing of any litigation related to a dispute involving their respective rights, duties or liabilities under the governing documents, the Davis-Stirling Common Interest Development Act and/or the nonprofit mutual benefit corporation law (collectively "CID Dispute"). It does not relate to any collection of assessments unless the Association determines it needs to file litigation to collect same. 2. Either party (Association or Owner) to a CID Dispute may invoke the following procedure: A. The party may request the other party to meet and confer, in an effort to resolve the CID Dispute. The request shall be in writing. B. An Owner may refuse an Association request to meet and confer. The Association may not refuse an Owner's request to meet and confer. C. The Board hereby designates the President or in his/her absence, the Vice-President ("Board Designee"), as well as the General Manager to meet and confer with the Owner. The Board Designee shall also have the right to request the Chairperson of any applicable Committee involved in the CID Dispute to assist the Board and attend the meet and confer session with the Owner. If the Association is pursuing litigation related to a delinquent assessment, the Board designates the Treasurer/CFO in lieu of the President as the Board Designee. 3. Although not precluded, attorney participation in the IDR Process is discouraged in order to maintain direct discussions between the principals of the CID Dispute and to maintain the goal of resolution through an expeditious process. To the extent Owner requires that his/her/its attorney attend the IDR Process, the Owner shall be required to give five (5) business day's notice to the Association so that the Association can ascertain if it desires its corporate counsel to also attend. Page 45

50 4. The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other and confer in good faith in an effort to resolve the CID Dispute. 5. A resolution of the CID Dispute agreed to by the parties shall be memorialized in writing and signed by the parties, including the Board designee on behalf of the Association. 6. The Agreement reached by the owner and the Board designee binds the parties and is judicially enforceable if both the following conditions are satisfied: A. The Agreement is not in conflict with law or the governing documents of the Association; and B. The Agreement is ratified by the Board of Directors within thirty (30) days of the date that the Agreement is executed by the Owner and the Board designee. 7. The Owner participating in the IDR Process shall not be charged a fee to participate in the IDR Process. 8. The Association shall annually provide the Members with a description of the internal dispute resolution process as part of the notice required by Civil Code Section ALTERNATIVE DISPUTE RESOLUTION In compliance with California Civil Code , the following is a general statement regarding Arbitration and Dispute Resolution. "Failure of a member of the association to comply with the alternative dispute resolution requirements of Section of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or applicable law." See summary provided by legal counsel of ADR statute following on Page 47 a re quirement of California Civil Code Section (a) The Villages Association DISCLOSURE DOCUMENT INDEX As of January 1, 2010, upon request of any member, the Association must provide an index in the form provided in Civil Code Section , which lists a series of disclosures that the Association is required to make and the reference to the corresponding Civil Code section. DELIVERY OF ASSOCIATION DOCUMENTS BY As of January 1, 2010, Civil Code Section was amended to permit associations to, with the owner's written consent, distribute "annual disclosure packages and other specified association documents to owners via electronic mail, facsimile or other electronic means (such as posting on the association's website) instead of sending those documents out by regular mail or personal delivery. Page 46

51 SUMMARY OF CALIFORNIA CIVIL CODE SECTION ENFORCEMENT OF GOVERNING DOCUMENTS AND SPECIFIED STATE LAWS FOR COMMUNITY ASSOCIATIONS THROUGH ALTERNATIVE DISPUTE RESOLUTION PLEASE TAKE NOTICE: California Civil Code section addresses your rights to sue the association or another member of the association regarding the enforcement of the governing documents and/or specified state laws. The following is a summary of Civil Code section In general, Civil Code provides that an association or an owner may not file a lawsuit to enforce the governing documents or to enforce certain laws that govern community associations, unless the parties first try to submit their dispute to alternative dispute resolution ("ADR"). Recognized forms of ADR include conciliation, mediation, or arbitration. The ADR law for common interest developments applies to enforcement of most provisions of the governing documents as well as to provisions of the Davis-Stirling Common Interest Development Act (Civil Code 1350 through 1378) and the Nonprofit Mutual Benefit Corporation Law (Corporations Code 7110 et seq.). The intent of the ADR law is to promote speedy and cost-effective resolution of disputes, to better preserve community cohesiveness, and to channel CC&R and compliance disputes away from our state's court system. The form of alternative dispute resolution may be binding or non-binding, and costs will be borne as agreed to by the parties involved. The ADR law does not generally apply to assessment disputes or to disputes that can be resolved in small claims court. Any party to a covered dispute may initiate the ADR process by serving a Request for Resolution on another party to the dispute. A Request for Resolution must contain (1) a brief description of the nature of the dispute, (2) a request for ADR, and (3) a notice that the party receiving the Request for Resolution is required to respond within 30 days of receipt or the Request will be deemed rejected. If the Request is accepted, the ADR must be completed within 90 days of receipt of the acceptance, unless otherwise agreed by the parties. Any Request for Resolution sent to an owner must include a copy of the ADR law in its entirety. If an applicable statute of limitations will expire, serving the Request will extend the statutory period for 30 days and, if ADR is accepted, also for the 90-day period of time allowed to complete the process and any agreed-upon extension of time. Failure of a member of the association to comply with the alternative dispute resolution requirements of Section of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law. Should the association or an individual member wish to file a lawsuit for enforcement of the governing documents or a specified statute, the law requires the association or the individual to file a certificate with the court prior to the filing of the suit, stating: (1) that ADR has been completed, (2) that one of the other parties did not accept the terms offered for ADR, or (3) that urgent orders of the court were necessary. Failure to file this certificate can be grounds for dismissing the lawsuit. In any lawsuit to enforce the governing documents, Civil Code section 1354 provides that the prevailing party shall be awarded attorneys' fees and costs. Section provides that if any party has refused to participate in ADR prior to the lawsuit being filed, the court may consider whether that refusal was reasonable when it determines how large or small the award should be. Copyrights 2010 by Berding & Well LLP, Attorneys at Law. All rights reserved. Page 47

52 THE VILLAGES GOLF AND COUNTRY CLUB BUDGET MESSAGE PRO FORMA BUDGET SUMMARY FOR FISCAL YEAR 2013/2014 All owners of villas and single-family homes in The Villages are members of The Villages Golf and Country Club ("Club"). The Club owns, manages and operates the clubhouse centers and common recreational facilities in the community, maintains nearly all streets and pathways, and provides a range of services including general administration, public safety, golf services, food and beverage and community activities. The Club derives its revenue from member assessments and user charges user charges that include, but are not limited to, golf course green fees, restaurant sales, class and event fees, and vehicle and golf cart registration fees. By virtue of an agreement between corporations, the Club, in addition to maintaining its corporate responsibilities, serves as Management Agent for The Villages Association and The Villages Homeowners Corporation. Costs related to the provision of management services are directly charged or distributed by allocation, as deemed appropriate by the Boards of Directors, to the managed corporate entities. As the 2013/2014 budget development process evolved, the Board of Directors was given the opportunity to provide its input and direction. Department meetings were then conducted from January through March, as staff collectively focused on projecting next year's operational revenue and expenses, as well as projecting the reserve and capital funding plan requirements over the next 30-year period. The operating budget proposal, reserve spending plan and forecast proposal, along with Facility Fund projections, were presented to the Finance Committee on March 21, March 28 and April 11. The Finance Committee supports the complete budget program, which is summarized on the following pages. At an April 16 Club Board study session, the complete budget proposal was presented to the Board of Directors for consideration, and at the April 30 regularly scheduled board meeting, the Board of Directors accepted and approved the budget (operating and reserves). To that end, the 2013/2014 budget will require an increase to the monthly assessment from the current amount of $ to $297.90, representing a $12 or 4.2 percent increase. There are various and legitimate reasons for the assessment increase, which I hope to address in this report. Table 1 on the next page shows how the monthly assessment has changed through the last five-year period. Page 48

53 Table CLUB ASSESSMENT HISTORY YEAR FY 10 FY 11 % CHANGE FY 12 % CHANGE FY 13 % CHANGE FY 14 % CHANGE OPERATING % % % % RESERVE-REPLACEMENT % % % % CAPITAL IMPROVEMENT % % % % TOTAL ' 5.3% % % ' % As you can see in Table 1, there are three expense components within the monthly assessment, which are 1) the operating assessment, 2) the reserve assessment; and, 3) the capital improvement fund assessment. The operating fund provides for the Club's day-to-day expenses; the reserve fund for the replacement and/or renovation of existing assets; and the capital improvement fund for new capital purchases or additions. Operating Budget Summary Beginning with the start of the new fiscal year (July 1), the monthly operating assessment will increase $7.01 or 3.1 percent (to $230.80). Operating Revenue Total revenue is expected to increase by an aggregate of $851,802 or 7.6 percent (to $12,130,433). As part of that number, member assessments will increase by $213,264. All other revenue centers combined are forecast to generate the remaining $638,538 - the Bistro and Bar represents the lion's share of that number. The current fiscal year's total budgeted revenue is $11,278,631, and for the ensuing year it is forecast at $12,130,433. Table 2 that follows shows the adjustments that were made to the various revenue centers. Table 2 Revenues: FY 14 FY 13 Change Percent Assessments 7,023,791 6,810, , Green Fees 1,283,100 1,235,400 47, Pro Shop Revenue 305, ,400 (2,000) -0.7 Golf Cart Fees 145, ,120 4, Restaurant Sales 2,460,000 1,893, , Rental Income 100,830 89,680 11, Advertising 235, ,000 (8,000) -3.3 Billable Services 52,183 52, Activities/Lessons/Classes 275, ,000 19, Other 249, ,358 (1,149) -0.5 Total Revenues 12,130,433 11,278, , Page 49

54 Of notable interest is: - Assessment revenue increases $213,264 Green fees increase by $47,700, due in part to green fee adjustments for members - $1 on 18-hole play and 50 on nine-hole play - Restaurant sales increase by $567,000, primarily due to Bistro and Bar operation - Facility rental revenue increased by 12.4 percent or $11,150 Advertising revenue fell off by $8,000 Activities/Lessons/Classes increased by $19,000 (note that this revenue is usually offset by the expenses that generate the related revenue) Golf While golf play struggled to keep pace in 2011 versus 2010, we saw play numbers increase in 2012; however, member play fell short of the prior year play numbers, while guest play increased. The two tables below show the rounds played and related green fee revenue. In the prior budget cycle, the golf operation was subsidized by $1,021,000 in assessments; in this budget cycle, the subsidy increases to $1,030,101. Assessments are funding 37 percent of the expenses versus 38 percent the prior year. Primarily due to moderate green fee adjustments over the course of the last five years, revenue has increased during that period (see table 4). To increase the amount of reserves on hand to replace the irrigation system and cart paths in 2019, an increase to member green fees was approved in the following manner: $1 on 18-hole play and 500 on nine-hole play. Any end of the year operating surpluses to budget will be allocated to the reserve fund for 2019 projects. Working in conjunction with a board-appointed golf utilization committee and Club Marketing Committee, Pro Mike Reed continues to utilize various marketing and advertising techniques to spur play. Since 2008, play continued to decline until the 2012 year. From an expense standpoint, the operation's expenses increased by roughly $9,000 over the prior year's budget. In this year's budget, the golf operation is subsidized (assessments) by $1,031,101. Page 50

55 Table 3 The Villages Golf and Country Club/The Villages Association Plays by Year ea e Par 3 Table 4 Green Fee Revenue by Year 1,400 1,200 1,000 g a e Par 3 40 Total Page 51

56 Fiscal Year 2013/2014 Budgets' Summary Food and Beverage - Restaurant and Clubhouse revenue is forecast to increase by $567,000, from $1,893,000 to $2,460,000-the entire increase is attributed to the Bistro and Bar. Because we are uncertain, at this point, about the transference of business from the restaurant to the Bistro and Bar, restaurant revenue remains static from the prior year's budget. Assuming our projections are met at the Bistro and Bar, assessments should only account for $36,720 of the operation's total revenue, which is very close to the Bistro and Bar business plan projections. Taking into account the minimum wage increase that took effect this past spring, costing the Bistro and Bar roughly $30,000 in additional payroll, the operation still looks to do very well this coming year. The Bistro and Bar opened February 4, It should be noted that more than 110,000 meals are served at the Clubhouse complex annually. Expenses for the restaurant and Clubhouse are increasing $135,172, from $2,584,648 in 2012/2013. It should be noted that roughly $90,000 of that increase is due to the minimum wage increase. The remaining expense increases are due primarily to repair and maintenance and operating supply costs. In this year's budget, the restaurant and Clubhouse operation is subsidized (assessments) by $1,001,820. Operating Expenses - Overall operating expenses increased by $884,364 (7.8 percent), of which the Bistro and Bar expenses represent $552,434. To that end, all other increases in existing expense categories represent $331,930 (2.9 percent). As one of many measurement tools to which we compare our expense increases, the CPI for this region of the United States was 2.9 percent in The current year's budgeted expenses equal $$11,278,631 and the ensuing year's expenses are forecast to be $12,162,995. See Table 5 below. Table 5 Expenses Variance Percentage Wages and Benefits 7,907,258 7,278, , Cost of Sales 1,255,750 1,105, , Operating Supplies 369, ,327 (2,929) -0.8 Repair & Maint 432, ,370 19, Landscape 547, , Water 672, ,100 14, Utilities 490, ,088 (22,608) -4.4 Comcast 1,159,855 1,111,400 48, Outside Services/Consultants 735, ,038 72, Insurance 93,300 92,200 1, All Other 336, ,430 7, Club Transfers to Association/HO (1,836,414) (1,803,337) (33,077) 1.8 Total Expenses 12,162,995 11,278, , Page 52

57 The following explains the expense categories above and the adjustments that were made: o Employee Compensation Combined with the benefit package expenses increased by $628,714 (8.6 percent) roughly $378,269 of the foregoing expense is "new compensation" for the Bistro and Bar. It should be noted that the increase in employee compensation expense, without the addition of the Bistro and Bar is $250,445 (3.4 percent). A cost-of-living compensation adjustment was approved (increase) in the amount of 1.5 percent. There were no additions to the existing employee team, except for the Bistro and Bar operation, which will bring on 17.8 full-time equivalents, or 37,024 hours of new payroll the operation is open seven days per week, 16 hours per day (that's 5,840 hours for one employee per year). Revenue and volume of business will drive staffing levels. The benefit plan for the employee team increased from $1,390,200 to $1,515,300 (9 percent). Adjustments were made to employee co-pays to reduce overall increases. The average annual cost for health benefits for each employee is $10,700. The average compensation (including benefits) per employee is $55,800 down from last year's number of $57,500. The passing of San Jose's Measure D (minimum wage) cost the community roughly $125,000 in new expenses. Although the experience modification factor for our workers' compensation insurance package is less than 100, a rate increase of $97,000 was realized this year (the premium is still less than it was five years ago). o o o o o Cost of Sales This expense category is tied to revenue resulting from a sale. The additional expense of $149,985 is primarily attributed to the Bistro and Bar. This expense line accounts for all activities and products that are sold to members and guests, such as food, beverage, pro shop retail, cart rentals, community activities and trips, etc. Operating Supplies Decreasing by $2,929, or 0.8 percent, to $369,398, the primary contributors to this expense line are as follows: Board expenses, vehicles gas, postage and general operating supplies. General Repair and Maintenance Expenses are increasing $19,941 to $432,311. This expense line is determined using five years of trending data coupled with site inspections to determine the needs in the field. Landscape Basically flat, this expense line accounts for special landscaping projects and replacement projects on Club property. Water/Utilities Based on three-year trending and an expected nine percent rate increase this year, water expenses are expected to increase $14,975; gas, electric and trash services combined look to decrease by an aggregate of $22,608 or 4.4 percent. Page 53

58 o o o o o Comcast This expense increase at 4.4 percent is tied to a 15-year contract. Outside Services/Consultants Increasing by $72,048 or 10.9 percent from $663,038 to $735,086, a number of adjustments took place such as, printing cost (Villager mainly) $19,000, laundry services $22,000 and community survey consultant $20,000. Insurance The "master package of policies" was renewed March 1. The premiums for the Club's portion of the package increased 1.3 percent from $92,200 to $93,300. All Other Expenses increase by $7,594 due primarily to property taxes (fees, dues, licenses and bad debt are basically flat). Club Transfers to Association and Homeowners Corporation This line represents the expenses that are transferred from the Club to the Association and Homeowners' Corporation. A complete breakdown of the operating portion of the member assessment can be found on page 60 titled Club Operating Assessment Budget. With regard to the Reserve Fund forecast and funding plan, the following applies: The Replacement Reserve is used to fund expenses connected to the repair and renovation of existing property components, such as repaving streets, repairing swimming pools, wood and roof repairs, and also for the replacement of obsolete equipment and furnishings. From an assessment standpoint, including the Facilities (Capital Improvement) Fund, the monthly assessment for "reserve funding" increased $4.99 (from $62.11 to $67.10). o The total funding plan for 2013/2014 equals $2,547,600. The golf-related portion of the aforementioned funding plan equals $187,200. The 2013/2014 ending fund balance in the golf reserve is estimated at $1,472,564. The Club-related portion (specifically) of the total funding plan is $2,360,400. The 2013/2014 ending fund balance for the Club specifically (excluding golf) is estimated at $1,132,800. o The total funding (assessment revenue) for the consolidated plan equates to $1,798,564. o The Club's reserve fund balance (excluding the golf reserve) is estimated to grow from $1,132,800 to $6,961,500 over the next ten-year period. The rate of increase in assessment funding from year-to-year over the next 15-year period, based on today's model, does not exceed the five percent mark (note that the golf portion of the reserve is set at eight percent). Page 54

59 Cribari Center The Villages Golf and Country Club/The Villages Association Specific funding plans for various asset replacements and restorations include, but are not limited to, the following: ADA Ramp (Phase III of IV) $ 25,000 Interior Patio/Plaza Area $ 75,000 Craft Rooms $ 10,000 Furniture for Auditorium $ 45,000 Conference Room Furniture $ 23,000 Club Room Replacement $700,000 Montgomery Center Fitness Equipment $ 58,000 Furniture $ 39,000 Exterior Painting $ 15,000 Pool Areas Furniture $ 27,000 Mechanical $ 30,000 Vineyard Center Foothill Center Landscape Business Office Furniture Furniture Fairway Median Strip Server Building A/B/C/D/E Exterior Painting Streets Olivas/Striping/RV Lot Golf Equipment (4) Pro Shop PCs/Software Community Activities Software/Truck Corporation Yard Server Clubhouse Misc. $ 48,000 $ 53,000 $ 75,000 $ 15,000 $ 25,000 $ 117,000 $ 180,000 $ 11,000 $ 27,000 $ 9,000 Exterior Painting $ 15,000 Mechanical $ 20,000 Equipment $ 180,000 Furniture $ 125,000 POS System $ 40,000 Perimeter Fencing $ 13,000 Garden's Water Tank $ 5,000 Page 55

60 While funding for the projects listed above is being set aside, all of the funds may not be spent due to the useful life of the asset(s) being extended, or due to scheduling/priority restraints. A summary description of reserve fund balances and assessment is provided on page 62 - titled Club Replacement Fund Assessment Summary. With regard to the Facility (Capital Improvement) Fund: Contributions to the Capital Improvement Reserve Fund are subject to a Bylaw provision that sets a $1,000,000 fund balance limit (with an annual inflation factor), exclusive of contractual commitments against the fund. The formula allows for a maximum FY13/14 contribution of $1,423,913 ($46.79 per month per member); however, only $243,456, or $8 per month per member, is required with this budget cycle the $8 per month figure is "locked-in" for a five year period to a Bylaw amendment that was part of the Bistro and Bar vote. Working together with the Finance Committee on the Club portion and with the DACs on the Association portion of the budget, we are fortunate to present a combined budget to the membership that represents only a 2.8 percent change from the prior year. The table below provides a snapshot of the combined budgets. Table 6 CLUB/ASSOCIATION/HOMEOWNERS ASSESSMENT CHANGE SUMMARY Difference % Change Homeowners Operating Assessments 35,963 35, % Estates Operating Assessments 201, ,647 4, % Estates Reserve Assessments 9,000 9, % Total Homeowners 246, ,610 4, % Association Operating Assessments 7,163,282 6,932, , % Association Reserve Assessments 5,099,225 5,103,490 (4,265) -0.1% Total Association 12,262,507 12,036, , % Club Operating Assessments 7,023,791 6,810, , % Club Reserve Assessments 1,798,564 1,646, , % Club Facility Fund Assessments 243, , % Total Club 9,065,811 8,700, , % Total Club & Association 21, , , % Club Assessment % Total Club & Association & Homeowners 21,574,413 20,978, , % Page 56

61 I trust the budget-related figures provided in this packet of information are sufficient enough for you to gain a general understanding of the overall budget ,Av4 Darren Shaw General Manager Page 57

62 The Villages Golf and Country Club Expense and Revenue Comparison 30-Apr-13 FY 2014 FY 2013 (Budget) (Budget) Change Operating Expenses Club Current Year 12,162,995 11,278, % TOTAL OPERATING 12,162,995 11,278, % Reserve Requirements ( Annual funding) Club Annual Reserve 2,042,020 1,890, % ( includes Capital Improvement Fund) TOTAL RESERVE 2,042,020 1,890, % TOTAL COST BASE/BUDGET 14,205,015 13,168, % FEES AND ASSESSMENTS Club Operating Fees and Revenue 5,106,642 4,468, % Club Operating Assessments 7,023,791 6,810, % Club Reserve Assessments 2,042,020 1,890, % TOTAL FEES & ASSESSMENTS 14,172,453 13,168, % MONTHLY ASSESSMENT $ $ % Page 58

63 Club Operating Assessment Summary Approved 04/30/2013 FY 14 FY 13 $ Change % Change Remarks Comcast $38.11 $36.52 $ Contract Clubhouse/Restaurant $32.91 $28.60 $ Labor/Benefits Bistro & Bar $1.23 $1.58 ($0.35) Start-up Costs Community Centers $21.48 $21.78 ($0.30) -1.4 All others $27.15 $26.77 $ Community Activities $19.15 $17.48 $ Printing/Media Assist G & A $28.30 $27.40 $ Pools $5.72 $5.87 ($0.15) -2.6 Public Safety $31.49 $30.09 $ Labor/Benefits Maint Admin $3.76 $3.71 $ Golf/Pro-Shop $21.50 $23.99 ($2.49) Green Fee Increase/Surplus Totals $ $ $

64 Club Operating Assessment Budget Club Summary Fiscal Year Ending June 30, 2014 Approved 04/30/2013 Revenues: FY 14 FY 13 Change Per Cent Assessments 7,023,791 6,810, , Green Fees 1,283,100 1,235,400 47, Pro Shop Revenue 305, ,400 (2,000) -0.7 Golf Cart Fees 145, ,120 4, Restaurant Sales 2,460,000 1,893, , Rental Income 100,830 89,680 11, Advertising 235, ,000 (8,000) -3.3 Billable Services 52,183 52, Activities/Lessons/Classes 275, ,000 19, Other 249, ,358 (1,149) -0.5 Total Revenues 12,130,433 11,278, , Expenses: Wages and Benefits 7,907,258 7,278, , Cost of Sales 1,255,750 1,105, , Operating Supplies 369, ,327 (2,929) -0.8 Repair & Maint 432, ,370 19, Landscape 547, , Water 672, ,100 14, Utilities 490, ,088 (22,608) -4.4 Comcast 1,159,855 1,111,400 48, Outside Services/Consultants 735, ,038 72, Insurance 93,300 92,200 1, All Other 336, ,430 7, Club Transfers to Association/HO (1,836,414) (1,803,337) (33,077) 1.8 Total Expenses 12,162,995 11,278, , Surplus(deficit) (32,562) (32,562) New capital purchases Cash Surplus (Deficit) (32,562) (32,562) Page 60

65 The Villages Golf and Country Club CLUB REPLACEMENT RESERVE FUND POLICY (CPo 304) POLICY: Replacement Reserve Fund. Establish and maintain a replacement reserve fund to provide funds for the maintenance, restoration, repair, replacement of, or needed upgrades for required code compliance or to correct safety or operational deficiencies to the major components which the Club is obligated to maintain, restore, repair, or replace and not expend funds designated as replacement reserve funds for any purpose other than those listed above or litigation involving the maintenance, restoration, repair or replacement of such components. For additional information, See Bylaws Section LIMITATIONS: 1. Reserves monies collected are to be used only for the purpose of maintenance, restoration, repair or replacement, or litigation involving such items for which the Club is responsible. 2. The Board shall review the Reserves Study annually and at least once every three years conduct a reasonably thorough visual inspection of property components to update the Study. The Board may, at its sole discretion, submit the Study to independent review by a Reserves Study specialist. 3. The Board's objective is to maintain adequate reserve funds to accomplish all planned repairs and replacements in accordance with the Reserves Study schedule while providing sufficient contingency for emergency repairs. To meet this objective, the reserve balance at the beginning of the fiscal year should be sufficient to meet the estimated expenditures for that fiscal year. The Reserve Fund shall, at all times, maintain a minimum balance of one million dollars ($1,000,000). RESERVE REPLACEMENT FUNDS COMMENTARY Disclosure of the status and adequacy of replacement reserves for common interest developments (or "CID") was made mandatory by the California State Legislature in July The Club Board, although not required, elects to follow the process because it is a sound process. To ensure that the integrity of the reserve fund is never compromised an annual reserve study is conducted. The Club Replacement Fund Assessment Summary on page 62 summarizes all the subsidiary funds established for identification convenience, which together comprise the Club Replacement Fund. Detail pages for each subsidiary fund are available at the Business Office. The Facility Fund is also listed on the Summary page so that the total Club monthly assessment for reserves can be shown, but it is not a "replacement reserve." See page 64 for a discussion of Special Reserve Funds, of which the Capital Improvement Fund is one. Page 61