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RESERVE ADVISORS 7. DEFINITIONS Definitions are derived from the standards set forth by the Community Associations Institute (CAI) representing America's 305,000 condominium and homeowners associations and cooperatives, and the Association of Professional Reserve Analysts, setting the standards of care for reserve study practitioners. Cash Flow Method - A method of calculating Reserve Contributions where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund. Different Reserve Funding Plans are tested against the anticipated schedule of reserve expenses until the desired funding goal is achieved. Component Method - A method of developing a Reserve Funding Plan with the total contribution is based on the sum of the contributions for individual components. Current Cost of Replacement - That amount required today derived from the quantity of a Reserve Component and its unit cost to replace or repair a Reserve Component using the most current technology and construction materials, duplicating the productive utility of the existing property at current local market prices for materials, labor and manufactured equipment, contractors' overhead, profit and fees, but without provisions for building permits, overtime, bonuses for labor or premiums for material and equipment. We include removal and disposal costs where applicable. Fully Funded Balance - The Reserve balance that is in direct proportion to the fraction of life "used up" of the current Repair or Replacement cost similar to Total Accrued Depreciation. Funding Goal (Threshold) - The stated purpose of this Reserve Study is to determine the adequate, not excessive, minimal threshold reserve balances. Future Cost of Replacement - Reserve Expenditure derived from the inflated current cost of replacement or current cost of replacement as defined above, with consideration given to the effects of inflation on local market rates for materials, labor and equipment. Long -Lived Property Component - Property component of Arden Hills City Hall responsibility not likely to require capital repair or replacement during the next 30 years with an unpredictable remaining Useful Life beyond the next 30 years. Percent Funded - The ratio, at a particular point of time (typically the beginning of the Fiscal Year), of the actual (or projected) Reserve Balance to the Fully Funded Balance, expressed as a percentage. Remaining Useful Life - The estimated remaining functional or useful time in years of a Reserve Component based on its age, condition and maintenance. Reserve Component - Property elements with: 1) Arden Hills City Hall responsibility; 2) limited Useful Life expectancies; 3) predictable Remaining Useful Life expectancies; and 4) a replacement cost above a minimum threshold. Reserve Component Inventory - Line Items in Reserve Expenditures that identify a Reserve Component. Reserve Contribution - An amount of money set aside or Reserve Assessment contributed to a Reserve Fund for future Reserve Expenditures to repair or replace Reserve Components. Reserve Expenditure - Future Cost of Replacement of a Reserve Component. Reserve Fund Status - The accumulated amount of reserves in dollars at a given point in time, i.e., at year end. Reserve Funding Plan - The portion of the Reserve Study identifying the Cash Flow Analysis and containing the recommended Reserve Contributions and projected annual expenditures, interest earned and reserve balances. Reserve Study - A budget planning tool that identifies the current status of the reserve fund and a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. Useful Life - The anticipated total time in years that a Reserve Component is expected to serve its intended function in its present application or installation. Page 7.1 - Definitions