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annual independent audit performed by a certified public accountant using generally accepted accounting principles: property taxes and assessments; debt service currently due and payable on a non - optional basis (excluding debt service due from residual receipts or surplus cosh of the Project) on Approved Senior Financing and such other loans approved by the City and which are secured by deeds of trust senior in priority to the Deed of Trust (collectively, "Approved Senior Loans "); debt service on junior loans if approved in writing by City; property management fees and reimbursements in amounts in accordance with industry standards for similar mixed -use projects; premiums for property damage, liability and other insurance related to the Project; utility service costs not paid for directly or indirectly by tenants; maintenance and repair costs; fees for licenses and permits related to the operation of the Project; organizational costs (e.g., annual franchise tax payments) and costs associated with accounting, tax preparation and legal fees of Borrower incurred in the ordinary course of business; expenses for security services; advertising and marketing costs; payment of deductibles in connection with insurance claims not paid from reserves; tenant services; the amount of uninsured losses actually replaced, repaired or restored and not paid from reserves; cash deposits into reserves for capital replacements in an amount no more than $600 per residential unit per year or such greater amount as reasonably required by the holder of an Approved Senior Loan or Borrower's investor limited partner, or as required by a physical needs assessment prepared by a third -party selected or approved by City and prepared at Borrower's expense; an annual bond issuer fee (if required to be paid by Borrower in connection with the financing of the Project); any previously unpaid portion of the developer fee (without interest) due in accordance with the Financing Plan (provided that the cumulative amount of such fee does not exceed the maximum allowable by the California Tax Credit Allocation Committee (the "Approved Developer Free "); cash deposits into operating reserves in an amount reasonably approved by City or required by the holder of an Approved Senior Loan, but only if the accumulated operating reserve does not exceed six (6) months' projected Project operating expenses; reasonable commercial and retail reserves if required by the holder of an Approved Senior Loan or by Borrower's investor limited partner; other reserve account deposits required pursuant to Approved Senior Financing; other ordinary and reasonable operating expenses; and subject to the limitations set forth below (i) a partnership management fee payable to the general partner of Borrower, and (ii) only .during the first fifteen (15) years following issuance of a final certificate of occupancy for the Project, an asset management fee payable to the investor limited partner of Borrower. Jointly the partnership management fee and the investor limited partner fee shall not exceed an aggregate annual sum of $35,000 per year, increasing at a rate of three and one -half percent (3.5 %) per year. Payments to Borrower, its partners or affiliates in excess of the limitations set forth in this Section shall not be counted toward Annual Operating Expenses for the purpose of calculating Surplus Cash. 124 EXCLUSIONS FROM ANNUAL OPERATING EXPENSES. Annual Operating Expenses shall exclude the following: developer fees and interest on any deferred developer fees (except as permitted pursuant to Section 1.2.3 contributions to Project reserves (except as permitted pursuant to Section 1.2.3 debt service payments on any loan which is not an Approved Senior Loan, including without limitation, unsecured loans or loans secured by deeds of trust which are subordinate to the Deed 1885645.5 3