California Municipal Finance Authority

This Preliminary Official Statement and the information contained herein are subject to completion and amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy these securities nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. * Preliminary, subjecttochange AUTHORITY HASNOTAXINGPOWER. NOR DOTHEYCONSTITUTEINDEBTEDNESSWITHINTHEMEANING OFANYCONSTITUTIONALORSTATUTORYDEBTLIMITATION.THE OF THEFAITHANDCREDITAUTHORITY,ITSMEMBERS, THESTATEOFCALIFORNIAORANYITSPOLITICALSUBDIVISIONS, TAXATION WHATEVERTHEREFORORTOMAKEANYAPPROPRIATION FORTHEIRPAYMENT.THESERIES2017ABONDSARENOTAPLEDGE ASSETS TOPAYALLORANYPORTIONOFTHEDEBTSERVICEDUE ONTHESERIES2017ABONDS,TOLEVYORPLEDGEANYFORMOF POLITICAL SUBDIVISIONSSHALLBEDIRECTLY,INDIRECTLY,CONTINGENTLY ORMORALLYOBLIGATEDTOUSEANYOTHERMONEYS REVENUES UNDERTHEBONDINDENTURE.NEITHERAUTHORITY,ITSMEMBERS,STATEOFCALIFORNIA,NORANY OFITS SERIES 2017ABONDSARELIMITEDOBLIGATIONSOFTHEAUTHORITY,PAYABLESOLELYFROMANDSECUREDBYPLEDGE CERTAIN ON THESERIES2017ABONDSORSUBJECTTOANYPERSONALLIABILITYACCOUNTABILITYBYREASONOFTHEIRISSUANCE. THE described under“THESERIES2017ABONDS–RedemptionoftheSeriesBonds”herein. and November15,attheratesperannumsetforthoninsidecoverpage. multiples thereof.InterestduewithrespecttotheSeries2017ABondswillbepayableonNovember15,2017,andsemiannuallythereaftereach May15 See “BOOK-ENTRYONLYSYSTEM”inAPPENDIX G to theHolderorregisteredHoldersofSeries2017ABondsshallmeanCede&Co.andnotBeneficialOwners Bonds. Cede &Co.,asregisteredHolderoftheSeries2017ABonds.SolongCo.isBonds,references herein Bonds willbemadeinbook-entryformonly.PrincipalandinterestduewithrespecttotheSeries2017ApayablebyBond Trusteeto Depository TrustCompany(“DTC”).willactassecuritiesdepositoryfortheSeries2017ABonds,andindividualpurchasesof the NationalObligatedGroup.Thesourcesofpaymentof,andsecurityfor,Series2017ABondsaremorefullydescribedinthisOfficial Statement. the membersofNationalObligatedGroupsecuredbyapledgeGrossRevenuesandsecondmortgagesordeedstrustfrom members of a Californianonprofitpublicbenefitcorporation(“FPM”)securedbypledgeoftheGrossRevenuesRHFandFPM;(vi)guarantieseach (iv) apledgeofGrossRevenuesthemembersCaliforniaObligatedGroup;(v)guarantiesbyRHFandFoundationPropertyManagement, Inc., trust ontheretirementfacilitiesofeachmemberCaliforniaObligatedGroupsecuringobligationsissuedunderMaster Indenture; retirement communitiesinCalifornia,andTheBankofNewYorkMellonTrustCompany,N.A.,asmastertrustee(the“Master Trustee”); (iii)deedsof described herein)affiliatedwithRetirementHousingFoundation,aCalifornianonprofitpublicbenefitcorporation(“RHF”),thatownandoperatefive issued underthehereinafter-describedCaliforniaMasterIndentureenteredintobyfivecorporations(the“ObligatedGroup,”asmorefully and securedby(i)apledgeofpaymentstobemadeundertheLoanAgreement;(ii)anobligation(the“Series2017ACaliforniaObligation ”) tobe OF FUNDS”and“PLANFINANCEherein.ExceptasdescribedinthisOfficialStatement,theSeries2017ABondswillbepayablesolelyfrom Borrowers willusetheproceedsofSeries2017ABonds,togetherwithcertainothermoneys,asdescribedin“ESTIMATEDSOURCESANDUSES pursuant to a Loan Agreement dated as of September 1, 2017 (the “Loan Agreement ”), among the Authority and the California Borrowers. The California (“Sun City” andcollectivelywithBixbyKnollsGoldCountry,the“ California Borrowers”), eachaCalifornianonprofitpublicbenefitcorporation, will be loaned to Bixby Knolls Towers, Inc. (“BixbyKnolls”), Gold Country Health Center, Inc. (“Gold Country”)and Sun City RHF Housing, Inc. the AuthorityandTheBankofNewYorkMellonTrustCompany,N.A.,asbondtrustee(the“BondTrustee”).proceedsSeries2017ABonds Group), Series2017A(the“ 2017A Bonds”) pursuanttoaBondTrustIndenturedatedasofSeptember1,2017(the“ Indenture ”), between Dated: DateofDelivery existing statutesinterestontheSeries2017ABondsisexemptfromStateofCaliforniapersonalincometaxes.See“TAXMATTERS”herein. calculating thealternativeminimumtaximposedonsuchcorporations.Inaddition,inopinionofBondCounseltoAuthority,under and corporations under the Code; suchinterest, however, is included in theadjusted current earnings of certain corporations for purposes of (ii) interestontheSeries2017ABondsisnottreatedasapreferenceitemincalculatingalternativeminimumtaximposedindividuals gross incomeforFederaltaxpurposespursuanttoSection103oftheInternalRevenueCode1986,asamended(the“Code”),and interestontheSeries2017ABondsisexcludedfrom assuming continuingcompliancewithcertaintaxcovenantsdescribedherein,(i) BOOK-ENTRY ONLY NEW ISSUE about September___,2017. Indiana and Florida law. It is expected that the Series 2017A Bonds in definitive form will be available for delivery through the facilities of DTC on or addition, themembersofNational ObligatedGrouphaveengagedlocalcounseltoprovideopinionson certainmattersrelatingtoMissouri,Kentucky, upon fortheRHFObligatedGroup byitscounsel,ChapmanandCutlerLLP,fortheUnderwriter its counsel,KattenMuchinRosenmanLLP.In matters will be passed upon for theAuthority by its counsel, Jones Hall, A Professional Law Corporation. Certain other legal matters will be passed Authority andacceptedbytheUnderwriter,subjecttoapprovalof legalitythereofbyHawkinsDelafield&WoodLLP,BondCounsel.Certainlegal making ofaninformedinvestmentdecision. terms oftheSeries2017ABonds.Investorsareinstructedto read theentireOfficialStatementtoobtaininformationessential NONE OFTHEAUTHORITY,ANYAUTHORITYMEMBERORPERSONEXECUTINGSERIES2017ABONDSISLIABLEPERSONALLY The Series2017ABondsaresubjecttooptional,extraordinaryoptionalandmandatorysinkingfundredemptionpriormaturity as The Series2017ABondswillbedeliveredinfullyregisteredformonlyandinitiallythenameofCede&Co.,asnominee of The The CaliforniaMunicipalFinanceAuthority(the“”)isissuingits$26,115,000*RevenueBonds(RetirementHousingFoundationObligated The Series2017ABondsareofferedwhen,asandifreceivedbyB.C. ZieglerandCompany(the“Underwriter”)when,asifissuedbythe This coverpagecontainscertaininformationforquickreference only.Itisnotintendedtobeasummaryofthesecurityforor In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Authority, under existing statutes and court decisions and

PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 10, 2017 CALIFORNIA MUNICIPAL FINANCE AUTHORITY (Retirement HousingFoundationObligatedGroup) SEE MATURITYSCHEDULEONTHEINSIDEFRONTCOVER The dateofthisOfficial StatementisAugust___,2017 hereto. TheSeries2017ABondswillbedeliveredindenominationsof$5,000andintegral Revenue Bonds $26,115,000* Series 2017A Due: November15,asshownontheinsidecoverhereof See “RATING”herein. Fitch: A-

$26,115,000* CALIFORNIA MUNICIPAL FINANCE AUTHORITY Revenue Bonds (Retirement Housing Foundation Obligated Group) Series 2017A

Maturity Principal (November 15) Amount* Interest Rate Yield Price CUSIP† $ % %

$______* ____% Term Bond due November 15, 20___; Price _____ to Yield ______% CUSIP†: ______$______* ____% Term Bond due November 15, 20___; Price _____ to Yield ______% CUSIP†: ______

* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2017 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Authority, the RHF Obligated Group, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.

National Obligated Group Communities

Bishop’s Glen Holly Hill, Florida

Colonial Heights Florence, Kentucky

Courtenay Springs Village Merritt Island, Florida National Obligated Group Communities

Westminster Village Clarksville, Indiana

St. Catherine Florissant, Missouri

DeSmet Retirement Community Florrisant, Missouri California Obligated Group Communities

Bixby Knolls Towers Long Beach, California

Gold Country Retirement Center Placerville, California California Obligated Group Communities

Sun City Gardens Sun City, California

Mayflower Gardens Lancaster, California [THIS PAGE INTENTIONALLY LEFT BLANK]

REGARDING USE OF THIS OFFICIAL STATEMENT No dealer, broker, sales representative or other person has been authorized by the Authority, the RHF Obligated Group, any of its affiliated organizations, or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the Series 2017A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. In making an investment decision, investors must rely upon their own examination of the terms of the offering, including the merits and risks involved. The information set forth herein under the captions “THE AUTHORITY” and “LITIGATION – The Authority” has been furnished by the Authority. The information set forth herein in “BOOK- ENTRY ONLY SYSTEM” in APPENDIX G hereto has been furnished by DTC. The information set forth herein under the caption “UNDERWRITING” has been furnished by the Underwriter. All other information in this Official Statement has been provided by the RHF Obligated Group or obtained from other sources identified herein that are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be relied upon as or construed as a promise or representation by, the Authority or the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in the affairs of the Authority, DTC, the Bond Trustee, the Master Trustee or the RHF Obligated Group since the date hereof. IN CONNECTION WITH THE OFFERING OF THE SERIES 2017A BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2017A BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2017A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAVE THE BOND INDENTURE OR THE CALIFORNIA MASTER INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2017A BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH SERIES 2017A BONDS HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAS PASSED UPON THE MERITS OF THE SERIES 2017A BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

______

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT ______

References to web site addresses herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into and are not a part of this Official Statement.

CUSIP numbers are included in this Official Statement for the convenience of the holders and potential holders of the Series 2017A Bonds. No assurance can be given that the CUSIP numbers will remain the same after the date of issuance and delivery of the Series 2017A Bonds.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. These forward-looking statements are based on the current plans and expectations of the RHF Obligated Group and are subject to a number of known and unknown uncertainties and risks, many of which are beyond their control, that could significantly affect current plans and expectations and the future financial position and results of operations of the members of the RHF Obligated Group. These factors include, but are not limited to, (i) the efforts of governmental entities, insurers, health care providers and others to contain health care costs, (ii) possible changes in the Medicare and Medicaid programs that may impact reimbursements to health care providers and insurers, (iii) the ability to attract and retain qualified management and other personnel, including nurses and medical support personnel, (iv) liabilities and other claims asserted against the RHF Obligated Group, (v) changes in accounting standards and practices, (vi) changes in general economic conditions, (vii) future divestitures or acquisitions which may result in additional charges, (viii) changes in revenue mix, (ix) the availability and terms of capital to fund future expansion plans of the RHF Obligated Group and to provide for ongoing capital expenditure needs, (x) changes in business strategy or development plans, (xi) delays in receiving payments as a result of governmental budget constraints, (xii) the ability to implement initiatives and realize decreases in administrative, supply and infrastructure costs, (xiii) the outcome of pending and any future litigation, (xiv) the continuing efforts of the RHF Obligated Group to monitor, maintain and comply with appropriate laws, regulations, policies and procedures relating to their status as tax-exempt organizations as well as their ability to comply with the requirements of the Medicare and Medicaid programs, (xv) the ability to achieve expected levels of resident volumes and control the costs of providing services, (xvi) results of reviews of the RHF Obligated Group cost reports, and (xvii) the ability of the RHF Obligated Group to comply with recently enacted legislation and/or regulations. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of the Obligated Group. See “RISK FACTORS” herein for additional factors that could cause actual results, performances and achievements to differ from those contained in any forward-looking statement. THE RHF OBLIGATED GROUP DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

TABLE OF CONTENTS

SUMMARY STATEMENT ...... iv INTRODUCTION ...... 1 Purpose of this Official Statement ...... 1 Purpose of the Series 2017A Bonds ...... 1 The Authority ...... 2 Limited Obligation of Authority ...... 2 Concurrent Financings ...... 2 The RHF Obligated Group ...... 3 Security and Source of Payment ...... 3 Certain Covenants of the Obligated Groups Under the Master Indentures ...... 4 Continuing Disclosure ...... 5 Financial Information ...... 5 Risk Factors ...... 5 THE AUTHORITY ...... 5 THE SERIES 2017A BONDS ...... 6 General Description ...... 6 Redemption of the Series 2017A Bonds ...... 6 Mandatory Tender for Purchase ...... 9 Defeasance ...... 9 Redemption After Satisfaction of Bond Indenture ...... 10 SECURITY AND SOURCE OF PAYMENT ...... 10 General ...... 10 The Master Indentures ...... 12 Gross Revenue Pledge ...... 12 First Deeds of Trust ...... 14 The California Guaranties and the National Second Deeds of Trust/Mortgages ...... 14 Additional Indebtedness ...... 15 CERTAIN COVENANTS OF THE OBLIGATED GROUPS UNDER THE MASTER INDENTURES ...... 15 General ...... 15 Rates and Charges ...... 15 Liquidity Covenant ...... 16 Approval of Consultants ...... 17 Other Covenants ...... 18 Covenants Under California Guaranties ...... 18 PLAN OF FINANCE ...... 18 Series 2017A Bonds ...... 18 Concurrent Financings ...... 18 ESTIMATED SOURCES AND USES OF FUNDS ...... 20 ANNUAL DEBT SERVICE REQUIREMENTS ...... 21 RISK FACTORS ...... 22 General ...... 22

General Risks of Senior Living Facilities ...... 22 Uncertainty of Revenues ...... 22 Failure to Achieve and Maintain Occupancy ...... 23 Nature of the Income of the Elderly ...... 23 Sale of Personal Residences ...... 23 Utilization and Demand ...... 24 Competition ...... 24 Rights of Residents ...... 24 Construction Risks ...... 24 Seismic Risk ...... 24 Present and Prospective Federal and State Regulation ...... 25 Federal Debt Limit ...... 31 Malpractice Claims and Liability Insurance ...... 31 Labor Costs and Relations ...... 31 Nursing or Other Staff Shortage ...... 31 Cybersecurity Risks ...... 32 Risks Related to Tax Exempt-Status ...... 32 Taxpayer Relief Act of 1997 and Unrelated Business Taxation ...... 33 Property Taxes; State and Local Tax Exemption ...... 33 Amendments to the Documents ...... 34 Additional Indebtedness ...... 34 Bankruptcy ...... 35 Certain Matters Relating to Enforceability ...... 35 Certain Risks Associated with the Mortgages/Deeds of Trust ...... 37 Environmental Matters ...... 42 Rating ...... 42 Other Possible Risk Factors ...... 42 LITIGATION ...... 44 The Authority ...... 44 The RHF Obligated Group ...... 44 LEGAL MATTERS ...... 44 TAX MATTERS ...... 45 Opinion of Bond Counsel ...... 45 Certain Ongoing Federal Tax Requirements and Covenants ...... 45 Certain Collateral Federal Tax Consequences ...... 46 Original Issue Discount ...... 46 Bond Premium ...... 47 Information Reporting and Backup Withholding ...... 47 Miscellaneous ...... 47 FINANCIAL STATEMENTS ...... 48 UNDERWRITING ...... 48 RATING ...... 48 CONTINUING DISCLOSURE ...... 49 MISCELLANEOUS ...... 49

APPENDIX A: INFORMATION CONCERNING RETIREMENT HOUSING FOUDATION OBLIGATED GROUP ...... A-1 APPENDIX B: AUDITED COMBINED FINANCIAL STATEMENTS ...... B-1 APPENDIX C: SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES ...... C-1 APPENDIX D: SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT .... D-1 APPENDIX E: FORM OF APPROVING OPINION OF BOND COUNSEL ...... E-1 APPENDIX F: FORM OF CONTINUING DISCLOSURE AGREEMENT ...... F-1 APPENDIX G: BOOK-ENTRY ONLY SYSTEM ...... G-1

iii

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SUMMARY STATEMENT

The information set forth in this Summary Statement is furnished to provide an introduction to the information contained in this Official Statement and is not comprehensive. It is subject in all respects to more complete information set forth elsewhere in this Official Statement, which should be read in its entirety. The offering of the Series 2017A Bonds to potential investors is made only by means of the entire Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or otherwise to use it without this entire Official Statement. All capitalized terms used in this Summary Statement and not otherwise defined herein are defined in “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES” in APPENDIX C to this Official Statement and “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT” in APPENDIX D to this Official Statement.

The Authority

The Authority is a joint powers agency duly organized and existing under the laws of the State of California. See “THE AUTHORITY” herein.

Purpose of the Series 2017A Bonds

The Series 2017A Bonds will be issued pursuant to a Bond Trust Indenture dated as of September 1, 2017 (the “Bond Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the “Bond Trustee”). The proceeds of the Series 2017A Bonds will be loaned to Bixby Knolls Towers, Inc. (“Bixby Knolls”), Gold Country Health Center, Inc. (“Gold Country”) and Sun City RHF Housing, Inc. (“Sun City” and collectively with Bixby Knolls and Gold Country, the “California Borrowers”), each a California nonprofit public benefit corporation, pursuant to a Loan Agreement dated as of September 1, 2017 (the “Loan Agreement”), by and among the Authority and the California Borrowers.

The California Borrowers will use the proceeds from the sale of the Series 2017A Bonds, together with other available funds, to: (i) currently refund a portion of the $38,610,000 in original aggregate principal amount of California Statewide Communities Development Authority Revenue Bonds, (Retirement Housing Foundation Obligated Group) Series 2014A (the “Refunded Series 2014A Bonds”); (ii) finance or reimburse the costs of constructing, renovating, remodeling and/or equipping one or more of the facilities of the California Borrowers (the “California Project”); and (iii) pay all or a portion of the costs of issuance related to the Series 2017A Bonds and the refunding of the Refunded Series 2014A Bonds.

Concurrent Financings

Concurrently with the issuance of the Series 2017A Bonds, certain additional series of bonds will be issued for the benefit of the RHF Obligated Group (as hereinafter described) and are expected to be issued on the same date as the Series 2017A Bonds. These bonds include: (i) $46,200,000* Public Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017B (the “Series 2017B Bonds”); (ii) $9,065,000* RHF Obligated Group Taxable Bonds, Series 2017C (California) (the “Series 2017C Bonds”) and (iii) $12,725,000* RHF Obligated Group Taxable Bonds, Series 2017D (National) (the “Series 2017D Bonds” and, together with the Series 2017A Bonds, the Series 2017B Bonds and the Series 2017C Bonds, the “Series 2017 Bonds”). The Series 2017A Bonds and the Series 2017B Bonds will constitute a single issue for federal income tax purposes.

* Preliminary, subject to change. iv

The members of the California Obligated Group (as defined herein), including the California Borrowers, have issued an Obligation under the California Master Indenture (as defined herein) to secure the Series 2017C Bonds and have guaranteed payments with respect to the Series 2017B Bonds and the Series 2017D Bonds. Such guarantees are secured by the Gross Revenue Pledge Agreement and California Second Deeds of Trust, as described herein.

See “PLAN OF FINANCE – Concurrent Financings” herein.

Limited Obligation of Authority

NONE OF THE AUTHORITY, ANY AUTHORITY MEMBER OR ANY PERSON EXECUTING THE SERIES 2017A BONDS IS LIABLE PERSONALLY ON THE SERIES 2017A BONDS OR SUBJECT TO ANY PERSONAL LIABILITY OR ACCOUNTABILITY BY REASON OF THEIR ISSUANCE. THE SERIES 2017A BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM AND SECURED BY THE PLEDGE OF CERTAIN REVENUES UNDER THE BOND INDENTURE. NEITHER THE AUTHORITY, ITS MEMBERS, THE STATE OF CALIFORNIA, NOR ANY OF ITS POLITICAL SUBDIVISIONS SHALL BE DIRECTLY, INDIRECTLY, CONTINGENTLY OR MORALLY OBLIGATED TO USE ANY OTHER MONEYS OR ASSETS TO PAY ALL OR ANY PORTION OF THE DEBT SERVICE DUE ON THE SERIES 2017A BONDS, TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATEVER THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE SERIES 2017A BONDS ARE NOT A PLEDGE OF THE FAITH AND CREDIT OF THE AUTHORITY, ITS MEMBERS, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, NOR DO THEY CONSTITUTE INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION. THE AUTHORITY HAS NO TAXING POWER.

The RHF Obligated Group

California Obligated Group. The California Obligated Group consists of the five corporations affiliated with Retirement Housing Foundation, a California nonprofit public benefit corporation (“RHF”), that own and operate five retirement communities located in California (each a “California Member” and collectively, the “California Members”), more fully described in “INTRODUCTION – The California Obligated Group” in APPENDIX A hereto. The California Members have executed the California Master Trust Indenture dated as of July 1, 2008 (the “Original California Master Indenture”), by and among the California Members, RHF, solely as Obligated Group Representative (as defined therein), and The Bank of New York Mellon Trust Company, N.A., as master trustee (the “California Master Trustee”), as supplemented and amended from time to time including by the Fifth Supplemental California Master Trust Indenture dated as of September 1, 2017 (the “California Supplemental Master Indenture” together with the Original California Master Indenture, as previously supplemented and amended, the “California Master Indenture”).

National Obligated Group. The National Obligated Group consists of the six corporations affiliated with RHF that own and operate six retirement communities in Florida, Indiana, Kentucky and Missouri (each a “National Member” and collectively the “National Members”), more fully described in “INTRODUCTION – The National Obligated Group” in APPENDIX A hereto. The National Members have executed the National Master Trust Indenture dated as of July 1, 2008 (the “Original National Master Indenture”), by and among the National Members, RHF, solely as Obligated Group Representative (as defined therein), and The Bank of New York Mellon Trust Company, N.A., as master trustee (the “National Master Trustee”), as supplemented and amended from time to time including by the Fifth Supplemental National Master Trust Indenture dated as of September 1, 2017 (the “National Supplemental Master Indenture” together with the Original National Master Indenture, as previously supplemented and amended, the “National Master Indenture”). v

RHF Obligated Group. The California Obligated Group and the National Obligated Group are collectively referred to herein as the “Obligated Groups” and each, individually, as an “Obligated Group.” The California Master Indenture and the National Master Indenture are referred to, together, as the “Master Indentures.” The California Members, the National Members (together with the California Members referred to herein, collectively, as the “Members” and each, individually, as a “Member”), RHF and Foundation Property Management, Inc., a California nonprofit public benefit corporation (“FPM”) are collectively referred to herein as the “RHF Obligated Group.” The term “RHF Obligated Group” is a definition of convenience used to describe all of the entities that are directly obligated to pay or have guaranteed debt service payments with respect to the Series 2017A Bonds as well as the other Series 2017 Bonds. THERE IS NO SINGLE MASTER INDENTURE SIGNED BY ALL OF THESE ENTITIES. See “INTRODUCTION – Security and Source of Payment” herein for more information.

Security and Source of Payment

Series 2017A California Obligation Issued Pursuant to the California Master Indenture. The Series 2017A Bonds will be secured in part by a Series 2017A California Direct Note Obligation (the “Series 2017A California Obligation”) issued pursuant to the California Master Indenture. Under the California Master Indenture, RHF, in its capacity as Obligated Group Representative, will issue the Series 2017A California Obligation to the Bond Trustee to secure the Series 2017A Bonds. The Series 2017A California Obligation is a joint and several obligation of the California Members only. See “The California Guaranties and the National Second Deeds of Trust/Mortgages” below for a description of the guaranties of RHF, FPM and the members of the National Obligated Group.

Gross Revenue Pledge. Each member of the RHF Obligated Group will enter into a Third Amended and Restated Gross Revenue Pledge Agreement dated as of September 1, 2017 (the “Gross Revenue Pledge Agreement”) with The Bank of New York Mellon Trust Company, N.A., as collateral agent (the “Collateral Agent”), on behalf of the California Master Trustee and the National Master Trustee, pursuant to which each member of the RHF Obligated Group will pledge and, to the extent permitted by law, grant a security interest in its Gross Revenues described therein to secure the payment of the principal of and interest on the Obligations issued under the Master Indentures. For more information, see “SECURITY AND SOURCE OF PAYMENT– Gross Revenue Pledge” herein.

First Deeds of Trust. Each of the California Members has delivered a First Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents and Leases dated as of July 1, 2008, as supplemented and amended (each a “California Deed of Trust” and collectively, the “California Deeds of Trust”), on its facility to the deed of trust trustee, First American Title Insurance Company, a California corporation (the “California Deed of Trust Trustee”), for the benefit of the California Master Trustee to secure the Obligations issued under the California Master Indenture. No appraisal has been made of the value of the facilities subject to the California Deeds of Trust. The value of such facilities in the aggregate could be substantially less than the principal amount of all Obligations outstanding under the California Master Indenture. See “SECURITY AND SOURCE OF PAYMENT – First Deeds of Trust” herein.

delivered a second deed of trust or mortgage (each a “National Second Deed of Trust/Mortgage”) with respect to its facilities for the benefit of the California Master Trustee to secure their obligations under the California Guaranties. The lien of each National Second Deed of Trust/Mortgage is subject and subordinate to the lien of the first deeds of trust or mortgages previously delivered by each National Member to the National Master Trustee in order to secure the Obligations issued under the National Master Indenture. See “SECURITY AND SOURCE OF PAYMENT– The California Guaranties and the National Second Deeds of Trust/Mortgages” herein.

Certain Covenants of the Obligated Groups Under the Master Indentures

Series 2017 Covenants. Each Supplemental Master Indenture contains certain covenants for the benefit of the holders of the Series 2017 Bonds (the “Series 2017 Covenants”) that are more restrictive than the provisions of the Original Master Indentures. Summaries of the Series 2017 Covenants are contained in the summaries of the Master Indentures set forth herein and in APPENDIX C hereto. See “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURES” herein and “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES” in APPENDIX C hereto.

Rates and Charges. Each Member of each Obligated Group covenants in the applicable Master Indenture and agrees to operate all of its Property in the aggregate on a revenue-producing basis and to charge such fees and rates for its facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its facilities together with other available funds sufficient to pay promptly all payments of principal, interest and other amounts due in respect of its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it under the applicable Master Indenture to the extent permitted by law. Each Member of each Obligated Group further covenants and agrees in its respective Master Indenture that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of the applicable Master Indenture.

Within 150 days after the end of each Fiscal Year (commencing with the fiscal year ended September 30, 2017) the Obligated Group Representative shall compute Income Available for Debt Service and Annual Debt Service and promptly furnish to the Master Trustee a certificate setting forth the results of such computation.

The Series 2017 Covenants provide that if the Debt Service Coverage Ratio of the RHF Obligated Group for any Fiscal Year is less than 1.15:1, the Master Trustee shall require each Obligated Group, at each Obligated Group’s expense, to retain an Independent Consultant within 60 days following the calculation described in the immediately preceding paragraph to make recommendations with respect to the rates, fees and charges and each Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such historical Debt Service Coverage Ratio to at least 1.15:1 for the following Fiscal Year.

Notwithstanding the foregoing, if the RHF Obligated Group fails to achieve a historical Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year, such failure shall constitute, with the giving of notice and passage of time, an Event of Default pursuant to each Master Indenture.

See “CERTAIN COVENANTS OF THE OBLIGATED GROUPS UNDER THE MASTER INDENTURES – Rates and Charges” and “– Approval of Consultants” herein and “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Rates and Charges; Debt Coverage;” “– Liquidity Covenant;” and “– Approval of Consultants” in APPENDIX C hereto. vii

Liquidity Covenant. Pursuant to the Series 2017 Covenants, each Obligated Group covenants in its respective Master Indenture that it will calculate the Days Cash on Hand of the RHF Obligated Group as of March 31 and September 30 of each Fiscal Year (each such date being a “Testing Date”). Each Member of each Obligated Group is required under the respective Master Indenture to conduct its business so that on each testing date the RHF Obligated Group, collectively, shall have not less than 120 Days Cash on Hand for each Testing Date.

If the amount of Days Cash on Hand as of any Testing Date is less than 120, the Obligated Group Representative shall, within 30 days after receipt of the Officer’s Certificate disclosing such deficiency, deliver an Officer’s Certificate approved by a resolution of the Governing Body of the Obligated Group Representative to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to achieve the required level of Days Cash on Hand for future periods.

If the RHF Obligated Group has not achieved 120 Days Cash on Hand by the next Testing Date following delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group Representative shall, within 60 days after receipt of the Officer’s Certificate disclosing such deficiency, retain an Independent Consultant to make recommendations with respect to the rates, fees and charges of the respective Obligated Group and the respective Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand to the required level for future periods. A copy of the Independent Consultant’s report and recommendations if any, which may also be the same report delivered to the respective Obligated Group, shall be filed with each Member of the applicable Obligated Group, the Master Trustee and the Bond Trustee within 60 days of the date such Independent Consultant is retained. Each Member of the applicable Obligated Group shall follow each recommendation of the Independent Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.

Notwithstanding any other provision of the Master Indentures, failure of the RHF Obligated Group to achieve the required liquidity covenant for any Fiscal Year shall not constitute an event of default under the Master Indentures if the Obligated Groups takes all action necessary to comply with the procedures set forth above for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Liquidity Covenant” in APPENDIX C hereto.

Approval of Consultants. Pursuant to each Master Indenture, the Bondholders have certain approval rights as to certain Consultants selected by the Obligated Group. See “CERTAIN COVENANTS OF THE OBLIGATED GROUPS UNDER THE MASTER INDENTURES – Approval of Consultants” herein and “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES –– Approval of Consultants” in APPENDIX C hereto.

Additional Indebtedness. Upon the terms and conditions specified therein, each Master Indenture permits any member of the Obligated Groups to incur Additional Indebtedness which may, but need not, be evidenced or secured by Additional Obligations issued under either Master Indenture. Additional Obligations issued under each Master Indenture may be issued to the Authority and to Persons other than the Authority. Additional Obligations need not be pledged under the Bond Indenture but will rank equally and ratably (except as described herein) with the Series 2017A California Obligation pledged under the Bond Indenture.

viii

Each Master Indenture permits Additional Indebtedness (including Additional Obligations) to be secured by security in addition to that generally provided for all Obligations (including letters or lines of credit or insurance or security interests in depreciation reserve, debt service or interest reserve or similar funds), which additional security need not be extended to secure any other Obligations (including the Series 2017A California Obligation). See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Limitations on Encumbrances” and “– Limitations on Additional Indebtedness” in APPENDIX C hereto.

Covenants Under California Guaranties. The California Guaranty (as hereinafter defined) executed by RHF and FPM contain certain covenants substantially similar to the covenants set forth in the Master Indentures. Those covenants include limitations on Additional Indebtedness, restrictions on guaranties and limitations on consolidation, merger, sale and conveyance. These covenants bind RHF and FPM to the same restrictions on such actions that are contained in the Master Indentures. Failure of RHF and FPM to comply with such restrictions will cause an event of default of the California Guaranties and the California Master Indenture.

Opinion of Bond Counsel

Continuing Disclosure

RHF, on behalf of the RHF Obligated Group, will enter into an undertaking for the benefit of the holders of the Series 2017A Bonds to provide certain information and to provide notice of certain events to the Municipal Securities Rulemaking Board on its Electronic Municipal Market Access system. For further information, see “CONTINUING DISCLOSURE” herein and “FORM OF CONTINUING DISCLOSURE AGREEMENT” in APPENDIX F hereto. The Authority has not made and will not make any provision to provide any annual financial statements or other credit information of the Authority or the RHF Obligated Group to investors on a periodic basis.

Financial Information

The RHF Obligated Group Combined Financial Statements and Supplementary Information for the fiscal years ended September 30, 2016, 2015 and 2014 are contained in APPENDIX B hereto. Summary financial information is included in APPENDIX A hereto.

Risk Factors

AN INVESTMENT IN THE SERIES 2017A BONDS INVOLVES A CERTAIN DEGREE OF RISK. A BONDOWNER IS ADVISED TO READ “SECURITY AND SOURCE OF PAYMENT” and “RISK FACTORS” HEREIN FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES 2017A BONDS. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement. See the information under the caption “RISK FACTORS” herein for a discussion of some of these risks.

$26,115,000* California Municipal Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group) Series 2017A INTRODUCTION

Purpose of this Official Statement

This Official Statement, including the cover, inside front cover and the Appendices, is provided to set forth certain information in connection with the offering by the California Municipal Finance Authority (the “Authority”) of its $26,115,000* Revenue Bonds (Retirement Housing Foundation Obligated Group) Series 2017A (the “Series 2017A Bonds”).

The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein regarding any such documents are qualified in their entirety by reference to such documents. This Introduction is intended only to serve as a brief description of this Official Statement and is expressly qualified by reference to the Official Statement as a whole, as well as the documents summarized or described herein. All capitalized terms used in this Official Statement and not otherwise defined herein are defined in “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES” in APPENDIX C hereto and “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT” in APPENDIX D hereto. This Official Statement speaks only as of its date, and the information contained herein is subject to change.

Purpose of the Series 2017A Bonds

* Preliminary, subject to change.

See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein and “CAPITAL SPENDING AND PROPOSED CAPITAL IMPROVEMENTS – Capital Improvements Financed with Series 2017 Bonds – California Obligated Group” in APPENDIX A hereto.

The Authority

The Authority is a joint powers agency duly organized and existing under the laws of the State of California. See “THE AUTHORITY” herein.

Limited Obligation of Authority

Concurrent Financings

See “PLAN OF FINANCE – Concurrent Financings” herein.

* Preliminary, subject to change.

The RHF Obligated Group

Security and Source of Payment

The California Guaranties and the National Second Deeds of Trust/Mortgages. RHF, FPM and each National Member (collectively, the “California Guarantors”) have entered into separate Guaranty Agreements each dated as of July 1, 2008, as supplemented and amended, and as reaffirmed pursuant to the Second Reaffirmation of Guaranty Agreement dated as of September 1, 2017 (together, the “California Guaranties”), with the California Master Trustee, guarantying the payments of all amounts owed on the Obligations issued under the California Master Indenture and the performance of the California Members thereunder. Pursuant to the Gross Revenue Pledge Agreement, the California Guarantors have granted a security interest in their Gross Revenues to the California Master Trustee in order to secure their obligations under the California Guaranties. In addition, each National Member has delivered a second deed of trust or mortgage (each a “National Second Deed of Trust/Mortgage”) with respect to its facilities for the benefit of the California Master Trustee to secure their obligations under the California Guaranties. The lien of each National Second Deed of Trust/Mortgage is subject and subordinate to the lien of the first deeds of trust or mortgages previously delivered by each National Member to the National Master Trustee in order to secure the Obligations issued under the National Master Indenture. See “SECURITY AND SOURCE OF PAYMENT – The California Guaranties and the National Second Deeds of Trust/Mortgages” herein.

Certain Covenants of the Obligated Groups Under the Master Indentures

Each Member of each Obligated Group has made covenants under the respective Master Indentures related to, among other things, Additional Indebtedness, debt service coverage, days cash on hand, transfer of assets and approval of consultants. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE – Rates and Charges; Debt Coverage;” “– Liquidity Covenant;” and “– Approval of Consultants” in APPENDIX C hereto.

Each Supplemental Master Indenture contains certain covenants for the benefit of the holders of the Series 2017 Bonds (the “Series 2017 Covenants”) that are more restrictive than the provisions of the Original Master Indentures. Summaries of the Series 2017 Covenants are contained in the summaries of the Master Indentures set forth herein and in APPENDIX C hereto. See “CERTAIN COVENANTS OF

THE OBLIGATED GROUPS UNDER THE MASTER INDENTURES” herein and “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES” in APPENDIX C hereto.

Continuing Disclosure

Financial Information

Risk Factors

There are risks associated with the purchase of the Series 2017A Bonds. See the information under the caption “RISK FACTORS” herein for a discussion of some of these risks.

THE AUTHORITY

Under Title 1, Division 7, Chapter 5 of the California Government Code (the “JPA Act”), certain California cities, counties and special districts have entered into a joint exercise of powers agreement (the “JPA Agreement”) forming the Authority for the purpose of exercising powers common to the members and to exercise additional powers granted to the Authority by the JPA Act and any other applicable provisions of California law. Under the JPA Agreement, the Authority may issue bonds, notes or any other evidence of indebtedness, for any purpose or activity permitted under the JPA Act or any other applicable law.

The Authority may sell and deliver obligations other than the Series 2017A Bonds. These other obligations will be secured by instruments separate and apart from the Bond Indenture and the Loan Agreement, and the holders of such other obligations of the Authority will have no claim on the security for the Series 2017A Bonds. Likewise, the Holders of the Series 2017A Bonds will have no claim on the security for such other obligations that may be issued by the Authority.

Neither the Authority nor its independent contractors have furnished, reviewed, investigated or verified the information contained in this Official Statement other than the information contained in this section and the section entitled “LITIGATION — Authority” herein. The Authority does not and will not in the future monitor the financial condition of the RHF Obligated Group or otherwise monitor payment of the Series 2017A Bonds or compliance with the documents relating thereto. Any commitment or obligation for continuing disclosure with respect to the Series 2017A Bonds or the RHF Obligated Group has been undertaken solely by the RHF Obligated Group. See “CONTINUING DISCLOSURE” herein.

THE SERIES 2017A BONDS

General Description

The following is a summary of certain provisions of the Series 2017A Bonds. Reference is made to the Series 2017A Bonds for the complete text thereof and to the Bond Indenture for a more detailed description of these provisions. The discussion herein is qualified by such reference.

The Series 2017A Bonds will be issued only in fully registered form in denominations of $5,000 or any integral multiple thereof. The Series 2017A Bonds will bear interest (based on a 360-day year of twelve 30-day months) at the respective rates per annum and will mature, subject to earlier redemption, in the amounts and on the dates set forth on the inside cover page of this Official Statement. The Series 2017A Bonds will bear interest from their dated date payable on May 15 and November 15 of each year, commencing November 15, 2017 (each, an “Interest Payment Date”).

When the Series 2017A Bonds are issued, The Depository Trust Company (“DTC”) will act as securities depository. The Series 2017A Bonds will be registered in the book-entry only system (the “Book-Entry System”) maintained by DTC. See “BOOK-ENTRY ONLY SYSTEM” in APPENDIX G hereto. Payment of principal, premium, if any, and interest on the Series 2017A Bonds will be made to beneficial owners by DTC as described under “BOOK-ENTRY ONLY SYSTEM” in APPENDIX G hereto. If the Book-Entry System is discontinued, the provisions of the following two paragraphs will apply.

The principal or redemption price of the Series 2017A Bonds will be payable at the designated corporate trust office of the Bond Trustee upon presentation and surrender of such Series 2017A Bonds. Interest payments on the Series 2017A Bonds (other than with respect to Defaulted Interest) will be payable on each Interest Payment Date to the registered owner thereof appearing on the registration books of the Authority kept by the Bond Trustee to evidence the registration and transfer of the Series 2017A Bonds (the “Bond Register”) as of the close of business of the Bond Registrar on the Record Date. “Record Date” means the 1st day (whether or not a Business Day) next preceding each Interest Payment Date. Interest on the Series 2017A Bonds shall, except as hereinafter provided, be paid by check or draft of the Bond Trustee mailed on the Interest Payment Date to such registered owner at the address of such owner as it appears on the Bond Register or at such other address furnished in writing by such registered owner to the Bond Trustee, or by wire transfer sent on the Interest Payment Date to the registered owner upon written notice to the Bond Trustee from the registered owner containing the wire transfer address (which shall be in the continental United States) to which the registered owner wishes to have such wire directed which written notice is received not later than the Business Day prior to the Interest Payment Date, it being understood that such notice may refer to multiple interest payments.

In the event of a default in the payment of interest due on an Interest Payment Date, such Defaulted Interest shall be payable to the person in whose name such Series 2017A Bonds is registered at the close of business on a special record date for the payment of such defaulted interest, which date shall be established by the Bond Trustee not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after receipt by the Bond Trustee of the notice of the proposed payment.

Redemption of the Series 2017A Bonds

General. No redemption of less than all the Series 2017A Bonds at the time outstanding will be made unless the aggregate principal amount of Series 2017A Bonds to be redeemed is equal to a multiple

of an Authorized Denomination and the aggregate principal amount of Series 2017A Bonds outstanding after the redemption is an Authorized Denomination.

Extraordinary Optional Redemption. The Series 2017A Bonds are subject to redemption prior to their respective stated maturities at the option of the Authority (which option shall be exercised as directed by RHF) in whole or in part on any date (in such amounts and of such maturities as may be specified by RHF, or if RHF fails to designate such maturities, in inverse order of maturity, and by lot within a maturity) upon at least twenty (20) days prior written notice to the Bond Trustee from RHF, or such lesser number of days acceptable to the Bond Trustee, in the sole discretion of the Bond Trustee, such notice for the convenience of the Bond Trustee, from certain moneys derived from insurance or condemnation proceeds received with respect to the facilities of RHF in the principal amount thereof together with interest accrued thereon to the date fixed for redemption, without premium.

Optional Redemption. The Series 2017A Bonds maturing before November 15, 20__ are not subject to optional redemption prior to maturity. The Series 2017A Bonds maturing on or after November 15, 20__ are subject to redemption prior to maturity on or after November 15, 20__ at the option of the Authority upon direction of RHF out of amounts prepaid on the Series 2017A California Obligation and deposited in the Optional Redemption Fund for the Series 2017A Bonds, in whole or in part at any time, and if in part by maturities or portions thereof designated by RHF (and if less than all of a single maturity is being redeemed, in such random manner as the Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to 100% of the principal amount of the Series 2017A Bonds to be redeemed on the redemption date, plus accrued interest thereon to the redemption date, without premium.

Mandatory Sinking Fund Redemption. The Authority shall pay or redeem Series 2017A Bonds from moneys on deposit in the Bond Sinking Fund for the Series 2017A Bonds, at a price equal to the principal amount thereof, without premium, plus accrued interest to the redemption or maturity date, in the amounts and at the times, as follows.

Series 2017A Term Bond Maturing November 15, 20___ Mandatory Sinking Fund Redemption Dates Mandatory Sinking Fund (November 15) Redemption Amounts $

† † Stated Maturity

Series 2017A Term Bond Maturing November 15, 20___ Mandatory Sinking Fund Redemption Dates Mandatory Sinking Fund (November 15) Redemption Amounts $

† † Stated Maturity

The moneys on deposit in the Bond Sinking Fund shall be reduced (a) by the amount of Series 2017A Bonds acquired and delivered in accordance with the Bond Indenture in satisfaction of the requirements described under the heading “Purchase In Lieu of Redemption” below, and (b) in connection with a partial redemption of the Series 2017A Bonds pursuant to “Optional Redemption” or “Extraordinary Optional Redemption” above, if RHF elects prior to such redemption to reduce mandatory Bond Sinking Fund redemptions in such order as RHF elects or, if no election is made, in the inverse order thereof.

Purchase In Lieu of Redemption. In lieu of optional redemption described above, the Bond Trustee may, at the written request of RHF, purchase for cancellation an equal principal amount of Series 2017A Bonds of the maturity to be redeemed in the open market at prices not exceeding the principal amount of the Series 2017A Bonds being purchased plus accrued interest. In addition, the amount of Bonds to be redeemed on any date pursuant to the mandatory Bond Sinking Fund redemption schedule, if any, shall be reduced by the principal amount of Series 2017A Bonds assigned to such mandatory Bond Sinking Fund redemption date or to the period during which such Bond Sinking Fund redemption date occurs which are acquired by RHF and delivered to the Bond Trustee for cancellation.

Notice of Redemption. Except as provided below, a copy of the notice of the call for any such redemption identifying the Series 2017A Bonds to be redeemed shall be given by electronic means and by first class mail, postage prepaid, or other carrier with tracking capability (except so long as the Series 2017A Bonds are in book-entry in which case solely by electronic means), to the registered owners of the Series 2017A Bonds to be redeemed at their addresses as shown on the Bond Register not less than 20 days nor more than 60 days prior to the redemption date. Such notice shall specify the redemption date, the redemption price, the place and manner of payment and that after the redemption date interest will cease to accrue on the Series 2017A Bonds which are the subject of such notice and shall include such other information as the Bond Trustee shall deem appropriate or necessary at the time such notice is given to comply with any applicable law, regulation or industry standard.

Prior to the date that the redemption notice is first mailed as aforesaid, funds shall be placed with the Bond Trustee to pay the principal of such Series 2017A Bonds and the accrued interest thereon to the redemption date. If any Series 2017A Bonds are to be redeemed pursuant to an extraordinary or optional redemption described above, the notice of redemption may specify that the redemption is contingent on the deposit of moneys with the Bond Trustee in an amount sufficient to pay the redemption price of the Series 2017A Bonds being redeemed on that date and that failure to deposit such funds shall not constitute an event of default under the Bond Indenture.

Failure to give notice in the manner prescribed with respect to any Series 2017A Bonds, or any defect in such notice, shall not affect the validity of the proceedings for redemption for any Series 2017A Bonds with respect to which notice was properly given. Upon the happening of the conditions described

above, the Series 2017A Bonds thus called will not, after the applicable redemption date, bear interest, be protected by the Bond Indenture or be deemed to be outstanding under the provisions of the Bond Indenture.

In addition, the Bond Trustee will use its best efforts to give notice of the redemption of any of the Series 2017A Bonds to EMMA, as defined herein, or other delivery services which may be common in the market at that time, so that it is received by such organization at least two days prior to the redemption. The foregoing notwithstanding, any failure to give a notice or any defect in a notice given pursuant to the provisions of the Bond Indenture summarized in this paragraph will not affect the validity of any redemption of the Series 2017A Bonds.

If any Series 2017A Bond is transferred or exchanged on the Bond Register by the Bond Registrar after notice has been given of an optional or mandatory redemption of such Series 2017A Bond, the Bond Registrar will attach a copy of such notice to the Series 2017A Bond issued in connection with such transfer.

Mandatory Tender for Purchase

The Authority and, by their acceptance of the Series 2017A Bonds, the bondholders, irrevocably grant to RHF and any assigns of RHF with respect to this right, the option to purchase, at any time and from time to time, any Series 2017A Bond that is subject to optional redemption as described under the caption entitled “Redemption of the Series 2017A Bonds – Optional Redemption” above at a purchase price equal to the optional redemption price therefor. To exercise such option, RHF shall give the Bond Trustee a Written Request exercising such option within the time period specified in the Bond Indenture as though such Written Request were a written request of the Authority for redemption, and the Bond Trustee shall thereupon give the holders of the Series 2017A Bonds to be purchased notice of such mandatory tender and purchase in the same manner as described under the caption “Redemption of the Series 2017A Bonds – Notice of Redemption” above. The purchase of such Series 2017A Bonds shall be mandatory and enforceable against the Bondholders, and Bondholders will not have the right to retain their Series 2017A Bonds. On the date fixed for purchase pursuant to any exercise of such option, RHF shall pay or cause to be paid the purchase price of the Series 2017A Bonds then being purchased to the Bond Trustee in immediately available funds not later than 10:00 a.m. California time on the purchase date, and the Bond Trustee shall pay the same to the sellers of such Series 2017A Bonds against delivery thereof. Following such purchase, the Bond Trustee shall cause such Series 2017A Bonds to be registered in the name of RHF or its nominee or as otherwise directed by RHF and shall deliver them to RHF or its nominee or as otherwise directed by RHF. In the case of the purchase of less than all of the Series 2017A Bonds, the particular Series 2017A Bonds to be purchased shall be selected in accordance with the Bond Indenture for the Series 2017A Bonds. No such purchase of the Series 2017A Bonds shall operate as a redemption to extinguish the indebtedness of the Authority evidenced thereby, and the Series 2017A Bonds will remain outstanding with RHF named as the beneficial owner thereof. Notwithstanding the foregoing, no such purchase shall be made unless RHF shall have delivered to the Bond Trustee and the Authority concurrently with such purchase an Opinion of Bond Counsel to the effect that such purchase and any resale thereof will not affect the validity of the Series 2017A Bonds or any exemption from federal income taxation to which the interest on the Series 2017A Bonds would otherwise be entitled.

Defeasance

The Bond Indenture provides that the Series 2017A Bonds, or any portion thereof, may be defeased prior to payment or redemption by the deposit of cash or Government Obligations, or a combination thereof, sufficient to provide for the payment of all principal of and interest on the Series

2017A Bonds through maturity or the date upon which the Series 2017A Bonds will be redeemed pursuant to the related Bond Indenture. Series 2017A Bonds that are defeased will no longer be entitled to any security under the Bond Indenture, except for the right to payment from such moneys or Government Obligations. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Defeasance” in APPENDIX D hereto.

Redemption After Satisfaction of Bond Indenture

Upon the provision for payment of the Series 2017A Bonds or a portion thereof as specified in the Bond Indenture, the optional redemption provisions of the Bond Indenture allowing such Series 2017A Bonds to be called prior to maturity upon proper notice (notwithstanding provision for the payment of such Series 2017A Bonds having been made through a date after the first optional redemption date) shall remain available to the Authority, upon direction of RHF, unless, in connection with making the deposits, the Authority, at the direction of RHF, shall have irrevocably elected to waive any future right to call the Series 2017A Bonds or portions thereof for redemption prior to maturity. The Authority, upon direction of RHF, may elect to pay such Series 2017A Bonds on the respective maturity dates unless, in connection with making the deposits, the Authority, at the direction of RHF, shall have irrevocably elected to waive such right to provide for the payment thereof on the maturity date. No such redemption or restructuring shall occur, however, unless RHF shall deliver on behalf of the Authority to the Bond Trustee all items required as described in the Bond Indenture.

SECURITY AND SOURCE OF PAYMENT

General

The Series 2017A Bonds will be secured by the Series 2017A California Obligation issued pursuant to the California Master Indenture. Each Member of the California Obligated Group has made covenants under the California Master Indenture related to, among other things, Additional Indebtedness debt service coverage, days cash on hand, transfer of assets and approval of consultants. See “Certain Covenants of the Obligated Groups Under the Master Indentures” below. All of the Obligations issued pursuant to the California Master Indenture, including the Series 2017A California Obligation, are secured by the Gross Revenues pledged under the Gross Revenue Pledge Agreement and by the California Deeds of Trust. See “Gross Revenues Pledge” and “First Deeds of Trust” below. In addition, RHF, FPM and the members of the National Obligated Group have guaranteed the payment on the Obligations issued under the California Master Indenture, including the Series 2017A California Obligation, and the performance of the members of the California Obligated Group under the California Master Indenture. The guaranties are secured by the Gross Revenues pledged by the California Guarantors under the Gross Revenue Pledge Agreement and the National Second Deeds of Trust/Mortgages delivered by the members of the National Obligated Group. See “The California Guaranties and the National Second Deeds of Trusts/Mortgages” below.

Pursuant to the Bond Indenture and Loan Agreement, the Series 2017A Bonds are limited obligations of the Authority, payable solely from (a) payments or prepayments on the Series 2017A California Obligation, (b) payments or prepayments made under the Loan Agreement (other than Unassigned Rights), (c) moneys and investments held by the Bond Trustee under, and to the extent provided in, the Bond Indenture and (d) in certain circumstances, proceeds from insurance, condemnation awards, or sales made under threat of condemnation. In the Loan Agreement, the California Borrowers agree to make payments to the Bond Trustee that, in the aggregate, are required to be in an amount sufficient for the payment in full of all amounts payable on the Series 2017A Bonds whether due at maturity, upon redemption, by declaration of acceleration or otherwise, and certain fees and expenses

(consisting generally of fees and charges of the Bond Trustee, taxes, accountants’ fees and any fees and expenses of the Authority and the Bond Trustee associated with the Series 2017A Bonds) (the “Additional Payments”).

Certain investment earnings on monies held by the Bond Trustee for the Series 2017A Bonds may be transferred to a Rebate Fund established pursuant to a Tax Exemption Agreement. Amounts held in such Rebate Fund will not be part of the “trust estate” pledged to secure the Series 2017A Bonds and consequently will not be available to make payments on the Series 2017A Bonds.

The Authority will assign its right, title and interest in the Loan Agreement and the Series 2017 Series 2017A California Obligation to the Bond Trustee (except for (i) the Authority’s right to receive payment of its fees and expenses, (ii) the right of the Authority to indemnification in certain circumstances, (iii) the Authority’s right to enforce the special services covenant set forth in the Loan Agreement, (iv) the Authority’s right to receive notices and (v) the Authority’s right to execute and deliver supplements and amendments to the Loan Agreement).

The Series 2017A California Obligation is a joint and several general obligation of each Member of the California Obligated Group.

All or any portion of the Series 2017A Bonds may be advance refunded through the deposit in escrow of cash or Government Obligations for the benefit of the owners of such refunded Series 2017A Bonds. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Defeasance” in APPENDIX D hereto.

The Bond Indenture permits certain amendments to be made to the Bond Indenture and the Loan Agreement, upon the consent of the holders of a majority in aggregate principal amount of the Series 2017A Bonds. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Supplemental Bond Indentures” and “SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT – Supplements and Amendments To The Loan Agreement” in APPENDIX D hereto.

The Master Indentures

The obligations and covenants of the California Obligated Group under the California Master Indenture are separate from the obligations and covenants of the National Obligated Group under the National Master Indenture. The Series 2017A Bonds will be secured in part by the Series 2017A California Obligation issued pursuant to the California Master Indenture. The Series 2017A Bonds are not secured by an Obligation issued under the National Master Indenture but the payments on the Series 2017A California Obligation are guaranteed by the members of the National Obligated Group pursuant to the California Guaranties. The National Obligated Group members have agreed to comply with certain covenants in the National Master Indenture substantially similar to the covenants set forth in the California Master Indenture. Certain of the financial covenants set forth in the Master Indentures are calculated on an RHF Obligated Group basis. Therefore, both Master Indentures are summarized together herein. The holders of the Series 2017A Bonds will not be entitled to enforce any covenants under the National Master Indenture or to direct any remedies thereunder. As described below under “The California Guaranty and the National Second Deeds of Trust/Mortgages” the failure of the National Obligated Group to make a payment on an Obligation issued under the National Master Indenture or a failure by the California Obligated Group to make a payment under the hereinafter described National Guaranty, will cause events of defaults under both Master Indentures.

Gross Revenue Pledge

Pursuant to the Gross Revenue Pledge Agreement, each member of the RHF Obligated Group has, to the extent permitted by law, pledged and granted a security interest in its Gross Revenues to The Bank of New York Mellon Trust Company, N.A., as collateral agent (the “Collateral Agent”) to secure the payment of Required Payments and the performance by the Members of their other obligations under the Master Indentures, the Guaranties and the Gross Revenues Pledge Agreement. For purposes of the Gross Revenue Pledge Agreement, “Required Payments” means any payment whether at maturity, by acceleration, upon proceeding for redemption or otherwise, required to be made by any Member of the RHF Obligated Group under either Master Indenture, any of the Guaranties, the Gross Revenue Pledge Agreement, any Obligation or any loan agreement, reimbursement agreement or other agreement or instrument evidenced or secured by any Obligation, or otherwise in connection with indebtedness issued under the Master Indentures, including, but not limited to, the payment of principal, interest and premium, letter of credit reimbursement and fees.

“Gross Revenues” are defined as all receipts, revenues, income and other money received or receivable by or on behalf of each member of the RHF Obligated Group from any source whatsoever, including, but not limited to, (a) revenues derived from the operation and possession of each member of the RHF Obligated Group’s facilities, including accounts receivable, but excluding patient trust accounts and security deposit accounts, (b) gifts, bequests, grants, donations and contributions, exclusive of any gifts, bequests, grants, donations or contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of Required Payments or for the payment of operating expenses, and (c) revenues derived from (1) condemnation proceeds, (2) inventory and other tangible and intangible property, (3) private and governmental health care reimbursement programs and agreements, to the extent permitted by law, and (4) insurance proceeds, to the extent permitted by law.

Each member of the RHF Obligated Group, to the extent permitted by law, agrees pursuant to the Gross Revenue Pledge Agreement that all of its Gross Revenues, with the exception of certain Segregated Gross Revenues, as such term is defined in the Gross Revenue Pledge Agreement, shall be deposited by daily transfer from the account into which they were originally received into one or more concentration accounts (in one or more concentration accounts at such banking institution or institutions in the State of California as the Obligated Group Representative shall from time to time designate in writing to the

Collateral Agent for such purpose (the “Depository Bank(s)”)) each designated as a “Gross Revenue Fund” which the members shall establish and maintain in the name of RHF or FPM (which either shall hold in trust for the members of the RHF Obligated Group, respectively, as their interests may appear). Amounts in each Gross Revenue Fund may be used and withdrawn by any member of the RHF Obligated Group at any time for any lawful purpose, except as hereinafter provided. In the event that any member of the RHF Obligated Group is delinquent for more than one Business Day in the payment of any Required Payment, the Collateral Agent shall notify the Master Trustees, the Obligated Group Representative and the Depository Bank(s) of such delinquency, and, unless such Required Payment is paid within two Business Days after receipt of such notice, the Collateral Agent shall cause the Depository Bank(s) to transfer each Gross Revenue Fund to the name and credit of the Collateral Agent by the Collateral Agent’s delivery to the Depository Bank(s) of a notice of exclusive control (the “Notice of Exclusive Control”). However, the Collateral Agent shall not give such Notice of Exclusive Control to the Depository Bank(s) unless and until the aforementioned delinquency in payment has occurred and is continuing under the Gross Revenue Pledge Agreement or unless there is a general exercise of remedies thereunder; provided however that the Depository Bank(s) shall have no duty to investigate whether such delinquency has occurred or is continuing and shall rely exclusively on the Notice of Exclusive Control delivered to it by the Collateral Agent.

The Collateral Agent shall continue to hold each Gross Revenue Fund until amounts on deposit in said fund are sufficient to pay in full, or have been used to pay in full, all Required Payments then due or provision deemed by the Collateral Agent in its sole discretion to be adequate shall have been made therefor. Upon such payment or provision, each Gross Revenue Fund (except for the Gross Revenues required to make such payments or cure such defaults) shall be returned to the name and credit of RHF or FPM, as applicable.

During any period that each Gross Revenue Fund is held in the name and to the credit of the Collateral Agent, the Collateral Agent shall use and withdraw amounts in said accounts from time to time to make Required Payments as such payments become due (whether by maturity, redemption, acceleration or otherwise), and, if such amounts shall not be sufficient to pay in full all such payments due on any date, then to the payment of Required Payments then due ratably, without any discrimination or preference, and to such other payments in the order which the Collateral Agent, in its sole discretion, shall determine to be in the best interests of the Holders, without discrimination or preference. During any period that each Gross Revenue Fund is held in the name and to the credit of the Collateral Agent, the members of the RHF Obligated Group shall not be entitled to use or withdraw any of the Gross Revenues unless and to the extent that the Collateral Agent in its sole discretion directs for the payment of current or past due operating expenses of the RHF Obligated Group.

The pledge of Gross Revenues will be perfected to the extent and only to the extent that such security interest may be perfected by control as provided in the Uniform Commercial Code of the State of California. It may not be possible to perfect a security interest in any manner whatsoever in certain types of Gross Revenues (e.g., certain insurance proceeds, Medicare and Medicaid receivables) prior to actual receipt by each member of the RHF Obligated Group for deposit into each Gross Revenue Fund. The parties to the Gross Revenue Pledge Agreement acknowledge, and the third party beneficiaries of the Gross Revenue Pledge Agreement have been informed, that Gross Revenues from a state or governmental entity (Medicare or Medicaid proceeds) may not, by law, be subject to the pledge of the Gross Revenue Pledge Agreement. Each member of the RHF Obligated Group has agreed to execute and deliver a depository account control agreement with the Depository Bank(s) with respect to each Gross Revenue Fund and any other documents necessary to perfect or maintain as perfected the security interest in the Gross Revenues.

First Deeds of Trust

Each California Member has delivered a California Deed of Trust on its facility to the California Deed of Trust Trustee for the benefit of the California Master Trustee to secure the Obligations issued under the California Master Indenture, including the Series 2017A California Obligation. No appraisal has been made of the value of the facilities subject to the California Deeds of Trust. See “RISK FACTORS – Certain Risks Associated with the Mortgages/Deeds of Trust” and “– California Deeds of Trust” herein.

Pursuant to the California Deeds of Trust, each California Member has granted a first lien on and security interest in its Trust Property, as defined in the related California Deed of Trust, subject to Permitted Encumbrances.

Each California Member has also delivered one or more mortgagee title insurance policies for the mortgaged Property, with the California Master Trustee being the named insured. The title insurance policies, when combined with the mortgage title insurance policies for the properties subject to the National Second Deed of Trust/Mortgage, described below, are in an amount equal to the aggregate principal amount of the Series 2017 Bonds.

The California Guaranties and the National Second Deeds of Trust/Mortgages

Pursuant to the California Guaranties, the California Guarantors have guaranteed the payment of all amounts owed on the Obligations issued under the California Master Indenture and the performance of the California Members thereunder. Pursuant to the Gross Revenue Pledge Agreement, the California Guarantors have granted a security interest in their Gross Revenues to the California Master Trustee in order to secure their obligations under the California Guaranties. In addition, each National Member has delivered a National Second Deed of Trust/Mortgage with respect to its facilities to the California Master Trustee to secure their obligations under the California Guaranties. The facilities subject to the National Second Deeds of Trust/Mortgages are located in Florida, Kentucky, Missouri and Indiana. The lien of each National Second Deed of Trust/Mortgage is subject and subordinate to the lien of the first deeds of trust or mortgages previously delivered by each National Member to the National Master Trustee in order to secure the Obligations issued under the National Master Indenture. See “PLAN OF FINANCE – Concurrent Financings” herein. No appraisal has been made of the value of the facilities subject to the National Deeds of Trust/Mortgages. See “RISK FACTORS – Certain Risks Associated with the Mortgages/Deeds of Trust,” “– Indiana Mortgages,” “– Florida Mortgages,” “– Kentucky Mortgages” and “– Missouri Deeds of Trust” herein.

The Master Indentures, the California Deeds of Trust, the National Second Deeds of Trust/Mortgages and the California Guaranties contain certain events of default. Failure by the members of the California Obligated Group to make payments on the Series 2017A California Obligation or the Obligation securing the Series 2017C Bonds, accompanied by a failure of the California Guarantors to make payments on such Obligations, could cause an event of default to occur under both Master Indentures. As described under “PLAN OF FINANCE – Concurrent Financings” below, the members of the California Obligated Group, RHF and FPM are the “National Guarantors” with respect to the Series 2017B Bonds and the Series 2017D Bonds. Failure by the members of the California Obligated Group to make payments with respect to the National Guaranties (as hereinafter defined) could also result in an event of default under both Master Indentures. Therefore, any failure by the members of the RHF Obligated Group to make a payment of principal or interest on any Obligations issued under the Master Indentures, including the Obligations securing the Series 2017 Bonds, could result in an event of default under both Master Indentures and cause an acceleration of all Obligations issued under both Master Indentures.

Additional Indebtedness

Upon the terms and conditions specified therein, each Master Indenture permits any member of the Obligated Groups to incur Additional Indebtedness which may, but need not, be evidenced or secured by Additional Obligations issued under either Master Indenture. Additional Obligations issued under each Master Indenture may be issued to the Authority and to Persons other than the Authority. Additional Obligations need not be pledged under the Bond Indenture but will rank equally and ratably (except as described herein) with the Series 2017A California Obligation pledged under the Bond Indenture.

Each Master Indenture permits Additional Indebtedness (including Additional Obligations) to be secured by security in addition to that generally provided for all Obligations (including letters or lines of credit or insurance or security interests in depreciation reserve, debt service or interest reserve or similar funds), which additional security need not be extended to secure any other Obligations (including the Series 2017A California Obligation). See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Limitations on Encumbrances;” and “– Limitations on Additional Indebtedness” in APPENDIX C hereto.

CERTAIN COVENANTS OF THE OBLIGATED GROUPS UNDER THE MASTER INDENTURES General

The Series 2017A California Obligation securing the Series 2017A Bonds will be issued pursuant to the California Master Indenture. Payments under the Series 2017A California Obligation have been guaranteed by the members of the National Obligated Group pursuant to the California Guaranties. See “SECURITY AND SOURCE OF PAYMENT” herein. The California Obligated Group and the National Obligated Group have agreed to comply with certain covenants under their respective Master Indenture. Because each Master Indenture contains substantially similar provisions and the holders of the Series 2017A Bonds benefit from certain provisions of each Master Indenture, the Master Indentures are described herein together. Each Supplemental Master Indenture contains certain covenants for the benefit of the holders of the Series 2017 Bonds (the “Series 2017 Covenants”) that are more restrictive than the provisions of the Original Master Indentures. The Series 2017 Covenants are summarized in the summaries of the Master Indentures set forth herein and in APPENDIX C hereto. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES” in APPENDIX C hereto.

Rates and Charges

Each Member of each Obligated Group covenants in the applicable Master Indenture and agrees to operate all of its Property in the aggregate on a revenue-producing basis and to charge such fees and rates for its facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its facilities together with other available funds sufficient to pay promptly all payments of principal, interest and other amounts due in respect of its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it the applicable Master Indenture to the extent permitted by law. Each Member of the Obligated Groups further covenants and agrees in its respective Master Indenture that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of the applicable Master Indenture.

Within 150 days after the end of each Fiscal Year (commencing with the fiscal year ended September 30, 2017) the Obligated Group Representative shall compute Income Available for Debt

Service and Annual Debt Service and promptly furnish to the Master Trustee a certificate setting forth the results of such computation.

If a written report of an Independent Consultant is delivered to the Master Trustee stating that Industry Restrictions have made it impossible for the Debt Service Coverage Ratio of the RHF Obligated Group of 1.15:1 to be met, then such ratio shall be reduced to 1.00:1 for such Fiscal Year.

A copy of the Independent Consultant’s report and recommendations, if any, shall be filed with each Member of each Obligated Group, the Master Trustee and each Related Bond Trustee within 60 days of retaining the Independent Consultant. Each Member shall follow each recommendation of the Independent Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member of the applicable Obligated Group) and permitted by law. This provision of each Master Indenture shall not be construed to prohibit any Member from serving indigent patients to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent each Obligated Group from satisfying the other requirements of this Section.

See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Rates and Charges; Debt Coverage” and “– Approval of Consultants” in APPENDIX C hereto.

Liquidity Covenant

Pursuant to the Series 2017 Covenants, each Obligated Group will calculate the Days Cash on Hand of the RHF Obligated Group as of March 31 and September 30 of each Fiscal Year (each such date being a “Testing Date”). Each Member of each Obligated Group is required under the respective Master Indenture to conduct its business so that the RHF Obligated Group, collectively, shall have not less than 120 Days Cash on Hand for each Testing Date.

If the RHF Obligated Group has not achieved 120 Days Cash on Hand by the next Testing Date following delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group

Representative shall, within 60 days after receipt of the Officer’s Certificate disclosing such deficiency, retain an Independent Consultant to make recommendations with respect to the rates, fees and charges of the respective Obligated Group and the respective Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand to the required level for future periods. A copy of the Independent Consultant’s report and recommendations if any, which may also be the same report delivered to the respective Obligated Group, shall be filed with each Member of the respective Obligated Group, the Master Trustee and the Bond Trustee within 60 days of the date such Independent Consultant is retained. Each Member of each Obligated Group shall follow each recommendation of the Independent Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.

Notwithstanding any other provision of each Master Indenture, failure of the RHF Obligated Group to achieve the required liquidity covenant for any Fiscal Year shall not constitute an event of default under each Master Indenture if the respective Obligated Group takes all action necessary to comply with the procedures set forth above for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Liquidity Covenant” in APPENDIX C hereto.

Approval of Consultants

If at any time the Obligated Group Representative is required to engage an Independent Consultant under the Master Indentures, such Independent Consultant shall be engaged in the manner set forth below.

Upon selecting an Independent Consultant as required under each Master Indenture, the Obligated Group Representative will notify the Master Trustee of such selection. The Master Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the owners of the Obligations Outstanding of such selection. Such notice shall (i) include the name and a brief description of the Independent Consultant, (ii) include a description of the covenant(s) of the related Master Indenture that require the Independent Consultant to be engaged, and (iii) state that the holder of the Obligation will be deemed to have consented to the selection of the Independent Consultant named in such notice unless such holder submits an objection to the selected Independent Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 30 days of the date that the notice is sent to the Obligation holders. No later than two Business Days after the end of the 30-day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If two-thirds (66.7%) or more in aggregate principal amount of the holders of the Outstanding Obligations have been deemed to have consented to the selection of the Independent Consultant, the Obligated Group Representative may engage the Independent Consultant within five days of receiving notice of that consent. If more than one-third (33.3%) in aggregate principal amount of the owners of the Obligations Outstanding have objected to the Independent Consultant selected, the Obligated Group Representative shall select another Independent Consultant within 14 days after receiving notice of such objection, which may be engaged upon compliance with the procedures summarized in this paragraph.

All Independent Consultant reports required under the Master Indentures shall be prepared in accordance with then-effective industry-appropriate standards.

See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Approval of Consultants” in APPENDIX C hereto.

Other Covenants

The Master Indentures contain other covenants, restrictions and limitations of the Obligated Groups including without limitation: incurrence of additional indebtedness; merger; transfer of assets; sale, lease or other disposition of property; and permitted liens. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES” in APPENDIX C hereto.

Covenants Under California Guaranties

The California Guaranty executed by RHF and FPM contain certain covenants substantially similar to the covenants set forth in the Master Indentures. Those covenants include limitations on Additional Indebtedness, restrictions on guaranties and limitations on consolidation, merger, sale and conveyance. These covenants bind RHF and FPM to the same restrictions on such actions that are contained in the Master Indentures. Failure of RHF and FPM to comply with such restrictions will cause an event of default of the California Guaranties and the California Master Indenture.

PLAN OF FINANCE

Series 2017A Bonds

The proceeds of the Series 2017A Bonds, together with certain other moneys, will be loaned to the California Borrowers to (i) currently refund the Refunded Series 2014A Bonds; (ii) finance or reimburse the costs of the California Project; and (iii) pay all or a portion of the costs of issuance related to the Series 2017A Bonds and the refunding of the Refunded Series 2014A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein for a description of the expected uses of the proceeds of the Series 2017A Bonds and the sources and uses of financing for the Project. See “CAPITAL SPENDING AND PROPOSED CAPITAL IMPROVEMENTS – Capital Improvements Financed with Series 2017 Bonds – California Obligated Group” in APPENDIX A hereto for a description the California Project.

Concurrent Financings

General. Concurrently with the issuance of the Series 2017A Bonds, certain additional series of bonds will be issued for the benefit of the RHF Obligated Group, are collectively expected to be issued on the same date. These bonds are as follows:

Series 2017B Bonds. The Public Finance Authority (“PFA”) is expected to issue its $46,200,000* Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017B (the “Series 2017B Bonds”) pursuant to a Bond Trust Indenture dated as of September 1, 2017 (the “Series 2017B Bond Indenture”), between PFA and the Bond Trustee. The proceeds of the Series 2017B Bonds will be loaned to (i) Holly Hill RHF Housing Inc., (ii) Merritt Island RHF Housing, Inc., (iii) Yellowwood Acres, Inc. and (iv) Bluegrass RHF Housing, Inc. (the entities listed in (i) through (iv) are collectively referred to as the “National Borrowers”), pursuant to a Loan Agreement dated as of September 1, 2017 (the “Series 2017B Loan Agreement”), among PFA and the National Borrowers. The National Borrowers will use the proceeds of the Series 2017B Bonds, together with certain other moneys, to (i) currently refund a portion of the outstanding (a) $6,510,000 in original aggregate principal amount of Public Finance Authority Revenue Bonds, (Retirement Housing Foundation Obligated Group) Series 2014B, (b) $30,000,000 in original aggregate principal amount of Public Finance Authority Revenue Bonds, (Retirement Housing

* Preliminary, subject to change.

Foundation Obligated Group) Series 2014C, (c) $20,000,000 in original aggregate principal amount of Public Finance Authority Revenue Bonds, (Retirement Housing Foundation Obligated Group) Series 2014D and (d) $15,000,000 in original aggregate principal amount of Public Finance Authority Revenue Bonds, (Retirement Housing Foundation Obligated Group) Series 2014E (collectively, the “Refunded Series 2014BCDE Bonds”); (ii) finance or reimburse the costs of constructing, renovating, remodeling and/or equipping one or more of the facilities of the National Borrowers (the “National Project” and together with the California Project, the “Projects”); and (iii) pay all or a portion of the costs of issuance related to the Series 2017B Bonds and the refunding of the Refunded Series 2014BCDE Bonds. See “CAPITAL SPENDING AND PROPOSED CAPITAL IMPROVEMENTS – Capital Improvements to be Financed with Series 2017 Bonds – National Obligated Group” in APPENDIX A hereto for a description the National Project. The Series 2017A Bonds and the Series 2017B Bonds will constitute a single issue for federal income tax purposes.

Series 2017C Bonds. The RHF Obligated Group is issuing its $9,065,000* Taxable Bonds, Series 2017C (California) (the “Series 2017C Bonds”) pursuant to a Trust Agreement dated as of September 1, 2017 (the “Series 2017C Bond Indenture”), between RHF, as Obligated Group Representative on behalf of the California Obligated Group, and the Bond Trustee. The RHF Obligated Group will use the proceeds of the Series 2017C Bonds, together with certain other moneys, to (i) currently refund a portion of the Refunded Series 2014A Bonds and (ii) pay all or a portion of the costs of issuance related to the Series 2017C Bonds and the refunding of the Refunded Series 2014A Bonds.

Series 2017D Bonds. The RHF Obligated Group is issuing its $12,725,000* Taxable Bonds, Series 2017D (National) (the “Series 2017D Bonds”) pursuant to a Trust Agreement dated as of September 1, 2017 (the “Series 2017D Bond Indenture”), between RHF, as Obligated Group Representative on behalf of the National Obligated Group, and the Bond Trustee. The RHF Obligated Group will use the proceeds of the Series 2017D Bonds, together with certain other moneys, to (i) currently refund a portion of the Refunded Series 2014BCDE Bonds and (ii) pay all or a portion of the costs of issuance related to the Series 2017D Bonds and the refunding of the Refunded Series 2014BCDE Bonds.

Security. The following is a brief discussion of the security for the Series 2017B, Series 2017C and Series 2017D Bonds. For more information, see the offering documents dated the date hereof related to these bonds.

Security for the Series 2017B Bonds and the Series 2017D Bonds. The Series 2017B Bonds and the Series 2017D Bonds will be secured by Obligations issued under the National Master Indenture. Each National Member has delivered a first deed of trust or mortgage with respect to its facilities for the benefit of the National Master Trustee to secure their obligations under the National Master Indenture. RHF, FPM and each California Member (collectively, the “National Guarantors”) have entered into separate Guaranty Agreements each dated as of July 1, 2008, as supplemented and amended, and as reaffirmed pursuant to the Second Reaffirmation of Guaranty Agreement dated as of September 1, 2017 (together, the “National Guaranties”), with the National Master Trustee, guarantying the payments of all amounts owed on the Obligations issued under the National Master Indenture and the performance of the National Members thereunder. Pursuant to the Gross Revenue Pledge Agreement, the National Guarantors have granted a security interest in their Gross Revenues to the National Master Trustee in order to secure their obligations under the National Guaranties. In addition, each California Member has delivered a second deed of trust (each a “California Second Deed of Trust”) with respect to its facilities for the benefit of the National Master Trustee to secure their obligations under the National Guaranty. The lien of each California Second Deed of Trust is subject and subordinate to the lien of the California Deeds of Trust which secure the Obligations issued under the California Master Indenture (including the Series 2017A

California Obligation). See “SECURITY AND SOURCE OF PAYMENT – California Guaranties and the National Second Deeds of Trust/Mortgages” herein.

Security for the Series 2017C Bonds. The Series 2017C Bonds will be secured by an Obligation issued under the California Master Indenture on a parity with the Series 2017A California Obligation.

ESTIMATED SOURCES AND USES OF FUNDS*

Proceeds to be received from the sale of the Series 2017 Bonds are estimated to be applied as set forth in the following table. All amounts are rounded to the nearest whole dollar. Totals may not correspond due to rounding. Series 2017A Series 2017B Series 2017C Series 2017D Total Sources of Funds Par Amount of Bonds $ 26,115,000 $ 46,200,000 $ 9,065,000 $ 12,725,000 $ 94,105,000 Net Original Issue Premium 5,197,674 7,099,224 -- -- 12,296,898 Total Sources of Funds $ 31,312,674 $ 53,299,224 $ 9,065,000 $ 12,725,000 $106,401,898

Uses of Funds Deposit to Applicable Project Fund $ 6,900,000 $ 1,354,000 -- -- $ 8,254,000 Redemption of Series 2014A Bonds 23,835,000 -- $ 8,865,000 -- 32,700,000 Redemption of Series 2014BCDE Bonds -- 50,925,000 -- $ 12,445,000 63,370,000 Costs of Issuance1 577,674 1,020,224 200,000 280,000 2,077,898 Total Uses of Funds $ 31,312,674 $ 53,299,224 $ 9,065,000 $ 12,725,000 $106,401,898

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* Preliminary, subject to change. 1 Includes Underwriter’s discount, legal, accounting, administrative and miscellaneous fees and expenses.

ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each bond year ending November 15, the amounts required to be available for the payment of principal (including Bond Sinking Fund payments) and interest on the Series 2017 Bonds. The totals of the columns and rows may not correspond exactly due to rounding.

Bond Year Series 2017A Bonds Series 2017B Bonds Series 2017C Bonds Series 2017D Bonds ending Total Debt * Nov. 15, Principal Interest Principal* Interest Principal* Interest Principal* Interest Service 2017 -- $1,000,000 $250,000 -- 2018 -- 1,950,000 1,330,000 $1,500,000 2019 -- 1,580,000 1,355,000 2,000,000 2020 -- 1,705,000 1,385,000 2,000,000 2021 -- 1,845,000 1,425,000 2,000,000 2022 -- 1,995,000 1,465,000 2,000,000 2023 -- 1,660,000 1,510,000 2,500,000 2024 $1,215,000 3,605,000 345,000 725,000 2025 1,640,000 4,535,000 -- -- 2026 1,715,000 4,765,000 -- -- 2027 1,805,000 5,000,000 -- -- 2028 1,895,000 5,250,000 -- -- 2029 1,985,000 5,515,000 -- -- 2030 2,085,000 5,795,000 -- -- 2031 8,275,000 ------2032 5,500,000 -- -- Total $26,115,000 $46,200,000 $9,065,000 $12,725,000

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* Preliminary, subject to change. 21

RISK FACTORS

Set forth below are certain risk factors which should be considered before any investment in the Series 2017A Bonds is made. Certain risks are inherent in the successful operation of RHF’s facilities. This section discusses some of these risks but is not intended to be, and should not be considered, a comprehensive listing of all risks associated with the operation of RHF’s facilities or the payment of the Series 2017A Bonds.

General

As described herein under the caption “INTRODUCTION – Security and Source of Payment,” the Series 2017A Bonds are payable from the payments to be made by the California Borrowers pursuant to the Loan Agreement and the Series 2017A California Obligation. No representation or assurance is given or can be made that revenues will be realized by the RHF Obligated Group in amounts sufficient to pay debt service on the Series 2017A Bonds when due and other payments necessary to meet the obligations of the RHF Obligated Group. The Risk Factors discussed below should be considered in evaluating the ability of the RHF Obligated Group to make payments in amounts sufficient to provide for the payment of the principal of, the premium, if any, and interest on the Series 2017A Bonds.

The receipt of future revenues by the RHF Obligated Group will be subject to, among other factors, federal and state policies affecting the senior housing and health care industries (including changes in reimbursement rates and policies), increased competition from other senior housing and health care providers, the capability of the management of the RHF Obligated Group and future economic and other conditions that are impossible to predict. The extent of the ability of the RHF Obligated Group to generate future revenues has a direct effect upon the payment of principal of, premium and purchase price, if any, and interest on the Series 2017A Bonds. Neither the Underwriter nor the Authority has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the RHF Obligated Group.

General Risks of Senior Living Facilities

There are many diverse factors not within the RHF Obligated Group’s control that have a substantial bearing on the risks generally incident to the operation of the facilities of the RHF Obligated Group. These factors include generally imposed fiscal policies, adverse use of adjacent or neighboring real estate, the ability to maintain the facilities of the RHF Obligated Group, community acceptance of the facilities of the RHF Obligated Group, changes in demand for long-term care services, changes in the number of competing facilities, changes in the costs of operation of the facilities of the RHF Obligated Group, changes in state laws affecting long term care programs, the limited income of the elderly, changes in the long term care and health care industries, difficulties in or restrictions on the RHF Obligated Group’s ability to raise rates charged, general economic conditions and the availability of working capital. In recent years, a significant number of long term care facilities throughout the United States have defaulted on various financing obligations or otherwise have failed to perform as originally expected. There can be no assurance the facilities of the RHF Obligated Group will not experience one or more of the adverse factors that caused other facilities to fail. Many other factors may adversely affect the operation of facilities like the facilities of the RHF Obligated Group and cannot be determined at this time.

Uncertainty of Revenues

As noted elsewhere, except to the extent that the holders of the Series 2017A Bonds are secured, under certain circumstances, by the proceeds of insurance, sale or condemnation awards, the Series

2017A Bonds will be payable solely from payments or prepayments to be made by the California Borrowers under the Loan Agreement and the Series 2017A California Obligation and from payments made under the California Guaranties and from certain funds held under the Bond Indenture. The ability of the California Borrowers to make payments under the Loan Agreement and the Series 2017A California Obligation and the California Guarantors to make payments under the California Guaranties is dependent upon the generation by the RHF Obligated Group of revenues in the amounts necessary for the RHF Obligated Group to pay the principal, premium, if any, and interest on the Series 2017A Bonds, as well as other operating and capital expenses. The realization of future revenues and expenses are subject to, among other things, the capabilities of the management of the RHF Obligated Group, government regulation and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal of and interest on the Series 2017A Bonds. No representation or assurance can be made that revenues will be realized by the RHF Obligated Group in amounts sufficient to make the required payments with respect to debt service on the Series 2017A Bonds. Neither the Underwriter nor the Authority has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the RHF Obligated Group.

Failure to Achieve and Maintain Occupancy

All of the RHF Obligated Group communities are rental communities. The RHF Obligated Group members enter into residential lease agreements with its residents (“Residential Lease Agreements”). The economic feasibility of the RHF Obligated Group’s operations depends in large part upon the ability of the RHF Obligated Group to maintain substantial occupancy in its communities throughout the term of the Series 2017A Bonds. This depends to some extent on factors outside management’s control, such as the residents’ right to terminate their Residential Lease Agreements. Such impairment could also result if the RHF Obligated Group is unable to remarket units as they become available. If the RHF Obligated Group’s operations fail to maintain occupancy levels, remarket, in a timely manner, residential living units and assisted living units as they become available, there may be insufficient funds to pay the debt service on the Series 2017A Bonds.

Nature of the Income of the Elderly

A large percentage of the monthly income of the RHF Obligated Group residents is fixed income derived from pensions and Social Security. In addition, some residents liquidate assets in order to pay the monthly rent and other fees due under their Residential Lease Agreements. Some residents may also be affected by historically low interest rates on their savings or investments. If, due to inflation or otherwise, substantial increases in fees are required to cover increases in operating costs, including wages, benefits and other expenses, many residents may have difficulty paying or may be unable to pay such increased fees. Alternatively, any decrease in the amounts paid by such fixed income sources could affect the ability of residents to pay rent and other fees. The RHF Obligated Group’s inability to collect from residents the full amount of payment obligations due under their Residential Lease Agreements may jeopardize the ability of the RHF Obligated Group to pay amounts due under the Loan Agreement and the California Guaranties, as well as the Series 2017A California Obligation.

Sale of Personal Residences

Prospective residents of the RHF Obligated Group’s facilities may be required to sell their current homes to meet their financial obligations under their Residential Lease Agreements. If prospective residents encounter difficulties in selling their current homes due to local or national economic conditions affecting the sale of residential real estate, such prospective residents may not have sufficient funds to meet the financial obligations of their Residential Lease Agreements.

Utilization and Demand

Several factors could, if implemented, affect demand for services of the RHF Obligated Group’s facilities including: (i) efforts by insurers and governmental agencies to reduce utilization of skilled nursing home and long-term care facilities by such means as preventive medicine and home health care programs; (ii) advances in scientific and medical technology; (iii) a decline in the population, a change in the age composition of the population or a decline in the economic conditions of the service area; (iv) increased or more effective competition from nursing facilities, assisted living communities and long- term care communities now or hereafter located in the RHF Obligated Group’s service areas, or (v) increased consumer demand for home health care services.

Competition

Competition from a wide variety of potential sources, including but not limited to other rental retirement communities, residential living communities, continuing care retirement communities, life plan communities, congregate housing, assisted living centers, home healthcare agencies and other long-term care communities that offer residential living, assisted living, memory care or skilled nursing facilities now or hereafter located in the RHF Obligated Group’s market areas could adversely affect its revenues. The RHF Obligated Group may face additional competition in the future from other providers of new, expanded, or renovated retirement living and nursing facilities servicing the housing and health care needs of seniors. Such competition could inhibit the extent to which the RHF Obligated Group will be able to raise charges and maintain or increase admissions. There can be no assurance that additional competing facilities will not be constructed in the future. See “INFORMATION CONCERNING THE OBLIGATED GROUP MEMBERS – Description of RHF Obligated Group Communities and Operations” in APPENDIX A hereto.

Rights of Residents

Although the Residential Lease Agreements give to each resident a contractual right to use space and do not grant any ownership rights in the RHF Obligated Group’s facilities, in the event that either the Bond Trustee or the holders of the Series 2017A Bonds seek to enforce any of the remedies provided by the Bond Indenture upon the occurrence of a default or the Master Trustee seeks to enforce remedies under the Deeds of Trust and Mortgages, management is unable to predict the resolution that a court might make of competing claims between the Master Trustee, the Bond Trustee, the Authority or the holders of the Series 2017A Bonds and an RHF Obligated Group facility resident who has fully complied with all the terms and conditions of his or her residency agreement.

Construction Risks

Construction projects are subject to a variety of risks, including but not limited to delays in issuance of required building permits or other necessary approvals or permits, strikes, shortages of qualified contractors or materials and adverse weather conditions. Such events could delay occupancy of the Projects. Cost overruns may occur due to change orders, delays in construction schedules, scarcity of building materials and other factors. Cost overruns could cause project costs to exceed estimates and require more funds than originally allocated or require the RHF Obligated Group to expend or borrow additional funds to complete the Projects.

Seismic Risk

According to the Seismic Safety Commission of the State of California, the State is mapped into seismic hazard zones 3 and 4. Seismic hazard zones account for geographic variation in the expected

levels of earthquake ground shaking and are based on the historical records of earthquakes and the location of known earthquake faults. Local building codes take into account the likelihood of ground shaking and are intended to provide safety to the building occupants.

There can be no assurance that the occurrence of a significant seismic event in any area in which any of the RHF Obligated Group facilities operate would not have a material adverse effect on its facilities, the operations of the RHF Obligated Group or the ability of the RHF Obligated Group to pay the principal, premium, if any, and interest on the Series 2017A Bonds. The RHF Obligated Group carries earthquake insurance. See “ADDITIONAL INFORMATION – Insurance” in APPENDIX A hereto.

Present and Prospective Federal and State Regulation

General. Health care providers are subject to extensive federal, state and local laws and regulations, and sanctions imposed under or changes to such laws or regulations could adversely affect the operations or financial results of the RHF Obligated Group. Further reductions in federal and state funding of health care below levels authorized by present law can be expected.

Nursing facilities, including the skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) owned by the RHF Obligated Group, are subject to numerous licensing, certification, accreditation, and other governmental requirements. These include, but are not limited to, requirements relating to state licensing agencies, private payors and accreditation organizations. Renewal and continuance of certain of these licenses, certifications, approvals and accreditations are based upon inspections, surveys, audits, investigations or other review, some of which may require or include affirmative action or response by the RHF Obligated Group. An adverse determination could result in a loss, fine or reduction in scope of licensure, certification or accreditation, could affect the ability to undertake certain expenditures or could reduce the payment received or require the repayment of the amounts previously remitted.

Affordable Care Act.

Generally. The “Patient Protection and Affordable Care Act” and “The Health Care and Education Affordability Reconciliation Act of 2010” (together referred to herein as the “ACA”) has had a significant impact on the entire healthcare industry. This legislation addresses almost all aspects of health care delivery, and has changed and is changing how health care services are covered, delivered, and reimbursed. These changes are resulting in lower reimbursement from Medicare, utilization changes, increased government enforcement and the necessity for health care providers to assess, and alter, their business strategy and practices, among other consequences. Health care reform has also required, and will continue to require, the promulgation of substantial regulations with significant effects on the health care industry. Thus, the health care industry is the subject of significant new statutory and regulatory requirements and consequently will be subject to structural and operational changes and challenges for a substantial period of time. The full ramifications of health care reform may also become apparent only over time and through later regulatory and judicial interpretations.

Key Provisions of the ACA. Key provisions of the ACA include: (i) creating active insurance markets (referred to as exchanges) in which individuals and small employers can purchase health care insurance for themselves and their families or their employees and dependents, (ii) providing subsidies for premium costs to individuals and families based upon their income relative to federal poverty levels, (iii) mandating that individuals obtain and certain employers provide a minimum level of health care insurance, and providing for penalties or taxes on individuals and employers that do not comply with these mandates, (iv) establishing insurance reforms that expand coverage generally through such

provisions as prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and (v) expanding existing public programs, including Medicaid for individuals and families. The ACA also contains a significant number of provisions related to health care fraud and abuse and program integrity as well as significant amendments to existing criminal, civil and administrative anti-fraud statutes. Increased compliance and regulatory requirements, disclosure and transparency obligations, quality of care expectations and extraordinary enforcement provisions that could greatly increase potential legal exposure are all aspects of the ACA that could increase operating expenses to the RHF Obligated Group.

The ACA provides changes with respect to how consumers will pay for their own and their families’ health care and how employers will procure health insurance for their employees. In addition, the ACA requires insurers to change certain underwriting practices and benefit structures in order to cover individuals who previously would have been ineligible for health care insurance coverage. As a result, there is expected to be a tremendous increase in the number of individuals eligible for health care insurance coverage.

Uncertainly Regarding the Future of the ACA. The ACA and its implementation has been, and remains, politically controversial. Portions of the ACA have already been limited as a result of legislative amendment or judicial interpretation and efforts to repeal the ACA or certain provisions thereof are from time to time pending in Congress. In June 2012, the U.S. Supreme Court upheld most provisions of the ACA, including the requirement that individuals maintain health insurance coverage. The Supreme Court also ruled that the federal government could not compel states to comply with the ACA’s requirement to expand Medicaid by eliminating all federal funds a state receives for its existing Medicaid program. To date, California, Kentucky and Indiana have expanded Medicaid; Florida and Missouri have not expanded Medicaid. In June 2015, the U.S. Supreme Court held that health insurance subsidies under the ACA would be available in all states, including those with a federally-facilitated health insurance exchange.

The ACA continues to be subject to judicial interpretation and attempts to repeal or amend all of the law. Most recently, President Donald Trump and certain Congressional leaders have taken steps to repeal or rescind certain provisions of the ACA, including introducing various bills aimed at repealing and replacing all or portions of the ACA. To date, no such bills have passed both chambers of Congress. The uncertainties regarding the implementation, revision or rescission of the ACA and future health care reform efforts create unpredictability for the strategic and business planning efforts of health care providers, which in itself constitutes a risk. It is impossible to predict the likelihood of any health care reform bill becoming law, or the subsequent effects of any such law and there can be no assurance that any such legislative efforts to rescind, modify, replace or repeal provisions of the ACA will not materially adversely affect the RHF Obligated Group. Material effects may include potential decrease in the market for health care services, an increase in the uninsured rate, or in a decrease in the RHF Obligated Group’s ability to receive reimbursement for health care services provided.

Recent Executive Action on the ACA. In addition to legislative changes, ACA implementation and the ACA insurance exchange markets can be significantly impacted by executive branch actions. On January 20, 2017, President Trump issued an executive order requiring all federal agencies with authorities and responsibilities under the ACA to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay” parts of the ACA that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers. While it is impossible to predict the effect of this broad executive order, the Department of Health and Human Services (“HHS”) might interpret the executive order to require it to freely grant exemptions from the individual mandate’s “shared responsibility payment,” which has the potential to significantly impact the insurance exchange market by reducing the number of healthy individuals in the ACA health insurance exchanges. Additionally, should the executive branch: (1) cease defending a pending lawsuit (House v. Price)

challenging the legality of cost-sharing subsidies paid by the federal government to insurance companies that offer coverage on the ACA insurance exchanges, or (2) otherwise reduce or stop paying the cost- sharing subsidies, insurers may incur financial losses and stop offering plans through the ACA insurance exchanges. Either action has the potential to significantly impact the insurance exchange market by reducing the number of plans available on the ACA health insurance exchanges and/or increase insurance premiums. President Trump has also issued executive orders requiring federal agencies to remove two previously implemented regulations for every new regulation added and directing each federal agency to set up a “regulatory reform task force” to review existing regulations and eliminate those which are costly or unnecessary. Management cannot predict the likelihood or effect of any current or future executive actions on the RHF Obligated Group’s business or financial condition, though such effects could be material.

Management of the RHF Obligated Group is analyzing the ACA and health care reform efforts generally, and will continue to do so in order to assess the effects of the legislation and/or regulations on current and projected operations, financial performance and financial condition. However, management cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of health care reform legislation or promulgated regulations.

Medicare and Medicaid Programs. Medicare and Medicaid are the commonly used names for reimbursement or payment programs governed by certain provisions of the federal Social Security Act. Medicare is an exclusively federal program and Medicaid is jointly funded by federal and state governments and governed by federal and state laws. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, blind, disabled, or qualify for the end stage renal disease program. Medicaid, known as Medi-Cal in California, is a program of financial assistance, funded jointly by the federal government and each of the various states, primarily for medical assistance to certain needy individuals and their dependents. Due to health care reform as well as continuing political and financial pressures, the legal and regulatory environment surrounding the Medicaid and Medicare programs has been changing and is expected to continue to change. Notably, the Centers for Medicare & Medicaid Services (“CMS”) recently issued new regulations revising the quality, safety and consumer protection standards that a long-term care facility must meet to participate in the Medicare and Medicaid programs (the “2016 LTCF Final Rule”). The 2016 LTCF Final Rule is the first major regulatory overhaul for the long-term care facility industry since 1991 and may require the RHF Obligated Group members to contribute significant time and financial resources to meet the revised standards, which will be phased-in from November 28, 2016 through November 28, 2019. Management believes it will be able to meet the 2016 LTCF Final Rule requirements in the allotted timeframe. Future changes to Medicare and Medicaid may alter features including: (1) services eligible for payment; (2) rates of payment; (3) eligibility requirements to participate or qualify for different levels of payment/reimbursement; (4) consequences of violations; (5) rates and requirements relating to additional payments unrelated to services offered to patients; (6) guidelines relating to interactions between the participating healthcare providers, third party payors and the federal and state governments; and (7) payment methodologies.

The federal and state governments have in the past, and may in the future, make changes to their respective budgets due to financial shortfalls or other concerns or strategies. Such budget reductions may include reductions to the Medicare or Medicaid programs. In Fiscal Year Ended September 30, 2016, approximately $11,515,522 or 12% of the RHF Obligated Group’s net resident service and other revenue was derived from payment from Medicare and approximately $16,805,495 or 18% of the RHF Obligated Group’s net resident service and other revenue was attributable to payments from Medi-Cal or other state Medicaid programs. While it is uncertain whether future federal or state budgets will result in a decrease in such revenue, any reduction thereof could have an adverse impact on the revenues of the RHF Obligated Group and the ability of the RHF Obligated Group to pay the debt service of its outstanding bonds.

Medicare and Medicaid Anti-Fraud and Abuse Provisions. The Medicare and Medicaid anti- fraud and abuse provisions of the Social Security Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients. When a violation occurs, the government may proceed criminally or civilly. If the government proceeds criminally, a violation is a felony and may result in imprisonment for up to five years, fines of up to $25,000 and mandatory exclusion from participation in all federal health care programs. If the government proceeds civilly, it may impose a civil monetary penalty of approximately $75,000 per violation and an assessment of not more than three times the total amount of remuneration involved, and it may exclude the parties from participation in all federal health care programs. Many states have enacted similar laws to, and in some cases broader than, the Anti-Kickback Law. Exclusion from these programs would have a material adverse effect on the operations and financial condition of the RHF Obligated Group.

The scope of prohibited payments in the Anti-Kickback Law is broad. HHS has published regulations which describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, health care providers having these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law or may result in Anti-Kickback Law scrutiny or liability.

The management of the RHF Obligated Group has a compliance program designed to help ensure material compliance with the Anti-Kickback Law. In light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti-Kickback Law, there can be no assurance that the RHF Obligated Group will not be found to have violated the Anti-Kickback Law, and, if so, whether any sanction imposed could have a material adverse effect on the operations of facilities owned by the RHF Obligated Group.

Restrictions on Referrals. Current federal law (known as the “Stark Law” provisions) prohibits providers of “designated health services” from billing Medicare or Medicaid when the patient is referred by a physician or an immediate family member with a financial relationship with the designated health services provider, with limited exceptions. “Designated health services” include the following: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The sanctions under the Stark Law include denial and refund of payments, civil monetary penalties and exclusion from the Medicare and Medicaid programs. In addition, the submission of a claim for services or items generated in violation of the Stark Law may constitute a false or fraudulent claim, and thus be subject to additional penalties under the federal False Claims Act discussed below.

Management of the RHF Obligated Group has a compliance program to help ensure material compliance with the Stark Law provisions. However, in light of the Stark Law’s breadth and complexity, as well as inconsistencies within case law interpreting the Stark provisions, there can be no assurance that the RHF Obligated Group will not be found to have violated the Stark Law provisions, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the RHF Obligated Group.

False Claims Act/Qui Tam Actions. Medicare requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. With respect to certain types of required information, the False Claims Act (discussed in more detail below) and the Social Security Act may be violated by mere negligence or recklessness in the submission of information to the government even without any specific intent to defraud. New billing systems, new medical procedures and procedures for which there is not clear guidance may all result in liability. The penalties for violation include criminal or civil liability and may include, for serious or repeated violations, exclusion from participation in the Medicare program. While management believes that the RHF Obligated Group’s billing practices will be consistent with Medicare criteria, those criteria are often vague and subject to interpretation and there can be no assurance that aggressive anti-fraud actions will not adversely affect the business of the RHF Obligated Group.

The federal False Claims Act (“FCA”) makes it illegal to knowingly submit or present a false, fictitious or fraudulent claim to the federal government or a federal government program (e.g. Medicare or Medicaid) for reimbursement. Filing false claims in violation of the FCA can result in civil fines and penalties of up to $11,000 per false claim submitted (and up to $21,563 for each false claim submitted after November 2, 2015) and up to three times the amount of the government’s damages (e.g. the amount falsely billed to the Medicare or Medicaid program). These fines can add up quickly and result in multi- million-dollar judgment or settlements. Additionally, violation or alleged violation of the FCA can result in payment suspension pending investigation, the imposition of corporate integrity agreements, or exclusion from Medicare and Medicaid.

Because the term “knowingly” is defined broadly under the law to include not only actual knowledge but also deliberate ignorance or reckless disregard of the facts, the FCA can be used to punish a wide range of conduct. Accordingly, FCA investigations and cases have become common in the health care industry and may cover a range of activity from intentionally inflated billings, to highly technical billing infractions, to allegations of unnecessary or inadequate care. Additionally, the fact that a claim results from a kickback or is made in violation of the Stark Law also may render it false or fraudulent, creating liability under the civil FCA as well as the Anti-Kickback Statute or Stark Law. The ACA further expanded the reach of the FCA to include, among other things, failure to report and return known overpayments within statutory limits.

The qui tam or “whistleblower” provisions of the FCA allow a private individual to bring an FCA action on behalf of the government. As part of the resolution of a qui tam case, the whistleblower may share in a portion of any FCA settlement or judgment. Qui tam actions can also be filed under certain state false claims laws if the fraud involves Medicaid funds or funding from state and local agencies. In recent years, there has been a large increase in the number of FCA qui tam actions. Because qui tam lawsuits are kept under seal while the federal government evaluates whether the United States will join the lawsuit, it is impossible to determine at this time whether any such actions are pending against an RHF Obligated Group member and no assurance can be made that such actions will not be filed in the future.

Amendments to the False Claims Act in the Fraud Enhancement and Recovery Act of 2009 (“FERA”) and the ACA amend and expand the reach of the False Claims Act. FERA expanded the False Claims Act’s reverse false claims provision, imposing liability on any person who “knowingly conceals” or “knowingly and improperly avoids or decreases” an “obligation to pay or transmit money or property to the Government,” whether the person uses a false record or statement to do so or not. FERA also clarified that an “obligation” can arise from the retention of an overpayment. Section 6402 of the ACA further addresses the retention of overpayments by defining the term overpayment and the circumstances and timing under which an overpayment need be returned to the government before it becomes an

“obligation” under the False Claims Act. FERA and the ACA also amend certain jurisdictional bars to the False Claims Act, effectively narrowing the public disclosure bar and expanding the definition of “original source,” thus potentially broadening the field of potential whistleblowers.

State Fraud and Abuse Laws. A number of states, including California, have passed health care fraud and abuse laws similar in scope to the Anti-Kickback Law, Stark Law and False Claims Act, but have expanded their scope. For example, the California Insurance Code provides that a person who submits a fraudulent claim to an insurance company (including private insurers) is subject to significant civil fines and penalties. Similar to the federal False Claims Act, actions under this California Insurance Code section may be initiated by private parties. Management of the RHF Obligated Group has a compliance program to help ensure material compliance with state fraud and abuse laws. However, there can be no assurance that the RHF Obligated Group will not be found to have violated such state laws, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the RHF Obligated Group.

Federal Privacy Laws. Specific state and federal laws govern the use and disclosure of confidential patient health information, as well as patients’ rights to access and amend their own health information. The Administrative Simplification Requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) established national standards to facilitate the electronic exchange of Protected Health Information (“PHI”) and to maintain the privacy and security of the PHI. These standards have a major effect on health care providers which transmit PHI in electronic form in connection with HIPAA standard transactions (e.g., health care claims). In particular, HIPAA established standards governing: (1) Electronic Transactions and Code Sets; (2) Privacy; (3) Security; and (4) National Identifiers. The RHF Obligated Group has developed policies, procedures and practices that it believes comply with the HIPAA standards and requirements, but if it was determined that the RHF Obligated Group was not in compliance there could be criminal and civil penalties imposed.

Privacy and Security Requirements under California Law. State privacy and consumer protection laws, including the California Confidentiality of Medical Information Act (“CIMA”), may provide additional sources of potential legal liability for the RHF Obligated Group and compliance with such laws may require the RHF Obligated Group to incur additional costs. For example, unlike HIPAA, CIMA allows for a private right of action, entitling patients to compensatory and punitive damages. The RHF Obligated Group has developed policies, procedures and practices that it believes comply with state privacy and security requirements. However, there can be no assurance that the RHF Obligated Group will not be found to have violated such state laws, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the RHF Obligated Group.

State Regulatory Requirements. The operations of the RHF Obligated Group members are subject to various licensing, certification, accreditation and other requirements imposed and administered by a variety of entities, including but are not limited to, state licensing agencies, government payors, private payors and accreditation organizations. Renewal and continuance of certain of these licenses, certifications, approvals and accreditations are based upon inspections, surveys, audits, investigations or other review, some of which may require or include affirmative action or response by the RHF Obligated Group. An adverse determination could (i) result in a loss, fine, or reduction in RHF Obligated Group’s scope of licensure, certification or accreditation, (ii) affect the ability to undertake certain expenditures, or (iii) reduce the payment received or require the repayment of the amounts previously remitted. The RHF Obligated Group currently anticipates no difficulty in renewing or continuing currently-held licenses, certifications and accreditations. It is impossible, however, to predict the effect of future regulation on the operations or financial condition of the RHF Obligated Group. See APPENDIX A for more information.

Federal Debt Limit

Through legislation, the federal government has created a debt “ceiling” or limit on the amount of debt that may be issued by the United States Treasury. In the past several years, political disputes have arisen within the federal government in connection with discussions concerning the authorization for an increase in the federal debt ceiling. Any failure by Congress to increase the federal debt limit may impact the federal government’s ability to incur additional debt, pay its existing debt instruments and to satisfy its obligations relating to the Medicare and Medicaid programs.

Management at the RHF Obligated Group is unable to determine at this time what impact any future failure to increase the federal debt limit may have on its operations or financial condition, although such impact may be material. Additionally, the market price or marketability of the Series 2017A Bonds in the secondary market may be materially adversely impacted by any failure to increase the federal debt limit.

Malpractice Claims and Liability Insurance

The operations of the RHF Obligated Group’s facilities may also be affected by increases in the incidence of litigation against the RHF Obligated Group or against healthcare providers in general, which would increase insurance premiums and difficulty in obtaining malpractice insurance. In recent years, the number of professional and general liability suits and the dollar amounts of damage recoveries have increased nationwide in the health care industry, resulting in substantial increases in malpractice insurance premiums, higher deductibles and generally less coverage. It is not possible at this time to determine either the extent to which malpractice coverage will continue to be available to the RHF Obligated Group or the premiums at which such coverage can be obtained.

Labor Costs and Relations

The members of the RHF Obligated Group cannot control the prevailing wage rates in its service area and any increase in such rates will directly affect the costs of their operations. Effective January 1, 2016, California’s minimum wage is $10 per hour, among the highest in the country. Pursuant to state legislation passed in 2016, California’s minimum wage will incrementally increase to $15 per hour by 2022 for employers with 26 or more employees. Management has examined the effect of California’s minimum wage law and does not anticipate that such minimum wage increases will have a material adverse effect on the financial condition of the RHF Obligated Group.

Nonprofit health care providers and their employees are under the jurisdiction of the National Labor Relations Board. Management is not aware of any current attempts by its employees to unionize. Unionization of employees or a shortage of qualified professional personnel could cause an increase in payroll costs beyond those projected.

Nursing or Other Staff Shortage

The healthcare industry has experienced a shortage of nursing and other technical staff, which has resulted in increased costs and lost revenues from time to time due to the need to hire agency nursing personnel at higher rates, increased compensation levels, and the inability to use otherwise available beds as a result of staffing shortages. If the shortage continues, it could adversely affect the operations or financial condition of the RHF Obligated Group.

Cybersecurity Risks

The RHF Obligated Group relies on information technology (“IT”) systems, including electronic health records, to process, transmit and store sensitive and confidential data, including the PHI and personally identifiable information of its residents and employees, and proprietary and confidential business performance data. Although the RHF Obligated Group routinely monitors and tests its security systems and processes and implements appropriate security measures designed to protect confidential information, IT systems are nevertheless subject to computer viruses, cyber-attacks by hackers, or breaches due to employee error or malfeasance. Cyber-attacks have been occurring more frequently and have specifically targeted the health care sector. Any breach or cyber-attack that comprises patient data could result in negative publicity, loss of business and substantial fines or penalties for violation of HIPAA or similar state privacy laws. Although management is not currently aware of having experienced a material breach of its IT systems, the RHF Obligated Group’s IT security measures may not be sufficient to prevent cyber-attacks in the future. Additionally, as cybersecurity threats continue to evolve, health care providers, including the RHF Obligated Group, may have difficulty implementing effective protective measures, and may be required to expend significant additional resources to continue to modify and strengthen security measures, investigate and remediate any vulnerabilities, or invest in new technology designed to mitigate security risks. The Obligated Group’s IT systems routinely interface with and rely on third party systems who are also subject to the risks outlined above and may not have or use appropriate controls to protect confidential information. A breach or attack affecting a third party service provider could harm the RHF Obligated Group’s business or financial condition. Although the RHF Obligated Group has insurance against some cyber risks and attacks, it may not be sufficient to offset the impact of a material loss event.

Risks Related to Tax Exempt-Status

Intermediate Sanctions. In 1996, the Taxpayers Bill of Rights 2 (the “Taxpayers Act”) was signed into law. The Taxpayers Act provides the Internal Revenue Service (the “IRS”) with an “intermediate” tax enforcement tool to combat violations by tax-exempt organizations of the private inurement prohibition of the Code. Previous to the “intermediate sanctions law,” the IRS could punish such violations only through revocation of an entity’s tax-exempt status.

Intermediate sanctions may be imposed where there is an “excess benefit transaction,” defined to include a disqualified person (i.e., an insider) (1) engaging in a non-fair market value transaction with the tax-exempt organization; (2) receiving unreasonable compensation from the tax-exempt organization; or (3) receiving payment in an arrangement that violates the private inurement proscription.

A disqualified person who benefits from an excess benefit transaction will be subject to a “first tier” penalty excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in an excess benefit transaction knowing it to be improper are subject to a first-tier penalty excise tax of 10% of the amount of the excess benefit, subject to a maximum penalty of $20,000. A “second tier” penalty excise tax of 200% of the amount of the excess benefit may be imposed on the disqualified person (but not the organizational manager) if the excess benefit transaction is not corrected in a specified time period.

The IRS has issued Revenue Rulings dealing specifically with the manner in which a facility providing residential services to the elderly must operate in order to maintain its exemption under Section 501(c)(3) of the Code. Revenue Ruling 72-124 states that, if otherwise qualified, a facility providing residential services to the elderly is exempt under Section 501(c)(3) if the organization meets three primary needs of elderly persons: the needs for housing, health care and financial security. Revenue Ruling 79-18 states that a facility providing residential services to the elderly is allowed to admit only

those residents who are able to pay full charges, provided that those charges are set at a level that is within the financial reach of a significant segment of the community’s elderly persons. The Revenue Ruling also states that the organization must be committed, by established policy, to maintaining persons as residents, even if they become unable to pay the monthly charges after being admitted to the facility.

Tax-Exempt Status. The possible modification or repeal of certain existing federal income or state tax laws or other loss by the RHF Obligated Group of the present advantages of certain provisions of the federal income or state tax laws could materially and adversely affect the status of the Members of the RHF Obligated Group and thereby its revenues. Failure of the RHF Obligated Group or the Authority to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of tax-exempt bonds for facilities such as those being financed with bond proceeds, could cause interest on the Series 2017A Bonds to be included in the gross income of Bondholders for federal income tax purposes. In such event, the Bond Indenture for the Series 2017A Bonds does not contain any specific provision for acceleration of the Series 2017A Bonds nor does it provide that any additional interest will be paid to the owners of the Series 2017A Bonds. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Events of Default; Acceleration” in APPENDIX D hereto.

It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of nonprofit corporations. There can be, however, no assurance that future changes in the laws and regulations of the federal, state or local governments, or the interpretation of existing or future laws and regulations will not materially and adversely affect the operations and revenues of the RHF Obligated Group by requiring them to pay income or real estate taxes.

Taxpayer Relief Act of 1997 and Unrelated Business Taxation

The Taxpayer Relief Act of 1997 that includes a provision that tightens the ownership rules for determining whether certain types of income received from subsidiaries are subject to the unrelated business income tax (“UBIT”). Under prior law, tax-exempt organizations were required to pay tax on rents, royalties, annuities, and interest income only if such income was received from a taxable or tax- exempt subsidiary that was at least 80 percent controlled by the tax-exempt organization. Nevertheless, UBIT did not apply if the income came from a “second-tier” subsidiary (i.e., a subsidiary owned by a subsidiary).

Under the Taxpayer Relief Act, such income is subject to UBIT if the parent organization owns more than 50 percent of the subsidiary, based on voting power or value. In addition, a parent exempt organization will be deemed to control any subsidiary which it controls either directly or indirectly (e.g., as a second-tier subsidiary).

Changes in tax laws regarding nonprofit organizations could adversely affect certain of the RHF Obligated Group’s revenues. Recently Congress and the IRS have focused more closely on issues of tax exemption, such as the scope of activities constituting unrelated business income. Management of the RHF Obligated Group believes the effect on the RHF Obligated Group is likely to be de minimis because management believes its activities that may give rise to such income are insignificant.

Property Taxes; State and Local Tax Exemption

Budgetary pressures on state and local government may lead to increasing pressures for state legislation to amend the property tax statutes to subject to taxation various properties owned by nonprofit organizations or to condition exemption from taxation upon the performance of specific types or level of charitable activity.

Until recently, California has not been as active as the IRS in scrutinizing the income tax exemption of exempt organizations. It is possible that legislation may be proposed to strengthen the role of the California Franchise Tax Board and the Attorney General in supervising nonprofit health care providers. It is likely that the loss by the Members of the RHF Obligated Group of federal tax exemption also would trigger a challenge to the state tax exemption of the RHF Obligated Group. Depending on the circumstances, such event could be adverse and material.

In recent years, state, county, and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to their property tax exemption for both real and personal property. In some states, including California, these authorities have interpreted the criteria for exemption more narrowly than in the past, resulting in revocation or denial of exemption. The RHF Obligated Group expects the majority of its real and personal property to be exempt from property taxes. Investigations or audits could lead to challenges of the property tax exemption with respect to facilities of the RHF Obligated Group that, if successful, could adversely and materially affect the property tax exemption with respect to the facilities.

It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of not-for-profit corporations. There can be no assurance that future changes in the laws and regulations of federal, state or local governments or interpretations thereof will not materially or adversely affect the operations and financial condition of the RHF Obligated Group by requiring it to pay income or local property taxes.

Amendments to the Documents

Certain amendments to the Bond Indenture and the Loan Agreement may be made with the consent of the owners of a majority of the principal amount of the outstanding Series 2017A Bonds of a particular series under the Bond Indenture. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Supplemental Bond Indenture” and “– SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT – Supplements and Amendments To The Loan Agreement” in APPENDIX D hereto. Certain amendments to the Deeds of Trust, Mortgages and the Master Indentures may be made with the consent of the Master Trustee and the RHF Obligated Group, and certain other amendments to the Deeds of Trust and the Master Indentures may be made with the consent of the holders of not less a majority in aggregate principal amount of the Outstanding Obligations. Such amendments may adversely affect the security of the holders of the Series 2017A Bonds and, with respect to the amendments to the Master Indentures and the Deeds of Trust or Mortgages requiring the consent of the holders of not less a majority in aggregate principal amount of the Outstanding Obligations, such percentage may be composed wholly or partially of the holders of Additional Obligations. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – Supplements and Amendments” and “– SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES – Supplements and Amendments to the Mortgages” in APPENDIX C hereto.

Additional Indebtedness

The Master Indentures permit the incurrence of Additional Obligations on parity with the Series 2017A California Obligation and also permits the incurrence of Additional Indebtedness by the Members of the Obligated Groups. See “SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES – “Limitations on Additional Indebtedness” in APPENDIX C hereto. The Guaranties permit the incurrence of Additional Indebtedness by the Guarantors. The issuance of Additional Obligations and the

incurrence of Additional Indebtedness would increase debt service requirements and could adversely affect debt service coverage on the Series 2017A Bonds.

Bankruptcy

In the event of bankruptcy of an Obligated Group Member, the rights and remedies of the Bondholders are subject to various provisions of the Federal Bankruptcy Code. If an Obligated Group Member were to file a petition in bankruptcy, payments made by that Obligated Group Member during the 90-day (or, in some cases involving payments to “insiders,” one-year) period immediately preceding the filing of such petition may be avoidable as preferential transfers to the extent such payments allow the recipients thereof to receive more than they would have received in the event of such Obligated Group Member’s liquidation. Security interests and other liens granted to the Bond Trustee or the Master Trustee and perfected during such preference period also may be avoided as preferential transfers to the extent such security interest or other lien secures obligations that arose prior to the date of such perfection. Such a bankruptcy filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Obligated Group Member and its property and as an automatic stay of any act or proceeding to enforce a lien upon or to otherwise exercise control over its property, as well as various other actions to enforce, maintain or enhance the rights of the Bond Trustee and the Master Trustee. If the bankruptcy court so ordered, the property of the Obligated Group Member, including Gross Revenues, could be used for the financial rehabilitation of such Obligated Group Member despite any security interest of the Master Trustee therein. The rights of the Bond Trustee and the Master Trustee to enforce their respective security interests and other liens could be delayed during the pendency of the rehabilitation proceeding.

Such Obligated Group Member could file a plan for the adjustment of its debts in any such proceeding, which plan could include provisions modifying or altering the rights of creditors generally or any class of them, secured or unsecured. The plan, when confirmed by a court, binds all creditors who had notice or knowledge of the plan and, with certain exceptions, discharges all claims against the debtor to the extent provided for in the plan. No plan may be confirmed unless certain conditions are met, among which are conditions that the plan be feasible and that it shall have been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the class cast votes in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

In the event of bankruptcy of any Member, there is no assurance that certain covenants, including tax covenants, contained in the Loan Agreement and certain other documents would survive. Accordingly, a bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Series 2017A Bonds from gross income of the Bondholders for federal income tax purposes.

Certain Matters Relating to Enforceability

Enforceability of the Master Indentures, the Guaranties and the Gross Revenue Pledge Agreement. The obligation of the Members of each Obligated Group under the Obligations and the Guarantors’ obligations under the Guaranties will be limited (i) to the same extent as the obligations of debtors typically are affected by bankruptcy, insolvency and the application of general principles of creditors’ rights and (ii) as additionally described below.

The accounts of the RHF Obligated Group will be combined for financial purposes and will be used in determining whether various covenants and tests contained in each Master Indenture (including tests relating to the incurrence of Additional Indebtedness), are met, notwithstanding uncertainties as to

the enforceability of certain obligations of the RHF Obligated Group contained in the Master Indentures, the Guaranties and the Gross Revenue Pledge Agreement. Such uncertainties bear on the availability of the assets of the RHF Obligated Group for payment of debt service on the Obligations, including the Series 2017A California Obligation, pledged under the Bond Indenture. The joint and several obligation described herein of the Members of each Obligated Group and on RHF and FPM to make payments of debt service on the Series 2017A California Obligation are, in the opinion of counsel to each member of the RHF Obligated Group, anticipated to be enforceable under the laws of the States of California, Florida, Indiana, Missouri and the Commonwealth of Kentucky, except to the extent enforceability of such Obligation may be limited as described under this caption.

A Member may not be required to make any payment of any Obligation, or portion thereof, the proceeds of which Obligation were not loaned or otherwise disbursed to such Member and RHF and FPM may not be required to make any payment under the RHF/FPM Guaranties to the extent that such payments (i) are requested to be made with respect to any Obligations which are issued for a purpose which is not consistent with the charitable purposes of the Member, RHF or FPM from which such payment is requested or which are issued for the benefit of any entity other than a not-for-profit corporation which is exempt from federal income taxes under Sections 501(a) and 501(c)(3) of the Code and is not a “private foundation” as defined in Section 509(a) of the Code; (ii) are requested to be made from any monies or assets which are donor restricted or which are subject to a direct or express trust which does not permit the use of such monies or assets for such a payment; (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member, RHF or FPM from which such payment is requested; or (iv) are requested to be made pursuant to any loan (other than the loans under the Loan Agreement) violating applicable usury laws. Due to the absence of clear legal precedent in this area, the extent to which the assets of any future member fall within the category referred to in clause (ii) above cannot be determined. The amount of such assets which fall within such category could be substantial.

In addition, a Member may not be required to make any payment of any Obligation, or portion thereof, the proceeds of which were not loaned or otherwise disbursed to such Member and RHF and FPM may not be required to make any payment under the RHF/FPM Guaranties to the extent that such payment would render the Member, RHF or FPM, as the case may be, insolvent or would conflict with, not be permitted by or be subject to recovery for the benefit of other creditors of such Member, RHF or FPM, as the case may be, under applicable law. There is no clear precedent in the law as to whether such payments from a Member to pay debt service on Obligations or RHF or FPM to make payments under the RHF/FPM Guaranties may be voided by a trustee in bankruptcy in the event of a bankruptcy of such Member, RHF or FPM, as the case may be, and RHF and FPM may not be required to make any payment under the RHF/FPM Guaranties, or by third party creditors in an action brought pursuant to state fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under state fraudulent conveyance statutes, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (i) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (ii) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or California, Florida, Indiana, Missouri and Kentucky fraudulent conveyance statutes, or the guarantor is undercapitalized.

Application by courts of the tests of “insolvency,” “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. It is possible that, in an action to force a Member of the Obligated Groups, RHF or FPM, as the case may be, to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such obligation to make such a payment in the event it is determined that the Member, RHF or FPM, as the case may be, is analogous to a guarantor of the debt of the Member who directly benefited from the borrowing and that fair consideration or reasonably equivalent value for such Member’s, RHF or FPM, as the case may be,

guaranty was not received or that the incurrence of such obligation has rendered or will render such Member, RHF’s or FPM’s, as the case may be, insolvent or that at the time of incurrence of such guaranty the guarantor was undercapitalized.

Enforceability of Credit Documents, Generally. The realization of rights upon any default will depend upon the exercise of various remedies appearing in the Gross Revenue Pledge Agreement, the Guaranties, the Deeds of Trust, the Mortgages, the Master Indentures, the Loan Agreement and the Bond Indenture (collectively, the “Bond Financing Documents”). These remedies, in certain respects, may require judicial action, which is often subject to discretion and delay. Under existing law, certain of the remedies specified in any of the Bond Financing Documents may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in these documents.

The security interest in the Gross Revenues granted to the Collateral Agent pursuant to the Gross Revenue Pledge Agreement may be subordinated to the interests and claims of others in several instances. Examples of cases of subordination for prior claims are: (1) statutory liens; (2) rights arising in favor of the United States of America or any agency thereof; (3) present or future prohibitions against assignment in any Federal statutes or regulations; (4) constructive trusts, equitable liens or other rights impressed or conferred by any state or Federal court in the exercise of its equitable jurisdiction; (5) Federal bankruptcy laws that may affect the enforceability of any of the Financing Documents or assignments of revenues by any member of the RHF Obligated Group before or after any effectual institution of bankruptcy proceedings by or against any member of the RHF Obligated Group; (6) rights of third parties in the property converted to cash and not in the possession of the Master Trustees or the Authority; and (7) claims that might arise if appropriate continuation statements are not filed in accordance with the Uniform Commercial Code as from time to time in effect in the various states in which the facilities are located. RHF shall execute a depository account control agreement with the Depository Bank(s), and shall execute and deliver such other documents as may be necessary or reasonably requested by the Collateral Agent in order to perfect or maintain as perfected such security interest or give public notice thereof.

Federal bankruptcy law may have an adverse effect on the ability of each Master Trustee to enforce its claim to the security in certain property that may be secured under each Master Indenture. Federal bankruptcy law permits adoption of a reorganization plan, even though it has not been accepted by creditors, if they are provided with the benefit of their original lien or the “indubitable equivalent.” In addition, if the bankruptcy court concludes that the Master Trustees have “adequate protection,” it could under certain circumstances (1) substitute other security for the security provided by the Master Indentures, and (2) subordinate the lien and security interest of the Master Trustees to (a) claims by person supplying goods and services to the bankrupt after the bankruptcy and (b) the administrative expenses of the bankruptcy proceeding. In the event of the bankruptcy of a Member of either Obligated Group, the amount realized by the related Master Trustee might depend, among other factors, on the bankruptcy court’s interpretation of “indubitable equivalent” and “adequate protection” under the then existing circumstances.

Certain Risks Associated with the Mortgages/Deeds of Trust

General. In the event that there is a default under either Master Indenture, the related Master Trustee has the right to foreclose on one or all of the related Trust Property under certain circumstances. In addition, because the Master Indentures are cross-defaulted, the other Master Trustee has the right to foreclose on one or all of its related Trust Property under certain circumstances. All amounts collected upon foreclosure of the Trust Property pursuant to the Mortgages will be used to pay certain costs and expenses incurred by, or otherwise related to, the foreclosure, the performance of the related Master

Trustee under the Mortgages, and then to pay amounts owing under the Obligations in accordance with the provisions of the related Master Indenture.

Any valuation of the Trust Property is based on future projections of income, expenses, capitalization rates and the availability of the partial or total property tax exemption. Additionally, the value of the Trust Property will at all times be dependent upon many factors beyond the control of the RHF Obligated Group, such as changes in general and local economic conditions, changes in the supply of or demand for competing properties in the same locality, and changes in real estate and zoning laws or other regulatory restrictions. A material change in any of these factors could materially change the value in use of the mortgaged Trust Property. Any weakened market condition may also depress the value of the Trust Property. Any reduction in the market value of the Trust Property could adversely affect the security available to the owners of the Series 2017A Bonds. There is no assurance that the amount available upon foreclosure of the Trust Property after the payment of foreclosure costs will be sufficient to pay the amounts owing by the RHF Obligated Group on the Obligations and with respect to the Series 2017A Bonds.

In the event of foreclosure, a prospective purchaser of some or all of the Trust Property may assign less value to that Trust Property than the value of the facilities while owned by the applicable RHF Obligated Group member since such purchaser may not enjoy the favorable financing rates associated with the Series 2017A Bonds, real estate tax exemption and other benefits. To the extent that a buyer whose income is not tax-exempt may be willing to pay less for the Trust Property than a nonprofit buyer, then the resale of either Trust Property after foreclosure may require more time to solicit nonprofit buyers interested in assuming the financing now applicable to the Trust Property. In addition, there can be no assurance that any of the facilities could be sold at one hundred percent (100%) of their fair market value in the event of foreclosure. Although the Holders of the Series 2017A Bonds will have available the remedy of foreclosure of the Mortgages in the event of a default (after giving effect to any applicable grace periods, and subject to any legal rights which may operate to delay or stay such foreclosure, such as may be applicable in the event of bankruptcy of the RHF Obligated Group), there are substantial risks that the exercise of such a remedy will not result in recovery of sufficient funds to pay amounts due on the Obligations and with respect to the Series 2017A Bonds.

In the event that some or all of the Mortgages are actually foreclosed, then, in addition to the customary costs and expenses of operating and maintaining the Trust Property, the party or parties succeeding to the interest of the related RHF Obligated Group member in the facilities could be required to bear certain associated costs and expenses, which could include: the cost of complying with federal, state or other laws, ordinances and regulations related to the removal or remediation of certain hazardous or toxic substances; the cost of complying with laws, ordinances and regulations related to health and safety, and the continued use and occupancy of the facilities such as the Americans with Disabilities Act; and costs associated with the potential reconstruction or repair of the facilities in the event of any casualty or condemnation.

California Deeds of Trust. The California Deeds of Trust each contain power of sale provisions and will be governed by California law. Under California law, the beneficiary of a deed of trust with power of sale may cause the instrument to be foreclosed either judicially, by a court proceeding (i.e., a lawsuit and foreclosure sale supervised and adjudicated by a court), or non-judicially, by a trustee sale pursuant to the power of sale provisions in such deed of trust and the applicable statutory provisions.

California has certain statutory provisions and judicial pronouncements that provide the framework for a beneficiary’s enforcement of real estate secured debt or other real estate secured obligations after a debtor’s default. These statutes and court decisions limit the remedies of the beneficiary under a deed of trust.

If a beneficiary with real property security located in California elects to pursue judicial rather than non-judicial foreclosure, it must comply with the statute commonly referred to as the one action rule or the one form of action rule. This rule requires the beneficiary to pursue only one action for the enforcement or collection of the debt. The action is presumed to be a judicial foreclosure proceeding. Therefore, the beneficiary under a California deed of trust is prohibited from instituting any other type of action against the debtor, such as suing the debtor solely on the promissory note for the collection of the debt (subject to a few exceptions, such as a separate action for the appointment of a receiver). Accordingly, the beneficiary must bring all claims relating to the debt in a single judicial action for foreclosure. Following a judicial foreclosure, the beneficiary may not pursue an action against the debtor or on the promissory note other than to recover a deficiency judgment for the balance of the debt, which was not recovered as a result of the judicial foreclosure. Although a beneficiary is entitled to a deficiency judgment after a judicial foreclosure, another California statute limits any such judgment to the difference between the debt and the greater of the successful bid at foreclosure or the fair market value of the property at the time of sale, thereby preventing a beneficiary from obtaining a large deficiency judgment against the debtor as a result of low bids at the judicial sale.

One major component of the one action rule is commonly known as the “security first” rule. The security first rule requires the beneficiary in a judicial foreclosure to foreclose on all the real property collateral (i.e., exhaust all the real property collateral) in one action prior to pursuing any other remedy against the debtor (other than a deficiency because, as noted below, deficiency judgments are not available in non-judicial foreclosures). The other major component of the one action rule is commonly known as the “sanction aspect.” Courts have sanctioned beneficiaries who have offset bank accounts or pursued legal action against other (unpledged or pledged) assets of the debtor prior to the completion of foreclosure of the lien on the real property collateral or a portion of it. These sanctions include the loss of the beneficiary’s liens on the other collateral or assets pursued by the beneficiary (and/or in some cases, the loss of the underlying debt or portion of it) prior to the completion of the foreclosure.

If a beneficiary with real property security located in California elects instead to exercise the power of sale in a deed of trust, and thereby, pursue a (non-judicial) trustee sale (which is not considered an action as there is no court involvement), a California statute bars the beneficiary from subsequently obtaining a deficiency judgment against the debtor. The beneficiary’s recovery on the obligation will be limited to the proceeds of the trustee sale. While there is a narrow exception to this prohibition where the deed of trust secures the payment of bonds authorized or permitted to be issued by the California Commissioner of Corporations, that exception does not apply in this transaction.

The collateral subject to the California Deeds of Trust includes both real and personal property. Each Master Trustee, as the beneficiary thereunder, may conduct a unified judicial or nonjudicial foreclosure of the real and personal property or may choose to conduct a separate foreclosure sale of the personal property under their related Master Indenture and the California Deeds of Trust pursuant to Article 9 of the California Commercial Code. A unified foreclosure will be subject to real property law (i.e., the statutes described above) and must comply with certain additional requirements of the California Commercial Code with regard to the personal property, including that the beneficiary must conduct such a sale in a “commercially reasonable” manner or risk invalidation of the sale or loss of the beneficiary’s deficiency claim and its security interest in other collateral. Because there is no established market for deeds of trust comparable to the California Deeds of Trust, little guidance exists for conducting a “commercially reasonable” sale under these circumstances. Therefore, no assurance can be given that a foreclosure sale of either Master Trustee’s interest in the California Deeds of Trust will not subsequently be held to be invalid and set aside or that a purchaser could be found for such interests.

IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED IN FORECLOSURE OF THE DEEDS OF TRUST UNDER CALIFORNIA LAW, POTENTIAL

HOLDERS OF THE SERIES 2017A BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING THE SERIES 2017A BONDS.

Indiana Mortgages. The real estate mortgages recorded upon the Clarksville, Indiana real estate (the “Indiana Mortgages”) will be governed by Indiana law. Under Indiana law, the foreclosure sale of mortgaged property following a material event of default may only be made under a judicial proceeding, and powers of sale with respect to mortgaged real estate are not enforceable in the State of Indiana.

Certain provisions of Indiana law limit the remedies available to a mortgagee with respect to a mortgage. For example, one Indiana statute provides that the owner of real estate subject to issuance of process under a judgment or decree of foreclosure may, with the consent of the judgment holder, file with the court clerk a waiver of the statutory three month waiting period on issuance of process; however, if the owner files such a waiver, the consideration for such waiver (whether or not expressly stated in the waiver) will be the waiver and release by the judgment holder of any deficiency judgment against the owner. Another Indiana statute provides that a mortgagee may not concurrently foreclose upon its mortgage and maintain a second action for the debt secured by the mortgage or a second action to execute on a judgment obtained in connection with the mortgage indebtedness. Also, certain Indiana court decisions suggest that, in appropriate circumstances, a judgment debtor could avoid the consequences of a deficiency in the collection of a judgment after foreclosure sale if the price paid at auction is so low as to be “shocking to the Court's sense of conscience and justice.”

THE FOREGOING DOES NOT AND IS NOT INTENDED TO SET FORTH A COMPLETE DESCRIPTION OF THE PROVISIONS OF INDIANA LAW THAT MAY AFFECT THE ENFORCEMENT OF RIGHTS AND REMEDIES UNDER THE INDIANA MORTGAGES. IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED WITH THE FORECLOSURE OF THE INDIANA MORTGAGES UNDER INDIANA LAW, POTENTIAL HOLDERS OF THE SERIES 2017A BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING THE SERIES 2017A BONDS.

Florida Mortgages. The Florida mortgages (the “Florida Mortgages”) are governed by Florida law. Under Chapter 697, Florida Statutes, all instruments in writing conveying or selling either real or personal property for the purpose or with the intention of securing payment of money, shall be deemed to be a mortgage and subject to the rules of foreclosure, regulations and restraints and forms as prescribed in relation to mortgages. Further, a mortgage is a lien on the property and is not a conveyance of legal title or right of possession. The Chapter regulates assignment of rents and provides that unless otherwise agreed to in writing by the mortgagee and mortgagor, the assignment of rents shall be enforceable upon the mortgagor’s default and written demand for the rents made by the mortgagee to the mortgagor. Upon application by a mortgagee or mortgagor in a foreclosure action, and notwithstanding any defenses, the court may require the mortgagor to deposit collected rents into the registry of the court or such other depository as the court may designate.

Chapter 702, Florida Statutes, governs foreclosure of mortgages. All mortgages shall be foreclosed in equity and the court shall sever for separate trial all counterclaims against the foreclosing mortgagee and the foreclosure action, if tried, is to be tried without a jury. The entry of a deficiency decree for any portion of a deficiency is within the sound discretion of the court and the complainant also has the right to sue at common law to recovery such deficiency. The court has the power to rescind, vacate and set aside a decree of foreclosure of a mortgage at any time before the sale thereof has been actually made pursuant to the terms of such decree and to dismiss the foreclosure action upon payment of all court costs.

IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED IN THE FORECLOSURE OF THE MORTGAGES UNDER FLORIDA LAW, POTENTIAL OWNERS OF THE SERIES 2017A BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING THE SERIES 2017A BONDS.

Kentucky Mortgages. The real estate mortgages to be recorded upon the real estate located in the Commonwealth of Kentucky (the “Kentucky Mortgages”) will be governed by Kentucky law. Under Kentucky law, the foreclosure sale of mortgaged property following a material event of default may only be made under a judicial proceeding, and powers of sale with respect to mortgaged real estate are not enforceable in the Commonwealth of Kentucky.

Kentucky law provides that the title-holder of foreclosed real property shall have a one year right of redemption for the real property unless the real property sells at public sale for at least two-thirds of the amount of the appraised value, which is established by two disinterested fee-holders prior to the sale.

THE FOREGOING DOES NOT AND IS NOT INTENDED TO SET FORTH A COMPLETE DESCRIPTION OF THE PROVISIONS OF KENTUCKY LAW THAT MAY AFFECT THE ENFORCEMENT OF RIGHTS AND REMEDIES UNDER THE KENTUCKY MORTGAGES. IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED WITH THE FORECLOSURE OF THE KENTUCKY MORTGAGES UNDER KENTUCKY LAW, POTENTIAL OWNERS OF THE SERIES 2017A BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING THE SERIES 2017A BONDS.

Missouri Deeds of Trust. The Missouri Deeds of Trust each will contain power of sale provisions and will be governed by Missouri law. Under Missouri law, the beneficiary of a Deeds of Trust with power of sale may cause the instrument to be foreclosed either judicially, by a court proceeding (i.e., a lawsuit supervised and adjudicated by a court) or nonjudicially, by a sale pursuant to the contractual power of sale provisions in such Deeds of Trust.

The collateral subject to the Missouri Deeds of Trust includes both real and personal property. Each Master Trustee, as the beneficiary thereunder, may conduct a unified judicial or nonjudicial foreclosure of the real and personal property or may choose to conduct a separate foreclosure sale of the Missouri Deeds of Trust and the personal property under its related Master Indenture pursuant to Article 9 of the Missouri Commercial Code. A unified foreclosure under the Missouri Deeds of Trust will be subject to applicable real property law and must comply with certain additional requirements of the Missouri Commercial Code with regard to the personal property, including that the beneficiary must conduct such a sale in a “commercially reasonable” manner or risk invalidation of the sale or loss of the beneficiary’s deficiency claim and its security interest in other collateral. Little guidance exists for conducting a “commercially reasonable” sale under these circumstances. Therefore, no assurance can be given that a foreclosure sale of either Master Trustee’s interest in the Missouri Deeds of Trust will not subsequently be held to be invalid and set aside or that a purchaser could be found for such interests.

IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED IN THE FORECLOSURE OF THE MISSOURI DEEDS OF TRUST UNDER MISSOURI LAW, POTENTIAL OWNERS OF THE SERIES 2017A BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING THE SERIES 2017A BONDS.

Environmental Matters

Retirement communities, such as the RHF Obligated Group’s, are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations that address, among other things, operations of facilities and properties owned or operated by such facilities. Among the types of regulatory requirements faced by such facilities are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos; polychlorinated biphenyls, and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at such facility or hospital; requirements for training employees in the proper handling and management of hazardous materials and wastes; and other requirements. In their role as owners and operators of properties or facilities, such facilities may be subject to liability for investigating and remedying any hazardous substances that have come to be located on the property, including any such substances that may have migrated off of the property. Typical operations of such facilities include to some extent in various combinations, the handling, use, storage, transportation, disposal and discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. For this reason, operations of such facilities are susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations or increase their cost or both; may result in legal liability, damages, injunctions or fines, or may trigger investigations, administrative proceedings, penalties or other government agency actions. There can be no assurance that the RHF Obligated Group will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the RHF Obligated Group.

Under the federal Comprehensive Environmental Response, Compensation and Liability Act and under comparable California State law, a secured party which takes a deed in lieu of foreclosure, purchases a mortgaged property at a foreclosure sale or operates a mortgaged property may become liable in certain circumstances for the cost of remedial action if hazardous waste or hazardous substances have been released or disposed of on the property. Such remedial action costs could subject the collateral property to a lien and reduce or eliminate the amounts otherwise available to pay the owners of the Series 2017A Bonds if such remedial action costs were incurred.

Rating

The rating of the Series 2017A Bonds is determined by the rating agency and there is no guarantee that the rating assigned to the Series 2017A Bonds will not be downgraded or withdrawn. Any such downgrade or withdrawal could material impair the market price and marketability of the Series 2017A Bonds. See “RATING” herein.

Other Possible Risk Factors

The occurrence of any of the following events, or other unanticipated events, could adversely affect the RHF Obligated Group’s operations:

(1) Inability to control increases in operating costs, including salaries, wages and fringe benefits, supplies and other expenses, given an inability to obtain corresponding increases in revenues from residents whose incomes will largely be fixed;

(2) Unionization, employee strikes and other adverse labor actions which could result in a substantial increase in expenditures without a corresponding increase in revenues;

(3) Adoption of other federal, state or local legislation or regulations having an adverse effect on the RHF Obligated Group’s future operating or financial performance;

(4) A decline in the population, a change in the age composition of the population or a decline in the economic conditions of the RHF Obligated Group’s market areas;

(5) The cost and availability of energy which could, among other things, affect the cost of utilities of the facilities of the Obligated Group;

(6) Increased unemployment or other adverse economic conditions in the RHF Obligated Group’s service area which would increase the proportion of patients who are unable to pay fully for the cost of their care;

(7) Any increase in the quantity of charity care provided which is mandated by law or required due to increased needs of the community in order to maintain the RHF Obligated Group’s charitable status;

(8) Inflation or other adverse economic conditions;

(9) Reinstatement or establishment of mandatory governmental wage, rent or price controls;

(10) Changes in tax, pension, social security or other laws and regulations affecting the provisions of health care, retirement benefits and other services to the elderly;

(11) Inability to control the diminution of patients’ assets or insurance coverage with the result that the patients’ charges are reimbursed from government reimbursement programs rather than private payments;

(12) The occurrence of natural disasters and other climate changes, including severe drought, sea level rises, floods, and earthquakes, which may damage the RHF Obligated Group’s facilities, interrupt utility service, or otherwise impair the operation and generation of revenues;

(13) Scientific and technological advances that could reduce demand for services offered by the RHF Obligated Group;

(14) Cost and availability of any insurance, such as malpractice, fire, earthquake, automobile and general comprehensive liability, that organizations such as the RHF Obligated Group generally carry; or

(15) Unfavorable trends in the national, state or local economy or political climate which in turn may adversely affect the operations of senior housing communities; unfavorable changes in state legislation which currently regulates the retirement industry; increased governmental regulations which could adversely affect the RHF Obligated Group’s ability to deliver services to clients; governmental changes or reductions in rates and other methods of reimbursement of the RHF Obligated Group for health care services delivered; loss of confidence in the RHF Obligated Group’s ability to deliver quality services by state or county officials, health care professionals and the public which would adversely affect the level of revenue forecasted; increasing malpractice and other claims; competition by other for-profit or nonprofit entities; and unforeseen major repairs of the RHF Obligated Group’s properties or increases in

insurance or other operating costs without the RHF Obligated Group being able to obtain corresponding increases in revenues.

LITIGATION

The Authority

To the knowledge of the Authority, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, pending against the Authority seeking to restrain or enjoin the sale or issuance of the Series 2017A Bonds, or in any way contesting or affecting any proceedings of the Authority taken concerning the sale thereof, the pledge or application of any moneys or security provided for the payment of the Series 2017A Bonds, the validity or enforceability of the documents executed by the Authority in connection with the Series 2017A Bonds, the completeness or accuracy of the Official Statement or the existence or powers of the Authority relating to the sale of the Series 2017A Bonds.

The RHF Obligated Group

There is no litigation or proceeding pending or, to the knowledge of the the RHF Obligated Group, threatened against the RHF Obligated Group that (a) seeks to restrain or enjoin the issuance or delivery of the Series 2017A Bonds or the execution or the performance by RHF Obligated Group of its obligations under the Loan Agreement, the Series 2017A California Obligation or the California Guaranties, (b) in any way contests or affects the issuance or the validity of the Series 2017A Bonds or the enforceability of the Loan Agreement, the Series 2017A California Obligation or the California Guaranties, or (c) in any way contests the legal existence or powers of the RHF Obligated Group. There is no litigation or proceeding pending or, to the knowledge of the RHF Obligated Group, threatened against RHF Obligated Group except for (i) litigation being defended by insurance carriers on behalf of the RHF Obligated Group, the claims in which are entirely within the insurance policy limits of the RHF Obligated Group, (ii) litigation in which the expected maximum aggregate recovery against the RHF Obligated Group could be satisfied from the insurance or the reserves maintained by the RHF Obligated Group or (iii) claims for damages arising in the ordinary course of its operations, none of which is deemed to be material to the operation or condition, financial or otherwise, of the RHF Obligated Group. There is no litigation pending or, to the knowledge of the RHF Obligated Group, threatened that could be reasonably expected to have a material adverse effect upon the operations or financial condition of the RHF Obligated Group.

LEGAL MATTERS

All legal matters incident to the authorization and validity of the Series 2017A Bonds by the Authority are subject to the approval of Hawkins Delafield & Wood LLP, Bond Counsel, whose approving opinion will be delivered with the Series 2017A Bonds. The form of Bond Counsel’s approving opinion is set forth in APPENDIX E hereto. Copies of the approving opinion of Bond Counsel will be available at the time of issuance and delivery of the Series 2017A Bonds. Certain legal matters will be passed upon for the RHF Obligated Group by its counsel, Chapman and Cutler LLP; for the Underwriter by its counsel, Katten Muchin Rosenman LLP; and for the Authority by its counsel, Jones Hall, A Professional Law Corporation. In addition, the members of the National Obligated Group have engaged local counsel to provide opinions on certain matters relating to Missouri, Kentucky, Indiana and Florida law.

TAX MATTERS

Opinion of Bond Counsel

In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the Authority, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Series 2017A Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Series 2017A Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Authority, RHF, the California Borrowers and others in connection with the Series 2017A Bonds, and Bond Counsel has assumed compliance by the Authority, RHF and the California Borrowers with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Series 2017A Bonds from gross income under Section 103 of the Code. In addition, in rendering its opinion, Bond Counsel has relied on the opinion of counsel to RHF and the California Borrowers regarding, among other matters, the current qualifications of RHF and the California Borrowers as organizations described in Section 501(c)(3) of the Code.

In addition, in the opinion of Bond Counsel to the Authority, under existing statutes interest on the Bonds is exempt from State of California personal income taxes.

Bond Counsel expresses no opinion regarding any other Federal or state tax consequences with respect to the Series 2017A Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action hereafter taken or not taken, or any facts or circumstances that may hereafter come to its attention, or changes in law or in interpretations thereof that may hereafter occur, or for any other reason. Bond Counsel expresses no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for Federal income tax purposes of interest on the Series 2017A Bonds, or under state and local tax law.

The Series 2017A Bonds, together with Series 2017B Bonds, are expected to constitute a single issue for federal income tax purposes. As such, the issuer of the Series 2017B Bonds, RHF and certain related entities to RHF are subject to the same ongoing federal tax requirements with respect to both the Series 2017A Bonds and the Series 2017B Bonds. Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the issuer of the Series 2017B Bonds, RHF and certain related entities to RHF in connection with the Series 2017B Bonds, and Bond Counsel has assumed compliance by the issuer of the Series 2017B Bonds, RHF and certain related entities to RHF with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Series 2017B Bonds from gross income under Section 103 of the Code. Failure to comply with such requirements with respect to the Series 2017A Bonds and the Series 2017B Bonds could cause interest on all such bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of such bonds.

Certain Ongoing Federal Tax Requirements and Covenants

The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Series 2017A Bonds in order that interest on the Series 2017A Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not

limited to, requirements relating to use and expenditure of gross proceeds of the Series 2017A Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Series 2017A Bonds to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Authority, RHF and the California Borrowers have covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Series 2017A Bonds from gross income under Section 103 of the Code.

Certain Collateral Federal Tax Consequences

The following is a brief discussion of certain collateral Federal income tax matters with respect to the Series 2017A Bonds. It does not purport to address all aspects of Federal taxation that may be relevant to a particular owner of a Series 2017A Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Series 2017A Bonds.

Prospective owners of the Series 2017A Bonds should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax purposes. Interest on the Series 2017A Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code.

Original Issue Discount

“Original issue discount” (“OID”) is the excess of the sum of all amounts payable at the stated maturity of a Series 2017A Bond (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the “issue price” of a maturity means the first price at which a substantial amount of the Series 2017A Bonds of that maturity was sold (excluding sales to bond houses, brokers, or similar persons acting in the capacity as underwriters, placement agents, or wholesalers). In general, the issue price for each maturity of Series 2017A Bonds is expected to be the initial public offering price set forth on the cover page of the Official Statement. Bond Counsel further is of the opinion that, for any Series 2017A Bonds having OID (a “Discount Bond”), OID that has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross income for Federal income tax purposes to the same extent as other interest on the Series 2017A Bonds.

In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner’s adjusted basis in a Discount Bond is increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Series 2017A Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment.

Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for Federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and disposing of Discount Bonds.

Bond Premium

In general, if an owner acquires a Series 2017A Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the Series 2017A Bond after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “bond premium” on that Series 2017A Bond (a “Premium Bond”). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner’s yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. In the case of a tax- exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for Federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds.

Information Reporting and Backup Withholding

Information reporting requirements apply to interest paid on tax-exempt obligations, including the Series 2017A Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, “Request for Taxpayer Identification Number and Certification,” or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to “backup withholding,” which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a “payor” generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient.

If an owner purchasing a Series 2017A Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Series 2017A Bonds from gross income for Federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner’s Federal income tax once the required information is furnished to the Internal Revenue Service.

Miscellaneous

Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Series 2017A Bonds under Federal or state law or otherwise prevent beneficial owners of the Series 2017A Bonds from

realizing the full current benefit of the tax status of such interest. In addition, such legislation or actions (whether currently proposed, proposed in the future, or enacted) and such decisions could affect the market price or marketability of the Series 2017A Bonds.

Prospective purchasers of the Series 2017A Bonds should consult their own tax advisors regarding the foregoing matters.

FINANCIAL STATEMENTS

The audited combined financial statements of the RHF Obligated Group as of September 30, 2016, 2015 and 2014 and for the fiscal years then ended were audited by CliftonLarsonAllen LLP, independent certified public accountants, as stated in their report included herein, and are included in APPENDIX B to this Official Statement. CliftonLarsonAllen LLP has not been engaged to perform and has not performed, since the date of its auditor’s reports included herein, any procedures on the audited financial statements addressed in those reports.

UNDERWRITING

Pursuant to a bond purchase agreement (the “Bond Purchase Agreement”) by and between the Authority and B.C. Ziegler and Company (the “Underwriter”), the Underwriter will purchase the Series 2017A Bonds at an aggregate purchase price of $______, which purchase price reflects $______of aggregate par amount, [plus/minus] a [net] original issue [premium/discount] of $______, and less an aggregate Underwriter’s discount of $______, which includes certain expenses of the Underwriter.

The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2017A Bonds to the public. The Bond Purchase Agreement provides that the Underwriter will purchase all of the Series 2017A Bonds if any are purchased, subject to certain terms and conditions set forth therein, including the delivery of specified opinions of counsel and of a certificate of RHF to the effect that there has been no material adverse change in its condition, financial or otherwise, from that set forth in this Official Statement. The Bond Purchase Agreement requires RHF to indemnify the Underwriter and the Authority against certain liabilities.

RATING

Fitch Ratings Inc. (“Fitch”) has assigned the Series 2017A Bonds the rating of “A-” with a “stable” outlook. The rating reflects only the views of Fitch, and any explanation of the significance of such rating should be obtained from Fitch. In order to obtain the rating, RHF furnished certain information and materials to Fitch, some of which has not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and their own investigation, studies and assumptions. There is no assurance that the rating will be maintained for any given period of time or that the rating will not be revised downward, suspended or withdrawn entirely by Fitch if, in its judgment, circumstances so warrant. RHF undertakes no responsibility to oppose any such revision, suspension or withdrawal. Any such downward revision, suspension or withdrawal of the rating obtained or other actions by Fitch relating to its rating may have an adverse effect on the market price of the Series 2017A Bonds.

RHF expects to furnish Fitch such information and materials as it may request. RHF, however, assumes no obligation to furnish requested information and materials, and may issue debt for which a rating is not requested. The failure to furnish requested information and materials, or the issuance of debt

for which a rating is not requested, may result in the suspension or withdrawal of the rating on the Series 2017A Bonds.

CONTINUING DISCLOSURE

Offerings of most municipal securities are subject to Rule 15c2-12 (the “Rule”) under the Securities Exchange Act of 1934, as amended.

RHF, on behalf of itself and the members of the RHF Obligated Group, has undertaken all responsibilities for any continuing disclosure to Bondholders as described below, and the Authority shall have no liability to the holders of the Series 2017A Bonds or any other person with respect to the Rule. Under the Continuing Disclosure Agreement dated as of September 1, 2017 (the “Continuing Disclosure Agreement”), between RHF and The Bank of New York Mellon Trust Company, N.A., as dissemination agent, a form of which is attached as “FORM OF CONTINUING DISCLOSURE AGREEMENT” in APPENDIX F hereto, RHF has covenanted for the benefit of holders and beneficial owners of the Series 2017A Bonds to file, or to cause the dissemination agent to file, with EMMA certain financial information and operating data relating to the RHF Obligated Group by not later than 150 days following the end of each Fiscal Year (commencing with the Fiscal Year ending September 30, 2017), certain information on a quarterly basis (commencing with the fiscal quarter ending September 30, 2017), and notices of the occurrence of certain events. See FORM OF CONTINUING DISCLOSURE AGREEMENT” in APPENDIX F hereto. These covenants have been made in order to assist the Underwriter in complying with the Rule.

The RHF Obligated Group is not presently subject to any continuing disclosure obligations and accordingly has not failed in the previous five years to comply with any undertaking to provide the continuing disclosure of information pursuant to the Rule.

MISCELLANEOUS

The summaries or descriptions of provisions of the Series 2017A Bonds, the Loan Agreement, the Bond Indenture, the Deeds of Trust, the Series 2017A California Obligation, the Gross Revenue Pledge Agreement, the Guaranties and the Master Indentures and all references to other materials not purported to be quoted in full are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof. Reference is made to the Series 2017A Bonds, the Loan Agreement, the Bond Indenture, the Deeds of Trust, the Series 2017A California Obligation, the Gross Revenue Pledge Agreement, the Guaranties and the Master Indentures for a full and complete statement of the provisions thereof. Such documents are on file at the offices of the Underwriter and following delivery of the Series 2017A Bonds will be on file at the offices of the Bond Trustee.

So far as any statements made in this Official Statement involve matters of opinion or estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and no representation is made that any of such statements will be realized. Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as a contract with the owners of the Series 2017A Bonds.

It is anticipated that CUSIP identification numbers will be printed on the Series 2017A Bonds, but neither the failure to print such numbers nor any error in the printing of such numbers shall constitute grounds for a failure or refusal by any purchaser thereof to accept delivery of and payment for any Series 2017A Bonds.

The attached Appendices are integral parts of this Official Statement and must be read together with all of the foregoing statements.

The RHF Obligated Group has reviewed the information contained herein which relates to it, and has approved all such information for use within the Official Statement.

The execution and delivery of this Official Statement has been duly authorized by the RHF Obligated Group

RETIREMENT HOUSING FOUNDATION

FOUNDATION PROPERTY MANAGEMENT, INC.

BIXBY KNOLLS TOWERS, INC.

GOLD COUNTRY HEALTH CENTER, INC.

MAYFLOWER RHF HOUSING, INC.

MAYFLOWER GARDENS HEALTH FACILITIES, INC.

SUN CITY RHF HOUSING, INC.

BLUEGRASS RHF HOUSING, INC.

DESMET RHF HOUSING, INC.

HOLLY HILL RHF HOUSING, INC.

MERRITT ISLAND RHF HOUSING, INC.

ST. CATHERINE RHF HOUSING, INC.

YELLOWWOOD ACRES, INC.

By: Its: President and Chief Executive Officer

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APPENDIX A

INFORMATION CONCERNING RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP

The information contained herein as Appendix A to this Official Statement has been provided by Retirement Housing Foundation (“RHF”) and other sources identified herein and deemed by RHF to be reliable.

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TABLE OF CONTENTS

PAGE

INTRODUCTION ...... A-1 General ...... A-1 The Master Indentures and RHF Obligated Group ...... A-1 The California Obligated Group ...... A-2 The National Obligated Group ...... A-3 RHF Obligated Group Revenues by Entity ...... A-3 Additional Information ...... A-4

HISTORY, BACKGROUND AND ORGANIZATION ...... A-5 History and Mission ...... A-5 RHF Affiliated Properties ...... A-5 Other Non-Obligated Entities ...... A-6

GOVERNANCE AND MANAGEMENT ...... A-9 Retirement Housing Foundation Board of Directors ...... A-9 Management ...... A-10 Succession Plan ...... A-13

CAPITAL SPENDING AND PROPOSED CAPITAL IMPROVEMENTS ...... A-13 RHF Obligated Group’s Capital Spending ...... A-13 Capital Improvements to be Financed with Series 2017 Bonds ...... A-14

INFORMATION CONCERNING THE OBLIGATED GROUP MEMBERS ...... A-14 RHF and FPM ...... A-14 The Obligated Group’s Communities ...... A-15 Levels of Care and Resident Agreements ...... A-15 Residential Living or Independent Living ...... A-16 Assisted Living ...... A-16 Skilled Nursing Care ...... A-16 Assistance for Residents Who are Unable to Pay Monthly Fees ...... A-16 Descriptions of RHF Obligated Group Communities and Operations ...... A-17 Occupancy Statistics ...... A-25 Monthly Fees and Payor Mix ...... A-26

ADDITIONAL INFORMATION ...... A-28 Memberships ...... A-28 Marketing ...... A-28 Employees ...... A-29 Insurance ...... A-30

FINANCIAL INFORMATION ...... A-30 Financial Reports for the RHF Obligated Group ...... A-30 Schedules of Selected Combined Financial Information for the RHF Obligated Group ...... A-31 Debt Service Coverage ...... A-33 Historical Days Cash on Hand ...... A-34 Management’s Discussion and Analysis ...... A-34

A-i

Investment Strategy and Investment Performance ...... A-39 Other Guarantees and Indebtedness ...... A-39 Debt Management and Plan of Finance ...... A-39 Derivative Contracts ...... A-40

A-ii

INTRODUCTION

GENERAL

Retirement Housing Foundation (“RHF”) is a California nonprofit public benefit corporation and an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). RHF’s activities include developing, operating and maintaining housing and related properties for senior adults, persons with disabilities, and low-income families in 191 properties in 29 states, Puerto Rico and the Virgin Islands.

RHF is the sole corporate member of each of the entities in the California Obligated Group and the National Obligated Group, each of which is described below.

Foundation Property Management, Inc. (“FPM”) is a California nonprofit public benefit corporation and an organization described under Section 501(c)(3) of the Code. RHF is the sole member of FPM. FPM manages all of the RHF-controlled nonprofit communities, including all of the communities included in the RHF Obligated Group.

This Appendix A is intended to provide information about RHF, FPM and the other members of RHF Obligated Group (described below) that is not presented elsewhere in this Official Statement. For additional information about RHF, FPM and the other members of the RHF Obligated Group, potential investors should refer to the audited combined financial statements of the RHF Obligated Group for the fiscal years ended September 30, 2014, 2015 and 2016, which are included in this Official Statement as Appendix B. The materials included in this Appendix A and the other appendices to this Official Statement should be read in their entirety.

Capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the forepart of this Official Statement and in Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES AND THE MORTGAGES—Definitions of Certain Terms.”

THE MASTER INDENTURES AND RHF OBLIGATED GROUP

The term “RHF Obligated Group” is a definition of convenience used herein to refer to RHF, FPM, the members of the California Obligated Group and the members of the National Obligated Group, collectively, each of which is described below. There is no single master trust indenture executed by all these entities. Neither RHF nor FPM is a member of the California Obligated Group or the National Obligated Group.

Five nonprofit corporations described below and referred to herein as the “California Obligated Group” have executed that certain California Master Trust Indenture dated as of July 1, 2008, as amended (the “California Master Indenture”) with The Bank of New York Mellon Trust Company, as master trustee (the “California Master Trustee”).

Six other nonprofit corporations described below and referred to herein as the “National Obligated Group” have executed that certain National Master Trust Indenture dated as of July 1, 2008, as amended (the “National Master Trust Indenture”) with The Bank of New York Mellon Trust Company, as master trustee (the “National Master Trustee”).

A-1

A location map for the members of the Obligated Group is set forth on the inside cover pages of this Official Statement.

The California Master Indenture and the National Master Indenture are referred to herein, collectively, as the “Master Indentures.” The California Master Trustee and the National Master Trustee are referred to herein, collectively, as the “Master Trustee.”

Each member of the California Obligated Group is jointly and severally liable for the payment of principal and interest on the Series 2017A Bonds and the Series 2017C Bonds. Each member of the National Obligated Group is jointly and severally liable for the payment of principal and interest on the Series 2017B Bonds and the Series 2017D Bonds.

In addition to the joint and several obligations of the California Obligated Group and the National Obligated Group under the respective Master Indentures, each member of the California Obligated Group has executed and delivered (i) a Deed of Trust for the benefit of the California Master Trustee, (ii) a Second Deed of Trust for the benefit of the National Master Trustee and (iii) a Guaranty Agreement guarantying the Obligations issued under the National Master Indenture for the benefit of the National Master Trustee. Each member of the National Obligated Group has executed and delivered: (i) a Mortgage for the benefit of the National Master Trustee, (ii) a Second Mortgage for the benefit of the California Master Trustee and (iii) a Guaranty Agreement guarantying the Obligations issued under the California Master Indenture to the California Master Trustee.

As further security for Obligations issued under the Master Indentures, RHF and FPM have each executed a Guaranty Agreement with each Master Trustee pursuant to which each will guarantee the payment and performance of the obligations of the members of the California Obligated Group and the National Obligated Group under their respective Master Indentures. RHF and FPM are not members of the California Obligated Group or the National Obligated Group. Neither corporation is directly obligated to make debt service payments on the obligations issued under the Master Indenture but both RHF and FPM are obligated to make such payments under their respective Guaranty Agreements.

RHF, FPM, the members of the California Obligated Group and the members of the National Obligated Group have have also entered into the Gross Revenue Pledge Agreement, pledging and granting a security interest in their Gross Revenues to secure any Obligations issued under the Master Indentures.

For more information on the Master Indentures and the security for the Series 2017 Bonds, see “SECURITY AND SOURCE OF PAYMENT” and “CERTAIN COVENANTS OF THE OBLIGATED GROUPS” in the forepart of this Official Statement. For a summary of the provisions of the Master Indentures, see “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE” in Appendix C hereto.

THE CALIFORNIA OBLIGATED GROUP

The California Obligated Group established under the California Master Indenture consists of the following members:

• Bixby Knolls Towers, Inc. which operates Bixby Knolls Towers (“BK” or “Bixby Knolls Towers”)

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• Gold Country Health Center, Inc. which operates Gold Country Retirement Community (“GC” or “Gold Country”)

• Mayflower Gardens Health Facilities, Inc. which operates Mayflower Convalescent Hospital) (“MG”)

• Mayflower RHF Housing, Inc. which operates Mayflower Gardens (“MH”)

• Sun City RHF Housing, Inc. which operates Sun City Gardens (“SC” or “Sun City”)

RHF is the sole corporate member of each member of the California Obligated Group.

As of May 31, 2017, the California Obligated Group’s communities provide a total of 946 independent living units, 138 assisted living units, 17 memory care units and 215 skilled nursing beds.

THE NATIONAL OBLIGATED GROUP

The National Obligated Group established under the National Master Indenture consists of the following members:

• Holly Hill RHF Housing, Inc. which operates Bishop’s Glen (“BG” or “Bishop’s Glen”)

• Merritt Island RHF Housing, Inc. which operates Courtenay Springs Village (“MI” or “Courtenay Springs”)

• Yellowwood Acres, Inc. which operates Westminster Village (“YA” or “Westminster Village”)

• Bluegrass RHF Housing, Inc. which operates Colonial Heights and Colonial Gardens (“BH” or “Colonial Heights and Gardens”)

• DeSmet RHF Housing, Inc. which operates DeSmet Retirement Community (“DH” or “DeSmet”)

• St. Catherine RHF Housing, Inc. which operates St. Catherine Retirement Community (“ST” or “St. Catherine”)

RHF is the sole corporate member of each Member of the National Obligated Group.

As of May 31, 2017, the National Obligated Group’s communities are located on six sites in four states and provide a total of 805 independent living units, 322 assisted living units, nine memory care units and 234 skilled nursing beds.

RHF OBLIGATED GROUP REVENUES BY ENTITY

The following chart shows the revenues and the number of units or beds for each member of the RHF Obligated Group for the fiscal year ended September 30, 2016. Also included are the revenues of RHF and FPM for the fiscal year ended September 30, 2016. The information in this chart has been compiled from the RHF Obligated Group combined financial statements set forth in Appendix B hereto.

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RHF OBLIGATED GROUP REVENUES BY ENTITY

Fiscal Year Ended September 30, 2016

Total Percent of Facility/Entity Location Units/Beds Revenues Revenues

California Obligated Group Bixby Knolls Towers Long Beach, CA 321 $13,557,529 12.2% Gold County Retirement Community Placerville, CA 254 13,524,341 12.1 Mayflower (MG and MH) Quartz Hill, CA 549 8,389,328 7.5 Sun City Gardens Sun City, CA 192 4,938,251 4.4 Subtotal 1,316 40,409,449 36.2

National Obligated Group Bishop’s Glen Holly Hill, FL 354 $15,354,501 13.8% Courtenay Springs Village Merritt Island, FL 245 14,805,285 13.3 Westminster Village Clarksville, IN 350 13,261,704 11.9 Colonial Heights and Colonial Gardens Florence, KY 249 7,220,273 6.5 DeSmet Retirement Community Florissant, MO 87 1,514,476 1.4 St. Catherine Retirement Community Florissant, MO 85 1,569,143 1.4 Subtotal 1,370 53,725,382 48.2

Total California and National Obligated Group $94,134,831 84.4%

Retirement Housing Foundation $4,979,950 4.5%

Foundation Property Management, Inc. 12,398,880 11.1%

Total $111,513,661 100.0%

ADDITIONAL INFORMATION

All members of the California Obligated Group and the National Obligated Group have received determinations from the Internal Revenue Service that they are exempt from federal income taxation under Section 501(c)(3) of the Code as organizations described in Section 501(a) of the Code. While RHF has no immediate plans to add members to the RHF Obligated Group, additional corporations may be added to the RHF Obligated Group in the future.

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HISTORY, BACKGROUND AND ORGANIZATION

HISTORY AND MISSION

RHF was incorporated in 1961 as a nonprofit management and development corporation. It is a member of the Council of Health and Human Services Ministries of the United Church of Christ. The activities of RHF include developing, operating and maintaining housing and related facilities for senior adults, persons with disabilities, and low-income families; providing certain services in connection with the properties, including nursing, rehabilitation, dietary, educational and recreational services; and assisting other organizations in undertaking any of the foregoing.

The original objectives of RHF are reflected in its mission statement:

“The mission of Retirement Housing Foundation, a national nonprofit organization, is to provide a range of housing options and services for senior adults, low-income families, and persons with disabilities, according to their needs, in an environment reinforcing the quality of life as it relates to their physical, mental and spiritual well-being. Retirement Housing Foundation is committed to serving its residents and their local communities.”

Since the opening of its first property in 1965, RHF and its affiliated corporations have grown to be one of the nation’s largest nonprofit providers and managers of affordable housing, skilled nursing and assisted living services for the disabled and senior adults. As of May 31, 2017, RHF and its affiliates have expanded to 191 properties controlled and/or managed in 29 states, Puerto Rico and the Virgin Islands. In total, they serve approximately 21,500 residents with approximately 17,300 units and beds.

RHF AFFILIATED PROPERTIES

In addition to the properties of the California Obligated Group and the National Obligated Group, RHF controls or manages affordable income apartments and five market rate properties.

RHF controls 175 properties providing affordable apartments for senior adults (12,472 units), for those with special needs (276 units) and for families (1,122 units) as of May 31, 2017. In addition, a community-based nonprofit has contracted for management services with RHF Management, Inc., an RHF affiliate, to manage a single other site property with 50 senior adult units.

Most of the affordable housing properties are financed with grants or loans from, or mortgage loans insured by, the United States Department of Housing and Urban Development (“HUD”) under programs including the Section 202, 221(d)(4), 223(a)(7), 231, 232, 236 and 811 programs. Approximately 8,900 of the units receive continuing rent subsidies pursuant to HUD’s Section 8 program or other programs. The other properties receive other types of financial assistance or have been financed through limited partnership syndications via the federal government’s Low Income Housing Tax Credit (“LIHTC”) program.

For each RHF controlled HUD and tax credit financed property, RHF is either the sole member of a single purpose nonprofit corporation formed to own the property, or it has the power to appoint and remove a majority of the directors of the corporation that owns the property. The debt, if any, on these properties is nonrecourse with respect to the RHF Obligated Group. With respect to each partnership property, RHF or an affiliate is a general partner in a single purpose partnership that owns the property. The debt on the partnership properties is also non-recourse with respect to the RHF Obligated Group.

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Because of applicable law, regulations or contracts restricting distributions, in most cases RHF or the RHF Obligated Group does not have access to the funds or other assets of the affordable housing portfolio, other than through management fees paid to RHF or its subsidiaries.

The members of the California Obligated Group, the National Obligated Group and five additional properties that are not in the RHF Obligated Group constitute RHF’s “market rate” properties. These properties do not have HUD or tax credit financing and are not subject to accompanying regulatory restrictions, nor, with limited exceptions, do the properties have rental assistance payments available to residents. A single purpose nonprofit corporation of which RHF is the sole member owns each of these properties, with the exception of Mayflower Gardens, in which the skilled nursing facility and the housing properties are owned by separate single purpose corporations, Mayflower Gardens Health Facilities, Inc. and Mayflower Gardens RHF Housing, Inc. The market rate portfolio consists of 1,751 apartments, 460 assisted living units, 26 memory care units and 449 skilled nursing beds for senior adults.

The five market rate properties whose affiliated owners are not members of the RHF Obligated Group are: The Carolinian in Florence, South Carolina, The Cloisters in Deland, Florida (“The Cloisters”), The Gateway and Gateway Gardens in Poway, California (“Gateway”), Pioneer House in Sacramento, California, and Plymouth Square in Stockton, California. As of the date of this Official Statement management of RHF has no plans to add any of these entities to the RHF Obligated Group. The Cloisters and Gateway each have outstanding debt, which is secured solely by a mortgage on, and an assignment of rents from each property, and is non-recourse with respect to RHF or any member of the RHF Obligated Group. However, RHF provides a guarantee to maintain Gateway’s liquidity above 90 days cash on hand (“DCOH”). Gateway’s DCOH was 156 days as of May 31, 2017.

Outstanding bond or mortgage debt of the non-RHF Obligated Group market rate properties is:

The Cloisters $15,830,000 Gateway and Gateway Gardens 11,800,000 $27,630,000

OTHER NON-OBLIGATED ENTITIES

RHF is the sole corporate member of the following entities which are not members of the RHF Obligated Group and are not obligated to make any debt service payments with respect to the Obligations issued under the Master Indentures.

RHF Foundation, Inc. RHF Foundation, Inc. (“RHFFI”) is a California nonprofit public benefit corporation involved in real estate development and rehabilitation for RHF’s affordable housing portfolio. As of September 30, 2016, RHFFI had net assets of $107 million available for affordable housing activities. The primary purpose of RHFFI, is to help preserve and grow RHF’s affordable portfolio through acquisition and development utilizing various forms of financing, including the LIHTC program. An accompanying benefit is that LIHTC’s allow the distribution of developer fee income to RHF and RHFFI. Developer fees received by RHF as of September 30, 2016 and September 30, 2015 were $3,339,000 and $8,440,000, respectively.

RHF Charitable Foundation. RHF Charitable Foundation (“RHFCF”) is a California nonprofit public benefit corporation focused on fundraising and philanthropic efforts as well as assisting with RHF’s non-profit mission. RHFCF’s two primary fundraising objectives are resident benevolence and affordable housing. The Resident Benevolence Fund provides assistance to residents in both the RHF Obligated Group and other RHF communities once a resident has demonstrated financial need. The

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Affordable Housing Fund was established to help fund the development and preservation of affordable housing. As of September 30, 2016 RHFCF had net assets of $2.6 million. The RHF Board has authorized an equity transfer of up to 1% of RHF’s net annual earnings to RHFCF, split evenly between the Resident Benevolence Fund and Affordable Housing Fund. The RHF annual donation is discretionary and subject to RHF Board approval. In the fiscal year ended September 30, 2016, RHF transferred $1,774,183 to RHFCF for deposit into the Resident Benevolence Fund and the Affordable Housing Fund in order to establish RHFCF. The equity transfers were $105,453 and $122,591 for the fiscal years ended September 30, 2017 and 2016, respectively.

The following page provides an organizational chart of RHF and its controlled affiliates, including the RHF Obligated Group.

A-7 ORGANIZATION CHART FOR RETIREMENT HOUSING FOUNDATION AND RELATED CORPORATE ENTITIES

RETIREMENT HOUSING FOUNDATION

RHF Management, Inc. 175 Not-for-Profit "Manages third-party Corporations Providng RHF Charitable property mgmt Low-to-Moderate Income Foundation RHF Foundation, Inc. Foundation Property Holly Hill RHF Housing, Bixby Knolls Towers, contracts" Housing "Philanthropy" "Project Development" Management, Inc. Inc. "Bishop's Glen" Inc. Merritt Island RHF Housing, Inc. "Courtenay Springs Gold Country Health Village" Center, Inc.

Bluegrass RHF Housing, Other For-Profit Florence RHF Housing, Inc. "Colonial Heights Mayflower Gardens Subsidiaries Inc. "The Carolinian" and Gardens" Health Facilities, Inc.

Cloisters RHF Housing, DeSmet RHF Housing, Mayflower RHF LLC Inc. Housing, Inc.

Poway RHF Housing, St. Catherine RHF Sun City RHF Housing, Inc. "The Gateway" Housing, Inc. Inc. Cathedral Pioneer Church Homes, No. Yellowwood Acres, Inc. Two "Pioneer House" "Westminster Village"

Stockton Congregational Homes "Plymouth Square"

National Obligated RHF Obligated Group Group

Non-Obligated Group California Obligated Market Rate Properties Group

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GOVERNANCE AND MANAGEMENT

RETIREMENT HOUSING FOUNDATION BOARD OF DIRECTORS

The management of the affairs of RHF is vested in a nine to fifteen-member Board of Directors (the “RHF Board”). Members of RHF, at its annual meeting, elect the directors annually for three-year terms. The current RHF Board members, respective occupations, the expiration of terms and the year the member joined the RHF Board are presented in the table below. Along with Management, certain RHF Board members also serve on the governing boards of the other members of the RHF Obligated Group. RHF’s Bylaws provide for the existence of an Executive Committee. The Executive Committee may on certain occasions be authorized by the RHF Board to act on behalf of the RHF Board if circumstances warrant.

TERM EXPIRATION NAME OCCUPATION/CITY, STATE OF RESIDENCE (February) MEMBER SINCE Raymond East Graphics Engineer, Retired 2020 1996 Chairperson Charlottesville, Virginia

Christina Potter Real Estate Developer 2019 1992 Vice-Chair Lyndonville, Vermont

Darryl Sexton Physician, City Health Officer, Retired 2020 1998 Vice-Chair Long Beach, California

Frank Jahrling Bank Trust Officer, Retired 2018 2008 Treasurer Honolulu, Hawaii

Stuart Simington Bond Underwriter, Retired 2018 1999 Sacramento, California

John Bauman, Ph.D. University Professor, Retired 2019 2011 Southport, Maine

Rev. Dr. Norma DeSaegher Clergy 2019 2011 Chula Vista, California

Rev. David Moyer Clergy, Retired Conference Minister 2018 2014 Waunakee, Wisconsin

David Ethington Electrical Engineer, Retired 2018 2015 LaPalma, California

Catherine Collinson Insurance Executive 2020 2017 Los Angeles, California

Jeff Pollock Attorney 2020 2017 Cleveland, Ohio

Rev. Dr. Misi Tagaloa Clergy 2020 2017 Long Beach, California

The Executive Committee of the RHF Board which has the power to act on behalf of the RHF Board is comprised of the Chairperson, two Vice-Chairpersons and the Treasurer of the RHF Board.

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MANAGEMENT

Biographical information for key executives of RHF is presented below.

Reverend Dr. Laverne R. Joseph, President and Chief Executive Officer, Age 79. The Reverend Dr. Laverne R. Joseph was appointed President and Chief Executive Officer of RHF on July 1, 1987. He previously served on the RHF Board. Prior to joining Management of RHF, Dr. Joseph served as Senior Pastor of Peace Memorial United Church of Christ in Palos Park, Illinois, and was Executive Director of several properties for the care and housing of senior adults. He received a B.A. from Ursinus College, Collegeville, Pennsylvania, and a B.D. and a M.Div., both from Lancaster Theological Seminary. He did graduate work in Ethics and Society at the University of Chicago Divinity School from 1964 to 1966; and received an Honorary Doctor of Divinity degree from Eden Theological Seminary, Webster Groves, Missouri in 1975. Dr. Joseph is a founding member and currently serves on the Board of National Affordable Housing Trust (“NAHT”), the nation’s first nonprofit syndicator of tax credits. NAHT has provided nearly two billion dollars in funding for low-income housing. Dr. Joseph is a founding member and currently serves on the Board and Executive Committee of Caring Communities Risk Retention Group, a liability insurance company for nonprofits providing housing and healthcare services. He also serves on the National Board of the United Church of Christ’s Council for Health and Human Services Ministry. Dr. Joseph has presented before committees of the U.S. Congress and other governmental bodies, and has multiple awards for his work and advocacy in providing safe, secure and affordable housing for thousands of seniors and lower income families.

Dr. Joseph is responsible for the implementation of board policies, for creating the RHF strategic plan in concert with its board and senior staff and for monitoring the plan. He serves as Chief Executive Officer of the RHF management subsidiary, FPM, and as President of all affiliated corporations, including the members of the RHF Obligated Group. He is responsible for recruiting and supervising senior managers and assures quality management and financial performance. He is RHF’s spokesperson with church, government and provider associations.

Robert Amberg, Senior Vice President and General Counsel, Age 65. Mr. Amberg has served RHF as General Counsel since October 1990. Mr. Amberg received his J.D. from Lincoln University Law School in San Francisco, California. He received a B.S. in Communications from Southern Illinois University in Carbondale, Illinois. He is a member of the bar of the State of California and various federal courts, including the U.S. Supreme Court. He was appointed Vice President of RHF in October 1992, and Senior Vice President in September 2000. He previously served as Vice President and Assistant General Counsel for Comprehensive Care Corporation, Staff Attorney for Westworld Community Healthcare, Inc., and General Counsel for Island Resorts, Inc. He was a partner in Amberg and Townsend, a San Francisco law firm. He is also a licensed California Real Estate Broker.

Mr. Amberg’s duties include responsibility for the legal, human resources, corporate compliance and risk management departments of RHF. He advises corporate staff and field management in a wide variety of legal and business issues. Mr. Amberg supervises the activities of any outside legal consultants that RHF may utilize. He has received the designation of Super Lawyer by Los Angeles Magazine in 2006 and 2007. He is rated AV by Martindale Hubbell (the highest available).

Frank A. Rossello, Chief Financial Officer and Vice President of Finance, Age 52. Mr. Rossello is a Certified Public Accountant from the State of New York and began employment as Controller with RHF in June 2005. He was promoted to Vice President/Controller in June 2008 and then named Chief Financial Officer/Vice President of Finance in April 2009. Mr. Rossello has over 30 years of accounting and finance experience, 19 of which are in the senior housing industry. Prior to joining RHF, Mr.

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Rossello held the positions of Vice President, Business Analysis and Assistant Controller with Atria Senior Living (formerly ARV Assisted Living, Inc. in Costa Mesa, California). He has also held a variety of accounting and finance related positions in National Education Corporation (Irvine, California), Beckman Coulter (Fullerton, California), and Ernst and Young (Stamford, Connecticut). Mr. Rossello has a Bachelors of Business Administration in Accounting degree from Sienna College, Loudonville, New York.

V. Brian Magnone, Vice President Treasury, Age 58. Mr. Magnone began employment with RHF in January 2004. Mr. Magnone oversees RHF’s banking, investments and financing activities. Mr. Magnone began his career as a bank examiner with the Comptroller of the Currency and has since held progressive finance and accounting positions during his career including large nonprofits, banking, and a technology start-up that received funding from Sequoia Capital. Mr. Magnone has earned the Chartered Financial Analyst (“CFA”) and Certified Cash Manager designations. He earned a B.S. degree in Business Administration with a specialization in mathematics from West Liberty University, West Liberty, West Virginia and an MBA from Regent University, Virginia Beach, Virginia. He has served on the Board of Directors for the Counsel for Health and Human Services Ministries and the CFA Society of Orange County. He currently serves on the UCC Cornerstone Fund Board of Directors. Mr. Magnone is a California real estate broker.

Peter Peabody, Vice President of Healthcare Operations, Age 67. Mr. Peabody joined RHF in August 2005 as Director of Healthcare Operations, and was promoted to Vice President of Healthcare Operations in July 2007. Mr. Peabody is responsible for the daily management of RHF’s multi-level retirement communities, providing independent living, assisted living, memory care and skilled nursing services, including the RHF Obligated Group communities. Mr. Peabody has been involved in long-term care management since 1980 and has managed nursing facilities ranging in size from 48 to 240 beds. Past positions have included both nursing home administration as well as oversight for multiple healthcare communities. He is a licensed nursing home administrator and a member of the America College of Health Care Administrators. He has completed the professional requirements to be designated as a Certified Nursing Home Administrator. He received both B.S. and Masters of Arts degrees from Andrews University in Berrien Springs, Michigan. Mr. Peabody has also completed a leadership course sponsored by the Council of Health and Human Services Ministries of the United Church of Christ.

Stuart Hartman, Vice President of Affordable Housing Operations, Age 58. Mr. Hartman is a licensed California real estate broker and is the broker of record for RHF, FPM and RHF Management, Inc. Mr. Hartman is the Vice President of Foundation Property Management, Inc. and RHF Management, Inc., subsidiary property management companies of Retirement Housing Foundation. He has been with RHF over 27 years in progressive responsibilities in operations. Prior to joining FPM and RHF Management, Inc., he managed numerous affordable and market-rate communities throughout the U.S., including multi-level care facilities with nursing home operations. He is also a Certified Manager of Maintenance and previously held insurance and securities licenses. In his capacity as Vice President he is responsible for the daily operations of RHF’s 175 affordable communities.

Deborah Stouff, Vice President Corporate Records and Corporate Secretary, Age 56. Ms. Stouff joined RHF in 2006 and currently serves as Secretary of the RHF Board and all of its affiliated corporations, including members of the RHF Obligated Group. Ms. Stouff maintains the official minutes for board meetings, ensuring compliance with corporate record keeping requirements, property tax appeals, and other corporate functions. She is responsible for establishing and maintaining all corporate and legal documents on behalf of RHF, as well as all subsidiaries. She is a member of the American Society of Corporate Secretaries and Governance Professionals. Prior to joining RHF she held the Assistant Corporate Secretary position at Beckman Coulter. Ms. Stouff has a Bachelor’s Degree in

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Political Science from California State University, Fullerton; an Associate Degree in Legal Assistant programs from Santa Ana College, Santa Ana, California; and she completed a semester of law school at the University of California at Davis – School of Law.

Anders Plett, Vice President of Acquisitions and Project Development, Age 55. Anders Plett joined RHF in May 2008. Mr. Plett oversees the project development, construction and acquisition activities for RHF. Mr. Plett brings over 31 years of real estate development, market analysis and strategic planning experience. Prior to joining RHF, Mr. Plett worked for Sunrise Senior Living as Director of Development for its West Coast division in Irvine, California managing the development of several assisted living communities in Southern California. Prior to that, he worked as a Senior Project Manager with Lennar’s urban division in San Diego and Orange Counties, both in California. While at Lennar, Mr. Plett was in charge of several large urban developments, including Central Park West in Irvine, a 40-acre urban master-planned community with 1,380 homes as well as retail and office uses. Prior to that, Mr. Plett was a Senior Project Manager for Simpson Housing Solutions where he developed and syndicated affordable housing communities across the United States. His responsibilities included land acquisition, entitlement procurement, construction oversight, and the syndication of over $256 million in tax credits in 18 states. Mr. Plett was also a Senior Consultant for Robert Charles Lesser & Co., where he provided development and investment strategies for public and private sector clients, and served as Assistant Economic Development Director for the City of Montebello, where he planned and directed the City’s redevelopment programs. Mr. Plett is a graduate of UCLA where he received a Bachelor’s degree in Economics.

Christopher Purcell, Controller, Age 62. Christopher Purcell joined RHF in May 2010 as Controller. As Controller, he oversees Housing Accounting (Affordable and Tax Credit properties), Healthcare Accounting (Market Rate properties) and Corporate Accounting. He is a licensed CPA and JD, both active in California. He received both a Bachelor of Science and a Bachelor of Arts from Loyola Marymount University, Los Angeles, California, with his Juris Doctorate from Loyola Law School. Mr. Purcell has experience in a variety of industries, but primarily healthcare related, as a Controller, CFO and owner.

Diane King, East Coast Regional Manager Healthcare Operations, Age 63. Ms. King began her employment with RHF in August 2014 as the East Coast Regional Manager. She has direct responsibility for eight east coast market rate communities of which six are in the RHF Obligated Group. Ms. King is responsible for the day-to-day management of properties, including assisted living, independent and skilled nursing services. Ms. King works with the Executive Directors at each site in budget preparation, personnel management, problem resolution, survey readiness, community service and quality assurance. Ms. King has over 25 years of experience as an administrator as well as direct responsibility for healthcare campus operations. In addition, she was the District Manager for the Florida Agency for Health Care Administration, the state survey agency for all health care licensure types. She has also been an instructor for health care administration at several universities. Ms. King has a Masters in Health Care Administration from Georgia State University. She is a licensed nursing home administrator and an assisted living administrator. She is part of the rules and regulations committee that helps to develop Florida regulations for assisted living and nursing homes.

Janice Delano, West Coast Regional Manager Healthcare Operations, Age 61. Ms. Delano began her employment with RHF in 1989 as the Administrator for Mayflower Gardens Convalescent Hospital in Lancaster, California. During her tenure at Mayflower she was voted RHF Administrator of the Year in 1999. She was promoted to the West Coast Regional Manager position in 2005. She has direct responsibility for eight West Coast Market Rate and Healthcare Facilities of which four are in the RHF Obligated Group. Ms. Delano is responsible for the day-to-day management of properties including

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assisted living and skilled nursing activities. Ms. Delano works with the administrators at each site to prepare budgets, monitor financial performance, personnel matters, problem resolution and quality assurance.

Ms. Delano started her skilled nursing administration career with Holy Cross Hospital in Mission Hills, California. Ms. Delano has both a Bachelors of Science and a Masters in Healthcare Administration from California State University-Northridge in Northridge, California. She was a member of several honor societies and obtained a California Nursing Home Administrator License. Ms. Delano has a California Residential Care Facility for the Elderly Certificate.

Christina Bagley, National Marketing Director, Age 46. Ms. Bagley became RHF's National Marketing Director in 2011 and has over 20 years of experience in the area of senior health and housing. Ms. Bagley spent the first half of her career in Florida serving in senior home healthcare, she became an Operations Manager and Assistant to the Regional Vice President of Operations and then later becoming a Marketing Consultant. In the state of Indiana, where she assumed the position of Director of Marketing for a 150 bed Skilled Nursing Facility and later as a Regional Marketing Consultant in Indiana for an organization managing communities that had a range of service lines, including: independent living, assisted living, memory care, short-term rehabilitation and long-term skilled nursing care. Ms. Bagley has served on the Board of Directors as Vice President of the State of Indiana Continuity Care Association (“ICCA”), Board of Directors for Perry Senior Citizen Services (“PSCS”), was a Founding Member and Secretary for the Community Education & Resource Affiliation of Central Florida (“CERA” of Central Florida) and is currently serving as the Vice Chair of Membership for LeadingAge Florida. Ms. Bagley is a graduate of Harcourt Learning, has a degree in Medical Transcription and is certified in Professional Selling Skills by Achieve Global™. She continues her professional development via a variety of continuing education opportunities and is currently enrolled with Northwestern University for certification in Engagement and Nurture Marketing Strategies.

SUCCESSION PLAN

RHF has a written management succession plan that has been approved by the RHF Board. In the event an unanticipated condition creates a vacancy in the CEO position, the Executive Committee of the RHF Board will name an interim President/CEO. The individual will be chosen from among current RHF staff to insure continuity. During this period, a national search for a permanent President/CEO will be initiated.

CAPITAL SPENDING AND PROPOSED CAPITAL IMPROVEMENTS

RHF OBLIGATED GROUP’S CAPITAL SPENDING

RHF has continued to invest in capital improvements at a level that exceeds the rate of depreciation. The RHF Obligated Group’s total capital spending, excluding RHF and FPM, for the last three fiscal years is over $2,100 per unit:

(ACTUAL DOLLARS) SEPTEMBER 30, 2014 SEPTEMBER 30, 2015 SEPTEMBER 30, 2016

Capital Spending $5,825,928 $6,583,119 $5,791,625 Average per unit(1) 2,169 2,451 2,156 Depreciation and Amortization 4,661,560 4,532,795 5,021,698 ______(1) Total OG units are 2,686.

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RHF has utilized a national construction project manager to oversee larger construction and maintenance projects at the market rate communities, including the RHF Obligated Group properties. A recent example is Courtenay Springs Village where RHF invested $2.8 million and $1.1 million, respectively, for the years ended September 30, 2015 and September 30, 2016. The RHF Obligated Group members use ongoing maintenance contracts for major equipment such as elevators, boilers, chillers, and emergency generators.

CAPITAL IMPROVEMENTS TO BE FINANCED WITH SERIES 2017 BONDS

Approximately $8,250,000 of the proceeds of the Series 2017 Bonds will be used to finance certain capital expenditures at the RHF Obligated Group properties as described below.

California Obligated Group. Approximately $6,900,000 of the proceeds of the Series 2017A Bonds are expected to be used to finance capital improvements at Bixby Knolls Tower, Gold Country and Sun City. Bixby Knolls plans to remodel lobbies and common areas in both the Bixby Knolls Tower independent living and healthcare buildings (assisted living and skilled nursing). Bixby Knolls will also use a portion of the bond proceeds for infrastructure improvements including the main kitchen and HVAC for the independent living mid-rise. Gold Country plans to upgrade apartments and the skilled nursing area and rooms subject to California agency approvals as well as reroof all five buildings. Sun City plans to remodel apartments lobbies and common areas and replace a roof.

National Obligated Group. Approximately $1,350,000 of the proceeds of the Series 2017B Bonds are expected to be used to finance capital improvements at Bishop’s Glen, Westminster Village and Colonial Heights and Gardens. Bishop’s Glen will upgrade apartments, skilled nursing rooms and common areas. Bishop’s Glen also plans to waterproof and repaint all buildings as well as refurbish elevators on campus. Westminster will upgrade common areas including the dining and kitchen facilities. Westminster also has plans to upgrade the skilled nursing rooms. Colonial Heights and Gardens will use capital funds to further improve energy efficiency.

INFORMATION CONCERNING THE RHF OBLIGATED GROUP MEMBERS

RHF AND FPM

RHF provides centralized management to its affordable housing properties and its market rate properties directly or through its subsidiaries, including operational management, marketing, nursing support and quality assurance, public relations, philanthropy, risk management, human resources, legal, and accounting support.

RHF has formed two property management companies that manage the properties for a fee. Foundation Property Management, Inc., a California nonprofit public benefit corporation (“FPM”), of which RHF is the sole member, manages all but one of the RHF-controlled nonprofit properties, including all of the properties owned by members of the RHF Obligated Group. RHF Management, Inc., a California corporation (“RHF Management”), is not a member of the RHF Obligated Group. However, all stock of RHF Management is owned by RHF. RHF Management manages 50 units, which are owned by unaffiliated corporations or partnership in which RHF or an affiliate is a general partner.

The management companies and RHF provide the following services: property management, consulting, quality assurance, accounting, financial, legal, corporate compliance, human resources, public

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relations, risk management and administrative services. RHF is also engaged in construction project management and development as needed.

RHF and FPM are each members of the RHF Obligated Group by execution of the Guaranty Agreement. Neither RHF nor FPM is a member of the California Obligated Group or the National Obligated Group. Each is obligated to make debt service payments on the obligation issued under the California Master Indenture and the National Master Indenture through its respective Guaranty Agreement.

RHF and FPM add significant financial backing to the RHF Obligated Group as guarantors. FPM receives management fees from RHF controlled properties. In addition, RHF receives annual surplus cash receipts as available from tax credit properties as well as developer fees in conjunction with RHFFI activities. RHFFI is not a member of the RHF Obligated Group, but RHF, as sole sponsor of RHFFI controls the ability to receive developer fees received from development and rehabilitation projects in RHF’s portfolio.

THE RHF OBLIGATED GROUP’S PROPERTIES

The RHF Obligated Group’s properties are located on ten sites and, as of May 31, 2017, provide a total of 1,751 independent living units, 460 assisted living units, 26 memory care units and 449 skilled nursing beds. Each site, its location, year opened or acquired, and number of units or beds is as follows:

Number of Beds/Units Year Total Name of Property Location Opened/Acquired ILU ALU MEM SNF Units/Beds

California Obligated Group Bixby Knolls Towers Long Beach, CA 1971 168 54 0 99 321 Gold Country Placerville, CA 1984 150 36 0 68 254 Mayflower (MG and MH) Quartz Hill, CA 1965/1969 501 0 0 48 549 Sun City Gardens Sun City, CA 1970 127 48 17 0 192

National Obligated Group Bishop’s Glen Holly Hill, FL 1984 192 102 0 60 354 Courtenay Springs Village Merritt Island, FL 1987 154 11 0 80 245 Colonial Heights and Gardens Florence, KY 1987 179 61 9 0 249 DeSmet Florissant, MO 2000 33 54 0 0 87 St. Catherine Florissant, MO 2000 85 0 0 0 85 Westminster Village Clarksville, IN 1983 162 94 0 94 350 1,751 460 26 449 2,686 ______ILU: Independent Living Unit/Residential Living ALU: Assisted Living Units MEM: Memory Care Units SNF: Skilled Nursing Facility Beds

A map indicating the location of the RHF Obligated Group properties is included on the inside cover pages of this Official Statement.

LEVELS OF CARE AND RESIDENT AGREEMENTS

Each of the RHF Obligated Group properties offers one or more levels of care. Persons who become residents are required to sign an agreement that indicates the terms of residency, required fees, and services to be provided.

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RESIDENTIAL LIVING OR INDEPENDENT LIVING

Residential living or independent living (in some cases referred to as congregate living, or simply as housing) is for residents functionally capable of independent living with minimal assistance. Residents are generally accepted if they are capable of caring for themselves and are able to demonstrate the necessary financial resources to meet the fee requirements. All of the RHF Obligated Group communities are rental communities only. None of the RHF Obligated Group communities collects entrance fees under life care or life plan contracts. Pursuant to the standard “Residential Lease Agreement,” a resident may be required to pay a modest community fee, rent, and a monthly service fee. These fees generally entitle the resident to one to three meals each day, social and recreational programs, utilities except for telephone, local transportation, parking, basic housekeeping, and security.

In addition to the items included in the monthly service fee, certain services may be available to residents at an additional cost. The services generally include laundry services for personal items, additional meals, extra housekeeping or maintenance services, cable service, beauty and barbershop services, and ancillary health care services.

The initial term of the Residential Lease Agreement is one year. On an annual basis, the Residential Lease Agreement may be automatically renewed for successive one-year terms. However, either party may terminate the Residential Lease Agreement by submitting a 30-day advance written notice of termination prior to the expiration of the initial term and any successive term of the Residential Lease Agreement. Each Residential Lease Agreement provides a resident with a contractual right to occupy an apartment or an assisted living unit (if available).

ASSISTED LIVING

Assisted living care is for residents no longer capable of living independently, but who do not require the 24-hour supervision of a licensed nurse. Residents are generally ambulatory and receive assistance with activities of daily living, such as medication management and assistance with dressing, feeding, and bathing. Based on the Residential Lease Agreement, residents in assisted living generally occupy apartments that include bedrooms, baths, and a limited kitchen. They are provided three meals a day, their apartments are cleaned regularly, their bed linens are changed as needed but at least on a weekly schedule, personal laundry is taken care of weekly.

SKILLED NURSING CARE

Skilled nursing care is for residents who require the daily attention of professional nursing staff. Licensed nurses provide supervision with 24-hour services provided by licensed nurses as well as certified nursing assistants.

ASSISTANCE FOR RESIDENTS WHO ARE UNABLE TO PAY MONTHLY FEES

In the event that residents cannot continue to pay their monthly rents they are evaluated on a case by case basis against certain prerequisites. RHFCF fundraises and has a Resident Benevolence Fund that could assist with grants to help cover rent. Independent living residents who have serious financial reversals may be assisted and moved to housing with rental assistance through the HUD Section 8 or the Low-Income Housing Tax Credit programs.

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The RHF Obligated Group typically limits rent waivers only to initial marketing incentives. Otherwise, it could impair the ability of the RHF Obligated Group to operate on a sound financial basis long term.

DESCRIPTION OF RHF OBLIGATED GROUP PROPERTIES AND OPERATIONS

Bixby Knolls Towers

General Description. Bixby Knolls Towers, Inc. (“BK” or “Bixby Knolls Towers”) is a California nonprofit public benefit corporation. BK owns and operates a residential care, assisted living, and skilled nursing facility, known as Bixby Knolls Towers, located in Long Beach, California. The community consists of two towers, each containing approximately 66,000 square feet on an approximately 57,600 square foot parcel. The first tower contains 168 residential units, administrative offices, recreation and lobby space, an independent dining area and kitchen, and a beauty parlor and barbershop. The second tower contains a 54-bed assisted living unit with its own dining and community space, and a 99-bed skilled nursing facility. The second tower also has a lounge, dining and activity rooms and a physical, occupational, and speech rehabilitation therapy unit. The skilled nursing facility accepts private pay patients, Medicare, Medi-Cal, and managed care beneficiaries. The buildings were constructed in 1966 and opened for occupancy in 1971. The properties are located at 3737 and 3747 Atlantic Avenue, Long Beach, California 90807.

Bixby Knolls Towers Residential and Assisted Living Competition. Primary residential and assisted living competition for Bixby Knolls Towers comes from three sources: Palmcrest Grand Residence, Vista Del Mar Senior Living, and Villa Redondo Assisted Living. Palmcrest and Vista Del Mar are located nearby in Long Beach, California. Both competitors offer residential, assisted living and dementia care with over 260 units at each site. Palmcrest House also offers a day care program to supplement its assisted living services. Villa Redondo (80 units) provides only assisted living services in its location which is closer to the beach. Palmcrest is independently owned whereas Vista Del Mar and Villa Redondo are both part of a larger group.

Bixby Knolls Towers Skilled Nursing Competition. There are several skilled nursing providers within six miles of Bixby Knolls Towers’ urban location: Pacific Palms (133 beds), Royal Care (98 beds), Bel Vista (41 beds), Marlora (99 beds) and Courtyard Care Center (59 beds). All providers continue to provide care for up to three residents per room. Most accept HMO or hospice residents as well. Bixby Knolls Towers’ private room rate is slightly below the mid-point compared to the competitors. Long Beach General Hospital is a major referring hospital.

Licensure. The residential units are not subject to any licensure requirement. The California Department of Health Services licenses BK’s skilled nursing facility; the California Department of Social Services licenses the assisted living facility as a Residential Care Facility for the Elderly.

Gold Country Retirement Community

General Description. Gold Country Health Center, Inc. (“GC” or “Gold Country”) is a California nonprofit public benefit corporation. GC owns and operates a 68-bed skilled nursing facility, a 36-unit assisted living facility and a 150-unit residential facility complex, collectively known as Gold Country Retirement Community, located on ten acres at 4301 and 6041 Golden Center Drive, Placerville, California 95667.

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The 68-bed skilled nursing facility is a one-story building with approximately 35,754 square feet. It was constructed in 1983 and opened for occupancy in 1984. The building also contains 36 assisted living units. The residential care complex consists of three tri-story buildings, each approximately 15,443 square feet. It was constructed in 1985 and opened for occupancy in 1986.

Gold Country Residential and Assisted Living Competition. Residential and assisted living competition consists of Eskaton Village approximately five miles away and Ponte Palermo nearly 10 miles away. Both competitors charge significantly higher rents for comparably sized apartments. Ponte Palermo has 62 residential and 137 assisted living apartments. Eskaton has 39 residential and 40 assisted living apartments. All parties charge incrementally higher rates depending on level of care needed.

Gold Country Skilled Nursing Competition. Competition for the skilled nursing services offered at Gold Country consists of two Plum properties, Western Slope (99 beds) and Pines of Placerville (93 beds), as well as Barton Memorial (48 beds), an affiliate of Barton Memorial Hospital. Gold Country’s private room rate is in line with competitors. Marshall Medical Center is the major referring hospital for all except the Barton Memorial Hospital affiliate.

Licensure. The residential units are not subject to any licensure requirement. The California Department of Health Services licenses the skilled nursing facility, the California Department of Social Services licenses the assisted living facility as a Residential Care Facility for the Elderly.

The Gold Country skilled nursing facility has a five-star (the highest possible ranking) quality rating from the federal Centers for Medicare and Medicaid Services (“CMS”).

Mayflower Gardens

General Description. Mayflower Gardens Health Facilities, Inc. (“MG”) and Mayflower RHF Housing, Inc. (“MH” and, together with MG, “Mayflower”) are California nonprofit public benefit corporations. MG owns and operates a 48-bed skilled nursing facility known as Mayflower Gardens Convalescent Hospital. MH owns and operates a 501-unit senior adult apartment complex known as Mayflower Gardens. The properties have 341,000 square feet located on an approximately 42 acre site in Quartz Hill, California, an unincorporated area of Los Angeles County. The street addresses for the administrative offices are 6705 West Avenue M and 6570 West Avenue L-12, Lancaster, California 93536. Together the properties are known as Mayflower Gardens.

MG and MH were organized in 1963 for the purpose of providing a continuum of shelter and skilled health care services for senior and non-senior persons. The skilled nursing facility is a one-story building with approximately 8,500 square feet. It was constructed in 1969 and opened for occupancy in 1970. MG purchased it in 1984. Services provided at the skilled nursing facility include 24-hour nursing care as well as physical therapy, occupational therapy, podiatry and dental care, social services and recreational activities. The skilled nursing facility accepts private pay patients, Medicare, and Medi-Cal beneficiaries.

The 501-unit residential complex was originally constructed in 1962 and opened for occupancy in 1965. It consists of 81 single-story buildings, each containing four, six or eight apartments. No services are included in the basic monthly fee for residents of the apartments outside of limited community bus transportation. Residents may pay for additional services and activities provided through the on-site community center, which includes a restaurant, library, beauty and barber shop, an exercise room, a billiards room, ceramics, woodworking, arts, and crafts shops.

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Approximately 5% of residents in residential units utilized HUD Section 8 vouchers as administered by the County of Los Angeles HUD Section 8 Certificate Program. A priority admission to the skilled nursing facility is given to residents of the senior apartment complex.

Mayflower Gardens Residential Competition. The residential competition for Mayflower consists of five communities that are nearly 10 miles away including three low-income housing tax credit communities: Arbor Court/Arbor Grove (193 units), Palo Verde (78 units) and Cielo Azul (80 units). Arbor Gardens (116 units) is an affiliate to Arbor Court, owner is Insite Development. Cedar Creek (194 units) is a newer residential community and is at the higher end for rent levels. Mayflower is slightly above the mid-point rent compared to their competitors, but Mayflower includes full utilities, cable TV and scheduled bus transportation services. It is also noteworthy that RHF sponsors two HUD-202 properties nearby, Mayflower Gardens II (76 units) and Harshfield Terrace (75 units). HUD-202 apartment properties tend to serve a lower income resident than Mayflower Gardens and low-income housing tax credit properties. There are sizable waiting lists for the nearby RHF HUD 202 apartments.

Mayflower Gardens Skilled Nursing Competition. Mayflower’s skilled nursing competition is located approximately 10 miles away with referrals primarily coming from Antelope Valley General Hospital. Geri-Care IV and V, LLC operate Wells Springs Post (299 beds) and Antelope Valley Care Center (199 beds), respectively. Lancaster Healthcare (99 beds) is also near Antelope Valley General Hospital. The Mayflower Gardens skilled nursing facility primarily receives referrals from Palmdale General Hospital. Skilled nursing providers near Lancaster/Palmdale have historically had a higher mix of Medicaid residents versus more urban locations.

Licensure and Other Regulatory Restrictions. The residential units are not subject to any licensure requirement. The California Department of Health Services licenses Mayflower Convalescent Hospital as a skilled nursing facility.

Sun City Gardens

General Description. Sun City RHF Housing, Inc. (“SC” or “Sun City”) is a California nonprofit public benefit corporation organized in 1982. SC owns Sun City Gardens, which provides residential care in 127 efficiency, one and two-bedroom apartments. Sun City has 48 assisted living apartments and 17 memory care apartments. SC has no skilled nursing facilities. The property is situated on almost six acres located at 28500 Bradley Road, Sun City, California 92586. Sun City Gardens serves residents of Sun City, an unincorporated portion of Riverside County, and the surrounding communities in the Menifee Valley. Home health services are available to residents, and includes assistance with bathing, dressing, medication monitoring, and escort services. The home health agency is not affiliated with or managed by the RHF Obligated Group.

The apartments are in three two-story buildings, with parking below. The fourth building is a single story structure with a dining room, kitchen, main lounge, library, chapel, beauty salon, exercise room, lobby and administrative offices. The property has a central courtyard featuring a large entertainment patio, desertscape landscaping, and a swimming pool.

Sun City Gardens Residential and Assisted Living Competition. Residential competition for Sun City Gardens comes primarily from one facility, Brookdale Cherry Hills, built in 2000. Brookdale Cherry Hills provides 183 independent and assisted living units and is located about one mile from Sun City Gardens. Assisted living competition comes from both Brookdale Cherry Hills and Sunny Rose Glen (35 units, all studios). Sunny Rose Glen also provides memory care services. The competitors’ rents are significantly higher than Sun City Gardens.

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Licensure and Other Regulatory Restrictions. The property’s residential units are not currently licensed. The assisted living units are licensed by the California Department of Social Services as a Residential Care Facility for the Elderly.

Bishop’s Glen

General Description. Holly Hill RHF Housing, Inc. (“HH” or “Bishop’s Glen”) was incorporated as a Florida not-for-profit corporation in 1984. HH owns and operates Bishop’s Glen, in Holly Hill, Florida. The property consists of 192 residential apartments, 102 licensed assisted living units and a 60- bed skilled nursing facility. The property is located at 900 LPGA Boulevard, Holly Hill, Florida 32117.

Bishop’s Glen is located on a 23-acre site surrounded by commercial developments, including shopping, banking and commercial services. The property consists of 395,000 square feet of floor space in 18 two-story buildings. The property opened for occupancy in 1984.

Assisted living services are provided under an Extended Congregate Care Assisted Living Facility licensure. This licensure allows the resident to age in place by the provision of additional services identified by regulation. The Assisted Living Facility has apartment style accommodations in a beautiful campus which are usually perceived as an upgraded setting versus others in Daytona. The skilled nursing facility offers the highest level of care to persons who need care supervised by nursing staff. The Bishop’s Glen Skilled Nursing Facility is well regarded with a five-star overall rating; only a few skilled nursing facilities in Florida have this rating.

Bishop’s Glen Residential and Assisted Living Competition. The primary competitors for Bishop’s Glen are Riviera Senior Living, owned by 5 Star (74 residential units, 78 assisted living units), and Ormond in the Pines, owned by Holiday Retirement (100 residential units, 54 assisted living and 24 memory care). Bishop’s Glen residential rent is slightly below the competition’s midpoint. There are also other assisted living providers starting at 7 miles away: Grand Villa (86 units), Magnolia Manor (48 units) and Heritage Waterside (126 units). Bishop’s Glen assisted living apartments are priced competitively. The Bishop’s Glen assisted living rates are all inclusive versus some competitors who have tiered charges based on level of care.

Bishop’s Glen Skilled Nursing Competition. The primary skilled nursing competitors for Bishop’s Glen are Signature Healthcare (60 beds), Avante at Ormond Beach (133), and Solaris Healthcare (73 beds). Competitors are located within 4 to 7 miles away from Bishop’s Glen. Major referring hospitals for Bishop’s and the competitors are Florida Hospital Memorial Center and Halifax Health Medical Center. Bishop’s private room rates are near the midpoint.

Licensure. The residential apartment units are licensed under non-transient apartments by the Department of Business and Professional Regulation, Division of Hotels and Restaurant. The State of Florida Agency for Health Care Administration (“AHCA”) licenses the assisted living facility and the skilled nursing facility. The skilled nursing facility have done well in their annual AHCA inspections. The assisted living facility does well in their biennial AHCA inspections. Both properties also have had successful inspections by the Volusia County Health Department and the state Ombudsman Office.

Courtenay Springs Village

General Description. Merritt Island RHF Housing, Inc. (“Ml” or “Courtenay Springs”) was incorporated as a Florida not-for-profit corporation in 1986 and owns and operates a retirement

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community known as Courtenay Springs Village located at 1100 South Courtenay Parkway, Merritt Island, Florida 32952, south of Cape Canaveral and east of Orlando, on Florida’s Atlantic coast.

The community contains 154 residential apartments, 11 assisted living units and an 80-bed skilled nursing facility. Courtenay Springs currently subleases 16 skilled nursing units (not included in the 80 skilled nursing units stated above) to a hospice provider not affiliated with RHF or the RHF Obligated Group members. The property contains approximately 285,000 square feet of floor space. The parcel of land on which the property is located contains approximately 27 acres. The property was opened for occupancy after final construction took place in 1987.

Residential services are provided by Courtenay Springs and are located within the 11-story tower. The residential tower features a multipurpose room, a dining room, a library, a chapel, and a beauty shop. The skilled nursing facility is a single-story building with private and semi-private rooms, a dining room, a beauty shop, and a physical therapy room. Eleven assisted living units are in the skilled nursing building.

Courtenay Springs Residential and Assisted Living Competition. Entities competing with Courtenay Springs include the Fountains, a 263-unit independent and assisted living community, that is located 14 miles away in Melbourne as well as separated by water. Courtenay Springs is unique versus it competitors as it has water views on both sides of the property. Other residential competitors farther away in Melbourne include Discovery Village (47 units, 4 years old), The Brennity (96 units, 6 years old), and Victoria Landing (100 units, 2 years old). Recently newer campuses have being built approx. 25 miles away in Melbourne. Courtenay Springs is noticeably below the midpoint for residential rents. Courtenay Springs has 11 assisted living studio apartments. The closest assisted living competitors are Sonata Senior Living Viera (95 units) and LaCasa Assisted Living (36 units). Courtenay Springs’ assisted living rent is near market.

Courtenay Springs’ skilled nursing competitors include Solaris Senior Living (180 beds), Rockledge Health and Rehabilitation Center (107 beds), Huntington Place (100 beds) and Island Health and Rehabilitation (120 beds). All communities work with known health providers. Major referring hospitals include Wuesthoff, from 2 nearby locations, and Health First Cape Canaveral Hospital. Courtenay Springs’ private pay rates are significantly below the midpoint for competitors.

Licensure. The residential apartment units are licensed under non-transient apartments by the Department of Business and Professional Regulation, Division of Hotels and Restaurant. The skilled nursing facility had a zero deficiency survey at their last annual AHCA inspection in 2017. The assisted living facility has done well in recent biennial AHCA inspections. Both properties also have had successful inspections by the Volusia County Health Department and the state Ombudsman Office.

Courtenay Springs has received a five-star quality rating from CMS.

Colonial Heights

General Description. Bluegrass RHF Housing, Inc. (“BH” or “Colonial Heights and Gardens”) was incorporated as a Kentucky not-for-profit corporation in 1987. BH owns and operates a retirement community known as Colonial Heights and Gardens. The property is located at 6900 Hopeful Road, Florence, Kentucky 41042.

Colonial Heights consists of 179 residential living units. The first floor of the central building contains most of the common area facilities, including the main lobby, lounge, dining rooms and kitchen,

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administrative offices, sundries shop, exercise room, chapels, beauty/barber shop, and an activities room. Recreational facilities include a sun deck and a lighted walking trail. Laundry facilities are located on each floor and resident storage facilities are also available. The property was built in 1987. Colonial Gardens is comprised of 61 assisted living units, and 9 memory care units. It was built in 2000 and occupied in 2001. Both buildings total approximately 276,000 square feet and sit on 16 acres.

Colonial Heights and Gardens Residential and Assisted Living Competition. Primary residential competition for Colonial Heights comes from three facilities: Baptist Long House (48 units), Ivy Knoll (formerly Baptist Towers, 68 units) and St. Charles Lodge (72 units). Assisted living and memory care competitors include Elmcroft Senior Living (85 units, including Alzheimer’s and memory care), Atria Summit Hills (84 assisted living units, 16 memory care units), and St. Charles (32 assisted living/memory care units). Colonial Heights and Gardens is slightly below the midpoint for residential, assisted living and memory care rates.

Licensure. Other than periodic checks by the County Health Department of the food preparation areas, no licenses are required to operate Colonial Heights. Colonial Gardens is licensed by the Commonwealth of Kentucky Cabinet for Health and Family Services as a Personal Care Home.

DeSmet

General Description. DeSmet RHF Housing, Inc. d/b/a DeSmet Retirement Community (“DH” or “DeSmet”) was incorporated as a Missouri not-for-profit corporation in 2000. The building was rehabilitated and converted into a retirement community prior to acquisition in 2000. The property is located at 1425 N. New Florissant Rd., Florissant, Missouri 63033.

DeSmet is a retirement community with 33 residential living units and 54 assisted living units. The single-story building contains approximately 72,000 square feet of floor space on approximately five acres. Common areas include a large multi-purpose room/dining room, café, a central kitchen, and a beauty shop.

DeSmet Residential and Assisted Living Competition. DeSmet has several residential competitors within 6 miles: The Bridge at Florissant (12 units), Garden Villa North (106 units), The Villa at Riverwood (110 units), Village North (166 units), and Hidden Lake (100 units). Assisted living competitors consist of The Bridge at Florissant (90 units), and Garden Villa North (58 units). Secondary competition is approximately 10 miles away and is comprised of: Hidden Lake (20 units), St. Ann Assisted Living (40 units), and Autumn View Gardens (90 units). DeSmet’s monthly rents are significantly lower than the midpoint of its competitors.

Licensure and Other Regulatory Restrictions. The 33 residential apartments are not subject to any licensure requirement. The State of Missouri Department of Health and Senior Services Agency licenses the 54 assisted living units (maximum 88 bed capacity). Residential and assisted living units are required to pass periodic inspections by the St. Louis County Health Department.

In connection with the issuance of the Series 2017D Bonds, DH will satisfy its current regulatory agreement compliance period with the Industrial Development Authority of the City of Florissant, Missouri (the “2000 DH Regulatory Agreement”) that requires that 20% of the independent and assisted living units be rented to persons earning 50% or less than the area median income. DH is currently in full compliance with the terms of the 2000 DH Regulatory Agreement. Going forward, DH may have some capacity to increase rents as income levels will not be limited by the 2000 DH Regulatory Agreement.

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St. Catherine

General Description. St. Catherine RHF Housing, Inc. (“ST” or “St. Catherine”) d/b/a St. Catherine Retirement Community was incorporated as a Missouri not-for-profit corporation in 2000. The property is located at 1425 N. New Florissant Rd., Florissant, Missouri 63033.

St. Catherine is a retirement community with 85 residential living units. The two-story building contains 85 residential apartments, approximately 91,000 total square feet of floor space on over six acres. Common areas include a dining room, a central kitchen, and multiple reading/lounge areas.

St. Catherine Residential Competition. Given the close proximity of 2 miles to DeSmet, St. Catherine has similar residential competitors. The Bridge at Florissant (12 units), Garden Villa North (106 units), The Villa at Riverwood (110 units). Secondary competitors are approximately 6 miles away- -Village North (166 units) and Hidden Lake (100 units). St. Catherine’s monthly rents are significantly below the midpoint of its competitors.

Licensure and Other Regulatory Restrictions. Other than periodic checks by the St. Louis County Health Department of the food preparation areas, no licenses are required to operate St. Catherine.

In connection with the issuance of the Series 2017D Bonds, DH will satisfy its current regulatory agreement compliance period with the Industrial Development Authority of the City of Florissant, Missouri (the “2000 ST Regulatory Agreement”) that requires that 20% of the independent and assisted living units be rented to persons earning 50% or less than the area median income. ST is currently in full compliance with the terms of the DH Regulatory Agreement. Going forward, ST may have some capacity to increase rents as income levels will not be limited by the 2000 ST Regulatory Agreement.

Westminster Village

General Description. Yellowwood Acres, Inc. (“YA” or “Westminster Village”) d/b/a Westminster Village Kentuckiana, was incorporated as an Indiana not-for-profit corporation in 1983. Since 1984, YA has been wholly controlled by RHF. YA owns and operates a retirement community, known as Westminster Village, in Clarksville, Indiana on a 29-acre site. The property was constructed between 1977 and 1979, and residents first began occupying the community in 1978. The property is located at 2200 Greentree Avenue, Clarksville, Indiana 47129.

Westminster Village is a retirement community with 162 residential living units, 94 assisted living units and a 94-bed skilled nursing facility. The properties contain approximately 289,000 square feet of floor space. Several enclosed pathways connect the buildings at Westminster Village. Three 3- story apartment buildings, comprised of the residential and assisted living units, are connected to a common one-story building that includes a social center, a dining room, a central kitchen, a library, and a beauty shop. The skilled nursing facility is a single-story building with private and semi-private rooms, a dining room, a beauty shop, and a large physical therapy area.

Westminster Village Residential and Assisted Living Competition. Residential competition comes from Traditions of Hunter Station (36 residential units), Azalea Hills (10 units) and The Villages of Silvercrest (36 units). Residential rents are near the midpoint for competitors. Assisted living competition includes Traditions of Hunter Station (60 units), Riverbend (63 units), Bennett Place (39 units), Windsor Ridge (39 units), and Silver Crest (39 units). Westminster Village’s assisted living rates are significantly below the midpoint for competitors. All providers utilize level of care charges for assisted living residents.

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Westminster Village Skilled Nursing Competition. Westminster Village has five primary competitors within 7 miles: Wedgewood, owned by Kindred (117 beds), Providence, owned by Diversicare (157 beds), Autumn Woods and Silvercrest, both owned by Trilogy, and Green Valley (121 beds), privately owned. Westminster Village’s private pay rates are significantly below the competitor’s midpoint. The major referring hospitals to these skilled nursing facilities are Clark Memorial Hospital and Floyd Memorial Hospital.

Licensure. The Indiana State Department of Health licenses the assisted living units (maximum 146 bed capacity) as a Residential Care Facility. The skilled nursing facility carries a Comprehensive Care license from the Indiana State Department of Health.

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OCCUPANCY STATISTICS

The average occupancy of each property in the total RHF Obligated Group for the fiscal years ended September 30, 2014, 2015 and 2016 and for the eight month periods ended May 31, 2016 and 2017 is provided in the following table.

AVERAGE OCCUPANCY OF THE RHF OBLIGATED GROUP PROPERTIES

Fiscal Year Ended Eight Months Ended September 30, May 31, Units/Beds Property Name Available 2014 2015 2016 2016 2017 Bixby Knolls Towers Residential 168 83.0% 84.4% 83.9% 84.0% 85.4% Assisted Living 54 80.7 91.0 93.3 92.6 94.5 Skilled Nursing 99 85.5 82.4 81.4 82.2 80.0 Gold Country Retirement Community Residential 150 89.8 87.9 95.6 95.0 98.0 Assisted Living 36 94.1 91.0 95.2 95.5 91.8 Skilled Nursing 68 93.2 95.0 91.4 92.1 86.1 Mayflower Gardens Residential 501 96.2 97.1 97.6 97.6 98.1 Skilled Nursing 48 92.9 95.1 94.2 94.1 94.1 Sun City Gardens Residential 127 76.0 76.2 89.5 89.9 89.5 Assisted Living 48 89.8 89.5 87.2 90.7 85.6 Dementia 17 77.1 74.4 81.8 78.8 81.6 Bishop’s Glen Residential 192 78.0 78.1 80.5 89.5 83.1 Assisted Living 102 91.1 86.2 92.3 90.5 96.8 Skilled Nursing 60 92.4 86.3 82.2 81.3 80.0 Courtenay Springs Village Residential 154 72.2 87.0 94.7 95.6 90.0 Assisted Living 11 66.6 56.2 63.4 57.0 81.3 Skilled Nursing 80 85.5 91.8 88.1 88.4 91.5 Colonial Heights and Gardens Residential 179 98.8 98.2 98.2 98.3 97.0 Assisted Living 61 97.5 96.2 95.0 95.1 97.5 Dementia 9 97.3 97.4 88.9 91.8 95.7 DeSmet Residential 33 76.3 88.6 91.6 91.5 93.9 Assisted Living 54 61.9 52.0 50.1 48.4 51.5 St. Catherine Residential 85 92.3 92.0 89.4 89.3 90.4 Westminster Village Residential 162 87.3 85.3 85.0 86.1 78.5 Assisted Living 94 94.5 94.6 94.4 94.2 95.0 Skilled Nursing 94 86.4 84.6 79.8 78.8 81.6 Total RHF Obligated Group Residential 1,751 91.7 91.6 91.7 91.7 91.5 Assisted Living 460 88.8 86.8 86.3 86.7 88.2 Dementia 26 86.6 83.4 84.3 83.4 84.0 Skilled Nursing 449 84.8 85.2 85.2 85.2 85.1

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MONTHLY FEES AND PAYOR MIX

Except with respect to approximately 26 units at Mayflower Gardens (for which HUD rental assistance is available), payment of fees in the residential and assisted living units is entirely from private sources, which include the residents, their families, or, in a small number of cases, some form of private long-term care or health maintenance organization insurance. The immediately following table presents the monthly fee schedule for private payors for the RHF Obligated Group facilities as of May 31, 2017. The skilled nursing beds are the only units currently eligible for government reimbursement under either the Medicaid or Medicare programs. Reimbursement by payor source, calculated as a percent of patient days in the skilled nursing properties, for the fiscal years ended September 30, 2014, 2015 and 2016 and for the eight month periods ended May 31, 2016 and 2017, is also set forth below.

MONTHLY FEES

Range of Monthly/Daily Property Name Unit Type Fees as of 5/31/17

Bixby Knolls Towers Residential Studio - Two Bedrooms $2,327 - $3,965 Assisted Living Studio - One Bedroom $3,326 - $5,390 Skilled Nursing Ward/Semi-private/Private $219/$318 (per day)

Gold Country Retirement Community Residential One Bedroom - Two Bedrooms $2,450 - $3,750 depending on unit/size Assisted Living Semi-private NONE Assisted Living Private with shared bath $3,507 - $5,232 Assisted Living Private with private bath $3,798 - $5,523 Skilled Nursing Semi-private/Private Semi $242/day Pvt $285/day

Mayflower Gardens Residential Studio - Two Bedrooms $740 - $1,508 Skilled Nursing Semi-private $217 per day

Sun City Gardens Residential Studio - Two Bedrooms $1,580 - $2,995 ($750 second person) Assisted Living Shared Studio - One Bedroom $2,235 - $2,885 ($1,000 second person) Assisted Living – Memory Impaired Shared Studio - One Bedroom $2,185 - $2,625 ($2,200 care fee)

Bishop’s Glen Residential One Bedroom - Three Bedrooms $2,300 - $3,190 Assisted Living One Bedroom - Three Bedrooms $2,300 - $4,425 (ECC units have been changed to ALF units) Skilled Nursing Semi-private/Private $252 - $270 per day

Courtenay Springs Village Residential One Bedroom - Three Bedrooms 1br $2,454, 1 br deluxe $2,798, 1 br penthouse $3,192, 2br $3,099, 2 br deluxe $3,318, 2 br penthouse $3,803,2 br presidential-$3,203 & 3br penthouse $4,439, Double Occupancy-$550 Assisted Living Private $3,400 (no tiered levels; only base rate Skilled Nursing Semi-private/Private $275/$285 (per day)

Colonial Heights Residential Studio - Two Bedrooms $1,785 - $2,425 Assisted Living Studio - Two Bedrooms $3,315 - $4,075 Assisted Living – Memory Impaired Semi-private/Private $3,300 - $4,400

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Range of Monthly/Daily Property Name Unit Type Fees as of 5/31/17

Westminster Village Residential Studio - Two Bedrooms $1,510 - $2,000 Assisted Living Studio - Two Bedrooms $2,395- $3,325 Skilled Nursing Semi-private/Private $192(semi)/$212 (per day)

St. Catherine Residential Studio - Two Bedrooms $1,700-$1,950 Residential Two Bedrooms Deluxe $2,420

DeSmet Residential One - Two Bedrooms $1,700 - $1,947 Assisted Living Studio - One Bedroom $2,266 - $3,296 Assisted Living Spouse Fee $541 Residential Spouse Fee $325 Respite Private $100/day

PAYOR MIX OF THE SKILLED NURSING FACILITIES

Fiscal Year Ended September 30, Eight Months Ended May 31, Facility Name 2014 2015 2016 2016 2017

Bixby Knolls Towers Medicare 4.7% 4.2% 4.2% 4.5% 4.4% Medicaid 60.7 66.7 65.7 66.1 65.2 Private Pay 25.4 21.4 24.7 24.0 21.4 Other 9.2 7.7 5.4 5.4 9.0 Gold Country Retirement Community Medicare 16.9 10.7 15.8 15.0 16.3 Medicaid 45.0 49.2 47.5 47.4 48.2 Private Pay 37.2 38.3 34.3 36.2 31.7 Other 0.9 1.8 2.4 1.4 3.8 Mayflower Gardens Residential Medicare 5.3 3.4 4.3 4.3 2.3 Medicaid 80.8 84.4 82.6 83.2 76.8 Private Pay 8.5 8.4 5.7 5.3 12.4 Other 5.4 4.8 7.4 7.2 8.5 Bishop’s Glen Medicare 11.8 15.7 16.4 14.4 19.2 Medicaid 62.8 51.3 49.8 50.4 46.2 Private Pay 24.4 30.6 32.9 34.4 33.9 Other 1.0 2.4 0.9 0.8 0.7 Courtenay Springs Village Medicare 26.0 28.5 25.3 26.6 26.9 Medicaid 41.5 40.0 49.5 47.4 46.2 Private Pay 19.1 19.3 7.5 6.9 9.8 Other 13.4 12.2 17.7 19.1 17.1 Westminster Village Medicare 18.8 19.4 18.3 19.2 16.1 Medicaid 49.3 49.4 47.9 45.7 55.6 Private Pay 28.5 27.0 29.6 30.5 25.1 Other 3.4 4.2 4.2 3.2 Total RHF Obligated Group Medicare 14.5 14.4 14.3 14.2 14.2 Medicaid 56.0 56.0 56.2 55.5 55.2 Private Pay 22.0 23.2 22.8 24.6 24.8 Other 7.5 6.4 6.7 5.7 5.8 ______Source: RHF Records.

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ADDITIONAL INFORMATION

MEMBERSHIPS

RHF is an active member in several associations including Leading Age, the California, Florida, Indiana and Missouri Chapters of Leading Age, and the Council of Health and Human Services Ministries of the United Church of Christ.

MARKETING

At RHF and FPM, the marketing and sales efforts for the market rate properties are the responsibility of the National Marketing Director and the local marketing staff. Each community’s Executive Director works with the National Marketing Director in setting goals, positioning the properties and increasing occupancy. The National Marketing Director provides the ongoing sales/marketing training for the staff.

Each market rate property has an in-house Marketing Director. This person is responsible for a yearly marketing plan as well as updating marketing efforts based on a semi-annual comparison versus competitors. Under the direct supervision of the Executive Director of the property, the in-house Marketing Director designs and schedules local advertising and assists the Activity Director in planning special events to enable the property to meet its census goals. They monitor local trends and the growth of any new properties in their area and assist in positioning their properties to best serve the needs of the residents. Touring and selling prospects on the benefits of the property is the responsibility of each Marketing Director and their staff. In addition, in-house Marketing Directors often counsel families and residents on issues relating to housing and services.

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EMPLOYEES

The number of employees and full time equivalent employees of the RHF Obligated Group as of May 31, 2017, are presented in the following table. Currently, no employees are unionized.

Number of Employees Community Name Full-time Part-time Grand Total FTEs (based on hours worked)

Bixby 165 52 217 172 Gold Country 126 65 191 143 Mayflower 64 40 104 76 Sun City 64 29 93 70 Bishop’s 140 119 259 208 Courtenay 91 90 181 150 Colonial 33 65 98 69 DeSmet 7 28 35 28 St. Catherine 6 13 19 12 Westminster 131 68 199 167 Subtotal 827 569 1,396 1,095

RHF 81 - 81 81 FPM 33 - 33 33 Subtotal 114 - 114 114 Grand Total 941 569 1,510 1,209 ______Source: RHF Records.

The RHF Obligated Group members offer comprehensive group health insurance from a national provider for employees and their families, including dental and vision care. The plan options include HMO, PPO as well as a health savings account plan. The RHF Obligated Group members subsidize a majority of employee health insurance premiums.

Employees of the RHF Obligated Group members are eligible to contribute to a defined contribution retirement plan after completing 90 days of employment at 30 or more hours per week. RHF Obligated Group members provide a 50% company match for employee contributions up to 6% of annual salary or wages. Employees are fully vested in the company match portion after 5 years of service.

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INSURANCE

The following table describes the type, coverage and expiration date of the insurance policies the Corporation currently maintains.

TYPE COVERAGE EXPIRATION

Commercial Property $350,000,000 May 15, 2018 General Liability/Professional Liability $1,000,000/30,000,000 January 1, 2018 Commercial Auto Liability $1,000,000 February 1, 2018 Directors and Officers Insurance $10,000,000 February 1, 2018 Workers Compensation Insurance $1,000,000 (statutory) May 15, 2018 Earthquake and Flood $100,000,000 May 15, 2018 Cyber Liability $2,000,000 August 31, 2018 Environmental/Mold/Pollution Liability $2,000,000 May 31, 2018 ______Source: RHF records.

FINANCIAL INFORMATION

FINANCIAL REPORTS FOR THE RHF OBLIGATED GROUP

The following summary of the combined statement of activities and combined balance sheet of the RHF Obligated Group for the fiscal years ended September 30, 2014, 2015 and 2016, is derived from the combined financial statements of the RHF Obligated Group which have been audited by CliftonLarsonAllen LLP, independent certified public accountants. Also included is unaudited financial information of the eight month periods ended May 31, 2016 and 2017, prepared by Management.

A copy of the RHF Obligated Group Combined Financial Statements and Supplementary Information for the fiscal years ended September 30, 2014, 2015 and 2016 are included in Appendix B to this Official Statement. Certain controlled subsidiaries and affiliates of RHF are not members of the RHF Obligated Group and thus are not reflected in the combined financial statements set forth in Appendix B or in the financial information set forth below. Consolidated financial statements of RHF and its subsidiaries would include such subsidiaries and controlled affiliates. As a result, the combined financial statements are not intended to be a complete presentation of the consolidated financial statements of RHF and its subsidiaries under generally accepted accounting principles.

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SCHEDULES OF SELECTED COMBINED FINANCIAL INFORMATION FOR THE RHF OBLIGATED GROUP

STATEMENT OF ACTIVITIES

Fiscal Years Ended September 30, 8-Months Ending May 31, 2014 2015 2016 2016 2017 Operating Revenues Resident Services Revenue $87,835,472 $90,607,040 $93,834,028 $62,090,337 $64,613,585 Management Fees 10,796,313 11,616,228 12,183,803 8,285,125 8,552,041 Development Income 5,366,316 8,439,579 3,339,056 1,778,948 2,678,447 Interest Income 783,024 811,419 905,119 553,465 627,182 Other 1,423,725 690,689 1,251,655 804,575 446,852 Total Operating Revenues 106,204,850 112,164,955 111,513,661 73,512,450 76,918,107 Operating Expenses Payroll Related Expenses 56,303,749 58,612,584 60,989,507 40,348,591 42,003,427 Dietary Expense 5,485,448 5,553,116 5,893,453 3,973,801 3,833,854 Utilities 5,662,613 5,455,217 5,366,275 3,423,270 3,618,567 Other Administrative 1,342,675 3,068,893 2,681,276 2,847,819 985,529 General Insurance 2,188,167 2,320,769 2,337,452 1,679,509 1,567,871 Interest 3,303,325 3,027,598 3,010,922 1,944,503 2,158,908 Depreciation and Amortization 4,661,560 4,532,795 5,021,698 3,187,602 3,472,843 Other Unrestricted Operating Expenses 14,568,336 14,428,566 10,961,011 6,056,920 7,339,896 Total Operating Expenses 93,515,873 96,999,538 96,261,594 63,462,015 64,980,895 Operating Income 12,688,977 15,165,417 15,252,067 10,050,435 11,937,212 Nonoperating Losses Loss on Disposal of Property and Equipment (9,026) (2,806) - - (171,394) Unrealized Losses on Investments (251,208) (221,861) (425,128) (243,125) (195,833) Loss on Refinancing of Long-Term Debt (4,056,000) - - - - Other (6,489,979) - - - 912,842 Total Nonoperating Revenues (10,806,213) (224,667) (425,128) (243,125) 545,615 Excess of Revenues Over Expenses 1,882,764 14,940,750 14,826,939 9,807,310 12,482,827 Transfer of Unrestricted Net Assets - - (1,774,183) (362,837) (481,967) Total Change in Unrestricted Net Assets 1,882,764 14,940,750 13,052,756 9,444,473 12,000,860 Unrestricted Net Assets, Beginning of Year 24,654,518 26,537,282 41,478,032 41,478,032 54,530,788 Unrestricted Net Assets, End of Year $26,537,282 $41,478,032 $54,530,788 $50,922,505 $66,531,648

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BALANCE SHEET

Fiscal Years Ended September 30, 8-Months Ending May 31 Assets 2014 2015 2016 2016 2017 Current Assets Cash and Cash Equivalents $25,616,707 $31,069,434 $19,502,527 $28,004,542 $17,856,391 Accounts Receivable, Net 3,641,776 4,118,152 4,201,986 3,894,340 7,289,956 Current Portion of Investments 6,791,435 9,652,558 23,178,158 24,034,065 25,194,464 Prepaid Expenses and Other Current Assets 1,003,540 4,061,316 993,009 1,142,585 2,395,058 Current Portion of Assets Limited as to Use 2,512,623 671,919 714,128 124,481 245,470 Total Current Assets 39,566,081 49,573,379 48,589,808 57,200,013 52,981,339 Assets Limited as to Use Trustee Held Funds 8,094,441 6,868,396 7,388,185 6,853,241 6,770,512 Escrow Reserve 162,261 - - 124,481 245,470 Resident/Tenant Deposits 1,907,473 1,977,553 2,215,041 1,926,388 2,098,940 Total Assets Limited as to Use 10,164,175 8,845,949 9,603,226 8,904,110 9,114,922 Less: Current Portion Shown Above (2,512,623) (671,919) (714,128) (124,481) (245,470) Total Noncurrent Assets Limited as to Use 7,651,552 8,174,030 8,889,098 8,779,629 8,869,452 Property and Equipment Land 6,319,788 6,319,788 6,198,351 6,198,351 6,198,351 Land Held for Development or Sale 1,031,935 1,031,935 1,031,935 1,031,935 1,031,935 Buildings and Improvements 132,505,472 134,402,948 137,405,174 138,237,308 136,694,870 Furniture and Equipment 21,165,854 24,376,331 30,246,580 27,237,085 35,049,562 Construction in Progress 3,656,522 4,906,068 1,120,137 1,306,430 818,886 Total Property and Equipment 164,679,571 171,037,070 176,002,177 174,011,109 179,793,604 Less: Accumulated Depreciation (94,868,362) (98,226,616) (102,309,734) (101,283,362) (105,096,215) Total Property and Equipment, Net 69,811,209 72,810,454 73,692,443 72,727,747 74,697,389 Other Assets Debt Issuance Costs, Net 1,880,940 1,717,505 1,521,217 1,586,647 1,390,360 Advances to Affiliates, Net 34,953,618 35,885,619 36,559,580 35,490,298 38,994,296 Investments 24,509,488 17,855,127 22,885,154 14,051,438 21,636,868 Other Assets 11,921 11,593 83,907 11,554 83,907 Total Other Assets 61,355,967 55,469,844 61,049,858 51,139,937 62,105,431 Total Assets $178,384,809 $186,027,707 $192,221,207 $189,847,326 $198,653,611 Liabilities and Net Assets Current Liabilities Current Maturities of Long-Term Debt $9,670,622 $7,514,826 $9,203,405 $3,000,763 $2,978,388 Current Maturities of Capital Lease Obligations 345,627 461,872 - - - Accounts Payable 3,272,008 2,949,345 2,480,111 2,330,889 2,286,156 Accrued Expenses 7,979,734 9,044,736 8,712,905 10,077,324 13,116,300 Accrued Interest 290,202 201,180 207,493 28,925 9,785 Total Current Liabilities 21,558,193 20,171,959 20,603,914 15,437,901 18,390,629 Other Liabilities Unearned Revenue 250,592 240,559 237,133 216,188 381,725 Tenant Deposits 1,795,827 1,862,709 2,087,311 1,931,903 2,101,955 Long-Term Debt, Net of Current Maturities 111,266,726 104,116,906 95,854,727 104,578,984 96,180,776 Capital Lease Obligations, Net of Current 548,239 462,078 - - - Maturities Risk Retention Liability 16,427,950 17,695,464 18,907,334 16,759,845 15,066,878 Total Other Liabilities 130,289,334 124,377,716 117,086,505 123,486,920 113,731,334 Total Liabilities 151,847,527 144,549,675 137,690,419 138,924,821 132,121,963 Net Assets Unrestricted 26,537,282 41,478,032 54,530,788 50,922,505 66,531,648 Total Liabilities and Net Assets $178,384,809 $186,027,707 $192,221,207 $189,847,326 $198,653,611

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DEBT SERVICE COVERAGE

The following table sets forth the historical debt service coverage ratio for the RHF Obligated Group for the fiscal years ending September 30, 2014, 2015 and 2016 and for the eight months ended May 31, 2016 and 2017. The historical long-term debt service coverage ratios set forth below are calculated as required by the Master Indentures. The financial information regarding Income Available for Debt Service for fiscal years ending September 30, 2014, 2015 and 2016 is derived from the audited combined financial statements of the RHF Obligated Group. The financial information regarding Income Available for Debt Service for the eight months ended May 31, 2016 and 2017 are derived from the unaudited May 31, 2016 and 2017 financial statements of the RHF Obligated Group.

Fiscal Years Ended September 30, 8-Months Ending May 31 2014 2015 2016 2016 2017

Excess of Revenues over Expenses $1,882,764 $14,940,750 $14,826,939 $9,807,310 $12,482,827

Add: Depreciation and Amortization 4,661,560 4,532,795 5,021,698 3,187,602 3,472,843 Interest 3,303,325 3,027,598 3,010,922 1,944,503 2,158,908 Loss on Refinancing of Long-Term Debt 4,056,000 -- - - Unrealized Losses on Investments 251,208 221,861 425,128 243,125 195,833 Other Non-Cash Items 7,898,634 2,158,668 2,171,600 1,445,477 1,485,104 Less: (Gain) Loss on Disposal of Property and 9,026 2,806 - - (741,448) Equipment (Net)

Total Debt Service Principal $3,810,000 $4,290,000 $4,465,000 $2,960,000 $3,085,000 Interest Expense 3,206,332 2,821,654 2,883,586 1,852,463 2,117,269 Studebaker Road Mortgage (corporate office)(1) 176,520 183,703 191,178 126,603 1,219,593 Equipment Loan 315,934 439,859 339,637 292,073 339,038 (D) Total Debt Service $7,508,786 $7,735,216 $7,879,401 $5,231,139 $6,760,900

Debt Service Coverage (C)/(D) 2.94x 3.22x 3.23x 3.18x 2.82x

Proforma Maximum Annual Debt Service (MADS) Series 2017 Estimated MADS (2) $8,963,750 $8,963,750 $8,963,750 $5,975,833 $5,975,833 Equipment Loan Estimated MADS (2) 245,295 245,295 245,295 163,530 163,530 (E) Total Aggregate MADS (2) $9,209,045 $9,209,045 $9,209,045 $6,139,363 $6,139,363

Proforma MADS Debt Service Coverage (C)/(E) 2.40x 2.70x 2.76x 2.71x 3.10x ______(1) Corporate office loan was retired in May, 2017. Excluding the $1,133,469 corporate office loan payoff, a one-time event, would result in a debt service coverage ratio of 3.39x for the fiscal year ended May 31, 2017. (2) Preliminary, subject to change.

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HISTORICAL DAYS CASH ON HAND

The following table shows Days Cash on Hand for the RHF Obligated Group for the fiscal years ending September 30, 2014, 2015 and 2016 and for the eight months ended May 31, 2016 and 2017.

Fiscal Years Ended September 30, 8-Months Ending May 31,1 2014 2015 2016 2016 2017 Unrestricted Cash and Investments Cash and Cash Equivalents $25,616,707 $31,069,434 $19,502,527 $28,004,542 $17,856,391 Current Portion of Investments 6,791,435 9,652,558 23,178,158 24,034,065 25,194,464 Investments 24,509,488 17,855,127 22,885,154 14,051,438 21,636,868 (A) Total Unrestricted Cash and Investments $56,917,630 $58,577,119 $65,565,839 $66,090,045 $64,687,723 Cash Operating Expenses Total Operating Expenses $93,515,873 $96,999,538 $96,261,594 $96,999,538 $96,261,594 Less Depreciation and Amortization (4,661,560) (4,532,795) (5,021,698) (4,532,795) (5,021,698) Less Provision for Uncollectible Accounts 0 0 0 0 0 Less Non-Recoverable Expenses (1,408,655) (2,158,668) (2,171,600) (2,158,668) (2,171,600) Add Grant Income (Offset to Operating Expenses) 3,531,251 4,720,915 6,425,576 4,720,915 6,425,576 (B) Total Cash Operating Expenses $90,976,909 $95,028,990 $95,493,872 $95,028,990 $95,493,872 (C) Number of Days in Year 365 365 366 365 366 Daily Cash Expenses $249,252 $260,353 $260,912 $260,353 $260,912 Days Cash-on-Hand 228 225 251 254 248 ______1 Calculations for the eight-month periods ended May 31, 2016 and 2017 are based on audited financial information for the previous year ended September 30, 2015 and 2016, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Eight Months Ended May 31, 2017 Compared to Eight Months Ended May 31, 2016

REVENUES

Total operating revenues for the eight months ending May 31, 2017 were $76,918,107 compared to $73,512,450 at May 31, 2016, an increase of $3,405,657 or 4.6%. A breakdown of revenue components follows:

Resident services revenue increased by $2,523,248 or 4.1% in 2017 compared to 2016. This was primarily due to rate increases in all lines of business. Assisted living census increased while independent living census and skilled nursing census and mix were relatively flat.

Management fees increased by $266,916 or 3.2% in 2017 compared to 2016. This was due to a mixture of rate increases and the acquisition of three affordable housing properties in Ohio, which was included for the full eight months of 2017, but only four full months in 2016.

Development income increased by $899,499 or 50.6% in 2017 compared to 2016. Development income is quite variable as the amounts and timing of fee recognition depends on a number of factors

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including, but not limited to, the size of the project, internal resources, construction scheduling, financing sources and government approvals. Development income for the eight months ending May 31, 2016 was earned on Towers of Jacksonville in Jacksonville, Florida and two smaller affordable housing properties. Development income for the eight months ending May 31, 2017 was earned on Towers of Jacksonville, St. James Park in Los Angeles, California, Anciano Tower in Montrose, Colorado and Hamilton Wade and Douglas House Apartments in Brockton, Massachusetts.

Interest income increased by $73,717 or 13.3% in 2017 compared to 2016. Investments earned slightly higher rates starting in early 2016 as they trailed the increases in Federal Funds rates in December 2015, December 2016 and again in March 2017.

Other income decreased by $357,723 or -44.5% in 2017 compared to 2016 due to a legal settlement in 2016.

EXPENSES

Total operating expenses for the eight months ending May 31, 2017 were $64,980,895 compared to $63,462,015 at May 31, 2016, an increase of $1,518,880 or 2.4%. A breakdown of expense components follows:

Payroll related expenses increased in 2017 compared to 2016 primarily due to normal pay increases.

Dietary expense decreased by $139,947 or -3.5% in 2017 compared to 2016 primarily due to lower food prices and better management at Colonial Heights and Gardens.

Utilities expense increased by $195,297 or 5.7% in 2017 compared to 2016. This was due to a combination of increased rates and evaporation credits for cooling tower systems taken at Westminster in 2016 which were not available in 2017.

Other administrative expense decreased by $1,862,290 or -65.4% in 2017 compared to 2016 mainly due to a reduction in shared developer fees, recorded as donations expense. For 2016, development income on Congregational Towers and Towers of Jacksonville was split between RHF and a co-developer. The full developer fee is recorded as income and the co-developer portion is expensed as donations expense. For 2017, development income on Culver City Rotary Plaza in Culver City, California was split between RHF and a co-developer.

General insurance expense decreased by $111,638 or -6.6% in 2017 compared to 2016 mostly due to a reduction in workers comp premiums from improved claims experience. The RHF risk management department implemented a number of workers comp programs over the years to improve claims experience. One such program involves providing non-slip shoes to dietary and nursing staff.

Interest expense increased by $214,405 or 11.0% in 2017 on the RHF Obligated Group’s variable-rate bonds. The average annual interest rate for the RHF Obligated Group bonds was 2.56% through May 2017 compared to 2.27% through May 2016.

Depreciation and amortization increased by $285,241 or 8.9% in 2017 compared to 2016 due to a personal computer hardware refresh in late 2016 for all personnel. The effect was included for part of the year in 2016 and the full year 2017.

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Other unrestricted operating expenses increased by $1,282,976 or 21.2% in 2017 compared to 2016. This was due to several items. Bad debt expense increased at Mayflower and Courtenay Springs mainly due to some large collections in 2016 that gave rise to significantly lower bad debt expense in 2016. Repairs and Maintenance expenses were higher at Mayflower, Courtenay Springs and Bishops Glen. This included tree trimming and a cooling tower rental at Courtenay Springs during HVAC repairs. Information technology (“IT”) expenses also increased as a result of a fee increase on outsourced IT services.

OTHER ITEMS

Other (non-operating) items: In May year-to-date 2017, the Loss on Disposal of Property and Equipment of $171,394 and the Other item (net non-operating revenue) of $912,842 are both related to an insurance recovery and asset write-off on a prior year Courtenay Springs property claim.

Debt Coverage and Days Cash on Hand: In 2016, the Studebaker Road mortgage increased significantly to reflect the balloon payment due in May 2017 of $1,133,469. This contributed to an decrease in the Debt Coverage ratio in 2017 compared to 2016. The Studebaker Road mortgage was paid in full in May 2017.

Fiscal Year Ended December 31, 2016 Compared to Fiscal Year Ended December 31, 2015

REVENUES

Fiscal year 2016 total operating revenues were $111,513,661 compared to $112,164,955 in 2015, a decrease of $651,294 or -0.6% compared to 2015. A breakdown of revenue components follows:

Resident services revenue increased by $3,226,988 or 3.6% in 2016 compared to 2015. This was primarily due to rate increases in all lines of business. Both census and skilled nursing mix were relatively flat from year to year.

Management fees increased by $567,575 or 4.9% in 2016 compared to 2015. This was due to a mixture of rate increases and the acquisition of three affordable housing properties in Ohio in January 2016.

Development income decreased by $5,100,523 or 60.4% in 2016 compared to 2015. Development income is quite variable as the amounts and timing of fee recognition depends on a number of factors including, but not limited to, the size of the project, internal resources, construction scheduling, financing sources and government approvals. Development income in 2015 was unusually large compared to 2016 due to a number of larger low income housing tax credit projects that completed construction in 2015 such as Vistas and West Valley Towers in Van Nuys, California, Congregational Towers in Chula Vista, California, Broadwood Terrace in Los Angeles, California and others. Development income in 2016 was earned on Towers of Jacksonville in Jacksonville, Florida, St. James Park in Los Angeles, California, Darson Marie in San Antonio, Texas and others.

Interest income increased by $93,700 or 11.5% in 2016 compared to 2015. Investments earned slightly higher rates starting in early 2016 as they trailed the increases in Federal Funds rates of 0.25% in December 2015 and again by 0.25% in December 2016.

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Other income increased by $560,966 or 81.2% in 2016 compared to 2015. This was primarily due to a legal settlement and a large donation in 2016.

EXPENSES

Fiscal year 2016 total operating expenses were $96,261,594 compared to $96,999,538, a decrease of $737,944 or -0.8% compared to 2015. A breakdown of expense components follows:

Payroll related expenses increased in 2016 compared to 2015 primarily due to normal pay increases.

Dietary expense increased by $340,337 or 6.1% in 2016 compared to 2015 primarily due to higher food prices and Courtenay Springs Village increased the number of daily meals served in independent living in 2016.

Utilities expense decreased by $88,942 or -1.6% in 2016 compared to 2015 due to energy efficient upgrades in several buildings as well as the installation of drought-tolerant landscaping at Mayflower and Sun City Gardens.

Other administrative expense decreased by $387,617 or -12.6% in 2016 compared to 2015 due to a reduction in shared developer fees, recorded as donations expense. Our development income on Congregational Towers and Towers of Jacksonville was split between RHF and a co-developer. The full developer fee is recorded as income and the co-developer portion is expensed as donations expense.

Depreciation and amortization increased by $488,903 or 10.8% in 2016 compared to 2015 due to a personal computer hardware refresh in 2016 for all personnel.

Other unrestricted operating expenses decreased by $3,467,555 or -24.0% in 2016 compared to 2015. This was due to a decrease in technology consulting from outsourcing our Information Technology services starting in May 2015. Legal fees also declined in 2016 due to the settlement of a legal matter in 2015. Bad Debt expense also declined due to collections of some large outstanding accounts receivable in 2016. Last, grant income is netted with grant expense in this line item and grant income exceeded grant expense in 2016 compared to 2015.

OTHER ITEMS

Transfer of Unrestricted Net Assets: In 2016, RHF transferred $1,774,183 to an entity outside of the RHF Obligated Group in order to establish the RHF charitable foundation.

Fiscal Year Ended December 31, 2015 Compared to Fiscal Year Ended December 31, 2014

REVENUES

Fiscal year 2015 total operating revenues were $112,164,955 compared to $106,204,850 in 2014, an increase of $5,960,105 or 5.6% compared to 2014. A breakdown of revenue components follows:

Resident services revenue increased by $2,771,568 or 3.2% in 2015 compared to 2014. This was primarily due to rate increases in all lines of business. Census was relatively flat in independent living

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and assisted living. Skilled nursing census was slightly improved. Skilled nursing mix was relatively flat from year to year.

Management fees increased by $819,915 or 7.6% in 2015 compared to 2014. This was due to a mixture of rate increases and the acquisition of three affordable housing properties in Colorado, Florida and Los Angeles. In addition, larger-than-expected incentive management fees were received in 2015 from some properties in New England.

Development income increased by $3,073,263 or 57.3% in 2015 compared to 2014. Development income is typically variable as the amounts and timing of fee recognition depends on a number of factors including, but not limited to, the size of the project, internal resources, construction scheduling, financing sources and government approvals. Development income in 2015 was unusually large compared to 2014 due to a number of larger low income housing tax credit projects that completed construction in 2015 such as Vistas and West Valley Towers in Van Nuys, California, Congregational Towers in Chula Vista, California, Broadwood Terrace in Los Angeles, California and others. Development income in 2014 was earned on Vistas and West Valley Towers in Van Nuys, California, Congregational Towers in Chula Vista, California, Las Alturas Apartments in Los Angeles, California and others.

Interest income increased by $28,395 or 3.6% in 2015 compared to 2014. Investments earned slightly higher rates in conjunction with increases in Federal Funds rates.

Other income decreased by $733,036 or -51.5% in 2015 compared to 2014. This was primarily due to a $750,000 non-recurring rebate in 2014 on our group health insurance policy for better-than-expected claims experience.

EXPENSES

Fiscal year 2015 total operating expenses were $96,999,538 compared to $93,515,873, an increase of $3,483,665 or 3.7% compared to 2014. A breakdown of expense components follows:

Payroll related expenses increased by $2,308,835 or 4.1% in 2015 compared to 2014 primarily due to normal pay increases as well as increased expenses at Courtenay Springs Village related to a skilled nursing compliance issue.

Utilities expense decreased by $207,396 or -3.7% in 2015 compared to 2014 due to energy efficient upgrades in several buildings as well as the installation of drought-tolerant landscaping at Mayflower and Sun City Gardens.

Other administrative expense increased by $1,726,218 or 128.6% in 2015 compared to 2014 due to an increase in shared developer fees, recorded as donations expense. Our development income on Congregational Towers and Towers of Jacksonville was split between RHF and a co-developer. The full developer fee is recorded as income and the co-developer portion is expensed as donations expense.

General insurance expense increased by $132,602 or 6.1% in 2015 compared to 2014 due to an increase in self-insured risk retention funding to cover increased deductibles on property insurance.

Interest expense decreased in 2015 by $275,727 or -8.3 % versus 2014 on the RHF Obligated Group’s variable-rate bonds. The average annual interest rate for the RHF Obligated Group bonds was

A-38

2.14% in 2015 representing all-time lows versus the average of 2.56% in 2016. RHF has kept a fixed interest rate cap in place to hedge against unusually large interest rate increases.

OTHER ITEMS

Loss on Refinancing of Long-Term Debt: The $4,056,000 loss on refinancing of long-term debt in 2014 was to write off unamortized costs of issuance in connection with the 2014 refinancing of the RHF Obligated Group.

Other: The $6,489,979 other non-operating loss in 2014 was related to the settlement of a legal matter.

INVESTMENT STRATEGY AND INVESTMENT PERFORMANCE

The investment strategy followed for the RHF Obligated Group investment portfolio is based upon an investment policy approved by the RHF Board and implemented by Management. Portfolio performance is periodically reviewed by the RHF Board’s Investment Committee, which has responsibility to evaluate investment program performance, insure adherence to investment policy, make recommendations to RHF Management, and report results of the program to the RHF Board.

For the period ended September 30, 2016, cash held in checking accounts was reduced to less than $2.0 million. Funds were invested primarily in corporate certificates of deposit ($1.0 million) with a weighted average interest rate of 0.7% and corporate notes and government securities ($8.7 million) with a weighted average interest rate of 0.8%. Various operating reserve accounts and a portion of the collateral accounts (totaling $7.0 million) were held in money market accounts. These money market accounts generated an interest rate of 0.2% at September 30, 2016.

The RHF Obligated Group maintains a portfolio of investment grade fixed income investments with a duration range between 18 months and 30 months. Since late 2015 RHF has shortened the duration of its holdings to approximately 18 months in anticipation of rising interest rates and to more quickly hedge any rate increases in the floating-rate RHF Obligated Group debt. In recessionary conditions, the bond portfolio has proven to be a lower risk strategy that holding a blend of bonds and equities.

OTHER GUARANTEES AND INDEBTEDNESS

RHF and the RHF Obligated Group have long-term debt primarily related to bond financing for residential housing, assisted living, and nursing facilities that are included in the RHF Obligated Group. As of May 31, 2017, this long-term debt, less the current portion, totaled $96,180,776. This debt will be redeemed in full by proceeds of the Series 2017 Bonds. RHF has guaranteed that Poway RHF Housing, Inc. d/b/a The Gateway will maintain at least 90 Days Cash on Hand. The Gateway has Days Cash on Hand of 156 at May 31, 2017. The RHF Obligated Group is not subject to recourse for any other debt of RHF controlled corporations outside the RHF Obligated Group.

DEBT MANAGEMENT AND PLAN OF FINANCE

RHF has no real estate debt and limited technology equipment debt. Foundation Property Management, Inc. has no real estate debt and minimal other debt. The RHF Obligated Group debt to be refinanced is 100% variable rate based on 75% x 30-day LIBOR plus 2.00%. The RHF Obligated Group

A-39

entities have a modest level of debt for vehicles or other equipment. See “DERIVATIVE CONTRACTS” below for more information on the existing fixed interest rate cap contract. RHF has no other swaps.

DERIVATIVE CONTRACTS

RHF has one fixed interest rate cap contract outstanding, and no swap contracts. As of May 31, 2017 the cap contract has an amortizing notional amount of approximately $49 million, that hedges at least 50% of outstanding of the RHF Obligated Group Series 2014 Bonds. Commonwealth Bank of Australia is the interest rate cap counterparty. The termination value of the hedge as of August 8, 2017 is approximately $63,290. RHF intends to terminate the cap contract shortly after the issuance of the Series 2017 Bonds and the refunding of the Series 2014 Bonds.

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APPENDIX B

AUDITED COMBINED FINANCIAL STATEMENTS OF THE RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP

Reports of Independent Auditors and Audited Combined Financial Statements of the Retirement Housing Foundation Obligated Group For the Years Ended September 30, 2016, 2015 and 2014

[THIS PAGE INTENTIONALLY LEFT BLANK] RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP

COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

YEARS ENDED SEPTEMBER 30, 2016 AND 2015 [THIS PAGE INTENTIONALLY LEFT BLANK] RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP TABLE OF CONTENTS YEARS ENDED SEPTEMBER 30, 2016 AND 2015

INDEPENDENT AUDITORS’ REPORT 1

COMBINED FINANCIAL STATEMENTS

COMBINED BALANCE SHEETS 3

COMBINED STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS 5

COMBINED STATEMENTS OF CASH FLOWS 6

NOTES TO COMBINED FINANCIAL STATEMENTS 7

SUPPLEMENTARY INFORMATION

COMBINING BALANCE SHEETS 30

COMBINING STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) 34 CliftonLarsonAllen LLP CLAconnect.com

INDEPENDENT AUDITORS’ REPORT

Board of Directors Retirement Housing Foundation Obligated Group Long Beach, California

Report on the Financial Statements We have audited the accompanying combined financial statements of Retirement Housing Foundation Obligated Group (the “Obligated Group”), which comprise the combined balance sheets as of September 30, 2016 and 2015, and the combined statements of unrestricted activities and changes in unrestricted net assets, and cash flows for the years then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

(1) Board of Directors Retirement Housing Foundation Obligated Group

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Qualified Opinion As discussed in Note 1 to the combined financial statements, certain affiliates of the Obligated Group are not reported in these combined financial statements. In our opinion, accounting principles generally accepted in the United States of America require that certain affiliates be accounted for as consolidated subsidiaries. If the combined financial statements of certain affiliates had been consolidated with those of the Obligated Group, total assets and total liabilities would be increased by $1,379,695,234 and $1,061,085,700, respectively, as of September 30, 2016 and $1,266,945,474 and $991,508,576, respectively as of September 30, 2015, and the change in unrestricted net assets would be increased (decreased) by $(3,433,969) and $1,168,258, respectively, for the years then ended.

Qualified Opinion In our opinion, except for the effects of not consolidating certain material affiliates, as described in the Basis for Qualified Opinion paragraph, the combined financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Retirement Housing Foundation Obligated Group as of September 30, 2016 and 2015, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the combined financial statements as a whole. The combining financial statements are presented for purposes of additional analysis and are not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements as a whole. !

CliftonLarsonAllen LLP

Phoenix, Arizona February 1, 2017

(2) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED BALANCE SHEETS SEPTEMBER 30, 2016 AND 2015

2016 2015 ASSETS

CURRENT ASSETS Cash and Cash Equivalents $ 19,502,527 $ 31,069,434 Accounts Receivable, Net 4,201,986 4,118,152 Current Portion of Investments 23,178,158 9,652,558 Prepaid Expenses and Other Current Assets 993,009 4,061,316 Current Portion of Assets Limited as to Use 714,128 671,919 Total Current Assets 48,589,808 49,573,379

ASSETS LIMITED AS TO USE Trustee Held Funds 7,388,185 6,868,396 Resident/Tenant Deposits 2,215,041 1,977,553 Total Assets Limited as to Use 9,603,226 8,845,949 Less: Current Portion Shown Above (714,128) (671,919) Total Noncurrent Assets Limited as to Use 8,889,098 8,174,030

PROPERTY AND EQUIPMENT Land 6,198,351 6,319,788 Land Held for Development or Sale 1,031,935 1,031,935 Buildings and Improvements 137,405,174 134,402,948 Furniture and Equipment 30,246,580 24,376,331 Construction in Progress 1,120,137 4,906,068 Total Property and Equipment 176,002,177 171,037,070 Less: Accumulated Depreciation (102,309,734) (98,226,616) Total Property and Equipment, Net 73,692,443 72,810,454

OTHER ASSETS Debt Issuance Costs, Net 1,521,217 1,717,505 Advances to Affiliates, Net 36,559,580 35,885,619 Investments 22,885,154 17,855,127 Other Assets 83,907 11,593 Total Other Assets 61,049,858 55,469,844

Total Assets $ 192,221,207 $ 186,027,707

See accompanying Notes to Combined Financial Statements. (3) 2016 2015 LIABILITIES AND NET ASSETS

CURRENT LIABILITIES Current Maturities of Long-Term Debt $ 9,203,405 $ 7,976,698 Accounts Payable 2,480,111 2,949,345 Accrued Expenses 8,712,905 9,044,736 Accrued Interest 207,493 201,180 Total Current Liabilities 20,603,914 20,171,959

OTHER LIABILITIES Unearned Revenue 237,133 240,559 Tenant Deposits 2,087,311 1,862,709 Long-Term Debt, Net of Current Maturities 95,854,727 104,578,984 Risk Retention Liability 18,907,334 17,695,464 Total Other Liabilities 117,086,505 124,377,716

Total Liabilities 137,690,419 144,549,675

NET ASSETS Unrestricted 54,530,788 41,478,032

Total Liabilities and Net Assets $ 192,221,207 $ 186,027,707

(4) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS YEARS ENDED SEPTEMBER 30, 2016 AND 2015

2016 2015 OPERATING REVENUES Resident Services Revenue $ 93,834,028 $ 90,607,040 Management Fees 12,183,803 11,616,228 Development Income 3,339,056 8,439,579 Interest Income 905,119 811,419 Other 1,251,655 690,689 Total Operating Revenues 111,513,661 112,164,955

OPERATING EXPENSES Payroll Related Expenses 60,989,507 58,612,584 Dietary Expense 5,893,453 5,553,116 Utilities 5,366,275 5,455,217 Other Administrative 2,681,276 3,068,893 General Insurance 2,337,452 2,320,769 Interest 3,010,922 3,027,598 Depreciation and Amortization 5,021,698 4,532,795 Other Unrestricted Operating Expenses 10,961,011 14,428,566 Total Operating Expenses 96,261,594 96,999,538

OPERATING INCOME 15,252,067 15,165,417

NONOPERATING LOSSES Loss on Disposal of Property and Equipment - (2,806) Unrealized Losses on Investments (425,128) (221,861) Total Nonoperating Losses (425,128) (224,667)

EXCESS OF REVENUES OVER EXPENSES 14,826,939 14,940,750

TRANSFER OF UNRESTRICTED NET ASSETS (1,774,183) -

TOTAL CHANGE IN UNRESTRICTED NET ASSETS 13,052,756 14,940,750

UNRESTRICTED NET ASSETS, BEGINNING OF YEAR 41,478,032 26,537,282

UNRESTRICTED NET ASSETS, END OF YEAR $ 54,530,788 $ 41,478,032

See accompanying Notes to Combined Financial Statements. (5) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2016 AND 2015

2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Total Change in Unrestricted Net Assets $ 13,052,756 $ 14,940,750 Transfer of Net Assets 1,774,183 - Adjustments to Reconcile Total Change in Unrestricted Net Assets to Net Cash Provided by Operating Activities: Depreciation and Amortization 5,021,698 4,532,795 Unrealized Losses on Investments 425,128 221,861 Loss on Disposal of Property and Equipment - 2,806 Changes in Operating Assets and Liabilities: Accounts Receivable (83,834) (476,376) Prepaid Expenses and Other Current Assets 3,068,307 (3,057,776) Accounts Payable (469,234) (322,663) Accrued Expenses (331,831) 1,065,002 Accrued Interest 6,313 (89,022) Tenant Deposits and Unearned Revenue 221,176 56,849 Risk Retention Liability 1,211,870 1,267,514 Net Cash Provided by Operating Activities 23,896,532 18,141,740

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (5,629,641) (6,981,075) Net Change in Investments (20,827,252) 3,571,705 Net Change in Escrow Reserves - 162,261 Cash Paid for Bond Issue Costs - (32,560) Net Change in Advances to Affiliates (673,961) (932,001) Net Change in Restricted Deposits (237,488) (70,080) Net Change in Trustee Held Funds (519,789) 1,226,045 Net Cash Used by Investing Activities (27,888,131) (3,055,705)

CASH FLOWS FROM FINANCING ACTIVITIES Principal Payment on Long-Term Debt (7,575,308) (9,633,308)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,566,907) 5,452,727

Cash and Cash Equivalents - Beginning of Year 31,069,434 25,616,707

CASH AND CASH EQUIVALENTS - END OF YEAR $ 19,502,527 $ 31,069,434

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid for Interest $ 2,808,198 $ 2,953,499

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES Equipment Purchased under Long-Term Debt Issuance $ 77,758 $ 357,776

See accompanying Notes to Combined Financial Statements. (6) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization Retirement Housing Foundation (RHF) is a California not-for-profit corporation which sponsors or co-sponsors and manages, through itself and affiliated corporations, affordable and market rate housing, skilled nursing and assisted living services for senior adults, low- income families, and persons with disabilities throughout the United States. The following entities and divisions are included in these combined financial statements:

! Retirement Housing Foundation ! Foundation Property Management, Inc. ! Bixby Knolls Towers, Inc. ! Bixby Knolls Health Care and Rehabilitation Center ! Gold Country Health Center, Inc. ! Gold Country Retirement Center ! Mayflower Gardens Health Facilities, Inc. ! Mayflower RHF Housing, Inc. ! Sun City RHF Housing, Inc. ! Holly Hill RHF Housing, Inc. dba: Bishop’s Glen ! Merritt Island RHF Housing, Inc. dba: Courtenay Springs Village ! Yellowwood Acres, Inc. dba: Westminster ! Westminster Healthcare Center ! Bluegrass RHF Housing, Inc. dba: Colonial Heights ! Colonial Gardens ! St. Catherine RHF Housing, Inc. ! DeSmet RHF Housing, Inc.

Hereinafter, the foregoing organizations are collectively referred to as the Obligated Group. All significant intercompany balances and transactions have been eliminated in the accompanying combined financial statements.

Information concerning the Obligated Group members, other than RHF as detailed above, is as follows:

Foundation Property Management, Inc. (FPM) manages substantially all of the RHF- controlled nonprofit facilities (including those listed below) under approved management agreements.

Bixby Knolls Towers, Inc. dba: Bixby Knolls consists of Bixby Knolls Towers, Inc. and Bixby Knolls Healthcare & Rehabilitation Center, which owns and operates a multilevel retirement facility in Long Beach, California, containing 168 independent senior apartment units, 54 assisted living units and a licensed 99-bed skilled nursing facility in two high rise buildings.

(7) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Organization (Continued) Gold Country Health Center, Inc. dba: Gold Country consists of Gold Country and Gold Country Retirement Center, which owns and operates a multilevel retirement facility in Placerville, California containing 150 independent senior apartment units, 36 assisted living units, and licensed 68-bed skilled nursing facility.

Mayflower Gardens Health Facilities, Inc. dba: Mayflower Health Center owns and operates a skilled nursing facility in Lancaster, California containing a licensed 48-bed skilled nursing facility.

Mayflower RHF Housing, Inc. dba: Mayflower Gardens owns and operates a retirement facility located adjacent to Mayflower Gardens Health Facilities, Inc. containing 501 independent senior apartment units.

Sun City RHF Housing, Inc. dba: Sun City Gardens owns and operates a retirement facility in Sun City, California containing 127 independent senior apartment units, 48 assisted living units and 17 dementia units.

Holly Hill RHF Housing, Inc. dba: Bishop’s Glen owns and operates a multilevel retirement facility in Holly Hill, Florida, containing 192 independent senior apartment units, 102 assisted living units, which include 35 memory-care units; and a licensed 60-bed skilled nursing facility.

Merritt Island RHF Housing, Inc. dba: Courtenay Springs Village owns and operates a multilevel retirement facility in Merritt Island, Florida, consisting of 154 independent senior apartment units, 11 licensed assisted living units and a licensed 80-bed skilled nursing facility.

Yellowwood Acres, Inc. dba: Westminster consists of Westminster Village and Westminster Healthcare Center, which owns and operates a multilevel retirement facility in Clarksville, Indiana, consisting of 164 independent senior apartment units, 92 assisted living units and a licensed 94-bed skilled nursing facility.

Bluegrass RHF Housing, Inc. dba: Colonial Heights and Colonial Gardens own and operate a multilevel retirement facility in Florence, Kentucky, consisting of 179 independent senior apartment units, 61 assisted living units and 9 dementia units.

St. Catherine RHF Housing, Inc. owns and operates a retirement community in Florissant, Missouri, containing 85 independent living units.

DeSmet RHF Housing, Inc. owns and operates a multilevel retirement community in Florissant, Missouri, consisting of 33 independent living units and 54 assisted living units.

(8) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Combination The combined financial statements include all the accounts of the Obligated Group including all of the related parties identified above.

Accounting principles generally accepted in the United States of America require the Obligated Group to consolidate or combine certain of the aforementioned affiliated entities. However, management of the Obligated Group believes that, for its general-purpose consolidated financial statement needs, the consolidation of such affiliated entities would not present a meaningful set of consolidated financial statements. Specifically, these combined financial statements reflect the “management” operations of the Obligated Group. The affiliated entities that management has chosen not to consolidate or combine are the operating facilities that RHF (a member of the Obligated Group) manages.

The Obligated Group accounts for its advances made to such affiliated entities at cost and has elected not to consolidate the aforementioned affiliated entities. Had the accounts of such affiliates been consolidated with those of the Obligated Group, the combined balance sheets, and the related combined statement of activities, changes in net assets and cash flows, and the footnotes related thereto, would have reflected material additional information that would affect the reader’s understanding of the combined financial position and the consolidated changes in net assets and cash flows of the Obligated Group. Therefore, these combined financial statements are not prepared in accordance with accounting principles generally accepted in the United State of America.

Certain controlled subsidiaries and affiliates of RHF are not members of the Obligated Group and thus are not reflected in the accompanying presentation. As a result, these combined financial statements are not intended to be a complete presentation of the consolidated financial statements of RHF and its subsidiaries.

The properties controlled or managed by RHF are divided into two groups. The first group “affordable housing” consists of approximately 157 facilities providing low and moderate income apartments for senior adults, for those with special needs and for families. RHF and its nonprofit affiliates control 156 of these facilities. Either community-based nonprofits or partnerships, which have contracted for management with RHF affiliates, own the balance of the facilities.

Most of the low-and-moderate income facilities are financed with grants or loans from, or mortgage loans insured by, the United States Department of Housing and Urban Development (HUD) under programs including Section 202, 221(d)(4), 231 and 236. In addition, a majority of these projects receive Housing Assistance Payments (HAP) under contracts with HUD. For the years ended September 30, 2016 and 2015, these payments from HUD represented approximately 64% of total revenues for those facilities. Properties that do not have HAP contracts receive other types of subsidies or have been financed through the Federal Low Income Housing Tax Credit (LIHTC) Program or other governmental programs for affordable housing projects.

(9) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Combination (Continued) With respect to each controlled HUD property, either RHF is the sole member of a single purpose nonprofit corporation formed to own the facility, or it has the power to appoint and remove a majority of the directors. The debt, if any, on these facilities is nonrecourse with respect to the Obligated Group. With respect to each partnership property, RHF or an affiliate is a general partner in a single purpose partnership that controls and manages the facility. The debt on the partnership facilities is also nonrecourse with respect to the Obligated Group. Because of applicable laws, regulations, or contracts restricting distributions, in most cases, RHF itself does not have access to the funds or other assets of the low and moderate income housing portfolio, other than through management fees and other contractual distributions paid to RHF or its subsidiaries.

Twenty “market rate” projects comprise the other group of RHF facilities. These facilities do not have HUD financing or LIHTC equity and are not subject to accompanying regulatory restrictions, nor, with limited exceptions, do the properties have rental assistance payments available to residents. A single purpose nonprofit corporation, of which RHF is the sole member, owns each of these facilities, with the exception of one project, in which the skilled nursing facility and the housing facilities are owned by separate single purpose corporations – Mayflower Gardens Health Facilities, Inc. and Mayflower RHF Housing, Inc. RHF classifies as “market rate” all of the entities and divisions in the Obligated Group, other than RHF and FPM.

The affiliated owners of fifteen of RHF’s market rate projects are included in the Obligated Group. The five market rate facilities whose affiliated owners are not members of the Obligated Group are: The Carolinian in Florence, South Carolina; The Gateway in Poway, California which consists of The Gateway and Gateway Gardens; The Cloisters in Deland, Florida; Plymouth Square in Stockton, California, and Pioneer House in Sacramento, California.

(10) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Combination (Continued) The following is a summary of affiliated entities, which are not consolidated in these financial statements:

Number of Entity Classification Entities Nonprofit single-purpose entities owned and receiving government subsidy, currently in operations 122 Nonprofit healthcare facilities owned, currently in operation 5 Nonprofit corporate entities owned 2 Forprofit corporate entities owned 4 Nonprofit properties owned, managed by others 14 Partnerships controlled by a nonprofit general partner in operation (ownership interest ranging from .01 to 16.9 percent) 22 Properties managed for third party owners 1 Nonprofit properties owned, currently in development 8 Total Entities Not Consolidated 178

The unaudited combined financial information of the entities that RHF is either the sole or controlling member (not covered by the independent auditors’ report) at September 30, 2016 and 2015 is presented below. This information excludes two facilities managed for third- party owners (in thousands):

2016 2015 (Unaudited) (Unaudited) Total Assets $ 1,379,695 $ 1,266,945 Total Liabilities 1,061,086 991,509 Net Assets $ 318,609 $ 275,436

Unrestricted Revenues $ 211,066 $ 204,027 Unrestricted Expenses 214,499 202,859 Change in Net Assets $ (3,433) $ 1,168

(11) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Combination (Continued) Refer to the Notes that follow as they relate to advances to (from) affiliates, guarantees of debt of certain affiliates and other related party transactions, respectively.

The Obligated Group provides a variety of services to the aforementioned affiliated entities, including, but not limited to, financing arrangements, management, consulting and administrative services. The Obligated Group receives fees for all such services provided.

Tax Exempt Status All the organizations that comprise the Obligated Group qualify as tax-exempt corporations described in Section 501(c)(3) of the Internal Revenue Code. Accordingly, the Obligated Group is not subject to federal and state income taxes under Section 501(a) of the Code. The Obligated Group is classified as publicly-supported charitable organizations under the Code and contributions to the Obligated Group qualify as a charitable tax deduction for the contributor.

The Obligated Group applies the income tax standard for uncertain tax positions. This standard clarifies the accounting for uncertainty in income taxes recognized in an organization’s financial statements. This standard prescribes recognition and measurement of tax positions taken or expected to be taken on a tax return that are not certain to be realized. The Obligated Group is not aware of any activities that would jeopardize their tax- exempt status.

Basis of Presentation Contributions received are recorded as an increase in unrestricted, temporarily restricted or permanently restricted support, depending on the existence or nature of any donor restrictions. Accordingly, net assets of the Obligated Group and changes therein are classified and reported as follows:

Temporarily Restricted - Those resources subject to donor imposed restrictions that will be satisfied by actions of the Obligated Group or passage of time.

Permanently Restricted - Those resources subject to a donor imposed restriction that they be maintained permanently by the Obligated Group.

(12) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Presentation (Continued) Unconditional promises to give cash and other assets are accrued at estimated fair market value at the date each promise is received. The gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction is satisfied, net assets are released and reported as an increase in unrestricted net assets. Donor-restricted contributions whose restrictions are met within the same reporting period as received are recorded as unrestricted contributions. When the Obligated Group has both restricted and unrestricted resources available to finance various programs, it is the Obligated Group’s policy to use restricted resources before unrestricted resources. There are no temporarily or permanently restricted net assets at September 30, 2016 and 2015.

Use of Estimates The preparation of combined financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents The Obligated Group considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents consist of demand deposits and money market accounts.

Accounts Receivable The Obligated Group provides an allowance for doubtful accounts based on historical experience and management's judgment. Residents are not required to provide collateral for services rendered. Payment for services is required upon receipt of invoice or as the claim is submitted for third-party payors. The allowance for doubtful accounts was approximately $1,869,000 and $3,340,000 at September 30, 2016 and 2015, respectively.

Assets Limited as to Use Trustee Held Funds Trustee held funds consist of bond funds held by the bond trustee, amounts deposited as guaranty of the Obligated Group debt, other affiliates’ debt, and the letters of credit maintained for the self-insured workers’ comp plan.

Tenant Deposits Tenant deposits are amounts paid by residents upon occupancy of apartments. At departure time from the retirement community, these security deposits are utilized to defray the costs of any damage to the apartment or otherwise refunded to the residents.

(13) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Assets Limited as to Use (Continued) Investments Investments are reported at fair value. Investment income (including interest and dividends net of investment expenses and realized and unrealized gains and losses) is included in the combined statements of unrestricted activities and changes in unrestricted net assets.

Investments are classified as trading. Investments consist, primarily, of equity and debt securities that are managed by an unrelated third party with specific guidance as to the types of investments allowed. Under the classification of trading, unrealized gains and losses are included in the excess of revenues over expenses. The cost of securities sold is based on the specific identification method.

Property and Equipment Property and equipment is recorded at cost and, except for land, is depreciated using the straight-line method over the estimated useful lives of the assets which range from 5 to 40 years. The Obligated Group capitalizes items costing $1,000 and greater. Depreciation expense was $4,825,410 and $4,336,800 for the years ended September 30, 2016 and 2015, respectively. Major betterments and renewals are capitalized, while routine repairs and maintenance are charged to expense when incurred.

Impairment of Long-Lived Assets Management periodically reviews the carrying value of long-lived assets for potential impairment by comparing the carrying value of these assets to the estimated undiscounted future cash flows expected to result from the use and eventual disposition of these assets. Should the sum of the expected future net cash flows be less than carrying value, an impairment loss would be recognized. There were no impairments taken in fiscal years 2016 or 2015.

Land Held for Development or Sale All direct and indirect land costs, offsite and onsite improvements and applicable interest and carrying charges are capitalized to real estate projects under development. Capitalized costs are expensed as real estate is sold; direct marketing costs are expensed in the period incurred. Land and land development costs are accumulated by project and are allocated to individual phases using the relative sales value method. Land held for development is carried at cost. The Obligated Group reviews, on a periodic basis, its land held for development for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment has been determined by management as of September 30, 2016.

(14) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Debt Issuance Costs The Obligated Group has incurred issuance costs pertaining to the issuances of long-term debt. Original issuance costs of $1,961,367 as of September 30, 2016 and 2015, are being amortized in a manner designated to approximate a constant annual effective interest rate over the term of the issuance. Accumulated amortization as of September 30, 2016 and 2015 was $440,150 and $243,862, respectively. Amortization of the debt issuance costs was $196,288 and $195,995 for the years ended September 30, 2016 and 2015, respectively.

Resident Services Revenue Resident services revenue includes rent, room charges, and ancillary services to residents and is recorded at established billing rates net of contractual adjustments resulting from agreements with third-party payors, if applicable.

Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the amounts accrued and the subsequent settlements are recorded into operations in the year of settlement.

Third-Party Reimbursement Agreements The Obligated Group members’ nursing facilities participate in the Medicare program. This federal program is administered by the Centers for Medicare and Medicaid Services (CMS). The participants are paid under the Medicare Prospective Payment System (PPS) for residents who are Medicare Part A eligible and meet the coverage guidelines for skilled nursing facility services (SNFs). The PPS is a per diem price-based system. CMS has approved a market basket update effective October 1, 2015 of 2.3%. Annual cost reports are required to be submitted to the designated Medicare Administrative Contractor; however, they do not contain a cost settlement.

The Obligated Group members’ nursing facilities located in California participate in the Medicaid program known as Medi-Cal in California, which is a financial assistance program administered by the California Department of Health Care Services. Medi-Cal pays for services in accordance with a prospective payment system based upon nursing facilities’ annually reported cost data, including fixed or capital-related costs, property taxes and labor costs. A specific per diem rate applies to each of six different levels of service and may change annually based upon audited facility costs.

The Obligated Group members’ nursing facilities located in Florida participate in the Medicaid program, which is a financial assistance program administered by the Florida Agency for Health Care Administration. Services rendered to Medicaid program beneficiaries are reimbursed using predetermined daily rates based, in part, on reasonable costs, as defined and limited by the Medicaid program.

(15) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Third-Party Reimbursement Agreements (Continued) The Obligated Group members’ nursing facility located in Indiana participates in the Medicaid program that is administered by the Indiana Family and Social Services Administration, Office of Medicaid Policy and Planning (OMPP). A licensed skilled nursing facility that participated in the Medicaid program in the State of Indiana for the years ended September 30, 2016 and 2015, was reimbursed upon prospective rates based upon the most recently submitted cost reports. The rate calculations take into account the individual community costs and variations in patient case mix. The cost reports are subject to periodic audit by the OMPP which may result in retroactive adjustment to set rates.

Nursing facilities licensed for participation in the Medicare and Medicaid assistance programs are subject to annual licensure renewal. If it is determined that a nursing facility is not in substantial compliance with the requirements of participation, CMS may impose sanctions and penalties during the period of noncompliance. Such a payment ban would have a negative impact on the revenues of the nursing facility.

Management Fee Income RHF and FPM provide a variety of services, including, but not limited to, financing arrangements, management, consulting and administrative services to several affiliates. During 2016 and 2015, RHF and FPM earned $12,183,803 and $11,616,228, respectively, for these services, which are included in management fees in the accompanying combined statements of unrestricted activities and changes in unrestricted net assets.

Development Fee Income RHF sponsors and develops new projects as management deems appropriate. In the process of developing a project, RHF will advance money and/or pay expenses on behalf of a project and may earn a development fee. Development fees earned during 2016 and 2015 were $3,339,056 and $8,439,579, respectively, in connection with the supervision of the development and construction of various sponsored projects. The fees were earned at certain stages of development and construction. As of September 30, 2016 and 2015, $8,257,968 and $8,184,672, respectively, remains unpaid and is included in Advances to Affiliates, Net in the combined balance sheets.

Other Operating Revenues Other operating revenue consists primarily of non-resident rental income, laundry, barber and beauty, cafeteria sales and other miscellaneous revenue.

(16) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Obligated Group has the ability to access.

Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Trading Securities Trading securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model- based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Securities valued using Level 1 inputs include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active over-the-counter markets. Securities valued using Level 2 inputs include private collateralized mortgage obligations, municipal bonds, and corporate debt securities. The Obligated Group does not have any securities that are valued using Level 3 inputs.

(17) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements During the year ended September 30, 2016, the Obligated Group early adopted a provision of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This provision eliminates the requirement for entities, other than public business entities, to disclose the fair values of financial instruments carried at amortized cost, as previously required by Accounting Standards Codification (ASC) 825-10-50. As such, the Obligated Group has omitted this disclosure for the years ended September 30, 2016 and 2015. The early adoption of this provision did not have an impact on the Obligated Group’s combined balance sheets or statements of unrestricted activities and changes in unrestricted net assets.

Advertising Expenses Advertising expenses approximated $914,000 and $912,000 for the years ended September 30, 2016 and 2015, respectively. Advertising costs are expensed when incurred.

Excess of Revenues Over Expenses The combined statements of unrestricted activities and changes in unrestricted net assets include a measurement of excess of revenues over expenses as a performance indicator.

Contributed Services The Obligated Group receives a substantial amount of services donated by volunteers. No amounts have been reflected in the combined financial statements for these services.

Transfer of Net Assets During fiscal year 2016, RHF created the RHF Charitable Foundation to be used as the fundraising and benevolent care arm of RHF and its subsidiaries. As a result RHF transferred $1,774,183 of unrestricted net assets held to the RHF Charitable Foundation. RHF also provides support services for RHF Foundation, Inc. (RHFFI) for which it allocates the costs over to RHFFI, but doesn’t charge for. As a result this has been recorded as a transfer of unrestricted net assets.

Reclassifications Certain items in the prior year combined financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Obligated Group’s overall net assets.

Subsequent Events In preparing these combined financial statements, the Obligated Group has evaluated events and transactions for potential recognition or disclosure through February 1, 2017, the date the combined financial statements were available for issuance.

(18) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 2 ASSETS LIMITED AS TO USE

Assets limited as to use consist of the following at September 30, 2016 and 2015:

2016 2015 Cash and Cash Equivalents $ 3,002,165 $ 3,336,250 Government Securities 6,324,313 5,033,427 Corporate Bonds 276,748 476,272 Total $ 9,603,226 $ 8,845,949

NOTE 3 ADVANCES TO AFFILIATES, NET

Such administrative directives, rules, and regulations are subject to change by an act of Congress or an administrative change mandated by other regulatory agencies. Each affiliate's ability to repay its advances is predicated upon, in certain cases, regulatory approval and is also dependent upon adequate cash flows from operations or refinancing. The Obligated Group reviews, on a periodic basis, its advances to affiliates for collectability and maintains reserves for potential losses. During the years ended September 30, 2016 and 2015, the Obligated Group provided allowances for advances to affiliates of approximately $4,790,000 and $4,780,000, respectively. Actual losses could be materially different than estimated.

NOTE 4 INVESTMENTS

Investments are carried at fair value and consist of the following at September 30, 2016 and 2015:

2016 2015 Certificates of Deposit $ 3,636,477 $ 326,572 Government Securities 7,835,781 6,648,730 Corporate Bonds 34,591,054 20,532,383 Total 46,063,312 27,507,685 Less: Current Portion of Investments (23,178,158) (9,652,558) Investments, Net of Current Portion $ 22,885,154 $ 17,855,127

(19) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 5 LONG-TERM DEBT

The following is a summary of long-term debt at September 30, 2016 and 2015:

Description 2016 2015 California Statewide Communities Development Authority Revenue Bonds, Series 2014A bearing interest at 2.3949% and 2.1514% at September 30, 2016 and 2015, respectively, maturing July 1, 2024. $ 34,650,000 $ 36,520,000

Public Finance Authority Revenue Bonds, Series 2014B bearing interest at 2.3949% and 2.1514% at September 30, 2016 and 2015, respectively, maturing July 1, 2024. 6,510,000 6,510,000

Public Finance Authority Revenue Bonds, Series 2014C bearing interest at 2.3949% and 2.1514% at September 30, 2016 and 2015, respectively, maturing July 1, 2024. 27,505,000 28,685,000

Public Finance Authority Revenue Bonds, Series 2014D bearing interest at 2.3949% and 2.1514% at September 30, 2016 and 2015, respectively, maturing July 1, 2024. 18,315,000 19,110,000

Public Finance Authority Revenue Bonds, Series 2014E bearing interest at 2.3949% and 2.1514% at September 30, 2016 and 2015, respectively, maturing July 1, 2024. 13,735,000 14,335,000

Note Payable entered into in June 2014, bearing interest at 3% at September 30, 2016 and 2015, maturing August 31, 2017. 2,569,441 5,063,087

California Bank and Trust promissory note bearing interest at 3.99% at September 30, 2016 and 2015, maturing May 1, 2017. 1,217,467 1,408,645

Various installment loans which are payable in various scheduled monthly installments through August 2021. The notes bear interest at 2.48% and 2.66% and are secured by the property purchased with the installment loans. 556,224 923,950 Total Long-Term Debt 105,058,132 112,555,682 Less: Current Maturities (9,203,405) (7,976,698) Long-Term Debt, Net of Current Maturities $ 95,854,727 $ 104,578,984

(20) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 5 LONG-TERM DEBT (CONTINUED)

Aggregate annual maturities of long-term debt are as follows:

Year Ending September 30, Long-Term Debt 2017 $ 9,203,405 2018 5,004,014 2019 5,080,573 2020 5,287,573 2021 5,507,567 Thereafter 74,975,000 Total $ 105,058,132

Series 2014 Bonds The Series 2014 Bonds were secured by Direct Note Obligations (DNO or DNO’s) issued pursuant to two Master Trust Indentures (MTI) dated as of June 1, 2014. The California Bonds were secured in part by Series 2014A and 2014B DNO’s issued pursuant to a California MTI, by and among the California members, RHF and the California Master Trustee. The Series 2014A and 2014B Bonds other than the California Bonds were secured in part by Series 2014 DNO’s issued pursuant to a National MTI, by and among the non- California members, RHF and the National Master Trustee.

The Series 2014 Bonds are tax-exempt bonds currently in Bank Index Mode. The monthly Base Index Rate resets the first day of each month by calculating an applicable spread above the 30-day LIBOR rate as published on the last business day of the prior month. The interest rates for each bond issue at September 30, 2016 and 2015 are disclosed in the schedule above. The Series 2014 Bonds have separate amortizations for each bond series with a final maturity of September 1, 2032. However, the Series 2014 Bonds are subject to mandatory purchase on the next Purchase Date of July 1, 2024. The bond may be prepaid without penalty after the initial lockout period which ends July 1, 2017. Each member of the Obligated Group entered into a Second Amended and Restated Gross Revenue Pledge Agreement, dated June 1, 2014 with a Collateral Agent, on behalf of the California Master Trustee and the National Master Trustee, pursuant to which each member of the Obligated Group pledged and granted a security interest in its Gross Revenues, as defined, to secure the payment, the principal of and interest on the obligations issued under the MTI’s.

RHF and FPM entered into separate Reaffirmation of Guaranty Agreements, dated as of June 1, 2014, with the California Master Trustee and the National Master Trustee, guarantying the Obligations issued under the California and National MTI and the performance of the Members there under.

(21) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 5 LONG-TERM DEBT (CONTINUED)

Series 2014 Bonds (Continued) In conjunction with the new DNO agreements RHF and FPM entered into a Reaffirmation of Guaranty Agreement dated June 1, 2014. Each of the California Members entered into a Reaffirmation of Guaranty Agreement in favor of the National Master Trustee, guarantying the obligations issued under the National MTI and secured by such California Member’s hereinafter described Second deed of trust/mortgage. Similarly, each non-California member entered into a Reaffirmation of Guaranty Agreement in favor of the California Master Trustee, guarantying the obligations issued under the California MTI and secured by such non-California Member’s hereinafter described Second deed of trust/mortgage. Each of the Members executed a deed of trust or mortgage (depending on the state in which the underlying facilities are located) to secure the obligations issued under the MTI to which it is a party. Each Member also executed a second deed of trust or mortgage to secure the Obligations issued under the MTI to which it is not a party.

Financial Covenants The 2014 bond agreement requires that the Obligated Group, among other matters, maintain a specified level of debt service coverage, days cash on hand, and a minimum cash to debt ratio, as defined. The 2014 Bonds are collateralized by substantially all property and equipment owned by the Obligated Group. Management believes the Obligated Group is in compliance with such covenants at September 30, 2016.

Promissory Note In November 2003, the Obligated Group executed a promissory note to California Bank and Trust in the amount of $2,500,000 at a 5 year fixed rate of LIBOR/swap rate plus 1.95% or 5.92%. In April 2012, this promissory note was refinanced with the same bank at the 5-year fixed rate of LIBOR/swap rate plus 2.85% or 3.99%. This note is secured by a first deed of trust on the Obligated Group's headquarters located in Long Beach, California.

(22) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 6 RISK RETENTION LIABILITY

The Obligated Group maintains risk retention reserves for potential workers’ compensation, property, and professional liability claims. The reserves are collected from and held on behalf of the facilities participating in RHF’s group insurance programs and maintained in cash and cash equivalents and investments. The purpose is to provide liquid funds to ensure insurance claims and expenses can be paid when required. The reserves are funded by individual projects and RHF maintains a separate accounting for each project. Funds provided by HUD-financed projects are kept separate and not co-mingled with non-HUD funds. Reserve balances are reviewed and adjusted periodically against a targeted amount based on current policy deductibles, claims history, and other market factors.

Risk retention liability consists of the following at September 30, 2016 and 2015:

2016 2015 Workers’ Compensation $ 13,778,242 $ 12,642,903 Property 3,446,281 3,353,710 Professional Liability 1,682,811 1,698,851 Total $ 18,907,334 $ 17,695,464

Self-Insured Workers’ Compensation Plan Effective February 1, 2003 RHF established a self-insured workers’ compensation plan for its employees. This plan is administered by a third party, and has stop loss provisions insuring losses in excess of $350,000 up to $1,000,000 per employee per occurrence and $4,449,975 per year in the aggregate, subject to adjustment as defined.

The Workers’ Compensation liability represents the Obligated Group’s estimated liability of both known claims and claims incurred but not reported as of September 30, 2016 and 2015. The Obligated Group recognized $2,154,425 and $2,153,199 in total workers’ compensation insurance expense for the years ended September 30, 2016 and 2015, respectively.

RHF obtained irrevocable letters of credit from a bank as a requirement of its workers’ compensation insurance. The insurance policy requires RHF to pay a minimum premium and maintain the letters of credit. Liability payments under the insurance policy are offset against the minimum premium, and when exhausted, a draw, if necessary, is made on the letters of credit. The letters of credit are collateralized with cash, cash equivalents, and investments which are included in the accompanying balance sheets within trustee held funds.

(23) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 6 RISK RETENTION LIABILITY (CONTINUED)

Self-Insured Workers' Compensation Plan (Continued) Letters of credit consist of the following at September 30, 2016:

Letter of Plan Year Credit Covered Date Obtained Maturity Date Balances 2003-2004 March 4, 2003 March 3, 2017 $ 215,000 2004-Current March 19, 2007 March 19, 2017 5,675,600 $ 5,890,600

The workers’ compensation letter of credit balances represented 43% and 42% of the total workers’ compensation insurance reserves at September 30, 2016 and 2015, respectively.

Professional Liability Insurance An affiliate of the Obligated Group has a claims-made policy for professional liability through Caring Communities Insurance Company (CCIC), a Reciprocal Risk Retention Group domiciled in the District of Columbia, USA, which provides professional liability, general liability, excess automobile, and excess employer’s liability insurance to its members. RHF has a receivable from RHF Foundation, Inc. of $2,086,000 related to RHF Foundation’s investment in CCIC. RHF Foundation, Inc. has pledged the shares of CCIC as collateral for the receivable.

The affiliate also pays annual amounts to CCIC for their professional liability insurance coverage. The policy calls for a $75,000 deductible per occurrence and liability limits of $1,000,000 per occurrence and $3,000,000 in the aggregate. Depending on loss history and adequacy of capital, CCIC may, but is not obligated, to return a portion of premiums paid. Conversely, the affiliate may be called upon to contribute additional funds to maintain adequate capital in CCIC.

The Obligated Group’s professional liability is estimated based on both known claims and a reserve for claims incurred by not reported. The Obligated Group recognized $2,337,452 and $2,320,769 in total professional liability insurance expense for the years ended September 30, 2016 and 2015, respectively.

NOTE 7 FAIR VALUE MEASUREMENTS

The Obligated Group uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For additional information on how the Obligated Group measures fair value refer to Note 1 – Organization and Significant Accounting Policies.

(24) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 7 FAIR VALUE MEASUREMENTS (CONTINUED)

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Investments The fair values of the investments are estimated based on quoted market prices for those or similar investments.

Trustee Held Funds The fair values of the trustee held funds are estimated based on quoted market prices for those or similar investments.

Tenant Deposits The fair values of the tenant deposit funds are estimated based on quoted market prices for those or similar investments.

All Other The carrying value is a reasonable estimate of the fair value for all other financial instruments due to the short-term nature of those financial instruments.

The following tables present the fair value hierarchy for the balances of the assets and liabilities of the Obligated Group measured at fair value on a recurring basis as of September 30, 2016 and 2015:

2016 Description Total Level 1 Level 2 Level 3 Assets: Investments: Government Securities $ 7,835,781 $ 7,835,781 $ - $ - Corporate Bonds 34,591,054 - 34,591,054 - Assets Limited as to Use: Government Securities 6,324,313 6,324,313 - - Corporate Bonds 276,748 - 276,748 - Total $ 49,027,896 $ 14,160,094 $ 34,867,802 $ -

2015 Description Total Level 1 Level 2 Level 3 Assets: Investments: Government Securities $ 6,648,730 $ 6,648,730 $ - $ - Corporate Bonds 20,532,383 - 20,532,383 - Assets Limited as to Use: Government Securities 5,033,427 5,033,427 - - Corporate Bonds 476,272 - 476,272 - Total $ 32,690,812 $ 11,682,157 $ 21,008,655 $ -

(25) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 8 CONCENTRATION OF CREDIT RISK

The Obligated Group’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and temporary cash investments. The Obligated Group believes it places its cash and cash equivalents and temporary cash investments with high quality credit institutions. At times such investments may be in excess of the FDIC insurance limit.

The Obligated Group has investments in a variety of investment funds. In general, investments are exposed to various risks such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investments, it is reasonably possible that change in the value of the investments will occur in the near term and that such changes could materially affect account balances and the combined statements of activities and changes in unrestricted net assets.

The Obligated Group grants credit without collateral to its various facility residents or their families, many of whom are local residents and who are insured under third-party payor agreements. The mix of receivables from residents and third-party payors at September 30, 2016 and 2015 was as follows:

2016 2015 Private Pay and Insurance 35.7% 45.1% Medicare 22.1% 13.9% Medicaid 42.2% 41.0% Total 100.0% 100.0%

NOTE 9 DEFINED CONTRIBUTION PLAN

The Obligated Group has a defined contribution plan for its employees. The Obligated Group’s contribution to this plan is principally based on a percentage of employee’s annual base compensation. The annual cost of this plan to the Obligated Group amounted to approximately $528,000 and $423,000 for the years ended September 30, 2016 and 2015, respectively.

(26) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 10 COMMITMENTS AND CONTINGENCIES

Guarantees Obligated Group The Obligated Group has issued or guaranteed a total of $100,715,000 and $105,160,000 as of September 30, 2016 and 2015, respectively, of tax-exempt direct placement bonds and taxable/tax-exempt bonds (the “Bonds”), including Variable Rate Demand Bonds, for the purpose of providing funds to refund various bonds and certificates of participation and bank loans issued to benefit the affiliated not-for-profit entities that own and operate retirement facilities located in California, Florida, Indiana, Kentucky and Missouri. Each member of the Obligated Group is jointly and severally liable for the payment of the Bond obligations. To date, no performance under the guarantee has been required of any member of the Obligated Group.

Additional disclosure related to the 2014 Bonds and the security pledged in relation to the guaranty is discussed in Note 5.

Poway RHF Housing, Inc. As of September 30, 2016 and 2015, RHF has guaranteed cash on hand equal to at least 90 days as of September 30 each year for an affiliate, Poway RHF Housing, Inc. dba The Gateway (Gateway) that has issued $13,345,000 in bonds. As of September 30, 2016 and 2015, RHF has set aside $710,738 and $706,743, respectively, in trustee held funds to cover any shortfall of the days’ cash on hand covenant. As of September 30, 2016, The Gateway was in compliance with its financial covenants on the Series 2013 Insured Revenue Bonds.

Charles Street RHF Housing, Inc. In June 2001, RHF guaranteed $1,784,000 of general partner obligations of an affiliate, Charles Street RHF Housing, Inc. dba: The Stearns, under a partnership agreement. In October 2006, the guaranteed amount was reduced to $1,350,000, and was further reduced to $784,000 during 2009. During fiscal year 2015, the amount was reduced to $675,000. RHF also received a guarantee from a third party under a reimbursement agreement to reimburse RHF for payments that it is required to make pursuant to the guarantee.

Symphony East RHF Housing, Inc. and Symphony West RHF Housing, Inc. In December 2001, RHF guaranteed $5,096,000 of general partner obligations of two affiliates, Symphony East RHF Housing, Inc. and Symphony West RHF Housing, Inc., under partnership agreements. The guaranteed amount has been reduced in prior years and is $2,000,000 at September 30, 2016 and 2015. RHF also received a guarantee from a third party under a reimbursement agreement to reimburse RHF for certain payments that it is required to make pursuant to the guarantee up to a maximum of $3,000,000.

(27) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 10 COMMITMENTS AND CONTINGENCIES (CONTINUED)

Limited Partnership Liabilities An affiliate of RHF, as guarantor in certain limited partnerships, could be liable for obligations, which could be material, if the limited partnerships are not able to satisfy their obligations as they come due in the ordinary course of business. For purposes of these combined financial statements, the partnerships are not consolidated herein.

An affiliate of RHF has guaranteed tax credit deficit obligations to the tax credit investors. Such tax credit deficit obligations include payments to the tax credit investors in the amount of (1) any reduction, disallowance, or recapture of the projected tax credit amount; (2) any interest and penalties imposed by the IRS in the event of a recapture of tax credits, and (3) any income tax liability of the tax credit investors as a result of payments under these tax credit deficit obligations.

Professional Liability Insurance The Obligated Group is subject to asserted and unasserted claims encountered in the normal course of business. The Obligated Group’s management and legal counsel assess such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Obligated Group or unasserted claims that may result in such proceedings, the Obligated Group’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. In the opinion of management, disposition of these matters will not have a material effect on the Obligated Group’s financial condition or results of operations.

Health Care Health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for resident services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers.

Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.

Government Regulations - Medicaid The various state departments for which the Obligated Group has a licensed nursing facility reserve the right to perform field audit examinations of the Obligated Group’s records. Any adjustments resulting from such examinations could retroactively adjust Medicaid revenue.

(28) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015

NOTE 10 COMMITMENTS AND CONTINGENCIES (CONTINUED)

Government Regulations - Medicare The Medicare intermediary has the authority to audit the skilled nursing facility’s records any time within a three-year period after the date the skilled nursing facility receives a final notice of program reimbursement for each cost-reporting period. Any adjustments resulting from these audits could retroactively adjust Medicare revenue.

NOTE 11 FUNCTIONAL CLASSIFICATION OF EXPENSES

Functional classification of expenses for the years ended September 30, 2016 and 2015 consisted of the following:

2016 2015 Program $ 85,023,576 $ 86,756,461 Management and General Support 11,238,018 10,243,077 Total Operating Expenses $ 96,261,594 $ 96,999,538

Fundraising expenses are immaterial and are included in management and general support. Salaries and related expenses are allocated based on job descriptions and the best estimates of management. Expenses, other than salaries and related expenses, which are not directly identifiable by program or supporting services, are allocated based on the best estimates of management.

(29) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET SEPTEMBER 30, 2016 (SEE INDEPENDENT AUDITORS’ REPORT)

Accounts Receivable Accounts Receivable - - 537,097 771,210 1,140,429 79,937 489,144 1,608,708 818,764 4,088 144 7,476 - 5,456,997 Accounts Receivable - Other 307,070 11,556 - 1,434 112 189 443 14 22,186 762 - - - 343,766 Accounts Receivable - Litigation - - 4,320 775 9,719 7,058 29,908 179,583 11,165 - - 11,328 - 253,856 Patient Refund - - - - - 6,662 6,003 - 1,637 2,219 - - - 16,521 Allowance For Doubtful Accounts - - (120,236) (84,911) (530,583) (47,490) (64,409) (905,084) (105,113) - - (11,328) - (1,869,154) Total Accounts Receivable 307,070 11,556 421,181 688,508 619,677 46,356 461,089 883,221 748,639 7,069 144 7,476 - 4,201,986

Investments Short-Term Investments 23,178,158 ------23,178,158 Total Investments 23,178,158 ------23,178,158

Prepaid and Other Current Assets Interest Receivable 17,906 - 10,864 6,622 6,028 1,851 8,592 5,057 1,267 20,049 180 18 - 78,434 Inventory - - 30,692 17,326 16,026 6,683 58,898 34,849 65,712 18,786 11,416 4,892 - 265,280 Prepaid Expenses 281,987 - 37,139 73,287 31,978 23,019 87,287 28,534 32,577 23,954 1,330 28,203 - 649,295 Total Prepaid and Other Current Assets 299,893 - 78,695 97,235 54,032 31,553 154,777 68,440 99,556 62,789 12,926 33,113 - 993,009

Current Portion of Assets Limited as to Use - - 108,868 79,010 59,609 20,339 182,990 97,732 48,062 79,478 20,162 17,878 - 714,128 Total Current Assets 39,374,572 2,098,660 648,666 1,229,926 872,036 141,301 929,154 1,281,573 955,394 902,334 65,372 90,820 - 48,589,808

NON-CURRENT ASSETS Assets Limited as to Use Trustee Held Funds 6,802,555 (494) ------6,802,061 Bond Funds - - 56,268 79,010 59,609 20,339 111,949 93,369 48,062 79,478 20,162 17,878 - 586,124 Board Designated Funds - - 52,600 - - - 71,041 4,363 - - - - - 128,004 Resident/Tenant Deposits 2,000 - 178,284 234,993 353,744 11,781 257,037 166,934 183,185 611,698 47,216 40,165 - 2,087,037 Total Assets Limited as to Use 6,804,555 (494) 287,152 314,003 413,353 32,120 440,027 264,666 231,247 691,176 67,378 58,043 - 9,603,226 Less: Current Portion Shown Above - - (108,868) (79,010) (59,609) (20,339) (182,990) (97,732) (48,062) (79,478) (20,162) (17,878) - (714,128) Total Noncurrent Assets Limited as to Use 6,804,555 (494) 178,284 234,993 353,744 11,781 257,037 166,934 183,185 611,698 47,216 40,165 - 8,889,098

Property and Equipment Land 2,539,582 - 551,548 731,837 223,308 505,460 550,900 775,000 534,584 414,623 197,351 206,093 - 7,230,286 Building and Improvements 4,528,273 - 13,233,707 17,652,125 9,927,294 7,374,700 21,119,836 20,581,044 14,741,650 14,875,621 6,548,241 6,822,683 - 137,405,174 Office Furniture and Equipment 1,527,545 22,376 2,257,339 1,951,274 1,921,426 2,163,477 4,281,995 4,731,015 3,146,917 2,668,830 554,555 420,065 - 25,646,814 Motor Vehicle - - - 133,620 164,285 97,559 103,919 - 132,865 105,326 - 68,070 - 805,644 Computer Hardware/Software 3,275,912 2,657 61,663 69,486 68,296 52,767 73,445 50,479 87,892 35,223 2,023 14,279 - 3,794,122 Construction in Progress 45,033 - 21,706 308,552 96,546 283,691 14,892 94,571 214,859 35,099 - 5,188 - 1,120,137 Total Property and Equipment 11,916,345 25,033 16,125,963 20,846,894 12,401,155 10,477,654 26,144,987 26,232,109 18,858,767 18,134,722 7,302,170 7,536,378 - 176,002,177 Accumulated Depreciation (4,314,359) (16,793) (11,149,189) (12,460,618) (8,359,862) (7,721,772) (15,760,280) (16,258,472) (11,538,732) (9,351,075) (2,608,093) (2,770,489) - (102,309,734) Property and Equipment, Net of Accumulated Depreciation 7,601,986 8,240 4,976,774 8,386,276 4,041,293 2,755,882 10,384,707 9,973,637 7,320,035 8,783,647 4,694,077 4,765,889 - 73,692,443

Advances to (from) Affiliates Reimbursable and Management Fees - Obligated Group 14,191,943 (3,301,309) 2,236,298 3,335,157 552,320 521,441 (3,501,132) (3,807,786) (1,266,045) 7,248,297 163,439 (2,152,175) - 14,220,448 Reimbursable and Management Fees - Other 29,897,002 14,399,562 ------44,296,564 Cash and Reserves - Obligated Group (18,416,838) ------(18,416,838) Cash and Reserves - Other (3,540,594) ------(3,540,594) Total Advances to (from) Affiliates 22,131,513 11,098,253 2,236,298 3,335,157 552,320 521,441 (3,501,132) (3,807,786) (1,266,045) 7,248,297 163,439 (2,152,175) - 36,559,580

Long-Term Investments Long-Term Investments 22,885,154 ------22,885,154 Total Long-Term Investments 22,885,154 ------22,885,154

Other Assets Deferred Financing Costs, Net - - 146,037 205,060 154,707 52,786 290,552 242,330 124,740 206,278 52,330 46,397 - 1,521,217 Utility Deposits - 2,394 - - - - - 9,159 - - - - - 11,553 Interest Rate Cap 72,354 ------72,354 Total Other Assets 72,354 2,394 146,037 205,060 154,707 52,786 290,552 251,489 124,740 206,278 52,330 46,397 - 1,605,124

Total Assets $ 98,870,134 $ 13,207,053 $ 8,186,059 $ 13,391,412 $ 5,974,100 $ 3,483,191 $ 8,360,318 $ 7,865,847 $ 7,317,309 $ 17,752,254 $ 5,022,434 $ 2,791,096 $ - $ 192,221,207

(30) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2016 (SEE INDEPENDENT AUDITORS’ REPORT)

CURRENT LIABILITIES Accounts Payable Accounts Payable - Operations $ 412,834 $ 339,516 $ 255,390 $ 217,244 $ 256,456 $ 105,610 $ 184,369 $ 219,087 $ 308,860 $ 123,263 $ 25,268 $ 32,214 $ - $ 2,480,111 Total Accounts Payable 412,834 339,516 255,390 217,244 256,456 105,610 184,369 219,087 308,860 123,263 25,268 32,214 - 2,480,111

Accrued Expenses Sales Tax Payable 11,513 - - 567 1,248 372 826 625 - - - - - 15,151 Other Accrued Expenses 5,525,910 617,063 506,604 336,400 215,180 119,361 491,607 250,046 380,855 202,917 20,508 31,303 - 8,697,754 Accrued Interest Payable 6,371 - 19,308 27,112 20,454 6,979 38,414 32,038 16,492 27,272 6,918 6,135 - 207,493 Total Accrued Expenses 5,543,794 617,063 525,912 364,079 236,882 126,712 530,847 282,709 397,347 230,189 27,426 37,438 - 8,920,398

Other Current Liabilities Current Portion of Long-Term Debt 4,144,628 - 484,320 680,066 518,103 175,062 963,595 803,669 422,439 684,102 173,548 153,873 - 9,203,405 Total Other Current Liabilities 4,144,628 - 484,320 680,066 518,103 175,062 963,595 803,669 422,439 684,102 173,548 153,873 - 9,203,405 Total Current Liabilities 10,101,256 956,579 1,265,622 1,261,389 1,011,441 407,384 1,678,811 1,305,465 1,128,646 1,037,554 226,242 223,525 - 20,603,914

LONG-TERM LIABILITIES Restricted Liabilities Security Deposits 5,635 - 169,417 228,194 206,906 8,214 240,332 160,449 175,077 605,942 47,216 40,165 - 1,887,547 Patient Trust Deposits - - 8,867 6,678 146,838 3,567 13,464 6,486 8,108 5,756 - - - 199,764 Unearned Revenue 1,375 - 146,572 11,485 - - 50,607 10,442 - 11,710 - 4,942 - 237,133 Total Restricted Liabilities 7,010 - 324,856 246,357 353,744 11,781 304,403 177,377 183,185 623,408 47,216 45,107 - 2,324,444

Other Long-Term Liabilities Long-Term Debt, Net of Current Portion 122,441 - 9,184,320 12,896,316 9,757,656 3,319,749 18,272,970 15,240,231 7,879,209 12,972,852 3,291,048 2,917,935 - 95,854,727 Risk Retention Liabilities 16,645,590 2,261,744 ------18,907,334 Total Other Long-Term Liabilities 16,768,031 2,261,744 9,184,320 12,896,316 9,757,656 3,319,749 18,272,970 15,240,231 7,879,209 12,972,852 3,291,048 2,917,935 - 114,762,061 Total Liabilities 26,876,297 3,218,323 10,774,798 14,404,062 11,122,841 3,738,914 20,256,184 16,723,073 9,191,040 14,633,814 3,564,506 3,186,567 - 137,690,419

NET ASSETS (DEFICIT) Net Assets (Deficit) Unrestricted Net Assets (Deficit), Beginning 61,448,568 13,661,739 (3,108,448) (2,455,155) (6,142,603) (647,897) (12,449,088) (9,817,015) (1,810,057) 1,417,063 1,301,626 79,299 - 41,478,032 Current Change in Unrestricted Net Assets (Deficit) 10,545,269 (3,673,009) 519,709 1,442,505 993,862 392,174 553,222 959,789 (63,674) 1,701,377 156,302 (474,770) - 13,052,756 Total Net Assets (Deficit) 71,993,837 9,988,730 (2,588,739) (1,012,650) (5,148,741) (255,723) (11,895,866) (8,857,226) (1,873,731) 3,118,440 1,457,928 (395,471) - 54,530,788

Total Liabilities and Net Assets (Deficit) $ 98,870,134 $ 13,207,053 $ 8,186,059 $ 13,391,412 $ 5,974,100 $ 3,483,191 $ 8,360,318 $ 7,865,847 $ 7,317,309 $ 17,752,254 $ 5,022,434 $ 2,791,096 $ - $ 192,221,207

(31) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Accounts Receivable Accounts Receivable - - 876,515 485,044 1,079,321 61,858 434,411 3,163,745 804,373 89 - 6,096 - 6,911,452 Accounts Receivable - Other 159,162 24,660 - - (1,334) 1,630 ------184,118 Accounts Receivable - Litigation - - 4,320 775 9,719 7,058 29,908 270,515 11,165 - - 11,328 - 344,788 Patient Refund - - 13,304 501 - 2,300 - - - 1,215 480 - - 17,800 Allowance For Doubtful Accounts - - (202,546) (114,004) (417,629) (46,961) (87,619) (2,334,701) (125,218) - - (11,328) - (3,340,006) Total Accounts Receivable 159,162 24,660 691,593 372,316 670,077 25,885 376,700 1,099,559 690,320 1,304 480 6,096 - 4,118,152

Investments Short-Term Investments 9,652,558 ------9,652,558 Total Investments 9,652,558 ------9,652,558

Prepaid and Other Current Assets Interest Receivable 15,501 - 8,408 3,984 4,969 855 6,397 4,795 157 3,954 180 18 - 49,218 Inventory - - 26,288 14,068 23,152 6,589 46,857 30,738 30,420 16,140 10,613 5,006 - 209,871 Prepaid Expenses 1,210,417 100,185 195,594 411,564 266,929 122,311 391,297 322,253 480,624 233,932 14,133 52,988 - 3,802,227 Total Prepaid and Other Current Assets 1,225,918 100,185 230,290 429,616 295,050 129,755 444,551 357,786 511,201 254,026 24,926 58,012 - 4,061,316

Current Portion of Assets Limited as to Use - - 96,237 74,620 56,297 19,209 176,636 92,539 45,392 75,062 19,042 16,885 - 671,919 Total Current Assets 38,437,988 1,703,714 1,093,582 992,824 1,135,108 191,165 1,389,227 1,862,653 1,704,164 907,952 66,482 88,520 - 49,573,379

NON-CURRENT ASSETS Assets Limited as to Use Trustee Held Funds 6,315,331 (494) ------6,314,837 Bond Funds - - 53,141 74,620 56,297 19,209 105,729 88,182 45,392 75,062 19,042 16,885 - 553,559 Board Designated Funds - - 43,096 - - - 70,907 4,357 - - - - - 118,360 Resident/Tenant Deposits 2,000 - 175,613 199,848 212,220 12,795 200,632 169,581 173,784 629,569 46,107 37,044 - 1,859,193 Total Assets Limited as to Use 6,317,331 (494) 271,850 274,468 268,517 32,004 377,268 262,120 219,176 704,631 65,149 53,929 - 8,845,949 Less: Current Portion Shown Above - - (96,237) (74,620) (56,297) (19,209) (176,636) (92,539) (45,392) (75,062) (19,042) (16,885) - (671,919) Total Noncurrent Assets Limited as to Use 6,317,331 (494) 175,613 199,848 212,220 12,795 200,632 169,581 173,784 629,569 46,107 37,044 - 8,174,030

Property and Equipment Land 2,661,019 - 551,548 731,837 223,308 505,460 550,900 775,000 534,584 414,623 197,351 206,093 - 7,351,723 Building and Improvements 4,528,273 - 12,279,085 17,652,125 9,927,294 7,374,700 21,128,539 18,793,342 14,741,650 14,875,621 6,548,241 6,554,078 - 134,402,948 Office Furniture and Equipment 500,923 22,376 1,935,554 1,421,008 1,702,563 1,996,848 3,680,580 3,808,866 2,582,820 2,307,673 431,975 331,358 - 20,722,544 Motor Vehicle - - - 133,620 113,473 97,559 103,919 - 72,948 28,380 24,095 68,070 - 642,064 Computer Hardware/Software 2,510,242 2,657 61,663 65,725 65,806 52,767 66,827 48,924 85,587 35,223 2,023 14,279 - 3,011,723 Construction in Progress 1,790,865 - 716,446 96,736 48,207 4,837 - 1,891,440 95,841 14,763 - 246,933 - 4,906,068 Total Property and Equipment 11,991,322 25,033 15,544,296 20,101,051 12,080,651 10,032,171 25,530,765 25,317,572 18,113,430 17,676,283 7,203,685 7,420,811 - 171,037,070 Accumulated Depreciation (3,513,137) (14,230) (11,022,358) (11,901,732) (8,166,732) (7,531,821) (15,153,648) (15,913,808) (10,989,883) (8,978,541) (2,458,930) (2,581,796) - (98,226,616) Property and Equipment, Net of Accumulated Depreciation 8,478,185 10,803 4,521,938 8,199,319 3,913,919 2,500,350 10,377,117 9,403,764 7,123,547 8,697,742 4,744,755 4,839,015 - 72,810,454

Advances to (from) Affiliates Reimbursable and Management Fees - Obligated Group 8,091,368 6,328,370 2,350,599 3,100,598 (46,070) 485,754 (3,561,034) (3,554,926) (1,259,785) 6,230,507 138,062 (1,510,528) - 16,792,915 Reimbursable and Management Fees - Other 29,978,904 8,950,549 ------38,929,453 Cash and Reserves - Obligated Group (16,154,909) ------(16,154,909) Cash and Reserves - Other (3,681,840) ------(3,681,840) Total Advances to (from) Affiliates 18,233,523 15,278,919 2,350,599 3,100,598 (46,070) 485,754 (3,561,034) (3,554,926) (1,259,785) 6,230,507 138,062 (1,510,528) - 35,885,619

Long-Term Investments Long-Term Investments 17,855,127 ------17,855,127 Total Long-Term Investments 17,855,127 ------17,855,127

Other Assets Deferred Financing Costs, Net - - 164,881 231,520 174,670 59,598 328,042 273,599 140,835 232,894 59,082 52,384 - 1,717,505 Utility Deposits - 2,394 - - - - - 9,159 - - - - - 11,553 Interest Rate Cap 40 ------40 Total Other Assets 40 2,394 164,881 231,520 174,670 59,598 328,042 282,758 140,835 232,894 59,082 52,384 - 1,729,098

Total Assets $ 89,322,194 $ 16,995,336 $ 8,306,613 $ 12,724,109 $ 5,389,847 $ 3,249,662 $ 8,733,984 $ 8,163,830 $ 7,882,545 $ 16,698,664 $ 5,054,488 $ 3,506,435 $ - $ 186,027,707 (32) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Gold Country Health Facilities, Merritt Island St. Catherine Bixby Knoll Health Center, Inc. and Mayflower Sun City RHF Holly Hill RHF RHF Housing, Yellowwood Bluegrass RHF RHF Housing, DeSmet RHF LIABILITIES AND NET ASSETS (DEFICIT) RHF FPM Towers, Inc. Inc. RHF Housing, Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Housing, Inc. Inc. Housing, Inc. Eliminations Combined Total

CURRENT LIABILITIES Accounts Payable Accounts Payable - Operations $ 416,300 $ 399,179 $ 313,162 $ 275,212 $ 275,395 $ 47,959 $ 195,601 $ 522,108 $ 254,528 $ 95,980 $ 37,523 $ 116,398 $ - $ 2,949,345 Total Accounts Payable 416,300 399,179 313,162 275,212 275,395 47,959 195,601 522,108 254,528 95,980 37,523 116,398 - 2,949,345

Accrued Expenses Sales Tax Payable 11,513 - 9 424 1,138 368 - 855 - - - - - 14,307 Other Accrued Expenses 4,702,051 571,378 712,456 494,436 329,748 180,841 650,983 439,008 579,932 264,213 44,822 60,561 - 9,030,429 Accrued Interest Payable 12,623 - 18,101 25,418 19,176 6,543 36,014 30,037 15,462 25,568 6,486 5,752 - 201,180 Total Accrued Expenses 4,726,187 571,378 730,566 520,278 350,062 187,752 686,997 469,900 595,394 289,781 51,308 66,313 - 9,245,916

Other Current Liabilities Current Portion of Long-Term Debt 3,142,721 - 467,653 651,084 491,212 167,602 922,530 769,420 396,060 654,948 166,152 147,316 - 7,976,698 Total Other Current Liabilities 3,142,721 - 467,653 651,084 491,212 167,602 922,530 769,420 396,060 654,948 166,152 147,316 - 7,976,698 Total Current Liabilities 8,285,208 970,557 1,511,381 1,446,574 1,116,669 403,313 1,805,128 1,761,428 1,245,982 1,040,709 254,983 330,027 - 20,171,959

LONG-TERM LIABILITIES Restricted Liabilities Security Deposits 5,635 - 168,266 190,829 203,210 9,212 183,487 162,449 166,426 623,249 46,107 37,044 - 1,795,914 Patient Trust Deposits - - 7,347 8,899 9,010 3,583 17,145 7,133 7,358 6,320 - - - 66,795 Unearned Revenue 1,375 - 96,387 8,478 - - 14,282 67,266 45,776 6,575 420 - - 240,559 Total Restricted Liabilities 7,010 - 272,000 208,206 212,220 12,795 214,914 236,848 219,560 636,144 46,527 37,044 - 2,103,268

Other Long-Term Liabilities Long-Term Debt, Net of Current Portion 4,248,984 - 9,631,680 13,524,484 10,203,561 3,481,451 19,163,030 15,982,569 8,227,060 13,604,748 3,451,352 3,060,065 - 104,578,984 Risk Retention Liabilities 15,332,424 2,363,040 ------17,695,464 Total Other Long-Term Liabilities 19,581,408 2,363,040 9,631,680 13,524,484 10,203,561 3,481,451 19,163,030 15,982,569 8,227,060 13,604,748 3,451,352 3,060,065 - 122,274,448 Total Liabilities 27,873,626 3,333,597 11,415,061 15,179,264 11,532,450 3,897,559 21,183,072 17,980,845 9,692,602 15,281,601 3,752,862 3,427,136 - 144,549,675

NET ASSETS (DEFICIT) Net Assets (Deficit) Unrestricted Net Assets (Deficit), Beginning 49,189,509 16,489,540 (3,964,528) (3,431,556) (6,901,539) (740,512) (13,216,813) (10,341,305) (1,833,616) (423,306) 1,164,449 546,959 - 26,537,282 Current Change in Unrestricted Net Assets (Deficit) 12,259,059 (2,827,801) 856,080 976,401 758,936 92,615 767,725 524,290 23,559 1,840,369 137,177 (467,660) - 14,940,750 Total Net Assets (Deficit) 61,448,568 13,661,739 (3,108,448) (2,455,155) (6,142,603) (647,897) (12,449,088) (9,817,015) (1,810,057) 1,417,063 1,301,626 79,299 - 41,478,032

Total Liabilities and Net Assets (Deficit) $ 89,322,194 $ 16,995,336 $ 8,306,613 $ 12,724,109 $ 5,389,847 $ 3,249,662 $ 8,733,984 $ 8,163,830 $ 7,882,545 $ 16,698,664 $ 5,054,488 $ 3,506,435 $ - $ 186,027,707

(33) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) YEAR ENDED SEPTEMBER 30, 2016 (SEE INDEPENDENT AUDITORS’ REPORT)

Other Revenue Management Fees - 16,885,455 ------(4,701,652) 12,183,803 Development Income 3,339,056 ------3,339,056 Rental Income - - 5,203,761 4,644,073 4,755,259 2,748,678 5,184,355 5,166,862 3,140,470 4,509,084 1,651,894 612,883 - 37,617,319 Other Residential Revenue - - 112,194 52,693 427,808 64,653 238,256 1,034,144 176,130 58,541 3,965 43,280 - 2,211,664 Meal Credits - - - (22,818) - - - (39,772) (8,461) - - - - (71,051) Assisted Living Income, Net - - 2,179,043 1,628,974 - 2,366,772 5,014,551 290,777 3,103,138 2,826,643 - 915,673 - 18,325,571 Rental Concessions - - (71,591) (218,197) (6,746) (266,319) (456,135) (375,212) (297,804) (238,118) (96,716) (57,385) - (2,084,223) Interest Income 686,138 1 44,117 43,145 10,732 17,113 29,577 5,695 4,478 64,123 - - - 905,119 Donations and Gifts 303,682 - 6,983 1,050 7,180 - 96 - 124 - 10,000 - - 329,115 Corporate Admin Fees 16,680,480 (16,508,292) ------172,188 Other Income 478,885 215,077 ------693,962 Total Other Revenue 21,488,241 592,241 7,474,507 6,128,920 5,194,233 4,930,897 10,010,700 6,082,494 6,118,075 7,220,273 1,569,143 1,514,451 (4,701,652) 73,622,523

Total Unrestricted Revenues 21,488,241 592,241 13,557,529 13,524,341 8,389,328 4,938,251 15,354,501 14,805,285 13,261,704 7,220,273 1,569,143 1,514,476 (4,701,652) 111,513,661

OPERATING EXPENSES Payroll Related Payroll Expense - Regular 6,390,617 2,810,286 5,152,571 4,331,216 2,077,739 1,631,296 5,340,882 3,945,501 5,143,986 1,784,250 316,565 647,700 - 39,572,609 Payroll Expense - Overtime - - 256,506 428,451 155,298 96,446 262,826 551,608 321,136 83,450 7,946 21,869 - 2,185,536 Bonuses - - 27,738 92,643 8,024 21,547 81,605 237,182 115,054 24,132 3,200 13,984 - 625,109 Vacation, Sick, Holiday - - 459,336 338,434 155,415 124,899 372,446 232,030 410,523 115,915 24,567 40,465 - 2,274,030 Payroll Taxes 451,907 211,635 483,136 394,486 185,752 168,671 448,315 392,820 440,012 161,531 27,198 55,402 - 3,420,865 Retirement 193,407 74,585 69,930 39,419 18,438 6,999 44,428 30,009 31,133 13,115 1,573 5,095 - 528,131 Group Insurance 518,494 227,098 829,255 637,780 259,263 261,915 888,181 507,469 827,241 244,056 53,757 135,891 - 5,390,400 Workers’ Compensation Insurance 86,391 36,809 484,287 414,899 193,279 157,936 221,149 239,125 223,294 59,256 13,310 24,690 - 2,154,425 Other Employee Benefits 56,481 4,252 13,442 62,119 2,224 2,496 14,579 14,655 21,164 5,271 1,649 1,410 - 199,742 Severance ------3,444 - - - - 45 - 3,489 Outside Services 32,880 18,126 165,032 622,674 180,658 20,602 794,572 2,081,452 694,877 20,899 - 3,399 - 4,635,171 Total Payroll Related 7,730,177 3,382,791 7,941,233 7,362,121 3,236,090 2,492,807 8,472,427 8,231,851 8,228,420 2,511,875 449,765 949,950 - 60,989,507

(34) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2016 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health St. Facilities, Inc. Catherine Gold Country and Mayflower Sun City Merritt Island Bluegrass RHF Bixby Knoll Health RHF Housing, RHF Holly Hill RHF RHF Housing, Yellowwood RHF Housing, Housing, DeSmet RHF Combined RHF FPM Towers, Inc. Center, Inc. Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Inc. Inc. Housing, Inc. Eliminations Total OPERATING EXPENSES (CONTINUED) Other Expenses Employee Expense Other $ - $ - $ 19,714 $ 51,079 $ 14,027 $ 21,436 $ 35,032 $ 48,520 $ 63,294 $ 26,779 $ 2,996 $ 14,093 $ - $ 296,970 Dietary Expense - - 957,094 732,971 223,738 491,354 895,453 748,918 825,121 740,043 151,188 127,573 - 5,893,453 Patient Supplies/Services - - 262,663 367,791 347,693 4,217 361,018 569,101 548,124 9,629 - 6,729 - 2,476,965 Supplies and Minor Equipment 180,173 24,889 170,529 161,214 86,381 60,842 164,930 85,294 206,731 28,119 11,215 7,576 - 1,187,893 Utilities - Electricity - 452 450,108 227,666 410,095 244,719 350,605 236,145 344,715 208,051 102,214 93,182 - 2,667,952 Utilities - Water - - 73,258 57,380 108,164 66,860 208,805 148,813 143,477 114,399 24,875 15,914 - 961,945 Utilities - Gas - 71 54,310 54,959 136,585 10,327 26,463 35,447 33,633 16,689 46,292 44,016 - 458,792 Utilities - Telephone 168,635 54,077 95,112 105,667 101,658 38,168 86,009 43,607 48,000 31,731 13,981 52,886 - 839,531 Utilities - Trash - 8 23,505 98,156 56,880 34,792 54,320 55,372 84,324 15,250 3,480 11,968 - 438,055 Leases and Maintenance 493,626 724 - - - - - 821 - - 1,496 - - 496,667 Repairs and Maintenance 1,397 - 386,926 406,998 426,211 150,827 334,499 456,497 339,823 235,037 62,678 93,054 - 2,893,947 Management Fees - - 797,197 464,889 485,887 216,732 884,355 722,763 628,422 347,226 78,457 75,724 (4,701,652) - Office Expenses - 29,748 43,867 45,535 46,305 16,152 59,068 56,702 54,462 28,203 8,335 9,300 - 397,677 Travel, Conference, Seminar 332,407 454,673 9,028 31,392 21,992 6,479 18,398 15,430 20,764 9,921 7,848 6,024 - 934,356 Marketing and Advertising 29,194 - 110,742 82,700 45,441 50,249 213,649 79,288 97,190 71,929 81,723 52,224 - 914,329 Other Administrative 1,762,346 36,913 112,324 136,883 198,178 45,876 135,884 90,050 44,130 67,801 7,252 43,639 - 2,681,276 Computer Services Expense - - 85,399 85,922 43,630 41,440 93,176 84,555 103,453 57,566 10,351 25,672 - 631,164 Other Services - - 13,609 17,945 33,134 11,163 22,072 11,196 6,462 21,373 2,915 2,038 - 141,907 General Insurance 14,603 90,476 368,007 210,277 271,169 189,388 407,986 377,005 213,168 104,792 37,514 53,067 - 2,337,452 Professional Fees 678,211 55,966 548,196 431,760 261,047 4,317 431,653 557,068 459,458 15,911 5,936 17,634 - 3,467,157 Bad Debt Expense - - (6,979) (26,737) 112,944 13,962 (8,642) 75,721 50,151 - - - - 210,420 Fine/Penalty Expense - - - 429 - - - 159 - - - - - 588 Property Taxes - - 36,221 5,304 191,653 240 283,407 98,619 - 86,681 - - - 702,125 911 Studebaker 277,937 ------277,937 Bixby Building Cost ------Annual Meeting 184,768 117 ------184,885 Total Other Expenses 4,123,297 748,114 4,610,830 3,750,180 3,622,812 1,719,540 5,058,140 4,597,091 4,314,902 2,237,130 660,746 752,313 (4,701,652) 31,493,443 Total Operating Expenses 11,853,474 4,130,905 12,552,063 11,112,301 6,858,902 4,212,347 13,530,567 12,828,942 12,543,322 4,749,005 1,110,511 1,702,263 (4,701,652) 92,482,950

Change in Net Assets Before Other Items 9,634,767 (3,538,664) 1,005,466 2,412,040 1,530,426 725,904 1,823,934 1,976,343 718,382 2,471,268 458,632 (187,787) - 19,030,711

Interest Expense 384,714 7,979 246,783 348,763 266,907 92,049 493,930 411,017 215,991 372,285 90,112 80,392 - 3,010,922 Change in Net Assets Less Interest 9,250,053 (3,546,643) 758,683 2,063,277 1,263,519 633,855 1,330,004 1,565,326 502,391 2,098,983 368,520 (268,179) - 16,019,789

Depreciation and Amortization Depreciation Expense 801,055 2,566 218,747 592,355 248,252 234,366 736,557 571,961 548,848 465,579 204,966 200,161 - 4,825,413 Amortization Expense - - 18,843 26,459 19,962 6,811 37,491 31,268 16,096 26,616 6,752 5,987 - 196,285 Total Depreciation and Amortization 801,055 2,566 237,590 618,814 268,214 241,177 774,048 603,229 564,944 492,195 211,718 206,148 - 5,021,698

Change in Net Assets Before Nonoperating Gains (Losses) 8,448,998 (3,549,209) 521,093 1,444,463 995,305 392,678 555,956 962,097 (62,553) 1,606,788 156,802 (474,327) - 10,998,091

Nonoperating Gains (Losses) Nonrecoverable Expenses (2,047,800) (123,800) ------(2,171,600) Grant Income 6,444,384 ------97,388 - - - 6,541,772 Grant Expenses (116,196) ------(116,196) Unrealized Losses on Investments (409,934) - (1,384) (1,958) (1,443) (504) (2,734) (2,308) (1,121) (2,799) (500) (443) - (425,128) Unrealized Loss on Swap Hedging ------Total Nonoperating Gains (Losses) 3,870,454 (123,800) (1,384) (1,958) (1,443) (504) (2,734) (2,308) (1,121) 94,589 (500) (443) - 3,828,848

Transfer of Unrestricted Net Assets (1,774,183) ------(1,774,183)

Change in Unrestricted Net Assets (Deficit) $ 10,545,269 $ (3,673,009) $ 519,709 $ 1,442,505 $ 993,862 $ 392,174 $ 553,222 $ 959,789 $ (63,674) $ 1,701,377 $ 156,302 $ (474,770) $ - $ 13,052,756

(35) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) YEAR ENDED SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

UNRESTRICTED REVENUE Skilled Nursing Revenue Routine Revenue $ - $ - $ 6,344,529 $ 5,402,024 $ 3,420,282 $ - $ 4,428,948 $ 6,629,774 $ 5,368,230 $ - $ - $ - $ - $ 31,593,787 Ancillary Revenue - - 901,843 1,940,930 441,361 - 1,726,807 3,929,412 3,170,143 - - - - 12,110,496 Contractual Adjustments - - (1,458,704) (490,594) (1,009,925) - (721,554) (1,687,597) (1,360,409) - - (102) - (6,728,885) Other Routine - - 246,738 138,747 126,034 6,926 81,204 12,851 101,427 - - 205 - 714,132 Total Skilled Nursing Revenue - - 6,034,406 6,991,107 2,977,752 6,926 5,515,405 8,884,440 7,279,391 - - 103 - 37,689,530

Other Revenue Management Fees - 16,314,968 ------(4,698,740) 11,616,228 Development Income 8,439,579 ------8,439,579 Rental Income - - 5,118,947 4,102,227 4,622,311 2,345,432 4,936,509 4,596,793 3,067,476 4,332,361 1,634,525 575,437 - 35,332,018 Other Residential Revenue - - 118,034 46,424 486,503 50,085 257,253 981,426 154,715 51,403 2,815 32,080 - 2,180,738 Meal Credits - - - (21,099) - - - (26,495) (7,260) - - - - (54,854) Assisted Living Income, Net - - 2,089,702 1,513,843 - 2,406,352 4,578,500 251,871 3,088,825 2,757,730 - 898,669 - 17,585,492 Rental Concessions - - (83,965) (250,596) (24,708) (306,177) (411,133) (500,254) (357,316) (74,702) (95,201) (47,166) - (2,151,218) Interest Income 571,252 - 43,436 49,325 9,653 18,466 29,349 3,246 21,613 65,092 (12) (1) - 811,419 Donations and Gifts 103,209 - 2,110 13,156 3,735 - - - - - 750 456 - 123,416 Corporate Admin Fees 15,863,568 (15,686,868) ------176,700 Other Income 118,615 218,792 7,536 10,582 7,983 2,724 14,994 12,505 6,437 10,645 2,700 2,394 - 415,907 Total Other Revenue 25,096,223 846,892 7,295,800 5,463,862 5,105,477 4,516,882 9,405,472 5,319,092 5,974,490 7,142,529 1,545,577 1,461,869 (4,698,740) 74,475,425

Total Unrestricted Revenues 25,096,223 846,892 13,330,206 12,454,969 8,083,229 4,523,808 14,920,877 14,203,532 13,253,881 7,142,529 1,545,577 1,461,972 (4,698,740) 112,164,955

OPERATING EXPENSES

Payroll Related Payroll Expense - Regular 7,013,649 2,422,505 4,928,232 4,165,684 1,974,500 1,593,838 5,116,979 3,941,761 5,151,671 1,700,617 324,507 663,281 - 38,997,224 Payroll Expense - Overtime - - 187,893 374,687 143,999 70,731 180,364 487,861 236,338 62,034 8,639 24,621 - 1,777,167 Bonuses - - 31,581 63,063 12,734 17,715 15,253 126,896 94,941 22,641 4,261 11,423 - 400,508 Vacation, Sick, Holiday - - 417,351 298,288 149,467 107,572 303,208 168,757 362,569 103,370 23,677 32,435 - 1,966,694 Payroll Taxes 504,177 179,023 465,522 385,818 196,303 164,551 431,999 408,334 442,224 152,085 29,709 59,569 - 3,419,314 Retirement 166,323 70,625 66,193 34,761 13,196 3,591 29,472 11,008 12,222 10,507 2,695 2,313 - 422,906 Group Insurance 525,672 195,876 772,350 577,354 229,362 231,455 793,036 487,422 753,762 242,445 50,685 104,987 - 4,964,406 Workers’ Compensation Insurance 88,080 31,276 493,353 415,831 196,321 172,124 250,136 196,589 217,235 56,727 10,255 25,272 - 2,153,199 Other Employee Benefits 60,059 2,704 12,355 51,792 309 12,462 17,534 38,204 16,153 6,236 2,925 50 - 220,783 Severance ------13,127 4,479 - - - 3,088 - 20,694 Outside Services 9,570 52,678 224,562 614,233 181,811 15,141 509,839 1,949,188 711,980 - - 687 - 4,269,689 Total Payroll Related 8,367,530 2,954,687 7,599,392 6,981,511 3,098,002 2,389,180 7,660,947 7,820,499 7,999,095 2,356,662 457,353 927,726 - 58,612,584

(36) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Change in Net Assets Before Other Items 10,871,925 (2,740,165) 1,172,487 1,891,134 1,265,525 456,157 2,001,252 1,369,364 1,123,894 2,520,883 427,616 (196,509) - 20,163,563

Interest Expense 437,248 10,544 247,679 344,121 260,717 90,908 485,709 405,361 210,746 365,751 89,038 79,776 - 3,027,598 Change in Net Assets Less Interest 10,434,677 (2,750,709) 924,808 1,547,013 1,004,808 365,249 1,515,543 964,003 913,148 2,155,132 338,578 (276,285) - 17,135,965

Depreciation and Amortization Depreciation Expense 568,695 3,063 190,235 545,160 226,638 266,589 712,205 477,239 530,339 436,006 195,107 185,524 - 4,336,800 Amortization Expense - - 18,925 26,574 20,173 6,841 36,386 31,404 16,166 26,732 6,782 6,012 - 195,995 Total Depreciation and Amortization 568,695 3,063 209,160 571,734 246,811 273,430 748,591 508,643 546,505 462,738 201,889 191,536 - 4,532,795

Change in Net Assets Before Nonoperating Gains (Losses) 9,865,982 (2,753,772) 715,648 975,279 757,997 91,819 766,952 455,360 366,643 1,692,394 136,689 (467,821) - 12,603,170

Nonoperating Gains (Losses) Nonrecoverable Expenses (2,085,840) (72,828) ------(2,158,668) Grant Income 4,888,083 - 137,455 - - - - 68,727 - 137,455 - - - 5,231,720 Grant Expenses (167,168) ------(343,637) - - - - (510,805) Loss on Disposal of Property and Equipment ------(2,806) - - - - - (2,806) Unrealized Losses on Investments (241,998) (1,201) 2,977 1,122 939 796 773 3,009 553 10,520 488 161 - (221,861) Total Nonoperating Gains (Losses) 2,393,077 (74,029) 140,432 1,122 939 796 773 68,930 (343,084) 147,975 488 161 - 2,337,580

Change in Unrestricted Net Assets (Deficit) $ 12,259,059 $ (2,827,801) $ 856,080 $ 976,401 $ 758,936 $ 92,615 $ 767,725 $ 524,290 $ 23,559 $ 1,840,369 $ 137,177 $ (467,660) $ - $ 14,940,750

(37) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP

COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

YEARS ENDED SEPTEMBER 30, 2015 AND 2014 [THIS PAGE INTENTIONALLY LEFT BLANK] RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP TABLE OF CONTENTS YEARS ENDED SEPTEMBER 30, 2015 AND 2014

INDEPENDENT AUDITORS' REPORT 1

COMBINED FINANCIAL STATEMENTS

COMBINED BALANCE SHEETS 3

COMBINED STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS 5

COMBINED STATEMENTS OF CASH FLOWS 6

NOTES TO COMBINED FINANCIAL STATEMENTS 7

COMBINING INFORMATION

COMBINING BALANCE SHEETS 31

COMBINING STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) 35 CliftonLarsonAllen LLP CLAconnect.com

INDEPENDENT AUDITORS' REPORT

Board of Directors Retirement Housing Foundation Obligated Group Long Beach, California

Report on the Financial Statements We have audited the accompanying combined financial statements of Retirement Housing Foundation Obligated Group (the “Obligated Group,”), which comprise the combined balance sheets as of September 30, 2015 and 2014, and the combined statements of unrestricted activities and changes in unrestricted net assets, and cash flows for the years then ended, and the related notes to the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

(1) Board of Directors Retirement Housing Foundation Obligated Group

Basis for Qualified Opinion As discussed in Note 1 to the combined financial statements, certain affiliates of the Obligated Group are not reported in these combined financial statements. In our opinion, accounting principles generally accepted in the United States of America require that certain affiliates be accounted for as consolidated subsidiaries. If the combined financial statements of certain affiliates had been consolidated with those of the Obligated Group, total assets and total liabilities would be increased by $1,266,945,474 and $991,508,576, respectively, as of September 30, 2015 and $1,181,546,657 and $936,337,353, respectively as of September 30, 2014, and the change in unrestricted net assets would be increased (decreased) by $1,168,258 and $(1,187,506), respectively, for the years then ended.

Qualified Opinion In our opinion, except for the effects of not consolidating certain material affiliates, as described in the Basis for Qualified Opinion paragraph, the combined financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Retirement Housing Foundation Obligated Group as of September 30, 2015 and 2014, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Adjustments to Prior Period Financial Statements As described in Note 13 to the combined financial statements, Retirement Housing Foundation Obligated Group recorded an adjustment to its net assets at October 1, 2013. Our opinion is not modified with respect to this matter.

CliftonLarsonAllen LLP

Phoenix, Arizona February 5, 2016

(2) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED BALANCE SHEETS SEPTEMBER 30, 2015 AND 2014

As Restated 2015 2014 ASSETS

CURRENT ASSETS Cash and Cash Equivalents $ 31,069,434 $ 25,616,707 Accounts Receivable, Net 4,118,152 3,641,776 Current Portion of Investments 9,652,558 6,791,435 Prepaid Expenses and Other Current Assets 4,061,316 1,003,540 Current Portion of Assets Limited as to Use 2,531,112 2,512,623 Total Current Assets 51,432,572 39,566,081

ASSETS LIMITED AS TO USE Trustee Held Funds 6,868,396 8,094,441 Escrow Reserve - 162,261 Tenant Deposits 1,977,553 1,907,473 Total Assets Limited as to Use 8,845,949 10,164,175 Less: Current Portion Shown Above (2,531,112) (2,512,623) Total Noncurrent Assets Limited as to Use 6,314,837 7,651,552

PROPERTY AND EQUIPMENT Land 6,319,788 6,319,788 Land Held For Development or Sale 1,031,935 1,031,935 Buildings and Improvements 134,402,948 132,505,472 Furniture and Equipment 24,376,331 21,165,854 Construction in Progress 4,906,068 3,656,522 Total Property and Equipment 171,037,070 164,679,571 Less: Accumulated Depreciation (98,226,616) (94,868,362) Total Property and Equipment, Net 72,810,454 69,811,209

OTHER ASSETS Debt Issuance Costs, Net 1,717,505 1,880,940 Advances to Affiliates, Net 35,885,619 34,953,618 Investments 17,855,127 24,509,488 Other Assets 11,593 11,921 Total Other Assets 55,469,844 61,355,967

Total Assets $ 186,027,707 $ 178,384,809

See accompanying Notes to Combined Financial Statements. (3) As Restated 2015 2014 LIABILITIES AND NET ASSETS

CURRENT LIABILITIES Current Maturities of Long-Term Debt $ 7,514,826 $ 9,670,622 Current Maturities of Capital Lease Obligations 461,872 345,627 Accounts Payable 2,949,345 3,272,008 Accrued Expenses 9,044,736 7,979,734 Accrued Interest 201,180 290,202 Total Current Liabilities 20,171,959 21,558,193

OTHER LIABILITIES Unearned Revenue 240,559 250,592 Tenant Deposits 1,862,709 1,795,827 Long-Term Debt, Net of Current Maturities 104,116,906 111,266,726 Capital Lease Obligations, Net of Current Maturities 462,078 548,239 Risk Retention Liability 17,695,464 16,427,950 Total Other Liabilities 124,377,716 130,289,334

Total Liabilities 144,549,675 151,847,527

NET ASSETS Unrestricted 41,478,032 26,537,282

Total Liabilities and Net Assets $ 186,027,707 $ 178,384,809

(4) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED STATEMENTS OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS YEARS ENDED SEPTEMBER 30, 2015 AND 2014

As Restated 2015 2014 OPERATING REVENUES Resident Services Revenue $ 90,572,870 $ 87,835,472 Management Fees 11,616,228 10,796,313 Development Income 8,439,579 5,366,316 Interest Income 811,419 783,024 Other 724,859 1,423,725 Total Operating Revenues 112,164,955 106,204,850

OPERATING EXPENSES Payroll Related Expenses 58,612,584 56,303,749 Dietary Expense 5,553,116 5,485,448 Utilities 5,455,217 5,662,613 Other Administrative 3,068,893 1,342,675 General Insurance 2,320,769 2,188,167 Interest 3,027,598 3,303,325 Depreciation and Amortization 4,532,795 4,661,560 Other Unrestricted Operating Expenses 14,428,566 14,568,336 Total Operating Expenses 96,999,538 93,515,873 OPERATING INCOME 15,165,417 12,688,977 NONOPERATING GAINS (LOSSES) Loss on Disposal of Property and Equipment (2,806) (9,026) Unrealized Losses on Investments (221,861) (251,208) Loss on Refinancing of Long-Term Debt - (4,056,000) Other - (6,489,979) Total Nonoperating Gains (Losses) (224,667) (10,806,213)

EXCESS OF REVENUES OVER EXPENSES 14,940,750 1,882,764

UNRESTRICTED NET ASSETS, BEGINNING OF YEAR AS PREVIOUSLY PRESENTED 26,537,282 25,293,658

PRIOR PERIOD ADJUSTMENT - (639,140)

UNRESTRICTED NET ASSETS, BEGINNING OF YEAR AS RESTATED 26,537,282 24,654,518

UNRESTRICTED NET ASSETS, END OF YEAR $ 41,478,032 $ 26,537,282

See accompanying Notes to Combined Financial Statements. (5) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2015 AND 2014

As Restated 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Excess of Revenues Over Expenses $ 14,940,750 $ 1,882,764 Adjustments to Reconcile Excess of Revenues Over Expenses to Net Cash Provided by Operating Activities: Depreciation and Amortization 4,532,795 4,661,560 Unrealized Losses on Investments 221,861 251,208 Loss on Refinancing of Long-Term Debt - 4,056,000 Loss on Termination Agreement - 6,816,984 Loss on Disposal of Property and Equipment 2,806 9,026 Changes in Operating Assets and Liabilities: Accounts Receivable (476,376) 925,236 Prepaid Expenses and Other Current Assets (3,057,776) 305,740 Accounts Payable (322,663) 585,116 Accrued Expenses 1,065,002 673,420 Accrued Interest (89,022) 283,784 Tenant Deposits and Unearned Revenue 56,849 109,983 Risk Retention Liability 1,267,514 (2,074,356) Net Cash Provided by Operating Activities 18,141,740 18,486,465 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (6,981,075) (6,825,241) Net Change in Investments 3,571,705 3,202,599 Net Change in Escrow Reserves 162,261 (162,261) Cash Paid for Bond Issue Costs (32,560) (1,928,807) Net Change in Advances to Affiliates (932,001) (4,329,317) Net Change in Restricted Deposits (70,080) (32,274) Net Change in Trustee Held Funds 1,226,045 (1,805,833) Net Cash Used in Investing Activities (3,055,705) (11,881,134) CASH FLOWS FROM FINANCING ACTIVITIES Principal Payment on Long-Term Debt (9,305,616) (1,641,522) Principal Payments on Capital Lease Obligations (327,692) (102,268) Net Cash Used by Financing Activities (9,633,308) (1,743,790) NET INCREASE IN CASH AND CASH EQUIVALENTS 5,452,727 4,861,541 Cash and Cash Equivalents - Beginning of Year 25,616,707 20,755,166 CASH AND CASH EQUIVALENTS - END OF YEAR $ 31,069,434 $ 25,616,707 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 2,953,499 $ 2,868,478

Supplemental Disclosure of Non-Cash Financing Activities: Issuance of Series 2014 Bonds to Refinance Series 2008 Bonds $ - $ 110,120,000 Equipment Purchased under Capital Lease Obligation $ 357,776 $ 963,784 Note Payable Issued as Part of Termination Agreement $ - $ 9,900,000

See accompanying Notes to Combined Financial Statements. (6) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization Retirement Housing Foundation ("RHF") is a California not-for-profit corporation which sponsors or co-sponsors and manages, through itself and affiliated corporations, affordable and market rate housing, skilled nursing and assisted living services for senior adults, low income families and persons with disabilities throughout the United States. The following entities and divisions are included in these combined financial statements:

! Retirement Housing Foundation ! Foundation Property Management, Inc. ! Bixby Knolls Towers, Inc. ! Bixby Knolls Health Care and Rehabilitation Center ! Gold Country Health Center, Inc. ! Gold Country Retirement Center ! Mayflower Gardens Health Facilities, Inc. ! Mayflower RHF Housing, Inc. ! Sun City RHF Housing, Inc. ! Holly Hill RHF Housing, Inc. dba Bishop's Glen ! Merritt Island RHF Housing, Inc. dba Courtenay Springs Village ! Yellowwood Acres, Inc. dba Westminster ! Westminster Healthcare Center ! Bluegrass RHF Housing, Inc. dba Colonial Heights ! Colonial Gardens ! St. Catherine RHF Housing, Inc. ! DeSmet RHF Housing, Inc.

Information concerning the Obligated Group members, other than RHF as detailed above, is as follows:

Foundation Property Management, Inc. ("FPM") manages substantially all of the RHF- controlled nonprofit facilities (including those listed below) under approved management agreements.

Bixby Knolls Towers, Inc. dba: Bixby Knolls consists of Bixby Knolls Towers, Inc. and Bixby Knolls Healthcare & Rehabilitation Center, which owns and operates a multilevel retirement facility in Long Beach, California, containing 168 independent senior apartment units, 53 assisted living units and a licensed 99-bed skilled nursing facility in two high rise buildings.

(7) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Mayflower Gardens Health Facilities, Inc. dba: Mayflower Health Center owns and operates a skilled nursing facility in Lancaster, California containing a licensed 48-bed skilled nursing facility.

Mayflower RHF Housing, Inc, dba: Mayflower Gardens owns and operates a retirement facility located adjacent to Mayflower Gardens Health Facilities, Inc. containing 501 independent senior apartment units.

Sun City RHF Housing, Inc. dba: Sun City Gardens owns and operates a retirement facility in Sun City, California containing 129 independent senior apartment units, 52 assisted living units and 17 dementia units.

Holly Hill RHF Housing, Inc. dba: Bishop's Glen owns and operates a multilevel retirement facility in Holly Hill, Florida, containing 192 independent senior apartment units, 102 assisted living units, which include 35 memory-care units; and a licensed 60-bed skilled nursing facility.

Merritt Island RHF Housing, Inc. dba: Courtenay Springs Village owns and operates a multilevel retirement facility in Merritt Island, Florida, consisting of 158 independent senior apartment units, 11 licensed assisted living units and a licensed 80-bed skilled nursing facility.

St. Catherine RHF Housing, Inc. owns and operates a retirement community in Florissant, Missouri, containing 85 independent living units.

DeSmet RHF Housing, Inc. owns and operates a multilevel retirement community in Florissant, Missouri, consisting of 33 independent living units and 54 assisted living units.

(8) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Combination The combined financial statements include all of the accounts of the Obligated Group including all of the related parties identified above.

The properties controlled or managed by RHF are divided into two groups. The first group “affordable housing” consists of approximately 152 facilities providing low and moderate income apartments for senior adults, for those with special needs and for families. RHF and its nonprofit affiliates control 150 of these facilities. Either community-based nonprofits or partnerships, which have contracted for management with RHF affiliates, own the balance of the facilities.

Most of the low-and-moderate income facilities are financed with grants or loans from, or mortgage loans insured by, the United States Department of Housing and Urban Development ("HUD") under programs including Section 202, 221(d)(4), 231 and 236. In addition, a majority of these projects receive Housing Assistance Payments (HAP) under contracts with HUD. For the years ended September 30, 2015 and 2014, these payments from HUD represented approximately 64% and 63%, respectively, of total revenues for those facilities. Properties that do not have HAP contracts receive other types of subsidies or have been financed through the Federal Low Income Housing Tax Credit (“LIHTC”) Program or other governmental programs for affordable housing projects.

(9) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

With respect to each controlled HUD property, either RHF is the sole member of a single purpose nonprofit corporation formed to own the facility, or it has the power to appoint and remove a majority of the directors. The debt, if any, on these facilities is nonrecourse with respect to the Obligated Group. With respect to each partnership property, RHF or an affiliate is a general partner in a single purpose partnership that controls and manages the facility. The debt on the partnership facilities is also nonrecourse with respect to the Obligated Group. Because of applicable laws, regulations or contracts restricting distributions, in most cases, RHF itself does not have access to the funds or other assets of the low and moderate income housing portfolio, other than through management fees and other contractual distributions paid to RHF or its subsidiaries.

Principles of Combination (Continued) Twenty-one "market rate" projects comprise the other group of RHF facilities. These facilities do not have HUD or LIHTC financing and are not subject to accompanying regulatory restrictions, nor, with limited exceptions, do the properties have rental assistance payments available to residents. A single purpose nonprofit corporation, of which RHF is the sole member, owns each of these facilities, with the exception of one project, in which the skilled nursing facility and the housing facilities are owned by separate single purpose corporations – Mayflower Gardens Health Facilities, Inc. and Mayflower RHF Housing, Inc. RHF classifies as "market rate" all of the entities and divisions in the Obligated Group, other than RHF and FPM.

The affiliated owners of fifteen of RHF's market rate projects are included in the Obligated Group. The six market rate facilities whose affiliated owners are not members of the Obligated Group are: The Carolinian in Florence, South Carolina; The Gateway in Poway, California which consists of The Gateway and Gateway Gardens; The Cloisters in Deland, Florida; Plymouth Square in Stockton, California; Madison Avenue Apartments in Loveland, Colorado; and Pioneer House in Sacramento, California.

(10) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following is a summary of affiliated entities, which are not consolidated in these financial statements:

Number of Entity Classification Entities Nonprofit single-purpose entities owned and receiving government subsidy, currently in operations 119 Nonprofit healthcare facilities owned, currently in operation 5 Nonprofit corporate entities owned 2 Forprofit corporate entities owned 4 Nonprofit properties owned, managed by others 14 Partnerships controlled by a nonprofit general partner in operation (ownership interest ranging from .01 to 16.9 percent) 20 Properties managed for third party owners 2 Nonprofit properties owned, currently in development 7 Total Entities Not Consolidated 173

The unaudited combined financial information of the entities that RHF is either the sole or controlling member (not covered by the independent auditors’ report) at September 30, 2015 and 2014 is presented below. This information excludes two facilities managed for third- party owners (in thousands):

2015 2014 (Unaudited) (Unaudited) Total Assets $ 1,266,945 $ 1,181,547 Total Liabilities 991,509 936,337 Net Assets $ 275,436 $ 245,210

Unrestricted Revenues $ 204,027 $ 195,059 Unrestricted Expenses 202,859 196,247 Change in Net Assets $ 1,168 $ (1,188)

Refer to the Notes that follow as they relate to advances to (from) affiliates, guarantees of debt of certain affiliates and other related party transactions, respectively.

(11) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Unrestricted - Those resources over which the Board of Directors has discretionary control. Designated amounts represent those revenues that the Board of Directors has set aside for a particular purpose. Temporarily Restricted - Those resources subject to donor imposed restrictions that will be satisfied by actions of the Obligated Group or passage of time. Permanently Restricted - Those resources subject to a donor imposed restriction that they be maintained permanently by the Obligated Group.

Unconditional promises to give cash and other assets are accrued at estimated fair market value at the date each promise is received. The gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction is satisfied, net assets are released and reported as an increase in unrestricted net assets. Donor-restricted contributions whose restrictions are met within the same reporting period as received are recorded as unrestricted contributions. When the Obligated Group has both restricted and unrestricted resources available to finance various programs, it is the Obligated Group’s policy to use restricted resources before unrestricted resources. There are no temporarily or permanently restricted net assets at September 30, 2015 and 2014.

(12) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates The combined financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents The Obligated Group considers all highly liquid investments with remaining maturities of three months or less when purchased to be cash equivalents. Cash equivalents consist of demand deposits and money market accounts.

Accounts Receivable The Obligated Group provides an allowance for doubtful accounts based on historical experience and management's judgment. Residents are not required to provide collateral for services rendered. Payment for services is required upon receipt of invoice or as the claim is submitted for third-party payors. The allowance for doubtful accounts was approximately $3,340,000 and $2,545,000 at September 30, 2015 and 2014, respectively.

Investments Investments are reported at fair value. Investment income (including interest and dividends net of investment expenses and realized and unrealized gains and losses) is included in the combined statements of unrestricted activities and changes in unrestricted net assets.

(13) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment Property and equipment is recorded at cost and, except for land, is depreciated using the straight-line method over the estimated useful lives of the assets which range from 5 to 40 years. The Obligated Group capitalizes items costing $1,000 and greater. Depreciation expense was $4,336,800 and $4,043,288 for the years ended September 30, 2015 and 2014, respectively. Major betterments and renewals are capitalized, while routine repairs and maintenance are charged to expense when incurred.

Debt Issuance Costs The Obligated Group has incurred issuance costs pertaining to the issuances of long-term debt. Original issuance costs of $1,961,367 and $1,928,807 as of September 30, 2015 and 2014, respectively, are being amortized in a manner designated to approximate a constant annual effective interest rate over the term of the issuance. Accumulated amortization as of September 30, 2015 and 2014 was $243,862 and $47,867, respectively. Amortization of the debt issuance costs was $195,995 and $618,272 for the years ended September 30, 2015 and 2014, respectively. In July 2014, the Obligated Group refinanced its Series 2008 Variable Rate Demand Revenue Refunding Bonds and the deferred issuance costs related to Series 2008 issuance were written-off and included in the loss on refinancing of long-term debt (see Note 5) which is included in non-operating gains (losses) on the combined statements of unrestricted activities and changes in unrestricted net assets.

(14) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Resident Services Revenue Resident services revenue includes rent, room charges and ancillary services to residents and is recorded at established billing rates net of contractual adjustments resulting from agreements with third-party payors, if applicable.

Third-Party Reimbursement Agreements The Obligated Group members’ nursing facilities participate in the Medicare program. This federal program is administered by the Centers for Medicare and Medicaid Services (CMS). The participants are paid under the Medicare Prospective Payment System (PPS) for residents who are Medicare Part A eligible and meet the coverage guidelines for skilled nursing facility services (SNFs). The PPS is a per diem price-based system. CMS has approved a market basket update effective October 1, 2014 of 2.0%. Annual cost reports are required to be submitted to the designated Medicare Administrative Contractor; however, they do not contain a cost settlement.

Management Fee Income RHF and FPM provide a variety of services, including, but not limited to, financing arrangements, management, consulting and administrative services to several affiliates. During 2015 and 2014, RHF and FPM earned $11,616,228 and $10,796,313, respectively, for these services, which are included in management fees in the accompanying combined statements of unrestricted activities and changes in unrestricted net assets.

(15) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Development Fee Income RHF sponsors and develops new projects as management deems appropriate. In the process of developing a project, RHF will advance money and/or pay expenses on behalf of a project and may earn a development fee. Development fees earned during 2015 and 2014 were $8,439,579 and $5,366,316, respectively, in connection with the supervision of the development and construction of various sponsored projects. The fees were earned at certain stages of development and construction. As of September 30, 2015 and 2014, $8,184,672 and $7,755,373, respectively, remains unpaid and is included in Advances to Affiliates, Net in the combined balance sheets.

Other Operating Revenues Other operating revenue consists primarily of non-resident rental income, laundry, barber and beauty, cafeteria sales and other miscellaneous revenue.

Fair Value of Financial Instruments Fair value applies to report balances that are required or permitted to be measured at fair value under existing accounting standards. The Obligated Group emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability and establishes a fair value hierarchy. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows: Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Obligated Group has the ability to access. Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

(16) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments (Continued) Trading Securities Trading securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Securities valued using Level 1 inputs include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active over-the-counter markets. Securities valued using Level 2 inputs include private collateralized mortgage obligations, municipal bonds, mutual funds and corporate debt securities. The Obligated Group does not have any securities that are valued using Level 3 inputs.

Advertising Expenses Advertising expenses approximated $912,000 and $902,000 for the years ended September 30, 2015 and 2014, respectively. Advertising costs are expensed when incurred.

Contributed Services The Obligated Group receives a substantial amount of services donated by volunteers. No amounts have been reflected in the combined financial statements for these services.

Subsequent Events In preparing these combined financial statements, the Obligated Group has evaluated events and transactions for potential recognition or disclosure through February 5, 2016, the date the combined financial statements were available for issuance.

NOTE 2 ASSETS LIMITED AS TO USE

Assets limited as to use consist of the following at September 30, 2015 and 2014:

2015 2014 Cash and Cash Equivalents $ 3,336,250 $ 2,978,804 Government Securities 5,033,427 6,690,099 Corporate Bonds 476,272 495,272 $ 8,845,949 $ 10,164,175

(17) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 3 ADVANCES TO AFFILIATES, NET

Advances to affiliates are unsecured, non-interest bearing and due on demand. The Obligated Group and its affiliates have agreed that repayment of such advances will not be demanded within the next twelve months; accordingly, such advances have been classified as long-term. The ultimate collectability of the amounts due from affiliates is dependent upon the future performance of such affiliates and/or future sale of such properties. The affiliates’ operations are concentrated in the multifamily real estate market and healthcare industries. In addition, the affiliates operate in heavily regulated environments. The operations of the affiliates are subject to the administrative directives, rules and regulations of Federal, state and local regulatory agencies. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by other regulatory agencies. Each affiliate's ability to repay its advances is predicated upon, in certain cases, regulatory approval and is also dependent upon adequate cash flows from operations or refinancing.

The Obligated Group reviews, on a periodic basis, its advances to affiliates for collectability and maintains reserves for potential losses. During the years ended September 30, 2015 and 2014, the Obligated Group provided allowances for advances to affiliates of approximately $4,780,000 and $4,801,000, respectively. Actual losses could be materially different than estimated.

NOTE 4 INVESTMENTS

Investments are carried at fair value and consist of the following at September 30, 2015 and 2014:

2015 2014 Certificates of Deposit $ 326,572 $ 322,054 Government Securities 6,648,730 7,732,530 Corporate Bonds 20,532,383 23,245,349 Other Investments - 990 27,507,685 31,300,923 Less: Current Portion of Investments (9,652,558) (6,791,435) Investments, Net of Current Portion $ 17,855,127 $ 24,509,488

(18) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 5 LONG-TERM DEBT

The following is a summary of long-term debt at September 30, 2015 and 2014:

2015 2014

California Statewide Communities Development Authority Revenue Bonds, Series 2014A bearing interest at 2.1514% and 2.1184% at September 30, 2015 and 2014, respectively, maturing July 1, 2024 $ 36,520,000 $ 38,325,000

Public Finance Authority Revenue Bonds, Series 2014B bearing interest at 2.1514% and 2.1184% at September 30, 2015 and 2014, respectively, maturing July 1, 2024 6,510,000 6,510,000

Public Finance Authority Revenue Bonds, Series 2014C bearing interest at 2.1514% and 2.1184% at September 30, 2015 and 2014, respectively, maturing July 1, 2024 28,685,000 29,820,000

Public Finance Authority Revenue Bonds, Series 2014D bearing interest at 2.1514% and 2.1184% at September 30, 2015 and 2014, respectively, maturing July 1, 2024 19,110,000 19,880,000

Public Finance Authority Revenue Bonds, Series 2014E bearing interest at 2.1514% and 2.1184% at September 30, 2015 and 2014, respectively, maturing July 1, 2024 14,335,000 14,910,000

Note Payable entered into in June 2014, bearing interest at 3% at September 30, 2015 and 2014, maturing August 31, 2017 5,063,087 9,900,000

California Bank and Trust promissory note bearing interest at 3.99% at September 30, 2015 and 2014, maturing May 1, 2017 1,408,645 1,592,348 Total Long-Term Debt 111,631,732 120,937,348

Less: Current Maturities (7,514,826) (9,670,622) Long-Term Debt, Net of Current Maturities $ 104,116,906 $ 111,266,726

(19) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 5 LONG-TERM DEBT (CONTINUED)

Aggregate annual maturities of long-term debt are as follows:

Year Ending September 30, Long-Term Debt 2016 $ 7,514,826 2017 8,446,906 2018 4,870,000 2019 5,065,000 2020 5,270,000 Thereafter 80,465,000 Total $ 111,631,732

Series 2014 Bonds The Series 2014 Bonds were secured by Direct Note Obligations ("DNO or DNO’s") issued pursuant to two Master Trust Indentures ("MTI") dated as of June 1, 2014. The California Bonds were secured in part by Series 2014A and 2014B DNO’s issued pursuant to a California MTI, by and among the California members, RHF and the California master trustee. The Series 2014A and 2014B Bonds other than the California Bonds were secured in part by Series 2014 DNO’s issued pursuant to a National MTI, by and among the non- California members, RHF and the National master trustee.

The Series 2014 Bonds are tax-exempt bonds currently in Bank Index Mode. The monthly Base Index Rate resets the first day of each month by calculating an applicable spread above the 30-day LIBOR rate as published on the last business day of the prior month. The interest rates for each bond issue at September 30, 2015 and 2014 are disclosed in the schedule above. The Series 2014 Bonds have separate amortizations for each bond series with a final maturity of September 1, 2032. However, the Series 2014 Bonds are subject to mandatory purchase on the next Purchase Date of July 1, 2024. The bond may be prepaid without penalty after the initial lockout period which ends July 1, 2017. Each member of the Obligated Group entered into a Second Amended and Restated Gross Revenue Pledge Agreement, dated June 1, 2014 with a Collateral Agent, on behalf of the California master trustee and the National master trustee, pursuant to which each member of the Obligated Group pledged and granted a security interest in its Gross Revenues, as defined, to secure the payment, the principal of and interest on the obligations issued under the MTI’s.

(20) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 5 LONG-TERM DEBT (CONTINUED)

Series 2014 Bonds (Continued) In conjunction with the new DNO agreements RHF and FPM entered into a Reaffirmation of Guaranty Agreement dated June 1, 2014. Each of the California Members entered into a Reaffirmation of Guaranty Agreement in favor of the National Master Trustee, guarantying the obligations issued under the National MTI and secured by such California Member's hereinafter described Second deed of trust/mortgage. Similarly, each non-California member entered into a Reaffirmation of Guaranty Agreement in favor of the California Master Trustee, guarantying the obligations issued under the California MTI and secured by such non-California Member's hereinafter described Second deed of trust/mortgage. Each of the Members executed a deed of trust or mortgage (depending on the state in which the underlying facilities are located) to secure the obligations issued under the MTI to which it is a party. Each Member also executed a second deed of trust or mortgage to secure the Obligations issued under the MTI to which it is not a party.

Refinancing Transaction On June 1, 2014, the Obligated Group entered into Series 2014 bond agreements with the California Statewide Communities Development Authority (Series 2014A) and the Public Finance Authority (Series 2014BCDE) to refinance the Series 2008 Bonds and to pay certain costs of issuance, as discussed above. The refinancing transaction resulted in a loss of $4,056,000 which is included in the combined statements of unrestricted activities and changes in unrestricted net assets in nonoperating gains (losses) for the year ended September 30, 2014.

In June 2014, the Obligated Group entered into a termination agreement with a debtor in which it was determined that the Obligated Group owed the debtor $9,900,000. The amount is payable semi-annually with a final due date of August 31, 2017. The note payable to the debtor bears interest at 3% annually. The Obligated Group had previously accrued for the termination agreement in prior years. As a result of the termination agreement in fiscal year 2014 the amount previously accrued was converted into this note payable and the remaining portion was recorded as a loss, which is included in other gains (losses) in the combined statements of unrestricted activities and changes in unrestricted net assets for the year ended September 30, 2014.

(21) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 5 LONG-TERM DEBT (CONTINUED)

Note Payable In June 2014, the Obligated Group entered into a termination agreement with a debtor in which it was determined that the Obligated Group owed the debtor $9,900,000. The amount is payable semi-annually with a final due date of August 31, 2017. The note payable to the debtor bears interest at 3% annually. The Obligated Group had previously accrued for the termination agreement in prior years. As a result of the termination agreement in fiscal year 2014 the amount previously accrued was converted into this note payable and the remaining portion was recorded as a loss, which is included in other gains (losses) in the combined statements of unrestricted activities and changes in unrestricted net assets for the year ended September 30, 2014.

NOTE 6 LEASE OBLIGATIONS

The Obligated Group acquired certain equipment under capital leases which are payable in various scheduled monthly installments maturing in September 2018. As of September 30, 2015, future minimum lease payments are as follows:

Year Ending September 30, 2016 $ 463,945 2017 346,674 2018 140,463 Total Minimum Lease Payments 951,082 Less: Amounts Representing Interest (27,132) Present Value of Future Minimum Capitalized Lease Obligations 923,950 Less: Current Maturities (461,872) Capital Lease Obligation, Net of Current Maturities $ 462,078

NOTE 7 RISK RETENTION LIABILITY

The Obligated Group maintains risk retention reserves for potential workers' compensation, property, and professional liability claims. The reserves are collected from and held on behalf of the facilities participating in RHF's group insurance programs and maintained in cash and cash equivalents and investments. The purpose is to provide liquid funds to ensure insurance claims and expenses can be paid when required. The reserves are funded by individual projects and RHF maintains a separate accounting for each project. Funds provided by HUD-financed projects are kept separate and not co-mingled with non-HUD funds. Reserve balances are reviewed and adjusted periodically against a targeted amount based on current policy deductibles, claims history and other market factors.

(22) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 7 RISK RETENTION LIABILITY (CONTINUED)

Risk retention liability consists of the following at September 30, 2015 and 2014:

2015 2014

Workers' Compensation $ 12,642,903 $ 11,733,941 Property 3,353,710 2,499,924 Professional Liability 1,698,851 2,194,085 $ 17,695,464 $ 16,427,950

Self-Insured Workers' Compensation Plan Effective February 1, 2003 RHF established a self-insured workers' compensation plan for its employees. This plan is administered by a third party, and has stop loss provisions insuring losses in excess of $350,000 up to $1,000,000 per employee per occurrence and $4,449,975 per year in the aggregate, subject to adjustment as defined.

The Workers’ Compensation liability represents the Obligated Group’s estimated liability of both known claims and claims incurred but not reported as of September 30, 2015 and 2014. The Obligated Group recognized $2,153,199 and $2,048,011 in total workers’ compensation insurance expense for the years ended September 30, 2015 and 2014, respectively.

RHF obtained irrevocable letters of credit from a bank as a requirement of its workers' compensation insurance. The insurance policy requires RHF to pay a minimum premium and maintain the letters of credit. Liability payments under the insurance policy are offset against the minimum premium, and when exhausted, a draw, if necessary, is made on the letters of credit. The letters of credit are collateralized with cash, cash equivalents and investments which are included in the accompanying balance sheets within trustee held funds.

Self-Insured Workers' Compensation Plan (Continued) Letters of credit consist of the following at September 30, 2015:

Letter of Plan Year Credit Covered Date Obtained Maturity Date Balances 2003-2004 March 4, 2003 March 3, 2016 $ 215,000 2004-Current March 19, 2007 March 19, 2016 5,098,600 $ 5,313,600

The workers' compensation letter of credit balances represented 42% and 45% of the total workers' compensation insurance reserves at September 30, 2015 and 2014, respectively.

(23) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 7 RISK RETENTION LIABILITY (CONTINUED)

Professional Liability Insurance An affiliate of the Obligated Group has a claims-made policy for professional liability through Caring Communities Insurance Company (CCIC), a Reciprocal Risk Retention Group domiciled in the District of Columbia, USA, which provides professional liability, general liability, excess automobile, and excess employer’s liability insurance to its members. The affiliate was required to make capital contributions totaling $2,086,000. The capital contributions are recorded as an investment using the cost method at September 30, 2015 and 2014 on the affiliate’s books. Investments recorded at cost are assessed for impairment each year.

The Obligated Group’s professional liability is estimated based on both known claims and a reserve for claims incurred by not reported. The Obligated Group recognized $2,320,769 and $2,188,167 in total professional liability insurance expense for the years ending September 30, 2015 and 2014, respectively.

RHF has a receivable from RHF Foundation, Inc. related to RHF Foundation’s investment in CCIC. RHF Foundation, Inc. has pledged the shares of CCIC as collateral for the receivable.

NOTE 8 FAIR VALUE MEASUREMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Investments The fair values of the investments are estimated based on quoted market prices for those or similar investments.

Trustee Held Funds The fair values of the trustee held funds are estimated based on quoted market prices for those or similar investments.

(24) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 8 FAIR VALUE MEASUREMENTS (CONTINUED)

Tenant Deposits The fair values of the tenant deposit funds are estimated based on quoted market prices for those or similar investments.

Long-Term Debt The fair value of long-term debt is estimated for each individual issue based upon current reasonable interest rates taking type of debt and maturities into account. Based on these inputs, the fair market value of long-term debt would be classified as a level three liability.

All Other The carrying value is a reasonable estimate of the fair value for all other financial instruments due to the short-term nature of those financial instruments.

2014 Description Total Level 1 Level 2 Level 3 Assets: Investments: Government Securities $ 7,732,530 $ 7,732,530 $ - $ - Corporate Bonds 23,245,349 - 23,245,349 - Other Investments 990 990 - - Assets Limited as to Use: Government Securities 6,690,099 6,690,099 - - Corporate Bonds 495,272 - 495,272 - Total $ 38,164,240 $ 14,423,619 $ 23,740,621 $ -

(25) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 8 FAIR VALUE MEASUREMENTS (CONTINUED)

The following disclosures represent financial instruments in which the ending balances at September 30, 2015 and 2014 are not carried at fair value in their entirety on the combined balance sheets:

2015 2014 Cost Fair Value Cost Fair Value Long-Term Debt - Variable $ 105,160,000 $ 105,160,000 $ 109,445,000 $ 109,445,000 Long-Term Debt - Fixed 6,471,732 6,363,000 11,492,348 11,191,000

NOTE 9 CONCENTRATION OF CREDIT RISK

The Obligated Group has investments in a variety of investment funds. In general, investments are exposed to various risks such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investments, it is reasonably possible that change in the value of the investments will occur in the near term and that such changes could materially affect account balances and the combined statements of activities and changes in unrestricted net assets.

2015 2014 Private Pay and Insurance 45.1% 49.8% Medicare 13.9% 19.6% Medicaid 41.0% 30.6% 100.0% 100.0%

NOTE 10 DEFINED CONTRIBUTION PLAN

The Obligated Group has a defined contribution plan for its employees. The Obligated Group's contribution to this plan is principally based on a percentage of employee's annual base compensation. The annual cost of this plan to the Obligated Group amounted to approximately $423,000 for the years ended September 30, 2015 and 2014.

(26) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 11 COMMITMENTS AND CONTINGENCIES

Guarantees Obligated Group The Obligated Group has issued or guaranteed a total of $105,160,000 and $109,445,000 as of September 30, 2015 and 2014, respectively, of tax-exempt direct placement bonds and taxable/tax-exempt bonds (the "Bonds"), including Variable Rate Demand Bonds, for the purpose of providing funds to refund various bonds and certificates of participation and bank loans issued to benefit the affiliated not-for-profit entities that own and operate retirement facilities located in California, Florida, Indiana, Kentucky and Missouri. Each member of the Obligated Group is jointly and severally liable for the payment of the Bond obligations. To date, no performance under the guarantee has been required of any member of the Obligated Group.

Additional disclosure related to the 2014 Bonds and the security pledged in relation to the guaranty is discussed in Note 5.

Poway RHF Housing, Inc. As of September 30, 2015 and 2014, RHF has guaranteed cash on hand equal to at least 90 days as of September 30 each year for an affiliate, Poway RHF Housing, Inc. dba The Gateway (“Gateway”) that has issued $13,345,000 in bonds. As of September 30, 2015 and 2014, RHF has set aside $706,743 and $700,787, respectively, in trustee held funds to cover any shortfall of the days’ cash on hand covenant. As of September 30, 2015, The Gateway was in compliance with its financial covenants on the Series 2013 Insured Revenue Bonds.

Charles Street RHF Housing, Inc. In June 2001, RHF guaranteed $1,784,000 of general partner obligations of an affiliate, Charles Street RHF Housing, Inc., dba: The Stearns, under a partnership agreement. In October 2006, the guaranteed amount was reduced to $1,350,000, and was further reduced to $784,000 during 2009. During fiscal year 2015 the amount was reduced to $675,000. RHF also received a guarantee from a third party under a reimbursement agreement to reimburse RHF for payments that it is required to make pursuant to the guarantee.

Symphony East RHF Housing, Inc. and Symphony West RHF Housing, Inc. In December 2001, RHF guaranteed $5,096,000 of general partner obligations of two affiliates, Symphony East RHF Housing, Inc. and Symphony West RHF Housing, Inc., under partnership agreements. The guaranteed amount has been reduced in prior years and is $2,000,000 at September 30, 2015 and 2014. RHF also received a guarantee from a third party under a reimbursement agreement to reimburse RHF for certain payments that it is required to make pursuant to the guarantee up to a maximum of $3,000,000.

(27) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)

An affiliate of RHF has guaranteed tax credit deficit obligations to the tax credit investors. Such tax credit deficit obligations include payments to the tax credit investors in the amount of (1) any reduction, disallowance, or recapture of the projected tax credit amount; (2) any interest and penalties imposed by the IRS in the event of a recapture of tax credits; and (3) any income tax liability of the tax credit investors as a result of payments under these tax credit deficit obligations.

Professional Liability Insurance The Obligated Group is subject to asserted and unasserted claims encountered in the normal course of business. The Obligated Group's management and legal counsel assess such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Obligated Group or unasserted claims that may result in such proceedings, the Obligated Group's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. In the opinion of management, disposition of these matters will not have a material effect on the Obligated Group's financial condition or results of operations.

Government Regulations - Medicaid The various state departments for which the Obligated Group has a licensed nursing facility reserve the right to perform field audit examinations of the Obligated Group's records. Any adjustments resulting from such examinations could retroactively adjust Medicaid revenue.

(28) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND 2014

NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)

Government Regulations - Medicare The Medicare intermediary has the authority to audit the skilled nursing facility's records any time within a three-year period after the date the skilled nursing facility receives a final notice of program reimbursement for each cost reporting period. Any adjustments resulting from these audits could retroactively adjust Medicare revenue.

NOTE 12 FUNCTIONAL CLASSIFICATION OF EXPENSES

Functional classification of expenses for the years ended September 30, 2015 and 2014 consisted of the following:

2015 2014 Program $ 86,756,461 $ 84,489,135 Management and General Support 10,243,077 9,026,738 Total Operating Expenses $ 96,999,538 $ 93,515,873

NOTE 13 PRIOR PERIOD ADJUSTMENT

During the year ended September 30, 2015, RHF Housing Foundation Obligated Group identified errors related to previous years accounting and reporting of advances to affiliates. Advances to Affiliates were previously overstated as a result of distributions in excess of allowable amounts. The net impact of these restatements was a decrease to net assets of RHF Housing Foundation Obligated Group as of September 30, 2013 of $639,140. For the year ended September 30, 2014 the following accounts are restated as a result:

September 30, 2014 as Previously Correction September 30, 2014 Reported of an Error as Restated Special-Purpose Combined Balance Sheets Advances to Affiliates, Net $ 35,592,758 $ (639,140) $ 34,953,618 Unrestricted Net Assets 25,293,658 (639,140) 24,654,518

(29) SUPPLEMENTARY INFORMATION RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health Facilities, Inc. Gold Country and Mayflower Merritt Island St. Catherine Bixby Knoll Health Center, RHF Housing, Sun City RHF Holly Hill RHF RHF Housing, Yellowwood Bluegrass RHF RHF Housing, DeSmet RHF CURRENT ASSETS RHF FPM Towers, Inc. Inc. Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Housing, Inc. Inc. Housing, Inc. Eliminations Combined Total Cash Cash-Operations $ 27,400,350 $ 1,578,869 $ 75,462 $ 116,272 $ 113,684 $ 16,316 $ 391,340 $ 312,769 $ 457,251 $ 577,560 $ 22,034 $ 7,527 $ - $ 31,069,434 Total Cash 27,400,350 1,578,869 75,462 116,272 113,684 16,316 391,340 312,769 457,251 577,560 22,034 7,527 - 31,069,434 Accounts Receivable Accounts Receivable - - 876,515 485,044 1,079,321 61,858 434,411 3,163,745 804,373 89 - 6,096 - 6,911,452 Accounts Receivable - Other 159,162 24,660 - - (1,334) 1,630 ------184,118 Accounts Receivable - Litigation - - 4,320 775 9,719 7,058 29,908 270,515 11,165 - - 11,328 - 344,788 Patient Refund - - 13,304 501 - 2,300 - - - 1,215 480 - - 17,800 Allowance For Doubtful Accounts - - (202,546) (114,004) (417,629) (46,961) (87,619) (2,334,701) (125,218) - - (11,328) - (3,340,006) Total Accounts Receivable 159,162 24,660 691,593 372,316 670,077 5,8852 376,700 1,099,559 690,320 1,304 480 6,096 - 4,118,152 Investments Short-Term Investments 9,652,558 ------9,652,558 Total Investments 9,652,558 ------9,652,558 Prepaid and Other Current Assets Interest Receivable 15,501 - 8,408 3,984 4,969 855 6,397 4,795 157 3,954 180 18 - 49,218 Inventory - - 26,288 14,068 23,152 6,589 46,857 30,738 30,420 16,140 10,613 5,006 - 209,871 Prepaid Expenses 1,210,417 100,185 195,594 411,564 266,929 122,311 391,297 322,253 480,624 233,932 14,133 52,988 - 3,802,227 Total Prepaid and Other Current Assets 1,225,918 100,185 230,290 429,616 295,050 129,755 444,551 357,786 511,201 254,026 24,926 58,012 - 4,061,316 Current Portion of Assets Limited as to Use 2,000 - 271,850 274,468 268,517 32,004 377,268 262,120 219,176 704,631 65,149 53,929 - 2,531,112 Total Current Assets 38,439,988 1,703,714 1,269,195 1,192,672 1,347,328 203,960 ,589,8591 2,032,234 1,877,948 1,537,521 112,589 125,564 - 51,432,572 NON-CURRENT ASSETS Assets Limited as to Use Trustee Held Funds 6,315,331 (494) ------6,314,837 Bond Funds - - 53,141 74,620 56,297 19,209 105,729 88,182 45,392 75,062 19,042 16,885 - 553,559 Board Designated Funds - - 43,096 - - - 70,907 4,357 - - - - - 118,360 Patient/Tenant Deposits 2,000 - 175,613 199,848 212,220 12,795 200,632 169,581 173,784 629,569 46,107 37,044 - 1,859,193 Total Assets Limited as to Use 6,317,331 (494) 271,850 274,468 268,517 32,004 377,268 262,120 219,176 704,631 65,149 53,929 - 8,845,949 Less: Current Portion Shown Above (2,000) - (271,850) (274,468) (268,517) (32,004) (377,268) (262,120) (219,176) (704,631) (65,149) (53,929) - (2,531,112) Total Noncurrent Assets Limited as to Use 6,315,331 (494) ------6,314,837 Property and Equipment Land 2,661,019 - 551,548 731,837 223,308 505,460 550,900 775,000 534,584 414,623 197,351 206,093 - 7,351,723 Building and Improvements 4,528,273 - 12,279,085 17,652,125 9,927,294 7,374,700 21,128,539 18,793,342 14,741,650 14,875,621 6,548,241 6,554,078 - 134,402,948 Office Furniture and Equipment 500,923 22,376 1,935,554 1,421,008 1,702,563 1,996,848 3,680,580 3,808,866 2,582,820 2,307,673 431,975 331,358 - 20,722,544 Motor Vehicle - - - 133,620 113,473 97,559 103,919 - 72,948 28,380 24,095 68,070 - 642,064 Computer Hardware/Software 2,510,242 2,657 61,663 65,725 65,806 52,767 66,827 48,924 85,587 35,223 2,023 14,279 - 3,011,723 Construction in Progress 1,790,865 - 716,446 96,736 48,207 4,837 - 1,891,440 95,841 14,763 - 246,933 - 4,906,068 Total Property and Equipment 11,991,322 25,033 15,544,296 20,101,051 12,080,651 10,032,171 25,530,765 25,317,572 18,113,430 17,676,283 7,203,685 7,420,811 - 171,037,070 Accumulated Depreciation (3,513,137) (14,230) (11,022,358) (11,901,732) (8,166,732) (7,531,821) 15,153,648)( (15,913,808) (10,989,883) (8,978,541) (2,458,930) (2,581,796) - (98,226,616) Property and Equipment, Net of Accumulated Depreciation 8,478,185 10,803 4,521,938 8,199,319 3,913,919 2,500,350 10,377,117 9,403,764 7,123,547 8,697,742 4,744,755 4,839,015 - 72,810,454 Advances to (from) Affiliates Reimbursable and Management Fees - Obligated Group 8,091,368 6,328,370 2,350,599 3,100,598 (46,070) 485,754 (3,561,034) (3,554,926) (1,259,785) 6,230,507 138,062 (1,510,528) - 16,792,915 Reimbursable and Management Fees - Other 29,978,904 8,950,549 ------38,929,453 Cash and Reserves - Obligated Group (16,154,909) ------(16,154,909) Cash and Reserves - Other (3,681,840) ------(3,681,840) Total Advances to (from) Affiliates 18,233,523 15,278,919 2,350,599 3,100,598 (46,070) 485,754 (3,561,034) (3,554,926) (1,259,785) 6,230,507 138,062 (1,510,528) - 35,885,619 Long-Term Investments Long-Term Investments 17,855,127 ------17,855,127 Total Long-Term Investments 17,855,127 ------17,855,127 Other Assets Deferred Financing Costs, Net - - 164,881 231,520 174,670 59,598 328,042 273,599 140,835 232,894 59,082 52,384 - 1,717,505 Utility Deposits - 2,394 - - - - - 9,159 - - - - - 11,553 Interest Rate Cap 40 ------40 Total Other Assets 40 2,394 164,881 231,520 174,670 59,598 328,042 282,758 140,835 232,894 59,082 52,384 - 1,729,098 Total Assets $ 89,322,194 $ 16,995,336 $ 8,306,613 $ 12,724,109 $ 5,389,847 $ 3,249,662 $ 8,733,984 $ 8,163,830 $ 7,882,545 $ 16,698,664 $ 5,054,488 $ 3,506,435 $ - $ 186,027,707

(31) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

(32) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET SEPTEMBER 30, 2014 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health Facilities, Inc. Gold Country and Mayflower Merritt Island St. Catherine Bixby Knoll Health Center, RHF Housing, Sun City RHF Holly Hill RHF RHF Housing, Yellowwood Bluegrass RHF RHF Housing, DeSmet RHF Combined Total - CURRENT ASSETS RHF FPM Towers, Inc. Inc. Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Housing, Inc. Inc. Housing, Inc. Eliminations As Restated Cash Cash-Operations $ 19,032,658 $ 1,559,007 $ 679,894 $ 521,876 $ 779,564 $ 163,060 $ 1,070,568 $ 470,002 $ 479,173 $ 670,482 $ 166,340 $ 24,083 $ - $ 25,616,707 Total Cash 19,032,658 1,559,007 679,894 521,876 779,564 163,060 1,070,56 8 470,002 479,173 670,482 166,340 24,083 - 25,616 ,707 Accounts Receivable Accounts Receivable - - 630,744 542,949 579,152 35,870 434,846 2,451,832 739,802 3,816 120 10,424 - 5,429,555 Accounts Receivable - Other 198,608 207,576 13 - 34 - 2,233 - - 10 - - - 408,474 Accounts Receivable - Litigation - - 4,320 775 9,719 7,058 29,908 270,515 11,165 - - 11,328 - 344,788 Patient Refund - - - 1,830 743 - 250 804 - 66 - - - 3,693 Allowance For Doubtful Accounts - - (247,657) (73,727) (284, 760) (33,841) (15,777) (1,782,128) (95,516) - - (11,328) - (2,544,734) Total Accounts Receivable 198,608 207,576 387,420 471,827 304,888 9, 087 451,460 941,023 655,451 3,892 120 10,424 - 3,641,776 Investments Short-Term Investments 6,791,435 ------6,791,435 Total Investments 6,791,435 ------6,791,435 Prepaid and Other Current Assets Interest Receivable 12,143 - 7,400 2,732 4,738 402 5,646 4,800 165 2,472 193 19 - 40,710 Inventory - - 26,835 12,374 34,092 6,768 38,856 21,176 28,123 15,712 9,131 5,142 - 198,209 Prepaid Expenses 453,233 - 42,520 30,752 41,030 18,418 81,177 21,679 25,976 20,771 439 28,626 - 764,621 Total Prepaid and Other Current Assets 465,376 - 76,755 45,858 79,860 25,588 125,679 47,655 54,264 38,955 9,763 33,787 - 1,003,540 Current Portion of Assets Limited as to Use 2,000 - 275,450 279,681 269,352 35,707 394,467 246,123 201,673 676,777 69,914 61,479 - 2,512,623 Total Current Assets 26,490,077 1,766,583 1,419,519 1,319,242 1,433,664 233,442 2 ,042,174 1,704,803 1,390,561 1,390,106 246,137 129,773 - 39, 566,081 NON-CURRENT ASSETS Assets Limited as to Use Trustee Held Funds 7,488,584 707 ------7,489,291 Escrow Reserve ------162,261 - - - - - 162,261 Bond Funds - - 58,094 81,575 61,544 20,9 98 115,584 96,400 49,622 82,058 20,817 18,458 - 605,150 Board Designated Funds - - 40,965 - - - 70,874 4,352 - - - - - 116,191 Patient/Tenant Deposits 2,000 - 176,391 198,106 207,808 14,709 208,009 145,371 152,051 594,719 49,097 43,021 - 1,791,282 Total Assets Limited as to Use 7,490,584 707 275,450 279,681 269,352 35,707 394,467 408,384 201,673 676,777 69,914 61,479 - 10,164,175 Less: Current Portion Shown Above (2,000) - (275,450) (279,681) (269,352 ) (35,707) (394,467) (246,123) (201,673) (676,777) (69,914) (61,479) - (2,512,623) Total Noncurrent Assets Limited as to Use 7,488,584 707 - - - - - 162,261 - - - - - 7,651,552 Property and Equipment Land 2,661,019 - 551,548 731,837 223,308 505,460 550,900 775,000 534,584 414,623 197,351 206,093 - 7,3 51,723 Building and Improvements 4,528,273 - 11,366,132 17,652,118 9,927,294 7,374,70 0 21,128,539 18,820,283 14,741,650 14,504,848 6,153,148 6,308,487 - 13 2,505,472 Equipment ------Office Furniture and Equipment 707,740 22,376 1,710,469 1,007,403 1,533,156 1,852,802 3,146,968 2,675,080 2,529,800 1,860,653 368,032 217,850 - 17,632,329 Motor Vehicle - - - 118,750 117,973 94,929 103,919 - 72,948 28,380 24,095 68,070 - 629,064 Computer Hardware/Software 2,474,002 2,657 61,663 44,665 51,306 52,767 62,147 45,152 59,597 34,203 2,023 14,279 - 2,904,461 Construction in Progress 1,068,686 - 1,222,502 - 32,140 23,385 31,064 367,484 1,030 355,239 330,714 224,278 - 3,656,522 Total Property and Equipment 11,439,720 25,033 14,912,314 19,554,773 11,885,177 9,904,043 25,023,537 22,682,999 17,939,609 17,197,946 7,075,363 7,039,057 - 164,67 9,571 Accumulated Depreciation (3,211,638) (11,167) (10,9 05,494) (11,381,073) (7,982,832) (7,288,223) (14, 559,851) (15,530,338) (10,644,262) (8,651,666) (2,297,751) (2,404,067) - (94,868,36 2) Property and Equipment, Net of Accumulated Depreciation 8,228,082 13,866 4,006,820 8,173,700 3,902,345 2,615,820 10,463,686 7,152,661 7,295,347 8,546,280 4,777,612 4,634,990 - 69,811,209 Advances to (from) Affiliates Reimbursable and Management Fees - Obligated Group 2,061,709 10,884,119 2,385,774 2,568,715 (547,454) 486,504 (3,977,066) (945,866) (693,391) 5,204,387 (27,767) (783,660) - 16,616,004 Reimbursable and Management Fees - Othe r 29,529,350 8,165,295 ------37,694,645 Cash and Reserves - Obligated Group (15,789,118) ------(15,789,118) Cash and Reserves - Other (3,567,913) ------(3,567,913) Total Advances to (from) Affiliates 12,234,028 19,049,414 2,385,774 2,568,715 (547,454) 4 86,504 (3,977,066) (945,866) (693,391) 5,204,387 (27,767) (783,660) - 34,953,618 Long-Term Investments Long-Term Investments 24,509,488 ------24,509,488 Total Long-Term Investments 24,509,488 ------24,509,488 Other Assets Deferred Financing Costs, Net - - 180,536 253,503 191,37 9 65,256 359,424 299,577 154,208 255,007 64,692 57,358 - 1,880,940 Utility Deposits - 2,394 - - - - - 9,159 - - - - - 11,553 Interest Rate Cap 368 ------368 Total Other Assets 368 2,394 180,536 253,503 191,379 65,256 359,424 308,736 154,208 255,007 64,692 57,358 - 1,892,861 Total Assets $ 78,950,627 $ 20,832,964 $ 7,992,649 $ 12,315,160 $ 4,979,934 $ 3,401,022 $ 8,888,218 $ 8,382,595 $ 8,146,725 $ 15,395,780 $ 5,060,674 $ 4,038,461 $ - $ 178,384,809

(33) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2014 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Gold Country Health Facilities, Merritt Island St. Catherine Bixby Knoll Health Center,Inc. and MayflowerSun City RHFHolly Hill RHFRHF Housing, Yellowwood Bluegrass RHFRHF Housing,DeSmet RHF Combined Total - LIABILITIES AND NET ASSETS(DEFICITS ) RHF FPM Towers, Inc. Inc. RHF Housing, Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Housing, Inc. Inc. Housing, Inc. EliminationsAs Restated

CURRENT LIABILITIES Accounts Payable Accounts Payable - Operations $ 407,237 $ 448,692 $ 435,146 $ 285,814 $ 171,649144,338 $ $ 298,803 $ 686,428 $ 216,98791,928 $ $ 35,699 $ 49,287 $- $ 3,272,008 Total Accounts Payable 407,237 448,692 435,146 285,814 171,649 144,338 298,803 686,428 91,928 216,987 35,699 49,287 - 3,272,008

Accrued Expenses Sales Tax Payable 12,288 - 9 394 5,373 36 - 654 - - - - - 18,754 Other Accrued Expenses 2,791,633 1,542,416 680,870 481,292 338,835 178,006 653,211 384,283 256,963 558,368 39,875 55,228 - 7,960,980 Accrued Interest Payable 96,993 - 18,548 26,045 19,649 6,704 36,903 30,778 15,843 26,199 6,646 ,894 5 - 290,202 Total Accrued Expenses 2,900,914 1,542,416 699,427 507,731 363,857 184,746 690,114 415,715 283,162 574,211 46,521 61,122 - 8,269,936

Other Current Liabilities Current Portion of Long-Term Debt 5,020,622 - 446,400 626,820 2,905 47 161,355 888,150 740,745 381,300 630,540 159,960 - 141,825 9,670,622 Current Portion of Capital Lease Obligations 333,707 - 11,920 ------345,627 Total Other Current Liabilities 5,354,329 - 458,320 626,820 905 472, 161,355 888,150 740,745 381,300 630,540 159,960 - 141,825 10,016,249 Total Current Liabilities 8,662,480 1,991,108 1,592,893 1,420,365 1,008,411,439 490 1,877,067 1,842,888 1,172,498 1,005,630 242,180 252,234 21,558,193 -

LONG-TERM LIABILITIES Restricted Liabilities Security Deposits 5,635 - 168,815 189,941 200,163 14,709 190,132 138,449 588,270 142,030 49,097 43,021 - 1,730,262 Patient Trust Deposits - - 7,576 8,044 8,675 - 17,877 6,923 10,021 6,449 - - - 65,565 Unearned Revenue 1,375 - 123,600 2,000 6,573 - 4,110 41,797 62,602 8,535 - - - 250,592 Total Restricted Liabilities 7,010 - 299,991 199,985 215,411 14,709 212,119 187,169 214,653 603,254 49,097 43,021 - 2,046,419 Other Long-Term Liabilities Bonds Payable - - 10,060,320 14,126,366 10,657,651 3,636,386 20,015,845 16,693,843 8,593,190 14,210,202 3,196,247 3,604,948 - 104,794,998 Notes Payable 6,471,728 ------6,471,728 Capital Lease Obligation Payable 544,266 - 3,973 ------548,239 Risk Retention Liabilities 14,075,634 2,352,316 ------16,427,950 Total Other Long-Term Liabilities 21,091,628 2,352,316 10,064,293 14,126,366 10,657,651 3,636,386 ,015,845 20 16,693,843 8,593,190 14,210,202 3,604,9483,196,247 - 128,242,915 Total Liabilities 29,761,118 4,343,42411,957,177 15,746,716 11,881,473 4,141,534 22,105,031 18,723,900 9,980,341 15,819,086 3,896,225 - 3,491,502 151,847,527 NET ASSETS (DEFICIT) Net Assets (Deficit) Unrestricted Net Assets (Deficit), Beginning 46,001,766 19,584,478(4,264,584 ) (3,939,487) ( 7,220,922 ) ( 464,811) (13,366,791) ( 9,851,219) (2,717,481) (1,334,635) 1,235,833 992,371 - 24,654,518 Current Change in Unrestricted Net Assets (Deficit) 3,187,743(3,094,938) 300,056 507,931 319,383(275,701 ) 149,978 ( 490,086 ) 883,865 911,329 (71,384 ) ( 445,412) - 1,882,764 Total Net Assets (Deficit) 49,189,509 16,489,540(3,964,528 ) (3,431,556) ( 6,901,539 ) ( 740,512) (13,216,813) (10,341,305) (1,833,616) ( 423,306) 1,164,449 546,959 - 26,537,282 Total Liabilities and Net Assets (Deficit) $ 78,950,627 $ 20,832,964 $ 7,992,649 $ 12,315,160 $ 4,979,934$ 3,401,022 $ 8,888,218 $ 8,382,595 $ 8,146,725 $ 15,395,780 $ 5,060,674 $ 4,038,461 $ - $ 178,384,809

(34) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) YEAR ENDED SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health St. Facilities, Inc. Sun City Catherine Gold Countryand Mayflower RHF Merritt Island Bluegrass RHF Bixby Knoll Health RHF Housing, Housing, Holly Hill RHFRHF Housing, YellowwoodRHF Housing,Housing, DeSmet RHF Combined UNRESTRICTED REVENUE RHF FPM Towers, Inc. Center, Inc. Inc. Inc. Housing, Inc. Inc. Acres, Inc. Inc. Inc. Housing, Inc. Eliminations Total UNRESTRICTED REVENUE Skilled Nursing Revenue Routine Revenue $ - $ - $ 6,344,529 $ 5,402,024 $ 3,420,282 - $ 4,428,948$ $ 6,629,774 $ 5,368,230 $ $ - - $ - $ - $ 31,593,787 Ancillary Revenue - - 901,843 1,940,930 441,361 - 1,726,807 3,929,412 3,170,143 - - - - 12,110,496 Contractual Adjustments - - (1,458,704) (490,594) (1,009,925) - (721,554) (1,687,597) (1,360,409) - - (102) - (6,728,885) Other Routine - - 246,738 138,747 126,034 81,204 6,926 12,851 118,994 - - 205 731,699 - Total Skilled Nursing Revenue - - 6,034,406 6,991,107 2,977,752 6,926 5,515,405 8,884,440 -7,296,958 - 103 - 37,707,097 Other Revenue Management Fees - 16,314,968 ------(4,698,740) 11,616,228 Development Income 8,439,579 ------8,439,579 Rental Income - - 5,118,947 4,102,227 4,622,311 2,345,432936,509 4, 4,596,793 3,067,476 4,338,328 1,634,525575,437 - 35,337,985 Other Residential Revenue - - 118,034 49,422 486,503 50,085 257,253 981,426 166,2551,529 5 2,815 51,586 - 2,214,908 Meal Credits - - - (21,099) - - - (26,495) (7,260) - - - - (54,854) Assisted Living Income, Net - - 2,089,702 1,510,845 - 2,406,352 4,578,500 251,871 3,059,718 2,751,637 - 879,163 - 17,527,788 Rental Concessions - - (83,965) (250,596) (24,708) (306,177) (411,133) (500,254) (357,316) (95,201) (74,702) (47,166) - (2,151,218) Interest Income 571,252 - 43,436 49,325 9,653 29,349 18,466 3,246 21,613 65,092 (12) (1) -811,419 Donations and Gifts 103,209 - 2,110 13,156 3,735 - - - - - 750 456 - 123,416 Corporate Admin Fees 15,863,568 (15,686,868) ------176,700 Other Income 118,615 218,792 7,536 10,582 7,983 2,724 14,994 12,505 6,437 2,700 10,645 2,394 - 7 415,90 Total Other Revenue 25,096,223 846,892 7,295,800 5,463,862 5,105,477 4,516,882 5,319,0929,405,472 5,956,923 7,142,529 1,545,577 1,461,869 (4,698,740) 74,457,858 Total Unrestricted Revenues 25,096,223 846,892 13,330,206 12,454,969 8,083,229 ,8774,523,808 14,203,532 14,920 13,253,881 7,142,529 1,545,577 1,461,972 (4,698,740) 112,164,955 UNRESTRICTED EXPENSES OPERATING EXPENSES Payroll Related Payroll Expense - Regular 7,013,649 2,422,505 4,928,232 4,165,684 1,974,500 1,593,8386,979 5,11 3,941,761 5,151,671 1,700,617 663,281324,507 - 38,997,224 Payroll Expense - Overtime - - 187,893 374,687 143,999 70,731 180,364 487,861 236,3382,034 6 8,639 24,621 - 1,777,167 Bonuses - - 31,581 63,063 12,734 17,715 15,253 126,896 94,941 22,641 4,261 11,423 - 400,508 Vacation, Sick, Holiday - - 417,351 298,288 149,46707,572 1 303,208 168,757 362,569 103,370 23,677 -32,435 1,966,694 Payroll Taxes 504,177 179,023 465,522 385,818 196,303 164,551 408,334 431,999 442,224 152,085 29,709 59,569 - 3,419,314 Retirement 166,323 70,625 66,193 34,761 13,196 72 3,591 11,008 29,4 12,222 10,5072,695 2,313 - 422,906 Group Insurance 525,672 195,876 772,350 577,354 229,362 36 231,455 487,422 793,0 753,762 242,445 104,98750,685 - 4,964,406 Workers' Compensation Insurance 88,080 31,276 493,353 415,831 196,321,124 172 250,136 196,589 217,235 10,255 56,727 25,272 - 2,153,199 Other Employee Benefits 60,059 2,704 12,355 51,792 309 2 12,46 17,534 38,204 16,153 2,9256,236 50 -220,783 Severance ------13,127 4,479 - - - 3,088 - 20,694 Outside Services 9,570 52,678 224,562 614,233 181,811 15,141509,839 1,949,188 711,980 - - 687 - ,269,689 4 Total Payroll Related 8,367,530 2,954,687 7,599,392 6,981,511 3,098,002 2,389,180 7 7,660,94 7,820,499 7,999,095 2,356,662 457,353 927,726 - 58,612,584

(35) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2015 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health St. Facilities, Inc. Sun City Catherine Gold Country and Mayflower RHF Merritt Island Bluegrass RHF Bixby Knoll Health RHF Housing, Housing, Holly Hill RHF RHF Housing, Yellowwood RHF Housing, Housing, DeSmet RHF Combined RHF FPM Towers, Inc. Center, Inc. Inc. Inc. Housing, Inc. Inc. Acres, Inc. Inc. Inc. Housing, Inc. Eliminations Total Other Expenses Employee Expense Other - - 13,352 24,512 8,333 11,769 20,442 66,127 44,109 18,275 3,046 4,933 - 214,898 Dietary Expense - - 915,062 705,680 212,748 469,692 884,631 662,784 804,631 655,207 3,242 13 109,439 - 5,553,116 Patient Supplies/Services - - 256,414 323,078 370,184 13,576 363,739 494,420 539,023 10,705 - 5,006 - 2,376,145 Supplies and Minor Equipment 168,382 16,723 168,443 141,562 110,276 6 62,86 178,383 159,173 185,250 27,403 12,072 8,919 - 1,239,452 Utilities - Electricity - 490 507,943 231,560 415,520 140 256, 373,833 224,735 386,239 207,224107,447 92,513 - ,803,644 2 Utilities - Water - - 76,427 52,170 110,224 58,218 197,994 143,336 83,429 129,00323,783 10,275 - 884,859 Utilities - Gas - 106 61,983 51,090 143,693 10,984 31,544 33,806 45,372 24,10357,234 52,273 - 12,188 5 Utilities - Telephone 202,585 35,780 66,523 125,678 89,565 36,623 84,001 41,467 47,059 40,866 12,759 58,890 - 841,796 Utilities - Trash - - 23,945 102,366 59,619 11 34,7 55,155 46,290 68,167 9,860 3,269 9,348 - 412,730 Leases and Maintenance 546,135 265 ------546,400 Repairs and Maintenance 1,256 - 353,156 335,761 425,892 42127,7 300,310 338,758 259,187 341,904 68,919 116,025 - 2,668,910 Management Fees - - 797,515 464,951 485,951 216,761 884,709 722,859 628,506 347,365 77,144 ( 4,698,740 72,979) - Office Expenses - 29,748 47,986 45,685 40,262 12,178 54,213 57,491 46,741 28,671 8,343 8,435 - 379,753 Travel,Conference, Seminar 349,434 442,790 5,096 34,749 14,635 6,512 34,126 16,750 23,590 10,089 9,490 10,881 - 958,142 Marketing and Advertising 11,562 - 91,191 58,021 52,240 41,671 330,463 86,488 74,60356,584 70,627 38,260 - 911,710 Other Administrative 2,160,287 46,171 109,509 125,096 197,263 59,547 126,371 78,562 59,652 70,266 7,662 28,507 - 3,068,893 Computer Services Expense - - 51,759 39,591 22,515 20,479 41,401 40,721 51,104 25,355 5,527 16,558 - 315,010 Other Services - - 16,973 16,909 29,762 11,372 18,724 11,409 6,856 18,710 2,303 2,578 - 135,596 General Insurance 29,348 897 380,182 212,711 285,156 207,800 417,785 369,018 217,557 110,154 39,728 50,433 - 2,320,769 Professional Fees 1,730,995 59,400 588,881 427,794 312,993 6,407 528,775 699,563 477,238 21,031 33,187 18,013 - 4,904,277 Bad Debt Expense 250,000 - ( 14,235 ) 58,008 132,591 13,120 79,393 575,409 82,579 - - - - 1,176,865 Fine/Penalty Expense - - - 28 - - - 40,182 - 1,000 - - - 41,210 Property Taxes - - 40,222 5,324 200,280 03 3 252,686 104,321 - 111,209 - 1,316 - 715,661 911 Studebaker 305,673 ------305,673 Annual Meeting 101,111 ------101,111 Total Other Expenses 5,856,768 632,370 4,558,327 3,582,324 3,719,702 1,678,471 5,258,678 5,013,669 4,130,892 2,264,984 660,608 730,755(4,698,740 ) 33,388,808 Total Operating Expenses 14,224,298 3,587,057 12,157,719 10,563,835 6,817,704 4,067,651 12,919,625 12,834,168 12,129,987 4,621,646 1,117,961 1,658,481(4,698,740 ) 92,001,392 Change in Net Assets Before Other Items 10,871,925 ( 2,740,165 ) 1,172,487 1,891,134 1,265,525 456,157 2,001,252 1,369,364 1,123,894 2,520,883,616 ( 196,509 427 ) - 20,163,563 Interest Expense 437,248 10,544 247,679 344,121 260,717 90,908 5,709 48 405,361 210,746 365,751 89,038 79,776 - 3,027,598 Change in Net Assets Less Interest 10,434,677 ( 2,750,709 ) 924,808 1,547,013 1,004,808 365,249 1,515,543 964,003 913,148 2,155,132 ( 276,285 338,578) - 17,135,965 Depreciation and Amortization Depreciation Expense 568,695 3,063 190,235 545,160 226,638 266,589 712,205 477,239 530,339 436,006 195,107 185,524 - 4,336,800 Amortization Expense - - 18,925 26,574 20,173 6,841 36,386 31,404 16,166 26,732 6,782 6,012 195,995 - Total Depreciation and Amortization 568,695 3,063 209,160 571,734 246,811 273,430 748,591 508,643 546,505 462,738 201,889 191,536 - 4,532,795 Change in Net Assets Before Nonoperating Gains (Losses) 9,865,982(2,753,772 ) 715,648 975,279 757,997 91,819 766,952 455,360 366,643 1,692,394 136,689 ( 467,821 ) - 12,603,170 Nonoperating Gains (Losses) Nonrecoverable Expenses (2,085,840) ( 72,828) ------(2,158,668 ) Grant Income 4,888,083 - 137,455 - - - 68,727- - 137,455 - - - 5,231,720 Grant Expenses ( 167,168) ------( 343,637 - ) - - - - ( 510,805 ) Loss on Disposal of Property and Equipment ------( 2,806 ) - - - - - ( 2,806 ) Unrealized Losses on Investments ( 241,998) ( 1,201) 2,977 1,122 939 796 773 3,009 553 10,520 488 161 - ( 221,861 ) Total Nonoperating Gains( Losses) 2,393,077 ( 74,029 ) 140,432 1,122 939 796 773 68,930 (343,084 ) 147,975 488 161 - 2,337,580 Change in Unrestricted Net Assets (Deficit) $ 12,259,059 $ (2,827,801) $ 856,080 $ 976,401 $ 758,936 $ 92,615 $ 767,725 $ 524,290 $ 23,559 $ 1,840,369 $ 137,177 $ (467,660) $ - $ 14,940,750

(36) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) YEAR ENDED SEPTEMBER 30, 2014 (SEE INDEPENDENT AUDITORS’ REPORT)

(37) RETIREMENT HOUSING FOUNDATION OBLIGATED GROUP COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN UNRESTRICTED NET ASSETS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2014 (SEE INDEPENDENT AUDITORS’ REPORT)

Mayflower Gardens Health Facilities, Inc. Gold Country and Mayflower Merritt Island St. Catherine Bixby Knoll Health Center, RHF Housing, Sun City RHF Holly Hill RHF RHF Housing, Yellowwood Bluegrass RHF RHF Housing, DeSmet RHF RHF FPM Towers, Inc. Inc. Inc. Housing, Inc. Housing, Inc. Inc. Acres, Inc. Housing, Inc. Inc. Housing, Inc. Eliminations Combined Total Other Expenses Employee Expense Other - - 6,373 14,091 3,905 8,676 44,728 51,365 34,381 20,485 807 9,342 - 194,153 Dietary Expense - - 880,678 693,894 239,383 435,906 886,603 570,368 906,412 622,736 138,382 ,086 111 - 5,485,448 Patient Supplies/Services - - 306,381 382,964 384,436 22,665 349,228 481,832 605,671 7,567 - 4,068 - 2,544,812 Supplies and Minor Equipment 175,059 15,807 142,695 139,799 0,983 11 49,464 226,380 86,140 192,319 27,501 12,637 7,471 - 1,186,255 Utilities - Electricity - 491 475,414 203,880 378,644 236,439 378,152 234,376 411,794 234,557 105,531 96,921 - 2,756,199 Utilities - Water - - 76,477 58,914 75,394 1 56,207 231,908 116,172 185,500 108,379 19,958 12,815 - 1,041,724 Utilities - Gas - 123 69,891 84,752 175,171 13,060 36,218 32,849 56,941 38,449 52,582 56,268 - 616,304 Utilities - Telephone 313,010 36,651 53,580 38,347 82,259 31,623 76,234 39,766 46,509 49,591 13,789 52,827 - 834,186 Utilities - Trash - - 32,717 84,866 59,978 30,818 78,377 40,505 63,761 10,183 3,908 9,087 - 414,200 Leases and Maintenance 505,646 4,206 ------509,852 Repairs and Maintenance 2,526 - 383,998 347,536 18,668 4 161,076 310,505 329,767 270,107 328,407 54,630 55,927 - 2,663,147 Management Fees - - 780,904 455,267 475,830 212,246 866,281 707,804 615,415 340,130 75,945 74,561 ( 4,604,383) - Office Expenses - 29,897 43,995 52,705 34,001 10,548 51,773 43,486 48,859 23,501 8,861 6,112 - 353,738 Travel, Conference, Seminar 416,418 397,221 3,355 22,680 9,739 6,155 18,827 13,080 21,005 9,155 6 8,07 10,706 - 936,417 Marketing and Advertising 19,980 259 86,768 50,527 50,556 32,639 330,866 76,301 68,949 59,315 73,585 51,820 - 901,565 Other Administrative 493,089 40,781 110,478 120,019 196,360 47,387 118,257 67,177 52,844 64,987 6,51224,784 - 1,342,675 Computer Services Expense - - 31,722 25,090 15,731 14,202 26,121 27,053 34,275 15,661 4,948 10,033 - 204,836 Other Services - - 9,042 16,688 2,258 3 10,420 15,158 5,727 8,477 16,300 3,161 1,847 - 119,078 General Insurance 21,335 141 374,635 197,658 251,354 205,064 379,341 344,567 209,007 105,819 50,300 48,946 - 2,188,167 Professional Fees 2,731,228 82,029 608,828 419,791 319,211 33,906 594,711 608,807 579,884 22,071 12,067 10,188 - 6,022,721 Bad Debt Expense - - ( 6,172 ) 59,493 64,231 19,225 22,978 621,707 128,237 - - 1,725 - 911,424 Fine/Penalty Expense - - - 2,397 15,000 - - 129,365 - - - - - 146,762 Property Taxes - - 39,582 5,590 196,435 241 311,872 96,059 ( 1,095,240 ) 73,147 - 1,734 - ( 370,580) 911 Studebaker 269,432 ------269,432 Annual Meeting 97,320 ------97,320 Total Other Expenses 5,045,043 607,606 4,511,341 3,476,948 3,689,527 1,637,967 5,354,518 4,724,273 3,445,107 2,177,941 645,679 658,268(4,604,383 ) 31,369,835 Total Operating Expenses 13,574,290 3,345,200 11,937,331 10,381,517 6,756,547 4,067,387 2,764,921 1 11,023,415 11,374,814 4,420,554 1,094,071 1,537,920(4,604,383 ) 87,673,584 Change in Net Assets Before Other Items 8,979,997 ( 3,018,896 ) 1,189,138 2,007,251 1,293,888 283,793 2,332,507 933,961 1,566,872 2,584,642 424,821 ( 46,708 ) - 18,531,266 Interest Expense 323,672 159 311,447 393,444 300,869 107,278 544,473 476,441 239,627 414,761 102,286 88,868 - 3,303,325 Change in Net Assets Less Interest 8,656,325 ( 3,019,055 ) 877,691 1,613,807 993,019 176,515 1,788,034 457,520 1,327,245 2,169,881 322,535 ( 135,576 ) - 15,227,941 Depreciation and Amortization Depreciation Expense 582,682 3,068 159,462 505,628 215,401 304,041 666,717 428,583 412,264 407,392 182,048 176,002 - 4,043,288 Amortization Expense - - 57,426 82,851 62,217 21,083 117,048 99,022 50,060 82,810 23,769 21,986 - 618,272 Total Depreciation and Amortization 582,682 3,068 216,888 588,479 277,618 325,124 783,765 527,605 462,324 490,202 205,817 197,988 - 4,661,560 Change in Net Assets Before Nonoperating Gains (Losses) 8,073,643 ( 3,022,123 ) 660,803 1,025,328 715,401 ( 148,609 ) 1,004,269 ( 70,085 ) 864,921 1,679,679 116,718 ( 333,564 ) - 10,566,381 Nonoperating Gains (Losses) Nonrecoverable Expenses (1,335,840) (72,815) ------( 1,408,655 - ) Loss on Refinancing of Debt - - ( 335,793 ) (518,520) (388,020) (128,369) (854,291) (636,639) (308,491) (510,174) (188,781) (186,922) - ( 4,056,000) Grant Income 3,758,900 ------227,030 - - - 75,000 - 4,060,930 Grant Expenses (227,649) - ( 30,000 ) - - - - ( 15,000) - ( 257,030 ) - - - ( 529,679) Loss on Disposal of Property and Equipment - - - - ( 9,026) ------( 9,026 ) Unrealized Losses on Investments ( 264,327 ) - 5,046 1,123 1,028 1,277 - 4,608 430 ( 1,146 ) 679 74 - ( 251,208 ) Other (6,816,984) ------327,005 - - - - (6,489,979) Total Nonoperating Gains (Losses) (4,885,900) (72,815) (360,747) (517,397) (396,018) (127,092) (854,291) (420,001) 18,944 ( 768,350 ) (188,102) (111,848) - ( 8,683,617) Change in Unrestricted Net Assets (Deficit) $ 3,187,743 $ (3,094,938) $ 300,056 $ 507,931 $ 319,383 $ (275,701) $ 149,978 $ (490,086) $ 883,865 $ 911,329 $ (71,384) $ (445,412) $ - $ 1,882,764

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APPENDIX C

SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES

TABLE OF CONTENTS

DEFINITIONS OF CERTAIN TERMS ...... C-1

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES ...... C-15 General ...... C-15 Authorization of Obligations ...... C-16 Particular Covenants of the Obligated Group Representative and Each Member ...... C-16 Limitations on Additional Indebtedness ...... C-18 Restrictions on Guaranties ...... C-20 Rates and Charges; Debt Coverage ...... C-21 Sale, Lease or Other Disposition of Property ...... C-22 Liquidity Covenant ...... C-23 Approval of Consultants ...... C-24 Consolidation, Merger, Sale or Conveyance ...... C-25 Financial Statements, Reports and Other Information ...... C-27 Parity Security for National Obligations and California Obligations ...... C-29 The Obligated Group ...... C-30 Defaults ...... C-31 Supplements and Amendments ...... C-35 Satisfaction and Discharge of Master Indenture ...... C-36

SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES ...... C-37 General ...... C-37 Representations and Warranties...... C-38 After-Acquired Mortgaged Property or Trust Property ...... C-38 Maintenance of Lien ...... C-39 Inspection of Mortgaged Property and Records ...... C-39 Event of Default ...... C-39 Remedies ...... C-39 Possession by the Master Trustee ...... C-39 Foreclosure...... C-40 Receiver ...... C-40 Conditions for Release ...... C-40 Supplements and Amendments to the Mortgages ...... C-43 Conflicts with Master Indenture ...... C-43

C-i APPENDIX C

SUMMARY OF THE MASTER INDENTURES AND THE MORTGAGES

Descriptions of the Master Indentures and the Mortgages are included hereafter in this Appendix C of this Official Statement or Offering Circular, as applicable. Such descriptions do not purport to be comprehensive or definitive. In connection with the issuance of the Series 2017 Bonds, certain provisions of the Master Indentures will be amended. In addition, certain other amendments to the Master Indentures will be made which will remain effective so long as the Series 2017 Bonds are outstanding. All of the amendments to the Master Indentures are reflected in this summary.

All references herein to the Master Indentures and the Mortgages are qualified in their entirety by reference to each such document, copies of which are available for review prior to the issuance and delivery of the Series 2017 Bonds at the offices of the Master Trustee.

DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the Master Indentures, the Mortgages and this Official Statement.

“Act” means, individually and as applicable, the California Act, the Brevard Act, the Volusia Act, the Indiana Act, the Kentucky Act or the Missouri Act.

“Additional Indebtedness” means any Indebtedness incurred subsequent to the execution and delivery of the Master Indenture.

“Annual Debt Service” means for each Fiscal Year the aggregate amount (without duplication) of principal and interest scheduled to become due (either by maturity or by mandatory redemption) and sinking fund payments required to be paid in that Fiscal Year on all Long-Term Indebtedness, less any amounts on irrevocable deposit in escrow to be applied during that Fiscal Year to pay principal or interest on Long-Term Indebtedness, and including any amounts scheduled to be paid on an Interest Rate Agreement, but not including any scheduled payments which a counterparty under an Interest Rate Agreement has contracted to pay.

“Authorized Representative” means with respect to each Member, the chairperson of its Governing Body or its chief executive officer or its chief financial officer or any other person designated an authorized representative of such Member by a Certificate of such Member signed by the chairperson of its Governing Body or its chief executive officer or chief financial officer and filed with the Master Trustee.

“Balloon Indebtedness” means Long-Term Indebtedness of a Member, 25% or more of the principal of which becomes due (either by maturity or mandatory redemption) during any period of 12 consecutive months, which portion of the principal is not required by the documents governing such Indebtedness to be amortized by redemption prior to such date.

C-1 “Business Day” means a day of the year which is not (a) a Saturday, Sunday or legal holiday on which banking institutions located in the city of the Corporate Trust Office are authorized by law to close or (b) a day on which the New York Stock Exchange is closed.

“California Master Indenture” means that certain California Master Trust Indenture dated as of July 1, 2008, by and among the Members of the California Obligated Group, the Foundation, solely as Obligated Group Representative, and the California Master Trustee, as previously supplemented and amended, as supplemented and amended by the Fifth Supplemental California Master Indenture, and as it may from time to time be further amended or supplemented in accordance with the terms thereof.

“California Master Trustee” means The Bank of New York Mellon Trust Company, N.A., or any other corporation or association which may be co-trustee with the California Master Trustee and any successor or successors to said trustee or co-trustee in the trusts created under the California Master Indenture.

“California Obligated Group” means Bixby Knolls Towers, Inc., Gold Country Health Center, Inc., Mayflower RHF Housing, Inc., Mayflower Gardens Health Facilities, Inc., and Sun City RHF Housing, Inc., each a California nonprofit public benefit corporation, and their successors and assigns and any surviving, resulting or transferee corporations.

“California Obligated Group Guaranties” means, collectively, the Guaranty Agreements, each dated as of July 1, 2008, delivered by each member of the California Obligated Group in favor of the National Master Trustee guarantying the payment of the Obligations and the performance of the obligations of the National Obligated Group under the National Master Indenture.

“California Obligations” means the “Obligations” as defined in the California Master Indenture.

“Cash and Liquid Investments” means all unrestricted cash and liquid investment balances, including without limitation, such amounts constituting board designated funds, whether classified as current or noncurrent assets, held by the RHF Obligated Group for any of its corporate purposes, but excluding (a) trustee held funds, (b) donor-restricted funds to the extent that the payment of debt service on the Indebtedness of the RHF Obligated Group would be inconsistent with the donor’s restrictions, (c) any funds pledged or otherwise subject to a security interest for debt other than the Obligations, and (d) amounts available under lines of credit, all as set forth in the most recent financial statements delivered under the Master Indenture in accordance with the provisions of the Master Indenture summarized under “FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION” below.

“Certificate,” “Statement,” “Request,” “Consent” or “Order” of any Member or of the Master Trustee means, respectively, a written certificate, statement, request, consent, or order signed in the name of such Member by its respective Authorized Representative or in the name of the Master Trustee by its Responsible Officer. Any such instrument and supporting opinions or certificates, if any, may, but need not, be combined in a single instrument with any other

C-2 instrument, opinion or certificate and the two or more so combined shall be read and construed as a single instrument. Each such instrument shall include the statements provided for in, and to the extent required by the relevant provisions of the Master Indenture.

“Code” means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a Section of the Code in the Bond Indenture shall be deemed to include the United States Treasury Regulations, including temporary and proposed regulations, relating to such Section which are applicable to the Bonds or the use of the proceeds thereof.

“Completion Indebtedness” means any Long-Term Indebtedness incurred by the Obligated Group or any Member for the purpose of financing the completion of acquiring, constructing, renovating, refurbishing, equipping or improving any project, for which Long-Term Indebtedness has previously been incurred in accordance with the provisions of the Master Indenture, and/or financing working capital prior to such project reaching a level of stable occupancy.

“Corporate Trust Office” means the office of the Master Trustee at which its principal corporate trust business is conducted.

“Days Cash on Hand” means the amount determined by dividing (1) the RHF Obligated Group’s Cash and Liquid Investments as of a particular date by (2) the quotient derived by dividing (a) the RHF Obligated Group’s total operating expenses (less depreciation and amortization and other non-cash items, including, without limitation, losses on refinancing of debt) for the most recent preceding Fiscal Year for which audited financial statements have been delivered under the Master Indenture by (b) the number of days in such Fiscal Year.

“Debt Service Coverage Ratio” means, for any period of time, the ratio determined by dividing Income Available for Debt Service by Annual Debt Service.

“Escrow Obligations” means: (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America; (2) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Bank System, Export-Import Bank of the United States, Federal Financing Bank, Federal Land Banks, Government National Mortgage Association, Farmer’s Home Administration, Small Business Administration, Federal Home Loan Mortgage Corporation or Federal Housing Administration; (3) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clauses (1) and (2), provided that such obligations are held in the custody of a bank or trust company acceptable to the Master Trustee in a special account separate from the general assets of such custodian; and (4) obligations the interest on which is excluded from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, and the timely payment of the principal of and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clauses (1), (2) or (3).

C-3 “Event of Default” means any of the events specified in “DEFAULTS – Events of Default” below.

“Extendable Indebtedness” means indebtedness which is repayable or subject to purchase at the option of the holder thereof prior to its stated maturity, but only to the extent of money available for the repayment or purchase therefor and not more frequently than once every year.

“Facilities” means the facilities of the Borrowers, as applicable.

“Fair Market Value,” when used in connection with Property, means the fair market value of such Property as determined by either (1) an appraisal of the portion of such Property which is real property made within three years of the date of determination by a member of the American Institute of Real Estate Appraisers (MAI) and by an appraisal of the portion of such Property which is not real property made within three years of the date of determination by any expert acceptable to the Master Trustee, provided that any such appraisal shall be performed by a Person which (a) is in fact independent, (b) does not have any direct financial interest or any material indirect financial interest in any Member and (c) is not connected with any Member as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions or (2) a bona fide offer for the purchase of such Property made on an arm’s length basis within six months of the date of determination established by an Officer’s Certificate.

“Fifth Supplemental California Master Indenture” means means the Fifth Supplemental California Master Trust Indenture dated as of September 1, 2017 between the Obligated Group Representative, on behalf of the California Obligated Group, and the Master Trustee, providing for certain amendments to the California Master Indenture and the issuance and delivery of the Series 2017A California Obligation and the Series 2017C California Obligation.

“Fifth Supplemental National Master Indenture” means means the Fifth Supplemental National Master Trust Indenture dated as of September 1, 2017 between the Obligated Group Representative, on behalf of the National Obligated Group, and the Master Trustee, providing for certain amendments to the National Master Indenture and the issuance and delivery of the Series 2017B National Obligation and the Series 2017D National Obligation.

“Financing” means a borrowing pursuant to any Obligation authorized by the Master Indenture.

“First Mortgages” is defined below under “SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES—General.”

“Fiscal Year” means that period adopted by the Obligated Group Representative as its annual accounting period. Currently, the Fiscal Year is the period from October 1 of a year to September 30 of the next year.

“Fitch” means Fitch Ratings Inc., a corporation organized and existing under the laws of the State of New York, and its successors and assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall

C-4 be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Representative.

“FPM” means Foundation Property Management, Inc., a nonprofit public benefit corporation duly organized and existing under the laws of the State of California, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets.

“Governing Body” means, when used with respect to any Member, its board of directors, board of trustees, or other board or group of individuals in which all of the powers of such Member are vested except for those powers reserved to the corporate membership thereof by the articles of incorporation or bylaws of such Member.

“Government Issuer” means any municipal corporation, political subdivision, state, territory or possession within the United States, or any constituted authority or agency or instrumentality of any of the foregoing empowered to issue obligations on behalf thereof, which obligations would constitute Related Bonds under the Master Indenture.

“Guaranty” or “Guaranties” means all loan commitments and all obligations of any Member guaranteeing in any manner whatever, whether directly or indirectly, any obligation of any other Person which would, if such other Person were a Member, constitute Indebtedness.

“Holder” means the registered owner of any Obligation in registered form or the bearer of any Obligation in coupon form which is not registered or is registered to bearer.

“Income Available for Debt Service” means, with respect to the RHF Obligated Group, as to any period of time, the excess of revenues over expenses (or, in the case of for-profit Members, net income after taxes) of the RHF Obligated Group for such period, to which shall be added depreciation, amortization and interest, all as determined in accordance with generally accepted accounting principles, provided that no such determination shall include any gain or loss resulting from (i) the extinguishment of Indebtedness, (ii) any disposition of capital assets not made in the ordinary course of business, (iii) any gain or loss resulting from changes in the valuation of Indebtedness, investment securities or any Interest Rate Agreement, (iv) the application of changes in accounting principles, (v) any other extraordinary or one-time gains or losses, or (vi) any other non-cash revenue or expense items.

“Indebtedness” means any Guaranty (other than any Guaranty by any Member of Indebtedness of any other member of the RHF Obligated Group) and any indebtedness or obligation for repayment of borrowed money of any Member (other than accounts payable, accruals and obligations as a result of litigation or settlement of litigation), as determined in accordance with generally accepted accounting principles, including, without limitation, obligations under conditional sales contracts or other title retention contracts, rental obligations under leases which are considered capital leases under generally accepted accounting principles and obligations of a Member to another Member; provided, however, that if more than one Member shall have incurred or assumed a Guaranty of a Person other than a Member, or if more

C-5 than one Member shall be obligated to pay any obligation, for purposes of any computations or calculations hereunder such Guaranty or obligation shall be included only one time.

“Independent Consultant” means a firm (but not an individual) which (1) is in fact independent of and has no relationship with the Member other than as provided within the scope of a consulting engagement including, but not limited to, subparagraphs (2) and (3) below, (2) does not have any direct financial interest or any material indirect financial interest in any Member, and (3) is not connected with any Member as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions, and designated by the Obligated Group Representative, qualified to pass upon questions relating to the financial affairs of facilities of the type or types operated by the RHF Obligated Group and having favorable reputation for skill and experience in the financial affairs of such facilities.

“Industry Restrictions” means federal, state or other applicable governmental laws or regulations or general industry standards or general industry conditions placing restrictions and limitations on the rates, fees and charges to be fixed, charged and collected by the Members.

“Interest Rate Agreement” means an interest rate exchange, hedge or similar agreement, expressly identified in an Officer’s Certificate of the Obligated Group Representative delivered to the Master Trustee as being entered into in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g. a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. An Interest Rate Agreement shall not constitute Indebtedness under the Master Indenture.

“Interim Indebtedness” means Long-Term Indebtedness with a final maturity 60 months or less from the date of incurrence, certified in an Officer’s Certificate filed with the Master Trustee to have been incurred in anticipation of refinancing with the proceeds of other Long-Term Indebtedness prior to the final maturity thereof.

“Holder” means the registered owner of any Obligation in registered form or the bearer of any Obligation in coupon from which is not registered or is registered to bearer.

“Lien” means any mortgage or pledge of, or security interest in, or lien or encumbrance on, any Property, excluding Liens applicable to Property in which any Member has only a leasehold interest unless the Lien is with respect to such leasehold interest.

“Long-Term Debt Service Coverage Ratio” means, for any period of time, the ratio determined by dividing Income Available for Debt Service by Maximum Annual Debt Service.

“Long-Term Indebtedness” means Indebtedness having an original maturity greater than one year or renewable at the option of a Member for a period greater than one year from the date of original incurrence or issuance thereof unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least 30 consecutive days during each calendar year.

C-6 “Master Indenture” means, individually and as applicable, the California Master Indenture or the National Master Indenture.

“Master Trustee” means California Master Trustee or the National Master Trustee, as applicable.

“Maximum Annual Debt Service” means the greatest amount of Annual Debt Service becoming due and payable in any Fiscal Year including the Fiscal Year in which the calculation is made or any subsequent Fiscal Year; provided, however, that for the purposes of computing Maximum Annual Debt Service:

(a) There shall be included in the Long-Term Indebtedness of any Member, 20% of the annual principal and interest requirements with respect to the debt of any Person subject to a Guaranty by such Member. If any Member has been required by reason of its Guaranty to make a payment in respect of another Person’s Indebtedness within the immediately preceding 24 months, all of the annual principal and interest requirements with respect to the debt subject to the Guaranty shall be included in Long-Term Indebtedness.

(b) For any Long-Term Indebtedness for which a binding commitment, letter of credit or other credit arrangement providing for the extension of such Indebtedness beyond its original maturity date exists, the computation of Maximum Annual Debt Service shall, at the option of the Obligated Group Representative, be made on the assumption that such Long-Term Indebtedness will be amortized in accordance with such credit arrangement.

(c) For any Balloon Indebtedness and Interim Indebtedness, the computation of Maximum Annual Debt Service shall, at the option of the Obligated Group Representative, assume that such Long-Term Indebtedness is to be amortized over a period specified by the Obligated Group Representative up to 30 years in duration, beginning on the date of maturity of such Indebtedness or such earlier date as may be specified by the Obligated Group Representative, assuming level debt service and a fixed rate of interest equal to the average of the rates on at least three fixed rate bond issues which were issued within the last six months for organizations with credit strength similar to the RHF Obligated Group, as certified by an Independent Consultant (which may be an investment bank).

(d) For any Extendable Indebtedness, the computation of Maximum Annual Debt Service shall, at the option of the Obligated Group Representative, assume that such Extendable Indebtedness is to be amortized over the period until its stated maturity, assuming level debt service and a fixed rate of interest equal to the current rate of interest on such Extendable Indebtedness.

(e) If interest on Long-Term Indebtedness is payable pursuant to a variable interest rate formula (including Balloon Indebtedness and Interim Indebtedness, if the Obligated Group Representative does not choose to use paragraph (c) above, and including Extendable Indebtedness, if the Obligated Group Representative does not choose to use paragraph (d) above), the interest rate on such Long-Term Indebtedness for periods when the actual interest rate cannot yet be determined shall be assumed to be a fixed rate of interest equal to the most recently

C-7 published average of SIFMA over the preceding ten years, plus the cost of any credit enhancement and remarketing fees.

(f) The interest portion of debt service on Long-Term Indebtedness incurred to finance capital improvements shall be included in the calculation of Maximum Annual Debt Service only in proportion to the amount of interest on such Long-Term Indebtedness which is payable in the then-current Fiscal Year from sources other than the proceeds of such Long-Term Indebtedness.

(g) If moneys or Escrow Obligations have been deposited with a trustee in an amount, together with earnings thereon, sufficient to pay the principal of or interest on Long-Term Indebtedness as it comes due, such principal or interest, as the case may be, shall be excluded from the calculation of Maximum Annual Debt Service.

(h) Anything in the Master Indenture to the contrary notwithstanding, any portion of any Indebtedness of any Member for which an Interest Rate Agreement has been obtained by such Member shall be deemed to bear interest for the period of time that such Interest Rate Agreement is in effect at a net rate which takes into account the interest payments made by such Member on such Indebtedness and the payments made or received by such Member on such Interest Rate Agreement; provided that the long-term credit rating of the provider of such Interest Rate Agreement (or any guarantor thereof) is in one of the three highest rating categories of any Rating Agency (without regard to any refinements of gradation of rating category by numerical modifier or otherwise) or is at least as high as that of the RHF Obligated Group. In addition, so long as any Indebtedness is deemed to bear interest at a rate taking into account an Interest Rate Agreement, any payments made by a Member on such Interest Rate Agreement shall be excluded from expenses and any payments received by a Member on such Interest Rate Agreement shall be excluded from revenues for all purposes of the Master Indenture, including calculation of Maximum Annual Debt Service.

“Member” or “Member of the Obligated Group” means any Person who is a Member of the National Obligated Group and any Person who is a Member of the California Obligated Group, as applicable, pursuant to the terms of the Master Indenture.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, and its successors and assignor, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Obligated Group Representative.

“Mortgaged Property” means the real property and personal property of the Borrowers which is subject to the lien and security interest of the Mortgage.

“Mortgage(s)” is defined below under “SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES—General.”

“National Master Indenture” means that National Master Trust Indenture dated as of July 1, 2008, by and among the Members of the National Obligated Group, the Foundation, solely as

C-8 Obligated Group Representative, and the National Master Trustee, as previously supplemented and amended, as supplemented and amended by the Fifth Supplemental National Master Indenture, and as it may from time to time be further amended or supplemented in accordance with the terms thereof.

“National Master Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association, as master trustee under the National Master Indenture, or its successors.

“National Obligated Group” means Holly Hill RHF Housing, Inc., a Florida not-for-profit corporation, Merritt Island RHF Housing, Inc., a Florida not-for-profit corporation, Yellowwood Acres, Inc., an Indiana not-for-profit corporation, Bluegrass RHF Housing, Inc., a Kentucky not- for-profit corporation, DeSmet RHF Housing, Inc., a Missouri not-for-profit corporation, and St. Catherine RHF Housing, Inc., a Missouri not-for-profit corporation.

“National Obligated Group Guaranties” means, collectively, the Guaranty Agreements, each dated as of July 1, 2008, delivered by each member of the National Obligated Group in favor of the California Master Trustee guarantying the payment of the Obligations and the performance of the obligations of the California Obligated Group under the California Master Indenture.

“Obligated Group” means the National Obligated Group or the California Obligated Group, as applicable.

“Obligated Group Representative” means RHF or such other Member as may be designated as such pursuant to the Master Indenture.

“Obligation” means any obligation of the Obligated group issued under the Master Indenture, as a joint and several obligation of each Member, which may be in any form set forth in a Related Supplement, including, but not limited to, bonds, obligations, debentures, reimbursement agreements, loan agreements or leases. Reference to a “series of Obligations” or to “Obligations of a series” means Obligations or a series of Obligations issued pursuant to a single Related Supplement.

“Officer’s Certificate” means a certificate signed by the Authorized Representative of the Obligated Group Representative.

“Official Statement” means the Official Statement related to the Series 2017A Bonds and the Series 2017B Bonds.

“Offering Circular” means the Offering Circular related to the Series 2017C Taxable Bonds and the Series 2017D Taxable Bonds.

“Opinion of Bond Counsel” means a written opinion signed by an attorney or firm of attorneys acceptable to the Master Trustee and experienced in the field of public finance whose opinions are generally accepted by purchasers of bonds issued by or on behalf of a Government Issuer.

C-9 “Opinion of Counsel” means an opinion in writing signed by an attorney or firm of attorneys who may be counsel for the Obligated Group Representative, or other counsel acceptable to the Master Trustee.

“Outstanding,” when used with reference to Indebtedness, means, as of any date of determination, all Indebtedness theretofore issued or incurred and not paid and discharged other than (a) Obligations theretofore cancelled by the Master Trustee or delivered to the Master Trustee for cancellation, (b) Obligations in lieu of which other Obligations have been authenticated and delivered or have been paid pursuant to the provisions of a Related Supplement regarding mutilated, destroyed, lost or stolen Obligations unless proof satisfactory to the Master Trustee has been received that any such Obligation is held by a bona fide purchaser, (c) any Obligation held by any Member, and (d) Indebtedness deemed paid and no longer outstanding pursuant to the terms thereof; provided, however, that if two or more obligations which constitute Indebtedness represent the same underlying obligation (as when an Obligation secures an issue of Related Bonds and another Obligation secures repayment obligations to a bank under a letter of credit which secures such Related Bonds) for purposes of the various financial covenants contained in the Master Indenture, but only for such purposes, only one of such Obligations shall be deemed Outstanding and the Obligation so deemed to be Outstanding shall be that Obligation which produces the greater amount of Annual Debt Service and/or Maximum Annual Debt Service to be included in the calculation of such covenants. Interest Rate Agreements shall not be deemed Outstanding as they are not deemed Indebtedness.

“Permitted Encumbrances” shall have the meaning and include:

(a) Liens securing Obligations, including the Pledge Agreement and the First Mortgages;

(b) The Second Mortgages running to the Master Trustee under the Master Indenture, securing the California Obligated Group Guaranties or the National Obligated Group Guaranties, as applicable;

(c) Liens arising by reason of good faith deposits by a Member in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any Member to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pensions or profit sharing plans or other social security plans or programs, or to share in the privileges or benefits required for corporations participating in such arrangements;

(d) Liens arising by reason of good faith deposits by any Member in the ordinary course of business (for other than borrowed money), deposits by any Member to secure public or

C-10 statutory obligations or deposits to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges;

(e) any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental entity as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pension or profit-sharing plans or other similar social security plans, or to share in the privileges or benefits required for companies participating in such arrangements;

(f) any judgment Lien against any Member so long as such judgment is being contested in good faith and execution thereon is stayed;

(g) rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law affecting any Property, to:

(1) terminate such right, power, franchise, grant, license, or permit, provided, that the exercise of such right would not materially impair the use of such Property or materially and adversely affect the value thereof; or

(2) purchase, condemn appropriate or recapture, or designate a purchaser of, the Property or any portion thereof;

(h) any Liens on any Property of any Member for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any Liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to Liens of mechanics, materialmen, laborers, suppliers or vendors, have been due for less than 120 days;

(i) easements, rights-of-way, servitudes, restrictions, oil, gas, or other mineral reservations and other minor defects, encumbrances, and irregularities in the title to any of the Property which do not materially impair the use of such Property or materially and adversely affect the value thereof,

(j) rights reserved to or vested in any municipality or public authority to control or regulate any of the Property or to use such Property in any manner, which rights do not materially impair the use of such Property or materially and adversely affect the value thereof, to the extent that it affects title to any Property;

(k) landlord’s Liens;

C-11 (l) Liens on moneys deposited with any Member as security for or as prepayment for the cost of patient care, patient trust accounts, prepaid rent, entrance fees and security deposits;

(m) Liens on Property received by any Member through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests or the income thereon;

(n) Liens on Property due to rights of third-party payors for recoupment of amounts paid to any Member;

(o) Purchase of money security interest and security interest existing on any of the Property prior to the time of its acquisition through purchase, merger, consolidation, or otherwise, or placed upon Property to secure a portion of the purchase price thereof, or lessee’s interest in leases required to be capitalized in accordance with generally accepted accounting principles;

(p) Any Lien described in the Master Indenture which is existing on the date of execution of the Master Indenture provided that no such Lien (or the amount of Indebtedness secured thereby) may be increased, extended, renewed or modified to apply to any Property of any Member not subject to such Lien on such date, unless such Lien as so extended, renewed or modified otherwise qualifies as a Permitted Encumbrance under the Master Indenture:

(q) Liens securing the termination payment on an Interest Rate Agreement;

(r) Liens securing subordinated Indebtedness;

(s) resident security deposits to cover damage and unpaid rent; or

(t) patient trust and resident accounts.

“Person” means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Pledge Agreement” means means the Gross Revenue Pledge Agreement dated as of July 1, 2008, as amended, from each of the members of the RHF Obligated Group to The Bank of New York Mellon Trust Company, N.A., as collateral agent, for the benefit of the National Master Trustee and the California Master Trustee.

“Primary Obligor” means that Member or those Members primarily obligated to make Required Payments with respect to any particular Obligation as set forth in a Related Supplement.

“Property” means any and all rights, titles and interests in and to any and all assets of the Obligated Group, whether real or personal, tangible or intangible and wherever situated, as shown on the most recent audited financial statements for the RHF Obligated Group for the most recent Fiscal Year for which they are available.

C-12 “Rating Agency” means Moody’s, Standard & Poor’s or Fitch and their respective successors and assigns.

“Related Bond Indenture” means any indenture, trust agreement, bond resolution or other comparable instrument pursuant to which a series of Related Bonds are issued or executed and delivered.

“Related Bond Trustee” means the trustee and its successors in the trusts created under any Related Bond Indenture, and if there is no such trustee, means the Related Bond Issuer.

“Related Bond Issuer” means the Government Issuer of any issue of Related Bonds.

“Related Bonds” means any revenue bonds, certificates of participation or other obligations issued or executed and delivered by a Government Issuer, pursuant to a single Related Bond Indenture, the proceeds of which are loaned or otherwise made available to a Member in consideration of the execution, authentication and delivery of an Obligation or Obligations to or for the order of such Government Issuer.

“Related Loan Document” means any document pursuant to which any proceeds of any Related Bonds are made available to any Member or RHF.

“Related Supplement” means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master Indenture.

“Required Payment” means any payment whether at maturity, by acceleration, upon proceeding for redemption or otherwise, required to be made by any Member under the Master Indenture, any Related Supplement, any Obligation or any loan agreement, reimbursement agreement or other agreement or instrument evidenced or secured by any Obligation, or otherwise in connection with a Financing, including, but not limited to, the payment of principal, interest and premium, letter of credit reimbursement and lease payments.

“Responsible Officer” means, with respect to the Master Trustee, the chairman and vice chairman of the board of directors, the chairman of the executive committee of the board of directors, the vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer, any assistant trust officer or any other officer of the Master Trustee customarily performing functions similar to those performed by the persons above-designated or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject. With respect to RHF, “Responsible Officer” means the president or any vice president of RHF.

“RHF” means Retirement Housing Foundation, Inc., a California nonprofit public benefit corporation, duly organized and existing under the laws of the State of California, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets.

C-13 “RHF/FPM Guaranty” means the Guaranty Agreement dated as of July 1, 2008 delivered by the Foundation and FPM in favor of the Master Trustee guarantying the payment of the Obligations and the performance of the obligations of the Obligated Group under the Master Indenture.

“RHF Obligated Group” means, collectively, the Members of the California Obligated Group, the Members of the National Obligated Group, RHF and FPM.

“Second Mortgages” is defined below under “SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES—General.”

“Series 2017 California Obligations” means the Series 2017A Obligation and the Series 2017C Obligation.

“Series 2017 National Obligations” means the Series 2017B Obligation and the Series 2017D Obligation.

“Series 2017 Obligations” means the Series 2017A Obligation, the Series 2017B Obligation, the Series 2017C Obligation and the Series 2017D Obligation.

“Series 2017 Bonds” means the Series 2017A Bonds, the Series 2017B Bonds, the Series 2017C Taxable Bonds and the Series 2017D Taxable Bonds.

“Series 2017A Bonds” means the $______aggregate principal amount of California Municipal Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017A.

“Series 2017A Obligation” means the Retirement Housing Foundation Series 2017A California Direct Note Obligation.

“Series 2017B Bonds” means the $______aggregate principal amount of Public Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017B.

“Series 2017B Obligation” means the Retirement Housing Foundation Series 2017B National Direct Note Obligation.

“Series 2017C Obligation” means the Retirement Housing Foundation Series 2017C California Direct Note Obligation.

“Series 2017C Taxable Bonds” means the $______aggregate principal amount of Retirement Housing Foundation Obligated Group Taxable Bonds, Series 2017C.

“Series 2017D Obligation” means the Retirement Housing Foundation Series 2017D National Direct Note Obligation.

C-14 “Series 2017D Taxable Bonds” means the $______aggregate principal amount of Retirement Housing Foundation Obligated Group Taxable Bonds, Series 2017D.

“Short-Term Indebtedness” means all Indebtedness having an original maturity less than or equal to one year and not renewable at the option of a Member for a term greater than one year.

“Standard & Poor’s” means Standard & Poor’s Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Standard & Poor’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Representative.

“Subordinated Indebtedness” means Indebtedness incurred by a Member which by its terms is specifically subordinated with respect to any security therefor and with respect to right of payment to all Outstanding Obligations and to all other obligations of a Member not containing such subordination provisions.

“Supplemental Master Indenture” means, individually and jointly, the Fifth Supplemental California Master Indenture and the Fifth Supplemental National Master Indenture.

“Tax-Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code and exempt from federal income taxes under Section 501(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

“Total Operating Revenues” means the sum of total unrestricted operating revenues as shown on the consolidated or combined financial statements of the RHF Obligated Group, determined in accordance with generally accepted accounting principles.

“Trust Property” means the real property and personal property of the Borrowers which is subject to the lien and security interest of the Mortgage.

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURES

GENERAL

The California Master Indenture and the National Master Indenture, each as supplemented and amended (individually and jointly, the “Master Indenture”), authorize RHF, as Obligated Group Representative, and each Member to issue Obligations, including the Series 2017 Obligations, which are full and unlimited obligations of the respective Obligated Group. The Obligations are joint and several obligations of the current and future Members of the Obligated Group. The California Master Indenture and the National Master Indenture contain substantially similar provisions and therefore have been summarized together.

C-15 Set forth below is a summary of certain provisions of the Master Indenture which will be effective during the period the Series 2017 Bonds are Outstanding. There are other covenants and provisions of the Master Indentures, primarily relating to restrictions imposed on the Obligated Group with respect to debt service coverage requirements, the incurrence of additional indebtedness and certain other matters, which are not summarized here. The summary is not comprehensive and reference is made to the applicable Master Indenture for a complete recital of its terms.

AUTHORIZATION OF OBLIGATIONS

Each Member authorizes to be issued from time to time Obligations or series of Obligations, without limitation as to amount, except as provided in the Master Indenture or as may be limited by law. The issuance of any additional Obligation or series of Obligations requires that the Obligated Group Representative and the Master Trustee enter into a Related Supplement providing for the terms and conditions of such Obligations and the repayment thereof, and is subject to the terms, conditions and limitations established in the Master Indenture and in any Related Supplement.

PARTICULAR COVENANTS OF THE OBLIGATED GROUP REPRESENTATIVE AND EACH MEMBER

Payment of Principal and Interest. Each Member jointly and severally covenants and agrees to pay or cause to be paid promptly all Required Payments at the place, on the dates and in the manner provided in the Master Indenture, in any Related Supplement and in the Obligations whether at maturity, upon proceedings for redemption, by acceleration or otherwise, and that each Member shall faithfully observe and perform all of the conditions, covenants and requirements of the Master Indenture, any Related Supplement and any Obligation, and that the time of such payment and performance is of the essence concerning the obligations in the Master Indenture.

Covenants as to Maintenance of Properties, Etc. Each Member, respectively, covenants and agrees:

(a) That it will operate and maintain its real Property in accordance with all valid and applicable governmental laws, ordinances, approvals and regulations including, without limitation, such zoning, sanitary, pollution and safety ordinances and laws and such rules and regulations thereunder as may be binding upon it; provided, however, that no Member shall be required to comply with any law, ordinance, approval or regulation as long as it shall in good faith contest the validity thereof. Each Member, respectively, further covenants and agrees that it will maintain and operate its real Property and all engines, boilers, pumps, machinery, apparatus, fixtures, fittings and equipment of any kind in or that shall be placed in any building or structure now or hereafter at any time constituting part of its real Property in good repair, working order and condition, and that it will from time to time make or cause to be made all needful and proper replacements, repairs, renewals and improvements so that the operations of such Member will not be materially impaired.

C-16 (b) That it will pay and discharge all applicable taxes, assessments, governmental charges of any kind whatsoever, water rates, meter charges and other utility charges which may be or have been assessed or which may have become liens upon the Obligated Group’s real Property and will make such payments or cause such payments to be made, respectively, in due time to prevent any delinquency thereon or any forfeiture or sale of the real Property or any part thereof, and, upon request, will furnish to the Master Trustee receipts for all such payments, or other evidences satisfactory to the Master Trustee; provided, however, that no Member shall be required to pay any tax, assessment, rate or charge as provided in the Master Indenture as long as it shall in good faith contest the validity thereof, provided that such Member shall have set aside reserves with respect thereto that, in the opinion of the Governing Body of the Obligated Group Representative, are adequate.

(c) That it will pay or otherwise satisfy and discharge all of its Obligations and Indebtedness and all demands and claims against it as and when the same become due and payable, other than any thereof (exclusive of the Obligations issued and Outstanding under the Master Indenture) whose validity, amount or collectability is being contested in good faith.

(d) That it will at all times comply with all terms, covenants and provisions of any Liens at such time existing upon its Property or any part thereof or securing any of its Indebtedness noncompliance with which would have a material adverse effect on the operations of the RHF Obligated Group or its Property.

(e) That it will use its best efforts (as long as it is in its best interest and will not materially adversely affect the interests of the Holders) to procure and maintain all permits, licenses and other governmental approvals necessary for the operation of its real Property and to maintain its qualification for participation in and payment under private insurance programs having broad application and federal, state and local governmental programs providing for payment or reimbursement for services rendered.

(f) That it will take no action or suffer any action to be taken by others which would result in the interest on any Related Bonds issued as tax-exempt bonds becoming subject to federal income taxation.

Insurance Required. Each Member, respectively, covenants and agrees that it will keep its Property and all of its operations adequately insured at all times and carry and maintain such insurance in amounts which are commercially feasible, customarily carried, subject to customary deductibles, and against such risks as are customarily insured against by other corporations in connection with the ownership and operation of facilities of similar character and size.

Against Encumbrances. Each Member covenants not to create, assume or suffer to exist any Lien upon the Property other than Permitted Encumbrances. Each Member, respectively, further covenants and agrees that if such a Lien is created or assumed by any Member, it will make or cause to be made effective a provision whereby all Obligations will be secured prior to any such Indebtedness or other obligation secured by such Lien.

C-17 LIMITATIONS ON ADDITIONAL INDEBTEDNESS

Each Member, respectively, agrees that it will not incur any Additional Indebtedness except as follows:

(a) Long-Term Indebtedness, provided that:

(1) the aggregate principal amount of such Long-Term Indebtedness and all other Outstanding Long-Term Indebtedness incurred pursuant to this clause (1) does not exceed 10% of the Total Operating Revenues of the RHF Obligated Group for the most recent Fiscal Year for which audited financial statements are available immediately preceding the issuance of such Long-Term Indebtedness (provided that to the extent Long-Term Indebtedness initially incurred pursuant to this clause subsequently complies with any other incurrence requirement, such Long-Term Indebtedness shall, at the option of the Obligated Group Representative, thereafter not be deemed to be incurred pursuant to this clause); or

(2) the Master Trustee receives an Officer’s Certificate certifying the Long-Term Debt Service Coverage Ratio, taking into account all Outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred, for the most recent complete Fiscal Year for which audited financial statements are available, is not less than 1.15:1; or

(3) the Master Trustee receives:

(A) an Officer’s Certificate certifying that, taking into account all Outstanding Long-Term Indebtedness but not the Long-Term Indebtedness proposed to be incurred, for each of the two most recent Fiscal Years for which audited financial statements are available, the Long-Term Debt Service Coverage Ratio is not less than 1.15:1; and

(B) either (i) an Officer’s Certificate, accompanied by the written report of an Independent Consultant, stating the forecasted Long-Term Debt Service Coverage Ratio, taking into account the Long-Term Indebtedness proposed to be incurred, for (x) in the case of Long-Term Indebtedness to finance capital improvements, the two Fiscal Years succeeding the date on which such capital improvements are expected to be in operation or (y) in the case of Long-Term Indebtedness issued for other purposes than are described in (x), the two Fiscal Years succeeding the date on which the proposed Long-Term Indebtedness is to be incurred, is not less than 1.25:1, as shown by forecasted statements of revenues and expenses for such Fiscal Years, accompanied by a statement of the relevant assumptions upon which such forecasted statements are based; or (ii) an Officer’s Certificate stating the forecasted Long-Term Debt Service Coverage Ratio, taking into account the Long-Term Indebtedness proposed to be incurred, for (x) in the case of Long-Term Indebtedness to finance capital

C-18 improvements, the two Fiscal Years succeeding the date on which such capital improvements are expected to be in operation or (y) in the case of Long-Term Indebtedness issued for other purposes than are described in (x), the two Fiscal Years succeeding the date on which the proposed Long-Term Indebtedness is to be incurred, is not less than 1.40:1, as shown by forecasted statements of revenues and expenses for such Fiscal Years, accompanied by a statement of the relevant assumptions upon which such forecasted statements are based; or

(4) the Master Trustee receives an Officer’s Certificate, accompanied by the written report of an Independent Consultant, stating the forecasted Long-Term Debt Service Coverage Ratio, taking into account the Long-Term Indebtedness proposed to be incurred, for (A) in the case of Long-Term Indebtedness to finance capital improvements, the two Fiscal Years succeeding the date on which such capital improvements are expected to be in operation or (B) in the case of Long-Term Indebtedness issued for other purposes than are described in (A), the two Fiscal Years succeeding the date on which the proposed Long-Term Indebtedness is to be incurred, is not less than 1.50:1, as shown by forecasted statements of revenues and expenses for such Fiscal Years, accompanied by a statement of the relevant assumptions upon which such forecasted statements are based.

(b) Completion Indebtedness in an amount up to 10% of the principal amount of the Long-Term Indebtedness incurred for the Property for which the debt was incurred, if there is delivered to the Master Trustee (i) a certificate of an architect, a construction consultant or another expert acceptable to the Master Trustee stating the amount necessary to complete the acquisition, construction and/or equipping in accordance with the general plans and specifications for such facility as originally prepared and approved in connection with the incurrence of the Long-Term Indebtedness, and to provide a completed and fully equipped facility of the type and scope contemplated at the time the original Long-Term Indebtedness was incurred, and (ii) an Officer’s Certificate stating that the proceeds of such Completion Indebtedness are in an amount estimated to be sufficient, together with other identified funds of the relevant Member, to complete the facility within the parameters described in clause (i) above.

(c) Long-Term Indebtedness incurred for the purpose of refunding, refinancing or replacing any Outstanding Long-Term Indebtedness so as to render it no longer Outstanding if the Master Trustee receives an Officer’s Certificate to the effect that Maximum Annual Debt Service, taking into account the Long-Term Indebtedness proposed to be incurred, will not be increased by more than 15% as a result of such refunding, refinancing or replacement.

C-19 (d) Short-Term Indebtedness provided that:

(1) such Short-Term Indebtedness is incurred in compliance with the provisions in clause (a) above, treating such Short-Term Indebtedness for such purposes only as if it were Long-Term Indebtedness; or

(2) (i) the total amount of such Short-Term Indebtedness does not exceed 10% of Total Operating Revenues of the RHF Obligated Group for the most recent Fiscal Year for which audited financial statements are available; and (ii) in every Fiscal Year, there shall be at least a 30-day period when the balance of such Short-Term Indebtedness is reduced to an amount which shall not exceed 5% of Total Operating Revenues of the RHF Obligated Group for the most recent Fiscal Year for which audited financial statements of the RHF Obligated Group are available.

(e) Subordinated Indebtedness without limitation.

(f) Balloon Indebtedness or Interim Indebtedness provided that the conditions described in clause (a) above are satisfied with respect to the incurrence of such Balloon Indebtedness or Interim Indebtedness utilizing the assumptions specified in clause (c) of the definition of “Maximum Annual Debt Service” under “DEFINITION OF CERTAIN TERMS” above.

(g) Extendable Indebtedness provided that the conditions described in clause (a) above are satisfied with respect to the incurrence of such Extendable Indebtedness utilizing the assumptions specified in clause (d) of the definition of “Maximum Annual Debt Service” under “DEFINITION OF CERTAIN TERMS” above.

(h) Reimbursement and other obligations arising under reimbursement agreements relating to letters of credit or similar credit facilities used to secure Indebtedness otherwise permitted under the Master Indenture as described under this subheading.

(i) Indebtedness which is non-recourse to any member of the RHF Obligated Group.

RESTRICTIONS ON GUARANTIES

Each Member, respectively, covenants and agrees that it will not enter into, or become liable on, any Guaranty except (a) the Guaranties in effect as of the execution date of the Master Indenture, (b) the Guaranties of Indebtedness of another member of the RHF Obligated Group including without limitations the guaranties identified in the Master Indenture, (c) the Guaranties of Obligations issued under the California Master Indenture or under the National Master Indenture, (d) any other Guaranty provided that the conditions described in clause (a) under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” above are satisfied with respect to the issuance of such Guaranty utilizing the assumptions specified in clause (a) of the definition of “Maximum

C-20 Annual Debt Service” under “DEFINITION OF CERTAIN TERMS” above, or (e) Guaranties issued pursuant to this clause (e), the outstanding aggregate principal amount of which, together with the outstanding aggregate principal amount of all Guaranties (as defined in the RHF/FPM Guaranty) of the Obligated Group Representative and FPM issued under the RHF/FPM Guaranty and the outstanding aggregate principal amount of all California Obligated Group Guaranties, with respect to the National Master Indenture, or the National Obligated Group Guaranties, with respect to the California Master Indenture, each issued pursuant to the terms of this clause (e), does not exceed $20,000,000.

RATES AND CHARGES; DEBT COVERAGE

(A) Each Member covenants and agrees to operate all of its Property in the aggregate on a revenue-producing basis and to charge such fees and rates for its facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its facilities together with other available funds sufficient to pay promptly all payments of principal, interest and other amounts due in respect of its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it under the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of the Master Indenture summarized under this subheading.

Within 150 days after the end of each Fiscal Year (commencing with the first full Fiscal Year following the execution of the Master Indenture) the Obligated Group Representative shall compute Income Available for Debt Service and Annual Debt Service and promptly furnish to the Master Trustee a Certificate setting forth the results of such computation.

(B) If the Debt Service Coverage Ratio of the RHF Obligated Group for any Fiscal Year is less than 1.15:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to retain an Independent Consultant within 60 days following the calculation described in the immediately preceding paragraph to make recommendations with respect to the rates, fees and charges and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such historical Debt Service Coverage Ratio to at least 1.15:1 for the following Fiscal Year.

If a written report of an Independent Consultant is delivered to the Master Trustee stating that Industry Restrictions have made it impossible for the ratio in subparagraph (A) above to be met, then such ratio shall be reduced to 1.00:1 for such Fiscal Year.

A copy of the Independent Consultant’s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Related Bond Trustee within 60 days of retaining the Independent Consultant. Each Member shall follow each recommendation of the Independent Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. The provisions of the Master Indenture summarized under this subheading are not to be construed to prohibit any Member from serving indigent patients to the extent required for such Member to continue its qualification as a Tax-

C-21 Exempt Organization or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of the Master Indenture summarized under this subheading.

SALE, LEASE OR OTHER DISPOSITION OF PROPERTY

Each Member agrees that it will not, in any consecutive 12-month period, sell, lease or otherwise dispose (including without limitation any involuntary disposition) of Property (either real or personal property, including cash and investments) unless (1) the Property transferred, together with all other Property transferred by Members in transactions other than those described in subsection (b) hereof, does not exceed 3% of the total assets of the of the RHF Obligated Group (as shown on the most recent audited financial statements of the RHF Obligated Group delivered to the Master Trustee), (2) the historical Debt Service Coverage Ratio of the RHF Obligated Group was not less than 1.15:1 for the most recent Fiscal Year for which audited financial statements have been delivered to the Master Trustee and (3) as of the end of the last fiscal quarter for which financial statements have been delivered to the Master Trustee as required under the Master Indenture, the RHF Obligated Group had not less than 120 Days’ Cash on Hand after giving effect to the transaction. If the historical Debt Service Coverage Ratio is not less than 1.15:1, the foregoing percentage of the total assets may be increased as follows under the following conditions:

(i) to 5%, if Days’ Cash on Hand would not be less than 200 after the effect of such sale, lease or disposition of assets; or

(ii) to 7.5%, if Days’ Cash on Hand would not be less than 300 after the effect of such sale, lease or disposition of assets; or

(iii) to 10%, if Days’ Cash on Hand would not be less than 400 after the effect of such sale, lease or disposition of assets.

Notwithstanding the foregoing, Property in excess of the transfers permitted by the provisions of the Master Indenture described in the immediately preceding paragraph may be transferred in any consecutive 12-month period in the following transfers or other dispositions of Property:

(1) the transfer is in return for other Property of equal or greater value and usefulness; or

(2) the transfer is in the ordinary course of business upon fair and reasonable terms; or

C-22 (3) prior to such sale, lease or other disposition there is delivered to the Master Trustee an Officer’s Certificate of a Member stating that, in the judgment of the signer, such Property has, or within the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease or other disposition thereof will not impair the structural soundness, efficiency or economic value of the remaining Property; or

(4) such Property consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Obligations; or

(5) the transfer is from a Member to another member of the RHF Obligated Group.

If any Property to be disposed in accordance with the provisions of the Master Indenture summarized under this subheading is subject to a Lien, the Master Trustee shall, upon the request of the Obligated Group Representative, release such Property from the Lien pursuant to the terms of any documentation creating the Lien.

None of the provisions of the Master Indenture will prohibit any Member from making secured or unsecured loans provided that (1) any such loan is evidenced in writing, (2) the Obligated Group Representative reasonably expects such loan to be repaid and (3) such loan bears interest at a reasonable rate of interest as determined in good faith by the Obligated Group Representative.

LIQUIDITY COVENANT

The Obligated Group covenants that it will calculate the Days Cash on Hand of the RHF Obligated Group as of March 31 and September 30 of each Fiscal Year (each such date being a “Testing Date”). The Obligated Group shall include such calculations in the Officer’s Certificate delivered pursuant to the provisions of the Master Indenture described in clause (B)(1) under “FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION” below.

Each Member is required to conduct its business so that on each Testing Date the RHF Obligated Group, collectively, shall have not less than 120 Days Cash on Hand for each Testing Date.

C-23 If the RHF Obligated Group has not achieved 120 Days Cash on Hand by the next Testing Date following delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group Representative shall, within 60 days after receipt of the Officer’s Certificate disclosing such deficiency, retain an Independent Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand to the required level for future periods. A copy of the Independent Consultant’s report and recommendations if any, which report for the California Obligated Group and the National Obligated Group may be combined into a single report, is required to be filed with each Member, the Master Trustee and the Related Bond Trustee within 60 days of the date such Independent Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Independent Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.

Notwithstanding any other provision of the Master Indenture, failure of the RHF Obligated Group to achieve the required liquidity covenant for any Fiscal Year shall not constitute an Event of Default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law.

APPROVAL OF CONSULTANTS

If at any time the Members of the Obligated Group are required to engage an Independent Consultant under the provisions of the Master Indenture summarized under “RATES AND CHARGES; DEBT COVERAGE” and “LIQUIDITY COVENANT” above, such Independent Consultant shall be engaged in the manner set forth below in the provisions summarized under this subheading.

Upon selecting an Independent Consultant as required by the provisions of the Master Indenture, the Obligated Group Representative will notify the Master Trustee of such selection. The Master Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the Holders of all Obligations outstanding of such selection. Such notice shall (i) include the name of the Independent Consultant and a brief description of the Independent Consultant, (ii) state the reason that the Independent Consultant is being engaged including a description of the covenant(s) of the Master Indenture that require the Independent Consultant to be engaged, and (iii) state that the Holder of the Obligation will be deemed to have consented to the selection of the Independent Consultant named in such notice unless such Obligation Holder submits an objection to the selected Independent Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within thirty (30) days of the date that the notice is sent to the Obligation Holders. No later than two Business Days after the end of the thirty (30) day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If two-thirds (66.6%) or more in aggregate principal amount of the Holders of the outstanding Obligations have been deemed to have consented to the selection of the Independent Consultant, the Obligated Group Representative may engage the Independent Consultant within five days of receiving notice of that consent. If more than one-third (33.3%) in aggregate principal amount of the owners of the Obligations outstanding have objected to the Independent Consultant selected,

C-24 the Obligated Group Representative shall select another Independent Consultant within fourteen (14) days after receiving notice of such objection which may be engaged upon compliance with the procedures of the provisions summarized under this subheading.

When the Master Trustee notifies the Holders of Obligations of such selection, the Master Trustee shall also request any Related Bond Trustee send a notice containing the required information described in the second paragraph under this subheading to the owners of all of the Related Bonds outstanding. Such Related Bond Trustee shall, as the owner of an Obligation securing such Related Bonds, consent or object to the selection of the Independent Consultant in accordance with the response of the owners of such Related Bonds. If two-thirds (66.6%) or more in aggregate principal amount of the Related Bonds have been deemed to have consented to the selection of the Independent Consultant, the Related Bond Trustee shall approve the Independent Consultant within five (5) days of receiving notice of that consent. If more than one-third (33.3%) in aggregate principal amount of the owners of the Related Bonds have objected to the Independent Consultant selected, the Related Bond Trustee shall reject the Independent Consultant within fourteen (14) days after receiving notice of such objection.

The 30-day notice period described in the second paragraph under this subheading may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 30 days to respond to the notice given by the Related Bond Trustee. By acceptance of an Obligation securing any Related Bonds, the Related Bond Trustee agrees to comply with the provisions of the Master Indenture summarized under this subheading.

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

(a) Each Member agrees that it will not merge into, or consolidate with, one or more corporations which are not members of the RHF Obligated Group, or allow one or more of such corporations to merge into it, or sell or convey all or substantially all of its Property to any Person who is not a member of the RHF Obligated Group, unless:

(1) Any successor corporation to such Member (including without limitation any purchaser of all or substantially all the Property of such Member) is a Person (other than a natural person) organized and existing under the laws of the United States of America or a state thereof and shall execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such successor to assume, jointly and severally, the due and punctual payment of the principal of, premium, if any, and interest on all Obligations according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Master Indenture to be kept and performed by such Member;

(2) Immediately after such merger or consolidation, or such sale or conveyance, no Member would be in default in the performance or observance of any covenant or condition of any Related Loan Document or the Master Indenture;

(3) Assuming that any Indebtedness of any successor or acquiring corporation is Indebtedness of such Member and that the revenues and expenses of the Member for such most recent Fiscal Year include the revenues and expenses of such other corporation (A) immediately

C-25 after such merger or consolidation, sale or conveyance, the Long-Term Debt Service Coverage Ratio of the RHF Obligated Group for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available, if calculated on a pro forma basis including the effect of such merger or consolidation, sale or conveyance, would have been not less than 1.15:1, or that such pro forma Long-Term Debt Service Coverage Ratio of the RHF Obligated Group is not less than the Long-Term Debt Service Coverage Ratio of the RHF Obligated Group was for such Fiscal Year prior to such merger or consolidation, sale or conveyance and (B) immediately after such merger or consolidation, sale or conveyance, the Days Cash on Hand of the RHF Obligated Group as set forth on the most recent quarterly financial statements delivered to the Master Trustee pursuant to the provisions of the Master Indenture summarized under “FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION” below would be not less than 120 or that such calculation of Days Cash on Hand of the RHF Obligated Group is greater than such calculation would be immediately prior to such merger or consolidation, sale or conveyance;

(4) If all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or fully provided for, there shall be delivered to the Master Trustee an Opinion of Bond Counsel to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not adversely affect the validity of such Related Bonds or the exemption otherwise available from federal or state income taxation of interest payable on such Related Bonds; and

(5) If any Related Bonds were rated by a Rating Agency prior to such merger, consolidation, sale or conveyance, written evidence that, after such merger, consolidation, sale or conveyance, all Related Bonds will have a rating of at least “BBB-” (or an equivalent rating) from at least one Rating Agency, or that such rating is equivalent to or better than immediately before such merger, consolidation, sale or conveyance.

(b) In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for its predecessor, with the same effect as if it had been named in the Master Indenture as such Member. Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the conditions of the Master Indenture described under “THE OBLIGATED GROUP – Membership in Obligated Group” below to becoming, a Member of the Obligated Group prior to any such succession, assignment or other change in such Member’s corporate status. Any successor corporation to such Member thereupon may cause to be signed and may issue in its own name Obligations under the Master Indenture and the predecessor corporation shall be released from its obligations under the Master Indenture and under any Obligations, if such predecessor corporation shall have conveyed all Property owned by it (or all such Property shall be deemed, conveyed by operation of law) to such successor corporation. All Obligations so issued by such successor corporation under the Master Indenture shall in all respects have the same legal rank and benefit under the Master Indenture as Obligations theretofore or thereafter issued in accordance with the terms of the Master Indenture as though all of such Obligations had been issued under the Master Indenture by such prior Member without any such consolidation, merger, sale, or conveyance having occurred.

C-26 (c) In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in Obligations thereafter to be issued as may be appropriate.

(d) The Master Trustee may rely upon an opinion of Independent Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of the Master Indenture summarized under this subheading and that it is proper for the Master Trustee under the provisions of the Master Indenture summarized under this subheading and other related provisions under the Master Indenture, to join in the execution of any instrument required to be executed and delivered in accordance with the provisions of the Master Indenture summarized under this subheading.

FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION

(A) The Members covenant that they will keep or cause to be kept proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the RHF Obligated Group in accordance with generally accepted principles of accounting consistently applied except as may be disclosed in the notes to the audited financial statements referred to in subparagraph (B) below. To the extent that generally accepted accounting principles would require consolidation of certain financial information of entities which are not members of the RHF Obligated Group with financial information of one or more members, consolidated financial statements prepared in accordance with generally accepted accounting principles which include information with respect to entities which are not members of the RHF Obligated Group may be delivered in satisfaction of the requirements of the Master Indenture summarized under this subheading so long as: (i) supplemental information in sufficient detail to separately identify the information with respect to the members of the RHF Obligated Group is delivered to the Master Trustee with the audited financial statements; (ii) such supplemental information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements delivered to the Master Trustee and, in the opinion of the accountant, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole; and (iii) such supplemental information is used for the purposes of the Master Indenture or for any agreement, document or certificate executed and delivered in connection or pursuant to the Master Indenture.

(B) The Obligated Group Representative will furnish or cause to be furnished to the Master Trustee, any Government Issuer, and all Bondholders who hold $500,000 or more of any Related Bonds and request such reports in writing (which written request shall include a certification as to such ownership), the following:

(1) Quarterly unaudited financial statements of the RHF Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of the first three fiscal quarters of each Fiscal Year or 60 days after the completion of the fourth fiscal quarter of each Fiscal Year, including a combined or combining statement of revenues and expenses and statement of cash flows of the RHF Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, a calculation of the Days Cash on Hand for the second and last

C-27 fiscal quarters of each year as required by the provisions of the Master Indenture summarized under “LIQUIDITY COVENANT” above, a calculation of Debt Service Coverage Ratio for the last fiscal quarter as required by the Master Indenture and described under “ RATES AND CHARGES; DEBT COVERAGE” above, and occupancy statistics by level of care as of the end of the last fiscal quarter, all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative, and an Officer’s Certificate of the Obligated Group Representative stating that the RHF Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specify all such defaults and the nature thereof;

(2) Within 150 days of the end of each Fiscal Year, an annual audited financial report of the RHF Obligated Group prepared by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year and a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, and a statement that such accountants have no knowledge of any default related to the financial covenants under the Master Indenture, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof;

(3) With the audited financial report, the Obligated Group Representative shall deliver a written statement of the Obligated Group Representative containing calculations of the RHF Obligated Group’s Debt Service Coverage Ratio for said Fiscal Year and of the RHF Obligated Group’s Days Cash on Hand as of the last day of such Fiscal Year; and

(4) Copies of the board-approved annual budget for the RHF Obligated Group.

(c) The Obligated Group Representative shall furnish or cause to be furnished to the Master Trustee or any Related Bond Trustee, such additional information as the Master Trustee or any Related Bond Trustee may reasonably request concerning any Member in order to enable the Master Trustee or such Related Bond Trustee to determine whether the covenants, terms and provisions of the Master Indenture have been complied with by the Members and for that purpose all pertinent books, documents and vouchers relating to the business, affairs and Property (other than patient, donor and personnel records) of the Members shall, to the extent permitted by law, at all times during regular business hours be open to the inspection of such accountant or other agent (who may make copies of all or any part thereof) as shall from time to time be designated by the Master Trustee or such Related Bond Trustee.

(d) The Members also agree that, within 10 days after its receipt thereof, the Obligated Group Representative will file with the Master Trustee, any Related Bond Trustee and all Bondholders who request such reports in writing (which written request shall include a certification as to such ownership) a copy of each Independent Consultant’s report or counsel’s opinion required to be prepared under the terms of the Master Indenture.

C-28 (e) The Obligated Group Representative shall give prompt written notice of a change of accountants by the RHF Obligated Group to the Master Trustee and each Related Bond Trustee. The notice shall state (i) the effective date of such change; (ii) whether there were any unresolved disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which the accountants claimed would have caused them to refer to the disagreement in a report on the disputed matter, if it was not resolved to their satisfaction; and (iii) such additional information relating thereto as such Related Bond Trustee or the Master Trustee may reasonably request.

(f) Without limiting the foregoing, each Member will permit, upon reasonable notice, the Master Trustee or any Related Bond Trustee (or such persons as they may designate) to visit and inspect, at the expense of such Person, its Property and to discuss the affairs, finances and accounts of the RHF Obligated Group with its officers and independent accountants, all at such reasonable times and locations and as often as the Master Trustee or the Related Bond Trustee may reasonably desire.

(g) The Obligated Group Representative may designate a different Fiscal Year for the RHF Obligated Group by delivering a notice to the Master Trustee designating the first and last day of such new Fiscal Year and whether or not there will be any interim fiscal period (the “Interim Period”) of a duration of greater than or less than 12 months preceding such new Fiscal Year. The Members covenant that they will furnish to the Master Trustee and each Related Bond Trustee, as soon as practicable after they are available, but in no event more than 150 days after the last day of such Interim Period, a financial report for such Interim Period certified by a firm of independent certified public accountants selected by the Obligated Group Representative covering the operations of the RHF Obligated Group for such Interim Period and containing a combined balance sheet as of the end of such Interim Period and a combined statement of changes in fund balances and changes in financial position for such Interim Period and a combined statement of revenues and expenses for such Interim Period, showing in each case in comparative form the financial figures for the comparable period in the preceding Fiscal Year, and a statement that such accountants have obtained no knowledge of any default by any Member in the fulfillment of any of the terms, covenants, provisions or conditions of the Master Indenture, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof (but such accountants shall not be liable directly or indirectly to anyone for failure to obtain knowledge of any default). The Obligated Group Representatives shall also deliver a written statement to the Master Trustee containing a calculation of the RHF Obligated Group’s Debt Service Coverage Ratio for the Interim Period and Days Cash on Hand as of the last day of the Interim Period.

PARITY SECURITY FOR NATIONAL OBLIGATIONS AND CALIFORNIA OBLIGATIONS

The National First Mortgages and the National Second Mortgages shall secure the National Obligations and the California Obligations on a parity basis. The California First Mortgages and the California Second Mortgages shall secure the California Obligations and the National Obligations on a parity basis.

C-29 THE OBLIGATED GROUP

Membership in Obligated Group. Additional Members may be added to the Obligated Group from time to time, provided that prior to such addition, the Master Trustee receives: (a) a copy of a resolution of the proposed new Member which authorizes the execution and delivery of the Master Indenture or a Related Supplement and compliance with the terms of the Master Indenture; (b) a Related Supplement pursuant to which the proposed new Member: (1) agrees to become a Member; (2) agrees to be bound by the terms and restrictions imposed by the Master Indenture and Indebtedness represented by the Obligations; and (3) irrevocably appoints the Obligated Group Representative as its agent and attorney-in-fact and grants to the Obligated Group Representative full power to execute Related Supplements authorizing the issuance of Obligations or series of Obligations; (c) an Opinion of Counsel to the proposed new Member, which opinion states that the proposed new Member has taken all necessary action to become a Member, and upon execution of a Related Supplement, the Master Indenture will be enforceable against the proposed new Member; (d) a description of any existing Long-Term Indebtedness of the proposed new Member and any Indebtedness which the proposed new Member plans to incur simultaneously with the execution of the Related Supplement; (e) an Officer’s Certificate (i) (accompanied by a written report of an Independent Consultant if required by the provisions of the Master Indenture described in clause (a) under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” above) meeting the requirements of the Master Indenture described in clauses (a)(2), or (a)(3) or (a)(4) under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” above, showing that the RHF Obligated Group could issue at least one dollar of Long-Term Indebtedness immediately following the addition of such Member to the RHF Obligated Group, or (ii) demonstrating that an Event of Default under the Master Indenture will be cured if the new Member becomes a Member of the Obligated Group, or (iii) to the effect that the Debt Service Coverage Ratio of the RHF Obligated Group for each of the two most recent Fiscal Years would have been equal to or greater than that required by the provisions of the Master Indenture described under “RATES AND CHARGES; DEBT COVERAGE” above; (f) an Opinion of Bond Counsel to the effect that the addition of such Member: (1) will not result in the inclusion of interest on any Related Bonds issued as tax-exempt bonds in gross income for purposes of federal income taxation; and (2) will not cause the Master Indenture or the Obligations issued under the Master Indenture to be subject to registration under federal or state securities laws or the Trust Indenture Act of 1939, as amended (or, that any such registration, if required, has occurred); (g) an Officer’s Certificate to the effect that no Member, immediately after the addition of such new Member, would be in default in the performance or observance of any covenant or condition of the Master Indenture; (h) if any Related Bonds were rated by a Rating Agency prior to the proposed new Member becoming a Member of the Obligated Group, written evidence from at least one Rating Agency that, after such proposed new Member becomes a Member, all Related Bonds will have a rating of at least “BBB-” (or an equivalent rating) from such Rating Agency or that such rating is equivalent to or better than immediately before the Member was added to the Obligated Group; and (i) such additional documents as may be required by the Related Supplements.

Withdrawal from Obligated Group. Any Member may withdraw from the Obligated Group, and be released from further liability or obligation under the provisions of the Master Indenture, provided that prior to such withdrawal, the Master Trustee receives: (a) an Officer’s Certificate stating that immediately following withdrawal of such Member, no Member would be

C-30 in default in the performance or observance of any covenant or condition of the Master Indenture; (b) an Officer’s Certificate stating that such Member is not a Primary Obligor with respect to any Outstanding Obligations; (c) an Officer’s Certificate (i) (accompanied by a written report of an Independent Consultant if required by by the provisions of the Master Indenture described in clause (a) under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” above) meeting the requirements of the Master Indenture described in clauses (a)(2), or (a)(3) or (a)(4) under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” above showing that the RHF Obligated Group could issue at least one dollar of Long-Term Indebtedness immediately following the withdrawal of such Member from the Obligated Group or (ii) demonstrating that an Event of Default under the Master Indenture will be cured if the Member withdraws from the Obligated Group, or (iii) to the effect that the Debt Service Coverage Ratio of the RHF Obligated Group for each of the two most recent Fiscal Years would have been equal to or greater than that required by the provisions of the Master Indenture described under “RATES AND CHARGES; DEBT COVERAGE” above; (d) an Opinion of Bond Counsel to the effect that the withdrawal of such Member, under then existing law, would not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Related Bond to which such Bond would otherwise be entitled; and (e) if any Related Bonds were rated by a Rating Agency prior to the Member withdrawing from the Obligated Group, evidence from at least one Rating Agency that, after such Member withdraws from the Obligated Group, all Related Bonds will have a rating of at least “BBB-” (or an equivalent rating) from such Rating Agency or that such rating is equivalent to or better than immediately before the Member was withdrawn from the Obligated Group.

DEFAULTS

Events of Default. Each of the following events is an Event of Default under the Master Indenture:

(a) Failure on the part of the Obligated Group to make due and punctual payment of the principal of, redemption premium, if any, interest on or other amount due on or under an Obligation.

(b) Failure of any Member to duly observe and perform any other covenant or agreement under the Master Indenture (including covenants or agreements contained in any Related Supplement or Obligation) for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Obligated Group Representative by the Master Trustee or to the Obligated Group Representative and the Master Trustee by the Holders of 25% in aggregate principal amount of Outstanding Obligations except that, if such failure can be remedied but not within such 60-day period, such failure shall not become an Event of Default for so long as the Obligated Group Representative shall diligently proceed to remedy the same in accordance with and subject to any directions or limitations of time established by the Master Trustee.

(c) Default by any Member in the payment of any Indebtedness for borrowed moneys (other than an Obligation), whether such Indebtedness now exists or shall hereafter be created, and any period of grace with respect thereto shall have expired, or an event of

C-31 default, as defined in any mortgage, indenture or instrument, under which there may be secured or evidenced any Indebtedness, whether such Indebtedness now exists or shall hereafter be created, shall occur; provided, however, that such default shall not constitute an Event of Default within the meaning of the provisions of the Master Indenture summarized under this subheading if within 60 days, or within the time allowed for service of a responsive pleading if any proceeding to enforce payment of the Indebtedness is commenced (1) any Member in good faith commences proceedings to contest the existence or payment of such Indebtedness, and (2) sufficient moneys are escrowed with a bank or trust company or a bond acceptable to the Master Trustee is posted for the payment of such Indebtedness.

(d) Entry by a court having jurisdiction of a decree or order for (1) relief with respect to any Member in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or (2) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) for any Member or for any substantial part of the property of any Member, or (3) winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days.

(e) Occurrence of the following actions of any Member: (1) commencement of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, (2) consent to the entry of an order for relief in an involuntary case under any such law, or (3) consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of any Member or for any substantial part of its property, or (4) making any general assignment for the benefit of creditors, or (5) failure to generally pay its debts as they become due, or (6) taking any corporate action in furtherance of the foregoing.

(f) An event of default shall exist under any Related Bond Indenture, or under a mortgage.

Acceleration; Annulment of Acceleration. Upon the occurrence and during the continuation of an Event of Default, the Master Trustee may and, upon (1) the written request of the Holders of not less than 25% in aggregate principal amount of Outstanding Obligations or of any Holder if an Event of Default summarized under subsection (a) above has occurred or (2) the acceleration of any Obligation pursuant to the terms of the Related Supplement under which such Obligation was issued, shall, by notice to the Members, declare all Outstanding Obligations immediately due and payable. Upon such declaration of acceleration, all Outstanding Obligations shall become and be immediately due and payable. If the terms of any Related Supplement give a Person the right to consent to acceleration of the Obligations issued pursuant to such Related Supplement, the Obligations issued pursuant to such Related Supplement may not be accelerated by the Master Trustee unless such consent is properly obtained pursuant to the terms of such Related Supplement. In the event of acceleration, an amount equal to the aggregate principal amount of all Outstanding Obligations, plus all interest accrued thereon and, to the extent permitted by applicable law, which accrues on such principal and interest to the date of payment, shall be due and payable on the Obligations.

C-32 At any time after the Master Trustee has declared the principal of the Obligations to be due and payable, and before the entry of final judgment or decree in any suit, action or proceeding instituted on account of an Event of Default, the Master Trustee may annul such declaration and its consequences if: (1) the Obligated Group has paid or caused to be paid (or deposited with the Master Trustee moneys sufficient to pay) all payments then due on all Outstanding Obligations (other than the principal or other payments then due only because of such declaration); (2) the Obligated Group has paid (or caused to be paid or deposited with the Master Trustee) moneys sufficient to pay the charges, compensation, expenses, disbursements, advances and liabilities of the Master Trustee and any paying agents; (3) the Obligated Group has paid all other amounts then payable by the Obligated Group under the Master Indenture (or a sum sufficient to pay the same shall have been deposited with the Master Trustee); and (4) every Event of Default (other than a default in the payment of the principal or other payments of such Obligations then due only because of such declaration) shall have been remedied.

Application of Revenues and Other Moneys after Default. During the continuance of an Event of Default, all moneys received by the Master Trustee pursuant to any right given or action taken under the provisions of the Master Indenture, after payment of the costs and expenses of any action, proceeding or the like resulting in the collection of such moneys and payment of the fees, costs, expenses, advances and all other amounts owed to the Master Trustee, shall be applied as follows:

(a) If the Master Trustee has not declared the principal of all Outstanding Obligations due and payable:

First: To the payment of all installments of interest then due on the Obligations in the order of their due dates, and, if the amount available is not sufficient to pay in full all installments due on the same date, then to the payment thereof ratably, according to the amounts of interest due on such date, without any discrimination or preference; and

Second: To the payment of the unpaid installments of principal and any other amount then due on or under the Obligations, whether at maturity, by call for redemption or otherwise, in the order of their due dates, and, if the amount available is not sufficient to pay in full all amounts due on the same date, then to the payment thereof ratably, according to the amounts due on such date, to the Persons entitled thereto, without any discrimination or preference.

(b) If the Master Trustee has declared all Outstanding Obligations due and payable (and has not annulled such declaration under the terms of the Master Indenture), to the payment of the principal, interest and other amounts then due and unpaid on or under the Obligations and, if the amount available is not sufficient to pay in full the whole amount then due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest or other amount, of interest or other amount over principal, of any installment over any other installment, or of any Obligation over any other Obligation, according to the amounts due, without any discrimination or preference.

C-33 Such moneys shall be applied by the Master Trustee as it shall determine, having due regard for the amount of moneys available for application and the likelihood of additional moneys becoming available in the future. Whenever the Master Trustee shall apply such moneys, it shall fix the date upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Master Trustee shall give such notices as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date. The Master Trustee shall not be required to make payment to the Holder of any unpaid Obligation until such Obligation (and all unmatured coupons, if any) is presented to the Master Trustee for appropriate endorsement of any partial payment or for cancellation if fully paid.

Whenever all Obligations have been paid in accordance with the relevant terms of the Master Indenture and all expenses and charges of the Master Trustee have been paid, any balance remaining shall be paid to the Person entitled to receive such balance. If no other Person shall be entitled thereto, then the balance shall be paid to the Obligated Group Representative on behalf of the Members or as a court of competent jurisdiction may direct.

Master Trustee to Represent Holders. The Master Trustee is irrevocably appointed (and the successive respective Holders of the Obligations, by taking and holding the same, shall be conclusively deemed to have so appointed the Master Trustee) as trustee and true and lawful attorney-in-fact of the Holders of the Obligations for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Master Indenture, the Obligations, any Related Supplement, and applicable provisions of any other law.

Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Master Trustee to represent the Holders, the Master Trustee may, and upon the written direction of the Holders of not less than 25% in aggregate principal amount of the Obligations then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Holders by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Master Indenture, or in aid of the execution of any power granted in the Master Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Master Trustee or in such Holders under the Master Indenture, the Obligations, any Related Supplement, or any other law; and upon instituting such proceeding, the Master Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the assets pledged under the Master Indenture, pending such proceedings.

Holders’ Control of Proceedings. If an Event of Default shall have occurred and be continuing, notwithstanding any other provision in the Master Indenture to the contrary, the Holders of at least a majority in aggregate principal amount of Obligations then Outstanding shall have the right, at any time, by any instrument in writing executed and delivered to the Master Trustee, to direct the method and place of conducting any proceeding to be taken in connection with the enforcement of the terms and conditions of the Master Indenture and of the California Obligated Group Guaranties or the National Obligated Group Guaranties, as applicable, the Mortgages, the Pledge Agreement or any other guaranty or security instrument held by or for the

C-34 benefit of the Master Trustee, or for the appointment of a receiver or any other proceedings thereunder, so long as such direction is not in conflict with any applicable law or the provisions of the Master Indenture or, in the sole judgment of the Master Trustee, is not unduly prejudicial to the interests of Holders not joining in such direction.

Waiver of Event of Default. The Master Trustee may waive any Event of Default which in its opinion shall have been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted by it under the provisions of the Master Indenture, or before the completion of the enforcement of any other remedy thereunder. Upon the written request of the Holders of at least a majority of the aggregate principal amount of Obligations then Outstanding, the Master Trustee shall waive any Event of Default under the Master Indenture and its consequences; provided, however, that, except under the circumstances set forth in the relevant provisions of the Master Indenture, a default in the payment of the principal of, premium, if any, or interest on or any other amount due one or under any Obligation when due may not be waived without the written consent of the Holders of all Outstanding Obligations affected thereby.

SUPPLEMENTS AND AMENDMENTS

Supplements Not Requiring Consent of Holders. The Obligated Group Representative, acting for itself and as agent for each Member, and the Master Trustee may, without the consent of or notice to any of the Holders, enter into one or more Related Supplements for one or more of the following purposes: (a) to cure any ambiguity or formal defect or omission in the Master Indenture; (b) to correct or supplement any provision of the Master Indenture which may be inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising thereunder and which shall not materially and adversely affect the interests of the Holders; (c) to grant or confer ratably upon all of the Holders any additional rights, remedies, powers or authority, or to add to the covenants of and restrictions on the Members; (d) to qualify the Master Indenture under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect; (e) to create and provide for the issuance of an Obligation or series of Obligations as permitted thereunder; (f) to obligate a successor to any Member as permitted in the provisions of the Master Indenture summarized under “CONSOLIDATION, MERGER, SALE OR CONVEYANCE” above; or (g) to add a new Member or have a Member withdraw as permitted by the provisions of the Master Indenture summarized under “THE OBLIGATED GROUP – Membership in Obligated Group” and “THE OBLIGATED GROUP – Withdrawal from the Obligated Group” above.

Supplements Requiring Consent of Holders. Other than Related Supplements referred to under “Supplements Not Requiring Consent of Holders” above and subject to the terms and provisions and limitations contained in the Master Indenture, the Holders of not less a majority in aggregate principal amount of the Outstanding Obligations shall have the right to consent to and approve the execution by the Obligated Group Representative, acting for itself and as agent for each Member, and the Master Trustee of such Related Supplements as shall be deemed necessary and desirable for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Master Indenture. No Related Supplement shall be permitted, however, that would: (1) extend the stated maturity of or time for paying interest on any Obligation or reduce the principal amount of or the redemption premium or

C-35 rate of interest or method of calculating interest payable on any Obligation without the consent of the Holder of such Obligation; (2) modify, alter, amend, add to or rescind any of the terms or provisions of the Master Indenture summarized under “DEFAULTS” and other related provisions under the Master Indenture so as to affect the right of the Holders of any Obligations in default as to payment to compel the Master Trustee to declare the principal of all Obligations to be due and payable, without the consent of the Holders of all Obligations then Outstanding; or (3) reduce the aggregate principal amount of Obligations then Outstanding (the consent of the Holders of which is required to authorize such Related Supplement) without the consent of the Holders of all Obligations then Outstanding.

The Master Trustee may execute a Related Supplement without liability or responsibility to any Holder (whether or not such Holder has consented to the execution of such Related Supplement) if the Master Trustee receives: (1) a Request of the Obligated Group Representative to enter into such Related Supplement; (2) a certified copy of the resolution of the Governing Body of the Obligated Group Representative approving the execution of such Related Supplement; (3) the proposed Related Supplement; and (4) an instrument or instruments executed by the Holders of not less than the aggregate principal amount or number of Obligations specified in subsection (a) for the Related Supplement in question which instrument or instruments shall refer to the proposed Related Supplement and shall specifically consent to and approve the execution thereof in substantially the form of the copy thereof as on file with the Master Trustee.

Any such consent shall be binding upon the Holder of the Obligation giving such consent and upon any subsequent Holder of such Obligation and of any Obligation issued in exchange therefor (whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked in writing by the Holder of such Obligation giving such consent or by a subsequent Holder thereof by filing with the Master Trustee, prior to the execution by the Master Trustee of such Related Supplement, such revocation and, if such Obligation or Obligations are transferable by delivery, proof that such Obligations are held by the signer of such revocation. At any time after the Holders of the required principal amount or number of Obligations shall have filed their consents to the Related Supplement, the Master Trustee shall make and file with the Obligated Group Representative a written statement to that effect. Such written statement shall be conclusive that such consents have been so filed.

If the Holders of the required principal amount or number of the Outstanding Obligations shall have consented to and approved the execution of such Related Supplement, no Holder of any Obligation shall have any right to object to the execution thereof, or to object to any of the terms and provisions contained therein or the operation thereof, or to question the propriety of the execution thereof, or to enjoin or restrain the Master Trustee or the Obligated Group Representative from executing the same or from taking any action pursuant to the provisions thereof.

SATISFACTION AND DISCHARGE OF MASTER INDENTURE

If (1) the Members shall deliver to the Master Trustee for cancellation all Obligations previously authenticated (other than any Obligations which shall have been mutilated, destroyed, lost or stolen and which shall have been replaced or paid as provided in any Related Supplement)

C-36 and not cancelled, or (2) upon payment of all Obligations not previously cancelled or delivered to the Master Trustee for cancellation, or (3) the Members shall deposit with the Master Trustee (or with a bank or trust company acceptable to the Master Trustee pursuant to an agreement between a Member and such bank or trust company in form acceptable to the Master Trustee) as cash or Escrow Obligations or both, sufficient to pay in full at maturity or upon redemption all Obligations not previously cancelled or delivered to the Master Trustee for cancellation, including without limitation principal and interest and all other amounts due or to become due under the Obligations and the agreements and instruments evidenced and secured thereby to such date of maturity or redemption date, as the case may be, and if in any case the Members shall also pay or cause to be paid all other sums payable under the Master Indenture and under the Mortgages by the Members, then the Master Indenture shall cease to be of further effect.

SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES

GENERAL

Each of the Borrowers located in California have executed and recorded a First Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility (collectively, the “California First Deeds of Trust”) to the deed of trust trustee, First American Title Insurance Company, a California corporation (the “California Deed of Trust Trustee”), for the benefit of the California Master Trustee, and a Second Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility (collectively, the “California Second Deeds of Trust” and, together with the California First Deeds of Trust, the “California Deeds of Trust”) to the California Deed of Trust Trustee, for the benefit of the National Master Trustee.

Each of the Borrowers located in Missouri have executed and recorded d a Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility (collectively, the “Missouri First Deeds of Trust” and together with the California First Deeds of Trust, the “First Deeds of Trust”) to the deed of trust trustee named therein (the “Missouri Deed of Trust Trustee” and, together with the California Deed of Trust Trustee, the “Deed of Trust Trustee”), for the benefit of the National Master Trustee, and a Second Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility (collectively, the “Missouri Second Deeds of Trust” and, together with the California Second Deeds of Trust, the “Second Deeds of Trust”) to the Missouri Deed of Trust Trustee, for the benefit of the California Master Trustee.

Each of the Borrowers that owns and operates a facility or facilities located in states other than California and Missouri have executed and recorded a First Mortgage, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility or facilities (collectively, the “First Mortgages”) in favor of the National Master Trustee, and a Second Mortgage, Security Agreement and Fixture Filing with Assignment of Rents and Leases, dated as of July 1, 2008, on its facility or facilities (collectively, the “Second Mortgages” and, collectively with the First Mortgages, the Missouri First Deeds of Trust and the Missouri Second

C-37 Deeds of Trust, the “National Mortgages”) in favor of the California Master Trustee. The National Mortgages together with the California Deeds of Trust are collectively referred to herein as the “Mortgages” and each individually as a “Mortgage.”

The following information summarizes certain provisions of the various Mortgages. All the Mortgages contain substantially similar provisions and therefore have been summarized together. Reference is made to the Mortgages for a full and complete statement of their provisions.

REPRESENTATIONS AND WARRANTIES

The Borrowers represent and warrant in the Mortgages that they have good and marketable fee simple title to the Land, as defined in the Mortgages, and are the lawful owners and are now lawfully seized and possessed of the Mortgaged Property (other than that not presently in existence), free and clear of all Liens whatsoever except Permitted Encumbrances. The Borrowers have requisite power and lawful authority to grant a lien and a security interest in the Mortgaged Property or Trust Property, as the case may be, to the Master Trustee and will preserve, warrant and defend the same unto the Master Trustee against the claims of all persons and parties. The Borrowers further represent and warrant that the Mortgages constitute (i) a valid first mortgage lien, with respect to the First Mortgages, a valid first lien, with respect to the First Deeds of Trust, a valid second mortgage lien, with respect to the Second Mortgages, and a valid second lien, with respect to the Second Deeds of Trust, upon the Land, including the fixtures, subject only to Permitted Encumbrances, (ii) a security interest in the Machinery and Equipment, as defined in the Mortgages, which security interest is (a) perfected to the extent the same may be perfected by filing under the Uniform Commercial Code of the state where the Machinery and Equipment are located, and (b) prior to any other security interest in such Machinery and Equipment, subject only to Permitted Encumbrances, and (iii) legal, valid and binding obligations of the Borrowers, enforceable in accordance with their terms. The easements, rights-of-way, liens, encumbrances, covenants, conditions, restrictions, exceptions, minor defects, irregularities of title and encroachments on adjoining real estate which are Permitted Encumbrances, if any, now existing with respect to the Land do not and will not materially adversely affect the value of the Facilities or the Mortgaged Land or Mortgaged Property, as applicable, or the Trust Land or Trust Property, as applicable, currently affected thereby, or materially impair or materially interfere with the operation and usefulness thereof for the purpose for which they were acquired or are held by the Borrowers.

AFTER-ACQUIRED MORTGAGED PROPERTY OR TRUST PROPERTY

To the extent permitted by applicable law, all right, title and interest of the Borrower in and to all improvements, betterments, renewals, substitutions and replacements of the Mortgaged Property or Trust Property, as the case may be, or any part thereof hereafter constructed or acquired by the Borrower, immediately upon such construction or acquisition, and without any further mortgaging, conveyance or assignment, shall become and be part of the Mortgaged Property or Trust Property, as the case may be, and shall be subject to the lien and security interest of the Mortgage as fully and completely and with the same effect as though now owned by the Borrower, but at any and all times the Borrower will execute and deliver to the Master Trustee all such further assurances, deeds of trust, conveyances or assignments therefor and other instruments with respect

C-38 thereto as the Master Trustee may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of the Mortgage.

MAINTENANCE OF LIEN

The Borrowers will, at their own expense, take all necessary action to maintain and preserve the lien and security interest of the Mortgages as a first priority lien or second priority lien, as applicable, and security interest, subject only to Permitted Encumbrances, so long as any Obligations are outstanding.

INSPECTION OF MORTGAGED PROPERTY AND RECORDS

The Master Trustee and any Obligation holder shall have the right to inspect the Mortgaged Property or Trust Property, as applicable, and all books, records and documents relating thereto at all reasonable times, and access thereto shall be permitted for that purpose.

EVENT OF DEFAULT

The term “Event of Default” wherever used in the Mortgages shall mean (i) an Event of Default as defined in the Master Indenture, (ii) the failure of the Borrowers to comply with any covenant, agreement or warranty contained in the Mortgages within 30 days after the Master Trustee shall have given written notice thereof to the Borrowers and the Obligated Group Representative, provided that, if such default cannot with due diligence and dispatch be wholly cured within 30 days but can be wholly cured, it shall be cured within the time specified in the Master Indenture or (iii) the abandonment of the Mortgaged Property or Trust Property, as the case may be, or any portion thereof by the Borrowers for three consecutive days.

REMEDIES

When any Event of Default has occurred and is continuing, the Master Trustee may, in addition to the remedies described in the Mortgages, exercise any one or more or all, and in any order, of the remedies set forth in the Master Indenture, including, without limitation, the remedies provided therein with respect to real property; it being expressly understood that no remedy in the Mortgages or in the Master Indenture conferred is intended to be exclusive of any other remedy or remedies, but each and every remedy shall be cumulative and shall be in addition to every other remedy given in the Mortgages or now or hereafter existing at law or in equity or by statute.

POSSESSION BY THE MASTER TRUSTEE

When any Event of Default has occurred and is continuing, the Master Trustee shall, if applicable law permits, have the right to enter into and upon the Mortgaged Property or the Trust Property, as applicable, and take possession thereof or to appoint an agent or trustee for the collection of the rents, issues and profits of the Mortgaged Property or the Trust Property, as applicable.

C-39 FORECLOSURE

When any Event of Default has occurred and is continuing, the Master Trustee shall have the right to foreclose the lien of the Mortgages for the indebtedness secured thereby or any part thereof.

RECEIVER

Upon, or at any time after, the acceleration of any of the Obligations or the filing of a complaint to foreclose the Mortgages, a court of competent jurisdiction may, upon the application of the Master Trustee, appoint a receiver (at the Borrowers’ expense) of the Mortgaged Property or Trust Property, as the case may be. Such appointment may be made either before or after sale, without regard to solvency or insolvency of the Borrowers at the time of application for such receiver, and without regard to the then value of the Mortgaged Property or the Trust Property, as applicable, or whether the same shall be then occupied as a homestead or not; and the Master Trustee or any employee or agent thereof may be appointed as such receiver.

CONDITIONS FOR RELEASE

So long as no Event of Default shall have occurred and be continuing under the Mortgage or under the Master Indenture, the Master Trustee shall release, or shall cause the Deed of Trust Trustee to release:

(a) Machinery and Equipment in accordance with the Mortgage; and

(b) Trust Land upon receipt by the Master Trustee of the following:

(A) A Written Request of the Borrower for such release, describing the Trust Land to be released (referred to under this heading as the “Released Property”);

(B) A certificate of the Borrower to the Master Trustee certifying:

(1) The fair market value of the Released Property and of the Mortgaged Property or Trust Property, as the case may be, (referred to under this heading as the “Substituted Property”) other than cash to be substituted for the Released Property pursuant to the terms of the Mortgage;

(2) The disposition to be made of the Released Property and the consideration (which may include cash) to be received for the Released Property and the fair market value of consideration (other than money);

(3) That the disposition of the Released Property and the substitution therefor of the Substituted Property will not materially adversely affect the operations of the Borrower’s elderly housing or health care facilities or any other Property of the Borrower;

C-40 (4) That the Substituted Property other than cash or investment securities is necessary or useful to the operation of the Borrower’s elderly housing or health care facilities;

(5) That the cash or the fair market value of the Substituted Property together with cash, if any, to be received is at least equal to the fair market value of the Released Property;

(6) That the execution and delivery of the request for reconveyance by the Master Trustee or the release by the Deed of Trust Trustee and the subjection of the Substituted Property to the lien of the Mortgage will not result in a default under the Mortgage or under the Master Indenture or any other Financing Document;

(7) That all permits and authorizations of all federal, state and local governmental bodies and agencies have been granted to effect such disposition or that no such permits or authorizations are required; and

(8) No default or Event of Default shall exist and be continuing under the Mortgage and no event shall have occurred which would become an Event of Default upon the giving of notice and/or passage of time.

(C) An appraisal of the fair market value of the Released Property by a member of the American Institute of Real Estate Appraisers (an “MAI Appraiser”) if the Released Property is real property, or by another expert acceptable to the Master Trustee if the Released Property is not real property; provided, however, that no such appraisal shall be required for the release of real or personal Released Property with an aggregate value of $100,000 or less;

(D) An appraisal of the fair market value of the Substituted Property by an MAI Appraiser if the Substituted Property is real property, or by another expert acceptable to the Master Trustee if the Substituted Property is not real property; provided, however, that no such appraisal shall be required for the substitution of real or personal Substituted Property with an aggregate value of $100,000 or less;

(E) A supplement to the Mortgage and to the Master Indenture (if necessary) and other documents reasonably requested by, and in form satisfactory to, the Master Trustee necessary to subject the Substituted Property to the lien of the Mortgage and, if the Substituted Property is real property, an endorsement to the existing ALTA mortgage loan policy or an additional loan insurance policy in form satisfactory to the Master Trustee or the Deed of Trust Trustee, as applicable, evidencing that the Substituted Property is subject to the lien of the Mortgage subject only to Permitted Encumbrances;

(F) If the fair market value of the Released Property when added to the fair market value of other Mortgaged Property or Trust Property, as the case may

C-41 be, released pursuant to the provisions of the Mortgage within the same 12-month period is in excess of $500,000, a certificate of an Independent Consultant acceptable to the Master Trustee to the effect set forth in paragraph (B)(3) of this heading; and

(G) (a) An opinion addressed to the Master Trustee from Independent Counsel satisfactory to the Master Trustee to the effect that:

(1) The release of the Mortgaged Property or Trust Property, as the case may be, requested by the Borrower is authorized under the Mortgage;

(2) The Substituted Property is subject to the lien of the Mortgage subject only to Permitted Encumbrances;

(3) The execution and delivery of the requested release and the acceptance of the Substituted Property will not violate any provisions of the Mortgage or of the Master Indenture or any other Financing Document; all necessary action required to be taken by the Borrower, the Master Trustee and the Deed of Trust Trustee to effect the release of the Released Property and the conveyance of the Substituted Property has been taken;

(4) The supplemental amendment to the Mortgage, the supplemental indenture to the Master Indenture, if required, and all other documents required to effect the release of the Released Property and substitution therefor of the Substituted Property have been duly authorized, executed and delivered and are binding upon the parties executing and delivering the same in accordance with their respective terms (subject to customary exceptions for laws affecting creditors’ rights and the applicability of equitable principles); and

(5) To the knowledge of such Independent Counsel, all permits and authorizations of all federal, state and local governmental bodies and agencies have been granted, or that no such permits or authorizations are required; or

(b) Upon receipt by the Master Trustee of a written consent to the release of the Trust Land of a majority in aggregate principal amount of the holders of the outstanding Obligations.

The foregoing notwithstanding, upon defeasance of the Master Indenture and Obligations thereunder in full, the Master Trustee shall, or shall cause the Deed of Trust Trustee to, reconvey all Mortgaged Property or Trust Property, as the case may be, under the Mortgage and the Master Trustee shall cooperate with the Borrower to take any and all action appropriate to evidence such reconveyance.

C-42 SUPPLEMENTS AND AMENDMENTS TO THE MORTGAGES

The Borrowers and the Master Trustee may from time to time enter into such supplements and amendments to the Mortgages as they may deem necessary or desirable to effectuate the purposes or intent thereof; provided, however, that no such amendment shall be effective if not adopted in accordance with the terms of the Master Indenture.

CONFLICTS WITH MASTER INDENTURE

In the event any of the terms or provisions of the Mortgages conflict with the Master Indenture, the Master Indenture shall control.

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APPENDIX D

SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT

TABLE OF CONTENTS

Page

DEFINITIONS OF CERTAIN TERMS ...... D-1

SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE ...... D-9

Funds ...... D-9 Investment Of Funds ...... D-12 Arbitrage; Compliance With Tax Certificate ...... D-13 Supplemental Bond Indenture ...... D-13 Events Of Default; Acceleration ...... D-15 Direction Of Proceedings ...... D-17 Waivers Of Events Of Default ...... D-17 Application Of Moneys ...... D-18 Defeasance ...... D-19 Resignation Or Removal Of The Bond Trustee ...... D-21

SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT ...... D-22

Representations ...... D-22 Assignment And Pledge Of Authority’s Rights Under The Loan Agreement ...... D-22 Payments Under The Loan Agreement ...... D-22 Indemnification Of The Authority And The Bond Trustee ...... D-23 Maintenance Of Corporate Existence; Bonds To Remain Tax Exempt ...... D-23 Certain Covenants Relating To The Use And Operation Of The Bond Financed Property ...... D-24 Supplements And Amendments To The Loan Agreement ...... D-24 Defaults And Remedies ...... D-26 Required Optional Redemption And Application Of Certain Gifts ...... D-28

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APPENDIX D

SUMMARY OF THE BOND INDENTURE AND LOAN AGREEMENT

Brief descriptions of the Bond Indenture and the Loan Agreement are included hereafter in this APPENDIX D of the Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bond Indenture and the Loan Agreement are qualified in their entirety by reference to each such document, copies of which are available for review at the office of the Bond Trustee.

DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the Bond Indenture and the Loan Agreement. Reference is hereby made to the entire documents for the definitions of all terms used in such documents. The following definitions are equally applicable to both the singular and plural forms of any of the terms defined herein.

“Act” means the Joint Exercise of Powers Act, comprising Articles 1, 2, 3 and 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6500) of the Government Code of the State of California.

“Authority” means the California Municipal Finance Authority, or its successors and assigns, a joint exercise of powers authority formed by the Joint Powers Agreement pursuant to the Act.

“Board” means the Board of Directors of the Authority.

“Bond Financed Property” means all of the property of the Foundation financed or refinanced with the proceeds of the Bonds.

“Bond Indenture” means the Bond Trust Indenture dated as of September 1, 2017, between the Authority and the Bond Trustee, as it may from time to time be amended or supplemented.

“Bond Register” means the registration books of the Authority kept by the Bond Trustee to evidence the registration and transfer of Bonds.

“Bond Trustee” means The Bank of New York Mellon Trust Company, N.A., as bond trustee, or any successor trustee under the Bond Indenture.

“Bond Year” means any 12 month period beginning November 15 of a calendar year and ending on November 14 of the following calendar year. For the purpose of calculating debt service on the Bonds payable in any Bond Year, principal and interest payable on the Bonds on November 15 of any Bond Year shall be deemed to be payable during the preceding Bond Year.

“Bondholder,” “holder,” “owner of the Bonds” and “owner” means any registered owner of any Bond.

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“Bonds” means the Series 2017A Bonds authorized to be issued pursuant to the terms and conditions of the Bond Indenture.

“Business Day” means any day other than (i) a Saturday, Sunday or legal holiday or a day on which banks in the State of California, the State of New York or in any city in which the designated corporate trust office of the Bond Trustee is located are required or authorized by law to remain closed, (ii) a day on which the New York Stock Exchange is closed, or (iii) a day on which the Federal Reserve Bank of San Francisco is closed.

“California Borrowers” means, collectively, Bixby Knolls Towers, Inc., Gold Country Health Center, Inc. and Sun City RHF Housing, Inc., each a California nonprofit public benefit corporation, and their successors and assigns and any surviving, resulting or transferee corporations.

“California Master Indenture” means the California Master Trust Indenture dated as of July 1, 2008, by and among the Members of the California Obligated Group, the Foundation, solely as California Obligated Group Representative, and the California Master Trustee, as supplemented and amended from time to time in accordance with the terms thereof.

“California Master Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association, as master trustee under the California Master Indenture, or its successor.

“California Obligated Group” has the meaning set forth in the California Master Indenture.

“California Obligated Group Representative” means the Foundation or any other Person designated as the “California Obligated Group Representative” pursuant to the California Master Indenture.

“California Supplement No. 5” means the Fifth Supplemental California Master Trust Indenture dated as of September 1, 2017, between the Foundation, as California Obligated Group Representative, and The Bank of New York Mellon Trust Company, N.A., a national banking association, as master trustee.

“Closing Date” means September __, 2017, the date of original issuance and delivery of the Bonds.

“Continuing Disclosure Agreement” means that certain Continuing Disclosure Undertaking dated September 1, 2017 of the Foundation.

“Defaulted Interest” means interest on any Bond which is payable but not duly paid on the date due.

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“Escrow Obligations” means Government Obligations.

“Facilities” means any real or personal property owned or controlled by any of the California Borrowers and financed or refinanced with proceeds of the Bonds.

“Fiscal Year” means that period adopted by the California Obligated Group Representative as its annual accounting period. Initially, the Fiscal Year is the period from October 1 of a year to September 30 of the next year.

“Fitch” means Fitch Ratings Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the California Obligated Group Representative.

“501(c)(3) Organization” means an organization described in Section 501(c)(3) of the Code.

“Foundation” means Retirement Housing Foundation, a California nonprofit public benefit corporation, and its successors and assigns and any surviving, resulting or transferee corporation. The Foundation is the initial California Obligated Group Representative under the California Master Indenture.

“Foundation Agreements” means the California Master Indenture, the Loan Agreement, the Series 2017A California Obligation, the Purchase Contract, the Continuing Disclosure Agreement, the Tax Certificate and each other financing document to which the Foundation is a party.

“FPM” means Foundation Property Management, Inc., a California nonprofit public benefit corporation, and its successors and assigns and any surviving, resulting or transferee corporations.

“Government Obligations” means securities which consist of (a) United States Government Obligations or (b) evidences of a direct ownership in future interest or principal payments on United States Government Obligations, which obligations are held in a custody account by a custodian pursuant to the terms of a custody agreement.

“Governmental Unit” shall have the meaning set forth in Section 150 of the Code.

“Independent Counsel” means an attorney, duly admitted to practice law before the highest court of any state and, without limitation, may include independent legal counsel for the Authority, the Foundation, any other Member of the California Obligated Group, FPM, the Bond Trustee or the California Master Trustee.

“Interest Payment Date” means each November 15 and May 15, commencing November 15, 2017. In each case, if any date so specified is not a Business Day, the Interest Payment Date shall be the immediately following Business Day.

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“Joint Powers Agreement” Joint Exercise of Powers Agreement, dated as of January 1, 2004 by and among certain California cities, counties and special districts, as may be amended from time to time pursuant to the provisions of the Act.

“Loan Agreement” means the Loan Agreement dated as of September 1, 2017 between the Authority and the California Borrowers relating to the Bonds, as it may from time to time be amended and supplemented.

“Member of the California Obligated Group” or “Member” means any Person who is a Member of the California Obligated Group, pursuant to the terms of the California Master Indenture.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the California Obligated Group Representative by notice in writing to the Authority and the Bond Trustee.

“Officer’s Certificate” means a certificate signed, in the case of a certificate delivered by a corporation, by its President, Chief Executive Officer, Administrator, any Vice President, Treasurer or any other officer authorized to sign by resolution of the governing body of such corporation or, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person, in either case whose authority to execute such Certificate shall be evidenced to the satisfaction of the Bond Trustee.

“Official Statement” means the Official Statement dated August __, 2017, relating to the Bonds.

“Opinion of Bond Counsel” means an opinion of nationally recognized municipal bond counsel, which opinion may be based upon a ruling or rulings of the Internal Revenue Service, and which counsel and opinion, including the scope, form, substance and other aspects thereof, are acceptable to the Authority.

“Optional Redemption Fund” means a fund established under the Bond Indenture in which the following moneys shall be deposited: (a) prepayment by or on behalf of the Foundation of amounts payable under the Loan Agreement, (b) receipt by the Bond Trustee of condemnation awards or insurance proceeds for purposes of redeeming Bonds or (c) deposit with the Bond Trustee by the Foundation or the Authority of moneys from any other source for redeeming Bonds.

“Outstanding,” “Outstanding Bonds,” “Bonds outstanding,” “Bonds Outstanding” or “outstanding” means all Bonds which have been duly authenticated and delivered by the Bond Trustee under the Bond Indenture, except:

(a) Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;

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(b) Bonds for the payment or redemption of which cash or Government Obligations shall have been theretofore deposited with the Bond Trustee (whether upon or prior to the maturity or redemption date of any such Bonds) in accordance with Article XI of the Bond Indenture; provided that if such Bonds are to be redeemed prior to maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Bond Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Bond Trustee shall have been filed with the Bond Trustee;

(d) For the purpose of determining whether the owners of a requisite aggregate principal amount of outstanding Bonds have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions of the Bond Indenture, Bonds which are owned or held by a Member. In determining whether the Bond Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver only Bonds (i) which are registered in the name of a Member or (ii) which the Bond Trustee knows to be so owned shall be disregarded; and

(e) For the purpose of all consents, approvals, waivers and notices required to be obtained or given under the Bond Indenture, Bonds held or owned by any Member or any affiliate thereof.

“Paying Agent” means the bank or banks, if any, designated pursuant to the Bond Indenture to receive and disburse the principal of and interest on the Bonds. The Paying Agent is initially the Bond Trustee.

“Person” means any natural person, firm, joint venture, association, partnership, business trust, corporation, limited liability company, public body, agency or political subdivision thereof or any other similar entity.

“Project” shall have the meaning as described in front-part of this offering document.

“Project Certificate” means the Project Certificate dated the Closing Date delivered by the Foundation.

“Project Certificate Exhibit” means EXHIBIT A of the Project Certificate.

“Project Completion Certificate” means the certificate attached as EXHIBIT D to the Bond Indenture.

“Project Documents” the Project Certificate Exhibit, any available permits for the construction, renovation, remodeling and/or equipping portions of the Project, if required, from any governmental agency as may be necessary for work in progress, and all licenses and permits to operate the respective existing facilities of the California Borrowers.

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“Project Gifts” means gifts, grants, donations, bequests or other charitable contributions or below market rate loans regardless of form or source thereof, the proceeds of which when received will be restricted to be used for payment of the costs directly related to all or a portion of the Project or were raised to pay the costs related directly to all or a portion of the Project; excluding, however, proceeds intended to be ancillary to the Project.

“Purchase Contract” means the Bond Purchase Agreement between the Authority and the investment bankers named therein, and approved by the Foundation, providing for the sale of the Series 2017A Bonds.

“Qualified Investments” means, if and to the extent the same are at the time legal for investment of funds held under the Bond Indenture, dollar denominated investments in any of the following:

(a) Government Obligations;

(b) debt obligations which are (i) issued by any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision, and (ii) at the time of purchase, rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency;

(c) any bond, debenture, note, participation certificate or other similar obligation issued by a government sponsored agency (such as the Federal National Mortgage Association, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation or the Federal Farm Credit Bank) which is either (i) at the time of purchase, rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, or (ii) backed by the full faith and credit of the United States of America;

(d) U.S. denominated deposit account (or any similar bank deposit product), certificates of deposit and banker’s acceptances of any bank, trust company, or savings and loan association, including the California Master Trustee or the Bond Trustee or their affiliates, which have a rating on their short term certificates of deposit on the date of purchase in one of the two highest short term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and which mature not more than 365 days after the date of purchase;

(e) commercial paper which is rated at the time of purchase in one of the two highest short term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and which matures not more than 270 days after the date of purchase;

(f) bonds, notes, debentures or other evidences of indebtedness issued or guaranteed by a corporation which are, at the time of purchase, rated by any Rating

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Agency in any of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);

(g) investment agreements with banks that at the time the agreement is executed are at the time of purchase rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency or investment agreements with non-bank financial institutions, provided that (1) all of the unsecured, direct long term debt of either the non-bank financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency at the time the agreement is executed in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) for obligations of that nature; or (2) if such non-bank financial institution and any related guarantor have no outstanding long term debt that is rated, all of the short term debt of either the non-bank financial institution or the related guarantor of the non-bank financial institution is at the time of purchase rated by any Rating Agency in one of the two highest rating categories (without regard to any refinement or gradation of the rating category by numerical modifier or otherwise) assigned to short term indebtedness by any Rating Agency. If such non-bank financial institution and any guarantor do not have any short term or long term debt, but do have a rating in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), then investment agreements with the non-bank financial institution will be permitted;

(h) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clauses (b) and (c) above, which agreements may be entered into with a bank (including the Bond Trustee or its affiliates), a trust company, financial services firm or a broker dealer which is a member of the Securities Investors Protection Corporation, provided that (i) the Bond Trustee or a custodial agent of the Bond Trustee has possession of the collateral and that the collateral is free and clear of third party claims, (ii) a master repurchase agreement or specific written repurchase agreement governs the transaction, (iii) the collateral securities are valued no less frequently than monthly, and (iv) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%, and (v) such obligations must be held in the custody of the Bond Trustee or the Bond Trustee’s agent;

(i) investments in a money market fund, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency, including such funds for which the Bond Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Bond Trustee or an affiliate of the Bond Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Bond Trustee or an affiliate of the Bond Trustee receives and retains a fee for services provided to the fund, (ii) the Bond Trustee collects fees for services rendered pursuant to the Bond Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Bond Indenture may at times duplicate those provided to such funds by the Bond Trustee or an affiliate of the Bond Trustee; and

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(j) shares in any investment company, money market mutual fund, fixed income mutual fund, Exchange Traded Fund or other collective investment fund registered under the federal Investment Company Act of 1940, whose shares are registered under the Securities Act, and whose investments consist solely of Qualified Investments as defined in paragraphs (a) through (i) above, including money market mutual funds from which the Bond Trustee or its affiliates derive a fee for investment advisory or other services to the fund.

The Bond Trustee shall be entitled to assume that any investment which at the time of purchase is a Qualified Investment remains a Qualified Investment thereafter, absent receipt of written notice or information to the contrary.

For the purposes of this definition, obligations issued or held in the name of the Bond Trustee (or in the name of the Authority and payable to the Bond Trustee) in book entry form on the books of the Department of Treasury of the United States shall be deemed to be deposited with the Bond Trustee.

“Rating Agency” means Moody’s, S&P or Fitch and their respective successors and assigns.

“Rebate Fund” means the Rebate Fund created by the Tax Certificate to comply with Section 148(f) of the Code.

“Record Date” means, the first day (whether or not a Business Day) next preceding an Interest Payment Date therefor.

“Securities Act” means the Securities Act of 1933, as in effect on the date of the Bond Indenture.

“Series 2017A Bonds” means the $______California Municipal Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017A, authorized to be issued under the Bond Indenture.

“Series 2017A California Obligation” means the Retirement Housing Foundation Series 2017A California Direct Note Obligation issued pursuant to the California Master Indenture and California Supplement No. 5.

“Special Record Date” means the date fixed by the Bond Trustee pursuant to the Bond Indenture for the payment of Defaulted Interest.

“S&P” means Standard & Poor’s Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Standard & Poor’s” or “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the California Obligated Group Representative by written notice to the Bond Trustee.

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“Tax Certificate” means the Tax Certificate and Agreement relating to the Bonds dated the Closing Date between the Foundation and the Authority, as it may from time to time be amended or supplemented in accordance with its terms.

“Tax Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code, which is exempt from federal income taxes under Section 501(a) of the Code (except for unrelated business taxable income under Section 511 of the Code) and which is not a “private foundation” within the meaning of Section 509(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

“Unassigned Rights” means the right of the Authority to receive payment of its fees and expenses, the Authority’s right to indemnification in certain circumstances, the Authority’s right to enforce the special services covenant in Section 8.2 of the Loan Agreement, the Authority’s right to receive notices under the Bond Indenture, the Loan Agreement, the Purchase Contract, the Tax Certificate or any other bond document, the Authority’s right to enforce venue provision and the Authority’s right to execute and deliver supplements and amendments to the Loan Agreement.

“United States Government Obligations” means noncallable direct obligations of, or obligations the timely payment of the principal of and interest on which is fully guaranteed by, the United States of America including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America.

“Written Request” with reference to the Authority means a request in writing (which may be by electronic means acceptable to the Bond Trustee) signed by any member of the Board or the Executive Director of the Authority, and with reference to the Foundation means a request in writing signed by the President and Chief Executive Officer or the Vice President, Corporate Records and Corporate Secretary of the Foundation, or any other officers designated by the Authority or the Foundation, as the case may be.

SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE

The Bond Indenture contains various covenants, security provisions, terms and conditions, certain of which are summarized below. Reference is made to the Bond Indenture for a full and complete statement of the Bond Indenture’s provisions.

Funds

Series 2017A Project Fund. There is established by the Bond Indenture a separate fund to be known as the “Project Fund – Retirement Housing Foundation – Series 2017A” (the “Project Fund”). Moneys deposited in the Project Fund shall be paid out from time to time by the Bond Trustee upon receipt by the Bond Trustee of a request of the Foundation.

If after payment by the Bond Trustee of all funding requests and after receipt by the Bond Trustee of the Project Completion Certificate there shall remain any moneys in the Project Fund, the Foundation may (a) elect to retain all or a portion of such moneys in the Project Fund and withdraw such moneys by submission of additional funding requests with respect to additional

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costs of a continuing care facility; provided that no such additional costs may be paid if (i) such payment would cause the average maturity of the Bonds to exceed 120% of the average reasonably expected economic life of the Project, or (ii) such health care facility is not located on the real estate described in the notice of public hearing published in connection with the issuance of the Bonds; provided, that the Bond Trustee is entitled to rely on the Written Request of the Foundation with respect to a request for funds pursuant to (a) above, that such payment is permitted under the Bond Indenture and that the conditions of (i) and (ii) of this paragraph have been satisfied; (b) direct the Bond Trustee to transfer such moneys to the Optional Redemption Fund to optionally redeem the Bonds; or (c) direct the Bond Trustee to apply such moneys in any other manner, provided there shall be delivered to the Bond Trustee and the Authority an Opinion of Bond Counsel to the effect that such application will not adversely affect the validity of the Bonds or any exemption from federal income taxation to which the interest on the Bonds would otherwise be entitled.

As soon as practicable after the Foundation has made an election or direction pursuant to (a), (b) or (c) of the immediately preceding paragraph, the Foundation shall recalculate the average reasonably expected economic life of the Bond Financed Property, which calculation shall include (i) the average reasonably expected economic life of any additional projects undertaken with moneys remaining on deposit in the Project Fund at the completion of the Project as originally described, and (ii) the amount of moneys transferred from the Project Fund to the Optional Redemption Fund as an asset with an economic life of zero.

If the Project has been abandoned and moneys remain on deposit in the Project Fund, such moneys must be deposited in the Optional Redemption Fund to optionally redeem the Bonds, as directed by the Foundation.

Series 2017A Expense Fund. There is established by the Bond Indenture and shall be maintained with the Bond Trustee a separate fund to be known as the “Expense Fund – Retirement Housing Foundation – Series 2017A” (the “Expense Fund”). A deposit to the credit of the Expense Fund will be made under the provisions of the Bond Indenture. Amounts on deposit in the Expense Fund shall be disbursed upon the Written Request of the Foundation for the payment of expenses for any recording, trustee’s and depository’s fees and expenses, accounting and legal fees, financing costs, and other fees and expenses incurred or to be incurred by or on behalf of the Authority or the Foundation in connection with or incident to the issuance and sale of the Bonds. Each Written Request of the Foundation shall be sufficient evidence to the Bond Trustee of the facts stated therein and the Bond Trustee shall have no duty to confirm the accuracy of such facts. At such time as the Bond Trustee is furnished with a Written Request of the Foundation stating that all such fees and expenses have been paid, and in no event later than September __, 2018, the Bond Trustee shall transfer any moneys remaining in the Expense Fund to the Project Fund.

Series 2017A Interest Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Bonds are outstanding a separate fund to be known as the “Interest Fund – Retirement Housing Foundation – Series 2017A” (the “Interest Fund”).

On or before the 10th day of each month, commencing ______, 2017, after taking into account the amount of interest, if any, on deposit in the Interest Fund, the Bond

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Trustee shall deposit into the Interest Fund from moneys received by the Bond Trustee from the Foundation as payments under the Loan Agreement an amount which is not less than the interest to become due on the Bonds on ______, 2017 together with subsequent equal amounts to be deposited on the tenth day of each month preceding the next semi-annual Interest Payment Date. On or before the 10th day of each month, commencing with December 10, 2017, after taking into account the amount of interest, if any, on deposit in the Interest Fund, the Bond Trustee shall deposit into the Interest Fund from moneys received by the Bond Trustee from the Foundation as payments under the Loan Agreement an amount which is not less than one sixth (1/6) of the interest to become due on the Bonds on the next succeeding Interest Payment Date of the Bonds. No monthly deposit pursuant to this paragraph need be made to the extent that there is a sufficient amount already on deposit in the Interest Fund for that purpose. If the 10th day of any calendar month is not a Business Day, the deposit required under the Bond Indenture to be made shall be made on the next succeeding Business Day.

Moneys on deposit in the Interest Fund, other than income earned thereon which is to be transferred to other funds created under the Bond Indenture, must be used to pay interest on the Bonds.

In connection with any partial redemption or defeasance prior to maturity of the Bonds, the Bond Trustee may, at the request of the Foundation, use any amounts on deposit in the Interest Fund in excess of the amount needed to pay the interest on the Bonds remaining outstanding on the first Interest Payment Date occurring on or after the date of such redemption or defeasance to pay the principal of and interest on the Bonds to be redeemed or defeased.

Series 2017A Bond Sinking Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Bonds are outstanding a separate account to be known as the “Bond Sinking Fund – Retirement Housing Foundation – Series 2017A” (the “Bond Sinking Fund”).

On or before the 10th day of each month commencing ______, 2017, after making the deposits required by the provisions of the Bond Indenture summarized under the caption “Series 2017A Interest Fund” above, the Bond Trustee shall deposit in the Bond Sinking Fund from moneys received from the Foundation an amount which, together with an equal amount to be deposited on the 10th day of each subsequent month preceding the next November 15, is equal to the principal coming due on the Bonds on the next succeeding November 15 by maturity or by mandatory Bond Sinking Fund redemption. No deposit pursuant to this paragraph need be made if and to the extent that there is a sufficient amount already on deposit and available for such purpose in the Bond Sinking Fund. If the 10th day of any month is not a Business Day, the deposit required to be made under the Bond Indenture shall be made on the next succeeding Business Day.

In lieu of required mandatory Bond Sinking Fund redemption, if any, under the Bond Indenture, the Bond Trustee may, at the request of the Foundation, purchase an equal principal amount of Bonds of the maturity required to be redeemed in the open market at prices not exceeding the principal amount of the Bonds being purchased plus accrued interest. In addition, the amount of Bonds to be redeemed on any date pursuant to the mandatory Bond Sinking Fund redemption schedule, if any, shall be reduced by the principal amount of Bonds assigned to such

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mandatory Bond Sinking Fund redemption date or to the period during which such Bond Sinking Fund redemption date occurs which are acquired by the Foundation and delivered to the Bond Trustee for cancellation.

In connection with any partial redemption or defeasance prior to maturity of the Bonds, the Bond Trustee may, at the request of the Foundation, use any amounts on deposit in the Bond Sinking Fund in excess of the amount needed to pay principal on the Bonds remaining outstanding on the first principal or mandatory sinking fund payment date, if any, occurring on or after the date of such redemption or defeasance to pay the principal of and interest on the Bonds to be redeemed or defeased.

Series 2017A Optional Redemption Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Bonds are outstanding a separate fund to be known as the “Optional Redemption Fund – Retirement Housing Foundation – Series 2017A” (the “Optional Redemption Fund”). In the event of (a) prepayment by or on behalf of the Foundation of amounts payable under the Loan Agreement, (b) receipt by the Bond Trustee of condemnation awards or insurance proceeds for purposes of redeeming the Bonds or (c) deposit with the Bond Trustee by the Foundation or the Authority of moneys from any other source for redeeming the Bonds, such moneys shall be deposited in the Optional Redemption Fund.

Moneys on deposit in the Optional Redemption Fund shall be used first to make up any deficiencies existing in the Interest Fund and the Bond Sinking Fund (in the order listed) and second for the purchase or redemption of Bonds in accordance with the provisions of the Bond Indenture.

Investment Of Funds

Upon a Written Request of the Foundation filed with the Bond Trustee at least 2 Business Days in advance of the making of such investments, moneys in the Interest Fund, Bond Sinking Fund, Optional Redemption Fund, Project Fund and Expense Fund shall be invested in Qualified Investments. In the absence of written investment instructions, the Bond Trustee is directed to hold such moneys uninvested. All such investments shall be made in investments which mature on or prior to the scheduled maturity date of the Bonds.

The Bond Trustee, when authorized by the Foundation, may purchase or sell securities authorized under the Bond Indenture through itself or a related subsidiary as principal or agent, in the purchase and sale of securities for such investments; provided, however, that in no case shall any investment be otherwise than in accordance with the investment limitations contained in the Bond Indenture and in the Tax Certificate. The Bond Trustee shall not be liable or responsible for any loss resulting from any such investments.

Investment income on amounts on deposit in the Project Fund will be transferred to the Interest Fund for payment of interest on the Bonds, in the discretion of the Foundation upon written direction to the Bond Trustee.

All income in excess of the requirements of the other funds held under the Bond Indenture derived from the investment of moneys on deposit in any such funds shall be deposited, in the following order, in: D-12

(a) The Bond Sinking Fund to the extent of the amount required to be deposited therein to make the next required principal payment on the Bonds occurring within 13 months of the date of deposit;

(b) The Interest Fund to the extent of the estimated amount required to be deposited therein to make any interest payment on the Bonds occurring within 13 months of the date of deposit; and

Notwithstanding anything to the contrary contained under this caption, all investments held by the Bond Trustee under the Bond Indenture shall be subject to the provisions of the Tax Certificate.

Arbitrage; Compliance With Tax Certificate

The Authority covenants and agrees that it will not take any action or fail to take any action reasonably requested in writing by the Foundation with respect to the investment of the proceeds of the Bonds (regardless of the source thereof and whether or not held under the Bond Indenture) or with respect to the payments derived from the Series 2017A California Obligation pledged under the Bond Indenture or from the Loan Agreement or any other moneys regardless of source or where held, relating to the payment of the Bonds, which may, notwithstanding compliance with the other provisions of the Bond Indenture, the Loan Agreement and the Tax Certificate, result in constituting the Bonds “arbitrage bonds” within the meaning of such term as used in Section 148 of the Code. The Authority further covenants that it will comply with and take all actions required to be taken by the Authority pursuant to the provisions of the Tax Certificate. The Foundation has agreed under the Loan Agreement that it will pay the cost of all calculations required to be made pursuant to the provisions of the Tax Certificate. The Bond Trustee may rely conclusively upon the Foundation’s determinations, calculations and certifications required by this paragraph. The Bond Trustee shall have no responsibility to independently make any calculation or determination or to review the Foundation’s calculations under the Bond Indenture.

Supplemental Bond Indenture

Subject to the limitations contained in clauses (a) through (e) of this paragraph, the Authority and the Bond Trustee may, without the consent of, or notice to, any of the Bondholders, enter into an indenture or indentures supplemental to the Bond Indenture, as shall not be inconsistent with the terms and provisions of the Bond Indenture, for any one or more of the following purposes: (a) to cure any ambiguity or formal defect or omission in the Bond Indenture; (b) to grant to or confer upon the Bond Trustee for the benefit of the Bondholders any additional covenants, rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondholders and the Bond Trustee, or either of them; (c) to assign and pledge under the Bond Indenture additional revenues, properties or collateral; (d) to evidence the appointment of a separate bond trustee or the succession of a new bond trustee under the Bond Indenture; (e) to permit the qualification of the Bond Indenture under the Trust Indenture Act of 1939, as then amended, or any similar federal statute in effect after the execution of the Bond

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Indenture or to permit the qualification of the Bonds for sale under the securities laws of any state of the United States of America; (f) to permit the issuance of coupon Bonds of any series and to permit the exchange of Bonds from fully registered form to coupon form and vice versa; (g) to permit the issuance of Bonds in uncertificated form; (h) to facilitate or implement a book entry system; (i) to provide for the refunding or advance refunding of Bonds in accordance with the provisions of the Bond Indenture, including the right to establish and administer an escrow fund and to take related action in connection therewith; (j) to permit continued compliance with the Tax Certificate; or (k) to provide for any other change that, in the opinion of Independent Counsel, does not materially adversely affect the rights or interests of any Bondholder or the Bond Trustee. The Authority and the Bond Trustee may not enter into an indenture supplemental to the Bond Indenture pursuant to paragraphs (f) and (i) above unless they shall have received an Opinion of Bond Counsel to the effect that all conditions precedent to its execution have been satisfied and that such supplement will not result in the loss of any exemption for purposes of federal income taxation to which the interest on the Bonds would otherwise be entitled.

In addition to supplemental indentures covered by the first paragraph under this caption, and subject to the terms and provisions contained in this paragraph and the following two paragraphs under this caption, and not otherwise, the holders of a majority in aggregate principal amount of the Bonds which are outstanding under the Bond Indenture at the time of the execution of such indenture or supplemental indenture, shall have the right, from time to time, anything contained in the Bond Indenture to the contrary notwithstanding, to consent to and approve the execution by the Authority and the Bond Trustee of such other indenture or indentures supplemental to the Bond Indenture as shall be deemed necessary and desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Bond Indenture or in any supplemental indenture; provided, however, that nothing summarized under this caption shall permit, or be construed as permitting, a supplemental indenture to effect: (a) an extension of the stated maturity or reduction in the principal amount of, or reduction in the rate or extension of the time of paying of interest on, or a change in the timing of payments with respect to, a change in the currency of payment of, or reduction of any premium payable on the redemption of, any Bonds, without the consent of the holders of such Bonds, (b) a reduction in the amount or extension of the time of any payment required to be made to or from the Interest Fund or the Bond Sinking Fund provided under the Bond Indenture, without the consent of the holders of all the Bonds at the time outstanding, (c) the creation of any lien prior to or on a parity with the lien of the Bond Indenture, without the consent of the holders of all the Bonds at the time outstanding, (d) a reduction in the aggregate principal amount of Bonds the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all the Bonds at the time outstanding which would be affected by the action to be taken; or (e) the modification of the rights, duties or immunities of the Bond Trustee, without the written consent of the Bond Trustee, which would adversely affect the rights of any holder of Bonds, without the consent of the holders of all Bonds at the time outstanding.

The Authority and the Bond Trustee may not enter into an indenture supplemental to the Bond Indenture pursuant to paragraphs (a) through (e) of the previous paragraph unless they shall have received an Opinion of Bond Counsel to the effect that all conditions precedent to its execution have been satisfied and that such supplement will not result in the loss of any

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exemption for purposes of federal income taxation to which the interest on the Bonds would otherwise be entitled.

If at any time the Authority shall request the Bond Trustee to enter into any such supplemental indenture for any of the purposes described in the second paragraph under this heading, the Bond Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such supplemental indenture to be mailed by first class mail, postage prepaid, or other carrier with tracking capability, to the registered owners of the Bonds at their addresses as the same shall appear on the Bond Register. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the corporate trust office of the Bond Trustee listed in the notice for inspection by all Bondholders. The Bond Trustee shall not, however, be subject to any liability to any Bondholder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such supplemental indenture when consented to and approved as provided in the Bond Indenture. If the owners of the requisite principal amount of Bonds shall have consented to and approved the execution thereof as provided under the Bond Indenture, no holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Bond Trustee or the Authority from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such supplemental indenture permitted and provided in the Bond Indenture as summarized in the second paragraph under this heading, the Bond Indenture shall be and be deemed to be modified and amended in accordance therewith.

Anything in the Bond Indenture to the contrary notwithstanding, so long as no event of default exists under the Loan Agreement or the California Master Indenture, a supplemental indenture which adversely affects the rights of the Foundation under the Loan Agreement or any Member of the California Obligated Group under the California Master Indenture shall not become effective unless and until the Foundation shall have consented in writing to the execution and delivery of such supplemental indenture.

Events Of Default; Acceleration

Each of the following events is declared an “event of default” in the Bond Indenture:

(a) failure of payment of any installment of interest on any of the Bonds when the same shall become due and payable; or

(b) failure of payment of the principal of any of the Bonds when the same shall become due and payable, whether such payment is at maturity or by proceedings for redemption, and whether such payment is expected to be paid from any fund under the Bond Indenture or otherwise; or

(c) any event of default under the provisions of the Loan Agreement summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT – Defaults and Remedies” below (other than described in clause (a) under such caption) shall occur and, after expiration of all applicable cure periods, such event of default shall be continuing for a period of 30 days from and after

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the date either (i) on which the Bond Trustee is entitled as the holder of a Series 2017A California Obligation to request that the California Master Trustee declare amounts due under such Series 2017A California Obligation immediately due and payable, or (ii) on which the California Master Trustee is entitled under the California Master Indenture to declare any Series 2017A California Obligation immediately due and payable; or

(d) an event of default under the Loan Agreement relating to the payment of amounts payable pursuant to the Loan Agreement as to principal and interest on the Bonds shall occur and be continuing; or

(e) the Authority shall for any reason be rendered incapable of fulfilling its obligations under the Bond Indenture; or

(f) the Authority shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Bonds or in the Bond Indenture or in any indenture supplemental thereto on the part of the Authority to be performed, and such covenant, condition, agreement or provision is not being performed by the Bond Trustee or the Foundation, and such default shall continue for 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the Authority and the Foundation by the Bond Trustee; provided that the Bond Trustee may give notice in its discretion and shall give such notice at the written request of the holders of not less than 25% in aggregate principal amount of the Bonds then outstanding under the Bond Indenture; provided, however, if such failure to perform can be remedied by the Authority (or by the Foundation on behalf of the Authority) but cannot be remedied within the 30 day period described above, such failure shall not constitute an event of default if remedial action is instituted by or on behalf of the Authority and diligently pursued until such failure is remedied; or

(g) the Authority, the Foundation or the Bond Trustee shall default in the performance of any covenant, condition, agreement or provision of the Tax Certificate, and such default shall continue for a period of 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the Foundation and the Bond Trustee, as the case may be, by any other party; provided that if such default cannot with due diligence and dispatch be wholly cured within 30 days but can be wholly cured, the failure of the Authority, the Foundation or the Bond Trustee to remedy such default within such 30 day period shall not constitute a default under the Bond Indenture if any of the foregoing shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

(h) any event of default as defined in the California Master Indenture shall occur and such event of default shall be continuing from and after the date the Authority is entitled to request that the California Master Trustee declare the Series 2017A California Obligation to be immediately due and payable, or such event of default shall be continuing from and after the date on which the California Master Trustee is entitled under the California Master Indenture to declare any Series 2017A California Obligation

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immediately due and payable, or the California Master Trustee shall declare any Series 2017A California Obligation immediately due and payable.

Upon the happening of any event of default specified in subparagraphs (c), (d), (e), (f), (g) or (h) above and the continuance of the same for the period, if any, specified in said paragraphs, the Bond Trustee may, without any action on the part of the Bondholders, or upon the happening of an event of default specified in subparagraphs (a) or (b) above, the Bond Trustee shall, or upon the happening and continuance of an event of default specified in subparagraphs (c), (d), (e), (f), (g) or (h) above and the written request of the owners of not less than 25% in aggregate principal amount of the Bonds then outstanding under the Bond Indenture exclusive of Bonds then owned by the Authority, the Bond Trustee shall, declare the entire principal amount of the Bonds then outstanding under the Bond Indenture and the interest accrued thereon, immediately due and payable, and the entire principal and interest shall thereupon become and be immediately due and payable, subject, however, to the provisions of the Bond Indenture with respect to waivers of events of default summarized below under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Waivers of Events of Default” and to the Bond Trustee being indemnified to its satisfaction. Upon the acceleration of Bonds after an event of default, interest on the Bonds shall cease to accrue on the date of acceleration.

Direction Of Proceedings

The holders of a majority in aggregate principal amount of the Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Bond Trustee and upon provision of indemnity satisfactory to the Bond Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Bond Indenture, including enforcement of the rights of the Authority under the Loan Agreement and the rights of the Bond Trustee as the holder of the Series 2017A California Obligation or for the appointment of a receiver or any other proceedings under the Bond Indenture; provided, that such direction shall be in accordance with the provisions of law and of the Bond Indenture.

Waivers Of Events Of Default

The Bond Trustee may in its discretion waive any event of default under the Bond Indenture and its consequences and rescind any declaration of acceleration of principal, and shall do so (I) upon the occurrence of an event of default specified in the provisions of the Bond Indenture summarized in subparagraph (g) under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Events of Default; Acceleration” above if the California Master Trustee shall waive, rescind and annul any acceleration of the entire principal amount due under the Loan Agreement in accordance with the provisions of the California Master Indenture or (II) upon written request of the owners of (1) at least a majority in aggregate principal amount of all the Bonds outstanding in respect of which default in the payment of principal and/or interest exists, or (2) at least a majority in aggregate principal amount of all the Bonds outstanding in the case of any other event of default under the Bond Indenture; provided, however, that there shall not be waived (a) any event of default in the payment of the principal of any outstanding Bonds when due whether by mandatory redemption or at maturity specified

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therein or (b) any default in the payment when due (other than as a result of the acceleration of the Bonds) of the interest on any such Bonds, unless prior to such waiver or rescission all arrears of interest, with interest thereon (to the extent permitted by law) at the rate borne by the Bonds in respect of which such default shall have occurred or all arrears of payments of principal when due, as the case may be, and all expenses of the Bond Trustee, in connection with such default, shall have been paid or provided for.

In case of any such waiver or rescission or in case any proceeding taken by the Bond Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Authority, the Bond Trustee and the Bondholders shall, subject to any determination in such proceeding, be restored to their former positions and rights under the Bond Indenture, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.

Application Of Moneys

Subject to the provisions of the Tax Certificate, all moneys received by the Bond Trustee, by any receiver or by any Bondholder pursuant to any right given or action taken under the provisions of the Bond Indenture shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys (including, without limitation, reasonable compensation first to the California Master Trustee, the Bond Trustee, and then to the Authority, and their agents, attorneys and counsel) and of the fees and the expenses, liabilities and advances incurred or made by the Bond Trustee, and all moneys so deposited during the continuance of an event of default under the Bond Indenture (other than moneys for the payment of the Bonds which have previously matured or otherwise become payable prior to such event of default under Bond Indenture or for the payment of interest due prior to such event of default under the Bond Indenture), together with all moneys in the funds maintained by the Bond Trustee under the Bond Indenture shall be applied as follows:

(a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied:

FIRST: To the payment of rebate or yield reduction payments, if any, payable pursuant to the Tax Certificate;

SECOND: To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege;

THIRD: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds, which shall have become due (other than the Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Bond Indenture), and, if the amount available shall not be sufficient to pay in full the Bonds, then to the payment ratably, according to the

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amount of principal due to the Persons entitled thereto, without any discrimination or privilege; and

FOURTH: To the payment to the Persons entitled thereto of unpaid principal of and interest due and owing on any Bonds, the payment of principal and interest of which has been extended in the manner described in the Bond Indenture.

Whenever moneys are to be applied by the Bond Trustee pursuant to the provisions of the Bond Indenture summarized under this caption, such moneys shall be applied by it at such times, and from time to time, as the Bond Trustee shall determine, having due regard for the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Bond Trustee shall apply such moneys, it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable (or, with respect to payments of Defaulted Interest, shall be such date as is required by the Bond Indenture) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Bond Trustee shall give such notice of the deposit with it of any such moneys and of the fixing of any such date and of the Special Record Date in accordance with the provisions of the Bond Indenture ten days prior to the Special Record Date. The Bond Trustee shall not be required to make payment to the owner of any unpaid Bond until such Bond shall be presented to the Bond Trustee for appropriate endorsement or for cancellation if fully paid.

Whenever all the Bonds of a series and interest thereon have been paid under the provisions of the Bond Indenture summarized under this caption and all expenses and charges of the Bond Trustee have been paid, any balance remaining shall be paid to the Person entitled to receive the same; if no other Person shall be entitled thereto, then the balance shall be paid to the Foundation

Defeasance

If the Authority shall pay or provide for the payment of the entire indebtedness (or any portion thereof) on all the Bonds outstanding (including, for the purpose of the Bond Indenture, any Bonds held by the Foundation), in any one or more of the following ways:

(a) by paying or causing to be paid the principal of and interest on all Bonds outstanding (or any such portion thereof), as and when the same shall become due and payable;

(b) by depositing with the Bond Trustee, in trust, at or before maturity, moneys, in an amount sufficient to pay or redeem (when redeemable) all Bonds outstanding (including the payment of interest payable on such Bonds to the maturity or redemption date thereof), provided that such moneys, if invested, shall be invested in Escrow Obligations in an amount, without consideration of any income or increment to accrue thereon, sufficient in the opinion of a certified public accountant to pay or redeem (when redeemable) and discharge the indebtedness on all Bonds outstanding at or before

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their respective maturity dates; it being understood that the investment income on such Escrow Obligations may be used for any other purpose under the Act;

(d) by depositing with the Bond Trustee, in trust, cash and/or Escrow Obligations in such amount as the Bond Trustee shall determine, in reliance on a certified public accountant’s verification report, will, together with the income or increment to accrue thereon, without consideration of any reinvestment thereof and any uninvested cash, be fully sufficient to pay or redeem (when redeemable) and discharge all the Bonds outstanding (including the payment of interest payable on such Bonds to the maturity or redemption date thereof), at or before their respective maturity dates;

and if the Authority shall also pay or cause to be paid all other sums payable under the Bond Indenture by the Authority, then and in that case the Bond Indenture and the estate and rights granted thereunder shall cease, determine and become null and void, and thereupon the Bond Trustee shall, upon receipt by the Bond Trustee of an Officer’s Certificate and an opinion of Independent Counsel, each stating that in the opinion of the signers all conditions precedent to the satisfaction and discharge of the Bond Indenture have been complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging the Bond Indenture and the lien thereof. The satisfaction and discharge of the Bond Indenture shall be without prejudice to the rights of the Bond Trustee to charge and be reimbursed by the Authority and the Foundation for any expenditures which it may thereafter incur in connection with the Bond Indenture.

After the Bond Trustee’s and the Authority’s fees and expenses are paid, all moneys, funds, securities, or other property remaining on deposit in the Interest Fund, Bond Sinking Fund, Optional Redemption Fund, Expense Fund, Project Fund or in any other fund or investment under the Bond Indenture (other than said Escrow Obligations or other moneys deposited in trust as above provided) shall, upon the full satisfaction of the Bond Indenture, forthwith be transferred, paid over and distributed to the Foundation.

The Authority or the Foundation or any other Member of the California Obligated Group may at any time surrender to the Bond Trustee for cancellation by it any Bonds previously authenticated and delivered which the Authority, the Foundation or any other Member of the California Obligated Group may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Notwithstanding anything to the contrary of the provisions described under this caption, upon the provision for payment of the Bonds, as the case may be, (or a portion thereof), as specified in subparagraphs (b) or (d) above, the right to call such Bonds for optional redemption prior to maturity upon proper notice (notwithstanding provision for the payment of such Bonds having been made through a date after the first optional redemption date provided for under the Bond Indenture) shall remain available to the Authority, upon direction of the Foundation unless, in connection with making the deposits referred to in those subparagraphs, the Authority, at the direction of the Foundation, shall have irrevocably elected to waive any future right to call such Bonds or portions thereof for redemption prior to maturity. Notwithstanding anything to the

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contrary in the Bond Indenture, upon provision for payment of the Bonds, or portions thereof, as the case may be, prior to the maturity thereof as specified in subparagraphs (b) or (d) above, the Authority, at the direction of the Foundation, may elect to pay such Bonds on the respective maturity dates therefor unless, in connection with making the deposits referred to in such subparagraphs, the Authority, at the direction of the Foundation shall have irrevocably elected to waive the right to provide for the payment of such Bonds on their respective maturity dates. No such redemption or restructuring shall occur, however, unless the Foundation shall deliver on behalf of the Authority to the Bond Trustee (a) Escrow Obligations and/or cash sufficient to discharge such Bonds (or portion thereof) on the redemption date or dates selected, and (b) an opinion of an independent certified public accountant or other nationally recognized verification agent verifying that such Escrow Obligations, together with the expected earnings thereon, and/or cash will be sufficient to provide for the payment of such Bonds to the redemption or maturity dates and (c) an Opinion of Bond Counsel to the effect that such earlier redemption or restructuring will not result in the loss of any exemption for purposes of federal income taxation to which interest on the Bonds would otherwise be entitled. The Bond Trustee will give written notice of any such redemption or restructuring to the owners of the Bonds affected thereby in accordance with the notice provisions of the Bond Indenture.

Resignation Or Removal Of The Bond Trustee

The Bond Trustee and any successor Bond Trustee may at any time resign from the trusts created by the Bond Indenture by giving written notice to the Authority and the Foundation and by first class mail, postage prepaid, or other carrier with tracking capability, to each registered owner of the Bonds then outstanding, as shown by the Bond Register, not less than sixty (60) days before such resignation is to take effect but such resignation shall take effect immediately upon the appointment of a new Bond Trustee under the Bond Indenture if such new Bond Trustee shall be appointed before the time limited by such notice and shall then accept the trusts of the Bond Indenture.

The Bond Trustee may be removed at any time by the Authority or by an instrument or concurrent instruments in writing delivered to the Bond Trustee and the Authority and signed by the owners of a majority in aggregate principal amount of the Bonds then outstanding. The foregoing notwithstanding, so long as no default has occurred and is continuing under the Bond Indenture or the Loan Agreement and so long as no event has occurred which would, with the giving of notice or the passage of time become an event of default under the Bond Indenture or Loan Agreement, the Bond Trustee may be removed at any time upon the Written Request of the Foundation, and delivered to the Bond Trustee and the Authority. The foregoing notwithstanding, the Bond Trustee may not be removed by the Foundation unless written notice of the delivery of such instrument or instruments signed by the Foundation is mailed to the owners of all Bonds outstanding under the Bond Indenture, which notice indicates the Bond Trustee will be removed and replaced by the successor trustee named in such notice, such removal and replacement to become effective upon the later of the acceptance of the appointment by the successor Bond Trustee, or the 60th day next succeeding the date of such notice, unless the owners of 10% or more in aggregate principal amount of the Bonds then outstanding under the Bond Indenture shall object in writing to such removal and replacement. Such notice shall be mailed by first class mail postage prepaid to the owners of all such Bonds then outstanding at the address of such owners then shown on the Bond Register and to the Authority.

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SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT

The following is a summary of certain provisions of the Loan Agreement. Reference is made to the Loan Agreement for a full and complete statement of the Loan Agreement’s provisions.

Representations

The California Borrowers represent and warrant to the Authority that each of the California Borrowers is a nonprofit public benefit corporation duly organized and in good standing under the laws of the State of California and has full legal right, power and authority to enter into the Loan Agreement and the California Supplement No. 5 and the Series 2017A California Obligation, (the “Financing Documents”) and to carry out and consummate all transactions contemplated thereby and by the other Financing Documents and by proper corporate action has duly authorized the execution, delivery and performance of the Financing Documents. The California Borrowers represent and warrant that the Financing Documents have been duly authorized, executed and delivered by the California Borrowers.

Assignment And Pledge Of Authority’s Rights Under The Loan Agreement

The principal of and the interest on the Bonds shall be made payable in accordance with the provisions of the Bond Indenture and the Loan Agreement, and payments to be made thereunder and thereon (excluding Unassigned Rights), and the Series 2017A California Obligation shall be assigned and pledged to the Bond Trustee to secure the payment of the Bonds. The Series 2017A California Obligation, the Loan Agreement and all of the rights, interests, powers, privileges and benefits accruing to or vested in the Authority under the Series 2017A California Obligation and the Loan Agreement (except Unassigned Rights), may be protected and enforced in conformity with the Bond Indenture and may be thereby assigned by the Authority to the Bond Trustee as additional security for the Bonds and may be exercised, protected and enforced for or on behalf of the Bondholders in conformity with the provisions of the Loan Agreement and the Bond Indenture.

Payments Under The Loan Agreement

In consideration of the loan from the Authority under the Loan Agreement, the California Borrowers will duly and punctually pay the principal of and interest due under the Loan Agreement at the dates and the places and in the manner mentioned therein according to the true intent and meaning thereof. The California Borrowers also acknowledge that the California Obligated Group will make payment of the principal of and interest on the Series 2017A California Obligation at the dates and the places and in the manner mentioned in the Series 2017A California Obligation, according to the true intent and meaning thereof. Notwithstanding any schedule of payments under the Loan Agreement or in the Series 2017A California Obligation, the California Borrowers agree to make payments at such times and in such amounts (including principal and interest) so as to provide for payment of the principal of and interest on the Bonds outstanding under the Bond Indenture when due whether upon a scheduled Interest Payment Date, at maturity or by mandatory or optional redemption, if any,

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acceleration or otherwise. The California Borrowers also agree to make any payments as required under the Tax Certificate.

Any payment or prepayment made by the California Borrowers of amounts due under the Loan Agreement shall be a credit against amounts due on the Series 2017A California Obligation; and any payment or prepayment by the California Obligated Group on the Series 2017A California Obligation shall be a credit against amounts due under the Loan Agreement.

Indemnification Of The Authority And The Bond Trustee

To the fullest extent permitted by law, the California Borrowers agree to indemnify, hold harmless and defend the Authority, the Bond Trustee, and each of their respective past, present and future officers, members, directors, officials, employees, attorneys and agents (collectively, the “Indemnified Parties”), against any and all losses, damages, claims, actions, liabilities, costs and expenses of any conceivable nature, kind or character (including, without limitation, reasonable attorneys’ fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) to which the Indemnified Parties, or any of them, may become subject under or any statutory law (including federal or state securities laws) or at common law or otherwise all as more fully described in the Loan Agreement.

Maintenance Of Corporate Existence; Bonds To Remain Tax Exempt

The California Borrowers agree that as long as any Bonds are outstanding, the California Borrowers will maintain their existence, not dissolve, liquidate or otherwise dispose of all or substantially all of their assets, and not consolidate with or merge into another corporation that is not already part of the California Obligated Group or permit one or more other corporations to consolidate with or merge into it. Any dissolution, liquidation, disposition, consolidation or merger shall be subject to the following conditions: (i) the California Borrowers provide a certificate to the Authority and the Bond Trustee, in form and substance reasonably satisfactory to such parties, to the effect that no event of default exists under the Loan Agreement or under the Bond Indenture and that no event of default will be caused by the dissolution, liquidation, disposition, consolidation or merger; (ii) the entity surviving the dissolution, liquidation, disposition, consolidation or merger assumes in writing and without condition or qualification the obligations of the California Borrowers under the Loan Agreement, the Tax Certificate and the California Master Indenture (or any replacement master trust indenture), as applicable; (iii) the California Borrowers or the entities surviving the dissolution, liquidation, disposition, consolidation or merger, within ten (10) days after execution thereof, furnishes to the Authority and the Bond Trustee a true and complete copy of the instrument of dissolution, liquidation, disposition, consolidation or merger; (iv) neither the validity nor the enforceability of the Bonds or the Bond Indenture is adversely affected by the dissolution, liquidation, disposition, consolidation or merger; (v) the dissolution, liquidation, disposition, consolidation or merger will not adversely affect any exemption from federal income taxation to which interest on the Bonds would otherwise be entitled; (vi) evidence that no rating on the Bonds, if the Bonds are then rated, is reduced or withdrawn as a result of the dissolution, liquidation, disposition, consolidation or merger; and (vii) (a) neither the validity or enforceability of the Loan Agreement, the California Master Indenture (or any replacement master trust indenture) or the Tax Certificate will be adversely affected by the dissolution, liquidation, disposition,

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consolidation or merger and (b) the provisions of the Act, the Bond Indenture, the Loan Agreement, the California Master Indenture (or any replacement master trust indenture) and the Tax Certificate are complied with concerning the dissolution, liquidation, disposition, consolidation or merger.

As of the effective date of the dissolution, liquidation, disposition, consolidation or merger, the California Borrowers (at their cost) shall furnish to the Authority and the Bond Trustee (a) an Opinion of Bond Counsel, in form and substance satisfactory to such parties, as to items (iv) and (v) above, and (b) an opinion of Independent Counsel, in form and substance satisfactory to such parties, as to the legal, valid and binding nature of item (iii) above.

The California Borrowers further agree under the Loan Agreement that they will not act or fail to act in any other manner which would adversely affect any exemption from federal income taxation of the interest earned by the owners of the Bonds to which such Bonds would otherwise be entitled.

Certain Covenants Relating To The Use And Operation Of The Bond Financed Property

The California Borrowers covenant in the Loan Agreement that no portion of the proceeds of the Bonds shall be used to finance or refinance any facility, place or building to be used (1) primarily for sectarian instruction or study or as a place for devotional activities or religious worship or (2) by a person that is not a 501(c)(3) Organization or a Governmental Unit or by a 501(c)(3) Organization (including the California Borrowers) in an “unrelated trade or business” (as set forth in Section 513(a) of the Code), in such a manner or to such extent as would result in any of the Bonds being treated as an obligation not described in Section 103(a) of the Code.

Supplements And Amendments To The Loan Agreement

Subject to the terms and provisions of the Bond Indenture, the Authority and the Foundation may, with the prior written consent of the Bond Trustee, amend or modify the Loan Agreement, or any provision thereof, or may consent to the amendment or modification thereof, in any manner not inconsistent with the terms and provisions of the Bond Indenture, for any one or more of the following purposes: (a) to cure any ambiguity or formal defect in the Loan Agreement; (b) to grant to or confer upon the Authority or Bond Trustee, for the benefit of the Bondholders, any additional rights, remedies, powers or authorities that lawfully may be granted to or conferred upon the Authority or the Bond Trustee; (c) to amend or modify the Loan Agreement, or any part thereof, in any manner specifically required or permitted by the terms thereof, including, without limitation, as may be necessary to maintain the exclusion from gross income for purposes of federal income taxation of the interest on the Bonds; (d) to modify, amend or supplement the Loan Agreement, or any part thereof, or any supplement thereto, in such manner as the Bond Trustee and the Foundation deem necessary in order to comply with any statute, regulation, judicial decision or other law relating to secondary market disclosure requirements with respect to tax exempt obligations of the type that includes the Bonds; (e) to provide that Bonds may be secured by additional security not otherwise provided for in the Bond Indenture or the Loan Agreement; (f) to provide for the appointment of a successor securities depository; (g) to provide for the availability of certificated Bonds; and (h) to make any other

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change which does not, in the opinion of the Bond Trustee, have a material adverse effect upon the interests of the Bondholders. In addition, subject to the terms and provisions contained in the Bond Indenture, the Bond Trustee may grant such waivers of compliance by the Foundation with the provisions of the Loan Agreement as to which the Bond Trustee may deem necessary or desirable to effectuate the purposes of the intent of the Loan Agreement and which, in the opinion of the Bond Trustee, do not have a material adverse effect upon the interests of the Bondholders.

The Authority and the Bond Trustee may not consent to an amendment, change or modification of the Loan Agreement to permit the issuance of a coupon bond unless they shall have received an Opinion of Bond Counsel to the effect that all conditions precedent to its execution have been satisfied and that such amendment, change or modification will not result in the loss of any exemption for purposes of federal income taxation to which the interest on the Bonds would otherwise be entitled.

Except for the amendments, changes or modifications as provided in the Bond Indenture, neither the Authority nor the Bond Trustee shall consent to any other amendment, change or modification of the Loan Agreement without the written approval or consent of the holders of a majority in aggregate principal amount of the Bonds which are outstanding under the Bond Indenture at the time of execution of any such amendment, change or modification; provided, however, that no such amendment, change or modification shall ever affect the obligation of the Foundation to make payments on the Series 2017A California Obligation as they become due and payable. If at any time the Authority or the Foundation shall request the consent of the Bond Trustee to any such proposed amendment, change or modification of the Loan Agreement, the Bond Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be mailed in the same manner as provided by the Bond Indenture with respect to supplemental bond indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the principal office of the Bond Trustee for inspection by all Bondholders. The Bond Trustee shall not, however, be subject to any liability to any Bondholder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such amendment, change or modification when consented to and approved as provided in the Bond Indenture. If the holders of a majority in aggregate principal amount of the Bonds outstanding under the Bond Indenture at the time of the execution of any such amendment, change or modification shall have consented to and approved the execution thereof as provided in the Bond Indenture, no holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Bond Trustee or the Authority from executing the same or from taking any action pursuant to the provisions thereof.

Under no circumstances shall any amendment to the Loan Agreement alter the Series 2017A California Obligation pledged under the Bond Indenture regarding the payments of principal of and interest thereon, without the consent of the owners of all the Bonds outstanding.

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Defaults And Remedies

The occurrence and continuance of any of the following events shall constitute an “event of default” under the Loan Agreement:

(a) failure of the California Borrowers to pay any installment of principal or interest or any other payment required by the Loan Agreement, and failure of the California Obligated Group to pay any installment of principal or interest on the Series 2017A California Obligation, when the same shall become due and payable, whether upon a scheduled Interest Payment Date, at maturity, upon any date fixed for prepayment or by acceleration or otherwise, and the continuance of such failure for five days; or

(b) failure by the California Borrowers to perform or comply with any of the covenants, conditions or provisions of the Loan Agreement or of the Tax Certificate and failure to remedy such default within 30 days after notice thereof from the Authority to the California Borrowers; provided, however, that if failure to comply or perform with such covenants, conditions or provisions cannot be remedied within 30 days, but can be remedied, no “event of default” shall be deemed to have occurred or to exist if the Authority, in its discretion, shall consent to the California Borrowers commencing corrective action and the California Borrowers diligently pursue such corrective action until it shall have complied with or performed such covenants, conditions or provisions; or

(c) if any representation or warranty made by the California Borrowers in the Loan Agreement or in any statement or certificate furnished to the Authority or the Bond Trustee or the purchaser of any Bonds in connection with the sale of Bonds or furnished by the California Borrowers pursuant to the Loan Agreement including, without limitation, statements in the Official Statement, proves untrue in any material respect as of the date of the issuance or making thereof and shall not be made good within 60 days after notice thereof to the California Borrowers by the Authority or the Bond Trustee; provided, however, that if such default cannot be remedied within 60 days, but can be remedied, no “event of default” shall be deemed to have occurred or to exist if the Authority in its sole discretion, shall consent to the California Borrowers commencing corrective action and the California Borrowers diligently pursue such corrective action until such default has been cured; or

(d) any event of default shall occur under the Bond Indenture or the California Master Indenture which would permit the acceleration of any Series 2017A California Obligation; or

(e) if the California Borrowers admit insolvency or bankruptcy or their inability to pay debts as they mature, or are generally not paying debts as such debts become due, or make an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for the California Borrowers or for the major part of their facilities; or

(f) if a trustee, custodian or receiver is appointed for the California Borrowers or for the major part of their facilities and is not discharged within 60 days after such appointment; or

(g) if bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for relief D-26

under any bankruptcy law or similar law for the relief of debtors are instituted by or against the California Borrowers (other than bankruptcy proceedings instituted by the California Borrowers against third parties), and if instituted against the California Borrowers are allowed against the California Borrowers or are consented to or are not dismissed, stayed or otherwise nullified within 60 days after such institution; or

(h) if payment of any installment of interest or principal on any Bond shall not be made when the same shall become due and payable under the provisions of the Bond Indenture.

Upon the occurrence and during the continuance of any event of default under the Loan Agreement, the Authority shall have the following rights and remedies, in addition to any other remedies provided in the Loan Agreement or by law provided:

The Authority may at its discretion, by written notice to the California Borrowers, request that the Bond Trustee declare the principal due under the Loan Agreement and on the Series 2017A California Obligation (if not then due and payable) to be due and payable immediately and such principal shall thereupon become immediately due and payable as if all of the sums of money payable thereunder were originally stipulated to be paid on such accelerated payment date, anything in the Loan Agreement or in the Series 2017A California Obligation to the contrary notwithstanding. The Authority shall request that the Bond Trustee declare the principal due under the Loan Agreement and on the Series 2017A California Obligation due and payable immediately upon the occurrence of any of the defaults described in (a), (e), (f), (g) or (h) in the first paragraph under this subheading. This provision, however, is subject to the condition that if, at any time after the principal of the Series 2017A California Obligation shall have been so declared and become due and payable, all arrears of interest, if any, upon the amounts due under the Loan Agreement and on the Series 2017A California Obligation and the expenses of the Authority shall be paid by the California Borrowers, and every other default in the observance or performance of any covenant, condition or agreement in the Series 2017A California Obligation or in the Loan Agreement contained shall be made good, or be secured, to the satisfaction of the Authority, or provision deemed by the Authority to be adequate shall be made therefor, then and in every such case the Authority, by written notice to the California Borrowers shall waive the event of default by reason of which the principal due under the Loan Agreement and on the Series 2017A California Obligation shall have been so declared and become due and payable and shall rescind and annul such declaration and its consequences; provided, however, that there shall not be waived any event of default in the payment of the principal payable on the Bonds when due whether by mandatory or optional redemption or at the date of maturity specified therein; and provided further that no such waiver, rescission or annulment shall extend to or affect any subsequent event of default or impair any right consequent thereon. The Authority may by written notice to the California Master Trustee, request that it declare the principal of the Series 2017A California Obligation (if not then due and payable) to be due and payable immediately, subject to the provisions of the California Master Indenture regarding waivers of events of default, anything in the Series 2017A California Obligation or in the Loan Agreement contained to the contrary notwithstanding.

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Whenever any event of default shall have occurred and be continuing under the Loan Agreement, the Authority, personally or by attorney, may in its discretion proceed to protect and enforce its rights by pursuing any available remedy including a suit or suits in equity or at law, whether for damages or for the specific performance of any obligation, covenant or agreement contained in the Series 2017A California Obligation, in the Loan Agreement or in the Bond Indenture, or in aid of the execution of any power granted under the Loan Agreement, or for the enforcement of any other appropriate legal or equitable remedy, as the Authority shall deem most effectual to collect the payments then due and thereafter to become due under the Loan Agreement or on the Series 2017A California Obligation, to enforce performance and observance of any obligation, agreement or covenant of the California Borrowers under the Loan Agreement, under the Series 2017A California Obligation or under the Bond Indenture or to protect and enforce any of the Authority’s rights or duties under the Loan Agreement or thereunder.

Required Optional Redemption And Application Of Certain Gifts

The California Borrowers acknowledge in the Loan Agreement that the California Borrowers or any affiliated organization may from time to time receive Project Gifts. The California Borrowers covenant and agree in the Loan Agreement that if and when the California Borrowers or any affiliated organization receives any Project Gifts, the California Borrowers will (i) amend the Project Documents as provided in the Loan Agreement in order to exclude from the Project Certificate Exhibit and Bond Financed Property any costs which are to be paid from Project Gifts and in order to provide for the application of all of the funds on deposit in the Project Fund to the payment of the costs of a “project” as such term is defined in the Act, (ii) apply the proceeds thereof or cause the proceeds thereof to be applied to the prepayment of the principal of the Series 2017A California Obligation and the Bonds as soon as practicable after such proceeds become available to the California Borrowers or any affiliated organization, or (iii) apply such Project Gifts in any manner with respect to which the California Borrowers have received an Opinion of Bond Counsel to the effect that such use of the Project Gifts will not adversely affect the validity of any exemption from federal income taxation to which the Bonds would otherwise be entitled.

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APPENDIX E

FORM OF APPROVING OPINION OF BOND COUNSEL

[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E FORM OF APPROVING OPINION OF BOND COUNSEL

On the date of issuance of the Bonds, Hawkins Delafield & Wood LLP, Bond Counsel, proposes to issue its approving opinion in substantially the following form:

September __, 2017

California Municipal Finance Authority Carlsbad, California

$______California Municipal Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group) Series 2017A

Ladies and Gentlemen:

As bond counsel to the California Municipal Finance Authority (the “Authority”), we submit this opinion with respect to the issuance by the Authority of its California Municipal Finance Authority Revenue Bonds (Retirement Housing Foundation Obligated Group) Series 2017A, dated the date hereof, in the aggregate principal sum of $______(the “Bonds”).

We have examined a certified transcript of proceedings with respect to the Bonds, including a certified copy of an authorizing resolution adopted by the Authority (the “Authorizing Resolution”), an executed copy of the Bond Trust Indenture, dated as of September 1, 2017 (the “Bond Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the “Bond Trustee”), an executed copy of the Loan Agreement, dated as of September 1, 2017 (the “Loan Agreement”), by and among the Authority and Bixby Knolls Towers, Inc., Gold County Health Center, Inc. and Sun City RHF Housing, Inc. (collectively, the “California Borrowers”), and the Tax Certificate and Agreement of Retirement Housing Foundation (“RHF”), the parent corporation of the California Borrowers, the California Borrowers and the Authority, dated the date hereof (together with all attachments and exhibits, the “Tax Certificate”). We have also reviewed such other information, records, and documents as, in our judgment, are necessary or advisable to deliver the opinions expressed herein, and we have examined an executed Bond or a specimen thereof.

Capitalized terms used herein and not otherwise defined shall have the meanings assigned in the Bond Indenture.

The Bonds are issued under and pursuant to the Joint Exercise of Powers Act, constituting Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (commencing with Section 6500) (as amended from time to time, the “Act”), by the Authority for the purpose of providing funds to loan to the California Borrowers to be used by the California Borrowers, together with other available funds: (1) to refund certain previously issued bonds, (2) to finance the cost of constructing, renovating, remodeling and/or equipping one or more of the facilities of the California Borrowers and (3) to pay all or a portion of the costs of issuance related to the Bonds.

Tax-exempt obligations issued by the Public Finance Authority for the benefit of RHF and affiliated organizations (the “Related Bonds”) are treated, together with the Bonds, as a single issue for Federal tax purposes. We have served as bond counsel with respect to the issuance of the Related Bonds and, on the date hereof, have rendered our opinion with respect to the exclusion of interest on the Related Bonds from gross income for Federal income tax purposes in substantially the form of paragraph 6 below and subject to the same conditions and limitations set forth herein. Noncompliance with such conditions and limitations may cause interest on both the Bonds and the Related Bonds to become subject to Federal income taxation retroactive to the date of issue, irrespective of the date on which such noncompliance occurs or is ascertained.

In rendering our opinion, we have relied upon and assumed the accuracy of the opinion of Chapman and Cutler LLP, special counsel to the California Borrowers and RHF, the parent corporation of the California Borrowers and the initial California Obligated Group Representative, regarding, among other matters, the current qualification of the California Borrowers as organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). We note that the opinion of special counsel to the California Borrowers and RHF is subject to a number of qualifications and limitations. The California Obligated Group Representative, for itself and on behalf of each of the California Borrowers, has covenanted that it will do nothing to impair its status as a tax-exempt organization, and that it will comply with the requirements of the Code and any applicable regulations throughout the term of the Bonds. Failure of the California Borrowers to be organized and operated in accordance with the Internal Revenue Service’s requirements for the maintenance of their respective status as organizations described in Section 501(c)(3) of the Code or use of the Bond- financed assets in activities that constitute unrelated trades or businesses of the California Borrowers within the meaning of Section 513 of the Code may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of issuance of the Bonds.

As to questions of fact material to our opinion we have, with your consent, relied upon the certified proceedings and other certifications of public officials and officers of RHF and the California Borrowers furnished to us, without undertaking to verify the same by independent investigation.

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Based upon our examination, we are of the opinion that under existing law:

1. The Authority is legally organized and validly existing under the Constitution and laws of the State of California, including particularly the Act, and is legally authorized and empowered to adopt the Authorizing Resolution and to enter into the Bond Indenture and the Loan Agreement and to issue and deliver the Bonds.

2. The Authorizing Resolution has been duly adopted by the Authority and is a valid and binding action of the Authority.

3. The Bond Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. The Bond Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of revenues and any other amounts (including proceeds of the sale of the Bonds) held by the Bond Trustee in any fund or account established pursuant to the Bond Indenture, except the Rebate Fund, subject to the provisions of the Bond Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Bond Indenture. The Bond Indenture also creates a valid pledge to the Bond Trustee, for the benefit of the holders from time to time of the Bonds, of the right, title, and interest of the Authority in the Loan Agreement, as more particularly described in the Bond Indenture and the Act.

4. The Loan Agreement has been duly executed and delivered by the Authority and constitutes a valid and binding agreement of the Authority.

5. The Bonds are not a lien or charge upon the funds or property of the Authority, except to the extent of the aforementioned pledge and assignment. The Bonds have been duly authorized to be issued and delivered by the Authority, all conditions precedent to the delivery thereof have been fulfilled and, when duly authenticated, the Bonds will constitute valid and binding obligations of the Authority enforceable in accordance with their terms. The Bonds do not constitute obligations or create any debt of the State of California, nor do they constitute a general obligation of the Authority, but the principal of and the interest thereon are payable solely from the sources provided therefor in the Bond Indenture.

6. Under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described below, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Code and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. The Code establishes certain requirements that must be met subsequent to the issuance and delivery of the Bonds in order that, for Federal income tax purposes, interest on the Bonds be excluded from gross income pursuant to Section 103 of the Code. These requirements include, but are not limited to, requirements relating to the use and expenditure of Bond proceeds, restrictions on the investment of Bond proceeds prior to expenditure and the requirement that certain earnings be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Bonds to become subject to Federal income taxation retroactive to their date of issue, irrespective of the date on which such E-3

noncompliance occurs or is ascertained. On the date of delivery of the Bonds, the Authority, RHF and the California Borrowers will execute the Tax Certificate containing provisions and procedures pursuant to which such requirements can be satisfied. In executing the Tax Certificate, the Authority, RHF and the California Borrowers covenant that they will comply with the provisions and procedures set forth therein and that they will do and perform all acts and things necessary or desirable to assure that interest paid on the Bonds will, for Federal income tax purposes, be excluded from gross income. In rendering the opinion in this paragraph 6, we have relied upon and assumed (i) the material accuracy of the representations, statements of intention and reasonable expectation, and certifications of fact contained in the Tax Certificate with respect to matters affecting the status of interest paid on the Bonds, and (ii) compliance by the Authority and the California Borrowers with the procedures and covenants set forth in the Tax Certificate as to such tax matters.

7. Under existing statutes, interest on the Bonds is exempt from State of California personal income taxes.

Except as stated in paragraphs 6 and 7 above, we express no opinion as to any other Federal, state or local tax consequences arising with respect to the Bonds or the ownership or disposition thereof. In addition, we express no opinion as to any transaction that is not expressly referenced in this opinion or the effect of any such transaction on the exclusion of interest on the Bonds from gross income for Federal income tax purposes. We render our opinion under existing statutes and court decisions as of the issue date, and we assume no obligation to update, revise or supplement this opinion after the issue date to reflect any action hereafter taken or not taken, or any facts or circumstances, or any change in law or in interpretations thereof, or otherwise, that may hereafter arise or occur, or for any other reason. Furthermore, we express no opinion herein as to the effect of any action hereafter taken or not taken in reliance upon an opinion of counsel other than ourselves on the exclusion from gross income for Federal income tax purposes of interest on the Bonds.

The enforceability of the rights and remedies set forth in the Authorizing Resolution, the Bond Indenture, the Loan Agreement and the Bonds may be limited by bankruptcy, insolvency, fraudulent conveyance or other laws affecting creditors’ rights generally and by the application of general principles of equity, including those relating to equitable subordination.

Respectfully submitted,

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APPENDIX F

FORM OF CONTINUING DISCLOSURE AGREEMENT

[THIS PAGE INTENTIONALLY LEFT BLANK] CONTINUING DISCLOSURE AGREEMENT

September ___, 2017

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by (i) Retirement Housing Foundation (the “RHF”), on behalf of itself and Foundation Property Management, Inc. (“FPM”), and as Obligated Group Representative of the Obligated Groups (as defined herein) and (ii) The Bank of New York Mellon Trust Company, N.A. as dissemination agent (the “Dissemination Agent”). RHF and the Dissemination Agent covenant and agree as follows:

Section 1. Definitions. Any capitalized terms used herein but not defined herein shall have the meanings assigned to them in the Master Indentures, and the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the RHF Obligated Group pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Authority” shall mean California Municipal Finance Authority.

“Bond Indenture” shall mean the Bond Trust Indenture dated as of September 1, 2017, between the Authority and the Bond Trustee, pursuant to which the Series 2017A Bonds were issued.

“Bond Trustee” shall mean The Bank of New York Mellon Trust Company, N.A., as bond trustee.

“Bondholders” shall mean the owners and beneficial owners from time to time of the Series 2017A Bonds.

“California Master Indenture” shall mean the California Master Trust Indenture dated as of July 1, 2008, by and among the Members of the California Obligated Group, RHF, solely as Obligated Group Representative (as defined therein), and the Master Trustee, as supplemented and amended from time to time including by the Fifth Supplemental California Master Trust Indenture dated as of September 1, 2017.

“California Obligated Group” shall have the meaning set forth in the California Master Indenture.

“Days Cash on Hand” shall have the meaning set forth in the Master Indentures.

“Debt Service Coverage Ratio” shall have the meaning set forth in the Master Indentures.

“Disclosure Agreement” shall mean this agreement.

“EMMA” shall mean the Electronic Municipal Market Access system of the MSRB accessible at http://emma.msrb.org or such other information repository as may be determined by the SEC from time to time.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

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“Loan Agreement” shall mean the Loan Agreement dated as of September 1, 2017, among the Authority, Bixby Knolls Towers, Inc., Gold Country Health Center, Inc. and Sun City RHF Housing, Inc., relating to the Series 2017A Bonds.

“Master Indentures” shall mean the California Master Indenture and the National Master Indenture.

“Master Trustee” shall mean The Bank of New York Mellon Trust Company, N.A., as master trustee under each of the Master Indentures.

“Member” shall have the meaning set forth in the Master Indentures.

“MSRB” shall mean the Municipal Securities Rulemaking Board or any successor entity as described in the Rule.

“National Master Indenture” shall mean the National Master Trust Indenture dated as of July 1, 2008, by and among the Members of the National Obligated Group, RHF, solely as Obligated Group Representative (as defined therein), and the Master Trustee, as supplemented and amended from time to time including by the Fifth Supplemental National Master Trust Indenture dated as of September 1, 2017.

“National Obligated Group” shall have the meaning set forth in the National Master Indenture.

“Obligated Group” shall mean, collectively, the California Obligated Group and the National Obligated Group.

“Obligated Group Representative” shall mean RHF, it its capacity as Obligated Group Representative pursuant to each Master Indenture.

“Offering Document” shall mean the Official Statement dated August ___, 2017, related to the Series 2017A Bonds.

“Purchaser” shall have the meaning set forth in the Rule.

“Quarterly Report” shall mean any quarterly report provided pursuant to and as described in Sections 3 and 4 of this Disclosure Agreement.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“RHF Obligated Group” shall mean RHF, FPM, the California Obligated Group and the National Obligated Group.

“SEC” shall mean the United States Securities and Exchange Commission.

“Series 2017A Bonds” shall mean the Authority’s $______Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017A.

“Underwriter” shall mean B.C. Ziegler and Company or any additional Purchaser of the Series 2017A Bonds required to comply with the Rule in connection with an offering of the Series 2017A Bonds.

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Section 2. Purpose of the Disclosure Agreement. The purpose of this Disclosure Agreement is to assist the Underwriter in complying with the Rule in connection with the Series 2017A Bonds.

Section 3. Provision of Annual Reports and Quarterly Reports.

(a) The Obligated Group Representative shall, or shall cause the Dissemination Agent to, not later than 150 days after the completion of each fiscal year of the RHF Obligated Group (beginning with the fiscal year ending September 30, 2017), provide or cause to be provided to EMMA an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Agreement.

(b) Not later than three (3) business days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Obligated Group Representative (if it is not the Dissemination Agent) shall provide the Annual Report to the Dissemination Agent and the Master Trustee (if the Master Trustee is not the Dissemination Agent). If by such date the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Obligated Group Representative to determine if the Obligated Group Representative is in compliance with subsection (a).

(c) In addition to the Annual Report required to be filed pursuant to subsection (a), the Obligated Group Representative shall, or shall cause the Dissemination Agent to, not later than 45 days after the completion of the first three fiscal quarters of each fiscal year or 60 days after the completion of the fourth fiscal quarter of each fiscal year (beginning with the quarter ending September 30, 2017), provide or cause to be provided to EMMA a Quarterly Report that is consistent with the requirements of Section 4 of this Disclosure Agreement.

(d) Not later than three (3) business days prior to the date specified in subsection (c) for providing the quarterly filings to the MSRB, the Obligated Group Representative (if it is not the Dissemination Agent) shall provide the Annual Report to the Dissemination Agent and the Master Trustee (if the Master Trustee is not the Dissemination Agent). If by such date the Dissemination Agent has not received a copy of the quarterly filings, the Dissemination Agent shall contact the Obligated Group Representative to determine if the Obligated Group Representative is in compliance with subsection (c).

(e) If the Obligated Group Representative is unable to provide to EMMA an Annual Report or Quarterly Report by the dates required in this Section 3, the Obligated Group Representative shall, or shall cause the Dissemination Agent to, send a notice of such fact to EMMA or the MSRB.

(f) Annual Reports and Quarterly Reports must be submitted to the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross- reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the RHF Obligated Group may be submitted separately from the balance of the report and later than the date required above for the filing of the report if they are not available by that date. If the RHF Obligated Group’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event. Annual Reports and Quarterly Reports shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Series 2017A Bonds by name and CUSIP number.

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Section 4. Content of Annual and Quarterly Reports.

(a) The Annual Report to be delivered under Section 3(a) for each fiscal year shall include the combined audit of the RHF Obligated Group for the fiscal year immediately preceding the due date of the Annual Report. Such financial statements shall be prepared in accordance with generally accepted accounting principles and shall be audited by an independent certified public accountant, and shall include a combined and an unaudited combining balance sheet as of the end of such Fiscal Year and a combined and unaudited combining statement of unrestricted activities and changes in unrestricted net assets and combined statements of cash flows, together with a separate written statement of the accountants preparing such report containing calculations of the Obligated Groups’ Debt Service Coverage Ratio for such fiscal year and of the Obligated Groups’ Days Cash on Hand as of the last day of such fiscal year and a statement that such accountants have no knowledge of any default related to certain financial covenants under the Master Indentures, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof; provided, however, that if such audited financial statements are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements shall be included in the Annual Report.

(b) The Annual Report to be delivered under Section 3(a) shall also provide the following financial and operating data:

(1) A summary of the board-approved annual budget; and

(2) A separate report or footnote disclosure of all guaranties, and whether or not any payments have been made in the last fiscal year and if so the related amount.

(1) Management-prepared financial statements, including a consolidated or consolidating statement of revenues and expenses and statement of cash flows of the RHF Obligated Group during such period, a consolidated or consolidating balance sheet as of the end of each such fiscal quarter, a calculation of the Days Cash on Hand for the second and last fiscal quarters of each year, and a calculation of Debt Service Coverage Ratio for the last fiscal quarter; and

(2) Updates of the information under the headings “INFORMATION CONCERNING THE RHF OBLIGATED GROUP MEMBERS – OCCUPANCY STATISTICS” and “—MONTHLY FEES AND PAYOR MIX” in Appendix A to the Offering Document; provided, however, that the chart entitled “Monthly Fees” shall be provided in the Quarterly Report for the last fiscal quarter only.

all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative, and an Officer’s Certificate of the Obligated Group Representative stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indentures or if not, specify all such defaults and the nature thereof.

Section 5. Reporting of Listed Events.

(a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events with respect to the Series 2017A Bonds:

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(1) principal and interest payment delinquencies;

(2) non-payment related defaults, if material;

(3) unscheduled draws on debt service reserves reflecting financial difficulties;

(4) unscheduled draws on credit enhancements reflecting financial difficulties;

(5) substitution of credit or liquidity providers, or their failure to perform;

(6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices of determinations with respect to the tax status of the Series 2017A Bonds, or other material events affecting the tax status of the Series 2017A Bonds;

(7) modifications to rights of security holders, if material;

(8) bond calls, if material, and tender offers (except for mandatory scheduled redemptions not otherwise contingent upon the occurrence of an event);

(9) defeasances;

(10) release, substitution, or sale of property securing repayment of the securities, if material;

(11) rating changes;

(12) bankruptcy, insolvency, receivership or similar event of a member of the RHF Obligated Group (which shall be deemed to occur as provided in the Rule);

(13) the consummation of a merger, consolidation, or acquisition involving a member of the RHF Obligated Group or the sale of all or substantially all of the assets of a member of the RHF Obligated Group, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(14) appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) In the occurrence of a Listed Event, the Obligated Group Representative shall promptly file, or cause to be filed, a notice of such occurrence with EMMA or the MSRB. If the Obligated Group Representative determines that it failed to give notice as required by this Section, it shall promptly file, or cause to be filed, a notice of such occurrence in the same manner. The Dissemination Agent agrees to promptly file with the MSRB any notice of a Listed Event submitted to it by the Obligated Group Representative for filing. Such notice of the occurrence of a Listed Event must be submitted to the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

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Section 6. Termination of Reporting Obligation. The RHF Obligated Group’s and the Dissemination Agent’s obligations under this Disclosure Agreement with respect to the Series 2017A Bonds shall terminate upon the defeasance, prior redemption or payment in full of all the Series 2017A Bonds or if the Rule shall be revoked or rescinded by the SEC or declared invalid by a final decision of a court of competent jurisdiction.

Section 7. Additional Information. The members of the RFH Obligated Group may from time to time choose to disseminate other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or include other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If such member of the RHF Obligated Group chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, such member shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 8. Dissemination Agent. The Obligated Group Representative may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Obligated Group Representative pursuant to this Disclosure Agreement. The Dissemination Agent (if other than the Obligated Group Representative) may resign by providing thirty (30) days written notice to the Obligated Group Representative and the Master Trustee. The Dissemination Agent shall have no duty to prepare any information report or notice nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Obligated Group Representative in a timely manner and in a form suitable for filing. If at any time there is not any other designated Dissemination Agent, the Obligated Group Representative shall be the Dissemination Agent. The initial Dissemination Agent shall be The Bank of New York Mellon Trust Company, N.A.

Section 9. Amendment; Waiver; Modification. The Obligated Group Representative and the Dissemination Agent may amend or waive any provision of this Disclosure Agreement, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule or adjudication of the Rule by a final decision of a court of competent jurisdiction. The Obligated Group Representative and the Dissemination Agent may modify from time to time the specific types of information provided in an Annual Report to the extent necessary as a result of a change in legal requirements, change in law or change in the nature of any Member of the Obligated Groups or its businesses, provided that any such modification will be done in a manner consistent with the Rule and will not, in the opinion of the Master Trustee or another party unaffiliated with the Authority or the members of the RHF Obligated Group, materially impair the interests of the Bondholders.

Section 10. Default. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Master Indentures, the Bond Indenture or the Loan Agreement, and the sole remedy of Bondholders under this Disclosure Agreement in the event of any failure of the RHF Obligated Group or the Obligated Group Representative, on behalf of RHF, FPM and the Obligated Group, to comply with this Disclosure Agreement shall be an action to compel performance.

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Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the RHF Obligated Group, the Underwriter and the Bondholders, and shall create no rights in any other person or entity.

Section 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Obligated Group Representative: Retirement Housing Foundation 911 Studebaker Road Long Beach, California 90815-4900 Attention: Corporate Secretary Telephone: (562) 257-5314

To the Dissemination Agent: The Bank of New York Mellon Trust Company, N.A. 400 South Hope Street, Suite 500 Los Angeles, CA 90071 Attention: Corporate Trust Telephone: (213) 630-6270 Fax: (213) 630-6215

Section 13. Duties, Immunities and Liabilities of the Dissemination Agent. The Bond Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Bond Indenture. The Dissemination Agent shall be entitled to the protections and limitations afforded to the Bond Trustee under said Bond Indenture. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and RHF agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by RHF for its services provided hereunder in accordance with its schedule of fees as amended from time to time and shall be reimbursed by RHF all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not have any duty or obligation to review any information provided to it hereunder or shall be deemed to be acting in any fiduciary capacity for RHF, the owners of the Series 2017A Bonds or any other party. The obligations of RHF under this section shall survive resignation or removal of the Dissemination Agent and payment of the Series 2017A Bonds. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any document or any further act.

Section 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California.

Section 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument

[Signature appears on the following page]

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IN WITNESS WHEREOF, the parties hereto have caused this Disclosure Agreement to be executed as of the date first set forth above.

RETIREMENT HOUSING FOUNDATION, on behalf of itself and Foundation Property Management, Inc., and as Obligated Group Representative on behalf of the California Obligated Group and the National Obligated Group

By: Laverne R. Joseph President and Chief Executive Officer

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Dissemination Agent

By: Vice President

[Signature Page to Continuing Disclosure Agreement – Series 2017A]

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APPENDIX G

BOOK-ENTRY ONLY SYSTEM

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BOOK-ENTRY ONLY SYSTEM

THE INFORMATION PROVIDED IN THIS APPENDIX F HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE AUTHORITY, THE RHF OBLIGATED GROUP, THE UNDERWRITER OR THE BOND TRUSTEE AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE OF THIS OFFICIAL STATEMENT.

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such Bonds, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s rating: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Neither the information on this website, nor on any links therefrom, is part of this Official Statement, and such information cannot be relied upon to be accurate as of the date of this Official Statement, nor should any such information be relied upon to make investment decisions regarding the Bonds.

Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. BENEFICIAL OWNERS WILL NOT RECEIVE CERTIFICATES REPRESENTING THEIR OWNERSHIP INTERESTS IN THE BONDS, EXCEPT IN THE EVENT THAT USE OF THE BOOK-ENTRY SYSTEM FOR THE BONDS IS DISCONTINUED.

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To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. NONE OF THE AUTHORITY, THE RHF OBLIGATED GROUP, THE UNDERWRITER AND THE BOND TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DIRECT OR INDIRECT PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE BONDS.

Redemption notices shall be sent to DTC. If less than all of the Bonds are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Bond Trustee on payment dates in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Bond Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Authority or the Bond Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to any Bonds at any time by giving reasonable notice to the Authority or the Bond Trustee. Under such circumstances, in the event

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that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered as described in the Bond Indenture.

The Authority may decide to discontinue use of the system of book-entry-only transfers of Bonds through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC as described in the Bond Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.

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CALIFORNIA MUNICIPAL FINANCE AUTHORITY • Revenue Bonds (Retirement Housing Foundation Obligated Group), Series 2017A