Washington State Housing Finance Commission

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other changes without any notice. The securities described herein 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, 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. under Rule 144A oftheSecuritiesAct 1933,asamended,andsetforthintheBondIndenture.See“ the Bondshavelimitedliquidityandtherebyinvolveadditionalrisk.Themustbeheldbypurchaserswhoare“QualifiedInstitutional Buyers”asdefined † * Urban Development(the“HUDLoan”),orrepayshort repayment of,theoutstandingprincipalbalanceofataxableloanincurredbyFredLindManor,whichisinsuredUnitedStatesDepartment Housingand current basis,alloftheCommission’soutstandingNonprofitRevenueBonds(SkylineatFirstHillProject),Series2007A,(b)repay,orreimburseFredLind Manor forthe Borrowers, theMortgageLenderandBondTrustee.TheBorrowersintendtouseproceedsofsuchloan,togetherwithotheravailablefunds,(a) refund,ona the “Borrowers”),pursuanttoaMortgageLoanOriginationandFinancingAgreement,datedasofOctober1,2016(theAgreementamongCommission, Manor, aWashingtonnonprofitcorporationandanorganizationdescribedinSection501(c)(3)oftheCode(“FredLindManor”and,togetherwithPRCNSkyline, Internal RevenueCodeof1986,asamended(the“”),FH,LLC(“SkylineaWashingtonlimitedliabilitycompany,thesolememberwhichisPRCN,andFredLind ofthe Lender”), toPresbyterianRetirementCommunitiesNorthwest,aWashingtonnonprofitcorporation(“PRCN”)andanorganizationdescribedinSection 501(c)(3) Trustee”). The Commission will use the proceeds of the Bonds to acquire a mortgage loan originated by U.S. Bank National Association, as mortgage lender (the “Mortgage NationalAssociation,asbondtrustee(the“Bond an IndentureofTrust,datedasOctober1,2016(the“Bond”),betweentheCommissionandU.S. Bank captions “ debt servicereservefundand(g)paycostsofissuingtheBonds.AmoredetaileddescriptionusesproceedsfromsaleBondsisincluded underthe with theParkShoreProject,“Project”),(e)reimbursePRCNforcostsofacquisitioncertainseniorhousingandrelatedfacilitiesdescribedherein,(f)funda Manor forthecostsofremodeling,renovationandequippingseniorhousingrelatedfacilitiesFredLind(the“Project”and,together of theremodeling,renovationandequippingseniorhousingrelatedfacilitiesPRCNatParkShore(the“Project”),(d)payorreimburseFredLind Dated: Dateofdelivery N sources ofpaymentof,andsecurityfor,theBondsaremorefullydescribedinthisOfficialStatement.See“ No. 3(together,the“Series 2016 Obligations”) issuedbyPRCNundertheMasterIndenturedescribedherein,andcertainfundsheldBondIndenture.The andthePresbyterianRetirementCommunitiesNorthwestDirectNote Obligation the PresbyterianRetirementCommunitiesNorthwestDirectNoteObligationNo. 2 Interest ontheSeries2016BBondsisnotintendedtobetaxexempt.See“ is takenintoaccountindeterminingadjustedcurrentearningsforthepurposeofcomputingalternativeminimumtaximposedoncertaincorporations. item oftaxpreferenceforpurposesthefederalalternativeminimumimposedonindividualsandcorporations;however,interestSeries2016ABonds interest ontheSeries2016ABondsisexcludablefromgrossincomeforfederaltaxpurposes.Inaddition,notan B N B risk factorswhichshouldbeconsideredinconnectionwithaninvestmentthe Bondsandin the sectionshereinentitled“ and the provisions of the principal documents. A prospective Bondowner is advised to read this entire Official Statement, including without limitationthe informationin any eventshalltheBondsbepayableoutoffundsorpropertiesother thanthosespecificallypledgedtherefor.TheCommissionhasnotaxingpower. of theCommission,andneitherCommissionnorStateanypoliticalcorporation,subdivisionoragencythereofwillbeliablethereon, norin or politicalcorporationsubdivisionof the Statewithrespecttopayment of the Bonds. TheBondsshall not be payable fromthegeneralrevenues provisions, norshalltheBondsbeconstruedtocreateanymoralobligationonpartofCommission,State,orcounty,cityother municipal or subdivisionoftheState,aloanfaithcredittaxingpoweranythem,withinmeaningconstitutional statutory an indebtedness or an obligation of the Commission, the State of Washington (the “State”), or any county, city or other municipal or political corporation must readthisentireOfficialStatement, includingtheAppendices,toobtaininformationessentialmaking ofaninformedinvestmentdecision. Bond TrusteeonbehalfofDTCbyFast AutomatedSecuritiesTransferonorabout______,2016. P.S., Seattle,Washington,asspecialcounseltotheBorrowersandObligated Group.ItisexpectedthattheBondsindefinitiveformwillbeavailablefordeliveryto matters fortheCommission.CertainlegalwillbepasseduponbyChapman andCutlerLLP,counseltotheUnderwriter,byHillisClarkMartin&Peterson General CounseltotheCommissionandBondCounsel,asvalidityof Bondsandtax‑exemptstatusoftheSeries2016Aapprovalcertainother on Transfer”herein. The Bonds are subject to optional, mandatory and extraordinary mandatory redemption prior to maturity as described herein under the caption “ to the beneficial owners of the Bonds. DTC acts as agent solely for its participants and not for the beneficial owners of the Bonds, the Commission or the Borrowers. Co.,asnomineeofDTC,whichinturnisrequiredtoremitsuchprincipalandinterestparticipantsDTCforsubsequentdisbursement Bonds willbepaidtoCede & nominee ofTheDepositoryTrustCompany,NewYork,York(“DTC”).willactasinitialsecuritiesdepositoryfortheBonds.principalandintereston Denominations of$100,000oranyintegralmultiple$5,000inexcessthereofwithinamaturity.TheBondsinitiallywillberegisteredthenameCede

onds ook orthwest ew provided for convenienceofreference only.TheCommission, theBorrowers and theUnderwriterassume noresponsibility fortheaccuracyofsuch numbers. Copyright, AmericanBankers Association.CUSIPdatahereinareprovided byStandard&Poor’sCUSIPService Bureau,adivisionofTheMcGraw Preliminary, subjectto change. I The above‑referencedbonds(collectively,the“Bonds”)arebeingissuedbyWashingtonStateHousingFinanceCommission(thepursuantto Except as described in this Official Statement, the Bondswill be payable solely from andsecured by a pledge ofpaymentstobe made under the LoanAgreement, An investmentintheBondsinvolvesacertaindegreeofriskrelatedtonature ofthebusinessObligatedGroup(ashereindefined),regulatoryenvironment, The BondsandtheinterestthereonarenotgeneralobligationsofCommissionbutspecial,limitedobligations,doconstitutea debt or Interest ontheoutstandingBondswillbepayableJanuary 1andJuly 1ofeachyear,commencingJanuary 1,2017. In theopinionofPacificaLawGroupLLP,Seattle,Washington,BondCounsel,underexistinglawandsubjecttocertainqualificationsdescribedherein, This coverpagecontainscertaininformation foreaseofreferenceonly. It doesnot constitute asummaryof the Bondsor the security therefor.Potentialinvestors The Bondsareofferedwhen,asandifissuedreceivedbythepurchasers thereof,andsubjecttotheopinionofPacificaLawGroupLLP,Seattle,Washington, The CommissionhasnotdesignatedtheBondsas“QualifiedTax‑ExemptObligations ” withinthemeaningofSection 265(b)(3)Code. The Bonds will be issued as fully registered bonds, except as otherwise provided in the Bond Indenture (see “ -E ssue —Redemption oftheBonds.” ntry E

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$120,330,000* WASHINGTON STATE HOUSING FINANCE COMMISSION NONPROFIT HOUSING REVENUE AND REFUNDING REVENUE BONDS (PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST PROJECTS), SERIES 2016A

PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES, YIELDS AND PRICES $______SERIAL BONDS MATURITY JANUARY 1 PRINCIPAL AMOUNT INTEREST RATE YIELD CUSIP©

$______– ____% Term Bonds due January 1, 20__; Priced ____% to yield ____% CUSIP†: ______$______– ____% Term Bonds due January 1, 20__; Priced ____% to yield ____% CUSIP†: ______

* $12,215,000 WASHINGTON STATE HOUSING FINANCE COMMISSION TAXABLE NONPROFIT HOUSING REVENUE BONDS (PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST PROJECTS), SERIES 2016B

PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES, YIELDS AND PRICES

$______– ____% Term Bonds due January 1, 20__; Priced ____% to yield ____% CUSIP†: ______$______– ____% Term Bonds due January 1, 20__; Priced ____% to yield ____% CUSIP†: ______

* Preliminary, subject to change. † Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP numbers are provided for convenience of reference only. The Commission, the Borrowers and the Underwriter assume no responsibility for the accuracy of such numbers.

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View of downtown from Skyline Top: Skyline Pool Top: Park Shore Lakeside Dining Room Bottom: Skyline Apartment Bottom: Park Shore Apartment Living Room

Fred Lind Manor Apartment Living Room [THIS PAGE INTENTIONALLY LEFT BLANK]

REGARDING USE OF THIS OFFICIAL STATEMENT

The information set forth herein under the captions “THE COMMISSION” and “ABSENCE OF MATERIAL LITIGATION—The Commission” has been furnished by the Commission. The information set forth herein under the caption “UNDERWRITING” has been furnished by the Underwriter. The information set forth under the caption “THE BOND TRUSTEE AND THE MASTER TRUSTEE” has been furnished by the Bond Trustee and Master Trustee. The information set forth herein in APPENDIX H — “BOOK-ENTRY ONLY SYSTEM” has been furnished by DTC. All other information in this Official Statement has been provided by the Borrowers 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 Commission 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 Commission, DTC, the Bond Trustee, the Master Trustee, the Borrowers or the Obligated Group since the date hereof.

No dealer, broker, sales representative or other person has been authorized by the Commission, the Borrowers, their 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 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.

In connection with the offering of the Bonds, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at levels above those which might otherwise prevail in the open market. Such stabilization, if commenced, may be discontinued at any time.

The Bonds have not been registered under the Securities Act of 1933, as amended, nor has the Bond Indenture or the 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 Bonds in accordance with applicable provisions of securities laws of the states in which 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 Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense.

This Official Statement should be reviewed by each prospective purchaser and its legal, regulatory, tax, accounting, investment and other advisors. Investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether and to what extent the Bonds constitute a legal investment for them. In making any investment decision, investors must rely on their own examination of the Bond Indenture, the Loan Agreement, the Master Indenture, the Series 2016 Obligations, the 2016 Deeds of Trust (hereinafter defined) and related documents and the terms of the Bonds, including the risks involved.

______

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

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.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE BORROWERS DO NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED, OCCUR.

TABLE OF CONTENTS

PAGE

INTRODUCTION ...... 1 Purpose of this Official Statement ...... 1 The Bonds ...... 2 The Borrowers ...... 2 The Obligated Group and the Master Indenture ...... 3 Security and Sources of Payment for the Bonds ...... 4 Additional Obligations and Additional Indebtedness ...... 5 Continuing Disclosure ...... 6 Risk Factors ...... 6 THE COMMISSION ...... 6 THE BONDS ...... 10 General Description ...... 10 Limited Obligations ...... 10 Book-Entry System ...... 10 Limitations on Investors and Restrictions on Transfer ...... 11 Redemption of the Bonds...... 12 Purchase of the Bonds ...... 16 Defeasance ...... 17 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ...... 17 General ...... 17 Limited Obligations ...... 18 Pledge of the Trust Estate under the Bond Indenture ...... 18 The Debt Service Reserve Fund ...... 19 The Borrowers’ Obligations Under the Loan Agreement ...... 21 Obligations under the Master Indenture ...... 21 Security Interest in Gross Revenues under the Master Indenture ...... 22 2016 Deeds of Trust ...... 23 THE PLAN OF FINANCE...... 24 The Projects ...... 24 Refunding of the Series 2007A Bonds...... 25 Refinancing of HUD Loan ...... 25 Condo Acquisition ...... 25 ESTIMATED SOURCES AND USES OF FUNDS ...... 26 ANNUAL DEBT SERVICE REQUIREMENTS ...... 27 CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE ...... 28 Limitations on Additional Indebtedness and on Encumbrances ...... 28 Rates and Charges; Debt Coverage ...... 28 Liquidity Covenant ...... 29 Approval of Consultants ...... 30 Other Covenants...... 31 Reporting Requirements ...... 31 Amendments and Supplements to the Master Indenture ...... 32

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RISK FACTORS ...... 32 General ...... 32 Limited Obligations ...... 33 General Economic Conditions and Disruption of Financial Markets ...... 33 Management’s Forecast ...... 34 Additions to the Obligated Group ...... 35 Uncertainty of Revenues ...... 35 Uncertainty of Investment Income ...... 36 Philanthropy ...... 37 Increases in Medical Costs ...... 37 Additional Capital Requirements ...... 37 Labor Relations ...... 37 Nursing Shortage ...... 38 Employment and Labor Issues ...... 38 Professional Liability Claims and Liability Insurance ...... 38 Present and Prospective Federal and State Regulations ...... 38 State Licensure and Regulation of Senior Living Providers ...... 43 Risks Related to Tax-Exempt Status ...... 45 Amendments to the Documents ...... 48 Additional Indebtedness...... 48 Bankruptcy ...... 48 Certain Matters Relating to Enforceability ...... 49 Certain Risks Associated with the 2016 Deeds of Trust ...... 51 Rights of Residents ...... 52 Environmental Matters...... 53 Natural Disasters ...... 54 Construction Risks ...... 54 Possible Future Changes to Accounting Policies and Procedures ...... 54 Bond Ratings ...... 54 Other Possible Risk Factors ...... 54 ABSENCE OF MATERIAL LITIGATION ...... 55 The Commission ...... 55 The Borrowers ...... 56 CERTAIN LEGAL MATTERS ...... 56 THE BOND TRUSTEE AND THE MASTER TRUSTEE ...... 56 TAX MATTERS ...... 57 Series 2016A Bonds ...... 57 Series 2016B Bonds ...... 60 Not Bank Qualified ...... 60 FINANCIAL STATEMENTS ...... 60 FINANCIAL FEASIBILITY STUDY ...... 60 UNDERWRITING ...... 61 RATING ...... 61 CONTINUING DISCLOSURE ...... 62 MISCELLANEOUS ...... 66

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APPENDIX A: INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP ...... A-1

APPENDIX B: REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013 ...... B-1

APPENDIX C: FINANCIAL FEASIBILITY STUDY ...... C-1

APPENDIX D: SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS ...... D-1

APPENDIX E: SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST ...... E-1

APPENDIX F: FORMS OF APPROVING OPINIONS OF BOND COUNSEL ...... F-1

APPENDIX G: FORM OF CONTINUING DISCLOSURE AGREEMENT ...... G-1

APPENDIX H: BOOK-ENTRY ONLY SYSTEM ...... H-1

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SUMMARY STATEMENT The information set forth in this Summary Statement 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 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 the entire Official Statement. For the definitions of certain words and terms used in this Summary Statement, see APPENDIX D — “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS” or APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.”

THE BONDS The Washington State Housing Finance Commission (the “Commission”), a public body corporate and politic and an instrumentality of the State of Washington (the “State”), is issuing its Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A (the “Series 2016A Bonds”) and its Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B (the “Series 2016B Bonds” and, together with the Series 2016A Bonds, the “Bonds”) pursuant to an Indenture of Trust, dated as of October 1, 2016 (the “Bond Indenture”), by and between the Commission and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The Commission will use the proceeds of the Bonds to acquire a mortgage loan originated by U.S. Bank National Association, as mortgage lender (the “Mortgage Lender”) to Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation (“PRCN”), FH, LLC, a Washington limited liability company, the sole member of which is PRCN (“Skyline”), and Fred Lind Manor, a Washington nonprofit corporation (“Fred Lind Manor” and, together with PRCN and Skyline, the “Borrowers”), pursuant to a Mortgage Loan Origination and Financing Agreement, dated as of October 1, 2016 (the “Loan Agreement”), among the Commission, the Borrowers, the Mortgage Lender and the Bond Trustee. The Borrowers intend to use the proceeds of such loan, together with other available funds, to (a) refund, on a current basis, all of the Commission’s outstanding Nonprofit Revenue Bonds (Skyline at First Hill Project), Series 2007A (the “Series 2007A Bonds”), the proceeds of which were used to acquire a loan made to Skyline, $98,930,000 of which are currently outstanding, (b) repay, or reimburse Fred Lind Manor for the repayment of the outstanding principal balance of a taxable loan incurred by Fred Lind Manor, which loan is insured by the United States Department of Housing and Urban Development under the provisions of Section 232, pursuant to Section 223(1)(7) of the National Housing Act (the “HUD Loan”), approximately $3,500,000 of which is currently outstanding, or repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan, (c) pay or reimburse PRCN for the costs of the remodeling, renovation and equipping of senior housing and related facilities of PRCN at Park Shore (as described in APPENDIX A hereto) (the “Park Shore Project”), (d) pay or reimburse Fred Lind Manor for the costs of the remodeling, renovation and equipping of senior housing and related facilities of Fred Lind Manor (as described in APPENDIX A hereto) (the “Fred Lind Manor Project” and, together with the Park Shore Project, the “Project”), (e) reimburse PRCN for the costs of acquiring three condominium units located proximate to Park Shore to be used as senior housing facilities (the “Condo Acquisition”), (f) fund a debt service reserve fund and (g) pay costs of issuing the Bonds. See “THE BORROWERS,” “THE PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein for additional information. THE BONDS AND THE INTEREST THEREON DO NOT AND SHALL NEVER CONSTITUTE A DEBT OR AN INDEBTEDNESS OR AN OBLIGATION OF THE COMMISSION, THE STATE, OR ANY COUNTY, CITY OR OTHER MUNICIPAL OR POLITICAL CORPORATION OR SUBDIVISION OF THE STATE, OR A LOAN OF THE FAITH OR CREDIT OR THE TAXING POWER OF ANY OF THEM, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISIONS, NOR SHALL THE BONDS BE CONSTRUED TO CREATE ANY MORAL OBLIGATION ON THE PART OF THE COMMISSION, THE STATE, OR ANY COUNTY, CITY OR OTHER MUNICIPAL OR POLITICAL CORPORATION OR SUBDIVISION OF THE STATE WITH RESPECT TO THE PAYMENT OF THE BONDS. THE BONDS SHALL NOT BE PAYABLE FROM THE GENERAL REVENUES OF THE COMMISSION, AND NEITHER THE COMMISSION NOR THE STATE NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF WILL BE LIABLE THEREON, NOR IN ANY EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE SPECIFICALLY PLEDGED THEREFOR. THE COMMISSION HAS NO TAXING POWER.

THE BORROWERS PRCN is a nonprofit corporation organized and incorporated in the State and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). PRCN was founded in 1956 with the support of the Presbyterian Synod of Alaska-Northwest to provide housing and services for the elderly. Currently, PRCN owns and operates a continuing care retirement community in Seattle, Washington known as Park Shore. Skyline is a Washington limited liability company, the sole member of which is PRCN. PRCN organized Skyline to acquire, construct, own and operate a continuing care retirement community known as Skyline at First Hill in Seattle, Washington. Fred Lind Manor is a nonprofit corporation organized and incorporated in the State and an organization described in Section 501(c)(3) of the Code. The sole corporate member of Fred Lind Manor is PRCN. Fred Lind Manor owns and operates an independent and assisted living facility known as Fred Lind Manor in Seattle, Washington. For more information concerning the history, governance, organization, facilities and affiliates of the Borrowers, see APPENDIX A — “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP.” The consolidated audited financial statements of PRCN and its affiliates (other than Fred Lind Manor) for the fiscal years ended September 30, 2015, 2014 and 2013 are included herein as APPENDIX B — “REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013.” See also APPENDIX C — “FINANCIAL FEASIBILITY STUDY” for more information.

THE OBLIGATED GROUP AND THE MASTER INDENTURE Upon issuance of the Bonds, the Borrowers will be the only Members of the Obligated Group created under the Master Indenture (as defined below). The Borrowers and any future Members of the Obligated Group will be jointly and severally liable for all Obligations issued pursuant to the Master Indenture, including the Series 2016 Obligations (as defined below) securing the Bonds. PRCN is currently the only Member of the Obligated Group created by that certain Master Trust Indenture, dated as of June 1, 2013 (as previously supplemented and amended, the “Original PRCN Master Indenture”) with U.S. Bank National Association, as master trustee (the “Master Trustee”). Pursuant to the Original PRCN Master Indenture, PRCN has previously issued its Direct Note Obligation No. 1 (the “Series 2013 Obligation”), $7,295,000 of which is currently outstanding, to secure the $14,840,000 original principal amount Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Project), Series 2013. Skyline is currently the only member of an obligated group created by that certain Master Trust Indenture dated as of January 1, 2007 (as supplemented and amended, the “Skyline Master Indenture”) between Skyline and U.S. Bank National Association, as master trustee. Pursuant to the Skyline Master Indenture, Skyline has issued notes to secure indebtedness, certain of which are outstanding as of the date hereof: the Direct Note Obligation, Series 2007A (the “Series 2007A Skyline Note”), $98,930,000 of which is currently outstanding, to secure the Series 2007A Bonds, and the Direct Note Obligation, Series 2015 (the “Series 2015 Skyline Note”), $8,525,000 of which is currently outstanding, to secure the $8,740,000 original principal amount Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Skyline at First Hill Project), Series 2015. Concurrently with the issuance of the Bonds and the refunding of the Series 2007A Bonds, (a) the Series 2007A Skyline Note will be canceled, (b) Skyline will become a Member of the Obligated Group under the PRCN Master Indenture (as defined below), (c) PRCN, as Obligated Group Representative, will issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 4 (the “Series 2015 Obligation”) in substitution for the Series 2015 Skyline Note, (d) the Series 2015 Skyline Note will be cancelled and (e) the Skyline Master Indenture will be discharged. Concurrently with the issuance of the Bonds and the refinancing of the HUD Loan, Fred Lind Manor will also become a Member of the Obligated Group under the PRCN Master Indenture. PRCN will issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 2 (the “Series 2016A Obligation”) under a Second Supplemental Master Trust Indenture, dated as of October 1, 2016 (the “Second Supplemental Master Indenture” and, together with the Original PRCN Master Indenture, the “Master

Indenture” or the “PRCN Master Indenture”), evidencing the Borrowers’ obligation under the Loan Agreement to pay principal and interest on the Series 2016A Bonds when due. PRCN will also issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 3 (the “Series 2016B Obligation” and, together with the Series 2016A Obligation, the “Series 2016 Obligations”) under the Second Supplemental Master Indenture, evidencing the Borrowers’ obligation under the Loan Agreement to pay principal and interest on the Series 2016B Bonds when due. Following the issuance of the Bonds, the Series 2013 Obligation, the Series 2015 Obligation and the Series 2016 Obligations will be the only Obligations outstanding under the Master Indenture.

ONLY THE BORROWERS AND THE FUTURE MEMBERS OF THE OBLIGATED GROUP, IF ANY, ARE OBLIGATED UNDER THE SERIES 2016 OBLIGATIONS, WHICH EVIDENCE THE BORROWERS’ OBLIGATIONS UNDER THE LOAN AGREEMENT. NO AFFILIATES OF THE BORROWERS WHO ARE NOT MEMBERS OF THE OBLIGATED GROUP ARE OBLIGATED UNDER THE SERIES 2016 OBLIGATIONS OR WITH RESPECT TO THE LOAN AGREEMENT OR THE BONDS.

For more information about the Obligated Group, see APPENDIX A — “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP.” For more information about the Series 2016 Obligations and the Master Indenture, see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE” herein and APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.”

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Bonds will be payable from payments made by the Borrowers under the Loan Agreement, from payments made by the Obligated Group on the Series 2016 Obligations and from certain funds held under the Bond Indenture. The Bonds will be limited obligations of the Commission and will be secured by the Revenues received by the Commission in accordance with the Bond Indenture, including payments made pursuant to the Loan Agreement and the Series 2016 Obligations. Pursuant to the Second Supplemental Master Indenture, the Obligated Group agrees to make payments on the Series 2016A Obligation, which are payable at the same time and in the same amount as payments due under the Loan Agreement and on the Series 2016A Bonds, and on the Series 2016B Obligation, which are payable at the same time and in the same amount as payments due under the Loan Agreement and on the Series 2016B Bonds. The Commission will pledge and assign the Series 2016 Obligations and certain of its rights under the Loan Agreement (other than certain rights retained by the Commission) to the Bond Trustee as security for the Bonds. The Series 2016 Obligations will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed by the Master Indenture upon the Borrowers and any other Person which may become a Member of the Obligated Group in the future. The obligations to make payments on the Series 2016 Obligations are absolute and unconditional, joint and several obligations of the Borrowers and the future Members of the Obligated Group, if any. The Series 2016 Obligations and all other Obligations previously and subsequently issued under the Master Indenture will be secured by (i) a security interest in the Gross Revenues of the Obligated Group (see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Security Interest in Gross Revenues under the Master Indenture”) and (ii) a mortgage and security interest in the real and personal property comprising each of the Mortgaged Facilities pledged pursuant to the 2016 Deeds of Trust described under the heading “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — 2016 Deeds of Trust” herein. See APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.” The Bond Indenture establishes the Debt Service Reserve Fund to be held thereunder by the Bond Trustee and two subaccounts therein — the Reserve Account (Series 2016A Bonds) and the Reserve Account (Series 2016B Bonds). Upon issuance of the Bonds, the Bond Trustee shall deposit a portion of the proceeds of the Series 2016A Bonds into the Reserve Account (Series 2016A Bonds) to meet the Debt Service Reserve Requirement for the Series 2016A Bonds and shall deposit a portion of the proceeds of the Series 2016B Bonds into the Reserve Account (Series 2016B Bonds) to meet the Debt Service Reserve Requirement for the Series 2016B Bonds. Money on deposit in the Reserve Account (Series 2016A Bonds) shall be used to provide a debt service reserve for the payment of the principal of and interest on the Series 2016A Bonds, but shall not be used to pay principal of or interest on the Series 2016B Bonds. Money on deposit in the Reserve Account (Series 2016B Bonds) shall be used to provide a debt service reserve for the payment of the principal of and interest on the Series 2016B Bonds, but shall not be used to pay principal of or interest on the Series 2016A Bonds. See “SECURITY AND SOURCES OF

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PAYMENT FOR THE BONDS — The Debt Service Reserve Fund” herein and APPENDIX D — “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS.”

CERTAIN COVENANTS OF THE OBLIGATED GROUP In addition to the covenants described below, the Master Indenture contains additional covenants relating to, among others, the maintenance of the Borrowers’ property, corporate existence, the maintenance of certain levels of insurance coverage, and the sale or lease of certain property. For a full description of these and other covenants, see APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.” Rate Covenant. Each Member covenants and agrees in the Master Indenture 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 and interest on 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. Within 150 days after the end of each Fiscal Year, the Obligated Group Representative shall compute Income Available for Debt Service, Annual Debt Service, and the Debt Service Coverage Ratio and promptly furnish to the Required Information Recipients (as defined herein) a Certificate setting forth the results of such computation. If the Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to retain an Independent Consultant within 30 days following the calculation described in the immediately preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year. For purposes of calculations under these provisions of the Master Indenture, an unrestricted contribution from any Affiliate of any Member of the Obligated Group may, at the sole discretion of the Obligated Group Representative, be treated as Income Available for Debt Service being earned during the period of such calculation so long as the unrestricted contribution is made prior to the date the applicable Certificate is required to be delivered with respect to such calculation. If the unrestricted contribution is counted in a period prior to the date of such transfer in accordance with the previous sentence, it shall not be included in the calculation for the period in which such contribution was actually made. 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 to be met, then such ratio shall be reduced to 1.00:1 for such Fiscal Year and determined by computing the Debt Service Coverage Ratio for such Fiscal Year. A copy of the Independent Consultant’s report and recommendations, if any, shall be filed with each of the Required Information Recipients 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. This provision of the Master Indenture shall not be construed to prohibit any Member from serving indigent persons 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 persons without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of this provision of the Master Indenture. Notwithstanding any other provisions of the Master Indenture, an Event of Default arising from the Debt Service Coverage Ratio shall only occur thereunder if one or more of the following conditions applies: (1) the Obligated Group (a) fails to achieve a Debt Service Coverage Ratio of at least 1.20:1, and (b) fails to take all necessary action to comply with the procedures set forth in this provision of the Master Indenture for preparing a report, adopting a plan, and following all recommendations contained in such report or plan to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law; or (2) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year and the Days

Cash on Hand of the Obligated Group as of the last day of such Fiscal Year is less than 150 days; or (3) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for two consecutive Fiscal Years.

See “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE — Rates and Charges; Debt Coverage” herein and APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Rates and Charges; Debt Coverage.” Liquidity Covenant. The Obligated Group covenants in the Master Indenture that it will calculate the Days Cash on Hand of the Obligated Group as of September 30 and March 31 of each Fiscal Year (each such date being a “Testing Date”). The Obligated Group shall include such calculations in the Officer’s Certificates that are delivered for the fiscal quarters ending September 30 and March 31 pursuant to the Master Indenture. Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have not less than 150 Days Cash on Hand. If the amount of Days Cash on Hand as of any Testing Date is less than 150, 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 Obligated Group has not achieved 150 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 30 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, shall be filed with each of the Required Information Recipients 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 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.

See “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE — Liquidity Covenant” herein and APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Liquidity Covenant.” Limitations on Additional Indebtedness and on Encumbrances. The Master Indenture defines Additional Indebtedness as any Indebtedness incurred subsequent to the execution and delivery of the Master Indenture. Pursuant to the Master Indenture, each Member agrees that it will not incur any Additional Indebtedness except as permitted therein. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Limitations on Additional Indebtedness” for further information about the various incurrence tests. The Master Indenture also prohibits any Member from creating, assuming or permitting to exist any Lien upon its Property (including, without limitation, the Gross Revenues) other than Permitted Encumbrances. Further, each Member covenants and agrees in the Master Indenture that, if such a Lien is created or assumed by any Member, the Member 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. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — DEFINITIONS OF CERTAIN TERMS” for the definitions of Property, Lien and Permitted Encumbrances.

See “CERTAIN COVENANTS OF THE OBLIGATED GROUP — Limitations on Additional Indebtedness and on Encumbrances” herein and APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE.”

Approval of Consultants. If at any time the Obligated Group is required to engage an Independent Consultant to calculate Days Cash on Hand of the Obligated Group or to make the calculations required by the provisions of the Master Indenture summarized under the caption “Rate Covenant” above, the Independent Consultant shall be engaged in the manner set forth in “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE — Approval of Consultants” herein and APPENDIX E—“SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Approval of Consultants.”

FINANCIAL FEASIBILITY STUDY Management’s financial forecast for the five years ending September 30, 2020, included as part of the Financial Feasibility Study included in APPENDIX C hereto, has been examined by Dixon Hughes Goodman LLP, independent certified public accountants, as stated in their report dated July 28, 2016 appearing in APPENDIX C. As stated in the Financial Feasibility Study, there will usually be differences between the forecasted data and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. THE FINANCIAL FEASIBILITY STUDY SHOULD BE READ IN ITS ENTIRETY, INCLUDING MANAGEMENT’S NOTES AND ASSUMPTIONS SET FORTH THEREIN. See APPENDIX C hereto.

FORECASTED FINANCIAL INFORMATION OF THE OBLIGATED GROUP The table on the following page reflects the forecasted funds available for debt service and other financial ratios for the five years ending September 30, 2020, and has been extracted from the financial forecast included in the Financial Feasibility Study included as APPENDIX C hereto. All amounts, except the ratios, are expressed in thousands of dollars. No assurance can be given that the assumed interest rates described above and used in making the calculations in the following table will be achieved or maintained.

Debt Service Coverage Ratio 2016 2017 2018 2019 2020

Increase (Decrease) in Net Assets $ (10,896) $ (6,016) $ (1,901) $ (2,800) $ (4,560) Less: Amortization of Entrance Fees (7,491) (7,320) (7,174) (7,055) (6,958) Entrance Fee Refunds (5,961) (6,842) (7,542) (8,467) (9,290) Add: Depreciation 7,698 8,162 8,294 8,386 9,390 Amortization of capitalized marketing costs 1,160 1,160 56 - - Loss on early extinguisment of debt 212 3,513 - - - Loss on forgiveness of related party receivables 6,614 - - - - Interest expense (a) 7,392 5,468 6,020 6,509 6,951 Entrance Fee Receipts from Attrition 21,846 22,267 23,298 24,218 24,628 Funds available for debt service 20,574$ 20,392$ 21,051$ $ 20,791 $ 20,161 Maximum annual debt service (b) $ 8,896 $ 8,995 $ 8,995 8,995$ $ 8,995 Maximum annual debt service coverage ratio 2.31 x2.27 x2.34 x2.31 x2.24 x

Days Cash on Hand 2016 2017 2018 2019 2020 Cash $ 9,162 $ 9,775 $ 9,919 10,211$ 10,511$ Investments 14,776 34,259 43,595 52,551 60,792 Cash on hand 23,938$ 44,034$ 53,514$ 62,762$ 71,303$

Total expenses 49,375 50,132 $ 50,232 51,811$ 54,342$ Less: Depreciation (7,698) (8,162) (8,294) (8,386) (9,390) Amortization of original issue premium - 523 523 523 523 Amortization of deferred financing fees (501) (195) (195) (195) (174) Amortization of capitalized marketing costs (1,160) (1,160) (56) - - Total expenses, less depreciation and amortization 40,016 41,138 $ 42,210 43,753$ 45,301$ Daily operating expenses (c) 110 113 116 120 124 Days cash on hand 218 390 461 523 575

Cash to Debt Ratio 2016 2017 2018 2019 2020 Cash $ 9,162 $ 9,775 $ 9,919 10,211$ 10,511$ Investments 14,776 34,259 43,595 52,551 60,792 Limited use assets - Bond Fund 4,572 1,972 1,972 1,973 1,971 Limited use assets - Debt Service Reserve Fund - Series 2007A 7,765 - - - - Limited use assets - Debt Service Reserve Fund - Series 2013 510 510 510 510 510 Limited use assets - Debt Service Reserve Fund - Series 2015 606 606 606 606 606 Limited use assets - Debt Service Reserve Fund - Series 2016 - 10,216 10,216 10,216 10,216 Cash available for debt service $ 37,391 57,338$ 66,818$ 76,067$ 84,606$ Long-term indebtedness outstanding (d) $ 118,283 146,615$ 144,885$ 143,085$ $ 141,205 Cash to debt ratio 0.32 x0.39 x0.46 x0.53 x0.60 x (a) Interest expense includes amortization of deferred financing fees and original issue premium. (b) The Maximum Annual Debt Service is equal to the greatest debt service requirement in the then current or any future fiscal year. (c) Daily operating expenses are equal to total operating expenses less depreciation and amortization divided by 365 days. (d) Long-term indebtedness outstanding includes the Series 2007A Bonds ,the Series 2013 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, and the HUD Loan.

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FINANCIAL REPORTING AND DISCLOSURE Financial Reporting. The Master Indenture requires that the Members of the Obligated Group provide to each Required Information Recipient certain financial information. For a description of the financial information required to be provided, see “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE - Reporting Requirements” herein. Continuing Disclosure. Because the Bonds are limited obligations of the Commission, payable solely from amounts received from the Borrowers and any other Obligated Group Members, financial or operating data concerning the Commission is not material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds. Accordingly, the Commission is not providing any financial or operating data. However, PRCN, on behalf of the Obligated Group, has agreed to make certain financial information and operating data available to holders of the Bonds as described under “CONTINUING DISCLOSURE” herein. PRCN is solely responsible for providing such disclosure, and the Commission shall have no responsibility or liability to the holders of the Bonds or any other person for the making, monitoring or content of such disclosures.

RISK FACTORS

AN INVESTMENT IN THE BONDS INVOLVES A CERTAIN DEGREE OF RISK INCLUDING THOSE SET FORTH UNDER THE HEADING “RISK FACTORS” HEREIN. A PROSPECTIVE BONDHOLDER IS ADVISED TO READ “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” AND “RISK FACTORS” FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE BONDS. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement. Among other things, careful evaluation should be made of management’s assumptions and rationale described in the Financial Feasibility Study, and certain factors that may adversely affect the ability of the Borrowers to generate sufficient revenues to pay expenses of operation, including the principal of, premium, if any, and interest on the Bonds.

THE PRINCIPAL DOCUMENTS

THE DESCRIPTIONS AND SUMMARIES OF VARIOUS DOCUMENTS SET FORTH IN THIS OFFICIAL STATEMENT, INCLUDING APPENDIX D AND APPENDIX E, DO NOT PURPORT TO BE COMPREHENSIVE OR DEFINITIVE, AND REFERENCE IS MADE TO EACH DOCUMENT FOR COMPLETE DETAILS OF ALL TERMS AND CONDITIONS. ALL STATEMENTS HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY THE TERMS OF EACH SUCH DOCUMENT. DURING THE PERIOD OF THE OFFERING, COPIES OF DRAFTS OF THE BONDS, THE BOND INDENTURE, THE LOAN AGREEMENT, THE SERIES 2016 OBLIGATIONS, THE MASTER INDENTURE, AND THE CONTINUING DISCLOSURE AGREEMENT ARE AVAILABLE FROM THE UNDERWRITER, AND FOLLOWING DELIVERY OF THE BONDS, COPIES OF THE EXECUTED ORIGINALS THEREOF MAY BE EXAMINED AT THE PRINCIPAL CORPORATE TRUST OFFICE OF THE BOND TRUSTEE.

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$120,330,000* WASHINGTON STATE HOUSING FINANCE COMMISSION NONPROFIT HOUSING REVENUE AND REFUNDING REVENUE BONDS (PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST PROJECTS), SERIES 2016A

$12,215,000* WASHINGTON STATE HOUSING FINANCE COMMISSION TAXABLE NONPROFIT HOUSING REVENUE BONDS (PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST PROJECTS), SERIES 2016B

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 Washington State Housing Finance Commission (the “Commission”) of its $120,330,000* Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A (the “Series 2016A Bonds”) and its $12,215,000* Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B (the “Series 2016B Bonds” and, together with the Series 2016A Bonds, the “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 APPENDIX D — “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS” or APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.” This Official Statement speaks only as of its date, and the information contained herein is subject to change.

* Preliminary, subject to change.

THE BONDS

The Bonds will be issued pursuant to an Indenture of Trust, dated as of October 1, 2016 (the “Bond Indenture”), by and between the Commission and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The Commission will use the proceeds of the Bonds to acquire a mortgage loan originated by U.S. Bank National Association, as mortgage lender (the “Mortgage Lender”) to Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation (“PRCN”), FH, LLC, a Washington limited liability company, the sole member of which is PRCN (“Skyline”), and Fred Lind Manor, a Washington nonprofit corporation (“Fred Lind Manor” and, together with PRCN and Skyline, the “Borrowers”), pursuant to a Mortgage Loan Origination and Financing Agreement, dated as of October 1, 2016 (the “Loan Agreement”), among the Commission, the Borrowers, the Mortgage Lender and the Bond Trustee. The Borrowers intend to use the proceeds of such loan, together with other available funds, to (a) refund, on a current basis, all of the Commission’s outstanding Nonprofit Revenue Bonds (Skyline at First Hill Project), Series 2007A (the “Series 2007A Bonds”), the proceeds of which were used to acquire a loan made to Skyline, $98,930,000 of which are currently outstanding, (b) repay, or reimburse Fred Lind Manor for the repayment of, the outstanding principal balance of a taxable loan incurred by Fred Lind Manor, which loan is insured by the United States Department of Housing and Urban Development under the provisions of Section 232, pursuant to Section 223(1)(7) of the National Housing Act (the “HUD Loan”), $3,500,000 of which is currently outstanding, or repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan, (c) pay or reimburse PRCN for the costs of the remodeling, renovation and equipping of senior housing and related facilities of PRCN at Park Shore (as described in APPENDIX A hereto) (the “Park Shore Project”), (d) pay or reimburse Fred Lind Manor for the costs of the remodeling, renovation and equipping of senior housing and related facilities of Fred Lind Manor (as described in APPENDIX A hereto) (the “Fred Lind Manor Project” and, together with the Park Shore Project, the “Project”), (e) reimburse PRCN for the costs of acquiring condominium units located proximate to Park Shore to be used as senior housing facilities (the “Condo Acquisition”), (f) fund a debt service reserve fund and (g) pay costs of issuing the Bonds. See “The Borrowers” below and “THE PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein.

THE BORROWERS

PRCN is a nonprofit corporation organized and incorporated in the State of Washington (the “State”) and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). PRCN was founded in 1956 with the support of the Presbyterian Synod of Alaska-Northwest to provide housing and services for the elderly. Currently, PRCN owns and operates a continuing care retirement community in Seattle, Washington known as Park Shore.

Skyline is a Washington limited liability company, the sole member of which is PRCN. PRCN organized Skyline to acquire, construct, own and operate a continuing care retirement community known as Skyline at First Hill in Seattle, Washington.

Fred Lind Manor is a nonprofit corporation organized and incorporated in the State and an organization described in Section 501(c)(3) of the Code. The sole corporate member of Fred Lind Manor is PRCN. Fred Lind Manor owns and operates an independent and assisted living facility known as Fred Lind Manor in Seattle, Washington.

PRCN, Skyline and Fred Lind Manor will be the members of an Obligated Group formed under the Master Indenture, as described below.

For more information concerning the history, governance, organization, facilities and affiliates of the Borrowers, see APPENDIX A — “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP.” The consolidated audited financial statements of PRCN and its affiliates (other than Fred Lind Manor) for the fiscal years ended September 30, 2015, 2014 and 2013 are included herein as APPENDIX B — “REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013.” See also APPENDIX C — “FINANCIAL FEASIBILITY STUDY” for more information.

THE OBLIGATED GROUP AND THE MASTER INDENTURE

Upon issuance of the Bonds, the Borrowers will be the only Members of the Obligated Group created under the Master Indenture (as defined below). The Borrowers and any future Members of the Obligated Group will be jointly and severally liable for all Obligations issued pursuant to the Master Indenture, including the Series 2016 Obligations (as defined below) securing the Bonds.

PRCN is currently the only Member of the Obligated Group created by that certain Master Trust Indenture, dated as of June 1, 2013 (as previously supplemented and amended, the “Original PRCN Master Indenture”) with U.S. Bank National Association, as master trustee (the “Master Trustee”). Pursuant to the Original PRCN Master Indenture, PRCN has previously issued its Direct Note Obligation No. 1 (the “Series 2013 Obligation”), $7,295,000 of which is currently outstanding, to secure the $14,840,000 original principal amount Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Project), Series 2013 (the “Series 2013 Bonds”).

Skyline is currently the only member of an obligated group created by that certain Master Trust Indenture dated as of January 1, 2007 (as supplemented and amended, the “Skyline Master Indenture”) between Skyline and U.S. Bank National Association, as master trustee. Pursuant to the Skyline Master Indenture, Skyline has issued notes to secure indebtedness, certain of which are outstanding as of the date hereof: the Direct Note Obligation, Series 2007A (the “Series 2007A Skyline Note”), $98,930,000 of which is currently outstanding, to secure the Series 2007A Bonds, and the Direct Note Obligation, Series 2015 (the “Series 2015 Skyline Note”), $8,525,000 of which is currently outstanding, to secure the $8,740,000 original principal amount Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Skyline at First Hill Project), Series 2015 (the “Series 2015

Bonds”). Concurrently with the issuance of the Bonds and the refunding of the Series 2007A Bonds, (a) the Series 2007A Skyline Note will be canceled, (b) Skyline will become a Member of the Obligated Group under the PRCN Master Indenture (as defined below), (c) PRCN, as Obligated Group Representative, will issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 4 (the “Series 2015 Obligation”) in substitution for the Series 2015 Skyline Note, (d) the Series 2015 Skyline Note will be cancelled and (e) the Skyline Master Indenture will be discharged.

Concurrently with the issuance of the Bonds and the refinancing of the HUD Loan, Fred Lind Manor will also become a Member of the Obligated Group under the PRCN Master Indenture.

PRCN will issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 2 (the “Series 2016A Obligation”) under a Second Supplemental Master Trust Indenture, dated as of October 1, 2016 (the “Second Supplemental Master Indenture” and, together with the Original PRCN Master Indenture, the “Master Indenture” or the “PRCN Master Indenture”), evidencing the Borrowers’ obligation under the Loan Agreement to pay principal and interest on the Series 2016A Bonds when due. PRCN will also issue the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 3 (the “Series 2016B Obligation” and, together with the Series 2016A Obligation, the “Series 2016 Obligations”) under the Second Supplemental Master Indenture, evidencing the Borrowers’ obligation under the Loan Agreement to pay principal and interest on the Series 2016B Bonds when due. Following the issuance of the Bonds, the Series 2013 Obligation, the Series 2015 Obligation and the Series 2016 Obligations will be the only Obligations outstanding under the Master Indenture.

For more information about the Obligated Group, see APPENDIX A — “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP.” For more information about the Series 2016 Obligations and the Master Indenture, see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE” below and APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.”

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

The Bonds will be payable from payments made by the Borrowers under the Loan Agreement, from payments made by the Obligated Group on the Series 2016 Obligations and from certain funds held under the Bond Indenture. The Bonds will be limited obligations of the Commission and will be secured by the Revenues received by the Commission in accordance with the Bond Indenture, including payments made pursuant to the Loan Agreement and the

Series 2016 Obligations. Pursuant to the Second Supplemental Master Indenture, the Obligated Group agrees to make payments on the Series 2016A Obligation, which are payable at the same time and in the same amount as payments due under the Loan Agreement and on the Series 2016A Bonds, and on the Series 2016B Obligation, which are payable at the same time and in the same amount as payments due under the Loan Agreement and on the Series 2016B Bonds.

The Commission will pledge and assign the Series 2016 Obligations and certain of its rights under the Loan Agreement (other than certain rights retained by the Commission) to the Bond Trustee as security for the Bonds. The Series 2016 Obligations will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed by the Master Indenture upon the Borrowers and any other Person which may become a Member of the Obligated Group in the future. The obligations to make payments on the Series 2016 Obligations are absolute and unconditional, joint and several obligations of the Borrowers and the future Members of the Obligated Group, if any.

The Series 2016 Obligations and all other Obligations previously and subsequently issued under the Master Indenture will be secured by (i) a security interest in the Gross Revenues of the Obligated Group (see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Security Interest in Gross Revenues under the Master Indenture”) and (ii) a mortgage and security interest in the real and personal property comprising each of the Mortgaged Facilities pledged pursuant to the 2016 Deeds of Trust described under the heading “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — 2016 Deeds of Trust” below. See APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST.”

Notwithstanding such security interest in the Obligated Group’s Gross Revenues and the 2016 Deeds of Trust, the Members of the Obligated Group may sell or otherwise transfer Gross Revenues and create Permitted Encumbrances thereon in accordance with the provisions of the Master Indenture. See “RISK FACTORS — Certain Matters Relating to Enforceability” and “— Certain Risks Associated with the 2016 Deeds of Trust” herein and APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Limitations on Encumbrances.”

Payment of the principal of, and interest on, the Bonds will be additionally secured by moneys deposited to the credit of a Debt Service Reserve Fund established under the Bond Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — The Debt Service Reserve Fund” below.

ADDITIONAL OBLIGATIONS AND ADDITIONAL INDEBTEDNESS

In certain circumstances, the Borrowers or any future Member of the Obligated Group may issue Additional Indebtedness, which may, but need not, be evidenced or secured by an additional Obligation issued under the Master Indenture that will be equally and ratably secured with the Series 2016 Obligations, or that may be entitled to the benefit of security in addition to that securing the Series 2016 Obligations, which security need not be extended to any other Obligations. The Master Indenture requires that the Obligated Group meet certain financial tests prior to issuing new indebtedness or entering into certain other transactions. See “CERTAIN

COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE — Limitations on Additional Indebtedness and on Encumbrances” below and APPENDIX E—SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Limitations on Additional Indebtedness.”

CONTINUING DISCLOSURE

PRCN will covenant on behalf of the Obligated Group to provide or cause to be provided each year the financial information and operating data relating to the Obligated Group, for the benefit of the holders and beneficial owners of the Bonds, pursuant to a Continuing Disclosure Agreement to be executed and delivered by PRCN. See the information under the heading “CONTINUING DISCLOSURE.” See also APPENDIX G — “FORM OF CONTINUING DISCLOSURE AGREEMENT.”

RISK FACTORS

There are risks associated with the purchase of the Bonds, including without limitation those described under the caption “RISK FACTORS” herein. A prospective owner of the Bonds is advised to read this Official Statement for a discussion of certain risk factors which should be considered in connection with an investment in the Bonds. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement.

THE COMMISSION

The Commission was created in 1983 as a public body corporate and politic and an instrumentality of the State of Washington. The Commission is authorized to issue nonrecourse revenue bonds to make funds available at affordable rates to finance nonprofit and housing facilities in the State. The Commission’s address is 1000 Second Avenue, Seattle, Washington 98104 and its telephone number is (206) 464-7139. Additional information regarding the Commission and its programs can be accessed at www.wshfc.org. Neither the information on the Commission’s website, nor any links from that website, 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.

The Commission is authorized to purchase mortgages and mortgage loans, to make loans to nonprofit entities and to mortgage lenders so that those lenders may make mortgage loans, to pledge mortgages and mortgage loans as security for the payment of the principal of and interest on its revenue bonds, and to enter into any agreements in connection therewith. The Commission is also authorized under Revised Code of Washington Section 43.180.300 et seq. to issue bonds for facilities owned or used by nonprofit organizations described under Section 501(c)(3) of the Code.

There are eleven members of the Commission. Two members are State Officials, the State Treasurer and the Director of the State Department of Commerce, who serve ex officio.

The Chair of the Commission is appointed by the Governor and serves at the pleasure of the Governor. The other members of the Commission are appointed by the Governor and serve for overlapping terms of four years. There is one vacancy on the Commission.

As of the date hereof, the members of the Commission and their principal occupations are as follows:

Name Principal Occupation

Karen Miller, Chair Former Member, Snohomish County Council; former President, National Council of State Housing Boards; past Chairman, Washington State Law and Justice Planning Council; former Board member and past President of the Washington State Association of Counties; past President, Trustees Association of Community and Technical Colleges.

James L. McIntire, Secretary State Treasurer (ex officio Commissioner); former professor of economics, University of Washington; former business economist, Navigant Consulting; past board Chair, Washington’s Community Economic Revitalization Board; past board Chair, Common Ground (a nonprofit housing developer); fiscal policy adviser to former Governor Booth Gardner.

Elizabeth Baum Director, Investor Relations, Weyerhaeuser Company; former Manager, Enterprise Planning and Analysis, Weyerhaeuser Company; former Chair of Weyerhaeuser Foundation Sea-Tac Advisory Team.

Brian Bonlender Director, State Department of Commerce (ex officio Commissioner).

Ken A. Larsen Mortgage Banking Director and Senior Vice President, Banner Bank; current Chairman of the Board, Washington Mortgage Bankers Association; current Director, Freddie Mac’s Community Lender Advisory Board; former President, Seattle Mortgage Bankers Association.

Wendy L. Lawrence Housing Director, Makah Tribe; Committee Member, Northwest Indian Housing Association; former representative to National American Indian Housing Council (NAIHC), Board of Directors; former Chair, NAIHC Legislative Committee.

Name Principal Occupation

Steven Moss Former Chief Executive Officer, Blue Mountain Action Council (Retired); former Board President of Washington State Association Community Action Partnership; former Board President, Washington State Coalition for the Homeless; former Board member, Washington State Rural Development Council; former Board Treasurer, Washington Low-Income Housing Network; current Board member, Eastern Washington Partnership WorkForce Development Council; Board Treasurer, Student Health Options, Walla Walla.

Randy J. Robinson Senior Vice President, Heritage Bank Community Development Lending. Formerly with KeyBank Community Development Lending, Fannie Mae, and U.S. Bancorp. Board member, Impact Capital and current Chair, Capitol Hill Housing Foundation. Former Campaign Committee Chair, 2009 Seattle Housing Levy; former Board President of the Washington Homeownership Center.

Gabriel Spencer Skamania County Assessor; Board member, Columbia Gorge Housing Authority; member, Skamania County Workforce Housing Committee and Washington State Assessors Assessment Administration and Timber Committee.

Pamela Tietz Executive Director, Peninsula Housing Authority; founding member, Clallam County Shelter Provider’s Network; member, Clallam County Homelessness Task Force; worked for Alaska Housing Finance Corporation (beginning in 1988), and the Bremerton Housing Authority.

The Commission’s Executive Director is Kim Herman. Mr. Herman is a native of Washington State and has served as a member of the Commission, as Washington Project Director of the United States Department of Housing and Urban Development’s Rural Assistance Initiative Program, as Executive Director of the Housing Authority of the City of Yakima and as Manager of Single-Family Housing for the Portland Development Commission. Mr. Herman served on the Board of Directors of the National Council of State Housing Agencies for many years and served as the association’s President from September, 2006, to October, 2008. He formerly served on the Board of Trustees for the Washington Center for Real Estate Research at Washington State University. He also has served on Fannie Mae’s Western Regional Advisory Board and on the Boards of the Rural Community Assistance Corporation and the Washington Low Income Housing Alliance. He currently serves on the Board of the National Rural Housing Coalition and is the Chair of the Board of Impact Capital. Mr. Herman is a graduate of Washington State University (B.A. 1967).

The Commission’s Deputy Director is Paul R. Edwards. Mr. Edwards joined the Commission in October of 1998 as Director of Capital Projects, and became Deputy Director on November 1, 1999. He is a graduate of Morehouse College in Atlanta, Georgia (B.A. in Economics & Business Administration), and received his Master of Science Industrial Administration (M.S.I.A.) degree from Carnegie-Mellon University in Pittsburgh, Pennsylvania. Mr. Edwards has held positions in corporate and real estate lending for more than twenty years. Prior to joining the Commission, Mr. Edwards was the Community Reinvestment Act Compliance Officer for Pacific First Bank and Manager of its Community Development Department.

The Commission’s Director of the Multifamily Housing and Community Facilities Division is Lisa Vatske. Ms. Vatske joined the Commission on May 1, 2014. Ms. Vatske has over 20 years of experience in community and economic development, holding various positions within the Washington State Department of Commerce, with over 6 years as Managing Director of the Washington State Housing Trust Fund. Ms. Vatske most recently held positions in the Washington State Employment Security Department as well as the Department of Social and Health Services. Ms. Vatske was instrumental in the start-up and financing for Fish Brewing Company, producing Fish Tale Ales and served as its Chief Financial Officer. She is a graduate of the University of Massachusetts, Amherst, with a BBA in Business Finance.

The Commission’s Director of Homeownership Programs is Lisa DeBrock. Ms. DeBrock has been an employee of the Commission since October 1998. She had been the Manager of the Commission’s Homeownership Division since July 1999, and became the Director of Homeownership Programs on February 1, 2015. Immediately prior to joining the Commission, Ms. DeBrock worked for the City of Aurora as a housing counselor and also worked in the mortgage lending industry. Ms. DeBrock received her Speech Communications degree from the University of Washington.

The Commission’s Senior Director of Finance is Robert D. Cook. Mr. Cook joined the Commission in June 1996 with 18 years of accounting and finance experience in cooperative and nonprofit organizations. He is a graduate of the University of Missouri-Columbia (B.S., Business Administration-Accountancy) and Northern Illinois University-DeKalb (M.B.A.).

The Commission’s Director of Asset Management and Compliance is Val Pate. Ms. Pate originally worked for the Commission from 2000 through 2006, in the Tax Credit Division (currently Multifamily Housing and Community Facilities), first as a Senior Development Analyst, and later as the Division Manager. In 2006, she joined Enterprise Community Partners, a Tax Credit syndicator, where she managed acquisitions for the Pacific Northwest. Later, she worked as Vice President and Relationship Manager for Key Bank Community Development Corporation, managing community development investments for Washington, Alaska and Colorado. Ms. Pate is a graduate of Humboldt State University in California with a BA in Geography and an MA in Sociology.

THE BONDS

The following is a summary of certain provisions of the Bonds. Reference is made to the 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. Certain capitalized terms used herein that are taken from the Bond Indenture have the meaning set forth in APPENDIX D.

GENERAL DESCRIPTION

The Bonds will be issued only in fully registered form without coupons in denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000 within a maturity except as otherwise described under “Limitations on Investors and Restrictions on Transfers” below. The Bonds will bear interest from their dated date and shall be payable on January 1 and July 1 of each year (each, an “Interest Payment Date”), commencing January 1, 2017. Interest shall be calculated on the basis of 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 Bonds will be dated their date of issuance.

LIMITED OBLIGATIONS

The Bonds and the interest thereon are not and shall never become general obligations of the Commission but are special, limited obligations payable by the Commission solely and only from the Revenues and other security pledged under the Bond Indenture for such purpose, which Revenues, together with any such other security provided in the Bond Indenture, are specifically and irrevocably granted, bargained, sold, conveyed, transferred, alienated, assigned and pledged to such purposes in the manner and to the extent provided in the Bond Indenture. The Bonds and the interest thereon do not and shall never constitute a debt or an indebtedness or an obligation of the Commission, the State, or any county, city or other municipal or political corporation or subdivision of the State, or a loan of the faith or credit or the taxing power of any of them, within the meaning of any constitutional or statutory provisions, nor shall the Bonds be construed to create any moral obligation on the part of the Commission, the State, or any county, city or other municipal or political corporation or subdivision of the State with respect to the payment of the Bonds. The Bonds shall not be payable from the general revenues of the Commission, and neither the Commission nor the State nor any political corporation, subdivision or agency thereof will be liable thereon, nor in any event shall the Bonds be payable out of any funds or properties other than those specifically pledged therefor. The Commission has no taxing power.

BOOK-ENTRY SYSTEM

When the Bonds are issued, The Depository Trust Company (“DTC”) will act as securities depository. Thereafter, the Bonds will be registered in the book-entry only system (the “Book-Entry System”) maintained by DTC. For so long as Outstanding Bonds are registered in

the name of Cede & Co., or its registered assigns, as nominee of DTC, then DTC, its successor or any substitute depository appointed by the Commission shall be deemed to be the Registered Owner of the Bonds, and payments of principal of, premium, if any, and interest on the Bonds shall be made at the place and in the manner provided in the Letter of Representations from the Commission accepted by DTC. Neither the Commission, the Borrowers, the Bond Trustee nor U.S. Bank National Association, as registrar (the “Bond Registrar”), shall have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the Bonds regarding accuracy of any records maintained by DTC or DTC participants of any amount in respect of principal or redemption price of or interest on the Bonds, or any notice which is permitted or required to be given to Registered Owners under the Bond Indenture (except such notice as is required to be given by the Commission, the Bond Registrar or the Bond Trustee to DTC). For more information on the Book-Entry System, see APPENDIX H hereto. If the Book-Entry System is discontinued, the provisions of the following two paragraphs will apply.

The principal of, and premium, if any, on the Bonds will be payable upon the presentation and surrender of each such Bond, when due, at the Principal Office of the Bond Trustee, as Bond Registrar. Interest payments on each Bond will be payable on each Interest Payment Date to the Registered Owner thereof appearing on the registration books of the Commission kept by the Bond Trustee to evidence the registration and transfer of the Bonds (the “Bond Register”) on the Record Date. “Record Date” means, except for the payment of defaulted interest, the opening of business on the fifteenth day of the month preceding a scheduled Interest Payment Date.

Interest on the Bonds shall, except as hereinafter provided, be paid (a) by check or draft of the Bond Trustee mailed by first-class mail to such Registered Owner on the Interest Payment Date at his address as it appears on the Bond Register on the Record Date or, at the option of any Registered Owner, (b) by wire transfer to an account designated in writing by such Registered Owner prior to the Record Date with an acknowledgment that the then-applicable wire fee of the Bond Trustee will be deducted from the wire, or (c) by Automatic Clearinghouse Transfers at no cost to the Owner in next day funds if such Owner shall have requested in writing a payment by such method and shall have provided the Bond Registrar with an account number in a bank within the United States and other necessary information for such purposes prior to the Record Date.

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 Registered Owner of such Bond on a Special Record Date for the payment of such defaulted interest established by notice mailed by or on behalf of the Commission to Registered Owners.

LIMITATIONS ON INVESTORS AND RESTRICTIONS ON TRANSFER

Although the Bonds are not being issued under, and shall not be deemed to be issued under, Rule 144A of the Securities Act of 1933, as amended, the Commission requires that the initial investors in the Bonds, and any subsequent purchasers, be “Qualified Institutional Buyers” within the meaning of Rule 144A. Each registered owner

or beneficial owner of a Bond agrees by purchase of a Bond to abide by this limitation. The Commission may remove such limitation without prior notice to or consent of any owner of a Bond. The Commission’s requirement that purchasers of the Bonds be Qualified Institutional Buyers will cease to be in effect if the Bonds are rated “A” or better by a Rating Agency (without regard to subcategories); at such time, the Bonds may be sold in denominations of $5,000 or integral multiples thereof and without restrictions as to investors. There is no requirement in the Master Indenture, or in any other document, that the Borrowers or any other Member of the Obligated Group, if any, the Commission or the Underwriter seek a rating of “A” or better on the Bonds.

REDEMPTION OF THE BONDS

Optional Redemption. The Series 2016A Bonds maturing on or before January 1, ____ are not subject to optional redemption. The Series 2016A Bonds maturing on or after January 1, ____ may be redeemed in whole or in part, and if in part, in Authorized Denominations, on any day on or after January 1, ____, upon not less than 45 days’ written notice from the Borrowers to the Bond Trustee (with copy to the Commission) at a price of par plus accrued interest to the date of redemption. See also, “Purchase of the Bonds – Special Purchase of the Bonds in Lieu of Redemption” below. The Series 2016B Bonds are not subject to optional redemption prior to their stated maturity.

Mandatory Redemption. The Series 2016A Bonds are subject to mandatory redemption in whole or in part, on the first regularly scheduled Interest Payment Date on or after October 1, 2019 unless such date is extended in accordance with the Loan Agreement, in an amount equal to the Series 2016A Bond proceeds (plus any interest earnings thereon) remaining in the Series 2016A Project Account established under the Bond Indenture at the close of business on August 15, 2019 (or the fifteenth day of the second month preceding the month in which any extension of such date set for redemption ends).

The Series 2016B Bonds are subject to mandatory redemption in whole or in part, on the first regularly scheduled Interest Payment Date on or after October 1, 2020 unless such date is extended in accordance with the Loan Agreement, in an amount equal to the Series 2016B Bond proceeds (plus any interest earnings thereon) remaining in the Series 2016B Project Account established under the Bond Indenture at the close of business on August 15, 2020 (or the fifteenth day of the second month preceding the month in which any extension of such date set for redemption ends).

Mandatory Sinking Fund Redemption. The Series 2016A Bonds scheduled to mature on January 1, ____ are subject to mandatory sinking fund redemptions on the following dates and in the following amounts at a price of par plus accrued interest to the date of redemption:

____ TERM BOND

REDEMPTION DATE (JANUARY 1) PRINCIPAL AMOUNT

* ______* Final maturity

The Series 2016A Bonds scheduled to mature on January 1, ____ are subject to mandatory sinking fund redemptions on the following dates and in the following amounts at a price of par plus accrued interest to the date of redemption:

____ TERM BOND

REDEMPTION DATE (JANUARY 1) PRINCIPAL AMOUNT

* ______* Final maturity

The Series 2016B Bonds scheduled to mature on January 1, ____ are subject to mandatory sinking fund redemptions on the following dates and in the following amounts at a price of par plus accrued interest to the date of redemption:

____ TERM BOND

REDEMPTION DATE (JANUARY 1) PRINCIPAL AMOUNT

* ______* Final maturity

____ TERM BOND

REDEMPTION DATE (JANUARY 1) PRINCIPAL AMOUNT

* ______* Final maturity

In the event that such Bonds are redeemed in part in accordance with the Bond Indenture other than by mandatory sinking fund payments, the mandatory sinking fund redemptions shall be reduced proportionately with remaining amounts in Authorized Denominations.

Extraordinary Mandatory Redemption from Insurance or Condemnation Proceeds. The Bonds are subject to mandatory redemption prior to maturity in the event of damage to or destruction of, or the condemnation of, or sale consummated under threat of condemnation of, the Mortgaged Facilities of any Member or any part thereof, if the net proceeds of insurance, condemnation or sale received in connection therewith are transferred to the Bond Trustee by the Master Trustee as prepayments on the Series 2016 Obligations. See APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST

OBLIGATED GROUP — Obligated Group Communities” for further information about the Mortgaged Facilities.

Extraordinary Mandatory Redemption upon a Determination of Taxability. The Series 2016A Bonds shall be subject to extraordinary mandatory redemption by the Commission prior to their scheduled maturities, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued interest from the most recent Interest Payment Date to the redemption date on any date following the receipt by the Bond Trustee of written notice from the Commission, the Borrowers or Bond Counsel of a Determination of Taxability or in order to prevent a Determination of Taxability (in the amount determined by Bond Counsel to be necessary to preserve the tax-exemption of interest on Series 2016A Bonds which will remain Outstanding thereafter, if any). See APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — CERTAIN DEFINITIONS” for the definition of “Determination of Taxability.”

Notice of Redemption. The Bond Trustee shall give notice of redemption pursuant to the Bond Indenture not less than 30 days and not more than 60 days prior to the date fixed for redemption. So long as the Bonds are held in fully immobilized form by DTC, notice of redemption shall be given to Cede & Co., as nominee of DTC and the Registered Owner of the Bonds, in accordance with the Letter of Representations. See APPENDIX H— “BOOK-ENTRY ONLY SYSTEM” for further information. Such notice shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, that from the redemption date interest on the Bonds to be redeemed will cease to accrue so long as funds for such payment are available to the Bond Trustee, and, if less than all of the Bonds Outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed and, if applicable, provision that the notice is rescindable. Notice of any optional redemption may be given on a conditional basis if redemption is subject to the scheduled closing of refunding bonds. Further, notice of any optional redemption shall be deemed to have been given conditionally if, for any reason, the Bond Trustee does not have sufficient moneys in its possession on the date set for redemption to effect such optional redemption. Any notice given pursuant to the provisions of the Bond Indenture summarized in this paragraph may be rescinded by written notice given to the Bond Trustee by the Borrower Representative no later than five Business Days prior to the date specified for redemption. The Bond Trustee shall give notice of such rescission as soon thereafter as practicable in the same manner, and to the same Persons, as notice of such redemption was given pursuant to the provisions of the Bond Indenture summarized in this paragraph.

Partial Redemption. All or a portion of any Bond may be redeemed, but only in a principal amount equal to an Authorized Denomination. In the event of a partial redemption pursuant to the provisions in the Bond Indenture related to optional redemption, mandatory redemption, mandatory sinking fund redemption and extraordinary mandatory redemption summarized above, the maturity of Bonds up to the allocable amount shall be selected pro rata unless other written instructions are given by the Borrowers. Within each maturity, the particular Bonds to be redeemed shall be selected randomly. Upon surrender of any Bond for redemption in part, the Commission shall execute and the Bond Registrar shall authenticate and deliver to the

owner thereof a new Bond or Bonds of Authorized Denominations of the same maturity and in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered.

Effect of Redemption. Notice of redemption having been given as provided in the Bond Indenture, the Bonds or portions thereof designated for redemption shall become due and payable on the date fixed for redemption and, unless the Commission defaults in the payment of the principal thereof, premium, if any, and interest thereon or unless such redemption was conditioned upon the issuance of refunding bonds which were not issued, or unless such notice of optional redemption was deemed to have been conditional or was rescinded as provided therein, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption whether or not such Bonds are presented and surrendered for payment on such date. If such optional redemption notice is cancelled or rescinded, the Bondholders shall be restored to their former positions as though no such notice of redemption had been delivered. If any Bond or portion thereof called for redemption is not so paid upon presentation and surrender thereof for redemption, such Bond or portion thereof shall continue to bear interest at the rate set forth thereon until paid or until due provision is made for the payment of same.

PURCHASE OF THE BONDS

Purchase of the Bonds in the Open Market. The Commission, at the direction of the Borrower, reserves the right to direct the Bond Trustee to acquire Bonds in the open market from amounts on deposit in the Debt Service Fund or from other available funds of the Borrowers. All Bonds so purchased shall be canceled.

Special Purchase of the Bonds in Lieu of Redemption. If any Bond is called for optional redemption in whole or in part, the Borrowers may elect to purchase or have purchased such Bond in lieu of redemption.

Purchase in lieu of redemption shall be available with respect to all Bonds called for optional redemption or for such lesser portion of such Bonds as constitute Authorized Denominations. The Borrowers may direct the Bond Trustee to purchase all or such lesser portion of the Bonds so called for redemption. If so directed, the Bond Trustee shall purchase such Bonds on the date which otherwise would be the redemption date of such Bonds. Any of the Bonds called for redemption that are not purchased in lieu of redemption shall be redeemed as otherwise required by the Bond Indenture on such redemption date.

On or prior to the scheduled redemption date, any direction given to the Bond Trustee to purchase Bonds in lieu of redemption may be withdrawn by the Borrowers by written notice to the Bond Trustee. Subject generally to the Bond Indenture, should a direction to purchase be withdrawn, the scheduled redemption of such Bonds shall occur.

The purchase price of the Bonds shall be equal to the outstanding principal of, accrued and unpaid interest on and the redemption premium, if any, which would have been payable on such Bonds on the scheduled redemption date for such redemption. To pay the purchase price of such Bonds, the Bond Trustee shall use (A) funds deposited by the Borrowers with the Bond Trustee for such purpose and (B) funds, if any, held under the Bond Indenture that the Bond

Trustee would have used to pay the outstanding principal of, accrued and interest on and the redemption premium, if any, that would have been payable on the redemption of such Bonds on the scheduled redemption date. The Bond Trustee shall not purchase the Bonds pursuant to the above provisions if, by no later than the redemption date, sufficient moneys have not been deposited with the Bond Trustee, or such moneys are deposited but are not available.

No notice of the purchase in lieu of redemption shall be required to be given to the Bondowners (other than the notice of redemption otherwise required for such Bond).

DEFEASANCE

The Bond Indenture provides that the Bonds, or any portion thereof, may be defeased prior to maturity or redemption by the deposit of cash or Government Obligations, or a combination thereof, sufficient to provide for the payment of all principal of, premium, if any, and interest on the Bonds through maturity or the date upon which the Bonds will be redeemed pursuant to the Bond Indenture. 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 APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Bond Indenture — Defeasance.”

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

GENERAL

The Bonds are special, limited obligations of the Commission payable solely from certain amounts received under the Loan Agreement and the Series 2016 Obligations and the other security pledged in the Bond Indenture for such purpose. Under the Loan Agreement, the Borrowers are required to make payments upon the Series 2016A Obligation or the Series 2016B Obligation, as applicable, at such times and in such amounts so as to provide for payment of the principal of, premium, if any, and interest on the related series of Bonds outstanding under the Bond Indenture when due whether upon a scheduled Interest Payment Date, at maturity or by mandatory redemption, acceleration or otherwise upon the Bonds.

The obligation of the Borrowers to make payments under the Loan Agreement is evidenced and secured by the Series 2016 Obligations of the Obligated Group issued pursuant to the Second Supplemental Master Indenture. The Borrowers are obligated, and the Borrowers together with any future Members of the Obligated Group will be jointly and severally obligated, to make payments on the Series 2016A Obligation or the Series 2016B Obligation, as applicable, in an amount sufficient to pay principal of, premium, if any, and interest on the related series of Bonds when due and any other payments coming due under the Loan Agreement. The Bonds are secured by a pledge and assignment by the Commission under the Bond Indenture of the Trust Estate, which includes all of the Commission’s right, title and interest in and to the Loan Agreement and the Series 2016 Obligations. Payment of the principal of, and interest on, the Bonds will be additionally secured by moneys deposited to the credit of the Debt Service

Reserve Fund, as further described under the sub-heading “The Debt Service Reserve Fund” below.

The enforcement of the obligations and agreements described in this section will depend upon the availability and enforceability of remedies. For a description of certain possible limitations on such remedies, see “RISK FACTORS.”

The Bond Indenture permits certain amendments to be made to the Bond Indenture and the Loan Agreement upon the consent of the holders of 51% or more in aggregate principal amount of Bonds Outstanding, or in some instances without the consent of the owners of the Bonds. See APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Bond Indenture — Supplemental Bond Indentures Not Requiring Consent of Bondowners,” “— Supplemental Bond Indentures Requiring Consent of Bondowners,” “— Amendments to Loan Documents Requiring Consent of Bondowners” and “— Amendments to Loan Documents Not Requiring Consent of Bondowners.”

LIMITED OBLIGATIONS

PLEDGE OF THE TRUST ESTATE UNDER THE BOND INDENTURE

In order to secure the payment of the principal of, premium, if any, and interest on the Bonds, the Commission pledges and assigns to the Bond Trustee pursuant to the Bond Indenture all of its right, title and interest in the Trust Estate, which includes: (a) all of the Commission’s right, title and interest in and to the Series 2016 Obligations, and all sums payable in respect of the indebtedness evidenced thereby; (b) all right, title and interest of the Commission in, to and under the Loan and the Loan Documents (see APPENDIX D—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Certain Definitions” for definitions of “Loan”

and “Loan Documents”), including all extensions and renewals of the terms thereof, except the Commission’s retained rights; (c) all amounts held on deposit from time to time by the Bond Trustee in any Fund or Account established pursuant to the Bond Indenture, together with investment earnings thereon (see APPENDIX D—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Bond Indenture — Funds and Accounts”), but excluding (i) money held by the Bond Trustee in the Cost of Issuance Fund and the Rebate Fund and (ii) money collected pursuant to reimbursement or indemnification of the Commission and the Bond Trustee; and (d) any and all other property of any name and nature from time to time pledged or assigned to the Bond Trustee as and for additional security under the Bond Indenture.

THE DEBT SERVICE RESERVE FUND

The Bond Indenture establishes the Debt Service Reserve Fund to be held thereunder by the Bond Trustee and two subaccounts therein — the Reserve Account (Series 2016A Bonds) and the Reserve Account (Series 2016B Bonds). Upon issuance of the Bonds, the Bond Trustee shall deposit a portion of the proceeds of the Series 2016A Bonds into the Reserve Account (Series 2016A Bonds) to meet the Debt Service Reserve Requirement for the Series 2016A Bonds and shall deposit a portion of the proceeds of the Series 2016B Bonds into the Reserve Account (Series 2016B Bonds) to meet the Debt Service Reserve Requirement for the Series 2016B Bonds. Money on deposit in the Reserve Account (Series 2016A Bonds) shall be used to provide a debt service reserve for the payment of the principal of and interest on the Series 2016A Bonds, but shall not be used to pay principal of or interest on the Series 2016B Bonds. Money on deposit in the Reserve Account (Series 2016B Bonds) shall be used to provide a debt service reserve for the payment of the principal of and interest on the Series 2016B Bonds, but shall not be used to pay principal of or interest on the Series 2016A Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein.

The Bond Indenture provides that the Debt Service Reserve Assets are irrevocably pledged and shall be used by the Bond Trustee, to the extent required, in the following order of priority:

(1) (i) To the extent that money is available in the Reserve Account (Series 2016A Bonds), such money shall be transferred, if necessary, on an Interest Payment Date to the Rebate Fund or the Debt Service Fund, in that order, for the purposes of paying the Rebate Amounts, or interest and the principal on the Series 2016A Bonds due on such date in the event there is a deficiency in such accounts for such payments; provided, that such transfer shall be made from any available cash or the proceeds from the liquidation of any available investments in the Reserve Account (Series 2016A Bonds), which transfer shall be made, if possible, in sufficient time to prevent the occurrence of an Event of Default under the Bond Indenture;

(ii) To the extent that money is available in the Reserve Account (Series 2016B Bonds), such money shall be transferred, if necessary, on an Interest Payment Date to the Debt Service Fund for the purposes of paying interest and the principal on the Series 2016B Bonds due on such date in the event there is a deficiency in such account for such payments; provided, that such transfer shall be made from any available cash or

the proceeds from the liquidation of any available investments in the Reserve Account (Series 2016B Bonds), which transfer shall be made, if possible, in sufficient time to prevent the occurrence of an Event of Default under the Bond Indenture; and

(2) If the aggregate value of the Debt Service Reserve Assets shall exceed the Debt Service Reserve Requirement for the applicable Account in the Debt Service Reserve Fund on any Valuation Date, for transfer of excess money to the Debt Service Fund to be applied to the series of Bonds corresponding to such Account;

(3) If the aggregate value of the Debt Service Reserve Assets held in an Account in the Debt Service Reserve Fund shall exceed the Debt Service Reserve Requirement for such Account as the result of any redemption or partial defeasance of the series of Bonds corresponding to such Account, for transfer of excess money to the Debt Service Fund or the escrow account into which a defeasance deposit for the partial redemption is made to be applied to the series of Bonds so redeemed or partially defeased, all as directed by the Borrowers in writing in accordance with the refunding plan for such partial defeasance;

(4) For transfer to the Debt Service Fund, when the Debt Service Reserve Assets shall be sufficient (together with funds in the Debt Service Fund) to pay the principal of, premium, if any, and interest on all the Outstanding Bonds, when due, whether by reason of maturity, redemption or acceleration; and

(5) On the final maturity date of a series of Bonds, any Debt Service Reserve Assets held in an Account in the Debt Service Reserve Fund and allocable to that series of Bonds, shall be used to pay the principal of and interest on such Bonds on such final maturity date.

Further, the Borrowers covenant in the Loan Agreement that if, on any Valuation Date, the aggregate value of the Debt Service Reserve Assets in any Account of the Debt Service Reserve Fund shall be less than 90% of the respective Debt Service Reserve Requirement as a result of a decline in the market value of the investments therein, the Borrowers are required to transfer to the Bond Trustee for deposit into such Account of the Debt Service Reserve Fund the amount necessary to restore the Debt Service Reserve Assets to the respective Debt Service Reserve Requirement within not more than 120 days following the date the Borrowers receive notice of such deficiency. The Borrowers also covenant in the Loan Agreement that, if on any Valuation Date, the amount on deposit in any Account of the Debt Service Reserve Fund is less than 100% of the respective Debt Service Reserve Requirement as a result of such Account of the Debt Service Reserve Fund having been drawn upon, the Bond Trustee shall notify the Commission and the Borrowers of such transfer and the Borrowers agree to restore the amount on deposit in such Account of the Debt Service Reserve Fund to an amount equal to the respective Debt Service Reserve Requirement by the deposit with the Bond Trustee of an amount equal to such deficiency in not more than 12 substantially equal monthly installments beginning with the first day of the seventh month after the month in which such draw occurred.

THE BORROWERS’ OBLIGATIONS UNDER THE LOAN AGREEMENT

Under the Loan Agreement, the Borrowers are required to make payments at such times and in such amounts so as to provide for payment of the principal of, premium if any, and interest on the Bonds outstanding under the Bond Indenture when due whether upon a scheduled Interest Payment Date, at maturity or by mandatory redemption, acceleration or otherwise upon the Bonds. The Borrowers’ obligations under the Loan Agreement will be evidenced and secured by the Series 2016 Obligations, which will be issued and secured under the Master Indenture. The Series 2016 Obligations will entitle the Bond Trustee, as the holder thereof, to the protection and benefit of the covenants, restrictions and other obligations imposed on the Borrowers and any other person which may become a Member of the Obligated Group in the future by the Master Indenture. See APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Loan Agreement” for further information about the Borrowers’ obligations under the Loan Agreement.

OBLIGATIONS UNDER THE MASTER INDENTURE

As described under the heading “INTRODUCTION — The Obligated Group and the Master Indenture” herein, upon the issuance of the Bonds, PRCN, Skyline and Fred Lind Manor will be the Members of the Obligated Group under the Master Indenture. PRCN, as Obligated Group Representative, will issue the Series 2016 Obligations pursuant to the Master Indenture, and the Borrowers’ obligations under the Loan Agreement will be evidenced and secured by the Series 2016 Obligations. The Master Indenture provides that Obligations issued under the Master Indenture are joint and several obligations of the Borrowers and any future Members of the Obligated Group. The Borrowers and any future Members jointly and severally covenant and agree in the Master Indenture to pay or cause to be paid promptly all Required Payments 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. See APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST —DEFINITIONS OF CERTAIN TERMS” for the definitions of Required Payments and Related Supplement.

Upon the issuance of the Bonds, the Series 2013 Obligation, the Series 2015 Obligation and the Series 2016 Obligations will be the only Obligations entitled to the benefits of, and the security pledged under, the Master Indenture. Additional Obligations may be issued in the future as provided in the Master Indenture. The holders of all Obligations entitled to the benefit of the Master Indenture will be on a parity with respect to the benefits of the Master Indenture.

The Obligations, including the Series 2016 Obligations, issued under the Master Indenture will be secured by (i) a security interest in the Gross Revenues of the Obligated Group and (ii) a mortgage and security interest in the real and personal property of each of the Mortgaged Facilities, as described in the 2016 Deeds of Trust. See “Security Interest in Gross Revenues under the Master Indenture” and “2016 Deeds of Trust” below for more information regarding the pledge of Gross Revenues and the Mortgaged Facilities.

The accounts of the Members of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether the covenants and tests contained in the Master Indenture are met; however, potential bond holders should note the uncertainties with respect to the enforceability of the covenants in the Master Indenture of each Member of the Obligated Group to be jointly and severally liable for each Obligation, as described herein under the caption “RISK FACTORS — Certain Matters Relating to Enforceability.” As of the date of issuance of the Bonds, PRCN, Skyline and Fred Lind Manor will be the sole Members of the Obligated Group. See Appendix E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — The Obligated Group — Membership in the Obligated Group” and “— Withdrawal from the Obligated Group” for a description of the limitations on admission and release of Members of the Obligated Group.

SECURITY INTEREST IN GROSS REVENUES UNDER THE MASTER INDENTURE

Pursuant to the Master Indenture, to secure the obligations of the Obligated Group thereunder and under each outstanding Obligation, including without limitation the Series 2016 Obligations, PRCN has granted and Skyline and Fred Lind Manor will grant, and as a condition precedent to membership in the Obligated Group in accordance with the Master Indenture each person which may hereafter become a Member shall grant, to the Master Trustee, a security interest in its Gross Revenues, subject only to Permitted Encumbrances.

Upon written request from the Obligated Group Representative, accompanied by a Certificate of the Obligated Group Representative to the effect that the applicable requirements of the Master Indenture with respect to the incurrence of Short-Term Indebtedness have been met, the Master Trustee shall take all procedural steps necessary to effect the subordination of its security interest in the Gross Revenues granted in the Master Indenture to security interests constituting Permitted Encumbrances, granted by a Member in order to secure such Short-Term Indebtedness. The Master Trustee shall further provide prompt written notice of any such subordination to the Holders of all Obligations.

The Master Indenture defines Gross Revenues as (i) all receipts, revenues, payments, income and other moneys received by or on behalf of a Member from any source (excluding donor-restricted funds and other similarly restricted funds), whether or not in connection with the ownership or the operation of all or any part of a Member’s facilities, including, without limitation, all Entrance Fees (earned and unearned), monthly service fees and all other operating and non-operating revenues, and (ii) all rights to receive the same whether in the form of accounts receivable, contract rights, chattel paper, instruments, general intangibles of a Member and the proceeds thereof, the proceeds of any insurance coverage on and condemnation awards in respect of a Member’s facilities or any gain on the sale or other disposition of property by a Member; and all of the foregoing, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by a Member.

To perfect the Master Trustee’s security interest in the Gross Revenues of the Members of the Obligated Group, in connection with the issuance of the Series 2016 Obligations, PRCN, on behalf of itself and as Obligated Group Representative on behalf of the other Members of the Obligated Group, will execute a blocked account control agreement with the depository bank at

which the Gross Revenues of the Members of the Obligated Group are deposited, and each Member of Obligated Group will also file a financing statement under the Uniform Commercial Code of the State of Washington. Even if perfected, the grant of a security interest in Gross Revenues may be subordinate to the interests and claims of others in several instances. Some examples of cases of subordination of prior interest and claims are (i) statutory liens, (ii) rights arising in favor of the United States of America or any agency thereof, (iii) present or future prohibitions against assignment, including collateral imposed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (iv) federal or state bankruptcy laws that may affect the enforceability of the Master Indenture or grant a security interest in Gross Revenues and (v) liens on investments and investment accounts constituting Gross Revenues in favor of secured parties who have entered into control agreements with respect to such investments and investment accounts.

2016 DEEDS OF TRUST

The Series 2016 Obligations and all other Obligations previously and subsequently issued under the Master Indenture will be secured by a mortgage and security interest in the real property, rents and leases, personal property and fixtures relating to the Mortgaged Facilities (collectively, the “Collateral Property”), as such property is described in (a) the Amended and Restated Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Park Shore), dated as of October 1, 2016 (the “Park Shore Deed of Trust”), from PRCN, as grantor, to Chicago Title Insurance Company (“Chicago Title”), as deed of trust trustee, for the benefit of the Master Trustee, which amends and restates the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing, dated as of June 19, 2013, (b) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Skyline) dated as of October 1, 2016 (the “Skyline Deed of Trust”), from Skyline, as grantor, to Chicago Title, as deed of trust trustee, for the benefit of the Master Trustee, (c) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Fred Lind Manor), dated as of October 1, 2016 (the “Fred Lind Manor Deed of Trust”) from Fred Lind Manor, as grantor, to Chicago Title, as deed of trust trustee, for the benefit of the Master Trustee, and (d) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1611 Condominium), the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1623 Condominium) and the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (McGilvra Place Condominium), each dated as of October 1, 2016, and each from PRCN, as grantor, to Chicago Title, as deed of trust trustee, for the benefit of the Master Trustee (collectively, the “Condo Deeds of Trust” and, together with the Park Shore Deed of Trust, the Skyline Deed of Trust and the Fred Lind Manor Deed of Trust, the “2016 Deeds of Trust”). The Park Shore Deed of Trust pledges certain real and personal property relating to Park Shore; the Skyline Deed of Trust pledges certain real and personal property relating to Skyline at First Hill; the Fred Lind Manor Deed of Trust pledges certain real and personal property relating to Fred Lind Manor; and each of the Condo Deeds of Trust pledges certain real and personal property relating to the condos purchased in the Condo Acquisition.

The total book value of the Collateral Property constituted approximately 96.9% of the book value of all property, plant and equipment of the Obligated Group as of September 30,

2015. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — The 2016 Deeds of Trust” for further information about the 2016 Deeds of Trust and the property granted as security thereunder.

There can be no assurance that the book value or fair market value of the Collateral Property would be realized upon its disposition or at foreclosure. In the future, the value of the Collateral Property could be substantially less than the principal amount of Obligations outstanding under the Master Indenture. In connection with the issuance of the Bonds, the Obligated Group will deliver a lender’s title insurance policy with respect to the Mortgaged Facilities for the benefit of the Master Trustee. The title policy will be in an amount at least equal to the initial aggregate principal amount of the Bonds. See “RISK FACTORS—Certain Risks Associated with the 2016 Deeds of Trust.”

THE PLAN OF FINANCE

The proceeds of the Series 2016A Bonds will be used to acquire a loan made to the Borrowers and, together with other available funds, will be used to (a) refund, on a current basis, the Series 2007A Bonds, (b) pay or reimburse PRCN for the costs of the Park Shore Project, (c) pay a portion of the development fees (the “Development Fees”) to PRCN Services, LLC, an affiliate of PRCN, in connection with the Park Shore Project, (d) fund a portion of the debt service reserve fund and (e) pay a portion of the costs of issuing the Bonds.

The proceeds of the Series 2016B Bonds will be used to acquire a loan made to the Borrowers and, together with other available funds, will be used to (a) repay, or reimburse Fred Lind Manor for the repayment of, the HUD Loan, or repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan, (b) reimburse PRCN for the costs of the Condo Acquisition, (c) pay or reimburse Fred Lind Manor for the costs of the Fred Lind Manor Project, (d) pay a portion of the Development Fees in connection with the Park Shore Project and the Fred Lind Project, (e) fund a portion of the debt service reserve fund and (f) pay a portion of the costs of issuing the Bonds.

THE PROJECTS

PRCN expects to apply a portion of the proceeds of the Series 2016A Bonds to renovate and enlarge Park Shore. For more information about the Park Shore Project, see APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — THE PROJECTS AND RECENT DEVELOPMENTS — The Projects — Park Shore Project.”

Fred Lind Manor expects to apply a portion of the proceeds of the Series 2016B Bonds as payment or reimbursement for capital improvements at Fred Lind Manor. For more information about the Fred Lind Manor Project, see APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — THE PROJECTS AND RECENT DEVELOPMENTS — The Projects — Fred Lind Manor Project.”

A portion of the proceeds of the Series 2016A Bonds and a portion of the proceeds of the Series 2016B Bonds will be paid to PRCN Services, LLC as payment for the comprehensive master-planning, repositioning, development and project management services provided by PRCN Services, LLC to PRCN and Fred Lind Manor in connection with the Park Shore Project and the Fred Lind Manor Project. For more information about the Development Fees, see APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — THE PROJECTS AND RECENT DEVELOPMENTS — The Projects — Development Services.”

REFUNDING OF THE SERIES 2007A BONDS

The proceeds of the Series 2007A Bonds were used by Skyline to acquire and construct Skyline at First Hill, to fund a debt service reserve fund, to pay a portion of the interest on the Series 2007A Bonds and to pay costs of issuing the Series 2007A Bonds. A portion of the proceeds of the Series 2016A Bonds will be transferred to the trustee for the Series 2007A Bonds and used to redeem the Series 2007A Bonds on January 1, 2017.

REFINANCING OF HUD LOAN

The proceeds of the HUD Loan were used by Fred Lind Manor to refinance indebtedness that previously refinanced the costs of constructing Fred Lind Manor. A portion of the proceeds of the Series 2016B Bonds will be used to repay, or to reimburse Fred Lind Manor for the repayment of, the HUD Loan or to repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan.

CONDO ACQUISITION

A portion of the proceeds of the Series 2016B Bonds will be used to reimburse PRCN for the costs of the Condo Acquisition.

See “ESTIMATED SOURCES AND USES OF FUNDS” below and APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP.”

* ESTIMATED SOURCES AND USES OF FUNDS

Proceeds to be received from the sale of the Bonds, together with moneys contributed by the Borrowers and other funds held under the bond trust indenture relating to the Series 2007A Bonds (“Series 2007A Funds”), are estimated to be applied as set forth in the following table. (All amounts are shown rounded to the nearest whole dollar.)

SOURCES OF FUNDS Par Amount of Series 2016A Bonds $120,330,000 Par Amount of Series 2016B Bonds 12,215,000 Original Issue Premium 11,857,870 Series 2007A Funds 9,640,255 TOTAL SOURCES OF FUNDS $154,043,125

USES OF FUNDS Refunding of Series 2007A Bonds $101,639,658 Refinancing of HUD Loan 3,712,766 Deposit to Series 2016A Project Account for Park Shore Project(1) 28,637,175 Deposit to Series 2016B Project Account for Fred Lind Manor Project(1) 2,500,000 Condo Acquisition 3,475,000 Development Fees 1,427,359 Deposit to Debt Service Reserve Fund(2) 10,215,750 Deposit to Cost of Issuance Fund(3) 2,435,417 TOTAL USES OF FUNDS $154,043,125

______* Preliminary, subject to change. (1) Approximately $6,100,000 is expected to be reimbursed to PRCN on the date of issuance of the Bonds for Park Shore Project costs incurred prior to the issuance of the Bonds, and approximately $1,500,000 is expected to be reimbursed to Fred Lind Manor on the date of issuance of the Bonds for Fred Lind Manor Project costs incurred prior to the issuance of the Bonds. (2) Equal to the aggregate Debt Service Reserve Requirement. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—The Debt Service Reserve Fund” herein and APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS—Certain Definitions” for the definition of Debt Service Reserve Requirement. (3) Includes Underwriter’s discount and Underwriter fees, legal fees, Commission fees, Bond Trustee and Master Trustee fees and other costs associated with the issuance of the Bonds. No more than 2% of the proceeds of the Series 2016A Bonds will be used to pay costs of issuance.

ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each bond year ending January 1, (a) the estimated amounts required to be available for the payment of principal of the Bonds (including mandatory sinking fund redemption payments) and (b) interest on the Bonds. BOND YEAR TOTAL ENDING SERIES 2016A BONDS* SERIES 2016B BONDS* SERIES 2013 SERIES 2015 DEBT JANUARY 1 PRINCIPAL INTEREST PRINCIPAL INTEREST BONDS(1) BONDS(1) SERVICE 2017 - $1,500,000 $509,425 $599,208 2018 - 1,470,000 507,675 599,464 2019 - 1,530,000 505,675 599,514 2020 - 1,595,000 508,425 599,358 2021 - 1,655,000 505,675 603,995 2022 - 1,725,000 507,675 601,995 2023 - 1,795,000 504,175 604,745 2024 $930,000 945,000 505,425 601,995 2025 1,965,000 - 506,175 603,995 2026 2,065,000 - 506,425 605,495 2027 2,170,000 - 506,175 605,145 2028 2,280,000 - 510,425 604,220 2029 2,400,000 - 508,925 602,720 2030 2,520,000 - 506,925 605,645 2031 2,655,000 - 504,425 607,708 2032 2,790,000 - 506,425 603,908 2033 2,935,000 - 507,675 604,533 2034 3,080,000 - 508,175 609,295 2035 3,240,000 - 507,163 607,908 2036 3,415,000 - 505,363 605,658 2037 3,585,000 - 507,775 606,758 2038 3,770,000 - 509,138 606,658 2039 3,965,000 - 504,450 610,358 2040 4,165,000 - 508,975 612,558 2041 4,380,000 - 507,188 613,258 2042 4,605,000 - 509,350 612,458 2043 5,345,000 - - 615,158 2044 5,620,000 - - 616,058 2045 5,835,000 - - 709,514 2046 6,830,000 - - - 2047 7,180,000 - - - 2048 7,550,000 - - - 2049 7,940,000 - - - 2050 8,345,000 - - - 2051 8,770,000 - - -

Total $120,330,000 $12,215,000 $13,185,300 $17,679,278

* Preliminary, subject to change. (1) Debt service is net of estimated debt service reserve fund release in final year.

CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE

LIMITATIONS ON ADDITIONAL INDEBTEDNESS AND ON ENCUMBRANCES

The Master Indenture defines Additional Indebtedness as any Indebtedness incurred subsequent to the execution and delivery of the Master Indenture. Pursuant to the Master Indenture, each Member agrees that it will not incur any Additional Indebtedness except as permitted therein. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Limitations on Additional Indebtedness” for further information about the various incurrence tests.

The Master Indenture also prohibits any Member from creating, assuming or permitting to exist any Lien upon its Property (including, without limitation, the Gross Revenues) other than Permitted Encumbrances. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — DEFINITIONS OF CERTAIN TERMS” for the definitions of Property, Lien and Permitted Encumbrances.

RATES AND CHARGES; DEBT COVERAGE

Each Member covenants and agrees in the Master Indenture 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 and interest on 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.

Within 150 days after the end of each Fiscal Year, the Obligated Group Representative shall compute Income Available for Debt Service, Annual Debt Service, and the Debt Service Coverage Ratio and promptly furnish to the Required Information Recipients (hereinafter defined) a Certificate setting forth the results of such computation.

If the Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to retain an Independent Consultant within 30 days following the calculation described in the immediately preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year.

For purposes of calculations under these provisions of the Master Indenture, an unrestricted contribution from any Affiliate of any Member of the Obligated Group may, at the

sole discretion of the Obligated Group Representative, be treated as Income Available for Debt Service being earned during the period of such calculation so long as the unrestricted contribution is made prior to the date the applicable Certificate is required to be delivered with respect to such calculation. If the unrestricted contribution is counted in a period prior to the date of such transfer in accordance with the previous sentence, it shall not be included in the calculation for the period in which such contribution was actually made.

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 to be met, then such ratio shall be reduced to 1.00:1 for such Fiscal Year and determined by computing the Debt Service Coverage Ratio for such Fiscal Year.

A copy of the Independent Consultant’s report and recommendations, if any, shall be filed with each of the Required Information Recipients 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. These provisions of the Master Indenture shall not be construed to prohibit any Member from serving indigent persons 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 persons without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of these provisions of the Master Indenture.

Notwithstanding any other provisions of the Master Indenture, an Event of Default arising from the Debt Service Coverage Ratio shall only occur thereunder if one or more of the following conditions applies: (1) the Obligated Group (a) fails to achieve a Debt Service Coverage Ratio of at least 1.20:1, and (b) fails to take all necessary action to comply with the procedures set forth in these provisions of the Master Indenture for preparing a report, adopting a plan, and following all recommendations contained in such report or plan to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law; or (2) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year and the Days Cash on Hand of the Obligated Group as of the last day of such Fiscal Year is less than 150 days; or (3) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for two consecutive Fiscal Years.

LIQUIDITY COVENANT

The Obligated Group covenants in the Master Indenture that it will calculate the Days Cash on Hand of the Obligated Group as of September 30 and March 31 of each Fiscal Year (each such date being a “Testing Date”). The Obligated Group shall include such calculations in the Officer’s Certificates that are delivered for the fiscal quarters ending September 30 and March 31 pursuant to the Master Indenture.

Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have not less than 150 Days Cash on Hand. If the amount of Days Cash on Hand as of any Testing Date is less than 150, 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 Obligated Group has not achieved 150 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 30 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, shall be filed with each of the Required Information Recipients 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 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 Obligated Group is required to engage an Independent Consultant to calculate the Days Cash on Hand of the Obligated Group or to make the calculations required by the provisions of the Master Indenture summarized under the caption “Rates and Charges; Debt Coverage” above, the Independent Consultant shall be engaged in the manner set forth below.

Upon selecting an Independent Consultant as required under the Master Indenture, the Obligated Group Representative will promptly notify the Master Trustee of the 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 the 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 15 days of the date that the notice is sent to the Obligation holders. No later than two Business Days after the end of the 15-day objection period, the Master Trustee shall notify the Obligated Group of the number of

objections. If two-thirds (66⅔%) 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 (33⅓%) in aggregate principal amount of the holders 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 Indenture shall be prepared in accordance with then-effective industry-appropriate standards.

See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Approval of Consultants.”

OTHER COVENANTS

In addition to the covenants summarized above, the Master Indenture contains, among other provisions, (a) insurance requirements, (b) covenants with respect to maintenance of each Member’s properties, (c) limitations on Guaranties, (d) prohibitions and limitations on sale, lease or other disposition of each Member’s properties, and (e) prohibitions and limitations on consolidation, merger, sale or conveyance of all or substantially all of a Member’s property.

See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE” for further information about these and other provisions of the Master Indenture.

REPORTING REQUIREMENTS

The Members covenant in the Master Indenture to 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 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. To the extent that generally accepted accounting principles would require consolidation of certain financial information of entities which are not Members of the 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 Obligated Group may be delivered in satisfaction of the requirements of this provision of the Master Indenture so long as: (i) supplemental information in sufficient detail to separately identify the information with respect to the Members of the 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 hereof or for any agreement,

document or certificate executed and delivered in connection or pursuant to the Master Indenture.

The Members agree in the Master Indenture to provide certain financial and operating information to the Master Trustee, the Underwriter, each Related Bond Trustee, the Commission, the Electronic Municipal Market Access (“EMMA”) or any other nationally recognized municipal securities information repositories identified by the Securities and Exchange Commission, and all owners of $500,000 or more in aggregate principal amount of Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership) (collectively, the “Required Information Recipients”). See APPENDIX E — “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — FILING OF FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION.” In addition to the requirements of the Master Indenture, in connection with the issuance of the Bonds, PRCN, as Obligated Group Representative, will enter into a Continuing Disclosure Agreement, pursuant to which the Obligated Group Representative will provide or cause to be provided certain annual and quarterly financial information (much of which is identical to the reporting requirements of the Master Indenture) and notice of certain events. The form of the Continuing Disclosure Agreement is set forth in APPENDIX G hereto. See also “CONTINUING DISCLOSURE” herein.

AMENDMENTS AND SUPPLEMENTS TO THE MASTER INDENTURE

Certain amendments to the Master Indenture may be made with the consent of the holders of a majority of the aggregate principal amount of the Obligations then outstanding. Such majority may be composed wholly or partially of the holders of the Obligations other than the holders of the Series 2016 Obligations. Additionally, certain amendments can be made without the consent of the holders, as provided in the Master Indenture.

RISK FACTORS

Set forth below are certain risk factors that should be considered before any investment in the Bonds is made. Certain risks are inherent in the successful operation of the Borrowers’ 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 the Borrowers’ facilities or the payment of the Bonds.

GENERAL

As described herein under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS,” the principal of and interest on the Bonds, except to the extent that the Bonds will be payable, under certain circumstances, from proceeds of insurance, sale or condemnation awards or net amounts by recourse to the 2016 Deeds of Trust, are payable solely from amounts payable by the Borrowers under the Loan Agreement, from amounts payable by the Obligated Group on the Series 2016 Obligations and from certain funds held under the Bond Indenture. No representation or assurance is given or can be made that revenues will be realized by the

Borrowers in amounts sufficient to pay debt service on the Bonds when due and other payments necessary to meet the obligations of the Borrowers. The Risk Factors discussed below should be considered in evaluating the ability of the Borrowers to make payments in amounts sufficient to provide for the payment of the principal of, the premium, if any, and interest on the Bonds.

The receipt of future revenues by the Borrowers 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 Borrowers and future economic and other conditions that are impossible to predict. The extent of the ability of the Borrowers to generate future revenues has a direct effect upon the payment of principal of, premium and purchase price, if any, and interest on the Bonds. Neither the Underwriter nor the Commission has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Borrowers.

LIMITED OBLIGATIONS

The Bonds and the interest thereon are not general obligations of the Commission but are special, limited obligations, and do not constitute a debt or an indebtedness or an obligation of the Commission, the State, or any county, city or other municipal or political corporation or subdivision of the State, or a loan of the faith or credit or the taxing power of any of them, within the meaning of any constitutional or statutory provisions, nor shall the Bonds be construed to create any moral obligation on the part of the Commission, the State, or any county, city or other municipal or political corporation or subdivision of the State with respect to the payment of the Bonds. The Bonds shall not be payable from the general revenues of the Commission, and neither the Commission nor the State nor any political corporation, subdivision or agency thereof will be liable thereon, nor in any event shall the Bonds be payable out of any funds or properties other than those specifically pledged therefor. The Commission has no taxing power.

GENERAL ECONOMIC CONDITIONS AND DISRUPTION OF FINANCIAL MARKETS

Since 2008, the financial sectors of the economies of the United States and other countries have experienced severe disruptions, prompting a number of banks and other financial institutions to seek additional capital, including capital provided through the federal government, to merge, and, in some cases, to cease operations. These events collectively have led to significant reductions in lending capacity and extension of credit, erosion of investor confidence in the financial sector, and historically aberrant fluctuations in interest rates. This disruption of the credit and financial markets has led to volatility in the securities markets, significant losses in investment portfolios, increased business failures and consumer and business bankruptcies.

The health care and senior care sectors have been materially adversely affected by past market disruption and would likely be materially adversely affected by any future economic recession or financial market disruption. The consequences of financial market disruptions have generally included realized and unrealized investment portfolio losses, reduced investment income, limitations on access to the credit markets, difficulties in extending existing or obtaining

new liquidity facilities, difficulties in remarketing revenue bonds subject to tender, requiring the expenditure of internal liquidity to fund tenders of revenue bonds, and increased borrowing costs. Future financial market disruptions cannot be predicted and there can be no assurance that future financial disruptions will not materially or adversely affect the operations and financial condition of the Borrowers.

The Borrowers have significant holdings in a diversified portfolio of investments. Market fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations may be and historically have been material. The market disruption has exacerbated the market fluctuations and has negatively affected the investment performance of securities in the Borrowers’ portfolio. See APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Management’s Discussion and Analysis of Operations.”

Federal budget deficits and expected shortfalls between state revenues and spending may result in changes to government health programs, including reductions in Medicare and Medicaid reimbursement rates. Past federal budgets have included large cuts to the federal health care programs and future federal budgets may make additional cuts to the federal health care programs. It is not possible to predict what actions will be taken in future years by the federal legislature with respect to the federal budget.

Some of the challenges caused by the disruptions in the credit markets and general economic conditions are further highlighted below. These and other risks may adversely affect the Borrowers and jeopardize their ability to generate revenues, make payments under the Loan Agreement and, consequently, make payments on the Bonds. There can be no assurance that the financial condition of the Borrowers and/or the utilization of their communities will not be adversely affected by any of these circumstances.

MANAGEMENT’S FORECAST

Management’s financial forecast contained in the Financial Feasibility Study included in APPENDIX C hereto is based upon assumptions made by the management of the Borrowers. As stated in such financial forecast, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. In addition, the financial forecast is only for the five years ending September 30, 2020, and consequently does not cover the whole period during which the Bonds may be outstanding. The Financial Feasibility Study should be read in its entirety, including management’s notes and assumptions set forth therein. See APPENDIX C hereto.

BECAUSE THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH THE ASSUMPTIONS MADE, NO GUARANTEE CAN BE MADE THAT MANAGEMENT’S FINANCIAL FORECAST IN THE FINANCIAL FEASIBILITY STUDY WILL CORRESPOND WITH THE RESULTS ACTUALLY ACHIEVED IN THE FUTURE. ACTUAL OPERATING RESULTS MAY BE AFFECTED BY MANY UNCONTROLLABLE FACTORS, INCLUDING BUT NOT LIMITED TO INCREASED COSTS, LOWER THAN ANTICIPATED REVENUES, EMPLOYEE RELATIONS, TAXES, GOVERNMENTAL CONTROLS, CHANGES IN

APPLICABLE GOVERNMENTAL REGULATION, CHANGES IN DEMOGRAPHIC TRENDS, CHANGES IN THE RETIREMENT LIVING AND HEALTH CARE INDUSTRIES, AND GENERAL ECONOMIC CONDITIONS.

ADDITIONS TO THE OBLIGATED GROUP

Following the issuance of the Bonds, PRCN, Skyline and Fred Lind Manor will be the only Members of the Obligated Group. Upon satisfaction of certain conditions in the Master Indenture, other entities can become Members of the Obligated Group. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — THE OBLIGATED GROUP — Membership in the Obligated Group.” Management of the Borrowers currently has no plans to add additional Members to the Obligated Group. However, if and when new Members are added, the Obligated Group’s financial situation and operations will likely be altered from that of the existing Obligated Group.

UNCERTAINTY OF REVENUES

Although the Borrowers expect that revenues will be adequate to make all scheduled payments under the Loan Agreement (and corresponding payments on the Bonds), a number of factors could decrease revenues. Future economic and other conditions, including demand for rental housing, the ability of the Borrowers to provide the living environment demanded by tenants and potential tenants, competition, including from facilities financed by the Commission, changes in prevailing rental rates, costs, demographic changes, legislation, governmental regulations and litigation may adversely affect revenues and, consequently, the Borrowers’ ability to make payments under the Loan Agreement.

Failure to Achieve and Maintain Occupancy and Turnover. The ability of the Borrowers to generate sufficient revenues depends in large part on the Borrowers’ ability to attract sufficient numbers of residents to their facilities in order to maintain substantial occupancy and turnover of occupancy throughout the term of the Bonds. Because occupancy and turnover at the Borrowers’ facilities depend upon factors outside the Borrowers’ control, such as residents’ rights to terminate their contracts with the Borrowers, the Borrowers must rely on various assumptions about the Borrowers’ residents and the market for their services. Where such assumptions prove to be wrong, the Borrowers’ revenues will be affected. For example, the Borrowers’ receipt of additional Entrance Fees could be impaired by the survival of a substantial number of residents beyond assumed life expectancies, fewer permanent transfers to the Borrowers’ assisted living or skilled nursing facilities than anticipated, or a market-induced reduction in the amount or deferral of the Entrance Fees payable by new residents. Revenues would also be impaired if the Borrowers are unable to remarket units as they become available. If the Borrowers’ operations fail to maintain occupancy levels and resell independent living units and assisted living units as they become available, or if there is a reduction in the amount of Entrance Fees received, the Borrowers may lack sufficient funds to pay debt service on the Bonds.

Competition. Increased competition from a wide variety of potential sources, including but not limited to other assisted living and retirement communities, sheltered care communities, residential supportive living communities, continuing care retirement communities, life care

communities, skilled nursing facilities, nursing homes, inpatient and outpatient health care facilities, independent living communities, home health services and others, any of which could receive financing from the Commission, could adversely affect the utilization and/or revenues of the Borrowers. Existing and potential competitors may not be subject to various restrictions applicable to the Borrowers, and competition may, in the future, arise from new sources not currently anticipated or prevalent. Such competition could inhibit the extent to which the Borrowers 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 APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Exhibit 2: Primary Market Area and Competition.”

Real Estate Markets/Sale of Personal Residences. During the term of the Bonds, prospective residents of the Borrowers’ communities may have difficulty selling their current homes due to national and local economic conditions impairing the sale of residential real estate and, as a consequence, may not have sufficient assets to pay entrance fees, accommodation fees and monthly service fees. This could cause a delay in scheduled occupancy of the Borrowers’ communities, the remarketing of vacated units, or a reduction in the amount or deferral of the Entrance Fees payable, all of which would have an adverse effect on the revenues of the Borrowers.

Fixed Income of the Elderly. A large percentage of the monthly income of residents and prospective residents of the Mortgaged Facilities is fixed income derived from pensions and Social Security. If, due to inflation or otherwise, substantial increases in fees are required to cover increases in operating costs, 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 a resident’s fixed income sources could affect such resident’s ability to meet financial obligations. The Borrowers’ inability to collect the full amount of residents’ payment obligations may adversely affect the ability of the Borrowers to make payments with respect to the Bonds.

Reduced Demand. Several factors could, if implemented, affect demand for services of the Borrowers, including: (i) efforts by insurers and governmental agencies to reduce utilization of skilled nursing home and long-term care facilities by means such as preventative medicine and home health programs; (ii) advances in scientific and medical technology; (iii) a decline in the population or a change in the age composition of the population; and (iv) a decline in the economic conditions of the service area of the Borrowers’ communities.

UNCERTAINTY OF INVESTMENT INCOME

The investment earnings of, and accumulations in, certain funds established pursuant to the Bond Indenture have been estimated and are based on assumed interest rates. While these assumptions are believed to be reasonable in view of the rates of return presently and previously available on the types of securities in which the Bond Trustee is permitted to invest under the Bond Indenture, there can be no assurance that similar interest rates will be available on such securities in the future, nor can there be any assurance that the estimated earnings will actually be realized.

PHILANTHROPY

The Borrowers, through their affiliate the Presbyterian Retirement Communities Northwest Foundation (the “PRCN Foundation”), derive income from unrestricted gifts and donations to supplement operating revenues to finance operations and capital needs. See APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Affiliates” and APPENDIX B— “REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013.” Although management of the Borrowers expects gifts and donations to remain at least at current levels and to increase at a moderate rate, there can be no assurance that this revenue will not decrease, adversely affecting the financial condition of the Borrowers.

INCREASES IN MEDICAL COSTS

Because the Borrowers are obligated to provide their continuing care contract residents with the right to move to a higher level of care, a deviation from the anticipated mortality rate or medical care requirements of the resident population or substantial unanticipated increases in the cost of such care could have a negative impact on the operations of the Borrowers’ communities. The undertaking to provide such care is a contractual obligation of the Borrowers, and no assurance can be given that the Borrowers will have sufficient funds to meet their anticipated obligations. Residents are required to obtain Medicare Part A, Medicare Part B and supplemental insurance satisfactory to the Borrowers; however, Medicare does not cover the cost of nursing home care except under certain limited circumstances (including up to 100 days of skilled nursing care following a 3-day qualifying hospital stay). In addition, the cost of providing health care services may increase due to increases in salaries paid to nurses and other health care personnel and due to shortages in such personnel which may require use of employment agencies. Increases in third party therapy services and other ancillary costs such as drugs and medical supplies may also increase costs.

ADDITIONAL CAPITAL REQUIREMENTS

The Borrowers’ operations are capital intensive. Economic conditions such as credit market dysfunction and increased regulation of the financial industry could make it more difficult for the Obligated Group to access the capital markets or to otherwise fund capital expenses through borrowings on favorable terms and conditions. Any such limitation could result in delayed or deferred capital expenditures that could be integral to the operations of the Borrowers.

LABOR RELATIONS

Unionization of employees or a shortage of qualified professional personnel could cause an increase in payroll costs beyond those projected. The Borrowers cannot control the prevailing wage rates in their service area and any increase in such rates will directly affect the costs of

their operations. Management is not aware of any current attempts by the Borrowers’ employees to unionize.

NURSING SHORTAGE

The health care 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. Increased costs and lost revenues resulting from staff shortages could adversely affect the operations or financial condition of the Borrowers.

EMPLOYMENT AND LABOR ISSUES

The Borrowers’ workforce includes professional, quasi-professional, technical, clerical, housekeeping, maintenance, dietary and other types of workers in a single operation. As with all employers, the Borrowers bear a wide variety of risks in connection with these employees. These risks include strikes and other related work actions, contract disputes, difficulties in recruitment, discrimination claims, personal tort actions, work-related injuries, exposure to hazardous materials, interpersonal torts, risks related to benefit plans, and other risks that may flow from the relationships between employer and employee or between residents and employees. Certain of these risks are not covered by insurance, and certain of them cannot be anticipated or prevented in advance. Such risks, alone or in combination, could have material adverse consequences to the financial condition or operations of the Borrowers.

PROFESSIONAL LIABILITY CLAIMS AND LIABILITY 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. Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often filed against health care providers. Insurance does not provide coverage for judgments for punitive damages. Insurers are mandating lower amounts of coverage, requiring greater deductibles, and charging more in premiums. Policies issued may not be renewed or renewable. It is not possible at this time to determine either the extent to which malpractice coverage will continue to be available to the Borrowers or the premiums at which such coverage can be obtained. Although the Borrowers currently carry professional liability and general liability insurance which management of the Borrowers considers adequate, the Borrowers are unable to predict the availability, cost or adequacy of such insurance in the future.

PRESENT AND PROSPECTIVE FEDERAL AND STATE REGULATIONS

General. Health care providers are subject to 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 Borrowers. Further reductions in federal and state funding of health care below levels authorized by present law can be expected.

Skilled nursing facilities, including those owned by the Borrowers, are subject to numerous licensing, certifications, accreditation, and other governmental requirements. These include, but are not limited to, requirements relating to state licensing agencies, private payors and accreditation organizations. Sheltered and assisted living communities, including those owned by the Borrowers, are also subject to licensing requirements. 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 Borrowers. An adverse determination could result in a loss, fine or reduction in the Borrowers’ scope of licensure, certification or accreditation, could affect the ability to undertake certain expenditures or could reduce the payments received or require the repayment of the amounts previously remitted. See “STATE LICENSURE AND REGULATION OF SENIOR LIVING PROVIDERS” below for more information.

Medicare and Medicaid Programs; Program Reimbursement Cuts. 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 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. 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 health care 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, which budget reductions may include reductions to the Medicare or Medicaid programs. While it is uncertain whether future federal budgets will result in a decrease in such revenue, any reduction thereof could have an adverse impact on the revenues of the Borrowers and the ability to pay the debt service of the Bonds.

Washington Medicaid. In the State of Washington, Medicaid is known as “Washington Apple Health” and is administered and supervised by the Washington State Health Care Authority (“HCA”). The State chose to expand Washington Apple Health (Medicaid) eligibility limits in accordance with the Health Care Reform Act (defined below), bringing health care coverage to adults in Washington State (ages 19 up to 65) who earn up to 138 percent of the federal poverty level. According to the HCA, Medicaid expansion allowed more than half a million Washington state adults who were previously uninsured to enroll in Washington Apple Health, resulting in a 10-point drop in the uninsured rate in Washington—one of the highest drops in the rate of uninsured in the country. On August 24, 2015, Washington submitted a proposal to the Centers for Medicare & Medicaid Services (“CMS”) for a Section 1115

Medicaid Transformation waiver. If approved, the waiver could provide an opportunity to accelerate changes in Washington’s Medicaid program through a five-year demonstration project.

As discussed above under the heading “General Economic Conditions and Disruption of Financial Markets,” many states, including Washington, face budget challenges which may negatively affect the Borrowers in a number of ways, including through reductions in Medicaid reimbursement rates. It is not possible to predict what actions will be taken in future years by the State legislature, the Governor or the HCA to address the Medicaid budget. Additional reductions in the levels and timing of health care provider reimbursement could have a material adverse effect on the Borrowers.

Health Care Reform. The “Patient Protection and Affordable Care Act” and “The Health Care and Education Affordability Reconciliation Act of 2010” (together referred to herein as the “Health Care Reform Act”) have had a significant impact on the entire health care industry and will continue to impact the industry in the future. Some of the provisions of the Health Care Reform Act took effect immediately upon its passage in 2010, while others provisions will be phased in through 2023. Guidelines and regulations related to the Health Care Reform Act continue to be amended and enacted.

The Health Care Reform Act changes how consumers pay for their own and their families’ health care and how employers procure health insurance for their employees. In addition, the Health Care Reform Act 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 has been a significant increase in the number of individuals eligible for health care insurance coverage.

Key provisions of the Health Care Reform Act 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 Health Care Reform Act 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. See “Federal and State Fraud and Abuse Laws” below. 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 Health Care Reform Act that could increase operating expenses to the Borrowers.

The Health Care Reform Act includes a number of initiatives that impact skilled nursing facility reimbursement. Specifically, the Health Care Reform Act instructed the Secretary of the United States Department of Health and Human Services (“HHS”) to provide a report and recommendations to Congress in 2012 regarding potential payment penalties for conditions acquired during a resident’s stay at a skilled nursing facility as well as a plan to expand the value-based purchasing demonstration to a national payment model. The Skilled Nursing Facility Value Based Purchasing Program is set to begin in fiscal year 2019. Additionally, the Health Care Reform Act implemented full market basket updates for federal fiscal years 2010 and 2011, but required a productivity adjustment factor in federal fiscal year 2012 that reduced the market basket adjustment for 2012 and subsequent years. There is no assurance that payments made by CMS as a result of reimbursement reform measures will be sufficient to cover the facility’s costs. In addition, any future Congressional action related to value-based purchasing or adjustments to market basket updates could negatively affect the Borrowers’ revenues.

Portions of the Health Care Reform Act have already been limited as a result of legislative amendment or judicial interpretation and efforts to repeal the Health Care Reform Act 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 Health Care Reform Act, 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 Health Care Reform Act’s requirement to expand Medicaid by eliminating all federal funds a state receives for its existing Medicaid program. In June 2015, the U.S. Supreme Court held that health insurance subsidies under the Health Care Reform Act would be available in all states, including those with a federally-facilitated health insurance exchange. The Health Care Reform Act continues to be subject to judicial interpretation and attempts to repeal or amend the law. It is not possible to predict the outcome of future legislative attempts to repeal or amend the Health Care Reform Act or what affect continued judicial interpretations will have on the Health Care Reform Act. Such uncertainties regarding the implementation of the Health Care Reform Act create unpredictability for health care providers’ strategic and business planning efforts, which in itself constitutes a risk.

Given the general complexity of the Health Care Reform Act, additional legislation is likely to be considered and enacted over time. The Health Care Reform Act has required and will continue to require the promulgation of substantial regulations with significant effects on the health care industry and third-party payors. In response, third-party payors as well as suppliers and vendors of goods and services to health care providers have and are expected to continue to impose new contractual terms and conditions. Thus, the health care industry will continue to be subjected to significant new statutory and regulatory requirements as well as contractual terms and conditions, and consequently to structural and operational changes and challenges, for the foreseeable future.

Management is analyzing the Health Care Reform Act 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 the legislation or promulgated regulations.

Federal and State Fraud and Abuse Laws. Certain federal laws, including the laws commonly known as the Anti-Kickback Statute, the Stark Law and the False Claims Act, seek to protecting the federal health care programs from fraud and abuse (collectively, the “Federal Healthcare Fraud Laws”). The Federal Healthcare Fraud Laws are complex, heavily enforced and subject to frequent amendment. Violation of the Federal Healthcare Fraud Laws may result in significant financial penalties, fines, exclusion from the federal health care programs and/or criminal liability. Failure to comply with those laws could have a material adverse effect on the Borrowers’ operations.

A number of states, including Washington, have passed healthcare fraud and abuse laws similar in scope to the Federal Healthcare Fraud Laws, but have expanded the prohibitions to private insurers. Violation of state fraud and abuse laws could have a material adverse effect on the Borrowers’ operations.

The Borrowers have a compliance program designed to help ensure material compliance with the Federal Healthcare Fraud Laws and similar state laws. However, in light of the scarcity of case law interpreting the Federal Healthcare Fraud Laws, there can be no assurances that a Borrower will not be found to have violated a Federal Healthcare Fraud Law, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the Borrowers. At the present time, management is not aware of any pending or threatened claims, investigations or enforcement actions regarding any applicable federal or state statutes which, if determined adversely to the Borrowers would have a material adverse effect on the financial condition of the Borrowers.

Billing Practices. 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 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 Borrowers’ 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 Borrowers.

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 Borrowers have developed policies, procedures and practices that it believes comply with the HIPAA standards and requirements, but if it was determined that the Borrowers were not in compliance there could be criminal and civil penalties imposed.

Title XIII of the American Recovery and Reinvestment Act of 2009, otherwise known as the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), provides for an investment of almost $20 billion in public monies for the development of a nationwide health information technology infrastructure (“HITI”). The HITI is intended to improve health care quality, reduce costs and facilitate access to certain information. The HITECH Act also expands the scope and application of the administrative simplification provisions of HIPAA, and its implementing regulation, (i) imposing a written notice obligation upon covered entities for security breaches involving “unsecured” protected health information, (ii) expanding the scope of a provider’s electronic health record disclosure tracking obligations, (iii) substantially limiting the ability of health care providers to sell protected health information without patient authorization, (iv) increasing penalties for violations, and (v) providing for enforcement of violations by state attorneys general. While the effects of the HITECH Act cannot be predicted at this time, the obligations imposed thereunder could have a material adverse effect on the financial condition of the Borrowers.

STATE LICENSURE AND REGULATION OF SENIOR LIVING PROVIDERS

The operations of the Borrowers are subject to numerous licensing, certification, accreditation and other governmental requirements that are administered by a variety of federal and state governmental agencies as well as by self-regulatory associations and commercial medical insurance reimbursement programs. These include, but are not limited to, requirements relating to Medicare and Medicaid participation and payment and 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 Borrowers. An adverse determination could result in a loss, fine or reduction in a Borrower’s 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. The Borrowers currently anticipate 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 Borrowers.

State Licensure of Skilled Nursing Facilities. As described in APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Obligated Group Communities,” the Mortgaged Facilities include skilled nursing facilities (“SNFs”). SNFs provide skilled nursing care and supportive care to patients whose primary need is for skilled nursing care on an extended basis. SNFs in Washington are licensed and inspected by the Department of Social and Health Services (“DSHS”). Operational

requirements for SNFs include numerous resident rights regarding issues such as decision making, informed consent, advance directives, protection of funds, privacy and confidentiality. DSHS may suspend or revoke a SNF’s license on a variety of grounds including but not limited to violation of any applicable statute or regulation with respect to SNFs or failure to meet the SNF operational requirements. Management believes that the Borrowers are in compliance with all relevant SNF statutory and regulatory requirements. Failure to comply with any of the foregoing regulations may have a material adverse effect on the operations or financial condition of the Borrowers.

State Licensure of Assisted Living Facilities. As described in APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Obligated Group Communities,” the Mortgaged Facilities include assisted living facilities. Assisted living facilities (“ALFs”) are licensed housing arrangements where varying levels and intensities of care and supervision, protective supervision, or personal care are provided to residents based upon their varying needs. Such facilities generally provide a range of services that stop short of medical care, including meals, shelter, laundry, transportation, laundry, supervision with medications and limited assistance with the activities of daily living. ALFs must comply with certain conditions of licensure and operation as required and enforced DSHS, including, among other things, a resident protection program. An ALF may have its license suspended or revoked for violation of any applicable statute or regulation with respect to ALFs. Management believes that the Borrowers are in compliance with all relevant ALF statutory and regulatory requirements. Failure to comply with any of the foregoing regulations may have a material adverse effect on the operations or financial condition of the Borrowers.

State Regulation of Continuing Care Retirement Communities. As described in APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP — Obligated Group Communities,” the Mortgaged Facilities include continuing care retirement communities (“CCRCs”). Effective July 1, 2017, in accordance with chapter 183 of Laws of 2016 passed by the Washington Legislature, CCRCs will be subject to registration and regulation by DSHS. Providers who operate a CCRC must register with DSHS before (i) operating a CCRC, (ii) entering into a residency agreement with a prospective resident, (iii) soliciting a prospective resident to pay an application fee, or (iv) collecting an entrance fee. Additionally, CCRCs will be required to file a disclosure statement that includes, among other things, information regarding CCRC ownership; an explanation of the CCRC’s policy regarding placement in off-campus SNFs and nursing homes and the payment responsibilities of the CCRC and the resident in the event of off-campus placement; an explanation regarding all types of fees charged by the CCRC and how each fee is determined; statements describing the CCRC’s policy to notify residents of fee increases; statements describing the CCRC’s policy related to changes in levels of care and any associated fees; a description of services provided under the CCRC’s residency agreement; and the CCRC’s two most recent annual audited financial statements. Management believes that the Borrowers will be able to comply with the new regulation by the July 1, 2017 effective date. Failure to comply with the new regulation may have a material adverse effect on the operations or financial condition of the Borrowers.

RISKS RELATED TO TAX-EXEMPT STATUS

Tax-Exempt Status of the Series 2016A Bonds. The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Series 2016A Bonds, to be excludable from gross income for federal income tax purposes. These requirements include, among other things, limitations on the use of bond proceeds and facilities financed with bond proceeds, limitations on the investment earnings of bond proceeds prior to expenditure, a requirement that certain investment earnings on bond proceeds be paid periodically to the United States, and a requirement that the Commission file an information report with the IRS. The Commission, the Borrowers and the Bond Trustee have covenanted to comply with these requirements to the extent applicable. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the early redemption of the Series 2016A Bonds or the treatment of the interest on the Series 2016A Bonds as taxable. Such adverse treatment may be retroactive to the date of issuance. See also, “TAX MATTERS.”

IRS officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector. The Series 2016A Bonds may be, from time to time, subject to audits by the IRS. The Borrowers believe that the Series 2016A Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the Series 2016A Bonds, as described under the caption “TAX MATTERS” below. The opinion of Bond Counsel is not binding on the IRS. There is no assurance that an IRS examination on the Series 2016A Bonds will not adversely affect the market value of the Series 2016A Bonds. See “TAX MATTERS” below.

Proposed Legislation Regarding Limitations or Elimination of Tax-exempt Status of Bonds. 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 2016A Bonds under Federal or state law or otherwise prevent beneficial owners of the Series 2016A 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 2016A Bonds.

Prospective investors should consult with their tax advisors on the foregoing matters as they consider an investment in the Bonds.

Tax-Exempt Status of the Borrowers. The tax-exempt status of the Series 2016A Bonds depends, among other things, upon maintenance by each Borrower of its status as an organization described in Section 501(c)(3) of the Code or as a disregarded entity whose single member is an organization described in Section 501(c)(3) of the Code. The maintenance of such status is contingent on compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including their operation for charitable and other permissible purposes and their avoidance of transactions that may cause their earnings or assets to inure to the benefit of private individuals. As these general principles were developed primarily for public charities that do not conduct large-scale technical

operations and business activities, they often do not adequately address the myriad of operations and transactions entered into by a modern senior living organization. Although traditional activities of senior living providers have been the subject of interpretations by the IRS in the form of Private Letter Rulings, many activities or categories of activities have not been fully addressed in any official opinion, interpretation or policy of the IRS.

The IRS has issued three 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 Rulings 61-72 states that, if otherwise qualified, a facility providing residential services to the elderly is exempt under Section 501(c)(3) if the organization (1) is dedicated to providing, and in fact provides, care and housing to elderly individuals who otherwise would be unable to provide for themselves without hardship, (2) to the extent of its financial ability, renders services to all or a reasonable proportion of its residents at substantially below actual cost, and (3) renders services that minister to the needs of the elderly and relieve hardship or distress. Revenue Ruling 72-124 states that an otherwise qualified organization will qualify for charitable status for purposes of the Code if it operates in a manner designed to satisfy the needs of elderly persons for housing, health care and financial security. The need for housing is generally met if the organization provides residential facilities specifically designed to meet some combination of the physical, emotional, recreational, social, religious and similar needs of elderly persons. The need for health care is generally met if the organization directly provides some form of health care or, in the alternative, makes such care available through continuing arrangements with other organizations, facilities or health personnel. The need for financial security is generally met if two conditions are satisfied: (1) the organization must be committed to an established policy of maintaining in residence any persons who become unable to pay their regular charges, and (2) the organization operates so as to provide its services to the elderly at the lowest feasible cost, taking into account such expenses as the payment of indebtedness, maintenance of adequate reserves, and reserves for physical expansion. Revenue Ruling 79-18 states that a charitable organization providing residential services to the elderly may admit only those tenants who are able to pay full rental 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.

If the IRS were to find that a Borrower had participated in activities in violation of certain regulations or rulings, such Borrower’s tax-exempt status could be in jeopardy. Although the IRS has not frequently revoked the 501(c)(3) tax-exempt status of nonprofit senior living corporations, it could do so in the future. Loss of tax-exempt status by a Borrower potentially could result in loss of tax exemption of all or a portion of the Series 2016A Bonds, early redemption of all or a portion of the Series 2016A Bonds, and defaults in covenants regarding the Series 2016A Bonds and other outstanding tax-exempt debt and obligations likely would be triggered. Loss of a Borrower’s tax-exempt status also could result in substantial tax liabilities on the income of such Borrower.

In lieu of revocation of exempt status, the IRS may impose penalty excise taxes on certain “excess benefit transactions” involving 501(c)(3) organizations and “disqualified persons.” An excess benefit transaction is one in which a disqualified person receives more than fair market value from the exempt organization or pays the exempt organization less than fair

market value for property or services, or shares the net revenues of the tax-exempt entity. A disqualified person is a person (or a certain kind of entity) who is in a position to exercise substantial influence over the affairs of the exempt organization during the five years preceding an excess benefit transaction. The statute imposes excise taxes on the disqualified person and any “organization manager” who knowingly participates in an excess benefit transaction. These rules do not penalize the exempt organization itself, so there would be no direct impact on the Borrowers or the tax status of the Series 2016A Bonds if an excess benefit transaction were subject to IRS enforcement.

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 Borrowers by requiring them to pay income taxes.

Below-Market Interest Loans. Section 7872 of the Code (Treatment of Loans with Below-Market Interest Rates), provides for, in certain circumstances, the imputation of interest income to a lender when the rate of interest charged by the lender is below prevailing market rates (as determined under a formula) or, even if the below-market interest rate loan would otherwise be exempt from the provisions of Section 7872, when one of the principal purposes for such below-market rate loan is the avoidance of federal income taxation.

A refundable entrance fee payment made by a resident to certain continuing care facilities has been determined under Section 7872 to constitute a below-market interest rate loan by the resident to the facility to the extent that the resident is not receiving a market rate of interest on the refundable portion of the entrance fee. Section 7872(g) provides a “Safe Harbor” exemption for certain types of refundable entrance fees. The statutory language of Section 7872 does not permit a conclusive determination as to whether residency agreements come within the scope of the continuing care facility safe harbor or within the statute itself. Section 7872 is applicable only to “Loans” in excess of $90,000, as annually increased by inflation. Management believes that the Borrowers meet the qualification as a “qualified continuing care facility” of Section 7872(h). Any determination of applicability of Section 7872 could have the effect of discouraging potential residents from becoming or remaining residents of the Borrowers’ facilities.

Intermediate Sanctions. On July 31, 1996, the Taxpayers Bill of Rights 2 (the “Taxpayers Act”) was signed into law. The Taxpayers Act provides the IRS with an “intermediate” tax enforcement tool to combat violations by tax-exempt organizations of the private inurement prohibition of the Code. Prior 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.

AMENDMENTS TO THE DOCUMENTS

Certain amendments to the Bond Indenture and the Loan Agreement may be made without the consent of the owners of the outstanding Bonds under the Bond Indenture and certain amendments may be made with the consent of the owners of 51% of the outstanding Bonds. Certain amendments to the 2016 Deeds of Trust may be made with the consent of the Master Trustee and the Borrowers. Such amendments may adversely affect the security of the Bondholders. See APPENDIX D— “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS — Bond Indenture — Supplemental Bond Indentures Not Requiring Consent of Bondowners” and “— Amendments to Loan Documents Not Requiring Consent of Bondowners” and APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Supplements and Amendments.”

ADDITIONAL INDEBTEDNESS

Under certain conditions, the Master Indenture permits the Obligated Group to incur Additional Indebtedness which may be equally and ratably secured with the Series 2016 Obligations. Any such additional parity debt would be entitled to share ratably with the owners of the Bonds in any moneys realized from the exercise of remedies in the event of a default. There is no assurance that, despite compliance with the conditions upon which Additional Indebtedness may be incurred at the time such debt is created, the ability of the Borrowers to make the necessary payments to repay the Bonds may not be materially, adversely affected upon the incurrence of Additional Indebtedness. See APPENDIX E— “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST — THE MASTER INDENTURE — Limitations on Encumbrances” and “— Limitations on Additional Indebtedness.”

BANKRUPTCY

If a Member of the Obligated Group (a “Member”) were to file a petition for relief under Chapter 11 of the Federal Bankruptcy Code, its revenues and certain of its accounts receivable and other property acquired after the filing (and under certain conditions some or all thereof acquired within 120 days prior to the filing) would not be subject to the security interests created under the Master Indenture. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Member and its property and as an automatic stay of any act or proceeding to enforce a lien upon their property. If the bankruptcy court so ordered, such property, including accounts receivable and proceeds thereof, could be

used for the benefit of the Member despite the security interest of the Master Trustee and the Bond Trustee therein, provided that “adequate protection” is given to the lienholder.

In a bankruptcy proceeding, a Member could file a plan for the adjustment of its debts which modifies the rights of creditors generally, or any class of creditors, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and has 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 allowed claims of the class that are voted with respect to the plan are cast 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 favor of junior creditors.

CERTAIN MATTERS RELATING TO ENFORCEABILITY

The security interest of the Master Trustee in the Gross Revenues of the Members of the Obligated Group, even if perfected, may be subordinate to the interests and claims of others in several instances. Some examples of cases of subordination of prior interest and claims are (i) statutory liens, (ii) rights arising in favor of the United States of America or any agency thereof, (iii) present or future prohibitions against assignment, including collateral imposed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (iv) federal or state bankruptcy laws that may affect the enforceability of the Master Indenture or grant a security interest in Gross Revenues and (v) liens on investments and investment accounts constituting Gross Revenues in favor of secured parties who have entered into control agreements with respect to such investments and investment accounts.

The accounts of the Members of the Obligated Group (including any future Members of the Obligated Group) will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the incurrence of Additional Indebtedness) are met, notwithstanding the uncertainties as to the enforceability of certain obligations of the Obligated Group contained in the Master Indenture which bear on the availability of the assets and revenues of the Obligated Group to pay debt service on Obligations, including the Series 2016 Obligations pledged under the Bond Indenture as security for the Bonds. The obligation described herein of the Obligated Group to make payments of debt service on Obligations issued under the Master Indenture (including transfers in connection with voluntary dissolution or liquidation) may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the enforcement of creditors’ rights and by general equitable principles and (2) such payments (i) are requested with respect to payments on any Obligations issued by a Member other than the Member from which such payment is requested, issued for a purpose which is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or issued for the benefit of a Member of the Obligated Group which is not a Tax-Exempt Organization; (ii) are requested to be made from any moneys or assets which are donor-restricted or which are subject to a direct

or express trust which does not permit the use of such moneys 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 of the Obligated Group from which such payment is requested; or (iv) are requested to be made pursuant to any loan violating applicable usury laws. The extent to which the assets of any future Member of the Obligated Group may fall within the categories (ii) and (iii) above with respect to the Series 2016 Obligations cannot now be determined. The amount of such assets which could fall within such categories could be substantial.

A Member of the Obligated Group may not be required to make any payment on any Obligation, or portion thereof, the proceeds of which were not loaned or otherwise disbursed to such Member of the Obligated Group to the extent that such payment would render such Member of the Obligated Group insolvent or which would conflict with or not be permitted by or which is subject to recovery for the benefit of other creditors of such Member of the Obligated Group under applicable laws. There is no clear precedent in the law as to whether such payments from a Member of the Obligated Group in order to pay debt service on the Series 2016 Obligations may be voided by a trustee in bankruptcy in the event of bankruptcy of a Member of the Obligated Group, 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 and common law, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (1) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or state 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 Group to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such a payment in the event it is determined that the Member of the Obligated Group is analogous to a guarantor of the debt of the Member of the Obligated Group who directly benefited from the borrowing and that sufficient consideration for the Member of the Obligated Group’s guaranty was not received and that the incurrence of such Obligation has rendered or will render the Member of the Obligated Group insolvent.

The effectiveness of the security interest in the Gross Revenues granted in the Master Indenture may be limited by a number of factors, including: (i) the absence of an express provision permitting assignment of receivables owed to the Members of the Obligated Group under their contracts, and present or future prohibitions against assignment contained in any applicable statutes or regulations; (ii) certain judicial decisions which cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of a Member of the Obligated Group, to collect and retain accounts receivable from Medicare, Medicaid and other governmental programs; (iii) commingling of the proceeds of Gross Revenues with other moneys not subject to the security interest in the Gross Revenues; (iv) statutory liens; (v) rights arising in favor of the United States of America or any agency thereof; (vi) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (vii) federal bankruptcy laws or state insolvency laws which may affect the enforceability of the

mortgage or the security interest in the Gross Revenues of the Members of the Obligated Group which are earned by the Members of the Obligated Group within 90 days, preceding or, in certain circumstances with respect to related corporations, within one year preceding and after any effectual institution of bankruptcy proceedings by or against a Member of the Obligated Group; (viii) rights of third parties in Gross Revenues converted to cash and not in the possession of the Master Trustee; and (ix) claims that might arise if appropriate financing or continuation statements are not filed or other documents are not executed in accordance with the Uniform Commercial Code of the State as from time to time in effect.

Accounts receivable of the Members of the Obligated Group which constitute Gross Revenues and are pledged as security under the Master Indenture may be sold if such sale is in accordance with the provisions of the Master Indenture. Any lien created under the Master Indenture on such accounts receivable would terminate and be immediately released upon any such sale with respect to any such accounts receivable so sold.

CERTAIN RISKS ASSOCIATED WITH THE 2016 DEEDS OF TRUST

The Borrowers will deliver, concurrently with the issuance of the Bonds, a lender’s title insurance policy, which runs to the Master Trustee. The face amount of the policy will be equal to at least the expected aggregate principal amount of the Bonds. The Borrowers are not required to obtain an increase in the amount of the policy in connection with the issuance of any additional Obligations subsequent to the issuance of the Series 2016 Obligations, and the title insurance policy will not pay any claim which exceeds the aggregate face amount of the policy.

The Borrowers have executed the 2016 Deeds of Trust to secure their obligations pursuant to the Master Indenture and with respect to all Obligations, including the Series 2016 Obligations. In the event that there is a default under the Master Indenture, the Bond Indenture, the Loan Agreement, or any other financing document to which a Member is a party, the Master Trustee has the right to foreclose on the Collateral Property under certain circumstances. All amounts collected upon foreclosure of the 2016 Deeds of Trust will be used to pay certain costs and expenses incurred by, or otherwise related to, the foreclosure, the performance of the Master Trustee and/or the beneficiary under the 2016 Deeds of Trust, and then to pay amounts owing under the Master Indenture with respect to the then-outstanding Obligations, including the Series 2013 Obligation, the Series 2015 Obligation, the Series 2016 Obligations and any future Obligations.

Any valuation of the Collateral 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 Collateral Property will at all times be dependent upon many factors beyond the control of the Members, 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 Collateral Property. Any weakened market condition may also depress the value of the Collateral Property. Any reduction in the market value of the Collateral Property could adversely affect the security available to the owners of the Bonds. There is no assurance that the amount available upon foreclosure of the

Collateral Property after the payment of foreclosure costs will be sufficient to pay the amounts owing by the Borrowers with respect to the then-outstanding Obligations, including the Series 2013 Obligation, the Series 2015 Obligation, the Series 2016 Obligations and any future Obligations.

In the event of foreclosure, a prospective purchaser of some or all of the Collateral Property may assign less value to that Collateral Property than the value of the facilities while owned by the Borrowers since such purchaser may not enjoy the favorable financing rates associated with the Bonds and other benefits. To the extent that buyers whose income is not tax-exempt may be willing to pay less for the Collateral Property than nonprofit buyers, then the resale of the Collateral Property after foreclosure may require more time to solicit nonprofit buyers interested in assuming the financing now applicable to the Collateral 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 Master Trustee will have available the remedy of foreclosure of the 2016 Deeds of Trust 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 the a Borrower’s bankruptcy), there are substantial risks that the exercise of such a remedy will not result in recovery of sufficient funds to pay amounts due with respect to the then-outstanding Obligations, including the Series 2013 Obligation, the Series 2015 Obligation, the Series 2016 Obligations and any future Obligations.

Washington State foreclosure laws permit a secured party to foreclose upon mortgaged property such as the Collateral Property. Although the Master Trustee has a security interest in the Collateral Property, legal procedures connected with the exercise of remedies available may cause delays in the collection of funds available for payment of debt service on the Bonds. There can be no assurance that amounts realized from the foreclosure of the Collateral Property would be sufficient to pay the debt service on the Bonds. Potential purchasers of the Bonds should consult legal counsel or otherwise familiarize themselves with the relevant Washington State laws.

The Washington Deed of Trust Act (RCW 61.24.005(2)) defines the beneficiary of a deed of trust as the holder of the instrument or document evidencing the obligations secured by the deed of trust. In a 2012 case, the Washington Supreme Court held that Mortgage Electronic Registration Systems, Inc. (MERS) was not a proper beneficiary under the Deed of Trust Act because it did not hold the notes secured by the deeds of trust in question. Although that case involved residential mortgages, it has created some uncertainty as to whether, and to what extent, the court’s reasoning could apply in the commercial secured lending context to efforts to foreclose deeds of trust by collateral agents, bond trustees, master trustees or other deed of trust beneficiaries who are not the actual holders of the obligations secured.

RIGHTS OF RESIDENTS

The Borrowers enter into residency agreements with their residents. Although these agreements give to each resident a contractual right to use space and do not grant any ownership rights in the Borrowers’ communities, in the event that either the Bond Trustee or the holders of

the 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 Master Indenture or the 2016 Deeds of Trust, management is unable to predict the resolution that a court might make of competing claims between the Master Trustee, the Bond Trustee, the Commission or the holders of the Bonds and the residents of the Borrower’s facilities who have fully complied with all the terms and conditions of their Residency Agreements.

The Borrowers may, from time to time, be subject to pressure from organized groups of residents seeking, among other things, to raise the level of services or to maintain the level of facility service fees or other charges without increase. Moreover, the Borrowers may be subject to conflicting pressures from different groups of residents, some of whom may seek an increase in the level of services while others wish to hold down monthly service fees and other charges. No assurance can be given that the Borrowers will be able to satisfy such resident groups.

ENVIRONMENTAL MATTERS

Retirement communities are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. Among the types of regulatory requirements faced by such facilities, and by their owners and operators, are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos, medical waste and polychlorinated biphenyls; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at such facilities; requirements for training employees in the proper handling and management of hazardous materials and wastes; and other requirements (including, with respect to Park Shore, the Washington Shoreline Management Act). Owners and operators of 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 include, to some extent and in various combinations, the handling, use, storage, transportation, disposal and discharge of infectious, toxic, flammable and other hazardous materials, wastes, pollutants or contaminants. For this reason, the operations of the Borrowers are particularly 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 Borrowers will not encounter such risks in the future, and such risks may result in material consequences to the operations or financial condition of the Borrowers.

Under the federal Comprehensive Environmental Response, Compensation and Liability Act and under comparable Washington 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 Bonds if such remedial action costs were incurred.

NATURAL DISASTERS

The occurrence of natural disasters, including floods, earthquakes and volcanic activity, may damage part or all of the Mortgaged Facilities, interrupt utility service to part or all of the Mortgaged Facilities or otherwise impair the operation of part or all of the Mortgaged Facilities or the generation of revenues from part or all of the Mortgaged Facilities beyond existing insurance coverage. No assurance is given as to the continuation of such insurance coverage, which, among other things, may not be available at a reasonable cost in the future.

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. 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 Borrowers to expend or borrow additional funds to complete the Project.

POSSIBLE FUTURE CHANGES TO ACCOUNTING POLICIES AND PROCEDURES

From time to time, accounting policies and procedures change as accounting principles that are generally accepted in the United States change. Such changes may cause a variation in the presentation of the financial information of the Obligated Group. There can be no assurance that any such changes would not have a material adverse impact on the Obligated Group’s compliance with certain covenants contained in the Master Indenture.

BOND RATINGS

There can be no assurance that the rating assigned to the Bonds at the time of issuance will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for and marketability of the Bonds. See the information under the heading “RATING.”

OTHER POSSIBLE RISK FACTORS

Potential purchasers should also consider the following factors prior to purchasing the Bonds. This list is not, and is not intended to be, all inclusive.

No Credit Enhancement, Lack of Liquidity. Neither the Bonds nor the Borrowers’ obligations thereunder will be secured by any form of letter of credit, bond insurance, third party guaranty, or other form of credit enhancement.

Until such time (if at all) as an investment grade rating is obtained on the Bonds, the Bond Indenture provides that resale of the Bonds is restricted to Qualified Institutional Buyers.

The limited universe of potential purchasers could materially adversely affect the liquidity for the Bonds. As such, investment in the Bonds is suitable only to persons of adequate financial means who have no need for liquidity with respect to this investment and who can bear the economic risk of a complete loss of their investment. See “THE BONDS—Limitations and Investors and Restrictions on Transfer” herein.

Energy. Changes to the cost and availability of energy could, among other things, affect the cost of utilities of the Borrowers’ facilities and thereby adversely affect the operations of the Borrowers.

Changes to federal, state or local legislation or regulations. Changes to the laws and regulations affecting the Borrowers’ operations, for example, an increase in the quantity of indigent care mandated by law in order to maintain the charitable status of the Borrowers, reinstatement or establishment of mandatory governmental wage, rent or price controls, or 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, could have an adverse effect on the future operating or financial performance of the Borrowers.

Early Redemption. Purchasers of Bonds, including those who purchase Bonds at prices in excess of their principal amount or who hold Bonds trading at prices in excess of their principal amount, should consider that the Bonds are subject to redemption prior to maturity at a redemption price that may be less than the prices at which such Bonds were purchased or are trading. See “THE BONDS—Redemption of the Bonds.”

Forward-Looking Statements. Certain statements contained in this Official Statement do not reflect historical facts but instead are forecasts and “Forward-Looking Statements.” No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. In this respect, the words “estimate,” “forecast,” “project,” “anticipate,” “expect,” “intend,” “believe” and other similar expressions are intended to identify forward-looking statements. All projections, forecasts, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement.

The information and expressions of opinions 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 Borrowers or any other person described herein since the date thereof.

ABSENCE OF MATERIAL LITIGATION

THE COMMISSION

There is no proceeding pending or threatened against the Commission to restrain or enjoin the issuance, sale or delivery of the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Bond Indenture, the Loan Agreement or any other

documents executed by the Commission in connection with the Bonds, or any proceedings of the Commission taken with respect to the issuance or sale of the Bonds, the pledge or application of any money or securities provided for the payment of the Bonds or the existence or powers of the Commission insofar as they relate to the authorization, sale and issuance of the Bonds or such pledge or application of money and securities, the completeness or accuracy of this Official Statement or the existence or powers of the Commission relating to the sale of the Bonds.

THE BORROWERS

There is no litigation now pending against the Borrowers or, to the knowledge of any Borrower, threatened, restraining or enjoining the issuance, sale, execution or delivery of the Bonds, the Bond Indenture, the Loan Agreement, the Master Indenture, the Second Supplemental Master Indenture, the Series 2016 Obligations or the 2016 Deeds of Trust or in any way contesting or affecting the validity of any of these documents or of any proceedings of the Borrowers taken with respect to the issuance or sale of, or the pledge or application of any money or security provided for the payment of, the Bonds or the Series 2016 Obligations. There is no litigation or proceeding pending or, to the knowledge of any Borrower, threatened against the Borrowers except for (i) litigation being defended by insurance carriers on behalf of the Borrowers, the claims in which are entirely within the insurance policy limits of the Borrowers, (ii) litigation in which the expected maximum aggregate recovery against the Borrowers could be satisfied from the insurance or the reserves maintained by the Borrowers or (iii) claims for damages arising in the ordinary course of their operations, none of which is deemed to be material to the operation or condition, financial or otherwise, of the Borrowers. There is no litigation pending or, to the knowledge of any Borrower, threatened that might have a material adverse effect upon the operations or financial condition of the Borrowers.

CERTAIN LEGAL MATTERS

All legal matters in connection with the issuance of the Bonds are subject to the approval of Pacifica Law Group LLP, Seattle, Washington, general counsel to the Commission and Bond Counsel. Certain legal matters will be passed upon by Hillis Clark Martin & Peterson P.S., Seattle, Washington, special counsel to the Borrowers and the Obligated Group. Certain legal matters will be passed upon by Chapman and Cutler LLP, counsel to the Underwriter, and any opinion of such firm will be rendered solely to the Underwriter, will be limited in scope and cannot be relied upon by investors without the express written consent of such firm. The forms of Bond Counsel’s approving opinions are set forth in APPENDIX F— “FORMS OF APPROVING OPINIONS OF BOND COUNSEL” hereto. Copies of the approving opinions of Bond Counsel will be available at the time of issuance and delivery of the Bonds.

THE BOND TRUSTEE AND THE MASTER TRUSTEE

The Commission has appointed U.S. Bank National Association to serve as Bond Trustee under the Bond Indenture and the Borrowers have appointed U.S. Bank National Association to serve as Master Trustee under the Master Indenture. The Bond Trustee is to carry out those duties assignable to it under the Bond Indenture, the Loan Agreement and related financing

documents; and the Master Trustee is to carry out those duties assignable to it under the Master Indenture. Except for the contents of this section, the Bond Trustee and the Master Trustee have not reviewed or participated in the preparation of this Official Statement and assume no responsibility for the contents, accuracy, fairness or completeness of the information set forth in this Official Statement or for the recitals contained in the Bond Indenture, the Loan Agreement, the Master Indenture or the Bonds, or for the validity, sufficiency, or legal effect of any of such documents.

Furthermore, the Bond Trustee and the Master Trustee have no oversight responsibility, and are not accountable, for the use or application by the Commission of any of the Bonds authenticated or delivered pursuant to the Bond Indenture or for the use or application of the proceeds of such Bonds by the Commission or the Borrowers. The Bond Trustee and the Master Trustee have not evaluated the risks, benefits, or propriety of any investment in the Bonds and make no representation, and have reached no conclusions, regarding the value or condition of any assets or revenues pledged or assigned as security for the Bonds, the technical or financial feasibility of the refunding of the Series 2007A Bonds or the refinancing of the HUD Loan, or the investment quality of the Bonds, about all of which the Bond Trustee and the Master Trustee express no opinion and expressly disclaim the expertise to evaluate.

TAX MATTERS

SERIES 2016A BONDS

GENERAL

In the opinion of Bond Counsel, under existing law and subject to certain qualifications described below, interest on the Series 2016A Bonds is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Series 2016A Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The proposed form of opinion of Bond Counsel with respect to the Series 2016A Bonds to be delivered on the date of issuance of the Bonds is set forth in APPENDIX F.

The Tax Code contains a number of requirements that apply to the Series 2016A Bonds, and the Commission and the Borrowers have made certain representations and have covenanted to comply with each such requirement. Bond Counsel’s opinion assumes the accuracy of the representations made by the Commission and the Borrowers and is subject to the condition that the Commission and the Borrowers comply with the above-referenced covenants. If the Commission or the Borrowers fail to comply with such covenants or if the Commission’s or the Borrowers’ representations are inaccurate or incomplete, interest on the Series 2016A Bonds could be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2016A Bonds.

In addition, Bond Counsel has relied on the opinion of Hillis Clark Martin & Peterson P.S., counsel to the Borrowers regarding the current qualification of each of PRCN and Fred Lind Manor as an organization described in Section 501(c)(3) of the Tax Code and that the facilities being financed with proceeds of the Bonds are not being used in “unrelated trade or business” activities of PRCN or Fred Lind Manor as defined in Section 513(a) of the Tax Code. Failure of the Borrowers to be organized and operated in accordance with the IRS’s requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Tax Code or to operate the facilities financed or refinanced by the Series 2016A Bonds in a manner that is substantially related to its charitable purpose under Section 513(a) of the Tax Code may result in interest on the Series 2016A Bonds being included in federal gross income, possibly from the date of original issuance the Series 2016A Bonds.

Except as expressly stated herein, Bond Counsel expresses no opinion regarding any tax consequences related to the ownership, sale or disposition of the Series 2016A Bonds, or the amount, accrual or receipt of interest on, the Series 2016A Bonds. Owners of the Series 2016A Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2016A Bonds.

ORIGINAL ISSUE PREMIUM AND DISCOUNT

If the initial offering price to the public (excluding bond houses and brokers) at which a Series 2016A Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Series 2016A Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes. De minimis original issue discount and original issue premium is disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Series 2016A Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Series 2016A Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Series 2016A Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Series 2016A Bonds who purchase the Series 2016A Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2016A Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Series 2016A Bonds under federal individual and corporate alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Series 2016A Bond (said term being the shorter of the Series 2016A Bond’s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Series 2016A Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Series 2016A Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to federal income tax consequences of owning such Bonds.

POST ISSUANCE MATTERS

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2016A Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Commission or the Borrowers, or about the effect of future changes in the Tax Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS.

Bond Counsel’s engagement with respect to the Series 2016A Bonds ends with the issuance of the Series 2016A Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Commission, the Borrowers or the Owners regarding the tax-exempt status of the Series 2016A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Commission and its appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Commission legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2016A Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2016A Bonds, and may cause the Commission, the Borrowers or the Owners to incur significant expense.

Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Series 2016A Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Series 2016A Bonds. Prospective purchasers of the Series 2016A Bonds should consult their own tax advisors regarding any pending or proposed legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

SERIES 2016B BONDS

The interest on the Series 2016B Bonds is not intended by the Commission to be excluded from gross income for federal income tax purposes. Owners of the Series 2016B Bonds should be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Series 2016B Bonds may have federal income tax consequences not described herein and should consult their own tax advisors with respect to federal income tax consequences of owning such Series 2016B Bonds. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Series 2016B Bonds other than as expressly described above.

The proposed form of opinion of Bond Counsel with respect to the Series 2016B Bonds to be delivered on the date of issuance of the Series 2016B Bonds is set forth in APPENDIX F.

NOT BANK QUALIFIED

The Commission has not designated the Bonds as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3)(B) of the Code.

FINANCIAL STATEMENTS

The audited consolidated financial statements of PRCN and its subsidiaries, including Skyline, for the fiscal years ended September 30, 2015, 2014 and 2013, were audited by Clark Nuber P.S., independent auditors, as stated in their reports included herein, and are included in APPENDIX B—“REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013” to this Official Statement. Clark Nuber P.S. 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.

Commencing with the fiscal year ending September 30, 2016, the audited consolidated financial statements of PRCN and its subsidiaries will include Fred Lind Manor.

FINANCIAL FEASIBILITY STUDY

Management’s financial forecast for the five years ending September 30, 2020, included as part of the Financial Feasibility Study included in APPENDIX C hereto, has been examined by Dixon Hughes Goodman LLP, independent certified public accountants, as stated in their report dated July 28, 2016 appearing in APPENDIX C. As stated in the Financial Feasibility Study, there will usually be differences between the forecasted data and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. The Financial Feasibility Study should be read in its entirety, including Management’s notes and assumptions set forth therein.

UNDERWRITING

Pursuant to a bond purchase agreement (the “Bond Purchase Agreement”) by and among the Commission, PRCN, as Obligated Group Representative, and B.C. Ziegler and Company (the “Underwriter”), the Underwriter will purchase the Bonds at an aggregate purchase price of $______, which purchase price reflects $______of aggregate principal amount less $______of Underwriter’s discount plus $______of original issue premium. The Bond Purchase Agreement will provide that the Underwriter will purchase all of the Bonds if any are purchased.

The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Bond Purchase Agreement will provide for the Borrowers to indemnify the Underwriter and the Commission against certain liabilities. The obligation of the Underwriter to accept delivery of the Bonds will be subject to various conditions of the Bond Purchase Agreement.

In connection with this financing, the Borrowers will establish various funds and accounts with the Bond Trustee that will hold net bond proceeds or other funds until they are withdrawn and expended. Under the terms of the Bond Indenture and the Loan Agreement, the Borrowers may direct the Bond Trustee to invest some or all of the funds within the investment parameters established in the Bond Indenture or the Loan Agreement, as applicable. It is possible that the Borrowers will elect to hire Ziegler Capital Management, LLC (a registered investment advisor with the Securities and Exchange Commission), to direct the investment of these funds. If that occurs, Ziegler Capital Management, LLC will receive a fee for managing those assets. At this time, no relationship has been formally established. As of November 30, 2013, Ziegler Capital Management, LLC is no longer an affiliate of B.C. Ziegler and Company; provided, however, the parties have entered into a referral agreement through which referral fees may be paid.

RATING

Fitch, Inc. (“Fitch”) has assigned a rating of “BB+” to the Bonds. Any explanation of the meaning of a rating can be obtained from the service providing the rating.

The Obligated Group has furnished Fitch with certain information and materials relating to the Bonds and the Obligated Group that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies, and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. Neither the Commission nor the Underwriter has undertaken any responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal of the rating of the Bonds. None of the Commission, the Underwriter nor the Obligated Group has undertaken responsibility to oppose any such proposed revision or withdrawal. Any such change in or withdrawal of such rating could have an adverse effect on the market price and marketability of the Bonds.

DESPITE SUCH RATING, THE PURCHASE OF THE BONDS INVOLVES A SIGNIFICANT DEGREE OF RISK. THE SALE OF THE BONDS IS INTENDED ONLY FOR QUALIFIED INSTITUTIONAL BUYERS, AS DEFINED IN RULE 144A OF THE SECURITIES ACT OF 1933, AS SET FORTH IN THE BOND INDENTURE. RESALE OF THE BONDS IS LIMITED AS DESCRIBED HEREIN. SEE “THE BONDS—LIMITATIONS ON INVESTORS AND RESTRICTIONS ON TRANSFER” AND “RISK FACTORS” HEREIN.

CONTINUING DISCLOSURE

Because the Bonds are limited obligations of the Commission, payable solely from amounts received from the Borrowers and any other Obligated Group Members, financial or operating data concerning the Commission is not material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds. Accordingly, the Commission is not providing any financial or operating data. PRCN, on behalf of the Obligated Group, has undertaken all responsibilities for any continuing disclosure to Holders of the Bonds, as described below, and the Commission shall have no liability to the Holders of the Bonds or any other person with respect to Rule 15c2-12 (“Rule 15c2-12”) promulgated by the Securities and Exchange Commission the (“SEC”).

PRCN, on behalf of the Obligated Group, has covenanted for the benefit of Holders and beneficial owners of the Bonds to file, or to cause a dissemination agent to file, the following information with the Municipal Securities Rulemaking Board (“MSRB”) in an electronic format by transmission to the Electronic Municipal Market Access system (referred to as “EMMA”) and accompanied by identifying information as prescribed by the MSRB:

(a) Not later than 150 days after the completion of each fiscal year of the Obligated Group (beginning with the fiscal year ending September 30, 2016), an Annual Report, which shall contain:

(i) The audit of the Obligated Group and consolidated affiliates for the fiscal year immediately preceding the due date of the Annual Report, prepared in accordance with generally accepted accounting principles and audited by an independent certified public accountant, together with, for each Member of the Obligated Group and prepared in accordance with generally accepted accounting principles, a combined or combining, if applicable, balance sheet as of the end of such fiscal year, a combined and an unaudited combining, if applicable, statement of changes in fund balances for such fiscal year and a combined and an unaudited combining, if applicable, statement of revenues and expenses and a statement of cash flows for such fiscal year. 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.

(ii) A separate written statement of the accountants preparing such report containing calculations of the Obligated Group’s Debt Service Coverage Ratio for such fiscal year and of the Obligated Group’s 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 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.

(iii) A report on unit mix and fees for all of the facilities operated by the Obligated Group as of the end of each such fiscal year, providing the information contained in Exhibit 1 to APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “Independent Living Units” and “Assisted Living Units.”

(iv) A report on occupancy levels of all of the facilities operated by the Obligated Group by level of care as of the end of each such fiscal year, providing, with respect to such occupancy levels, the information contained in Exhibit 1 to APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “Point-in- Time Occupancy” and “Average Occupancy.”

(v) A report on the payor mix of any Obligated Group Member’s skilled nursing beds, providing, with respect to such beds, the information contained in Exhibit 1 to APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the heading “Health Center Revenue Sources.”

(vi) To the extent not otherwise provided, an update of the operating data contained in APPENDIX A— “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “FINANCIAL INFORMATION—Obligated Group Pro Forma Summary Statement of Financial Position,” “— Obligated Group Pro Forma Summary Statement of Operations (Unrestricted),” “— Debt Service Coverage Ratios” and “— Liquidity.”

(b) Beginning with the fiscal quarter ending December 31, 2016, not later than 60 days after the completion of the first, second and third fiscal quarter of each Fiscal Year of the Obligated Group and not later than 60 days after the completion of the fourth fiscal quarter of each Fiscal Year of the Obligated Group, a Quarterly Report, which shall contain management-prepared financial statements in a format similar to the financial statements contained in this Official Statement, including a combined or combining, if applicable, statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining, if applicable, balance sheet as of the end of each such fiscal quarter, and a calculation of the Days Cash on Hand for the second and last fiscal quarters of each year, a calculation of Debt Service Coverage Ratio for the fiscal year reported as of the end of the last fiscal quarter and occupancy levels of all of the facilities operated by the Obligated Group by level of care as of the end of each such 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 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. Each Quarterly Report shall also include a comparison of actual revenue and expense of the Obligated Group for each relevant period against the operating budget of the Obligated Group (on a monthly and year-to-date basis) for such period.

(c) Not later than 45 days after the end of each fiscal year where the Obligated Group’s Debt Service Coverage Ratio for the preceding fiscal year, calculated as of September 30, was less than 1.00:1, and each month thereafter until the Obligated Group’s Debt Service Coverage Ratio is at least 1.00:1, a Monthly Report containing the same information required to be included in the Quarterly Reports described above.

(d) Promptly upon the occurrence of any of the following Listed Events as determined by the Obligated Group Representative, notice of such Listed Event, or promptly upon the determination by the Obligated Group Representative of failure to give such notice:

(i) principal and interest payment delinquencies;

(ii) non-payment related defaults, if material;

(iii) unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) unscheduled draws on credit enhancements reflecting financial difficulties;

(v) substitution of credit or liquidity providers, or their failure to perform;

(vi) 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 2016A Bonds, or other material events affecting the tax status of the Series 2016A Bonds;

(vii) modifications to rights of security holders, if material;

(viii) bond calls, if material, and tender offers (except for mandatory scheduled redemptions not otherwise contingent upon the occurrence of an event);

(ix) defeasances;

(x) release, substitution, or sale of property securing repayment of the Bonds, if material;

(xi) rating changes;

(xii) bankruptcy, insolvency, receivership or similar event of an Obligated Group Member;

(xiii) the consummation of a merger, consolidation, or acquisition involving an Obligated Group Member or the sale of all or substantially all of the assets of an Obligated Group Member, 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

(xiv) appointment of a successor or additional trustee or the change of name of a trustee, if material.

Each submission listed above is required to be submitted to the MSRB (in an electronic format by transmission to EMMA and accompanied by identifying information as prescribed by the MSRB) within 10 Business Days after the occurrence of the Listed Event. The Obligated Group’s obligations under the Continuing Disclosure Agreement with respect to the Bonds shall terminate upon the defeasance, prior redemption or payment in full of all the Bonds or if Rule 15c2-12 shall be revoked or rescinded by the SEC or declared invalid by a final decision of a court of competent jurisdiction. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12. See APPENDIX G— “FORM OF CONTINUING DISCLOSURE AGREEMENT” for a form of the Continuing Disclosure Agreement.

PRCN has previously executed a similar continuing disclosure agreement related to the Series 2013 Bonds; Skyline has previously executed similar continuing disclosure agreements related to bonds (including the Series 2007A Bonds) issued in 2007 and the Series 2015 Bonds; and Fred Lind Manor has previously executed a similar continuing disclosure agreement related to a series of bonds issued in 1997 (which bonds were refinanced with the proceeds of the HUD Loan) (collectively, the “Prior Disclosure Agreements”). Failure by PRCN, Skyline or Fred Lind Manor to comply with the Prior Disclosure Agreements must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of such other bonds in the secondary market. Any such failure may adversely affect the transferability and liquidity of the Bonds and their market price.

During the five-year period preceding this Official Statement, PRCN (i) filed certain of its required annual disclosures from 2 to 35 days late, (ii) failed to include required accountant’s certificates in certain of its annual filings, (iii) failed to include required officer’s certificates in certain of its quarterly filings, and (iv) filed certain of its required quarterly disclosures from 5 days to 13 weeks late.

During the five-year period preceding this Official Statement, Skyline (i) filed certain of its required annual disclosures from 3 to 35 days late, (ii) failed to include required accountant’s certificates in certain of its annual filings, (iii) filed certain of its required monthly disclosures

from one day to 11 weeks late and (iv) failed to file the monthly report for the month of May 2014. The May 2014 financial information was included in a subsequent filing by Skyline.

Management of the Obligated Group has implemented procedures to ensure full compliance with the requirements of the Continuing Disclosure Agreement and the Prior Disclosure Agreements, including engaging Digital Assurance Certification, LLC to assist in the collection of all relevant data required under continuing disclosure undertakings and to review its continuing disclosure filings. In addition, PRCN, as Obligated Group Representative, has engaged U.S. Bank National Association to act as dissemination agent under the Continuing Disclosure Agreement.

MISCELLANEOUS

The summaries or descriptions of provisions of the Bonds, the Loan Agreement, the Bond Indenture, the 2016 Deeds of Trust, the Series 2016 Obligations, the Second Supplemental Master Indenture and the Master Indenture 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 Bonds, the Loan Agreement, the Bond Indenture, the 2016 Deeds of Trust, the Series 2016 Obligations, the Second Supplemental Master Indenture and the Master Indenture 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 Bonds, will be on file at the offices of the Bond Trustee, currently located at 1420 Fifth Avenue, 7th Floor, Seattle, Washington 98101, Attention: Corporate Trust Services.

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 Bonds.

It is anticipated that CUSIP identification numbers will be printed on the 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 Bonds.

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

The Borrowers have reviewed the information contained herein which relates to them and their property and operations, and have approved all such information for use within this Official Statement.

This Official Statement is not to be construed as a contract or agreement between the Commission or the Borrowers and the holder of any of the Bonds.

This Official Statement has been duly authorized, executed and delivered by the Commission and PRCN, on behalf of itself and as Obligated Group Representative on behalf of the other Borrowers. The Commission has not, however, prepared nor made any independent investigation of the information contained in this Official Statement except the information under the captions “THE COMMISSION” and “ABSENCE OF MATERIAL LITIGATION—The Commission.”

WASHINGTON STATE HOUSING FINANCE COMMISSION

By: Kim Herman Executive Director

PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST, as Obligated Group Representative

By: Torsten Hirche President and Chief Executive Officer

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APPENDIX A

INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP

The information contained herein has been provided by Presbyterian Retirement Communities Northwest, FH, LLC, and Fred Lind Manor.

[THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS

INTRODUCTION ...... A-1 The Master Indenture and the Obligated Group ...... A-1 Definitions...... A-2 THE PROJECT AND RECENT DEVELOPMENTS ...... A-2 The Projects ...... A-2 Exeter House Sale ...... A-5 Future Plans ...... A-6 GOVERNANCE AND MANAGEMENT ...... A-6 Governing Board of PRCN ...... A-6 Governance of Skyline and Fred Lind Manor ...... A-7 Skyline and Fred Lind Manor Management Agreements ...... A-8 PRCN Executive Management Team ...... A-8 Conflict of Interest Policy ...... A-9 AFFILIATES ...... A-10 Presbyterian Retirement Communities Northwest Foundation ...... A-10 PRCN Services, LLC ...... A-11 Transforming Age, Inc...... A-11 Exeter LLC...... A-11 CORPORATE ORGANIZATION ...... A-11 OBLIGATED GROUP COMMUNITIES ...... A-12 Park Shore ...... A-13 Skyline ...... A-17 Fred Lind Manor ...... A-24 FINANCIAL ASSISTANCE TO RESIDENTS ...... A-26 FINANCIAL INFORMATION ...... A-27 Overview ...... A-27 Obligated Group Pro Forma Summary Statement of Financial Position ...... A-27 Obligated Group Summary Statement of Operations (Unrestricted) ...... A-29 Debt Service Coverage Ratios ...... A-30 Liquidity ...... A-31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS ...... A-32 Results of Operations for the Eight Months Ended May 31, 2016 Compared to the Seven Months Ended May 31, 2015 ...... A-32 Results of Operations for the Fiscal Year Ended September 30, 2015 Compared to the Fiscal Year Ended September 30, 2014 ...... A-33 Results of Operations for Fiscal Year 2014 Compared to Fiscal Year 2013 ...... A-34 MISCELLANEOUS ...... A-35 Actuarial Reports ...... A-35 Licensure ...... A-35 Memberships ...... A-36 Insurance ...... A-36 Employees ...... A-36 Retirement Plan ...... A-37

A-i Investment Policy...... A-37 Environmental Site Assessments ...... A-37 Property Taxes ...... A-38 2016 Deeds of Trust ...... A-38 EXHIBIT 1: ADDITIONAL INFORMATION REGARDING THE OBLIGATED GROUP COMMUNITIES A-39 EXHIBIT 2: PRIMARY MARKET AREA AND COMPETITION ...... A-48 Existing Comparable Communities with Independent Living in the Primary Market Area ...... A-57

A-ii INTRODUCTION

Presbyterian Retirement Communities Northwest (“PRCN”) is a Washington nonprofit corporation that was established in 1956 to develop, own and operate senior living facilities. Today, PRCN owns or controls three communities, all located in Seattle, Washington. One of these communities, Park Shore, is operated as a division of PRCN. Park Shore is a continuing care retirement community located in a residential neighborhood of Seattle on the shores of Lake Washington, offering options for independent living, assisted living, and skilled nursing care. Skyline is a continuing care retirement community located on the edge of downtown Seattle and owned by FH, LLC, a Washington limited liability corporation of which PRCN is the sole member. (Both the community, Skyline, and the ownership entity, FH, LLC, are referred to herein as “Skyline,.” and the meaning will depend on the context) The third community, Fred Lind Manor, has independent living and assisted living units and is owned by Fred Lind Manor, a Washington nonprofit corporation of which PRCN is the sole member.

The Park Shore, Skyline and Fred Lind Manor communities are hereinafter referred to collectively as the “Obligated Group Communities.” For a description of the Obligated Group Communities, see “OBLIGATED GROUP COMMUNITIES” herein.

PRCN and Fred Lind Manor are each organizations described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). Because PRCN is the sole member of Skyline, for federal income tax purposes Skyline is disregarded as a separate entity from PRCN, and by virtue of this treatment, Skyline is also exempt from federal income taxation as an organization described under Section 501(c)(3) of the Code.

Excluding Skyline and Fred Lind Manor, PRCN also directly or indirectly controls six other entities that support the activities of PRCN. See “AFFILIATES” herein. These affiliates are not Members of the Obligated Group and are not obligated, directly or indirectly, with respect to the Series 2016 Bonds.

THE MASTER INDENTURE AND THE OBLIGATED GROUP

Upon issuance of the Series 2016 Bonds, PRCN, Skyline and Fred Lind Manor will be the members of an obligated group (the “Obligated Group”) formed under the Master Trust Indenture dated as of June 1, 2013, as amended (the “Master Indenture”). Each member of the Obligated Group will be jointly and severally liable for payments with respect to all of the Obligations issued under the Master Indenture, including but not limited to Obligation No. 2 and Obligation No. 3 securing the Series 2016 Bonds. For additional information regarding the Master Indenture, see “INTRODUCTION - The Obligated Group and the Master Indenture,” “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “CERTAIN COVENANTS OF THE OBLIGATED GROUP UNDER THE MASTER INDENTURE” in the forepart of this Official Statement and Appendix E hereto.

Pursuant to the Master Indenture, PRCN previously issued Obligation No. 1, which will remain outstanding after issuance of the Series 2016 Bonds. Pursuant to a separate Master Trust Indenture dated as of January 1, 2007 (as supplemented and amended, the “Skyline Master

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Indenture”) between Skyline and U.S. Bank National Association, as master trustee, Skyline has previously issued the Series 2007A Skyline Note and the Series 2015 Skyline Note, both of which are outstanding as of the date hereof. Concurrently with the issuance of the Series 2016 Bonds, a portion of the proceeds of the Series 2016 Bonds will be used to defease the Series 2007A Skyline Note, and PRCN, as Obligated Group Representative under the Master Indenture, will issue Obligation No. 4 in substitution for the Series 2015 Skyline Note. For additional information concerning the outstanding obligations of the Members of the Obligated Group, see “INTRODUCTION - The Obligated Group and the Master Indenture” in the forepart of this Official Statement.

As of the date of issuance of the Series 2016 Bonds, PRCN, Fred Lind Manor and Skyline will be the only Members of the Obligated Group. Other affiliates of PRCN will not be Members of the Obligated Group, and will not be obligated for the payment and performance of Obligations issued under the Master Indenture or otherwise with respect to the Series 2016 Bonds; and the revenues of such affiliates will not be subject to the pledge of Gross Revenues created under the Master Indenture.

This Appendix A is intended to provide information about the Obligated Group and the Obligated Group Communities that is not found elsewhere in this Official Statement. For further information about the Obligated Group, particular reference should be made to the audited consolidated financial statements of PRCN and subsidiaries (other than Fred Lind Manor) for the fiscal years ended September 30, 2013, 2014 and 2015, and the supplemental consolidating information included therein for the same periods, which are included in this Official Statement as Appendix B. Additional information on the Obligated Group is set forth in the Financial Feasibility Study included in this Official Statement as Appendix C.

DEFINITIONS

Capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in APPENDIX D—“Summary of Certain Provisions of Principal Bond Documents— Certain Definitions” and APPENDIX E—“Summary of Certain Provisions of the Master Indenture and the 2016 Deeds of Trust.”

THE PROJECTS AND RECENT DEVELOPMENTS

THE PROJECTS

Skyline Refunding. Approximately $101,639,658, derived from the proceeds of the Series 2016A Bonds and amounts transferred from the debt service funds and the debt service reserve fund securing the Series 2007A Bonds, will be deposited into an escrow account and used to refund, on a current basis, all of the outstanding Series 2007A Bonds and pay accrued interest thereon through the call date of January 1, 2017.

Park Shore Project. Approximately $28,637,175 of the proceeds of the Series 2016A Bonds will be used to pay or reimburse Park Shore for all of the estimated costs, excluding the

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development fees described below, of a project that will renovate and expand Park Shore, as further described below (the “Park Shore Project”).

There are two phases of the Park Shore Project. Phase 1 consists of the interior renovations of resident corridors and solariums, renovation of the 15th floor lounge, addition of a new movie theater, relocation of the resident-managed exchange room, conversion of the chapel to a multipurpose room, and the creation of a new grand staircase to connect two of the common areas floors. The 3rd floor is to be converted from assisted living to a memory care suite with 15 units. Each of the 3rd and 4th floors will also gain new common dining, living, and activity spaces. Phase 1 began in July 2016 and is anticipated to be completed in June 2017.

Phase 2 will entail the addition of new architectural features to the building structure, as well as interior renovations including the reconfiguration of the lowest level to provide new fitness and salon/spa areas. The major components include the addition of a new indoor pool on the pavilion level; the enclosure of the existing breezeway entrance to create a new entry, lobby, reading room, cafe, and marketing and meeting room at the front of the building; the raising of the entry court and driveways to provide barrier-free access to the new front door location; and the installation of a new glazed window wall system on the east facade to replace the existing precast concrete lattice decoration. It is anticipated that Phase 2 will start in August 2017 and finish in June 2018.

Park Shore will remain in operation during the implementation of the Park Shore Project. The Park Shore Project has been staged to limit disruption to residents. Neither phase of the Park Shore Project is dependent upon completion of the other.

To provide for architectural and design services for the Park Shore Project, PRCN has engaged Perkins Eastman Architects DPC (“Perkins Eastman”), an international planning, design, and consulting firm founded in 1981. Perkins Eastman has more than 20 principals involved with senior living communities and has completed more than 600 senior living design projects.

PRCN has entered into a Pre-Construction Agreement with Halvorson Construction Group, LLC (“Halvorson”) to perform pre-construction services for the Park Shore Project. PRCN anticipates that it will also engage Halvorson as the general contractor pursuant to an AIA guaranteed maximum price construction contract that has not yet been executed. Halvorson was founded in 1985, has been managed by a new ownership team since 2010, and is based in Kirkland, Washington. Halvorson has completed over 20 construction projects for senior living communities located in California, Florida, Hawaii, Idaho, Indiana, Oregon and Washington. In addition, Halvorson’s projects have included multi-family housing, hotels, churches, schools, commercial office buildings and tenant improvements. A Vice President/Principal of Halvorson, Tom Vasilatos, also is a member of PRCN’s Board of Directors. For additional information on PRCN’s conflict of interest policy, see “CONFLICT OF INTEREST POLICY” in this Appendix A.

Condominium Project. Approximately $3,475,000 of the proceeds of the Series 2016B Bonds will be used to reimburse PRCN for the costs of acquiring and renovating three condominium units located in separate buildings proximate to Park Shore and operated by PRCN

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as additional independent living units for the Park Shore community (the “Condominium Project”).

Fred Lind Manor Project. Approximately $2,500,000 of the proceeds of the Series 2016B Bonds will be used to pay or reimburse Fred Lind Manor for the costs of renovations to Fred Lind Manor (the “Fred Lind Manor Project”). Renovations already completed have resulted in significant upgrades to approximately 20 apartments, hallways and common areas (including lobby, kitchen, and dining areas), the installation of Wi-Fi and nurse call systems, and the payment of permitting costs and development fees, at a cost of approximately $1,500,000. Future improvements are anticipated to consist of renovations of the remaining apartments and repurposing the basement to provide additional common space at a cost of approximately $1,000,000.

HUD Loan Refinancing. Approximately $3,712,766 of the proceeds of the Series 2016B Bonds will be used to repay or reimburse Fred Lind Manor for the costs (including prepayment penalty) of prepaying in full the outstanding amount of a loan (as described in this paragraph, the “HUD Loan”) or to repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan. The HUD Loan is a taxable loan in the original principal amount of $3,822,200 and evidenced by a note payable to Love Funding Corporation (the “HUD Lender”). A deed of trust on the real property associated with Fred Lind Manor (the “FLM Property”) is part of the security for the HUD Loan, and such deed of trust is insured by the United States Department of Housing and Urban Development (“HUD”) under the provisions of Section 232, pursuant to Section 223(1)(7) of the National Housing Act. The HUD Loan is prepayable on the last day of any month upon 30 days’ advance written notice to the HUD Lender, provided that such prepayment is accompanied by the applicable prepayment penalty.

In connection with the insuring of the HUD Loan, Fred Lind Manor and HUD entered into a Regulatory Agreement, dated July 1, 2012 (the “Regulatory Agreement”). To the extent that Fred Lind Manor’s affiliation with PRCN constituted a transfer or disposition of the FLM Property, the Regulatory Agreement requires Fred Lind Manor to obtain HUD’s prior written approval of such affiliation. Fred Lind Manor has requested such approval but, as of the date of this Official Statement, HUD has neither approved the affiliation nor given Fred Lind Manor notice of default under the Regulatory Agreement. By its terms, the Regulatory Agreement will terminate upon payment in full of the HUD Loan. (The Regulatory Agreement is unrelated to a Low-Income Housing Covenant, to which Fred Lind Manor is also subject. See “OBLIGATED GROUP COMMUNITIES – FRED LIND MANOR – Fred Lind Manor Low-Income Housing Covenant” herein.)

Development Services. In connection with the Park Shore Project, PRCN Services, LLC is providing comprehensive master-planning, repositioning, development and project management services to PRCN. The development fees estimated to be charged by PRCN Services, LLC for the Park Shore Project are $1,427,359. A portion of the development fees for the Park Shore Project will be paid from a portion of the proceeds of the Series 2016A Bonds in the amount of approximately $350,000, which amount equals the estimated actual costs to PRCN Services, LLC of providing development services for the Park Shore Project. The remainder of development fees for the Park Shore Project will be paid from a portion of the proceeds of the

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Series 2016B Bonds in the amount of approximately $1,077,359. Development fees will be paid to PRCN Services, LLC in monthly installments, the amount of which will vary depending on whether the project is in a pre-construction or construction phase. For additional information on PRCN Services, LLC, see “AFFILIATES – PRCN Services, LLC” in this Appendix A.

EXETER HOUSE SALE

PRCN formerly operated a senior living community known as Exeter House, located in Seattle, Washington approximately 0.3 miles from Skyline. In January 2016, PRCN entered into an agreement (the “Exeter House Sale Agreement”) to sell the land and building of Exeter House, along with certain related personal property (but excluding its operations). In anticipation of such sale, in May 2016 PRCN transferred all real and personal property associated with Exeter House (including its operations) and assigned its rights and obligations under the Exeter House Sale Agreement to Exeter LLC, a wholly owned subsidiary of PRCN. For additional information on Exeter LLC, see “AFFILIATES – Exeter LLC” in this Appendix A.

The sale of Exeter House closed on May 31, 2016. Pursuant to the Limited Liability Company Agreement of Exeter LLC, by and between Exeter LLC and PRCN as its sole member, Exeter LLC used a portion of the sale proceeds to pay amounts necessary to (i) reimburse PRCN for its expenses incurred in connection with the relocation of residents from Exeter House to other Obligated Group Communities, (ii) defease $6,945,000 principal amount of then- outstanding tax-exempt bonds allocated to capital expenditures at Exeter House, in accordance with the requirements of the Code, and (iii) pay PRCN a fee equivalent to 1 percent of the purchase price under the Exeter House Sale Agreement. The remaining sale proceeds may be used by Exeter LLC to fund a short-term loan to Fred Lind Manor to finance the repayment of the HUD Loan (see “THE PROJECTS AND RECENT DEVELOPMENTS – The Projects – HUD Loan Repayment” above); to finance the strategic growth of PRCN through acquisitions, affiliations or joint ventures (see “THE PROJECTS AND RECENT DEVELOPMENTS – Future Plans” below); or to advance other charitable purposes of PRCN.

PRCN currently leases the Exeter House facility from its owner pursuant to a lease that will expire no later than September 30, 2016. Exeter LLC continues to operate the Exeter House community and will wind down its operations. The purchaser of Exeter House plans to repurpose the facility, which will not be used as a senior living community.

At the time of its sale, Exeter House consisted of 80 independent living apartments and 25 assisted living apartments. Most of these apartments were rental units leased to residents on a month-to-month basis. A substantial number of former Exeter House residents have relocated to Fred Lind Manor. It is anticipated that the remaining residents of Exeter House will relocate to other residences, which may include Obligated Group Communities, prior to expiration of the lease.

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FUTURE PLANS

PRCN is undertaking a master planning process for the Obligated Group Communities and has formed a strategic planning committee (including financial, marketing and architectural expertise) to spearhead this process.

PRCN continuously evaluates opportunities for potential acquisitions, affiliations, joint ventures and divestitures that would enhance its ability to provide high quality, cost effective housing for seniors. Management identifies and holds discussions regarding possible strategic initiatives to assess their suitability and financial feasibility. Evaluation of potential strategic projects includes an assessment of various factors such as financial strength, competitive position, scope and location of services, quality and cultural fit. As part of its evaluations of such opportunities, PRCN regularly enters into letters of intent, which are not definitive agreements, regarding potential acquisitions, affiliations and developments. It is possible that PRCN will enter into a letter of intent or a definitive agreement to acquire or develop other senior living communities at any time. Further, any such acquisition or development (other than the possible Skyline 2 development described below) would be undertaken by an entity that is not a Member of the Obligated Group. Management of PRCN anticipates that the costs of any such development or acquisition would be paid from debt incurred by such entities, proceeds from the sale of Exeter House, other sources of funds, or a combination thereof.

Skyline 2. PRCN is currently evaluating the possibility of building additional senior living units on land it owns adjacent to Skyline. Any new development would be contingent, among other factors, upon meeting financial benchmarks and being accretive to Skyline’s operation.

Foss Waterway Development. PRCN is evaluating a potential senior living project near the Foss Waterway in Tacoma, Washington, consisting of 125 senior living apartments. A conceptual proposal has been made to the City of Tacoma; however, any such project would require the approval of the Tacoma City Council. This project will not be financed with the proceeds of the Series 2016 Bonds. If the project proceeds, it is anticipated that the project would be undertaken by a newly formed entity outside of the Obligated Group.

GOVERNANCE AND MANAGEMENT

GOVERNING BOARD OF PRCN

PRCN has no corporate members and is governed by its Board of Directors (the “PRCN Board”). The PRCN Board is a self-perpetuating body of not less than 5 or more than 21 individuals which currently consists of 13 members. Directors (other than those who serve ex officio) are elected by a majority of the PRCN Board to serve staggered terms of three years each. No director is eligible for re-election after completing three successive three-year terms until the expiration of at least one year, except that the term of a director who completes the third year of his or her third term while serving as Chair of the Board will be extended one year. The President of PRCN is a voting ex-officio director. The PRCN Board may appoint other non-

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voting ex-officio directors from time to time. PRCN’s bylaws require that all directors support the mission, values and vision of PRCN.

The following table sets forth selected information concerning the members of the PRCN Board as of May 1, 2016:

PRCN BOARD OF DIRECTORS

DIRECTOR CURRENT TERM NAME OCCUPATION SINCE EXPIRES SEPT.

Kay Broweleit, Chair Associate Pastor, Sammamish Presbyterian Church 2010 2016 James Rand, Vice Chair Clinical Professor, Seattle Pacific University School of 2012 2018 Business Paula Boos Executive Coach and Consultant 2012 2018 Doug Diekema Professor of Pediatrics, University of Washington 2009 2017 School of Medicine Vincent Driano Managing Director, Fortuna Investments LLC 2014 2017 Torsten Hirche President and Chief Executive Officer, PRCN 2014 ex officio John Iwanski Chief Financial Officer, AAA of Washington 2013 2016 Scott Lumsden Executive Presbyter, Seattle Presbytery 2013(1) 2018 James Melhorn Retired President/Chief Executive Officer, Episcopal 2008 2017 Ministries to the Aging Karin Miller Geriatric Social Worker 2014 2017 Greg Robinson President, Marshall & Sullivan 2008 2017 Luth Tenorio Retired Dean and Professor 2014 2017 Tom Vasilatos Vice President/Principal, Halvorson Construction 2010 2016 Group ______(1) Scott Lumsden joined the Board in 2013 as an ex officio director, pursuant to PRCN’s former bylaws. Subsequently, and in accordance with PRCN’s current bylaws, he was appointed to a three-year term. Source: PRCN Records

GOVERNANCE OF SKYLINE AND FRED LIND MANOR

As sole member and manager of Skyline, PRCN has full, complete and exclusive authority, power and discretion to manage and control the business, affairs and properties of Skyline, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of Skyline’s business. Skyline’s limited liability agreement provides that the officers of Skyline may include a president, one or more vice presidents, a secretary and a treasurer, who shall also be the chief financial officer of Skyline. Any number of offices may be held by the same person. The officers of Skyline are to be chosen by PRCN, and each officer holds his or her office until his or her successor is appointed. An officer may be removed, with or without cause, by PRCN.

The business and affairs of Fred Lind Manor are managed by its Board of Directors (the “FLM Board”), subject to certain rights reserved to PRCN as its sole member. PRCN is entitled to vote on certain matters coming before the FLM Board, including any amendments to Fred Lind Manor’s articles of incorporation and amendments to specific sections of its bylaws. In

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addition, PRCN elects the directors of the FLM Board and may remove them with or without cause, as long as there is at least one director remaining after such removal. The directors of the FLM Board must support the mission, values and vision of PRCN.

The current membership of the FLM Board is identical to that of the PRCN Board. Further, Fred Lind Manor’s bylaws require the Chair and Vice-Chair of the FLM Board to be the Chair and Vice-Chair, respectively, of the PRCN Board. See “GOVERNANCE AND MANAGEMENT – Governing Board of PRCN” above.

Torsten Hirche, the President and Chief Executive Officer of PRCN, is the President and Chief Executive Officer of each of Skyline and Fred Lind Manor. See “GOVERNANCE AND MANAGEMENT – PRCN Executive Management Team” below.

SKYLINE AND FRED LIND MANOR MANAGEMENT AGREEMENTS

PRCN has entered into separate management agreements with each of Skyline and Fred Lind Manor, pursuant to which PRCN acts as an independent contractor to manage and operate the respective communities and provides other related services (the “Management Agreements”). The employees of each community remain employees of Skyline and Fred Lind Manor, respectively.

Under the versions of the Management Agreements that will be in effect on October 1, 2016, PRCN will receive as compensation a management fee equal to 5 percent of each community’s cash operating revenue, defined as all receipts derived from operation of the community, including (without limitation) entrance fees, monthly fees and other fees for goods or services, but excluding deposits held in escrow, tax refunds, condemnation proceeds or awards, and insurance proceeds; and additional fees for providing information systems, accounting systems and services, and services provided by the Foundation (as herein defined) (collectively, the “Management Fees”). Management Fees are billed and due monthly. If a community’s monthly revenues are insufficient to pay monthly charges for Management Fees, PRCN will notify the community and Skyline or Fred Lind Manor, as applicable, must deposit available funds from sources other than monthly revenues in an operating bank account sufficient to cover the deficiency. PRCN has no obligation to use its own funds to cover operating shortfalls at Skyline or Fred Lind Manor.

PRCN EXECUTIVE MANAGEMENT TEAM

The Board has delegated responsibility for day-to-day management of the organization to PRCN’s executive management team, including the following individuals:

Torsten Hirche, President and Chief Executive Officer (age 40) – Mr. Hirche, who is originally from Magdeburg, Germany, holds a Master of Business Administration degree and a Bachelor of Business Administration degree, both from Southern Oregon University. He also received a bachelor’s degree in International Tourism Studies from Hochschule Harz, University of Applied Sciences in Wernigerode, Germany, and is a licensed Nursing Home Administrator and Preceptor. Mr. Hirche joined PRCN in March 2014. Mr. Hirche previously worked as the A-8

Vice President of Operations at Pacific Retirement Services and the Senior Executive Director of Oakmont Senior Living. In those roles he oversaw the opening and operations of continuing care retirement communities, led business development efforts and group purchasing initiatives, provided corporate training and consulting services, and was involved in risk management.

Jerry Schoeggl, Vice President of Finance (age 70) – Mr. Schoeggl has over 40 years of finance and accounting experience in both the health care and senior living sectors. He has previously served as Executive Vice President of Finance and Chief Financial Officer of Pacific Retirement Services and Wesley Homes. He has expertise in tax exempt financing, debt restructuring, foundation funding, financial reporting and budget processes. He holds a Bachelor of Science degree in Accounting from the University of Washington and is a Certified Public Accountant.

Paul Aigner, Vice President of Development (age 56) – Mr. Aigner has 30 years of experience as a senior housing project development executive. He has worked on projects for several Northwest-based senior living organizations including Covenant Shores, CRISTA, Horizon House, Bayview, Mennonite Village, and Emeritus. Mr. Aigner graduated from the University of Washington with a Bachelor’s degree in Environmental Sciences through the Architecture School.

DeAnne Clune, Vice President of Marketing (age 51) – Ms. Clune has over 25 years of marketing experience, including 15 years in senior living marketing. She has served in corporate and regional marketing leadership roles for well-known companies such as Leisure Care, Merrill Gardens and Emeritus. Ms. Clune received a Bachelor of Science degree in Communications from Oregon State University.

Eve Jakoboski, Vice President of Human Resources (age 40) – Ms. Jakoboski has over 19 years of human resources experience, with nine of those years in hospitality and three years in healthcare consulting. Ms. Jakoboski graduated with a Bachelor of Science degree in Human Resources from the University of Alabama, Huntsville. She has held a Senior Professional in Human Resources certification since 2006.

David Sheffels, Corporate Information Technology Director (age 43) – Mr. Sheffels has over 20 years of experience in Information Technology. He brings experience in front-end customer service and support, back-end network and hardware installation, IT planning and operations knowledge to the PRCN team. Mr. Sheffels holds a Bachelor of Science degree in Electrical Engineering from the University of Washington.

CONFLICT OF INTEREST POLICY

PRCN’s conflict of interest policy addresses transactions involving members of the PRCN Board, its officers, its executives, and any other manager or supervisor identified by the PRCN Board or president as exercising substantial influence over PRCN’s operations (each, a “Covered Person”). Each Covered Person is required to read, understand and comply with PRCN’s conflict of interest policy and file an annual disclosure of actual and potential conflicts of interest. A-9

PRCN, the other Members of the Obligated Group or any of the Non-Obligated Entities (defined below) may enter into a transaction in which a Covered Person has a conflict of interest, but only if (i) the Covered Person has disclosed the conflict of interest, (ii) a majority of PRCN’s disinterested directors approve the transaction after determining, in good faith and after reasonable investigation, that the transaction is fair and reasonable to PRCN and in PRCN’s best interest, (iii) the Covered Person does not participate in and is not present for the vote regarding such transaction (except to answer questions concerning the transaction), and (iv) in any transaction involving financial benefit to the Covered Person, the Board relies upon appropriate comparability data, such as an independent appraisal or compensation study, in reaching its determination as to the fairness and reasonableness of the transaction.

Tom Vasilatos, a member of PRCN’s Board, also is a Vice President/Principal of Halvorson, which has been engaged to provide pre-construction services and may be engaged as the general contractor for the Park Shore Project. PRCN management believes that Mr. Vasilatos and the Board have complied with PRCN’s conflict of interest policy in connection with all transactions between Halvorson and PRCN or its affiliates.

AFFILIATES

In addition to Fred Lind Manor and Skyline (both of which will be Members of the Obligated Group upon issuance of the Series 2016 Bonds), PRCN controls four affiliated entities and their two controlled affiliates (collectively, the “Non-Obligated Entities”). A description of each of the Non-Obligated Entities is set forth below.

None of the Non-Obligated Entities will be Members of the Obligated Group upon issuance of the Series 2016 Bonds. The Non-Obligated Entities will not be obligated, directly or indirectly, for any payments with respect to the Series 2016 Bonds, Obligation No. 2 or Obligation No. 3.

PRCN, SKYLINE AND FRED LIND MANOR WILL BE THE ONLY MEMBERS OF THE OBLIGATED GROUP AS OF THE DATE OF ISSUANCE OF THE SERIES 2016 BONDS.

PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST FOUNDATION

PRCN is the sole member of Presbyterian Retirement Communities Northwest Foundation (the “Foundation”). The Foundation is a Washington nonprofit corporation and an organization described in Section 501(c)(3) of the Code that was formed in 1993 to “receive, hold, invest and administer property and to make expenditures to or for the benefit of” PRCN. The Foundation currently operates to support PRCN primarily by raising, investing and distributing funds to assist residents in the Obligated Group Communities. The value of the Foundation’s assets as of September 30, 2015, was $2,255,986.

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PRCN SERVICES, LLC

PRCN is the sole member of PRCN Services, LLC (“PRCN Services”), a Washington limited liability company. PRCN Services was organized to provide development and consulting services for PRCN and its affiliates. PRCN Services is providing development services for the Park Shore Project and the Fred Lind Manor Project. See “THE PROJECTS AND RECENT DEVELOPMENTS – The Projects – Development Services” herein.

TRANSFORMING AGE, INC.

PRCN is the sole shareholder of Transforming Age, Inc. (“Transforming Age”), a Washington for-profit corporation. Transforming Age owns for-profit entities that support PRCN’s mission. Transforming Age is the sole member and manager of both Transforming Age Services, LLC (“TA Services”), and Gerontological Services, LLC (“GSI”), each a Washington limited liability company. TA Services provides third-party management and consulting services for continuing care retirement communities and other retirement-services customers. GSI performs market research, master planning and consulting services for senior living and aging services organizations.

EXETER LLC

PRCN is the sole member of Exeter LLC, a Washington limited liability company. In anticipation of the sale of Exeter House, PRCN formed Exeter LLC and transferred to it the Exeter House facility and operations, along with related personal property. See “THE PROJECTS AND RECENT DEVELOPMENTS – Exeter House Sale” herein.

Since the sale, Exeter LLC has leased the Exeter House facility pursuant to an agreement that will expire in September 2016. In the interim, Exeter LLC continues to operate Exeter House; however, PRCN plans to wind down all operations of Exeter House before expiration of the lease. After operations at Exeter House have ceased, Exeter LLC will continue to own cash and/or investments and will use them at the direction of PRCN to advance PRCN’s charitable purposes, which may include financing the acquisition or development of additional senior living communities.

CORPORATE ORGANIZATION

The organizational chart in this section depicts the corporate relationships among PRCN, the other members of the Obligated Group, the Obligated Group’s senior living communities, and the Non-Obligated Entities as of the date of issuance of the Series 2016 Bonds.

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OBLIGATED GROUP COMMUNITIES

On the date of issuance of the Series 2016 Bonds, the members of the Obligated Group will operate three senior living communities, all located in Seattle, Washington: (i) Park Shore; (ii) Skyline and (iii) Fred Lind Manor. A description of each of the three Obligated Group Communities is set forth below. Statistical information pertaining to the Obligated Group Communities, including unit configuration, occupancy rates, and fees, is set forth in Exhibit 1 of this Appendix A.

The current unit mix of the Obligated Group Communities is set forth in the following table, which does not take into account expected changes in the number of units resulting from the Park Shore Project or the Fred Lind Manor Project.

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THE OBLIGATED GROUP COMMUNITIES: CURRENT UNIT MIX

Independent Assisted Memory Skilled Nursing Community Living Units Living Units Support Units Beds Park Shore 113(1) 30 – 28 Skyline 199 48 28 34 Fred Lind Manor 20(2) 62 – – Total 332 140 28 62 (1) Includes three condominium units located near Park Shore. (2) Fred Lind Manor contains a total of 82 residential units, of which up to 62 may be used for assisted living. Any residential units that are not used for assisted living are available for independent living.

PARK SHORE

Park Shore General Description. Park Shore is a continuing care retirement community with 113 independent living units, 30 assisted living units and 28 skilled nursing beds. Park Shore is also licensed to provide adult day services to up to six non-resident individuals at a time. Of the independent living units, three are condominium units located near Park Shore and operated by PRCN. A portion of the proceeds of the Series 2016B Bonds will reimburse PRCN for the purchase of the condominium units.

Park Shore occupies an approximately 221,759 square foot, 15-story building with two below-grade levels containing common areas and a 64-stall underground parking garage. It is located in the Madison Park neighborhood of Seattle, on the shores of Lake Washington (190 feet of lake frontage). This premium location provides residents with the benefits of a quiet, walkable residential setting, close access to neighborhood shopping, the beach and parks, and easy access to Seattle’s hospital district, downtown, and bridge access across Lake Washington. Park Shore’s location also provides outstanding views over Lake Washington, stretching from the University of Washington’s Husky stadium to the north, the Cascade Mountains to the east, and Mt. Rainier to the south.

Park Shore was originally constructed in 1963, and has undergone significant updating and renovation including an extensive remodel of portions of the kitchen and dining room, front entry lobby and living room/lounge on the first floor. This work also involved the creation of a multi-use room suitable for private dining, meetings, movie viewing, presentations, and musical performances by small groups. Other Park Shore common areas include several smaller lounge and meeting rooms, which can be reserved by residents for private functions and/or dining, a chapel/multipurpose room, computer center, painting/floral studio, fitness center, massage therapy, hair and acupuncture salons, lakeside pavilion with indoor barbeque, boat dock and moorage, and two lakeside garden areas. Park Shore’s “Top of the Park” 15th-floor lounge area, surrounded by an outdoor walking balcony, offers 360-degree views.

A portion of the proceeds of the Series 2016 Bonds will be used for further renovations of the Park Shore community. See “THE PROJECTS AND RECENT DEVELOPMENTS” in this Appendix A.

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Park Shore Independent Living Services and Fees. PRCN currently requires most residents desiring accommodations in Park Shore’s independent living apartments to enter into an entrance-fee-based contract (“Residency Agreement”). These Residency Agreements provide that residents are entitled to occupy a designated independent living unit and to use one assigned parking space and storage unit. In addition, such residents receive selected weekly housekeeping services (additional housekeeping services may be provided for an extra charge), up to three (3) meals per day (custom dietary requirements may be accommodated for an extra charge), and utilities (including basic cable, local telephone and voice mail, electricity, heat, water, sewer and garbage). Residents also have access to a licensed nurse for consultations at posted times, and to a variety of educational, religious, entertainment, recreational, and fitness and wellness programs offered by PRCN from time to time. Finally, residents who have entered into an entrance-fee-based Residency Agreement are entitled to receive a lifetime total of thirty (30) days of care in Park Shore’s Health Center for assisted living or skilled nursing services (the “Healthcare Benefit”), with no change in the resident’s normal monthly service fees or incurrence of Park Shore Health Center Daily Rate Charges. See “OBLIGATED GROUP COMMUNITIES—Park Shore—Park Shore Health Care Services” herein. If such a resident receives assisted living services or skilled nursing services in excess of this 30-day benefit, he or she is required to pay for such services on a fee-for-service basis. This Healthcare Benefit is intended to be supplemental to any other public or private benefits available to a resident, and will be available only after the resident has exhausted such other benefits (including but not limited to Medicare and private insurance).

For additional information on anticipated changes to unit configuration resulting from the Park Shore Project, see “THE PROJECT AND RECENT DEVELOPMENTS—The Projects” in this Appendix A.

Park Shore Assisted Living Services. Residents participating in Park Shore’s assisted living program receive the range of services described below under the caption “PARK SHORE— Park Shore Health Care Services—Assisted Living Services.” Monthly service fees for such services charged to a particular resident vary depending upon the size of the unit occupied by such resident.

Park Shore Residency Agreements. The standard entrance-fee-based Residency Agreement for Park Shore currently includes the provisions summarized in this section.

Application for Residency; Waitlist. Individuals interested in residency at Park Shore are required to demonstrate sufficient health and financial capacity to participate in the Park Shore program on a sustained basis. Individuals wishing to be placed on a waitlist for possible occupancy at a future time are required to pay a $1,000 Waitlist Deposit Fee. If the party subsequently decides to move into Park Shore, the entire Waitlist Deposit Fee is credited toward the applicable entrance fee. As of June 30, 2016, Park Shore’s waitlist had 231 applicants.

Termination of Residency. Each Residency Agreement provides that there shall be a 90-day “Trial Period,” which begins upon commencement of occupancy. During the Trial Period, either PRCN or the resident may terminate the Residency Agreement, for any reason, upon not less than 15 days prior written notice. After the Trial Period, a resident may terminate

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its Residency Agreement for any reason; however, PRCN may terminate a Residency Agreement after the Trial Period only for good cause. Termination of a Residency Agreement after the Trial Period by either party requires not less than 30 days prior written notice.

Transfer to Another Level of Care. All decisions about level of care placement, including both transfers within the Park Shore community and to an alternate care setting, and whether such transfer is temporary or permanent, are made by PRCN in its sole discretion, in conformance with applicable law and in consultation with affected residents and their representatives and personal physicians. Determinations that a permanent transfer should be made are based on PRCN’s judgment that the resident requires care and services that are not provided by Park Shore or, if provided by others, such care and services would fundamentally alter the nature of, or unduly burden, Park Shore. Residents who are asked to transfer to a different level of care may be required to vacate their independent living unit apartments; should any recuperate sufficiently to resume independent living, a comparable unit will be provided to the resident, subject to availability. As a condition to admission to the Health Center or to an assisted living unit, residents are required to execute a Health Center or Assisted Living Admission Agreement.

Refunds. Entrance fees are only subject to refund as follows:

Prior to Occupancy. If a resident dies or withdraws his or her application for residency prior to actually commencing occupancy of a particular unit, any entrance fee deposit he or she has made will be refunded in full, less an “Administrative and Service Fee” of $7,500, and less the cost of upgrades made to any unit at the request of the resident.

Termination During the Trial Period. If a resident or PRCN terminates a Residency Agreement during the applicable Trial Period, the resident will be entitled to a full refund of the entrance fee he or she has paid, less the Administrative and Service Fee and other fees due to PRCN for services rendered, and less the cost of upgrades made to the resident’s unit at his or her request.

Termination After the Trial Period. If a resident or PRCN terminates a Residency Agreement after the Trial Period, the resident will be entitled to a refund of the entrance fee he or she has paid, less one-thirty-sixth for each full or partial month that has elapsed from the effective date of the Residency Agreement until the date of termination. After 36 months from such effective date, no entrance fee refund is payable. The amount of any entrance fee refund is further reduced by the reasonable costs to PRCN of refurbishing the resident’s independent living unit, assisted living unit or Health Center bed (as applicable) to its condition prior to the resident’s occupancy, normal wear and tear excepted, and by the amount of any unpaid charges for care or other services provided by PRCN..

Refund in the Event of Dissolution, Divorce or Separation. In the event a couple who have paid an entrance fee for a Park Shore unit divorce or separate and one of the couple chooses to remain in the community, no entrance fee refund will be paid to the departing resident. If neither elects to remain in the community, any entrance fee refund will be divided and paid in accordance with any written property settlement agreement between the parties or by court order.

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Payment of Refund. Entrance fee refunds due to any resident are payable by PRCN no later than 30 days after the resident has vacated residency. Under standard contracts for Park Shore, payment of the refund is not contingent upon the resale or reoccupancy of the unit. As of May 31, 2016, PRCN’s expected entrance fee refund liability to Park Shore residents was $6,493,312.

Park Shore Health Care Services.

Assisted Living Services. The assisted living program at Park Shore includes the following services: meals and snacks; restaurant style dining; assistance with day to day care needs; eight hours per day, seven days per week licensed nursing coverage; 24-hour staff availability with certified assistants; fitness program; group activities and entertainment; housekeeping and linen service; utilities (including local telephone and basic cable); 24-hour security; and personal alarm system.

Skilled Nursing Services. Residents may be transferred to the Park Shore Health Center upon physician order, if it is determined that they will benefit from skilled nursing care on a 24-hour basis. PRCN also accepts patients to the Park Shore Health Center as direct admissions. Skilled nursing provides minimal to maximum assistance in all areas of daily living. All of Park Shore’s skilled nursing rooms are semi-private, except for one room, which is private. The daily rate for skilled nursing includes 24-hour routine nursing care, administration of medication, restorative therapy, therapeutic diets, personal laundry, hydrotherapy baths, social services, chaplain, and recreational therapy. Oxygen concentrators and some types of pressure-relief specialty mattresses are also included.

Rates for skilled nursing services vary depending on the room type and level of care provided. For semi-private rooms, the rate for skilled nursing is $400 per day, the bed-hold fee is $381 per day, and a 10% discount is given to residents with entrance fee contracts. For private rooms, the rate for skilled nursing and the bed-hold fee each is $470 per day, and no discount is given.

Occupational therapy, physical therapy and speech therapy are billed at $54.60 per one-quarter hour. Supplies and special services are provided for an additional charge.

Alternate Care. PRCN does not operate any health care facilities serving Park Shore residents other than the assisted living and Park Shore Health Center services described above. If a resident’s mental or physical needs require services beyond those provided by Park Shore, the Park Shore Executive Director may arrange for appropriate care to be provided to the resident elsewhere. All health care services that are not provided by Park Shore directly, such as hospital care and outpatient services, are the sole responsibility of residents. Hospice services are provided to appropriate residents by third party contractors. Upon completion of the Park Shore Project, memory support is being added to Park Shore with the addition of 15 memory care units. See “THE PROJECTS AND RECENT DEVELOPMENTS – THE PROJECT – Park Shore Project.”

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SKYLINE

Skyline General Description. Skyline, which opened on October 1, 2009, is a “life care” continuing care retirement community consisting of 199 independent living units plus one guest apartment, an “Assisted Living Center” containing 48 traditional assisted living units and 28 memory support units, and a “Health Center” with 34 licensed skilled nursing beds (8 semi-private beds and 26 private beds). These facilities and programs are housed in two adjacent buildings. The two buildings consist of a 26-floor tower building (“Skyline Tower”) which houses the independent living units and common areas (including resident and guest parking), and a 13-floor building (the “Terraces Building”) which houses the Assisted Living Center, Health Center, administrative offices, retail space and additional common areas. In July 2015, Skyline completed a renovation of the physical and occupational therapy gym in the Terraces Building, which expanded the space from 500 square feet to 1600 square feet, allowing an increase in services offered to Skyline residents as well as outpatient services to the greater community.

Skyline Independent Living Services. Skyline’s 199 independent living units include 21 units designated as “Low Rise Apartments” and 178 units designated as the “Independent Living Apartments,” all of which are located in Skyline Tower. The common areas include a main dining room, a private dining room, a bistro and lounge, a living room, an auditorium/multi-purpose room, a club room, a library, a wellness and fitness center, an aquatic center with a pool and spa, a business center, a beauty salon, barber shop and massage room, a creativity arts center, a continuing education room/board room, one guest unit, mail boxes, an automated teller machine, administrative areas and a 320-space underground parking garage. All utilities, except telephone, internet services and premium cable television services, are included in a monthly service fee (the “Monthly Service Fee”).

By entering into a Residency Agreement and paying the required entrance fee, a resident is entitled to life care services at Skyline. See “SKYLINE RESIDENCY AGREEMENTS—Resident Fee Structure—Services to Residents” for a further description of the services provided to residents of Skyline and “SKYLINE RESIDENCY AGREEMENTS—Resident Fee Structure” for a description of the types of fees paid by residents.

Skyline Assisted Living Services. The “Assisted Living Center” at Skyline consists of 48 assisted living units and 28 secured memory support units, all located within the Terraces Building. The assisted living units have been designed to foster the continued independence of residents who require varying amounts of assistance with activities of daily living. The assisted living units are private apartments with kitchenettes and full baths and are furnished with amenities similar to the independent living units, but do not include a kitchen range, oven, dishwasher, washer or dryer. The Assisted Living Center’s common areas include a lobby, living room and library, arts and crafts area, multi-purpose room, dining room and administrative and support areas.

The memory support units are private suites with full baths and are furnished with amenities similar to the assisted living units, but without kitchenettes. The memory support units

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have secured access and separate common areas that include amenities similar to those provided for the assisted living units.

Admission to the Assisted Living Center is provided for residents of Skyline in accordance with the terms of the Residency Agreement. The Assisted Living Center is also available for occupancy by persons other than residents who have executed life care Residency Agreements (“Direct Admit Residents”). Direct Admit Residents are admitted, pursuant to the terms of a separate admissions agreement, on an as-available basis to the extent the units of the Assisted Living Center are not required to accommodate residents of Skyline at the time of admission. Direct Admit Residents are expected to pay a Monthly Service Fee but will not receive the Life Care Benefits described below.

Skyline Health Center. The Skyline Health Center contains 26 private nursing beds and 8 semi-private nursing beds, for a total of 34 licensed skilled nursing beds. The Health Center common areas include administrative, service and support areas, and resident dining, activity, lounge, therapy and bathing areas. The Health Center shares an entrance with the Assisted Living Center, and is directly accessible from the Independent Living Apartments.

The Health Center is available for occupancy by residents of Skyline when their physical condition so requires, as described below under “RESIDENCY AGREEMENT—Services to Residents.” Direct Admit Residents are admitted on a per-diem basis directly to the Health Center to the extent that its nursing beds are not required to accommodate life care residents of Skyline at the time of admission.

Skyline Reservation and Residency Agreements. Residents of Skyline enter into two separate contracts with Skyline: a “Reservation Agreement” and a “Residency Agreement.”

Reservation Agreement. Under the Reservation Agreement, the resident applies for residency in Skyline, pays a deposit (the “Reservation Deposit”) equal to 10% of the applicable Entrance Fee, and agrees to execute a Residency Agreement. Skyline considers applications for residence at Skyline based upon its guidelines and maintains sole discretion on the decision to accept a resident. An application for residence at Skyline will be accepted only if the applicant will be at least 62 years of age on the date of occupancy (the “Occupancy Date”) and demonstrates the ability to live independently and to meet the financial obligations as a resident of the selected independent living unit.

If an applicant’s health status changes after the applicant has been accepted for residency into Skyline so that at the time of occupancy such applicant is precluded from independent living for health reasons certified by a licensed physician, the entire Reservation Deposit (without interest) will be refunded to the applicant; provided however, that the applicant may elect not to terminate the Residency Agreement, but rather, to elect direct admission to the Assisted Living, Memory Support or Health Center at the appropriate level of care, as determined by Skyline. See also “TERMINATION AND REFUNDS—Termination Prior to Occupancy” below.

Residency Agreement. Under the Residency Agreement, the Resident agrees to an entrance fee plan contingent on establishment of occupancy. See “Skyline Resident Fee

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Structure — Current Entrance Fee Plans” below. Skyline agrees to provide certain services to the Resident upon occupancy. In addition, a prospective resident is required to enroll in Medicare Part A and B and any future applicable Medicare program that may be offered. A resident must also maintain supplemental Medicare insurance coverage acceptable to Skyline or, if the resident does not qualify for Medicare coverage, comprehensive health coverage satisfactory to Skyline. See “Skyline Resident Fee Structure—Services to Residents” below.

Resident Fee Structure. Residents of Skyline are required to pay two types of residency fees: a lump sum, one-time payment (the “Entrance Fee”); and the Monthly Service Fee. As described in further detail below, the amount of both the Entrance Fee and Monthly Service Fees that are payable by a particular resident are based on the type of independent living unit to be occupied by the resident. Also as described below, the amount of the Entrance Fee further depends on the Entrance Fee plan selected by a resident.

Current Entrance Fee Plans. Two Entrance Fee plans are currently offered to Skyline residents, designated as “Type A Life Care Plan” and “Type B Continuing Care Plan” and more fully described below. A majority of residents are expected to be on a Type A contract. Both the Type A and Type B contracts are offered in three forms, which differ only in the amount of the refund payable in the case of termination, as described below.

Type A – Life Care Plan. Three variations of the Type A Life Care Plan are currently offered. Under the 80% Refundable Life Care Plan, which replaced the previous 90% Refundable Life Care Plan (described below) in October 2015, if a Resident terminates the Residency Agreement, or in the event of the Resident’s death, or in the case of double occupancy, both occupants’ death (among other possible causes for termination), the Resident would be due an 80% refund of the Entrance Fee less reasonable costs of refurbishing the residence to its original condition due to normal wear and tear, without interest, within 30 days of the later of the date of the termination of the Residency Agreement or receipt of a newly executed Residency Agreement and the collection of a new Entrance Fee for the vacated independent living unit. See also “Termination and Refunds—Termination After Occupancy” below. The Type A Life Care contract is also offered with a 50% refundable option and a no refund option. Under each Type A Life Care Plan, Residents pay the life care rate (see below under Life Care Benefit) should they require care in the Assisted Living Center or the Health Center. A second person entrance fee of $35,000, which is nonrefundable after the first 90 days of occupancy, is also payable under the 80% Refundable Life Care Plan.

Type B – Continuing Care Plan. The Type B Continuing Care Plan is similar to the Type A Life Care Plan, except that under the Type B Plan, Residents receive 30 prepaid days of health care services in the Assisted Living Center or Health Center. Residents who permanently transfer to the Assisted Living, Memory Support or Health Center pay a discounted market-based rate (see below under Continuing Care Benefit). Like the Type A Life Care Plan, the Type B Continuing Care Plan is offered in three variations: a 90% refundable, 50% refundable and nonrefundable version. There currently is no second person entrance fee payable in connection with Type B contracts.

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Previous Entrance Fee Plans. Although not currently available, Skyline previously offered a number of other types of residency agreements. Residents who entered Skyline under those agreements are still governed by their terms. These types of previously-offered agreements include (i) a 90% refundable Type A Life Care Plan; (ii) a 100% refundable Type A Life Care Plan for Residents with charter resident benefits; and (iii) variants of the preceding plans providing for up to 30 free days of care in the Assisted Living Center or Health Center.

The following chart summarizes, as of May 31, 2016, the number of Residents subject to each of the Entrance Fee Plans described above, and the total related potential liability for refunds:

SKYLINE ENTRANCE FEE PLANS

TOTAL MAXIMUM NUMBER OF ENTRANCE POTENTIAL PLANS CONTRACTS FEES REFUND DUE Contracts by Type Type A Life Care Plan (all variants) 209 $151,433,018 $132,899,407 Type B Continuing Care Plan (all variants) 5 2,972,081 2,675,251 Contracts by Variant Life Care 100% Refundable (Type A) 40 $ 29,853,763 $ 29,853,763 Life Care Non-Refundable (Type A) 6 3,124,026 0 Continuing Care 50% Refundable (Type B) 1 428,806 317,316 Life Care 90% Refundable (Type A) 101 74,188,003 66,769,203 Life Care 90% Refundable – 30 Free Days 47 35,343,395 31,749,055 (Type A) Life Care Non-Refundable – 30 Free Days 9 4,283,780 210,000 (Type A) Life Care 50% Refundable – 30 Free Days 1 645,330 322,665 (Type A) Continuing Care 90% Refundable (Type B) 3 1,853,404 1,668,064 Life Care 80% Refundable (Type A) 5 3,994,721 3,994,721 Continuing Care 80% Refundable (Type B) 1 689,871 689,871 Total 214 $154,405,099 $135,574,658 ______Source: PRCN Records.

Monthly Service Fees. Regardless of whether a Resident chooses to pay an Entrance Fee under Type A or Type B, the Resident must also pay a Monthly Service Fee, the amount of which will depend on the type of independent living unit selected by the Resident. For double- occupancy units, an additional second person Monthly Service Fee applies.

Financial Assistance. If a Resident can no longer pay the Monthly Service Fee in full due to lack of funds for reasons beyond the control of the Resident, Skyline may subsidize, in whole or in part, the Monthly Service Fees and other charges, provided the ability of Skyline to

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operate on a sound financial basis for all Residents is not materially impaired. If financial assistance is provided by Skyline, such amounts, plus interest, may be charged against the refund of the Entrance Fee. Skyline may also require a Resident receiving financial assistance to move to a smaller or less-expensive independent living unit.

Services to Residents. Upon payment in full of the Entrance Fee and ongoing payment of the Monthly Service Fee, each Resident will be provided an independent living unit and receive certain basic services. Services provided include: (i) approximately one meal per day, tracked using a points system; (ii) all utilities, except telephone, internet services and premium cable television services; (iii) housekeeping of the independent living unit on a regularly scheduled basis; (iv) cleaning and changing of bed linens on a regularly scheduled basis; (v) maintenance of all common areas and grounds; (vi) repair, maintenance or replacement of equipment and furnishings provided in the independent living unit; (vii) scheduled local transportation; (viii) a medical director responsible for the appropriateness and quality of health services and health-related activities; (ix) 24-hour monitoring of emergency alert systems; (x) a variety of social, recreational, educational, cultural, and health and wellness programs; (xi) property and casualty insurance coverage on the buildings and grounds, not to include loss or damage to the Resident’s personal property or damage or injury to others caused by a Resident or guest; (xii) internal U.S. mailboxes; and (xiii) use of dining rooms, lounges, garage parking (in which a Resident may reserve a parking space for an additional fee dependent upon availability), individual storage areas, social and recreational rooms and other common area facilities.

Life Care Benefit. Under the Type A Life Care Plan currently offered to prospective Skyline residents, Skyline will provide Residents with nursing services that are available in the Health Center or assisted living/memory support services that are available in the Assisted Living Center when a determination is made by Skyline, in consultation with the Resident’s physician and family, that the Resident needs nursing care or assisted living/memory support care (“Life Care Benefits”). In this event, the Resident will transfer and be admitted to the Assisted Living Center or the Health Center as deemed appropriate. In the event that space for the Resident is not available in the appropriate level of care, Skyline will arrange and pay for the temporary care of the Resident in his or her apartment by a certified home health care agency, if medically appropriate, until space becomes available in the needed level of care. If home health care is not medically appropriate, Skyline will arrange and pay for care in another facility of Skyline’s choice that can provide the same care that would otherwise have been provided at Skyline until space becomes available. Skyline will pay for care in another facility to the same extent as if it were provided at Skyline.

Assisted living services will be provided in a standard one-bedroom assisted living suite (unless a Resident desires a different unit and pays the fees therefor) and are designed to assist Residents with the activities of daily living, such as dressing, eating, bathing, toileting, and ambulating, which are approved by Skyline’s medical director and delivered in accordance with the routine care included in the applicable monthly or per diem fee then in effect for assisted living. Memory support services will be provided in a memory support unit with the routine care included in the applicable monthly or per diem fee then in effect for memory support. Nursing services will be provided in a private room (subject to availability) and delivered in accordance

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with the routine care included in the applicable monthly or per diem rate then in effect in the Health Care Center.

For temporary transfers while still occupying an independent living unit, each Resident under a current Type A Life Care Plan contract will continue to pay the then-current Monthly Service Fee for the independent living unit, plus the then-current monthly or per diem fee in effect in the Assisted Living, Memory Support or Health Center, as applicable. Residents under certain now-discontinued earlier forms of Residency Agreements are entitled to up to 30 free days in the Assisted Living Center or Health Center. See “SKYLINE ENTRANCE FEE PLANS” above.

For single occupancy, upon permanent transfer to the Assisted Living, Memory Support or Health Center and release of the independent living unit, the Resident’s Monthly Service Fee will be adjusted to the then-current Monthly Service Fee for a two-bedroom Madrona-style apartment (currently, $4,375) plus the cost of two additional meals daily. Depending upon unit availability, a Resident may elect occupancy in a different assisted living unit style or location. In such event, such Resident will also be responsible for the additional incremental cost of the different unit.

In the case of double occupancy of an independent living unit, where there is a permanent transfer of one Resident from the independent living unit, the Monthly Service Fee will be adjusted to equal two times the single person Monthly Service Fee for a two-bedroom Madrona-style apartment, plus the cost of two additional meals per day. Upon the permanent transfer of both Residents from a double-occupancy independent living unit, the unit must be released.

Residents will be responsible for all costs and charges associated with Assisted Living, Memory Support or Health Center services that are not covered by the basic rates in effect for such services, and for all costs not covered by the Residency Agreement.

Continuing Care Benefit. Residents under a Type B Continuing Care Plan enjoy similar life care benefits to residents under the Type A Life Care Plan, except that Skyline is not obligated to pay for care in another facility or to provide temporary care in the resident’s apartment and, in the event that the resident is permanently transferred to the Assisted Living Center or the Health Center, the resident will be required to pay the then-market monthly or per diem rate, as applicable, less a 10% discount.

Skyline Termination and Refunds

Termination Prior to Occupancy. Prior to the Occupancy Date, a Reservation Agreement may be terminated, and a Resident will be entitled to the return of the Reservation Deposit in full without interest. However, Skyline is entitled to keep a $500 processing fee if more than 7 days have passed since execution of the Reservation Agreement, unless: (i) either party fails to perform its obligations under the Reservation Agreement; (ii) the Resident dies before the Occupancy Date; (iii) the Resident is not accepted for residency at Skyline; or (iv) other

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circumstances beyond the control of the prospective Resident equitably entitle him or her to a refund.

Termination After Occupancy. After occupancy, the Residency Agreement may be terminated by the Resident or Skyline during the 90-day period following the Occupancy Date (the “Cancellation Period”). If the Residency Agreement is terminated during the Cancellation Period, the Resident is entitled to a full refund of the Entrance Fee and second person entrance fee, if any. No amounts paid as Monthly Service Fees will be refunded. If notice of cancellation is given during the Cancellation Period, the Resident must release the independent living unit within 20 days of the Resident providing such notice or within 30 days of Skyline providing such notice, as applicable.

After the Cancellation Period, the Resident may terminate the Residency Agreement at any time by providing 30 days written notice of termination to Skyline. Upon termination of the Residency Agreement, Skyline will refund the refundable portion (if any) of the Entrance Fee paid by the departing Resident upon the later of (i) receipt of Entrance Fee proceeds from the subsequent re-sale and occupancy of the independent living unit, or (ii) the vacation of the residence by the departing Resident and removal of such Resident’s belongings, leaving the residence in good condition, less normal wear and tear. See “RESERVATION AND RESIDENCY AGREEMENTS—Resident Fee Structure” herein.

Upon 30 days’ notice, Skyline may terminate the Residency Agreement for good cause including: (a) material misrepresentation or omission in the application or related materials, which, if such information had been accurately provided, would have been material to the decision whether or not to accept the Resident for residency; (b) failure to comply with the policies and procedures of Skyline or creation of a situation detrimental to the health, safety or quiet enjoyment of Skyline by other Residents or the staff; (c) failure to pay the Monthly Service Fee or other amounts when due unless other mutually satisfactory arrangements have been made; provided however, that the Residency Agreement shall not be terminated solely because of financial inability to pay the fees to the extent that inability to pay is not the result of the Resident’s willful or reckless action, and in the judgment of Skyline the ability of Skyline to operate on a sound financial basis will not be impaired; (d) material breach of the terms and conditions of the Residency Agreement; (e) if the independent living unit is no longer fit for occupancy and Skyline elects not to restore it to habitable condition; (f) if the Resident files for protection under the bankruptcy laws of the United States, under any chapter, or conveys all his or her assets for the benefit of creditors, or is the subject of involuntary filing for bankruptcy law protection; (g) the Resident has developed a dangerous or contagious disease or mental illness; (h) the Resident is in need of drug or alcohol rehabilitation or has any other condition for which Skyline is not licensed or for which care cannot be provided without a significant and non-routine expenditure; (i) the Resident has become mentally or emotionally disturbed to a degree that continued presence at Skyline is determined to be detrimental to the health, safety and welfare of other Residents or staff; or (j) the Resident dies or permanently transfers from Skyline (or, in the case of a double occupancy, both Residents die or transfer).

If two Residents occupy an independent living unit, and the Residency Agreement is terminated as to one of them only, the Residency Agreement remains in effect as to the

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remaining Resident. For the remaining Resident, the Monthly Service Fee will be adjusted for single occupancy. In such cases, Residents are not eligible for a refund of the Entrance Fee until termination of the Residency Agreement as to both Residents.

Skyline’s Indebtedness to PRCN

Skyline has previously borrowed a total of $3,950,000 from PRCN pursuant to two separate notes (the “Skyline Subordinated Notes”), each of which bears interest at 5% per annum. Under the terms of the Skyline Subordinated Notes, no payments were permitted unless Skyline met certain conditions imposed for the benefit of the holders of obligations issued under to the Skyline Master Indenture. In connection with the admission of Skyline as a member of the Obligated Group under the Master Indenture, which Obligated Group will include both Skyline and PRCN as members as of the date of issuance of the Series 2016 Bonds, the Skyline Subordinated Notes will be replaced with a new note evidencing Skyline’s indebtedness to PRCN and imposing no conditions to payment. This new note will be unsecured and will not be issued under the Master Indenture.

FRED LIND MANOR

Fred Lind Manor General Description. Fred Lind Manor is an 82-unit senior rental community located in Seattle, Washington. Fred Lind Manor serves a mix of seniors with both independent living and assisted living services.

The existing Fred Lind Manor facility was completed in 1988 and consists of a four- story structure composed of two buildings connected by interior walkways on each floor. Fred Lind Manor is situated on a quiet residential tree lined street within Seattle’s Capitol Hill neighborhood, northeast of downtown Seattle. Capitol Hill has become an attractive neighborhood with new housing, upscale restaurants, coffee shops, parks and vibrant night life.

Fred Lind Manor has been incorporated as a Washington nonprofit corporation since 1945 and became an affiliate of PRCN in October 2014. In 2015, PRCN began a substantial renovation of the dining room, lounge, corridors, and all vacant apartments. These renovations include new floor surfaces, lighting, wall treatments, wireless pendant system, cabinetry, countertops, appliances, and plumbing fixtures. Full remodels have been completed for approximately 20 units that have been occupied by former residents of Exeter House. Apartment renovations will continue as apartment units turn over. Fred Lind Manor estimates that a prospective resident seeking admission will remain on a waiting list for nine months before occupancy.

Fred Lind Manor Independent Living Services. All residents, at no additional charge, receive restaurant-style dining services, help with housekeeping, and access to life enrichment programs, along with scheduled transportation for shopping, featured outings and medical visits. The monthly accommodation fee also includes television, telephone and wireless internet. For an extra charge residents may access more extensive housekeeping and laundry services.

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Fred Lind Manor Assisted Living Services. Fred Lind Manor is currently licensed to provide assisted living services to up to 62 adults. Management plans to seek an increase of licensed capacity in the future to enable the provision of assisted living services to residents of all 82 units at Fred Lind Manor; however, no application for increased assisted living capacity has been submitted as of this date of this Official Statement. Fred Lind Manor residents who subscribe to assisted living services receive all of the amenities and services available to independent living residents. Assisted living services provided at Fred Lind Manor include assistance with daily care and living activities, licensed nursing coverage 8 hours per day, 24-hour availability of certified assistants, medication management, a fitness program, snacks, a personal call system, and routine safety checks. Charges for assisted living services are assessed, a la carte, through a point system based on intensity and frequency of the assistance. Fred Lind Manor Service and Accommodation Agreements. Except for those residents who transferred from Exeter House, each Fred Lind Manor resident occupies a unit pursuant to a standard month-to-month residential lease agreement known as a Service and Accommodation Agreement which automatically renews unless it is terminated. Termination may occur after either party gives at least 20 days advance written notice prior to the end of the lease term; when a resident’s physical, mental or emotional condition is, in the judgment of the resident’s physician, incompatible with the level of services provided at Fred Lind Manor (provided that the obligation to pay rent extends to the end of the current month or until the unit is made available to Fred Lind Manor in its original condition, whichever is later); immediately, and without notice, in the event that Fred Lind Manor, in its sole discretion, determines that the resident becomes incompatible with the other residents or incapable of independently maintaining his or her daily living function; upon the death of the resident; or upon violation of the Service and Accommodation Agreement by the resident.

Residents Transferred from Exeter House. Individuals who previously lived at Exeter House may transfer to Fred Lind Manor pursuant to a Transfer Agreement and generally retain their rights under Exeter House’s month-to-month Residency Agreement, which provides for termination upon the occurrence of any of the following: 60 days’ prior written notice by either party; a violation by the resident of the Residency Agreement or failure to pay amounts due; disposition of a significant portion of the resident’s assets without receiving adequate consideration in return; the making by the resident of excessive purchases that jeopardize payments to Fred Lind Manor; a material misrepresentation by the resident to PRCN or any of its agents or affiliates; the development of a physical or mental condition, substance abuse problem or any conduct that endangers the resident or another person or causes an unreasonable disturbance on the premises; or the need of the resident to transfer permanently from Fred Lind Manor to a setting providing specialized care.

Transfer to Another Level of Care. All decisions about level of placement, including transfers out of Fred Lind Manor and whether such transfers are temporary or permanent, are made by Fred Lind Manor in its sole discretion, in consultation with the resident or the resident’s representative or physician.

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Alternate Care. Other than the Fred Lind Manor Wellness Center, PRCN does not operate any health care facilities serving Fred Lind Manor residents. If a resident’s mental or physical needs require services beyond those provided by Fred Lind Manor, the Fred Lind Manor Executive Director may arrange for appropriate care to be provided to the resident elsewhere. All health care services that are not provided by Fred Lind Manor directly, such as hospital or special dementia care and outpatient services, are the sole responsibility of residents, and residents may arrange for hospice care and certain other services provided by third party contractors.

Fred Lind Manor Low-Income Housing Covenant. In connection with the issuance of the Housing Authority of the County of King Low-Income Housing Assistance Refunding Revenue Bonds, 1997, Series A (GNMA Collateralized Mortgage Loan—Fred Lind Manor Project) and the Housing Authority of the County of King Taxable Low-Income Housing Assistance Revenue Bonds, 1997, Series B (GNMA Collateralized Mortgage Loan—Fred Lind Manor Project) and the insuring by the Federal Housing Administration of a mortgage note related thereto, Fred Lind Manor agreed to be bound by a Low-Income Housing Covenant Agreement (the “Covenant Agreement”). The Covenant Agreement requires Fred Lind Manor, among other things, to comply with certain federal low-income housing set-aside requirements during a regulatory period that will expire on May 1, 2017.

FINANCIAL ASSISTANCE TO RESIDENTS

The Foundation maintains a fund which is available to support residents of Park Shore, Fred Lind Manor and Skyline who, through no fault of their own, are unable to pay any monthly service fees or other charges incurred by the resident. It is the policy of PRCN to assist residents who become unable to pay for such fees or charges, for reasons other than willful dissipation of assets, when PRCN determines, in its sole discretion, that such assistance is financially feasible and appropriate in the circumstances.

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FINANCIAL INFORMATION

OVERVIEW

Appendix B to this Official Statement contains, in their entirety, the audited consolidated financial statements of PRCN and its subsidiaries for the fiscal years ended September 30, 2013, 2014 and 2015. For the fiscal years ended September 30, 2013 and 2014, such audited consolidated financial statements do not include the results of Fred Lind Manor because PRCN became the sole corporate member of Fred Lind Manor during the fiscal year ended September 30, 2015. The PRCN audited consolidated financial statements contain supplemental information consisting of consolidating statements of financial position and consolidating statements of operations and changes in net assets, which distinguish the financial positions and respective changes in operations and net assets of PRCN, Skyline, Fred Lind Manor and the Non-Obligated Entities, from those of PRCN and its subsidiaries on a consolidated basis.

The following summary financial information, debt service coverage ratio and liquidity information for the Obligated Group (which, as of the Date of Issue, will include only PRCN, Skyline and Fred Lind Manor) is derived by management from the audited consolidated financial statements and consolidating information of PRCN and its subsidiaries and from the audited financial statements of Fred Lind Manor for the fiscal years ended September 30, 2013 and 2014. Summary financial information for the Obligated Group for the eight-month periods ended May 31, 2015 and 2016 was derived from financial statements prepared by management for the same periods, which were not audited. The financial performance of the Obligated Group for the eight months ended May 31, 2016 is not necessarily indicative of the results for the fiscal year ended September 30, 2016.

Obligated Group Pro Forma Summary Statement of Financial Position

The following pro forma summary statement of financial position sets forth the financial position of the Obligated Group, as of the fiscal years ended September 30, 2013, 2014 and 2015, and as of the eight-month periods ended May 31, 2015 and 2016.

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OBLIGATED GROUP (EXCLUDING NON-OBLIGATED ENTITIES) SUMMARY STATEMENT OF FINANCIAL POSITION Fiscal Year Ended 8 Months Ended September 30, May 31, 2013 2014 2015 2015 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,954,624 $ 7,342,935 $ 12,149,880 $ 9,136,454 $ 14,842,885 Resident fees 919,128 - - - - Resident and third-party payors, net 2,208,734 2,757,074 1,856,160 2,451,643 2,017,772 Other assets 138,523 183,308 98,823 304,181 347,624 Funds held in trust - 111,121 18,642 - - Short-term Investments 269,360 - - - - Inventory 27,157 30,133 36,020 24,296 28,605 Prepaid expenses 478,284 692,149 633,004 747,243 821,759 TOTAL CURRENT ASSETS $ 11,995,810 $ 11,116,720 $ 14,792,529 $ 12,663,816 $ 18,058,645 Investments $ 7,846,075 $ 8,273,618 $ 8,385,436 $ 8,612,772 $ 8,635,000 Investments -refundable deposits 584,970 552,358 771,506 826,400 112,768 Limited use assets-Waiting list deposits 161,000 163,657 306,372 83,557 142,357 Limited use assets-bond funds held by trustee 14,116,225 13,997,039 13,536,160 13,780,593 13,329,941 Limited use assets-reserve for replacements and escrow 568,844 573,398 637,823 603,938 646,037 Limited use assets-residual receipts reserve 229,859 303,047 307,907 307,626 290,944 Notes receivable - - - - - Trust Funds 32,252 36,923 - 39,880 31,236 FHA Mortgage Insurance Fund 32,288 38,174 - 15,164 13,324 Hazard Insurance Fund - - - 11,657 9,219 Deferred financing fees 5,182,761 4,782,456 4,436,151 4,490,815 3,954,965 Capitalized marketing costs ,net 4,696,033 3,536,035 2,376,036 2,762,702 1,602,703 Intercompany clearing 6,653,426 6,190,713 6,613,715 6,056,834 10,412,660 Property and Equipment 196,372,567 191,272,244 189,458,263 189,328,561 190,071,921 TOTAL ASSETS $ 248,472,110 $ 240,836,382 $ 241,621,897 $ 239,584,315 $ 247,311,720

LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable $ 1,105,951 $ 476,937 $ 753,299 $ 553,055 $ 1,467,153 Accrued expenses 4,634,533 4,741,701 4,823,319 7,481,100 4,295,276 Resident refunds due - 1,053,968 811,138 - - Current portion of Capital Lease Obligation, 34,396 40,729 38,826 40,511 42,441 Current portion of sewer capacity payable 47,153 49,838 52,943 49,838 52,943 Current portion of Long- term debt 2,027,014 2,196,353 2,309,351 2,099,699 2,309,381 TOTAL CURRENT LIABILITIES $ 7,849,047 $ 8,559,526 $ 8,788,877 $ 10,224,203 $ 8,167,194 OTHER LIABILITIES Long-term capital lease obligations, less current portion $ 158,612 $ 117,884 $ 79,058 $ 92,440 $ 49,999 Long-term portion of sewer capacity payable, less current portion 669,830 624,051 571,108 615,418 536,213 Resident expansion deposits 2,892 - - - - Trust Funds 32,252 36,923 - 39,880 31,236 Deferred revenue from entrance fees 143,339,099 142,277,126 150,053,067 141,636,733 157,817,196 Waiting list deposits 715,900 163,657 306,372 246,557 370,357 Refundable deposits 560,663 1,429,493 1,398,906 6,514,499 3,103,218 Accrued marketing fees 830,358 830,357 830,357 830,357 - Long-term debt, less current portion 120,637,652 117,503,915 115,210,626 112,547,559 115,981,536 TOTAL LIABILITIES $ 274,796,305 $ 271,542,932 $ 277,238,371 $ 272,747,646 $ 286,056,948 NET ASSETS Unrestricted $ (26,324,195) $ (30,706,550) $ (35,616,473) $ (33,163,331) $ (38,745,228) Temporarily restricted - - - - - TOTAL LIABILITIES AND NET ASSETS $ 248,472,110 $ 240,836,382 $ 241,621,897 $ 239,584,315 $ 247,311,720

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Obligated Group Pro Forma Summary Statement of Operations (Unrestricted)

The following table sets forth a pro forma summary statement of operations of the Obligated Group for the three fiscal years ended September 30, 2013, 2014 and 2015, and for the eight-month periods ended May 31, 2015 and 2016.

OBLIGATED GROUP (EXCLUDING NON-OBLIGATED ENTITIES) STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS

Fiscal Year Ended 8 Months Ended September 30, May 31, 2013 2014 2015 2015 2016 OPERATING REVENUE Independent Living $ 14,255,682 $ 14,958,008 $ 15,427,425 $ 10,673,598 $ 10,978,290 Healthcare 8,658,490 8,740,094 8,882,769 5,614,083 5,706,969 Assisted Living 8,126,935 7,865,045 8,126,932 5,947,447 7,626,319 Interest Income 368,659 380,981 366,513 143,454 270,859 Other 941,454 1,424,589 1,610,091 767,180 1,503,808 Resident Subsidies (53,824) (302,747) (326,397) (669,703) (649,920) Net resident Service revenue $ 32,297,396 $ 33,065,970 $ 34,087,333 $ 22,476,059 $ 25,436,325 Entrance Fees Earned $ 7,347,928 $ 6,929,568 $ 7,392,938 $ 5,074,298 $ 4,632,744

TOTAL OPERATING REVENUE $ 39,645,324 $ 39,995,538 $ 41,480,271 $ 27,550,357 $ 30,069,069

COST OF SERVICE PROVIDED Healthcare $ 7,453,784 $ 6,612,031 $ 5,654,804 $ 3,694,464 $ 4,656,744 Dining Services 5,605,517 5,833,466 5,876,107 4,393,800 4,664,566 General and Administrative 8,077,689 8,034,525 8,964,191 5,457,712 5,821,031 Management and rental fees 372,684 187,224 - - - Maintenance and housekeeping 4,280,023 4,110,935 4,477,323 3,012,617 3,433,804 Assisted Living 2,535,374 2,446,522 3,976,610 2,102,201 2,775,655 Residential transportation service 473,198 337,534 339,515 222,733 239,248 Resident activities 694,415 1,243,267 1,286,571 908,204 606,551 Interest and financing expenses 7,921,415 7,594,276 7,321,597 4,926,130 5,383,615 Provision for doubtful accounts 16,010 67,611 (91,299) 10,079 12,697 Cost of services provided before depreciation $ 37,430,109 $ 36,467,391 $ 37,805,419 $ 24,727,940 $ 27,593,911 Depreciation and Amortization 8,068,761 8,092,569 8,409,031 5,390,335 5,797,342

TOTAL COST OF SERVICES PROVIDED $ 45,498,870 $ 44,559,960 $ 46,214,450 $ 30,118,275 $ 33,391,253

(Deficiency)/Excess of Revenue (Under)/Over Costs before Non-Operating Activities $ (5,853,546) $ (4,564,422) $ (4,734,179) $ (2,567,917) $ (3,322,184)

NON-OPERATING ACTIVITIES Investment (Loss)/Income $ (71,496) $ 177,067 $ (176,745) $ 111,136 $ 193,430 Charitable contributions 17,050 5,000 1,000 - - Settlement Income 1,736,583 - - - -

CHANGE IN NET ASSETS $ (4,171,409) $ (4,382,355) $ (4,909,924) $ (2,456,781) $ (3,128,754)

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Debt Service Coverage Ratios

The following table presents actual historical coverage of annual debt service (calculated in accordance with requirements of the Master Indenture) by the Obligated Group (which, for this purpose, is assumed to include Skyline and Fred Lind Manor) for the fiscal years ended September 30, 2013, 2014 and 2015 and for the eight-month periods ended May 31, 2015 and 2016. It also presents pro forma debt service coverage for the same periods, assuming the Series 2016 Bonds had been issued, the Series 2007A Bonds had been refunded and the HUD Loan had been refinanced as of the first day of each such period, all in accordance with “THE PLAN OF FINANCE” described in the forepart of this Official Statement.

OBLIGATED GROUP (EXCLUDING NON-OBLIGATED ENTITIES) HISTORICAL AND PRO FORMA COVERAGE OF DEBT SERVICE

Fiscal Year Ended 8 Months Ended September 30, May 31, 2013 2014 2015 2015 2016 Revenues Operating Revenue $ 39,645,324 $ 39,995,538 $ 41,480,271 $ 27,550,357 $ 30,069,069 Plus Entrance Fees Received 21,637,044 11,263,346 24,351,819 11,657,069 16,884,883 Less Entrance Fees Refunded (5,368,097) (3,022,220) (8,376,440) (6,820,562) (3,974,273) Less Initial Entrance Fees (4,513,283) (625,000) 0 0 0 Less Earned Entrance Fees (7,347,928) (6,929,568) (7,392,938) (5,074,298) (4,632,744) Less in-kind contribution 0 0 0 0 0 Plus Investment ( Loss ) Income (71,496) 177,067 (176,745) 111,136 193,430 Less Unrealized (gains) loss on investments 276,605 (209,566) 205,336 47,070 (88,624) (A) Total Revenues available for debt service $ 44,258,169 $ 40,649,597 $ 50,091,303 $ 27,470,772 $ 38,451,741 Operating Expenses Total Operating Expenses $ 45,498,870 $ 44,559,960 $ 46,214,450 $ 30,118,275 $ 33,391,253 Less Depreciation and Amortization (8,068,761) (8,092,569) (8,409,031) (5,390,335) (5,797,342) Less Provision for Uncollectible Accounts (16,010) (67,611) 91,299 (10,079) (12,697) Less Interest Expense (7,921,415) (7,594,276) (7,321,597) (4,926,130) (5,383,615) (B) Total Operating Expenses $ 29,492,684 $ 28,805,504 $ 30,575,121 $ 19,791,731 $ 22,197,599 (C) Income Available for Debt Service (A)-(B) $ 14,765,485 $ 11,844,093 $ 19,516,182 $ 7,679,041 $ 16,254,142 Total Debt Service Principal $ 3,501,091 $ 3,032,106 $ 2,239,779 $ 1,501,321 $ 1,590,494 Interest (cash paid) 6,850,562 6,843,018 6,296,280 4,375,782 4,250,102 (D) Total Debt Service $ 10,351,653 $ 9,875,124 $ 8,536,059 $ 5,877,102 $ 5,840,596 Debt Service Coverage (C)/(D) 1.43 1.20 2.29 1.31 2.78 Minimum Required Debt Service Coverage Ratio 1.20 1.20 1.20 1.20 1.20 (E) Pro Forma Maximum Annual Debt Service $ 8,994,250 $ 8,994,250 $ 8,994,250 $ 5,996,167 $ 5,996,167 Pro Forma Maximum Annual Debt Service Coverage Ratio (C)/(E) 1.64 1.32 2.17 1.28 2.71 ______Notes: For the Fiscal Year ended September 30, 2013, figures for the payment of principal exclude the payoff of $8,855,000 of Series 1999A Bonds and $12,205,000 in Series 2007C Bonds. The amounts shown in the calculation of Income Available for Debt Service, with the exception of Net Entrance Fees have been derived by management from the consolidating statements contained as supplemental information in the audited consolidated financial statements of PRCN and its subsidiaries (excluding Fred Lind Manor) for the same periods, which are included in their entirety as Appendix B, and from the separate financial statements of Fred Lind Manor. Net Entrance Fees are from the financial records of PRCN as shown below in Exhibit 1 in the table following the heading “Move-Ins and Entrance Fees.”

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Liquidity

The following table presents Days Cash on Hand of the Obligated Group, calculated in accordance with requirements of the Master Indenture and assuming that Skyline and Fred Lind Manor are Members of the Obligated Group, as of September 30, 2013, 2014 and 2015, and as of May 31, 2015 and 2016. The Pro Forma Days Cash on Hand as of May 31, 2016 further assumes that the Members of the Obligated Group have received a reimbursement of approximately $7,605,000 from proceeds of the Series 2016 Bonds, which reimbursement is contemplated by the Projects.

OBLIGATED GROUP (EXCLUDING NON-OBLIGATED ENTITIES) DAYS CASH ON HAND

Fiscal Year Ended 8 Months Ended September 30, May 31, 2013 2014 2015 2015 2016 Unrestricted Cash and Investments Cash $ 7,954,624 $ 7,342,935 $ 12,149,880 $ 9,136,454 $ 14,842,885 Investments 7,846,075 8,273,618 8,385,436 8,612,772 8,635,000 (A) Total Unrestricted Cash and Investments $ 15,800,699 $ 15,616,553 $ 20,535,316 $ 17,749,226 $ 23,477,885 Cash Operating Expenses Total Operating Expenses $ 45,498,870 $ 44,559,960 $ 46,214,450 $ 30,118,275 $ 33,391,253 Less Depreciation and Amortization (8,068,761) (8,092,569) (8,409,031) (5,390,335) (5,797,342) Less Provision for Uncollectible Accounts (16,010) (67,611) 91,299 (10,079) (12,697) Other expenses - - - - - (B) Total Cash Operating Expenses $ 37,414,099 $ 36,399,780 $ 37,896,718 $ 24,717,861 $ 27,581,214 (C) Number of Days in Year/8-Month Period 365 365 365 243 244 (D) Daily Cash expenses (B)/(C) $ 102,504 $ 99,725 $ 103,827 $ 101,720 $ 113,038 Days Cash-on-Hand (A)/(D) 154 157 198 174 208 Minimum Required Days Cash on Hand(1) 150 150 150 150 150 (E) Expected Cash Reimbursement at Closing 7,605,000 Pro Forma Days Cash-on-Hand ((A)+(E))/(D) 275 ______

(1) Under the Master Indenture, the testing dates for the liquidity covenant are March 31 and September 30 of each year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

The following discussion and analysis of operations of the Obligated Group does not address matters solely related to the Non-Obligated Entities.

RESULTS OF OPERATIONS FOR THE EIGHT MONTHS ENDED MAY 31, 2016 COMPARED TO THE EIGHT MONTHS ENDED MAY 31, 2015

Revenues

Revenues for the eight months ended May 31, 2016 (“Interim Period 2016”) compared to the eight months ended May 31, 2015 (“Interim Period 2015”) increased by 9.14% from $27,550,357 in Interim Period 2015 to $30,069,069 in Interim Period 2016. A breakdown of revenue components follows.

Monthly fee revenue for Independent Living saw an increase of 2.85% from $10,673,598 in Interim Period 2015 to $10,978,290 in Interim Period 2016. While annual fee increases ranged from 3.5%-4% for both Park Shore and Fred Lind Manor, the communities held some apartments vacant during renovations, which caused Independent Living revenue to be suppressed. Park Shore will continue to hold some apartments vacant during the Park Shore Project, while Fred Lind Manor’s Independent Living is on target for full occupancy by fiscal year-end with residents transitioning from Exeter House. Skyline’s Independent Living experienced more transitions through the continuum. Skyline’s strong resales of those apartments helped continue to drive strong Independent Living revenue and resulted in occupancy exceeding 98% by May 2016.

Assisted Living revenues increased significantly. Assisted Living revenues increased by 28.23% from $5,947,447 in Interim Period 2015 to $7,626,319 in Interim Period 2016 due to the successful conversion of the 9th floor at Skyline to Memory Support and the subsequent fill up of Assisted Living through continuing care transitions at both Park Shore and Skyline.

Expenses

Operating Expenses excluding depreciation for Interim Period 2016 compared to Interim Period 2015 increased by 11.59% from $24,727,940 in Interim Period 2015 to $27,593,911 in Interim Period 2016. A breakdown of expenses follows:

Healthcare expenses increased by 26.05% from $3,694,464 in Interim Period 2015 to $4,656,744 in Interim Period 2016 due to wage and salary market adjustments and higher staffing to accommodate higher census. Dining Services expenses increased by 6.16% from $4,393,800 Interim Period 2015 to $4,664,566 in Interim Period 2016. One significant cost driver was implementation of the next phase of the Seattle minimum wage ordinance in January 2016. (See “MISCELLANEOUS – Employees” herein.) General and administrative expenses increased by 6.66% from $5,457,712 in Interim Period 2015 to $5,821,031 in Interim Period

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2016. This increase was caused by a combination of additional staffing for business office functions in the communities as well as corporate positions.

Fred Lind Manor operating costs increased by 17.14% from $1,641,543 in Interim Period 2015 to $1,922,957 in Interim Period 2016. This cost increase was caused by the transition of Exeter House residents to Fred Lind Manor and the subsequent transfer of care staff and other support personnel.

Maintenance and housekeeping expenses increased by 13.98% from $3,012,617 for Interim Period 2015 compared to $3,433,804 for Interim Period 2016. This increase was caused by additional staffing filling vacant positions as well as general cost increases.

Assisted Living expenses increased by 32.03% from $2,102,201 in Interim Period 2015 to $2,775,655 in Interim Period 2016 due to the opening of the 9th floor Memory Support floor as well as to support higher overall census in Assisted Living and Memory Support.

Cash Flow

Entrance Fees net of Refunds increased by 167% from $4,836,507 for Interim Period 2015 to $12,910,610 for Interim Period 2016. The main driver for this significant change was a continuation of the improved care transition programs put in place at Skyline in late 2014 and more recently at Park Shore, coupled with strong resales of vacated apartments as residents transitioned through the continuum of care.

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2015 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 2014

Revenues

Revenues for the Fiscal Year Ended September 30, 2015 (“FY 2015”) compared to the Fiscal Year Ended September 30, 2014 (“FY 2014”) increased by 3.71% from $39,995,538 in FY 2014 to $41,480,271 in FY 2015. A breakdown of revenue components follows.

Monthly fee revenue for Independent Living saw an increase of 3.14% from $14,958,008 in FY 2014 to $15,427,425 in FY 2015. Monthly fee increases with slightly improved occupancy contributed to this increase. Health Center revenues increased slightly by 1.63% from $8,740,094 in FY 2014 to $8,882,769 in FY 2015 and Assisted Living revenues increased by 3.33% from $7,865,045 in FY 2014 to $8,126,932 in FY 2015.

Resident Subsidies, which include discounts provided as Life Care Benefits and Continuing Care Benefits at Skyline, increased by 7.81% from $302,747 in FY 2014 to $326,397 in FY 2015 as the transition efforts started to show success.

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Expenses

Operating Expenses excluding depreciation for FY 2015 compared to FY 2014 increased by 3.67% from $36,467,391 in FY 2014 to $37,805,419 in FY 2015. A breakdown of expenses follows.

Healthcare expenses decreased significantly by 14.48% from $6,612,031 in FY 2014 to $5,654,804 in FY 2015 due to strong cost control measures. General and administrative expenses increased by 9.04% from $7,447,538 in FY 2014 to $8,120,965 in FY 2015. Corporate support staff was added as contract services were eliminated.

Maintenance and housekeeping expenses increased by 8.91% from $4,110,935 in FY 2014 to $4,447,323 in FY 2015 to address increased maintenance needs of the communities.

Assisted Living expenses increased by 62.54% from $2,446,522 in FY 2014 to $3,976,610 in FY 2015 mostly caused by additional staffing needed as a result of increased assisted living occupancy. Resident activities expenses increased by 3.48% from $1,243,267 in FY 2014 to $1,286,571 in FY 2015 due to increases in labor costs and supplies.

Cash Flow

Entrance Fees net of Refunds increased by 93.85% from $8,241,126 for FY 2014 to $15,975,379 for FY 2015. The main driver for this significant change was the much improved care transition programs put in place at Skyline in late 2014 coupled with strong resales of vacated apartments as residents transitioned through the continuum of care.

RESULTS OF OPERATIONS FOR FISCAL YEAR 2014 COMPARED TO FISCAL YEAR 2013

Revenues

Revenues for FY 2014 compared to the Fiscal Year Ended September 30, 2013 (“FY 2013”) increased slightly by 0.88% from $39,645,324 in FY 2013 to $39,995,538 in FY 2014. A breakdown of revenue components follows.

Monthly fee revenue for Independent Living saw an increase of 4.93% from $14,255,682 in FY 2013 to $14,958,008 in FY 2014 driven by monthly fee increases along with a slight increase in occupancy.

Healthcare revenues increased slightly by 0.94% from $8,658,490 in FY 2013 to $8,740,094 in FY 2014. Assisted Living revenues decreased by 3.22% from $8,126,935 in FY 2013 to $7,865,045 in FY 2014 due to lower occupancy rates.

Resident Subsidies increased sharply from $53,824 in FY 2013 to $302,747 in FY 2014 due to a combination of transitions and fee discounts that were given to entice move-ins.

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Expenses

Operating Expenses excluding depreciation for FY 2015 compared to FY 2014 decreased by 2.57% from $37,430,109 in FY 2013 to $36,467,391 in FY 2014. A breakdown of expenses follows.

Healthcare expenses decreased significantly by 11.29% from $7,453,784 in FY 2013 to $6,612,031 in FY 2014 due to expense control measures. Dining Services expenses increased by 4.07% from $5,605,517 in FY 2013 to $5,833,467 in FY 2014. Maintenance and housekeeping expenses decreased by 3.95% from $4,280,023 in FY 2013 to $4,110,935 in FY 2014 due to expense and labor cost savings measures.

Assisted Living expenses decreased by 3.50% from $2,535,374 in FY 2013 to $2,446,522 in FY 2014.

Residential transportation service expenses decreased sharply by 28.67% from $473,198 in FY 2013 to $337,534 in FY 2014. Some expenses were reallocated to Resident Activities, contributing to a 79.04% increase in Resident Activities expenses from $694,415 in FY 2013 to $1,243,267 in FY 2014; this increase was also due to additional programming.

Cash Flow

Entrance Fees net of Refunds decreased by 49.34% from $16,268,947 for FY 2013 to $8,241,126 for FY 2014 due to stalled sales efforts as well as lack of transitions of Skyline and Park Shore residents through the care continuum.

MISCELLANEOUS

ACTUARIAL REPORTS

At the request of PRCN, A.V. Powell & Associates LLC (“AVP”) has performed actuarial services based on financial and resident information provided for Park Shore and Skyline as of September 30, 2015. For Park Shore, AVP calculated the future service obligation but opined that its calculation does not provide necessary or useful information to evaluate Park Shore’s financial solvency. For Skyline, AVP determined that the community was, with respect to its future service obligations, in satisfactory actuarial balance with qualifications about surplus and contingency margins, provided that future experience substantially follows the underlying assumptions set forth in its report.

LICENSURE

Each of the Obligated Group Communities is licensed under Boarding Home Licensure Regulations of the Office of Licensing and Certification of the Washington Department of Social and Health Services. Each of Park Shore and Skyline is additionally licensed by the Nursing Home Services Section of the Washington Department of Social and Health Services.

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MEMBERSHIPS

PRCN is a member of LeadingAge, a national association of approximately 6,000 nonprofit organizations dedicated to making America a better place to grow old. The purpose of LeadingAge is to advance policies, promote practices, and conduct research that supports, enables, and empowers people to live as they age.

PRCN is also a member of LeadingAge Washington, the state association serving nonprofit and mission-driven organizations dedicated to providing quality housing and skilled long-term services to seniors and people with disabilities.

INSURANCE

PRCN maintains several types of insurance. As of April 1, 2016, these policies included Commercial Property/Inland Marine and Difference-in-Conditions policies with a blanket occurrence limit of $385,709,709 ($344,363,709 Real and Personal Property, $41,346,000 Business Interruption), Earthquake and Flood coverage with separate limits of $50,000,000; General Liability, Professional Liability, Employee Benefits Liability with separate limits of $1,000,000 per claim/$3,000,000 aggregate; and Auto liability policy with a limit of $1,000,000. PRCN also maintains a $10,000,000 Umbrella policy that serves as excess coverage over the General Liability, Professional Liability, Employee Benefits and Auto policies. PRCN also has coverage for Directors and Officers Liability, as well as coverage for Crime and Liquor Liability.

The type and amounts of insurance coverage to be maintained by PRCN are subject to future change as permitted by the Master Indenture.

EMPLOYEES

As of June 2016, PRCN and its affiliates had 367 full-time equivalent employees. None of its employees is currently represented by any collective bargaining unit, and PRCN management is not aware of any union organization activities among its workforce. Labor relations are considered to be good by management.

In 2014, the City of Seattle enacted an ordinance that (a) increased the minimum hourly compensation paid to employees to at least $12.00, effective January 1, 2016; and (b) will further increase the minimum hourly compensation on an annual basis, reaching at least $15.75 in 2020 and, in 2025, the inflation-adjusted equivalent of $17.00 in 2017 dollars. For employers with more than 500 employees anywhere in the United States, the ordinance requires, by January 1, 2017, a minimum hourly wage of $15.00 adjusted annually for inflation thereafter (unless the employer provides qualifying medical benefits, in which case the employer may pay a lower wage until January 1, 2019). As a result of this ordinance, the Obligated Group’s labor costs have increased and will continue to increase. These higher labor costs have been taken into account in the budgets and financial forecasts of the Obligated Group Communities. Further, the Obligated Group Communities may incur higher costs for contractual services to the extent that the ordinance imposes increased costs on its contractors.

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RETIREMENT PLAN

PRCN maintains a 403(b) defined contribution retirement plan. The plan covers all employees of PRCN and its affiliates. Employees become eligible to participate in the plan after the start of the month following their hire date. Employer contributions start on the first pay date following the one-year anniversary of employment. PRCN provides matching contributions to 100% of participant deferrals up to 4% of eligible compensation. Employer contributions for the fiscal years ended September 30, 2014 and 2015, totaled $190,834 and $243,730, respectively.

PRCN does not maintain any defined benefit plans and does not have any unfunded pension liability.

INVESTMENT POLICY

The PRCN Board is responsible for stewardship of the assets of the Obligated Group available for investment. Under PRCN’s current investment policy, adopted in 2003, the primary objective is to invest available funds so as to achieve a prudent and responsible balance between security of principal and return on investment, and to have an appropriate match between the term of investments and the anticipated need for such funds. The policy provides that investment in equity securities shall not exceed 15% of total cash and investments, and investment in fixed income securities shall not exceed 50% of total cash and investments (and no more than 40% of the total investment in fixed income securities may be in corporate debt securities). No more than 10% of the market value of the equity portfolio may consist of the equity securities of any one issuer and no individual investment in equity securities of an issuer may exceed 5% of the outstanding equity securities of such issuer.

ENVIRONMENTAL SITE ASSESSMENTS

A Phase I Environmental Site Assessment (the “Skyline Assessment”) prepared in 2007 in connection with the original development of Skyline revealed evidence of two recognized environmental conditions. First, the Skyline Assessment identified the historic presence of heating oil underground storage tanks but stated that further subsurface investigation appeared unwarranted because “it may be reasonable to conclude that there is a low likelihood these tanks have resulted in widespread environmental impacts to the subject property.” Second, the Skyline Assessment identified the historic presence of a dry cleaning facility that operated on a portion of the present site of Skyline for more than 30 years. Although a Phase II Environmental Site Assessment had been performed prior to the Skyline Assessment to assess the potential for adverse environmental impacts to the property, the Skyline Assessment’s author opined “that additional subsurface investigation would be necessary to demonstrate that the property has not been adversely impacted from the historic dry cleaning operations.” To the best knowledge of PRCN and Skyline, no further evidence of recognized environmental conditions was discovered during construction of Skyline, which was completed in 2009.

With respect to the Park Shore property, in 1996 a Phase I Environmental Site Assessment Report concluded that testing and reviews revealed no contamination or adverse environmental effects at the property. A-37

For Fred Lind Manor, a Phase I Environmental Site Assessment was completed by Landau Associates, Inc. on July 20, 2016, and disclosed no recognized environmental conditions or potential environmental concerns.

PROPERTY TAXES

Under current Washington law, the real and personal property used by a nonprofit organization in connection with the operation of a “home for the aging” (as defined by RCW 84.36.041) generally is partially exempt from state property taxes to the extent that dwelling units in the home are occupied by persons who require assistance with the activities of daily living or by “eligible residents” (as defined by RCW 84.36.041) whose disposable income falls below certain standards. The Obligated Group Communities qualify for a partial property tax exemption under these provisions of state law.

2016 DEEDS OF TRUST

The real and personal property of the members of the Obligated Group comprising Park Shore, Skyline and Fred Lind Manor and PRCN’s interest in the three condominium units in the Condominium Project is subject to liens securing all Obligations issued and outstanding under the Master Indenture from time to time, including, without limitation, Obligation No. 1, Obligation No. 2, Obligation No. 3 and Obligation No. 4, pursuant to respective deeds of trust (collectively, the “2016 Deeds of Trust”) executed by the members of the Obligated Group for the benefit of the Master Trustee. The liens of the 2016 Deeds of Trust will be insured by a title policy to be issued by Chicago Title Insurance Company on the date of issuance of the Series 2016 Bonds in an amount equal to the par amount of the Series 2016 Bonds.

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EXHIBIT 1

ADDITIONAL INFORMATION REGARDING THE OBLIGATED GROUP COMMUNITIES

This Exhibit 1 contains statistical information regarding the Obligated Group Communities.

Independent Living Units

The following tables set forth the number and types of units, and the type and range of fees assessed by PRCN for independent living units at each of the Obligated Group Communities.

Park Shore. The following table sets forth the resident fees currently in effect for independent living units at Park Shore.

PARK SHORE INDEPENDENT LIVING UNITS

EXPECTED CURRENT NUMBER OF NUMBER OF UNITS AFTER SQUARE MONTHLY (1) (2) UNIT TYPE UNITS PROJECT FOOTAGE ENTRANCE FEES SERVICE FEE

$145,000 – Studio 18 6 357 – 465 $2,512 $190,000 Studio with $261,000 – 14 4 640 $3,035 Alcove $272,000 $274,000 – $3,414 – One-Bedroom 38 41 653 – 1,045 $450,000 $4,381 One-Bedroom $369,000 – $3,698 – 8 8 685 – 839 (Lakeside) $451,000 $4,123 $457,000 – $4,610 – Two-Bedroom 32 42 1,077 – 1,774 $804,000 $5,887 Off-Site $500,000 – $4,100 – 3 3 800 –2,000 Condos $1,500,000 $7,000 TOTAL 113 104 ______(1) Unit configuration as of June 30, 2016, after completion of the Condominium Project but prior to completion of the Park Shore Project. The Off-Site Condos consist of 1 one-bedroom unit and 2 two-bedroom units. (2) Expected unit configuration after completion of Park Shore renovation. Source: PRCN Records

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As of July 2016, Park Shore charged a second-person entrance fee of $16,000 and a second-person monthly service fee of $1,363; however, there is no second person monthly service fee for studio apartments without an alcove. PRCN also assesses residents for property taxes (to the extent the property is not exempt from such tax) as an additional charge, in amounts currently varying from $45 to $134 depending on the apartment size.

Skyline. The following table sets forth the resident fees currently in effect for independent living units at Skyline.

SKYLINE INDEPENDENT LIVING UNITS

NUMBER OF SQUARE ENTRANCE FEE MONTHLY SERVICE UNIT TYPE UNITS FOOTAGE RANGE FEE RANGE

750 – $395,000 – One Bedroom 71 $3,036 – 4,009 1,159 $817,971 1,110 – $813,280 – Two Bedroom 108 $4,252 – $5,105 1,534 $1,323,521 Two Bedroom 1,694 – $1,764,922 – 2 $5,712 – $5,833 (Penthouse) 1,832 $1,900,752 $1,093,080 – Three Bedroom 18 1,601 $5,226 $1,291,265 TOTAL 199

In addition, Skyline charges a second-person entrance fee of $35,000 and a second- person monthly service fee of $1,253.

Fred Lind Manor. The following table sets forth the resident fees currently in effect at Fred Lind Manor. These fees are charged to independent living and assisted living residents alike; assisted living residents also pay additional fees for the services they receive.

FRED LIND MANOR RESIDENTIAL UNITS

CURRENT NUMBER OF MONTHLY UNIT TYPE UNITS SQUARE FOOTAGE SERVICE FEE

Studio 36 375 $2,565 One-Bedroom 42 545 – 745 $3,670 Two-Bedroom 4 970 $4,100 TOTAL 82

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Additional fees charged at Fred Lind Manor include:

One-time non-refundable Community Fee $1,750(1) Damage/Security Deposit (refundable) $500 Double-occupancy fee $760 Pet fee $500 Long Distance telephone service (unlimited domestic) $5 Room service (first 3 trays are free each month) $5 (1) Fred Lind Manor plans to increase the Community Fee to at least the amount of the applicable Monthly Service Fee, but not before the payment in full of the HUD Loan.

Assisted Living Units

Park Shore. The following table sets forth information concerning the assisted living units at Park Shore as of May 31, 2016.

PARK SHORE ASSISTED LIVING UNITS

CURRENT MONTHLY SERVICE MONTHLY SERVICE OCCUPANCY FEE FEE NUMBER (MAY 31, (TRANSFERS FROM (DIRECT ADMIT TO UNIT TYPE OF UNITS 2016) ILU) ALU)

Studio 18 15 $4,254 $4,727 Studio (with Alcove) 2 2 $4,839 $5,377 One-Bedroom 7 6 $5,153 $5,896 One-Bedroom 3 2 $5,617 $6,558 (Lakeside) TOTAL/RATE 30 83.3% ______Source: PRCN Records

In addition to the monthly service fees (which provide for an apartment and basic residential services), care services are provided for an additional charge using a point system. Points are billed at $56 each per month.

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Skyline. The following table sets forth information concerning the assisted living units at Skyline as of May 31, 2016.

SKYLINE ASSISTED LIVING AND MEMORY SUPPORT UNITS

CURRENT NUMBER OF OCCUPANCY MONTHLY SERVICE (1) STYLE UNITS (MAY 31, 2016) FEE

Standard One-Bedroom 40 38 $5,700 – $10,000 Assisted Living Suite One-Bedroom Deluxe 34 33 6,300 – 11,440 Two-Bedroom Grand(2) 2 2 7,369 – 9,360 (2) TOTAL/RATE 76 96.0% ______(1) Monthly Service Fee does not include the cost of meals. (2) The Assisted Living Center includes 4 one-bedroom units that have been combined to function as 2 two-bedroom units. Source: PRCN Records

Fred Lind Manor. Residents of Fred Lind Manor are charged for assisted living services through a point system based on the actual services provided. See “OBLIGATED GROUP COMMUNITIES – FRED LIND MANOR – Fred Lind Manor Assisted Living Services” in this Appendix A.

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Point-in-Time Occupancy

The following tables show the turnover experience of each of the Obligated Group Communities during the fiscal years ended September 30, 2013, 2014 and 2015, and for the eight months ended May 31, 2016.

PARK SHORE CHANGE IN ENDING OCCUPANCY OF THE INDEPENDENT LIVING UNITS

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, PERIOD 2013 2014 2015 2016 Beginning Number of Residential Units Occupied 98 97 98 99 Units Released Due To: Death 7 3 3 4 Permanent Transfer to Assisted Living Center/ Health Center 9 5 9 5 Withdrawal 3 1 7 2 Newly Occupied Residential Units 18 10 20 11 Ended Number of Residential Units Occupied 97 98 99 99 Total Residential Units 116 116 112 113 Ended Occupancy % 83.6% 84.5% 88.4% 87.6%

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SKYLINE CHANGE IN ENDING OCCUPANCY OF THE INDEPENDENT LIVING UNITS

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, PERIOD 2013 2014 2015 2016 Beginning Number of Residential Units Occupied 188 195 190 190 Units Released Due To: Death 1 4 2 1 Permanent Transfer to Assisted Living Center/ Health Center 4 4 11 8 Withdrawal 4 7 5 0 Newly Occupied Residential Units 16 10 18 15 Ended Number of Residential Units Occupied 195 190 190 196 Total Residential Units 199 199 199 199 Ended Occupancy % 98.0% 95.5% 95.5% 98.5%

FRED LIND MANOR CHANGE IN ENDING OCCUPANCY OF ALL UNITS

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31 PERIOD 2013 2014 2015 2016 Beginning Number of 70 63 71 63 Residential Units Occupied Units Released Due to Death 30 24 38 17 or Withdrawal Newly Occupied Residential 23 32 30 25 Units Ended Number of 63 71 63 71 Residential Units Occupied Total Residential Units 82 82 82 82 Ended Occupancy % 76.8% 86.6% 76.8% 86.6% ______Source: PRCN

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Average Occupancy

The following table shows historical utilization of independent living units, assisted living units and skilled nursing beds at each of the Obligated Group Communities. In contrast to the tables immediately above, which show occupancy statistics as of the last day of the listed time periods, the tables below show the average occupancy figures and rates during the listed time periods.

PARK SHORE AVERAGE OCCUPANCY

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016 Units Pct. Units Pct. Units Pct. Units Pct. Independent Living 99 85% 97 84% 98 86% 98 87% Assisted Living 27 90% 25 82% 23 75% 26 88% Skilled Nursing 24 87% 25 89% 24 85% 25 90% Total Occupancy 150 86% 147 84% 145 84% 149 88% ______Source: PRCN

SKYLINE AVERAGE OCCUPANCY

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016 Units Pct. Units Pct. Units Pct. Units Pct. Independent Living 192 96% 195 98% 190 95% 194 97% Assisted Living 49 82% 44 90% 43 90% 45 93% Memory Support 16 98% 15 91% 17 71% 27 96% Skilled Nursing 28 81% 29 86% 31 90% 31 90% Total Occupancy 284 92% 283 92% 281 91% 297 96% ______Note: Prior to a conversion in 2015, Skyline had 60 assisted living units and 16 memory support units. Since the conversion, Skyline has 48 assisted living units and 28 memory support units. Source: PRCN

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FRED LIND MANOR AVERAGE OCCUPANCY

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016 Units Pct. Units Pct. Units Pct. Units Pct. Independent Living 25 – 27 – 42 – 34 – Assisted Living 42 – 39 – 27 – 33 –

Total Occupancy 67 81.7% 66 80.5% 69 84.2% 67 81.7% ______Note: Fred Lind Manor contains 82 residential units, all of which may be occupied by independent living residents or by assisted living residents, subject to the constraint that the number of assisted living residents cannot exceed the licensed capacity of 62. The rate of Total Occupancy is the percentage of all residential units occupied. Source: PRCN Records

Move-Ins and Entrance Fees

The following table shows historical move-ins, entrance fees, and refunds for Park Shore and Skyline. Fred Lind Manor is not included because it does not require entrance fees.

OBLIGATED GROUP: MOVE-INS AND ENTRANCE FEES (PARK SHORE AND SKYLINE ONLY)

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016

New Resident Move-ins 34 20 38 26 Turnover percent 11% 6% 12% 8% Entrance Fees Received $21,637,044 $11,263,346 $24,351,819 $ $16,884,883 Entrance Fee Refunds (5,368,097) (3,022,220) (8,376,440) (3,974,273) Net Entrance Fees $16,268,947 $8,241,126 $15,975,379 $12,910,610

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Health Center Revenue Sources

The following tables show, for Park Shore and Skyline, the share of Health Center gross revenue derived from Medicaid, Medicare and private pay sources during the last three fiscal years and the eight months ended May 31, 2016.

PARK SHORE HEALTH CENTER SOURCES OF GROSS REVENUE

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016

Washington Apple Health 7.3% 11.0% 10.2% 5.6% (Medicaid) Medicare/HMO 27.9% 23.5% 25.0% 36.8% Private Pay (Including Private 64.8% 65.5% 64.8% 57.6% Insurance) Total 100.0% 100.0% 100.0% 100.0%

SKYLINE HEALTH CENTER SOURCES OF GROSS REVENUE

EIGHT MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MAY 31, 2013 2014 2015 2016

Washington Apple Health 0.0% 0.0% 0.0% 0.0% (Medicaid) Medicare/HMO 68.4% 62.9% 51.9% 59.1% Private Pay (Including Private 31.6% 37.1% 48.1% 40.9% Insurance) Total 100.0% 100.0% 100.0% 100.0%

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EXHIBIT 2

PRIMARY MARKET AREA AND COMPETITION

The information contained in this Exhibit 2 is based on a market assessment performed by GSI for PRCN regarding the market forces important to the financial prospects of the Obligated Group Communities. Although GSI and PRCN consider the views expressed herein to be well grounded, there can be no guarantee that such information is correct or that projections contained herein will accurately predict future events.

Primary Market Area

The primary market area for senior living services is typically defined as the geographic area from which the majority of prospective residents reside prior to residency at the community.

GSI’s analysis of resident origin data for Skyline, Fred Lind Manor and Park Shore indicates that each community draws a substantial portion of its residents from the greater Seattle metropolitan area and beyond. PRCN’s Primary Market Area was defined by GSI in conjunction with PRCN management, based on an analysis of resident origin, geographic and demographic considerations, and professional experience. Approximately two-thirds of residents of the Obligated Group Communities have originated from within this area. PRCN’s Primary Market Area is comprised of 18 zip code areas that cover a large part of Seattle and Mercer Island, depicted in areas shaded green in the following map. The Primary Market Area is located entirely within King County, Washington.

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MAP: PRIMARY MARKET AREA AND REGIONAL CONTEXT

Delineates the Primary Market Area. Note: The Primary Market Area accounts for the majority of residents at the Obligated Group Communities. However, each Obligated Group Community draws residents from throughout the greater Seattle Metro Area and beyond. The Primary Market Area accounts for about two-thirds of the residents.

Demographic Trends

The following table shows the size of the over-65 population in the Primary Market Area by age and projected growth trends. Although prospective residents of continuing care

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retirement communities are typically age 75 and above, internal data from management indicates that a portion of those ages 65 to 74 also represent a potential market for Obligated Group Communities, particularly for Skyline.

Population Trends by Age in the Primary Market Area Average Compounded Population by Age # Change Percent Change 2010 2016 2021 2010-2016 2016-2021 2016-2021 Actual Estimated Projected Total Population 409,517 449,217 481,198 1.6% 1.4% 31,981 Under Age 65 367,398 393,675 410,642 1.2% 0.9% 16,967 Age 65 to 74 21,428 33,371 43,762 9.3% 6.2% 10,391 Age 75-84 13,113 14,288 19,149 1.5% 6.8% 4,861 Age 85 & over 7,578 7,883 7,645 0.7% -0.6% -238 Subtotal 75 & over 20,691 22,171 26,794 1.2% 4.2% 4,623 Total Age 65 & over 42,119 55,542 70,556 5.3% 5.4% 15,014 Source: The Nielsen Company

Older adults typically move to independent living as a household. In order to qualify for independent living residency, a prospective resident must be able to afford the fees. Assuming that prospective residents could reasonably afford to spend 60% or more of their income on retirement living with services, the minimum annual household income required to afford the current minimum monthly fees at the Obligated Group Communities is estimated to be approximately $50,000 for Fred Lind Manor and $63,000 for Skyline and Park Shore. Assuming monthly fees increase at the rate of 3% per year, by 2021 the minimum annual household income required would be approximately $57,000 for Fred Lind Manor and $73,000 or more for Skyline and Park Shore.

Data on household income does not reflect assets, such as a home that is owned, and other investments. In the Primary Market Area, 62% of age 65+ headed households (all incomes) are estimated to currently live in a home which they own, and the rate of homeownership shows a positive relationship with household income, therefore the rate of homeownership is likely to be greater among the target market segments for the three Obligated Group Communities.1

The following table shows the estimated current (2016) and projected (2021) number of older households by age and income in the Primary Market Area provided by The Nielsen Company, as well as the calculated number of income eligible households for independent living interpolated from The Nielsen Company data.

1 Source for homeownership rate: The Nielsen Company. Source for relationship between income and homeownership: U.S. Census. A-50

Income Eligible Households in the Primary Market Area YEAR 2016 (Estimated) Age range: 65-74 75-84 85 & Over Subtotal 75+ Total 65+ Total Households 22,632 10,285 5,924 16,209 38,841 Median Household $66,603 $38,494 $27,196 Income Household Income: Less than $25,000 4,422 3,669 2,801 6,470 10,892 $25,000 to $34,999 1,732 1,150 733 1,883 3,615 $35,000 to $49,999 2,542 1,389 696 2,085 4,627 $50,000 to $74,999 3,945 1,416 655 2,071 6,016 $75,000 to $99,999 2,784 863 365 1,228 4,012 $100,000 to $124,999 1,794 404 254 658 2,452 $125,000 to $149,999 1,066 320 168 488 1,554 $150,000 to $199,999 1,259 334 87 421 1,680 $200,000 or more 3,088 740 165 905 3,993 Target Incomes:* $50,000+ 13,936 4,077 1,694 5,771 19,707 $63,000+ 12,042 3,397 1,380 4,777 16,819 YEAR 2021 (Projected) Age range: 65-74 75-84 85 & Over Subtotal 75+ Total 65+ Total Households 29,503 13,792 5,753 19,545 49,048 Median Household $72,414 $42,564 $29,013 Income Household Income: Less than $25,000 5,128 4,556 2,608 7,164 12,292 $25,000 to $34,999 1,983 1,451 669 2,120 4,103 $35,000 to $49,999 3,059 1,763 656 2,419 5,478 $50,000 to $74,999 5,110 2,001 664 2,665 7,775 $75,000 to $99,999 3,582 1,195 384 1,579 5,161 $100,000 to $124,999 2,350 565 261 826 3,176 $125,000 to $149,999 1,524 475 189 664 2,188 $150,000 to $199,999 1,757 493 106 599 2,356 $200,000 or more 5,010 1,293 216 1,509 6,519 Target Incomes:* $57,000+ 17,698 5,382 1,608 6,989 24,687 $73,000+ 18,924 5,862 1,767 7,629 26,553 Source: Data, estimates and projections from The Nielsen Company. *Target income group estimated by GSI using straight line interpolation. Incomes have been rounded to nearest thousand. Target income is defined as 1.6 x the annualized lowest monthly fees at the Obligated Group Communities. The lower income target is based on rates at Fred Lind Manor. The higher income target is based on rates at Skyline and Park Shore.

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Housing Market Trends

The majority of the target age and income market are likely to be homeowners who will need to sell their homes to generate the liquidity necessary to pay entrance fees. Therefore, the housing market has important implications for the Obligated Group Communities. According to Zillow, the median home value in the city of Seattle in June 2016 was $585,400, reflecting a 16.7% increase over the past year, and Zillow predicts that values will rise 8.1% within the next year. Zillow describes the Seattle residential real estate market as a “very hot” sellers’ market.

More detailed housing market data for the zip code areas within the Primary Market Area appears in the following table.

Single Family Home Sales Trends in the Primary Market Area 2013 through YTD May 31, 2016

2013 2014 2015 January-May, 2016 Number Average Number Average Number Number Average Zip Homes Sales Homes Sales Homes Average Sales Homes Sales Codes Sold Price Sold Price Sold Price Sold Price 98040 359 $860,338 349 $898,017 419 $1,036,786 128 $1,034,526 98101 224 $414,903 187 $495,828 171 $500,270 72 $615,915 98102 359 $394,944 323 $419,234 357 $470,436 152 $530,270 98103 755 $439,885 720 $457,729 780 $525,871 305 $569,983 98105 325 $493,988 288 $574,998 325 $633,323 133 $715,970 98107 406 $399,997 426 $455,010 498 $484,028 195 $536,235 98109 356 $402,773 343 $370,452 405 $405,208 177 $452,635 98112 414 $714,383 343 $718,140 362 $866,844 164 $915,400 98115 650 $435,738 656 $478,238 836 $538,255 270 $598,900 98117 567 $444,165 533 $506,660 648 $563,213 211 $650,590 98119 336 $486,625 332 $512,184 403 $536,845 137 $599,863 98121 322 $351,674 355 $378,358 551 $393,280 160 $465,447 98122 491 $390,628 462 $411,173 584 $466,666 192 $551,100 98144 448 $369,742 417 $393,083 563 $453,219 153 $442,347

Total/ Avg. 6,012 $471,413 5,734 $504,936 6,902 $562,446 2,449 $619,942

Source: Zillow Data June 2016 Zillow data- zip_median_sold_price Zillow data- sales_zip

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The following chart shows trends in single-family home values in the Seattle area, which includes for this purpose portions of King, Pierce and Snohomish Counties, Washington.

Source: King County Office of Economic and Financial Analysis chart; S&P/Case-Shiller Home Price Index data.

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Regional Economy and Employment Information

The following chart depicts trends in non-farm employment in King County, Washington.

Source: King County Office of Economic and Financial Analysis chart; Washington State Employment Security Department data.

According to preliminary data from the U.S. Bureau of Labor Statistics, the non- seasonally adjusted unemployment rate for the Seattle-Tacoma-Bellevue, Washington, Metropolitan Statistical Area (“MSA”) as of March 2016 was 5.1%, compared to 6.0% for Washington State and 5.1% for the United States.

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The following table shows employment levels by major occupational group for the Seattle-Tacoma-Bellevue MSA, which includes portions of King, Pierce and Snohomish Counties.

Employment by Industry Sector – April 2016 Seattle-Tacoma-Bellevue, WA MSA Washington Major Occupational Group Number Percentage Number Percentage

Office and Administrative Support 252,210 13.9% 422,860 14.2% Sales and Related 180,130 9.9% 308,770 10.3% Food Preparation and Serving Related 153,820 8.5% 264,340 8.9% Business and Financial Operations 128,990 7.1% 178,640 6.0% Transportation and Material Moving 127,050 7.0% 211,120 7.1% Computer and Mathematical 121,320 6.7% 143,270 4.8% Production 108,080 6.0% 178,770 6.0% Management 96,250 5.3% 145,240 4.9% Education, Training, and Library 93,250 5.1% 177,430 5.9% Healthcare Practitioners and Technical 88,170 4.9% 152,460 5.1% Construction and Extraction 77,540 4.3% 133,380 4.5% Installation, Maintenance, and Repair 63,600 3.5% 115,660 3.9% Architecture and Engineering 55,470 3.1% 77,970 2.6% Personal Care and service 54,510 3.0% 88,950 3.0% Building and Grounds Cleaning and Maintenance 45,320 2.5% 85,050 2.9% Healthcare Support 40,830 2.3% 75,960 2.5% Protective Service 35,560 2.0% 61,810 2.1% Arts, Design, Entertainment, Sports, and Media 31,790 1.8% 45,870 1.5% Community and Social Service 23,870 1.3% 43,580 1.5% Life, Physical, and Social Science 19,640 1.1% 33,680 1.1% Legal 14,300 0.8% 19,960 0.7% Farming, Fishing, and Forestry 2,550 0.1% 19,170 0.6%

All 1,814,250 100.0% 2,983,940 100.0% Source: United States Department of Labor, Bureau of Labor Statistics, May 2015 Occupational Employment and Wage Estimates, www.bls.gov/oes/current, April 2016 Note: The sum of the employment for each category may not match the total for all occupations due to rounding estimates

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General Types of Contracts Governing CCRCs

Continuing care retirement communities may provide a variety of contracts to residents. These types are generally distinguishable by how they provide health care (if at all). The most common contract types are as follows:

Extensive or Life Care Contract (“Type A”). Under a Type A contract, a resident typically pays an upfront entrance fee and an ongoing monthly service fee in exchange for the right to lifetime occupancy of an independent living unit with certain services and amenities. Residents of independent living who require assisted living or nursing care may transfer to the appropriate level of care and continue to pay essentially the same monthly fee they had been paying for their residence or, upon permanent transfer, the fee may be adjusted to the weighted average of all monthly fees.

Modified Contract (“Type B”). Under a Type B contract, the resident also generally pays an upfront entrance fee and an ongoing monthly service fee for the right to lifetime occupancy of an independent living unit with certain services and amenities. However, under a Type B contract, the continuing care retirement community typically provides assisted living or skilled nursing care to residents (a) at a discounted rate on the per diem, e.g., 20% discount; (b) a certain number of days per year or per lifetime, e.g., 60 to 90 days; or (c) a combination of the two.

Fee-for Service Contract (“Type C”). A Type C contract also generally requires an upfront entrance fee and an ongoing monthly service fee for the right to lifetime occupancy of an independent living unit with certain services and amenities. However, under the Type C contract, residents who require assisted living or nursing care are generally required to pay for such care at then prevailing rates.

Comparable Communities

The primary comparable communities are defined as retirement communities within the Primary Market Area that include independent living and either a full or partial continuum of care, offer similar services and amenities, and compete for a similar age and income qualified resident. The following presents a summary of key findings regarding comparable communities with independent living within the Primary Market Area. The focus is on larger communities that are comparable to PRCN’s two larger communities, Skyline and Park Shore, which charge an entrance fee. However, information on several rental communities with a more limited continuum of care, similar to Fred Lind Manor, is also provided.

Eight existing facilities in the Primary Market Area were identified as being comparable, to varying degrees, to one or more of the Obligated Group Communities. The eight existing comparable communities account for a total of 1,492 independent living units and report an average occupancy rate of 92%, which increases to 94% when the one low outlier (The Hearthstone) is excluded from the average. These comparable facilities are mostly entrance fee communities; two are rental communities. The average occupancy rate of the three Obligated Group Communities (as of June 2016) was 94%.

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Existing Comparable Communities with Independent Living in the Primary Market Area

Year Type of # of IL Units Facility Owner/Sponsor Opened Contract & Occupancy

Obligated Group Communities

Skyline PRCN Non-profit 2009 Type A/Type B 199 99%

Park Shore PRCN Non-profit 1963 Type B 113 90%

Fred Lind Manor PRCN Non-profit 1988 Rental 82(1) 88%

Subtotal PRCN 394 94%

Comparable Communities

Mirabella Pacific Retirement Non-profit 2009 Type B 288 99% Services Horizon House Horizon House Non-profit 1961 Type C 390 97%

Bayview Manor Bayview Manor Non-profit 1961 Type C/Rental 124 Homes 84% The Hearthstone Lutheran Council of Non-profit 1966 / 2015 Type B 154 75% Seattle-King County Covenant Shores Covenant Retirement Non-profit 1978 Type B 208 98% Communities Aljoya Mercer Island ERA Living For-profit 2008 Type B 84 90%

Summit at 1st Hill Kline Galland Non-profit 2001 Rental 125 94%

Brookdale Queen Brookdale For-profit 2006 Rental 119 86% Anne Sub-Total Comparable Communities 1,492 92%

Total All, Including Obligated Group Communities 1,886 92%

Total without the lowest outlier (Hearthstone) 1,732 94% Note: The information contained in the table above is derived from various sources, including telephone interviews, PRCN's marketing records, previous market studies conducted for PRCN by GSI, and other facilities’ official statements. Information for Obligated Group Communities is as of June 2016. Information for the comparable communities is as of: April 2016 for Bayview, Brookdale Queen Anne, The Hearthstone, and The Mirabella; May, 2015 for Horizon House, Covenant Shores, Aljoya Mercer Island, and The Summit at First Hill. All of such information is summary only, and does not fully describe variations the respective matters that may be available. The information contained within is believed to be accurate, but is not guaranteed to be so. (1) For Fred Lind Manor, the total number of IL units and the occupancy rate include residents receiving AL services.

In addition, one proposed community with market-rate independent living units is currently under development in the Primary Market Area. Columbia Pacific Advisors, LLC has announced that it is developing a 24-story building containing 237 units offering independent

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living, assisted living and memory care suites (the “Columbia Pacific Project”) to be located 0.1 miles from Skyline. Construction is expected to start in 2017, and the facility is scheduled to open in 2019. No information is yet available to PRCN on contract types and pricing for this community, and the identity of the operator is not yet known.

The following map depicts the location of the Obligated Group Communities and the existing comparable communities.

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The following table presents information on the Obligated Group Communities and the existing comparable facilities in the Primary Market Area.

Detail on the Obligated Group Communities and Existing Comparable Facilities Fred Lind Horizon Facility: Skyline Park Shore Mirabella Manor House 1630 43rd Ave 116 Fairview Ave. 900 University Street 715 9th Ave 1802 17th Ave East North St. City/Zip Code Seattle 98104 Seattle 98122 Seattle 98122 Seattle 98109 Seattle 98101 Owner/ Pacific Retirement Horizon PRCN PRCN PRCN Sponsor Services House Profit/Non-Profit Non-profit Non-profit Non-profit Non-profit Non-profit

Year Opened 2009 1963 1988 2009 1961

Type of Contract Type A/Type B Type B Rental Type B Type C

Levels of Care

ILU 199 113 82 288 390

ALU 76 30 up to 62 43 88

Nursing Beds 34 28 0 44 0

99% IL; 97% 90% IL; 89% Occupancy Rate 87.8% campus 99% 97% campus campus

ILU Range of Unit 1-3Bdrm Studio-2Bdrm Studio-2 Bdrm 1-3Bdrm Studio-3Bdrm Type (sq. ft.) 750 - 1,601 357 - 1,292 392-739 698 - 2,188 340-1,927 Entrance Fee $411K - $165K - $804K N/A $322K - $1,550K $42K-$1,400K Range $1,159K Entrance Fee 80% 0% N/A 90% 0% Refund Options Monthly Fee $3,279 - $5,883 $3,035 - $5,887 $2,565-$4,155 $3,556 - $4,695 $1,514-$4,105

Other Care Level Fees

ALU Monthly $5,105 - $6,078 $4,727 - $6,558 $4,600 - $5,800 $6,000

Nursing Daily $370 - $432 $400 - $470 $400 N/A

IL Monthly Fee Includes: Equiv. to 5 / Meals 1 meal/day 3 meals/day 3 meals/day 30 meals/mo week Housekeeping Weekly Weekly Weekly Bi-weekly 2 hours/mo

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Table continued Detail on The Communities and Comparable Facilities

The Covenant Aljoya Summit at 1st Brookdale Facility: Bayview Hearthstone Shores Mercer Isl Hill Queen Anne Street 11 West 5720 E Green 9150 Fortuna 2430 76th 1200 805 4th Ave N Address Aloha St Lake Way N. Dr. Ave SE University St. City/ Mercer Isl. Mercer Isl. Seattle 98119 Seattle 98103 Seattle 98101 Seattle 98109 Zip Code 98040 98040 Owner/ Bayview Lutheran Covenant ERA Living Kline Galland Brookdale Sponsor Manor Homes Council Retirement Profit/Non-Prof Non-profit Non-profit Non-profit For-profit Non-profit For-profit Year Opened 1961 1966 / 2015 1978 2008 2001 2006 Type of Type C / Type B Type B Type B Rental Rental Contract Rental Levels of Care ILU 124 154 208 84 125 119 ALU 44 50 47 30 25 75 Nursing Beds 50 40 43 0 off site 0 Occupancy 81.5% 75% 98% 90% 94%/97% 85.7% Rate ILU Studio-2 Studio- Range of Unit Studio-2 Bdrm Studio-2 Bdrm Studio-2 Bdrm Studio-2 Bdrm Bdrm 3Bdrm Type (sq. ft.) 336 - 1,393 446 - 1,852 365 - 1,465 400 - 1,050 324 - 1,108 575 - 1,789 Entrance $350K - $57K - $381K $50K - $514K $85K-$577K n/a n/a Fee Range $1,300K Entrance Fee 0%/50%/90% 0% 0%/90% 90% n/a n/a Refund Options $3,000- Monthly Fee $1,790- 3,655 $2,493-2,838 $1,694-4,436 $2,600-11,250 $2,905-4,355 5,200 Other Care Level Fees ALU $3,290- $4,770-$6,480 $4,161-$6,391 $5,500-$7,100 Monthly Fee $7,236 Nursing $266 - $365 $310 - $514 n/a n/a n/a Daily Fees IL Monthly Fee Includes: 25 meals/ Meals 2 meals/day 3 meals/day 1 meal/day 1 meal/day 1-3 meals/day month Housekeeping Weekly Weekly Annual Weekly Weekly 0-Weekly

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Penetration Analysis

Penetration rates are one measure of the degree to which the Primary Market Area might be either under-served or saturated. As penetration rates increase, independent living units may become more difficult to fill. However, higher penetration rates may not necessarily be an indication of how difficult it is to achieve the desired occupancy level. The greater Seattle marketplace has a high rate of acceptance for housing with services and has repeatedly shown in numerous GSI market studies the ability to support higher-than-typical market penetration rates. Penetration rates should always be considered in conjunction with other market factors, and in particular with the occupancy levels at existing comparable communities in the area.

The following penetration rates were calculated:

• The Gross Market Penetration Rate is calculated by dividing the total number of comparable ILU in the Primary Market Area (PRCN, comparable communities and proposed communities) by the total number of age 75-and-over households who are income qualified based on the criteria discussed in the demographic section.

• The Net Market Penetration Rate is calculated by dividing the total number of vacant units at PRCN, comparable existing and proposed communities at 95% occupancy, by the total number of age-qualified and income-eligible households.

• The Project Penetration Rate calculations show the proportion of eligible households in the Primary Market Area that would need to move to Obligated Group Communities on an annual basis to fill vacant units that become available to attrition to maintain full (95%) occupancy.

The following table shows the penetration rate calculations. For the purpose of estimation, the proposed Columbia Pacific First Hill project is assumed to be open and to have reached stabilized occupancy by 20212.

2 The Columbia Pacific project will contain 150 independent units, plus assisted living. For the purpose of estimation, this project is assumed to open mid-2019, and to fill at a net rate of 7.7 units per month to reach 92% occupancy (current average occupancy rate of ILU in the Primary Market Area) by 2021. Several other proposed projects were identified in the area, but they will all be licensed assisted living, and thus are not included in the penetration rate analysis for independent living. A-61

Independent Living Units, Estimated and Projected Penetration Analysis Year 2016 Year 2021 Minimum Annual Income: $50,000+ $63,000+ $57,000+ $73,000+ 1 Gross Market Penetration Rate Analysis: 2 Inventory of ILU in the Primary Market Area: 3 Obligated Group Communities 332 332 332 332 4 Existing Comparable Units 1,492 1,492 1,492 1,492 5 Planned Comparable Units (1) - - 150 150 6 Total Units 1,824 1,824 1,974 1,974 Number of units assuming 65% of the residents at PRCN 7 and comparable communities originate from within the Primary Market Area at 95% occupancy. 1,126 1,126 1,219 1,219 8 Number of Age and Income Qualified Households 5,771 4,777 7,096 5,390 9 Gross Market Penetration Rate (line 6/line 7) 20% 24% 17% 23% 10 Net Market Penetration Rate Analysis Total unoccupied ILU within the Primary Market Area 11 (assumes stabilized occupancy rate of 95%; Age 75+ market only)(2) 12 Obligated Group Communities - - - - 13 Existing Comparable Communities 38 38 43 43 14 Planned Communities (1) - - - - Total Comparable units becoming available from 15 resident attrition @ 95% occupancy (3) 134 134 154 154 Subtotal of units to be occupied assuming 65% of The 16 Projects and Comparable Existing/Planned units originate from the Primary Market Area 172 172 197 197 17 Number of Age and Income Qualified Households 5,771 4,777 7,096 5,390 Less the number of occupied ILU in the Primary Market 18 Area (Comparable, and PRCN) 1,696 1,696 1,834 1,834 19 Net number of age and income qualified households 4,075 3,081 5,262 3,556 20 Net Market Penetration Rate (line 16/line 19) 4.2% 5.6% 3.7% 5.5% 21 Project Penetrate Rate Analysis Number of PRCN units that would need to be filled, 22 assuming target market age 75+, 95% stabilized occupancy, and 65% of residents originate from the PMA. 205 205 205 205 23 Project Penetration Rate (line 22/line 19) 5.0% 6.7% 3.9% 5.8% (1) Columbia Pacific Project (150 ILU) to open 2019. For estimation, assumed 92% occupied (current average ILU rate) by 2021; conservatively factored at higher rental attrition rate. (2) Assumes stabilized occupancy rate of 95%; Age 75+ only. Note: Some of PRCN communities have residents younger than 75 years. (3) Annual resident attrition based on occupied comparable units in the PMA. Assumes an annual attrition rate of 13.1% for entry fee communities, and 22.9% for rental communities. Assumes Park Shore ILU are all entry fee. Source for attrition rates: State of Seniors Housing 2012, American Association of Homes and Services for the Aging, American Seniors Housing Association, Assisted Living Federation of America, National Center for Assisted Living and National Investment Center. A-62

APPENDIX B

REPORTS OF INDEPENDENT AUDITORS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRCN AND SUBSIDIARIES (OTHER THAN FRED LIND MANOR) FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 AND 2013

[THIS PAGE INTENTIONALLY LEFT BLANK] ConsolidatedFinancialStatements FortheYearEndedSeptember30,2014

TableofContents Page IndependentAuditor’sReport 12 ConsolidatedFinancialStatements: ConsolidatedStatementofFinancialPosition 34 ConsolidatedStatementofOperationsandChangesinNetAssets 56 ConsolidatedStatementofCashFlows 78 NotestoConsolidatedFinancialStatements 927 SupplementaryInformation: ConsolidatingScheduleofFinancialPosition 2829 ConsolidatingScheduleofOperationsandChangesinNetAssets 3031 ConsolidatingScheduleofCashFlows 3233

IndependentAuditor’sReport BoardofDirectors PresbyterianRetirementCommunitiesNorthwestandSubsidiaries Seattle,Washington WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofPresbyterian RetirementCommunitiesNorthwestandSubsidiaries(collectively,PRCN),whichcomprisethe consolidatedstatementoffinancialpositionasofSeptember30,2014,andtherelated consolidatedstatementsofoperationsandchangesinnetassetsandcashflowsfortheyear thenended,andtherelatednotestothefinancialstatements. Management'sResponsibilityfortheFinancialStatements Managementisresponsibleforthepreparationandfairpresentationofthesefinancial statementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesof America;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolrelevant tothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterial misstatement,whetherduetofraudorerror. Auditor’sResponsibility Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.We conductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnited StatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtain reasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterial misstatement. Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsand disclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’s judgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancial statements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditor considersinternalcontrolrelevanttotheentity'spreparationandfairpresentationofthe financialstatementsinordertodesignauditproceduresthatareappropriateinthe circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessofthe T: 425-454-4919 entity'sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludes T: 800-504-8747 evaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificant F: 425-454-4620 accountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthe 10900 NE 4th St financialstatements. Suite 1700 Bellevue WA Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovidea 98004 basisforourauditopinion. clarknuber.com

Opinion Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects, thefinancialpositionofPRCNasofSeptember30,2014,andtheresultsofitsoperationsandits cashflowsfortheyearthenendedinaccordancewithaccountingprinciplesgenerallyaccepted intheUnitedStatesofAmerica. ReportonSummarizedComparativeInformation WehavepreviouslyauditedPRCN’s2013financialstatements,andweexpressedanunmodified auditopiniononthoseauditedfinancialstatementsinourreportdatedApril3,2014.Inour opinion,thesummarizedcomparativeinformationpresentedhereinasofandfortheyearended September30,2013isconsistent,inallmaterialrespects,withtheauditedfinancialstatements fromwhichithasbeenderived. ReportonSupplementaryInformation Ourauditwasconductedforthepurposeofforminganopiniononthefinancialstatementsasa whole.Thesupplementaryinformationpresentedonpages28through33ispresentedfor purposesofadditionalanalysisandisnotarequiredpartofthefinancialstatements.Such informationistheresponsibilityofmanagementandwasderivedfromandrelatesdirectlytothe underlyingaccountingandotherrecordsusedtopreparethefinancialstatements.The informationhasbeensubjectedtotheauditingproceduresappliedintheauditofthefinancial statementsandcertainadditionalprocedures,includingcomparingandreconcilingsuch informationdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethefinancial statementsortothefinancialstatementsthemselves,andotheradditionalproceduresin accordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Inour opinion,theinformationisfairlystatedinallmaterialrespectsinrelationtothefinancial statementsasawhole.

CertifiedPublicAccountants April30,2015

CONSOLIDATEDFINANCIALSTATEMENTS

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofFinancialPositionAssets September30,2014 (WithComparativeTotalsfor2013) 2014 2013

CurrentAssets: Cashandcashequivalents $ 8,554,094 $ 8,971,621 Receivables Residentfees 919,128 Residentandthirdpartypayors,netofallowancefor doubtfulaccountsof$466,353($493,0402013) 2,792,363 2,249,643 Interestreceivable 39,835 42,790 Otherreceivables 148,507 84,882 Fundsheldintrust 111,121 111,533 Inventory 17,690 15,123 Prepaidexpenses 700,959 529,639

TotalCurrentAssets 12,364,569 12,924,359

Beneficialinterestincharitablegiftannuities(Note2) 6,817 InvestmentsPRCNandFoundation(Note2) 9,231,873 8,682,280 InvestmentsFH,LLCrefundabledeposits(Note2) 552,358 584,970 Limiteduseassetswaitinglistdeposits(Note2) 218,657 197,925 Limiteduseassetsbondfundsheldbytrustee(Note2) 13,997,039 14,116,225 Deferredfinancingfees,netofaccumulatedamortization of$1,574,479($1,139,2822013) 4,916,530 5,325,220 Capitalizedmarketingcosts,net 3,536,035 4,696,033 Propertyandequipment,net(Note4) 195,377,987 200,765,858

TotalAssets $240,195,048 $247,299,687

Seeaccompanyingnotes. 3 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofFinancialPositionLiabilitiesandNetAssets September30,2014 (WithComparativeTotalsfor2013) 2013 (AsRestated, 2014 Note16)

CurrentLiabilities: Accountspayable $442,862 $943,399 Accruedexpenses,includingaccruedinterest of$1,721,625($1,842,9772013) 4,811,522 4,856,623 Currentportionofcapitalleaseobligations(Note8) 49,302 41,811 Currentportionofsewercapacitypayable(Note6) 49,838 47,153 Currentportionoflongtermdebt(Note5) 2,225,000 2,010,000

TotalCurrentLiabilities 7,578,524 7,898,986

Longtermcapitalleaseobligations,lesscurrentportion(Note8) 126,914 176,215 Longtermsewercapacitypayable,lesscurrentportion(Note6) 624,051 669,830 Residentexpansiondeposits 2,892 Deferredrevenuefromentrancefees 143,847,587 144,580,338 Waitinglistdeposits 218,657 209,675 Refundabledeposits 2,481,001 1,100,428 Accruedmarketingfees 830,358 830,358 Longtermdebt,lesscurrentportion(Note5) 120,973,250 124,150,000

TotalLiabilities 276,680,342 279,618,722

NetAssets: Unrestricted (38,341,250) (33,884,070) Temporarilyrestricted(Note12) 1,090,036 937,648 Permanentlyrestricted(Note13) 765,920 627,387

TotalNetAssets (36,485,294) (32,319,035)

TotalLiabilitiesandNetAssets $240,195,048 $247,299,687

Seeaccompanyingnotes. 4 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofOperationsandChangesinNetAssets FortheYearEndedSeptember30,2014 (WithComparativeTotalsfor2013) 2013Total Temporarily Permanently (AsRestated, Unrestricted Restricted Restricted 2014Total Note16)

OperatingRevenue: Independentliving $18,209,229 $ $ $ 18,209,229 $17,291,539 Healthcare 8,749,694 8,749,694 8,561,313 Assistedliving 6,816,464 6,816,464 6,943,482 Interestincome 128,490 23,386 151,876 389,158 Other 1,719,673 1,719,673 1,803,638 35,623,550 23,386 35,646,936 34,989,130

Residentsubsidies (302,747) (302,747) (377,120)

Netresidentservicerevenue 35,320,803 23,386 35,344,189 34,612,010

Entrancefeesearned 7,235,683 7,235,683 7,014,669 Releasedfromrestrictions 81,758 (81,758)

TotalOperatingRevenue 42,638,244 (58,372) 42,579,872 41,626,679

CostofServicesProvided: Healthcare 5,517,178 5,517,178 6,027,335 Diningservices 7,052,700 7,052,700 6,786,371 Generalandadministrative 8,312,909 8,312,909 8,461,051 Managementandrentalfees 187,224 187,224 372,684 Maintenanceandhousekeeping 4,932,426 4,932,426 5,084,515 Assistedliving 3,205,261 3,205,261 3,140,314 Residentialtransportationservices 426,447 426,447 407,692 Residentactivities 1,383,282 1,383,282 1,363,894 Interestandfinancingexpense 7,397,803 7,397,803 8,078,860 Provisionfordoubtfulaccounts 74,985 74,985 16,010 Costofservicesprovided beforedepreciationandamortization 38,490,215 38,490,215 39,738,726

Depreciationandamortization 8,727,522 8,727,522 8,783,511

TotalCostofServicesProvided 47,217,737 47,217,737 48,522,237

(Deficiency)ExcessofRevenues (Under)OverCostsBefore NonoperatingActivities (4,579,493) (58,372) (4,637,865) (6,895,558)

Seeaccompanyingnotes. 5 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofOperationsandChangesinNetAssets(Continued) FortheYearEndedSeptember30,2014 (WithComparativeTotalsfor2013) 2013Total Temporarily Permanently (AsRestated, Unrestricted Restricted Restricted 2014Total Note16)

NonoperatingActivities: Settlementincome 1,736,583 Charitablecontributions 8,149 189,670 108,028 305,847 135,763 Charitablegrantexpense (83,009) (83,009) (68,031) Investmentincome(losses) 197,173 27,907 30,505 255,585 (31,763) Changeinvalueofbeneficialinterest incharitablegiftannuities (6,817) (6,817) 605

ChangeinNetAssets FromNonoperatingActivities 122,313 210,760 138,533 471,606 1,773,157

ChangeinNetAssets (4,457,180) 152,388 138,533 (4,166,259) (5,122,401)

Netassets,beginningofyear (asrestated,Note16) (33,884,070) 937,648 627,387 (32,319,035) (27,196,634)

NetAssets,EndofYear $(38,341,250) $1,090,036 $765,920 $(36,485,294) $(32,319,035)

Seeaccompanyingnotes. 6 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofCashFlows FortheYearEndedSeptember30,2014 (WithComparativeTotalsfor2013) 2014 2013

OperatingActivities: Changeinnetassets $ (4,166,259) $ (5,122,401) Adjustmentstoreconcilechangeinnetassetsto netcashprovidedbyoperatingactivities Depreciation 7,567,524 7,623,513 Investment(gains)losses (255,585) 31,763 Changeinvalueofcharitablegiftannuities 6,817 (605) Entrancefeeadditions 11,263,346 21,637,044 Amortizationofentrancefees,demiseincome, andadministrativefeesearned (7,640,781) (6,902,913) Amortizationofdeferredfinancingfees 434,686 703,473 Amortizationofcapitalizedmarketingcosts 1,159,998 1,159,998 Cashprovidedby(usedin)changesin operatingassetsandliabilities: Receivables,net 36,610 1,211,441 Fundsheldintrust 412 Inventory (2,567) (15,123) Prepaidexpenses (171,319) (82,076) Accountspayableandaccruedexpenses (1,599,606) 199,679 Accruedmarketingfees (494,999) Residentexpansiondeposits (2,892) Waitinglistdeposits 8,982 (54,235)

NetCashProvidedbyOperatingActivities 6,639,366 19,894,559

InvestingActivities: Changeininvestmentsforrefundabledeposits 1,380,573 308,236 Purchaseofpropertyandequipment (2,179,654) (8,007,743) PurchaseofinvestmentsPRCNandFoundation (3,442,360) (6,021,832) SaleofinvestmentsPRCNandFoundation 3,249,359 8,691,609 Purchaseoflimiteduseassets (17,405,058) (52,305,797) Saleoflimiteduseassets 17,435,117 55,802,279

NetCashUsedbyInvestingActivities (962,023) (1,533,248)

Seeaccompanyingnotes. 7 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofCashFlows(Continued) FortheYearEndedSeptember30,2014 (WithComparativeTotalsfor2013) 2014 2013

FinancingActivities: Proceedsfromlongtermdebt 14,840,000 Principalpaymentsonlongtermdebt (3,004,844) (24,487,726) Paymentsforcapitalizedloanfees (25,996) (462,172) Paymentsoncapitalleaseobligations (41,810) (20,378) Refundofentrancefees (3,022,220) (5,368,097)

NetCashUsedbyFinancingActivities (6,094,870) (15,498,373)

NetChangeinCashandCashEquivalents (417,527) 2,862,938

CashandCashEquivalentsbalance,beginningofyear 8,971,621 6,108,683

CashandCashEquivalentsBalance,EndofYear $8,554,094 $8,971,621

SupplementalDisclosure: Cashpaidduringtheyearforinterest $7,157,800 $6,953,914 Noncashacquisitionofproperty $ $185,005 Noncashentrancefeesincludedinresidentfeereceivables $ $640,000

Seeaccompanyingnotes. 8

NOTESTOFINANCIALSTATEMENTS

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1NatureofOperationsandSignificantAccountingPolicies MissionStatementPresbyterianRetirementCommunitiesNorthwest(PRCN)isafaithbasedorganizationsupporting communitiesandservicesthatcelebrateandenrichlives. NatureofOperationsPresbyterianRetirementCommunitiesNorthwestisaWashingtonnonprofitcorporationorganized in1956forthepurposeofoperatingcontinuingcareretirementcommunities(CCRCs)andrelatedfacilities.CCRCsoffer residentstheoptionofcontractingformultiplelevelsofcareasneededovertheirlifetimeincludingresidential,assisted living,andhealthcare.ParkShoreisa”TypeB”CCRC,meaningthatresidentspayforthehigherlevelsofassistedlivingand healthcareatslightlydiscountedmarketrates.SkylineatFirstHillisa“TypeA”CCRC,meaningresidentswillpayforfuture healthcarecostsatdiscountedrates;however,thesecostswillbeoffsetbyfutureentrancefeesandfeeincreases.Exeter Houseoffersresidentialandassistedlivingunitsatmonthlyrentalrates. PRCN'sBoardofDirectorsconsistsofupto18electedmembersandisresponsibleforthegeneralmanagementand controlofallpropertyandaffairsofPRCN.In2004,PRCNassolemanagingmember,formedFH,LLCforthepurposeof developingandoperatinganewCCRC,SkylineatFirstHill(Skyline). FoundationThePresbyterianRetirementCommunitiesNorthwestFoundation(theFoundation)isanonprofit organizationthatwasorganizedexclusivelyforthecharitable,educational,andreligiousbenefitofPRCN. PrinciplesofConsolidationThefinancialstatementsofPRCNrepresenttheconsolidatedfinancialposition,resultsof operations,andcashflowsofitsthreeSeattleproperties,Skyline,ParkShoreandExeterHouse,anadministrativedivision, andtheFoundation.Allinterorganizationtransactionshavebeeneliminatedinconsolidation. Abreakdownofthenumberofunitsbycommunityisasfollows: Residential Assisted Memory Community Living Living Healthcare Care Total

ParkShore 116 30 28 174 ExeterHouse 82 26 108 Skyline 199 60 34 16 309

397 116 62 16 591 CovenantRelationshipsPRCNisaffiliatedthroughacovenantagreementwiththePresbyteryofSeattle,Presbyterian Church(USA)which,neitherinwholenorinpart,acceptsanyresponsibilityforthefinancialorcontractualobligationsof PRCN.

9 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1Continued BasisofPresentationNetassetsandrevenues,expenses,gainsandlossesareclassifiedbasedontheexistenceor absenceofdonorimposedrestrictions.Accordingly,thenetassetsofPRCNandchangesthereinareclassifiedandreported asfollows: UnrestrictedNetAssetsNetassetsthatarenotsubjecttodonorimposedstipulations. TemporarilyRestrictedNetAssetsNetassetssubjecttodonorimposedstipulationsthatwillbemetbyactionsof PRCNand/orthepassageoftime. PermanentlyRestrictedNetAssetsNetassetssubjecttodonorimposedrestrictionsthatstipulatetheresources bemaintainedinperpetuitybutpermitPRCNtoexpendpartoralloftheincomederivedfromthedonatedassets foreitherspecifiedorunspecifiedpurposes. Revenuesarereportedasincreasesinunrestrictednetassetsunlessuseoftherelatedassetsislimitedbydonorimposed restrictions.Expensesarereportedasdecreasesinunrestrictednetassets.Gainsandlossesonotherassetsorliabilitiesare reportedasincreasesordecreasesinunrestrictednetassetsunlesstheiruseisrestrictedbyexplicitdonorstipulationorby law.Expirationsoftemporaryrestrictionsonthenetassets(i.e.,thedonorstipulatedpurposehasbeenfulfilledand/orthe stipulatedtimeperiodhaselapsed)arereportedasreclassificationsbetweentheapplicableclassesofnetassets. EntranceFees,RefundsandAmortizationEntrancefeesarerequiredforcontinuingcareresidents.Skylineresidentshavethe optiontodefer,interestfree,aportionoftheirentrancefeeforuptooneyearbasedonthetermsinthecontract.LifeCare benefits,however,donotaccrueuntiltheentrancefeeispaidinfull.Thereafter,theresidentissubjecttoregularmonthly rentalfees.Eitherpartyhastherighttoterminatethisagreementduringtheresident'soccupancy,subjecttocertain limitations.PRCN'ssecurityforpaymentsrequiredofresidentsconsistsofcancelationandotherrightsunderthe agreements. PRCNalsorentsresidentialandassistedlivingfacilitiesonmonthlycontractsateachofitslocations.Rentalsdonotrequire anentrancefeebutrequirehighermonthlyfees. AParkShoreresidentwhoterminatesresidency,otherthanbydeath,isentitledtoarefundoftheentrancefeebasedupon theoriginalfeelessadministrativeandservicefeesofupto$7,500,less1%foreachmonthorpartialmonthofoccupancy,less allotherfeesowedtoPRCN.Forcontractsenteredintopriorto1999,uponterminationduetodeathwithin90daysofmove in,100%oftheamountcalculatedasdescribedaboveisrefundable.Theamountrefundableisreducedto75%forbetween91 and180days,to50%forbetween181and270days,to25%forbetween271and360days,andtozeroforbeyond360days. Forcontractsenteredintoduringandafter1999,therefundupondeathwithinoneyearofmoveinis75%oftheamount calculatedasdescribedabove,50%forthesecondyear,andzerothereafter.ASkylineresidentwhoterminatesresidencyis entitledtoa0100%refundoftheirentrancefeeaftertheirunithasbeenresold,basedonthetermsoftheircontract. Entrancefeesarerecordedasdeferredrevenue.Thenonrefundableportionofentrancefeesareamortizedtorevenueover theestimatedremaininglifeexpectancyofeachresidentonastraightlinebasis.Therefundableportionofentrancefeesfor Skylineresidentsareamortizedtorevenueovertheestimatedremainingusefullifeofthefacility.Uponterminationof residency,anydifferencebetweenthebalanceofthedeferredresidencyfeeandtheamountcontractuallyrefundableis recordedasincomeorexpense.AsofSeptember30,2014and2013,$138,386,396and$134,675,023,respectively, representedentrancefeeswhichwerecontractuallyrefundableunderthevariouscontracts.

10 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1Continued ThirdPartyPayorReimbursementContractsParkShoreandSkylinerenderservicestopatientsundercontractual arrangementswithMedicaidandMedicare.Underthetermsofthesecontracts,PRCNreceivespaymentatcertaininterim rates.Thedifferencebetweeninterimratesandthefinalsettlementisbaseduponanannualcostreport. AmountsreceivedorreceivableunderMedicareandMedicaidcontractsaresubjecttoauditandadjustmentbyMedicare orMedicaid.Anydisallowedclaimsincludingamountsalreadyreceivedandadjustmentstotheinterimratemayconstitute aliabilityofPRCN.MedicarecostreportshavebeensettledthroughfiscalyearSeptember30,2013.Managementdoesnot believeamaterialassetorliabilityexistsasofSeptember30,2014,regardingunsettledcostreports. ObligationtoProvideFutureServicestoCurrentResidentsPRCNisrequiredtoaccruealiabilityintheconsolidated financialstatementsiffuturecostsofservicesforcurrentresidentsexceeddeferredresidencyfeesplusfuturefees.An evaluationshowednosuchshortfalloffeesfortheyearsendedSeptember30,2014and2013;therefore,noliabilityhasbeen recognizedintheconsolidatedfinancialstatements.Majorfactorsintheevaluationofafutureserviceobligationconsider thatParkShoreiscontractuallyentitledtoincreasefeestocoverfuturecostincreases,andthecommunityisa“TypeB" CCRC,meaningresidentswillpayforanyfuturehealthcarecostsatnearmarketrates.Skylineisa“TypeA”CCRC,meaning residentswillpayforfuturehealthcarecostsatdiscountedrates;however,thesecostswillbeoffsetbyfutureentrance feesandfeeincreases. ResidentSubsidiesPRCNprovideshousingandcarefortheremaininglifetimeofeachresidentunlesseitherpartycancelsthe residencyagreement.Subsidiesofmaintenancefeesaregrantedintheeventthattheresidentprovesaninabilitytopay. However,PRCNshallnotassumesuchobligationiftheresidenthasdisposedoffundsorassetsintentionallytoothers,orif theresidenthasdisposedofassetsextravagantlyforpurchasesorgiftswhentherewereadequateresourcesoriginally availabletosupporttheresidentforlifeatthecommencementofresidency. SettlementDuringtheyearendedSeptember30,2010,adisputearosebetweenPRCNandacontractor.During2010, PRCNfiledalawsuitagainstthecontractorwhichwassettledthrougharbitrationinPRCN’sfavor.PRCNreceived $1,736,583asaresultofthesettlementintheyearendedSeptember30,2013. ChangeinNetAssetsFromOperationsTheconsolidatedstatementofoperationsandchangesinnetassetsincludesthe changeinnetassetsfromoperations.Changesinunrestrictednetassetsthatareexcludedfromthechangeinnetassets fromoperationsincludecharitablecontributionsandgrants,realizedandunrealizedgainsandlossesoninvestments,gains orlossesonthedisposalofassets,andchangeinthevalueofinterestrateswapagreements. CashandCashEquivalentsPRCNconsidersallhighlyliquidinstrumentspurchasedwithanoriginalmaturityofthree monthsorlesstobecashequivalents. TradeAccountReceivablesTradeaccountreceivablesarestatedattheamountmanagementexpectstocollectfrom outstandingbalances.Managementprovidesforprobableuncollectibleamountsthroughachargetoearningsandacredit toavaluationallowancebasedonitsassessmentofthecurrentstatusofindividualaccounts.Balancesstilloutstanding aftermanagementhasusedreasonablecollectioneffortsarewrittenoffthroughachargetothevaluationallowanceanda credittotradeaccountsreceivable.Changesinthevaluationallowancehavenotbeenmaterialtotheconsolidated financialstatements.

11 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1Continued EntranceFeesReceivablePRCNallowsitsnewresidentstodeferpaymentoftheirentrancefeesuntiltheirmoveindate oraportionoftheirentrancefeesforuptooneyear.Managementevaluatesthesereceivablesforprobableuncollectible amountsandbelievesthereceivablesarefullycollectibleatSeptember30,2014.Entrancefeesreceivableareincludedin residentfeesreceivableontheconsolidatedstatementoffinancialposition. InvestmentsInvestmentsindebtsecuritiesandequitysecuritieswithreadilydeterminablevaluesarerecordedatfair value.Thefairvalueofinvestmentsinsecuritiestradedonnationalsecuritiesexchangesisvaluedattheclosingpriceon thelastbusinessdayofthefiscalyear.Investmentinterest,dividends,andrealizedandunrealizedgainsandlossesare includedaschangesinunrestrictednetassetsunlesstheincomeisrestrictedbydonororlaw.Investmentsinguaranteed investmentcontractsarereportedatcost. Investmentsecurities,ingeneral,areexposedtovariousrisks,includinginterestrate,creditandoverallmarketvolatility. Duetothelevelofriskassociatedwithcertainlongterminvestments,itispossiblethatchangesinthevaluesofthese investmentswilloccurintheneartermandthatsuchchangescouldmateriallyaffecttheamountsreportedinthe consolidatedstatementoffinancialposition. WaitingListDepositsTobeincludedintheresidentwaitinglist,potentialfutureresidentsarerequiredtomakeadeposit whichwillbeappliedtowardtheirentrancefeeuponadmission. DeferredFinancingFeesDeferredfinancingfeesareamortizedonastraightlinebasisoverthelifeoftherelateddebt. RealEstateDevelopmentCostsRealestatedevelopmentcostsforSkylineincludepreacquisitioncostsincurredtopurchase thepropertyandcostsincurredfortheacquisition,development,andconstructionoftheproperty.Suchcostsarecapitalized inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(U.S.GAAP).Thesecostsare depreciatedovertheestimatedusefullifeofthebuilding. Operatingandcarryingcosts,suchasrealestatetaxes,arerecognizedasexpenseintheperiodinwhichtheyareincurred. StartupcostsofSkylinewereexpensedintheperiodincurred. CapitalizedMarketingCostsandAdvertisingCostincurredtorenttheresidentialunitsthatarerelatedtothefuture operationsofSkyline(suchasmodelunitsandtheirfurnishings,andrentalfacilities),areconsideredmarketingcostsand arecapitalizedinaccordancewithU.S.GAAP.Capitalizedmarketingcostsareamortizedonastraightlinebasisoverthe averageremaininglivesoftheresidentsundercontract,orthecontractterm,whicheverisshorter.Theamortizationperiod beginswhentheprojectissubstantiallycompletedandheldavailableforoccupancy.Estimatedunrecoverableamountsof unamortizedcapitalizedrentalcostsassociatedwithacontractorgroupofcontractsshallbechargedtoexpensewhenit becomesprobablethatthecontract(s)willbeterminated.Marketingcoststhatdonotmeetthecriteriaforcapitalization areexpensedasincurred.

12 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1Continued Directresponseadvertisingcostsincurredinconnectionwithacquiringinitialcontinuingcarecontractsarecapitalizedin accordancewithU.S.GAAP.Theprimarypurposeoftheadvertisingistoelicitcontinuingcarecontractsforresidentialunitsat Skylinetoresidentswhohaverespondedspecificallytotheadvertisingandenteredintoacontract.Thecapitalized marketingcostsareamortizedoverthelifeoftherelatedcontinuingcarecontract.Capitalizedmarketingcoststotaled $9,279,989atbothSeptember30,2014and2013.Cumulativeamortizationofthesecostsis$5,743,954and$4,583,956asof September30,2014and2013,respectively.Contractcommitmentsrelatedtothecapitalizedmarketingcoststhathavenotbeen paidpriortoyearendtotaled$830,358forSeptember30,2014and2013. Othernondirectresponseadvertisingcostsarechargedtoexpensewhenincurred.Advertisingexpensestotaled$512,817 and$277,515fortheyearsendedSeptember30,2014and2013,respectively. PropertyandEquipmentPRCNcapitalizesassetswithacostgreaterthan$1,000andanestimatedusefullifeofoneor moreyears.Depreciationiscomputedonthestraightlinebasisoverperiodsof3to50years,whichapproximatetheuseful livesoftheassets.Thecostsofrepairsandmaintenanceareexpensedasincurred.Thecostsofrenewals,replacementsand bettermentsarecapitalized. ConcentrationsofCreditRiskFinancialinstrumentsthatpotentiallysubjectPRCNtoconcentrationsofcreditriskconsist ofaccountsreceivable,investmentsandcash.Atvarioustimesduringthefiscalyear,PRCN’scashandinvestmentbalances exceededFederalDepositInsuranceCorporationandSecuritiesInvestorProtectionCorporationinsuranceamounts. MedicaidandMedicarereceivablescombinedrepresent69%and52%ofnetresidentandthirdpartypayorreceivablesat September30,2014and2013,respectively. FairValueofFinancialInstrumentsThecarryingamountintheconsolidatedfinancialstatementsapproximatesfairvalue forthefollowingcategoriesontheconsolidatedstatementoffinancialposition:cashandcashequivalents,accountsand residentfeesreceivables,accountspayableandaccruedexpenses,anddebt. IncomeTaxesPRCNandtheFoundationhavebeennotifiedbytheInternalRevenueServicethattheyareexemptfrom federalincometaxesunderSection501(c)(3)oftheInternalRevenueCode.Incomefromactivitiesnotdirectlyrelatedto theseorganizations’taxexemptpurposesissubjecttotaxationasunrelatedbusinessincome.Therewerenotaxespaidon unrelatedbusinessincomefortheyearsendedSeptember30,2014and2013,respectively.FH,LLChasnoprovisionor benefitforincometaxesincludedintheseconsolidatedfinancialstatementssincetaxableincomeorlosspassthroughto itsonemember,PRCN. UseofEstimatesThepreparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomake estimatesandassumptionsthataffectamountsreportedintheconsolidatedfinancialstatements.Changesinthese estimatesandassumptionsmayhaveamaterialimpactontheconsolidatedfinancialstatements.PRCNusedestimatesin determiningcertainprovisionsandreserves,includingthoseforaccountsreceivable,costreportsettlements,usefullivesof fixedassetsandvariousliabilities.Inaddition,PRCNusesactuarialstatisticstodeterminelifeexpectancyratesfor recognitionandamortizationofentrancefeerevenuesandfordeferredmarketingcosts.

13 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note1Continued ReclassificationsCertainreclassificationsweremadetotheSeptember30,2013,consolidatedfinancialstatementsto conformtothecurrentperiodpresentation.Thereclassificationshavenoeffectonpreviouslyreportedchangeinnet assets. ComparativeConsolidatedFinancialStatementsTheconsolidatedfinancialstatementsincludecertainprioryear summarizedcomparativeinformationintotal,butnotbynetassetclass.Suchinformationdoesnotincludesufficientdetail toconstituteapresentationinconformitywithU.S.GAAP.Accordingly,suchinformationshouldbereadinconjunction withPRCN’sconsolidatedfinancialstatementsfortheyearendedSeptember30,2013,fromwhichthesummarized informationwasderived. SubsequentEventsPRCNhasevaluatedsubsequenteventsthroughApril30,2015,thedateonwhichtheconsolidated financialstatementswereapprovedandauthorizedforissuancebymanagement. Note2Investments PRCNinvesteditssurpluscash,refundabledepositsandlimiteduseassetsasfollowsatSeptember30: 2014 2013

Cashandmoneymarketfunds $6,349,622 $ 6,606,471 Governmentbonds 8,171,235 6,979,566 Corporatebonds 7,320,492 8,129,481 Equitysecurities 2,146,078 1,865,882 Charitablegiftannuities 6,817

Investmentsreportedatfairvalue 23,987,427 23,588,217

Investmentinlimitedpartnershipreportedatcost 12,500

$23,999,927 $23,588,217

14 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note2Continued TheinvestmentsheldbyPRCNarerepresentedinthefollowingaccountsontheconsolidatedstatementoffinancial positionatSeptember30: 2014 2013

InvestmentsPRCNandFoundation $9,231,873 $ 8,682,280 InvestmentsFH,LLCrefundabledeposits 552,358 584,970

9,784,231 9,267,250

Limiteduseassetswaitinglistdeposits 218,657 197,925 Limiteduseassetsbondfundsheldbytrustee 13,997,039 14,116,225

14,215,696 14,314,150

Beneficialinterestincharitablegiftannuities 6,817

$23,999,927 $23,588,217 Purchaseandsalesofinvestmentsforlimiteduseassetsareincludedintheconsolidatedstatementofcashflows.Thesedo notrepresenttraditionalpurchasesandsalesofinvestments,butrepresentthecashinflowofentrancefeesandcash outflowusedtopaydowndebtbalances. ComponentsofinvestmentreturnconsistofthefollowingfortheyearsendedSeptember30: 2014 2013

Interestincome $151,876 $389,158 Realizedgains 19,697 233,824 Unrealized(losses)gains 235,888 (265,587) Investmentfees (52,891) (46,608)

NetInvestmentReturn $354,570 $310,787

15 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note3FairValueMeasurements Accountingstandardsestablishaframeworkformeasuringfairvalue.Theframeworkprovidesafairvaluehierarchythat prioritizestheinputstovaluationtechniquesusedtomeasurefairvalue.Thehierarchygivesthehighestpriorityto unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities(Level1)andthelowestprioritytounobservable inputs(Level3). Thethreelevelsofthefairvaluehierarchyaredescribedasfollows: Level1Unadjustedquotedpricesavailableinactivemarketsforidenticalassetsorliabilities; Level2InputsotherthanLevel1thatareobservable,eitherdirectlyorindirectly,suchasquotedpricesinactive marketsforsimilarassetsorliabilities,quotedpricesforidenticalorsimilarassetsorliabilitiesinmarketsthatare notactive,orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdataforsubstantially thefulltermoftheassetsorliabilities;or Level3Unobservableinputsthataresignificanttothefairvaluemeasurement. Afinancialinstrument’slevelwithinthefairvaluehierarchyisbaseduponthelowestlevelofanyinputthatissignificanttothe fairvaluemeasurement.Valuationtechniquesusedneedtomaximizetheuseofobservableinputsandminimizetheuseof unobservableinputs.Thesefinancialinstrumentswerevaluedusingamarketapproach. Followingisadescriptionofthevaluationmethodologiesusedforassetsandliabilitiesmeasuredatfairvalue.Therehave beennochangesinthemethodologiesusedatSeptember30,2014and2013. CashandCashEquivalentsIncludesmoneymarketfundsvaluedatcostplusaccruedinterest,which approximatesfairvalue. EquitySecuritiesValuedattheclosingpricereportedontheactivemarketonwhichthesecuritiesaretraded. DebtSecuritiesValuedusingbidevaluationsfromsimilarinstrumentsinactivelyquotedmarkets. BeneficialInterestinCharitableGiftAnnuitiesValuedatPRCN’sproportionateshareofthefairvalueofthe annuityassets,netofrelatedannuityliabilities.

16 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note3Continued FairValuesMeasuredonaRecurringBasisFairvaluesofassetsmeasuredonarecurringbasisareasfollowsat September 30: FairValueMeasurementsatSeptember30,2014 Level1 Level2 Level3 Total

Cashandcashequivalents $ 6,349,622 $ $ $ 6,349,622

Equitysecurities Consumerrelated 371,181 371,181 Financial 269,645 269,645 Healthcare 461,167 461,167 Energyandindustrials 333,021 333,021 Technology 333,615 333,615 Basicmaterials 160,466 160,466 Services 144,726 144,726 Conglomerates 72,257 72,257

Totalequitysecurities 2,146,078 2,146,078

Debtsecurities Government 8,171,235 8,171,235 Corporate 7,320,492 7,320,492

Totaldebtsecurities 15,491,727 15,491,727

TotalInvestmentsatFairValue$ 8,495,700 $15,491,727 $ $ 23,987,427

17 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note3Continued FairValueMeasurementsatSeptember30,2013 Level1 Level2 Level3 Total

Cashandcashequivalents $ 6,606,471 $ $ $ 6,606,471

Equitysecurities Consumerrelated 380,959 380,959 Financial 313,122 313,122 Healthcare 311,762 311,762 Energyandindustrials 262,167 262,167 Technology 244,719 244,719 Basicmaterials 166,527 166,527 Services 125,727 125,727 Conglomerates 60,899 60,899

Totalequitysecurities 1,865,882 1,865,882

Debtsecurities Government 6,979,566 6,979,566 Corporate 8,129,481 8,129,481

Totaldebtsecurities 15,109,047 15,109,047

Beneficialinterestincharitable giftannuities 6,817 6,817

TotalInvestmentsatFairValue$ 8,472,353 $15,109,047 $6,817 $23,588,217 Areconciliationofthebeginningandendingbalances,byeachmajorcategoryofassetsandliabilities,forfairvalue measurementsmadeusingsignificantunobservableinputs(Level3)follows: Beneficial InterestIn Charitable GiftAnnuities

BalanceatSeptember30,2013 $6,817 Netchangeinvalue (6,817)

EndingBalanceatSeptember30,2014 $

18 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note4PropertyandEquipment PropertyandequipmentconsistedofthefollowingatSeptember30: 2014 2013

Landandlandimprovements $36,807,460 $36,807,460 Buildings 208,744,362 207,617,578 Furnitureandequipment 13,326,699 12,899,317

258,878,521 257,324,355

Lessaccumulateddepreciation (64,273,986) (56,624,022)

194,604,535 200,700,333

Constructioninprogress 773,452 65,525

PropertyandEquipment,Net $ 195,377,987 $ 200,765,858 ConstructioninprogressatSeptember30,2014and2013,consistedprimarilyofapartmentremodelsandrenovationsat ParkShore,ExeterHouse,andSkyline. Note5LongTermDebt AsofSeptember30,2014and2013,bondspayableissuedthroughtheWashingtonStateHousingFinanceCommission (WSHFC)consistedof: 2014 2013

Revenuebonds,2007ASeries,interestratesrangingfrom5.25% to5.625%,maturingbeginningJanuary1,2017throughJanuary 1,2038. $103,015,000 $104,905,000

Revenuebonds,2012BSeries,interestratesof7.0%,maturingin 2029. 5,463,250 6,415,000

Revenuebonds,2013Series,interestratesrangingfrom5.0%to 5.25%,maturingbeginningJanuary1,2023throughJanuary1, 2043. 14,720,000 14,840,000

123,198,250 126,160,000 Lesscurrentportion (2,225,000) (2,010,000)

TotalLongTermDebt $ 120,973,250 $ 124,150,000

19 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note5Continued TheSeries2007A,Series2007B,andSeries2007CbondsaresecuredbyFH,LLCassetsandrevenues.During2009,Skyline experiencedawatermainrupturethatresultedinsignificantwaterdamagetofloorsoftheindependentlivingtower.The damageincurredledtoadelayinbuildingcompletionandoccupancyalongwiththefailureofrelatedcovenantsforthe Series2007A,Series2007B,andSeries2007CbondsduringtheyearendedSeptember30,2011. InMarch2012,FH,LLCissuedSeries2012bondsforthepurposeofrefinancingtheSeries2007Bbonds.Thenewbond issuanceextendedthematuritydatefromJanuary2013outtoJanuary2019.TheSeries2007Cbondissuancewassupported byaletterofcreditfromBankofAmericathroughOctober31,2013,withquarterlyletterofcreditfeesof2.5%perannum throughMay2013and3.0%thereafter.Theamendedletterofcreditagreementwaivedallpastdefaultsonthebondseries andadjustedcovenantlevelsintothefuture.InMay2013,FH,LLCsettledtheSeries2007Cbondinfull. InJune2013,PRCNissuedSeries2013bondsforthepurposeofrefinancingtheSeries1999Abonds,andforthecostof acquisitionofland,construction,remodelingandrenovationsatParkShore,ExeterHouse,andthecorporateoffice.The bondagreementcontainsvariouscovenants,whichamongotherthings,requiresthesubmissionofauditedfinancial statementswithin150daysofyearend.PRCNisintechnicaldefaultofthiscovenantasofthedateoftheauditreport. However,managementhasclassifiedthedebtaslongtermdebtintheconsolidatedstatementsoffinancialpositionat September30,2014,asthebondholdershaveindicatedthatthiscovenantdefaultwillberemediedupontheirreceiptofthe auditedfinancialstatements.PRCNwasincompliancewithitsothercovenantsasofthedateoftheauditreport. FortheyearsendedSeptember30,2014and2013,PRCNincurred$7,000,157and$7,035,098,respectively,intotal interestcostsrelatedtolongtermdebt. Thetotalscheduledprincipalrepaymentobligationsareasfollows: FortheFiscalYearEndingSeptember30,

2015 $2,225,000 2016 2,340,000 2017 2,465,000 2018 2,590,000 2019 2,735,000 Thereafter 110,843,250

$ 123,198,250

20 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note6SewerCapacityPayable DuringtheyearsendedSeptember30,2012and2011,PRCNwasleviedtwocapacitychargesbyKingCountyoftheStateof WashingtonrelatedtothenewsewerconnectionattheSkylineatFirstHillbuilding.PRCNelectedtofinancethesecharges withtheCountyoverfifteenyears.Interestisstatedat5.5%,withquarterlypaymentstotaling$22,412,includingprincipal andinterest,duethroughMay2026. Thetotalscheduledprincipalrepaymentobligationsareasfollows: FortheFiscalYearEndingSeptember30,

2015 $49,838 2016 53,210 2017 56,425 2018 59,937 2019 63,668 Thereafter 390,811

$673,889 Note7QualifiedEmployeeBenefitPlan PRCNhasa403(b)profitsharingplanthatcoverssubstantiallyallemployeeswhohavecompletedoneyearofservice. PRCNmatches100%oftheemployees’contributionsupto4%ofeachemployee’stotalsalary.Employercontributionsfor theyearsendedSeptember30,2014and2013,totaled$190,834and$182,456,respectively. Note8LeaseCommitments OperatingLeasesPRCNleasesofficeequipmentundernoncancelableoperatingleasesthatexpirethroughMay2017.The equipmentleasescallformonthlypaymentsof$19,174. Futureminimumrentalpaymentsundernoncancelableoperatingleasesareasfollows: FortheFiscalYearEndingSeptember30,

2015 $209,849 2016 167,480 2017 74,672

$452,001 Rentexpenseforoperatingleasestotaled$200,245and$263,741fortheyearsendedSeptember30,2014and2013, respectively.

21 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note8Continued CapitalLeasesPRCNleasescopiersunderthreecapitalleaseagreements.Theinterestratesonthecapitalizedleases rangefrom14.6%to19.0%andareimputedbasedonthelowerofPRCN’sincrementalborrowingrateattheinceptionof eachlease,orthelessor’simplicitrateofreturn.Thegrosscapitalizedassetvalueis$252,819,withaccumulated amortizationof$97,352and$34,445atSeptember30,2014and2013,respectively. Requiredminimumpaymentsforcapitalleaseobligationsareasfollows: FortheFiscalYearEndingSeptember30,

2015 $74,638 2016 65,070 2017 54,579 2018 36,386

230,673 Lessamountrepresentinginterest (54,457)

$176,216 Note9FunctionalExpenses Programactivitiesincludethehealthcare,assistedliving,diningservices,maintenanceandhousekeeping,resident transportationservicesandresidentactivitiesprograms.Programexpensesaretheactualcostofoperatingtheprograms. Overheadcostsareincludedinthegeneralandadministrativeexpense.Depreciationexpenseisallocatedtobothprogram andgeneralandadministrativeexpenses.Totalexpensesoftheconsolidatedentityonafunctionalbasisareasfollowsfor theyearsendedSeptember30: 2014 2013

Programactivities $ 38,033,076 $39,182,385 Generalandadministrative 9,184,661 9,339,852

TotalExpenses $47,217,737 $48,522,237 Note10Development PRCNdevelopedwithinFH,LLCanew“TypeA”CCRCinwhichitsresidentswillpayforhigherlevelsofassistedlivingand healthcareatresidentiallivingrates.Thefacility,knownasSkylineatFirstHill,islocatedindowntownSeattle,andhas199 residentialapartments,60assistedlivingapartments,16memorysupportapartments,and34skillednursingbeds.The CertificateofOccupancywasreceivedSeptember24,2009.AsofSeptember30,2014,approximately92%ofthetotalunitsat Skylineareoccupied.Skylinehasreceiveda10%depositon3additionalunits. InFebruary2007,FH,LLCissuedbondsintheamountof$214,700,000tofinancethedevelopmentoftheproject(Note5). Refundabledepositsreceivedtotaled$1,614,261and$553,488atSeptember30,2014and2013,respectively.

22 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note11LegalContingencies PRCNinthenormalcourseofitsbusinessoperationsisoccasionallysubjecttolegalmatters.PRCNdoesnotbelievethatthe outcomeofsuchmatterswillhaveamaterialimpactonitsconsolidatedfinancialstatements. Note12TemporarilyRestrictedNetAssets NetassetsweretemporarilyrestrictedforthefollowingpurposesatSeptember30: 2014 2013

Communityfunds $457,811 $420,190 Specialprojects 242,266 159,201 Charitablegiftannuity 6,817 FriendsofParkShoreHeritageCurrentFundcharitycare 95,032 95,798 Employeeeducation 176,257 153,449 Accumulated,unappropriatedearningsonendowments 42,780 38,382 Residentsupportcharitycare 69,360 55,794 SkyOperaprogram 6,530 8,017

TotalTemporarilyRestrictedNetAssets $1,090,036 $937,648 ThecharitablegiftannuityassetsarerestrictedbasedonthepassageoftimeandtheHeritageFundisrestrictedtousefor ParkShore.Theremainingfundsarerestrictedasspecifiedbydonors.Netassetsof$81,758werereleasedfromrestriction duringtheyearendedSeptember30,2014,bysatisfyingtherestrictedpurposes. Note13PermanentlyRestrictedNetAssets Permanentlyrestrictednetassetsrepresentgiftsrestrictedbydonorstobeinvestedinperpetuity.Investmentincomemay beusedforgeneraloperationsorisrestrictedforprogramservices.Spendingoftheendowmentearningsisgovernedby PRCN’sendowmentspendingpolicy(Note14). NetassetswerepermanentlyrestrictedbydonorsforthefollowingpurposesatSeptember30: 2014 2013

FriendsofParkShoreHeritageendowmentcharitycare $717,571 $579,038 Generalendowment 45,699 45,699 Residentsupportendowmentcharitycare 2,650 2,650

TotalPermanentlyRestrictedNetAssets $765,920 $627,387 FriendsofParkShoreHeritageendowmentrequiresthatinvestmentearningsbemaintainedintherestrictedendowment untilitgrowsto$1,000,000invalue.Oncethatvalueisachieved,onehalfoftheendowmentearningsmaybeusedfor approvedprojects,withtheotheronehalfofendowmentearningstobereinvestedtogrowtheendowment.Income earnedonallotherendowmentsisconsideredtemporarilyrestricteduntilappropriatedbytheBoardofDirectorsfor generalsupportofPRCNorforresidentsupport.

23 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note14Endowments PRCN’sendowmentsconsistoffundsestablishedforavarietyofpurposes.Itsendowmentsincludebothdonorrestricted endowmentfundsandfundsdesignatedbytheBoardofDirectorstofunctionasendowments(quasiendowments).As requiredbyU.S.GAAP,netassetsassociatedwithendowmentfunds,includingquasiendowments,areclassifiedand reportedbasedontheexistenceorabsenceofdonorimposedrestrictions. InterpretationofRelevantLawTheBoardofDirectorsofPRCNhasinterpretedtheWashingtonStatePrudent ManagementofInstitutionalFundsAct(PMIFA)asrequiringthepreservationofthefairvalueoftheoriginalgiftasofthe giftdateofthedonorrestrictedendowmentfundsabsentexplicitdonorstipulationstothecontrary.Asaresultofthis interpretation,PRCNclassifiesaspermanentlyrestrictednetassetstheoriginalvalueofgiftsdonatedtothepermanent endowment,theoriginalvalueofsubsequentgiftstothepermanentendowment,andaccumulationstothepermanent endowmentmadeinaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationis addedtothefund. Theremainingportionofthedonorrestrictedendowmentfundthatisnotclassifiedinpermanentlyrestrictednetassetsis classifiedastemporarilyrestrictednetassetsuntilthoseamountsareappropriatedforexpenditurebyPRCNinamanner consistentwiththestandardofprudenceprescribedbyPMIFA.InaccordancewithPMIFA,PRCNconsidersthefollowing factorsinmakingadeterminationtoappropriateoraccumulatedonorrestrictedendowmentfunds: - Thedurationandpreservationofthefund; - ThepurposesofPRCNandthedonorrestrictedendowmentfund; - Generaleconomicconditions; - Thepossibleeffectofinflationanddeflation; - Theexpectedtotalreturnfromincomeandtheappreciationofinvestments; - OtherresourcesofPRCN;and - TheinvestmentpoliciesofPRCN. EndowmentnetassetsconsistedofthefollowingatSeptember30,2014: Temporarily Permanently Unrestricted Restricted Restricted Total

Donorrestrictedendowmentfunds $ $42,780 $765,920 $808,700

Boarddesignatedquasi endowmentfunds 305,818 305,818

TotalEndowmentNetAssets $305,818 $42,780 $765,920 $ 1,114,518

24 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note14Continued EndowmentnetassetsconsistedofthefollowingatSeptember30,2013: Temporarily Permanently Unrestricted Restricted Restricted Total

Donorrestrictedendowmentfunds $ $38,382 $627,387 $665,769

Boarddesignatedquasi endowmentfunds 291,018 291,018

TotalEndowmentNetAssets $291,018 $38,382 $627,387 $956,787 ChangestoendowmentnetassetsareasfollowsfortheyearsendedSeptember30: Temporarily Permanently Unrestricted Restricted Restricted 2014Total 2013Total Endowmentnetassets, beginningofyear $291,018 $38,382 $627,387 $956,787 $924,621

Endowmentinvestmentreturn Interestanddividends 3,379 1,003 6,955 11,337 11,147 Realizedandunrealizedgain 11,421 3,395 23,550 38,366 19,919

Contributions 108,028 108,028 1,100

TotalEndowmentNetAssets, EndofYear $305,818 $42,780 $765,920 $1,114,518 $956,787 FundsWithDeficienciesFromtimetotime,thefairvalueofassetsassociatedwithindividualdonorrestricted endowmentfundsmayfallbelowthelevelthatthedonororPMIFArequiresPRCNtoretainasafundofperpetual duration.InaccordancewithU.S.GAAP,deficienciesofthisnaturearereportedinunrestrictednetassets.Subsequent gainsthatrestorethefairvalueoftheassetsoftheendowmentfundtotherequiredlevelwillbeclassifiedasanincreasein unrestrictednetassets.TherewerenofundswithdeficienciesasofSeptember30,2014or2013.

25 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note14Continued ReturnObjectivesandRiskParametersPRCNhasadoptedinvestmentandspendingpoliciesforendowmentassetsthat attempttoprovideapredictablestreamoffundingtoprogramssupportedbyitsendowmentswhileseekingtomaintain thepurchasingpoweroftheendowmentassets.Endowmentassetsincludethoseassetsofdonorrestrictedfundsthat PRCNmustholdinperpetuityorfordonorspecifiedperiodsaswellasboarddesignatedfunds.Underthispolicy,as approvedbytheBoardofDirectors,theendowmentassetsareinvestedinamannerthatisintendedtoproduceresults thatexceedthepriceandyieldresultsofabenchmarkforsimilarinvestments.UnderPRCN’sinvestmentpolicy, permanentlydonorrestrictedinvestmentsaretobecomposedof100%ofequitysecurities.Quasiendowmentsaretobe investedasfollows:equitysecuritiesratedBorbetterasratedbyStandard&Poor’s,whichshallnotexceed15%ofcash andinvestments,lessrestrictedbondfundsandtheFoundationfunds;andfixedincomewhichshallnotexceed50%of totalcashandinvestments,lessrestrictedbondfundsandtheFoundationfundsandshallbeinvestedinSecuritiesU.S. GovernmentorGovernmentAgencyratedAorbetterwhileassumingamoderatelevelofinvestmentrisk.PRCNexpectsits endowmentfunds,overtime,toprovideanaveragerealrateofreturnofapproximately1%annually.Actualreturnsinany givenyearmayvaryfromthisamount. StrategiesEmployedforAchievingObjectivesTosatisfyitslongtermrateofreturnobjectives,PRCNreliesonatotal returnstrategyinwhichinvestmentreturnsareachievedthroughbothcapitalappreciation,realizedandunrealized,and currentyieldsuchasinterestanddividends.PRCNtargetsadiversifiedassetallocationthatplacesagreateremphasison equitybasedsecuritiesinvestmentswithastrategyofinvestmentsinequitysecuritiesandfixedincomesecuritiesto achieveitslongtermreturnobjectiveswithinprudentriskconstraints. SpendingPolicyandHowtheInvestmentObjectivesRelatetoSpendingPolicyPRCNconsideredthelongtermexpected returnonitsendowment.Accordingly,overthelongterm,PRCNexpectsthecurrentspendingpolicytoallowits endowmenttogrowtoabalanceof$1,000,000fortheFriendsofParkShoreHeritageendowmentannuallybeforeits plannedpayouts.ThisisconsistentwithPRCN'sobjectivetomaintainthepurchasingpoweroftheendowmentassetsheld inperpetuityorforaspecifiedtermaswellastoprovideadditionalrealgrowththroughnewgiftsandinvestmentreturn. Note15Liquidity PRCN’sunrestrictednetassetsarenegativeatSeptember30,2014and2013.Theshortfallresultsprimarilyfromoperating lossesexperiencedbySkylineduringitsfirstyearsofoperations.OccupancyofthebuildingwasdelayeduntilOctober2009 duetoextensivedamagecausedbyadefectivewatermain.Assuch,revenuesfortheyearsendedSeptember30,2011and 2010,werelowerthanoriginallyplanned.OccupancyforSkylinewas92%,93%,90%,and74%atSeptember31,2014, 2013,2012,and2011,respectively.Managementconsidersthissituationtemporaryandisworkingdiligentlytobringthe buildingtofulloccupancy.Managementhasalsorenegotiatedcertaintermsofthebuilding’sdebtagreementstotake delayedoccupancyintoconsiderationwithregardtothedebt’sfinancialcovenants(Note5).Operatingperformanceis expectedtoimprovesignificantlyduringtheyearendedSeptember30,2015.Finally,depreciationandamortization expensetotaled$8,727,522and$8,783,511theyearsendedSeptember30,2014and2013,respectively.Depreciationand amortizationareexpensesnotrequiringtheuseofcash.Cashflowfromoperationswaspositiveforbothyearsended September30,2014and2013.

26 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2014 Note16PriorPeriodEntry DuringtheyearendingSeptember30,2014,managementdiscoveredcertainerrorsintheactuarialreportsthatresultedin revenuebeingrecognizedimproperlyforentrancefees.Assuch,entrancefeesearnedintheprioryearwereoverstated anddeferredrevenuefromentrancefeeswasunderstated.Assuch,thefinancialstatementshavebeenrestatedasfollows asofandfortheyearendedSeptember30,2013: Previously Reported AsRestated ConsolidatedStatementofFinancialPosition Deferredrevenuefromentrancefees $ 144,216,487 $ 144,580,338 Netassets (31,955,184) (32,319,035)

ConsolidatedStatementofOperationsandChangesinNetAssets Entrancefeesearned $7,476,020 $7,014,669 Changeinnetassets (4,758,550) (5,122,401)

SUPPLEMENTARYINFORMATION

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofFinancialPositionAssets September30,2014 ObligatedGroup (PRCN,ParkShore, PRCN Eliminating ExeterHouse) Foundation FH,LLC Entries Total Assets

CurrentAssets: Cashandcashequivalents $1,370,574 $1,290,284 $ 5,893,236 $ $ 8,554,094 Receivables Residentfees 000 Residentandthirdpartypayors,net 730,591 2,061,772 2,792,363 Interestreceivable 0 39,835 39,835 Otherreceivables 6,195,841 5,568 116,440 (6,169,342) 148,507 Fundsheldintrust 111,121 111,121 Inventory 0 17,690 17,690 Prepaidexpenses 318,626 0 382,333 700,959

TotalCurrentAssets 8,726,753 1,295,852 8,511,306 (6,169,342) 12,364,569

Beneficialinterestincharitablegiftannuities 00 0 InvestmentsPRCNandFoundation 8,273,618 958,255 9,231,873 InvestmentsFH,LLCrefundabledeposits 0 552,358 552,358 Limiteduseassetswaitinglistdeposits 205,000 13,657 218,657 Limiteduseassetsbondfundsheldbytrustee 2,636,338 11,360,701 13,997,039 NotereceivableFH,LLC 5,405,696 (5,405,696) 0 Deferredfinancingfees,net 434,324 4,482,206 4,916,530 Capitalizedmarketingcosts,net 3,536,035 3,536,035 Propertyandequipment,net 25,048,646 170,733,310 (403,969) 195,377,987

TotalAssets $ 50,730,375 $2,254,107 $199,189,573 $(11,979,007) $240,195,048

Seeindependentauditor’sreport. 28 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofFinancialPositionLiabilitiesandNetAssets September30,2014 ObligatedGroup (PRCN,ParkShore, PRCN Eliminating ExeterHouse) Foundation FH,LLC Entries Total Liabilities CurrentLiabilities: Intercompanyclearing $ (2,920,079) $1,120,456 $ 1,799,623 $ $ Accountspayable 79,584 0 363,278 0 442,862 Accruedexpenses 5,710,984 858 6,724,718 (7,625,038) 4,811,522 Currentportionofcapitalleaseobligations 17,004 32,298 49,302 Currentportionofsewercapacitypayable 49,838 49,838 Currentportionoflongtermdebt 235,000 1,990,000 2,225,000 TotalCurrentLiabilities 3,122,493 # 1,121,314 10,959,755 (7,625,038) 7,578,524 Longtermcapitalleaseobligations, lesscurrentportion 9,807 117,107 126,914 Longtermsewercapacitypayable, lesscurrentportion 624,051 624,051 Residentexpansiondeposits 000 Deferredrevenuefromentrancefees 18,063,167 125,784,420 143,847,587 Waitinglistdeposits 205,000 13,657 218,657 Refundabledeposits 866,740 1,614,261 2,481,001 Accruedmarketingfees 830,358 830,358 NotepayablePRCN 0 3,950,000 (3,950,000) 0 Longtermdebt,lesscurrentportion 14,485,000 106,488,250 120,973,250 TotalLiabilities 36,752,207 1,121,314 250,381,859 (11,575,038) 276,680,342 NetAssets: Unrestricted 13,978,168 (723,163) (51,192,286) (403,969) (38,341,250) Temporarilyrestricted 0 1,090,036 1,090,036 Permanentlyrestricted 0 765,920 765,920 TotalNetAssets 13,978,168 1,132,793 (51,192,286) (403,969) (36,485,294) TotalLiabilitiesandNetAssets $ 50,730,375 $2,254,107 $199,189,573 $(11,979,007) $240,195,048 Seeindependentauditor’sreport. 29 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofOperationsandChangesinNetAssets FortheYearEndedSeptember30,2014 ObligatedGroup Park Exeter PRCN Eliminating PRCN Shore House Subtotal Foundation FH,LLC Entries Total OperatingRevenue: Independentliving $ $ 4,215,179 $ 3,251,221 $ 7,466,400 $ $ 10,742,829 $ $ 18,209,229 Healthcare 3,374,184 9,600 3,383,784 5,365,910 8,749,694 Assistedliving 1,597,012 1,233,165 2,830,177 3,986,287 6,816,464 Managementandrentalfees 2,582,417 2,582,417 (2,582,417) Interestincome 204,265 0 204,265 23,386 169,938 (245,713) 151,876 Other 89,249 442,562 348,998 880,809 838,864 1,719,673 2,875,931 9,628,937 4,842,984 17,347,852 23,386 21,103,828 (2,828,130) 35,646,936 Residentsubsidies (65,443) (65,443) (237,304) (302,747) Netresidentservicerevenue 2,875,931 9,563,494 4,842,984 17,282,409 23,386 20,866,524 (2,828,130) 35,344,189 Entrancefeesearned 2,820,945 306,115 3,127,060 4,108,623 7,235,683

TotalOperatingRevenue 2,875,931 12,384,439 5,149,099 20,409,469 23,386 24,975,147 (2,828,130) 42,579,872

CostofServicesProvided: Healthcare 1,833,893 1,833,893 3,683,285 5,517,178 Diningservices 2,158,768 1,219,234 3,378,002 3,674,698 7,052,700 Generalandadministrative 2,655,377 1,288,217 1,019,511 4,963,105 33,084 3,316,720 8,312,909 Managementandrentalfees 2,588 1,146,551 579,708 1,728,847 1,040,794 (2,582,417) 187,224 Maintenanceandhousekeeping 1,513,220 1,107,897 2,621,117 2,311,309 4,932,426 Assistedliving 573,188 758,739 1,331,927 1,873,334 3,205,261 Residentialtransportationservices 46,540 88,913 135,453 290,994 426,447 Residentactivities 567,682 140,015 707,697 675,585 1,383,282 Interestandfinancingexpense 309,815 183,070 158,598 651,483 6,992,033 (245,713) 7,397,803 Provisionfordoubtfulaccounts (15,885) 7,374 (8,511) 83,496 74,985 Costofservicesprovidedbefore depreciationandamortization 2,967,780 9,295,244 5,079,989 17,343,013 33,084 23,942,248 (2,828,130) 38,490,215

Depreciationandamortization 71,867 1,342,424 759,951 2,174,242 6,553,280 8,727,522

TotalCostofServicesProvided 3,039,647 10,637,668 5,839,940 19,517,255 33,084 30,495,528 (2,828,130) 47,217,737

(Deficiency)ExcessofRevenues(Under) OverCostsBeforeNonoperatingActivities (163,716) 1,746,771 (690,841) 892,214 (9,698) (5,520,381) (4,637,865) Seeindependentauditor’sreport. 30 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofOperationsandChangesinNetAssets(Continued) FortheYearEndedSeptember30,2014 ObligatedGroup Park Exeter PRCN Eliminating PRCN Shore House Subtotal Foundation FH,LLC Entries Total NonoperatingActivities: Charitablecontributions 300,847 5,000 305,847 Charitablegrantexpense (83,009) (83,009) Investmentincome(loss) 266,239 266,239 78,518 (89,172) 255,585 Changeinthevalueofbenefit interestincharitablegiftannuities (6,817) (6,817)

ChangeinNetAssetsFrom NonoperatingActivities 266,239 266,239 289,539 (84,172) 471,606

ChangeinNetAssets 102,523 1,746,771 (690,841) 1,158,453 279,841 (5,604,553) (4,166,259)

Netassets,beginningofyear, (AsRestated,Note16) (5,105,849) 25,191,683 (7,266,119) 12,819,715 852,952 (45,587,733) (403,969) (32,319,035)

NetAssets,EndofYear $(5,003,326) $ 26,938,454 $(7,956,960) $13,978,168 $ 1,132,793 $(51,192,286) $ (403,969) $(36,485,294)

Seeindependentauditor’sreport. 31 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofCashFlows FortheYearEndedSeptember30,2014 ObligatedGroup (PRCN,ParkShore, PRCN Eliminating ExeterHouse) Foundation FH,LLC Entries Total OperatingActivities: Changeinnetassets $1,158,453 $279,841 $(5,604,553) $ $ (4,166,259) Adjustmentstoreconcilechangeinnetassetsto netcashprovidedbyoperatingactivities Depreciation 2,174,242 5,393,282 7,567,524 Investment(gains)losses (266,239) (78,518) 89,172 (255,585) Changeinvalueofcharitablegiftannuities 6,817 6,817 Entrancefeeadditions 3,781,000 7,482,346 11,263,346 Amortizationofentrancefees,demiseincome, andadministrativefeesearned (2,859,900) (4,780,881) (7,640,781) Amortizationofdeferredfinancingfees 27,464 407,222 434,686 Amortizationofcapitalizedmarketingcosts 1,159,998 1,159,998 Accruedinterestincomeonintercompanynotes (245,713) 245,713 Cashprovidedby(usedin)changesin operatingassetsandliabilities: Receivablesandintercompanyreceivables,net (1,822,067) (5,568) (540,464) 2,404,709 36,610 Fundsheldintrust 412 412 Inventory (2,567) (2,567) Prepaidexpenses (88,142) (83,177) (171,319) Intercompanyclearing (121,044) 27,641 93,403 Accountspayable,accruedexpensesandintercompany 1,239,229 2,948 (191,361) (2,650,422) (1,599,606) Residentexpansiondeposits (2,892) (2,892) Waitinglistdeposits 2,500 6,482 8,982 NetCashProvidedbyOperatingActivities 2,980,195 233,161 3,426,010 6,639,366

Seeindependentauditor’sreport. 32 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofCashFlows(Continued) FortheYearEndedSeptember30,2014 ObligatedGroup (PRCN,ParkShore, PRCN Eliminating ExeterHouse) Foundation FH,LLC Entries Total

InvestingActivities: Changeininvestmentsforrefundabledeposits 319,800 1,060,773 1,380,573 Purchaseofpropertyandequipment (1,757,157) (422,497) (2,179,654) PurchaseofinvestmentsPRCNandFoundation (3,050,304) (392,056) (3,442,360) SaleofinvestmentsPRCNandFoundation 2,900,835 348,524 3,249,359 Purchaseoflimiteduseassets (1,293,583) (16,111,475) (17,405,058) Saleoflimiteduseassets 1,330,519 16,104,598 17,435,117 NetCash(Used)ProvidedbyInvestingActivities (1,549,890) (43,532) 631,399 0 (962,023)

FinancingActivities: Principalpaymentsonlongtermdebt (120,000) 0 (2,884,844) (3,004,844) Paymentsforcapitalizedloanfees (4,929) 0 (21,067) (25,996) Paymentsoncapitalleaseobligations (14,395) 0 (27,415) (41,810) Refundofentrancefees (779,105) (2,243,115) (3,022,220)

NetCashUsedbyFinancingActivities (918,429) (5,176,441) 0 (6,094,870)

NetChangeinCashandCashEquivalents 511,876 189,629 (1,119,032) 0 (417,527)

Cashandcashequivalentsbalance,beginningofyear 858,698 1,100,655 7,012,268 8,971,621

CashandCashEquivalentsBalance,EndofYear $1,370,574 $1,290,284 $ 5,893,236 $ $ 8,554,094

Seeindependentauditor’sreport. 33

ConsolidatedFinancialStatements FortheYearEndedSeptember30,2015

IndependentAuditor’sReport BoardofDirectors PresbyterianRetirementCommunitiesNorthwestandSubsidiaries Seattle,Washington WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofPresbyterian RetirementCommunitiesNorthwestandSubsidiaries(collectively,PRCN),whichcomprisethe consolidatedstatementoffinancialpositionasofSeptember30,2015,andtherelated consolidatedstatementsofoperationsandchangesinnetassetsandcashflowsfortheyear thenended,andtherelatednotestotheconsolidatedfinancialstatements. Management'sResponsibilityfortheFinancialStatements Managementisresponsibleforthepreparationandfairpresentationofthesefinancial statementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesof America;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolrelevant tothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterial misstatement,whetherduetofraudorerror. Auditor’sResponsibility Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedon ouraudit.WedidnotauditthefinancialstatementsofFredLindManor,LLC,awhollyowned subsidiary,whichstatementsreflecttotalassetsof$3,170,972asofSeptember30,2015,and totalrevenuesof$2,503,087fortheyearthenended.Thosestatementswereauditedbyother auditors,whosereporthasbeenfurnishedtous,andouropinion,insofarasitrelatestothe amountsincludedforFredLindManor,LLC,isbasedsolelyonthereportoftheotherauditors. WeconductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnited StatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtain reasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterial misstatement. Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsand disclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’s judgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancial statements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditor considersinternalcontrolrelevanttotheentity'spreparationandfairpresentationofthe financialstatementsinordertodesignauditproceduresthatareappropriateinthe T: 425-454-4919 circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessofthe T: 800-504-8747 entity'sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludes F: 425-454-4620 evaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificant accountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthe 10900 NE 4th St financialstatements. Suite 1700 Bellevue WA Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovidea 98004 basisforourauditopinion. clarknuber.com

Opinion Inouropinion,basedonourauditandthereportoftheotherauditor,theconsolidatedfinancial statementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancial positionofPRCNasofSeptember30,2015,andtheresultsofitsconsolidatedoperationsand cashflowsfortheyearthenendedinaccordancewithaccountingprinciplesgenerallyaccepted intheUnitedStatesofAmerica. ReportonSummarizedComparativeInformation WehavepreviouslyauditedPRCN’s2014financialstatements,andweexpressedanunmodified auditopiniononthoseauditedfinancialstatementsinourreportdatedApril30,2015.Inour opinion,thesummarizedcomparativeinformationpresentedhereinasofandfortheyearended September30,2014,isconsistent,inallmaterialrespects,withtheauditedfinancialstatements fromwhichithasbeenderived. ReportonSupplementaryInformation Ourauditwasconductedforthepurposeofforminganopiniononthefinancialstatementsasa whole.Thesupplementaryinformationpresentedonpages28through34ispresentedfor purposesofadditionalanalysisandisnotarequiredpartofthefinancialstatements.Such informationistheresponsibilityofmanagementandwasderivedfromandrelatesdirectlytothe underlyingaccountingandotherrecordsusedtopreparethefinancialstatements.The informationhasbeensubjectedtotheauditingproceduresappliedintheauditofthefinancial statementsandcertainadditionalprocedures,includingcomparingandreconcilingsuch informationdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethefinancial statementsortothefinancialstatementsthemselves,andotheradditionalproceduresin accordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Inour opinion,theinformationisfairlystatedinallmaterialrespectsinrelationtothefinancial statementsasawhole. CorrectionofError AsdiscussedinNote16totheconsolidatedfinancialstatements,certainerrorsresultinginthe understatementofentrancefeesearnedandoverstatementofdeferredrevenuefromentrance feesasofSeptember30,2014,werediscoveredbymanagementofthePRCNduringthecurrent year.Accordingly,amountsreportedforentrancefeesearnedanddeferredrevenuefrom entrancefeeshavebeenrestatedinthe2014consolidatedfinancialstatementsnowpresented tocorrecttheerror.Ouropinionisnotmodifiedwithrespecttothatmatter.

CertifiedPublicAccountants February1,2016

CONSOLIDATEDFINANCIALSTATEMENTS

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofFinancialPositionAssets September30,2015 (WithComparativeTotalsfor2014)

2015 2014

CurrentAssets: Cashandcashequivalents $13,649,015 $ 8,554,094 Receivables Residentandthirdpartypayors,netofallowancefor doubtfulaccountsof$133,196(2014$466,353) 1,896,158 2,792,363 Interestreceivable 39,835 Otherreceivables 175,812 148,507 Fundsheldintrust 18,642 111,121 Inventory 36,019 17,690 Prepaidexpenses 712,366 700,959

TotalCurrentAssets 16,488,012 12,364,569

InvestmentsPRCNandFoundation(Note2) 9,332,719 9,231,873 InvestmentsFH,LLCrefundabledeposits(Note2) 771,506 552,358 Limiteduseassetswaitinglistdeposits(Note2) 358,412 218,657 Limiteduseassetsbondfundsheldbytrustee(Note2) 13,536,160 13,997,039 Limiteduseassetsreserveforreplacementsandescrow 637,824 Limiteduseassetsresidualreceiptsreserve 307,906 Goodwill 278,044 Deferredfinancingfees,netofaccumulatedamortization of$2,015,051(2014$1,574,479) 4,648,403 4,916,530 Capitalizedmarketingcosts,net 2,376,036 3,536,035 Propertyandequipment,net(Note4) 195,215,090 195,377,987

TotalAssets $243,950,112 $240,195,048

Seeaccompanyingnotes. 3 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofFinancialPositionLiabilitiesandNetAssets September30,2015 (WithComparativeTotalsfor2014) 2014Total (AsRestated, 2015 Note16)

CurrentLiabilities: Accountspayable $817,388 $442,862 Accruedexpenses,includingaccruedinterest of$1,512,270($1,721,6252014) 5,158,251 4,811,522 Residentrefundsdue 806,500 1,053,968 Currentportionofcapitalleaseobligations(Note8) 47,856 49,302 Currentportionofsewercapacitypayable(Note6) 52,943 49,838 Currentportionoflongtermdebt(Note5) 2,682,928 2,225,000

TotalCurrentLiabilities 9,565,866 8,632,492

Longtermcapitalleaseobligations,lesscurrentportion(Note8) 79,058 126,914 Longtermsewercapacitypayable,lesscurrentportion(Note6) 571,108 624,051 Deferredrevenuefromentrancefees 150,368,421 142,793,619 Waitinglistdeposits 358,412 218,657 Refundabledeposits 1,398,906 1,427,033 Accruedmarketingfees 830,358 830,358 Longtermdebt,lesscurrentportion(Note5) 122,015,801 120,973,250

TotalLiabilities 285,187,930 275,626,374

NetAssets: Unrestricted (43,115,452) (37,287,282) Temporarilyrestricted(Note12) 1,111,943 1,090,036 Permanentlyrestricted(Note13) 765,691 765,920

TotalNetAssets (41,237,818) (35,431,326)

TotalLiabilitiesandNetAssets $243,950,112 $240,195,048

Seeaccompanyingnotes. 4 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofOperationsandChangesinNetAssets FortheYearEndedSeptember30,2015 (WithComparativeTotalsfor2014) 2014Total Temporarily Permanently (AsRestated, Unrestricted Restricted Restricted 2015Total Note16)

OperatingRevenue: Independentliving $21,377,952 $ $ $ 21,377,952 $18,209,229 Healthcare 8,882,769 8,882,769 8,749,694 Assistedliving 7,138,195 7,138,195 6,816,464 Interestincome 366,513 23,735 390,248 397,589 Other 2,034,691 2,034,691 1,719,673

39,800,120 23,735 39,823,855 35,892,649

Residentsubsidies (326,397) (326,397) (302,747)

Netresidentservicerevenue 39,473,723 23,735 39,497,458 35,589,902

Entrancefeesearned 7,594,077 7,594,077 8,289,651 Releasedfromrestrictions 152,132 (152,132)

TotalOperatingRevenue 47,219,932 (128,397) 47,091,535 43,879,553

CostofServicesProvided: Healthcare 5,654,804 5,654,804 5,517,178 Diningservices 7,107,325 7,107,325 7,052,700 Generalandadministrative 9,439,636 9,439,636 8,312,909 FredLindManoroperatingcosts 2,413,404 2,413,404 Managementandrentalfees 187,224 Maintenanceandhousekeeping 5,327,631 5,327,631 4,932,426 Assistedliving 3,650,245 3,650,245 3,205,261 Residentialtransportationservices 444,375 444,375 426,447 Residentactivities 1,479,659 1,479,659 1,383,282 Interestandfinancingexpense 7,398,988 7,398,988 7,643,516 Provisionfordoubtfulaccounts (72,086) (72,086) 74,985 Costofservicesprovided beforedepreciationandamortization 42,843,981 42,843,981 38,735,928

Depreciationandamortization 9,248,363 9,248,363 8,727,522

TotalCostofServicesProvided 52,092,344 52,092,344 47,463,450

DeficiencyofRevenuesUnderCosts BeforeNonoperatingActivities (4,872,412) (128,397) (5,000,809) (3,583,897)

Seeaccompanyingnotes. 5 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofOperationsandChangesinNetAssets(Continued) FortheYearEndedSeptember30,2015 (WithComparativeTotalsfor2014) 2014Total Temporarily Permanently (AsRestated, Unrestricted Restricted Restricted 2015Total Note16)

NonoperatingActivities: Charitablecontributions 4,155 175,756 179,911 305,847 Charitablegrantexpense (98,833) (98,833) (83,009) Investmentincome(losses) (185,770) (25,452) (229) (211,451) 255,585 Changeinvalueofbeneficialinterest incharitablegiftannuities (6,817)

ChangeinNetAssets FromNonoperatingActivities (280,448) 150,304 (229) (130,373) 471,606

ChangeinNetAssets (5,152,860) 21,907 (229) (5,131,182) (3,112,291)

Netassets,beginningofyear (asrestated,Note16) (37,287,282) 1,090,036 765,920 (35,431,326) (32,319,035) Netassetsacquired(Note1) (675,310) (675,310)

NetAssets,EndofYear $(43,115,452) $1,111,943 $ 765,691 $(41,237,818) $(35,431,326)

Seeaccompanyingnotes. 6 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofCashFlows FortheYearEndedSeptember30,2015 (WithComparativeTotalsfor2014) 2015 2014

OperatingActivities: Changeinnetassets $(5,131,182) $(3,112,291) Adjustmentstoreconcilechangeinnetassetsto netcashprovidedbyoperatingactivities Depreciation 8,088,364 7,567,524 Investment(gains)losses 211,451 (255,585) Changeinvalueofcharitablegiftannuities 6,817 Entrancefeeadditions 24,351,819 11,263,346 Amortizationofentrancefees,demiseincome, andadministrativefeesearned (7,594,077) (7,640,781) Amortizationofdeferredfinancingfees 498,076 434,686 Amortizationofcapitalizedmarketingcosts 1,159,999 1,159,998 Cashprovidedby(usedin)changesin operatingassetsandliabilities: Receivables,net 934,482 36,610 Fundsheldintrust 97,087 412 Inventory (5,886) (2,567) Prepaidexpenses 33,603 (171,319) Accountspayableandaccruedexpenses 80,565 (1,599,606) Residentrefundsdue (1,053,968) Residentexpansiondeposits (2,892) Waitinglistdeposits 107,470 8,982 Goodwill (278,044)

NetCashProvidedbyOperatingActivities 21,499,759 7,693,334

InvestingActivities: Changeininvestmentsforrefundabledeposits (28,127) 1,380,573 Netdepositstoreserves (26,252) Deposittoandinterestretainedinresidualreceipts (4,859) Purchaseofpropertyandequipment (5,437,796) (2,179,654) PurchaseofinvestmentsPRCNandFoundation (11,120,497) (3,442,360) SaleofinvestmentsPRCNandFoundation 10,865,942 3,249,359 Purchaseoflimiteduseassets (18,590,020) (17,405,058) Saleoflimiteduseassets 18,666,569 17,435,117

NetCashUsedbyInvestingActivities (5,675,040) (962,023)

Seeaccompanyingnotes. 7 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatedStatementofCashFlows(Continued) FortheYearEndedSeptember30,2015 (WithComparativeTotalsfor2014) 2015 2014

FinancingActivities: Proceedsfromlongtermdebt 123,401 Principalpaymentsonlongtermdebt (2,354,399) (3,004,844) Paymentsforcapitalizedloanfees (152,183) (25,996) Paymentsoncapitalleaseobligations (49,302) (41,810) Refundofentrancefees (8,376,440) (4,076,188)

NetCashUsedbyFinancingActivities (10,808,923) (7,148,838)

NetChangeinCashandCashEquivalents 5,015,796 (417,527)

Cashandcashequivalentsbalance,beginningofyear 8,554,094 8,971,621 Cashacquired(Note1) 79,125

CashandCashEquivalentsBalance,EndofYear $13,649,015 $ 8,554,094

SupplementalDisclosure: Cashpaidduringtheyearforinterest $ 6,289,711 $ 7,157,800 Noncashacquisitionofproperty $440,941 $

Seeaccompanyingnotes. 8

NOTESTOFINANCIALSTATEMENTS

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1NatureofOperationsandSignificantAccountingPolicies MissionStatementPresbyterianRetirementCommunitiesNorthwest(PRCN)isafaithbasedorganizationsupporting communitiesandservicesthatcelebrateandenrichlives. NatureofOperationsPresbyterianRetirementCommunitiesNorthwestisaWashingtonnonprofitcorporationorganized in1956forthepurposeofoperatingcontinuingcareretirementcommunities(CCRCs)andrelatedfacilities.CCRCsoffer residentstheoptionofcontractingformultiplelevelsofcareasneededovertheirlifetimeincludingresidential,assisted living,andhealthcare.ParkShoreisa“TypeB”CCRC,meaningthatresidentspayforthehigherlevelsofassistedlivingand healthcareatslightlydiscountedmarketrates.SkylineatFirstHillisa“TypeA”CCRC,meaningresidentswillpayforfuture healthcarecostsatdiscountedrates;however,thesecostswillbeoffsetbyfutureentrancefeesandfeeincreases.Exeter Houseoffersresidentialandassistedlivingunitsatmonthlyrentalrates. PRCN'sBoardofDirectorsconsistsofupto18electedmembersandisresponsibleforthegeneralmanagementand controlofallpropertyandaffairsofPRCN. FH,LLCIn2004,PRCNassolemanagingmember,formedFH,LLCforthepurposeofdevelopingandoperatinganew CCRC,SkylineatFirstHill(Skyline). FoundationThePresbyterianRetirementCommunitiesNorthwestFoundation(theFoundation)isanonprofit organizationthatwasorganizedexclusivelyforthecharitable,educational,andreligiousbenefitofPRCN. TransformingAge,Inc.In2014,PRCNasasolemanagementmember,formedTransformingAge,Inc.forthepurposeof providingforprofitservicesasdeterminedbyPRCN. TransformingAgeServices,LLCIn2014,TransformingAge,Inc.asasolemanagementmember,formedTransformingAge Services,LLCforthepurposeofprovidingthirdpartymanagementandconsultingservicestootherseniorliving organizationsasdeterminedbyTransformingAge,Inc. FredLindManorIn2015,PRCNbecamethesolemanagingmemberofFredLindManor.Therewasnomonetary exchangethatoccurredwhenPRCNtookovermanagingtheproperty.Netassetsof$675,310weretransferredtoPRCN, includingcashof$79,125. PRCNServices,LLCIn2015,PRCNasasolemanagementmember,formedPRCNServices,LLCforthepurposeofproviding seniorservicesandotherservicesasdeterminedbyPRCN. GerontologicalServices,LLCIn2015,TransformingAge,Inc.asasolemanagementmember,formedGerontological Services,LLC(GSI)forpurposeofprovidingmarketandconsumerresearchfortheolderadultandagingservicesmarketsas determinedbyTransformingAge,Inc. PrinciplesofConsolidationThefinancialstatementsofPRCNrepresenttheconsolidatedfinancialposition,resultsof operations,andcashflowsofitsfourSeattleproperties,Skyline,ParkShore,ExeterHouse,andFredLindManor,an administrativedivision,PRCNServices,LLC,TransformingAgeInc.andsubsidiaries,andtheFoundation.Allinter organizationtransactionshavebeeneliminatedinconsolidation.

9 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1Continued Abreakdownofthenumberofunitsbycommunityisasfollows: Residential Assisted Memory Community Living Living Healthcare Care Total

FredLindManor 82 82 ParkShore 115 30 28 173 ExeterHouse 82 26 108 Skyline 199 48 34 28 309

TotalUnits 478 104 62 28 672 CovenantRelationshipsPRCNisaffiliatedthroughacovenantagreementwiththePresbyteryofSeattle,Presbyterian Church(USA)which,neitherinwholenorinpart,acceptsanyresponsibilityforthefinancialorcontractualobligationsof PRCN. BasisofPresentationNetassetsandrevenues,gainsandlossesareclassifiedbasedontheexistenceorabsenceofdonor imposedrestrictions.Accordingly,thenetassetsofPRCNandchangesthereinareclassifiedandreportedasfollows: UnrestrictedNetAssetsNetassetsthatarenotsubjecttodonorimposedstipulations. TemporarilyRestrictedNetAssetsNetassetssubjecttodonorimposedstipulationsthatwillbemetbyactionsof PRCNand/orthepassageoftime. PermanentlyRestrictedNetAssetsNetassetssubjecttodonorimposedrestrictionsthatstipulatetheresources bemaintainedinperpetuitybutpermitPRCNtoexpendpartoralloftheincomederivedfromthedonatedassets foreitherspecifiedorunspecifiedpurposes. Revenuesarereportedasincreasesinunrestrictednetassetsunlessuseoftherelatedassetsislimitedbydonorimposed restrictions.Expensesarereportedasdecreasesinunrestrictednetassets.Gainsandlossesonotherassetsorliabilitiesare reportedasincreasesordecreasesinunrestrictednetassetsunlesstheiruseisrestrictedbyexplicitdonorstipulationorby law.Expirationsoftemporaryrestrictionsonthenetassets(i.e.,thedonorstipulatedpurposehasbeenfulfilledand/orthe stipulatedtimeperiodhaselapsed)arereportedasreclassificationsbetweentheapplicableclassesofnetassets. EntranceFees,RefundsandAmortizationEntrancefeesarerequiredforcontinuingcareresidents.Skylineresidentshavethe optiontodefer,interestfree,aportionoftheirentrancefeeforuptooneyearbasedonthetermsinthecontract.LifeCare benefits,however,donotaccrueuntiltheentrancefeeispaidinfull.Thereafter,theresidentissubjecttoregularmonthly rentalfees.Eitherpartyhastherighttoterminatethisagreementduringtheresident'soccupancy,subjecttocertain limitations.PRCN'ssecurityforpaymentsrequiredofresidentsconsistsofcancelationandotherrightsunderthe agreements. PRCNalsorentsresidentialandassistedlivingfacilitiesonmonthlycontractsateachofitslocations.Rentalsdonotrequire anentrancefeebutrequirehighermonthlyfees.

10 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1Continued AParkShoreresidentwhoterminatesresidency,otherthanbydeath,isentitledtoarefundoftheentrancefeebasedupon theoriginalfeelessadministrativeandservicefeesofupto$7,500,less1%foreachmonthorpartialmonthofoccupancy,less allotherfeesowedtoPRCN.Forcontractsenteredintopriorto1999,uponterminationduetodeathwithin90daysofmove in,100%oftheamountcalculatedasdescribedaboveisrefundable.Theamountrefundableisreducedto75%forbetween91 and180days,to50%forbetween181and270days,to25%forbetween271and360days,andtozeroforbeyond360days. Forcontractsenteredintoduringandafter1999,therefundupondeathwithinoneyearofmoveinis75%oftheamount calculatedasdescribedabove,50%forthesecondyear,andzerothereafter.ASkylineresidentwhoterminatesresidencyis entitledtoa0100%refundoftheirentrancefeeaftertheirunithasbeenresold,basedonthetermsoftheircontract. Entrancefeesarerecordedasdeferredrevenue.Thenonrefundableportionofentrancefeesareamortizedtorevenueover theestimatedremaininglifeexpectancyofeachresidentonastraightlinebasis.Therefundableportionofentrancefeesfor Skylineresidentsareamortizedtorevenueovertheestimatedremainingusefullifeofthefacility.Uponterminationof residency,anydifferencebetweenthebalanceofthedeferredresidencyfeeandtheamountcontractuallyrefundableis recordedasincomeorexpense.AsofSeptember30,2015and2014,$146,692,068and$138,386,396,respectively, representedentrancefeeswhichwerecontractuallyrefundableunderthevariouscontracts. ThirdPartyPayorReimbursementContractsParkShoreandSkylinerenderservicestopatientsundercontractual arrangementswithMedicaidandMedicare.Underthetermsofthesecontracts,PRCNreceivespaymentatcertaininterim rates.Thedifferencebetweeninterimratesandthefinalsettlementisbaseduponanannualcostreport. AmountsreceivedorreceivableunderMedicareandMedicaidcontractsaresubjecttoauditandadjustmentbyMedicare orMedicaid.Anydisallowedclaimsincludingamountsalreadyreceivedandadjustmentstotheinterimratemayconstitute aliabilityofPRCN.MedicarecostreportshavebeensettledthroughfiscalyearSeptember30,2014.Managementdoesnot believeamaterialassetorliabilityexistsasofSeptember30,2015,regardingunsettledcostreports. ObligationtoProvideFutureServicestoCurrentResidentsPRCNisrequiredtoaccruealiabilityintheconsolidated financialstatementsiffuturecostsofservicesforcurrentresidentsexceeddeferredresidencyfeesplusfuturefees.An evaluationshowednosuchshortfalloffeesfortheyearsendedSeptember30,2015and2014;therefore,noliabilityhasbeen recognizedintheconsolidatedfinancialstatements.Majorfactorsintheevaluationofafutureserviceobligationconsider thatParkShoreiscontractuallyentitledtoincreasefeestocoverfuturecostincreases,andthecommunityisa“TypeB" CCRC,meaningresidentswillpayforanyfuturehealthcarecostsatnearmarketrates.Skylineisa“TypeA”CCRC,meaning residentswillpayforfuturehealthcarecostsatdiscountedrates;however,thesecostswillbeoffsetbyfutureentrance feesandfeeincreases. ResidentSubsidiesPRCNprovideshousingandcarefortheremaininglifetimeofeachresidentunlesseitherpartycancelsthe residencyagreement.Subsidiesofmaintenancefeesaregrantedintheeventthattheresidentprovesaninabilitytopay. However,PRCNshallnotassumesuchobligationiftheresidenthasdisposedoffundsorassetsintentionallytoothers,orif theresidenthasdisposedofassetsextravagantlyforpurchasesorgiftswhentherewereadequateresourcesoriginally availabletosupporttheresidentforlifeatthecommencementofresidency. ChangeinNetAssetsFromOperationsTheconsolidatedstatementofoperationsandchangesinnetassetsincludesthe changeinnetassetsfromoperations.Changesinunrestrictednetassetsthatareexcludedfromthechangeinnetassets fromoperationsincludecharitablecontributionsandgrants,realizedandunrealizedgainsandlossesoninvestments,gains orlossesonthedisposalofassets,andchangeinthevalueofbeneficialinterestincharitablegiftannuities.

11 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1Continued CashandCashEquivalentsPRCNconsidersallhighlyliquidinstrumentspurchasedwithanoriginalmaturityofthree monthsorlesstobecashequivalents. TradeAccountReceivablesTradeaccountreceivablesarestatedattheamountmanagementexpectstocollectfrom outstandingbalances.Managementprovidesforprobableuncollectibleamountsthroughachargetoearningsandacredit toavaluationallowancebasedonitsassessmentofthecurrentstatusofindividualaccounts.Balancesstilloutstanding aftermanagementhasusedreasonablecollectioneffortsarewrittenoffthroughachargetothevaluationallowanceanda credittotradeaccountsreceivable.Changesinthevaluationallowancehavenotbeenmaterialtotheconsolidated financialstatements. InvestmentsInvestmentsindebtsecuritiesandequitysecuritieswithreadilydeterminablevaluesarerecordedatfair value.Thefairvalueofinvestmentsinsecuritiestradedonnationalsecuritiesexchangesisvaluedattheclosingpriceon thelastbusinessdayofthefiscalyear.Investmentinterest,dividends,andrealizedandunrealizedgainsandlossesare includedaschangesinunrestrictednetassetsunlesstheincomeisrestrictedbydonororlaw.Investmentsinguaranteed investmentcontractsarereportedatcost. Investmentsecurities,ingeneral,areexposedtovariousrisks,includinginterestrate,creditandoverallmarketvolatility. Duetothelevelofriskassociatedwithcertainlongterminvestments,itispossiblethatchangesinthevaluesofthese investmentswilloccurintheneartermandthatsuchchangescouldmateriallyaffecttheamountsreportedinthe consolidatedstatementoffinancialposition. WaitingListDepositsTobeincludedintheresidentwaitinglist,potentialfutureresidentsarerequiredtomakeadeposit whichwillbeappliedtowardtheirentrancefeeuponadmission. GoodwillDuringtheyearendedSeptember30,2015,GerontologicalServices,LLCacquiredGerontologicalServices,Inc. Goodwillrepresentsthedifferencebetweenthepurchasepricepaidandtheestimatedfairvalueoftheequityacquiredfor thecompany.InaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(U.S.GAAP), entitiesarerequiredtotestgoodwillatleastannuallyforimpairment.Noimpairmentofgoodwillexistedorwasrecorded fortheyearendedSeptember30,2015. DeferredFinancingFeesDeferredfinancingfeesareamortizedonastraightlinebasisoverthelifeoftherelateddebt. RealEstateDevelopmentCostsRealestatedevelopmentcostsforSkylinearecapitalizedinaccordancewithaccountingU.S. GAAP.Thisincludescostsincurredfortheacquisition,development,andconstructionofproperty,andthepreacquisitioncosts incurredforthepurchaseoftheproperty,projectcosts,indirectcosts,taxesandinsurance,andinterest.Thesecostsare depreciatedovertheestimatedusefullifeofthebuilding. Operatingandcarryingcosts,suchasrealestatetaxes,arerecognizedasexpenseintheperiodinwhichtheyareincurred. StartupcostsofSkylinewereexpensedintheperiodincurred.

12 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1Continued CapitalizedMarketingCostsandAdvertisingCostincurredtorenttheresidentialunitsthatarerelatedtothefuture operationsofSkyline(suchasmodelunitsandtheirfurnishings,andrentalfacilities),areconsideredmarketingcostsand arecapitalizedinaccordancewithU.S.GAAP.Capitalizedmarketingcostsareamortizedonastraightlinebasisoverthe averageremaininglivesoftheresidentsundercontract,orthecontractterm,whicheverisshorter.Theamortizationperiod beginswhentheprojectissubstantiallycompletedandheldavailableforoccupancy.Estimatedunrecoverableamountsof unamortizedcapitalizedrentalcostsassociatedwithacontractorgroupofcontractsshallbechargedtoexpensewhenit becomesprobablethatthecontract(s)willbeterminated.Marketingcoststhatdonotmeetthecriteriaforcapitalization areexpensedasincurred. Directresponseadvertisingcostsincurredinconnectionwithacquiringinitialcontinuingcarecontractsarecapitalizedin accordancewithU.S.GAAP.Theprimarypurposeoftheadvertisingistoelicitcontinuingcarecontractsforresidentialunitsat Skylinetoresidentswhohaverespondedspecificallytotheadvertisingandenteredintoacontract.Thecapitalized marketingcostsareamortizedoverthelifeoftherelatedcontinuingcarecontract.Capitalizedmarketingcoststotaled $9,279,989atbothSeptember30,2015and2014.Cumulativeamortizationofthesecostsis$6,903,953and$5,743,954asof September30,2015and2014,respectively.Accruedmarketingfeesrelatedtothecapitalizedmarketingcoststhathavenot beenpaidpriortoyearendtotaled$830,358forSeptember30,2015and2014.Thesefeeswerepaidinfullsubsequenttoyear end,inDecemberof2015,inconnectionwiththeSeries2015BondIssuance. Othernondirectresponseadvertisingcostsarechargedtoexpensewhenincurred.Advertisingexpensestotaled$450,539 and$512,817fortheyearsendedSeptember30,2015and2014,respectively. PropertyandEquipmentPRCNcapitalizesassetswithacostgreaterthan$1,000andanestimatedusefullifeofoneor moreyears.Depreciationiscomputedonthestraightlinebasisoverperiodsof3to50years,whichapproximatetheuseful livesoftheassets.Thecostsofrepairsandmaintenanceareexpensedasincurred.Thecostsofrenewals,replacementsand bettermentsarecapitalized. ReservesforReplacementsandEscrowFredLindManor(theOrganization)hasaregulatoryagreementthatrequiresthe OrganizationtosetasideamountsforreplacementofpropertyandotherprojectexpendituresapprovedbytheUnited StatesDepartmentofHousingandUrbanDevelopment(HUD).Thereservefundsareheldinseparateaccountsfrom operatingfundsandgenerallyarenotavailableforoperatingpurposes.Requiredmonthlydepositsare$3,759.Inaddition, theOrganizationisalsorequiredtomaintainareserveforinsuranceinanescrowaccountwiththelender.Allpayments fromtheseaccountsmustbeapprovedbythelender. ResidualReceiptsReserveTheOrganizationisrequiredtodepositwithin60daysaftertheendofeachfiscalyearany residualreceiptsrealizedfromoperationofthepropertyintothisaccount.Fundsmaybereleasedfromtheresidual receiptsreserveonlywiththepriorapprovalofHUD.Residualreceiptsincludecashremainingafterthepaymentofcertain amountsduewithin30daysofeachyearend. ConcentrationsofCreditRiskFinancialinstrumentsthatpotentiallysubjectPRCNtoconcentrationsofcreditriskconsist ofaccountsreceivable,investmentsandcash.Atvarioustimesduringthefiscalyear,PRCN’scashandinvestmentbalances exceededFederalDepositInsuranceCorporationandSecuritiesInvestorProtectionCorporationinsuranceamounts. MedicaidandMedicarereceivablescombinedrepresent56%and69%ofnetresidentandthirdpartypayorreceivablesat September30,2015and2014,respectively.

13 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note1Continued FairValueofFinancialInstrumentsThecarryingamountintheconsolidatedfinancialstatementsapproximatesfairvalue forthefollowingcategoriesontheconsolidatedstatementoffinancialposition:cashandcashequivalents,residentand thirdpartypayorsreceivables,accountspayableandaccruedexpenses,andlongtermdebt. IncomeTaxesPRCN,FredLindManor,andtheFoundationhavebeennotifiedbytheInternalRevenueServicethatthey areexemptfromfederalincometaxesunderSection501(c)(3)oftheInternalRevenueCode.Incomefromactivitiesnot directlyrelatedtotheseorganizations’taxexemptpurposesissubjecttotaxationasunrelatedbusinessincome.There werenotaxespaidonunrelatedbusinessincomefortheyearsendedSeptember30,2015and2014,respectively.FHLLC, TransformingAgeInc,TransformingAgeServicesLLC,GSI,andPRCNServiceLLChavenoprovisionorbenefitforincome taxesincludedintheseconsolidatedfinancialstatementssincetaxableincomeorlosspassthroughtoitsonemember,PRCN. UseofEstimatesThepreparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomake estimatesandassumptionsthataffectamountsreportedintheconsolidatedfinancialstatements.Changesinthese estimatesandassumptionsmayhaveamaterialimpactontheconsolidatedfinancialstatements.PRCNusedestimatesin determiningcertainprovisionsandreserves,includingthoseforaccountsreceivable,costreportsettlements,usefullivesof fixedassetsandvariousliabilities.Inaddition,PRCNusesactuarialstatisticstodeterminelifeexpectancyratesfor recognitionandamortizationofentrancefeerevenuesandfordeferredmarketingcosts. ReclassificationsCertainreclassificationsweremadetotheSeptember30,2014,consolidatedfinancialstatementsto conformtothecurrentperiodpresentation.Thereclassificationshavenoeffectonpreviouslyreportedchangeinnet assets.SeeNote18fordiscussionregardingpriorperiodentry. ComparativeConsolidatedFinancialStatementsTheconsolidatedfinancialstatementsincludecertainprioryear summarizedcomparativeinformationintotal,butnotbynetassetclass.Suchinformationdoesnotincludesufficientdetail toconstituteapresentationinconformitywithU.S.GAAP.Accordingly,suchinformationshouldbereadinconjunction withPRCN’sconsolidatedfinancialstatementsfortheyearendedSeptember30,2014,fromwhichthesummarized informationwasderived. SubsequentEventsPRCNhasevaluatedsubsequenteventsthroughFebruary1,2016,thedateonwhichtheconsolidated financialstatementswereapprovedandauthorizedforissuancebymanagement.

14 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note2Investments PRCNinvesteditssurpluscash,refundabledepositsandlimiteduseassetsasfollowsatSeptember30: 2015 2014

Cashandmoneymarketfunds $6,461,970 $ 6,349,622 Governmentbonds 8,362,901 8,171,235 Corporatebonds 7,099,532 7,320,492 Equitysecurities 2,021,963 2,146,078

Investmentsreportedatfairvalue 23,946,366 23,987,427

Investmentinlimitedpartnershipreportedatcost 52,431 12,500

$23,998,797 $23,999,927 TheinvestmentsheldbyPRCNarerepresentedinthefollowingaccountsontheconsolidatedstatementoffinancial positionatSeptember30: 2015 2014

InvestmentsPRCNandFoundation $9,332,719 $ 9,231,873 InvestmentsFH,LLCrefundabledeposits 771,506 552,358

10,104,225 9,784,231

Limiteduseassetswaitinglistdeposits 358,412 218,657 Limiteduseassetsbondfundsheldbytrustee 13,536,160 13,997,039

13,894,572 14,215,696

$23,998,797 $23,999,927 Purchaseandsalesofinvestmentsforlimiteduseassetsareincludedintheconsolidatedstatementofcashflows.Thesedo notrepresenttraditionalpurchasesandsalesofinvestments,butrepresentthecashinflowofentrancefeesandcash outflowusedtopaydowndebtbalances. ComponentsofinvestmentreturnconsistofthefollowingfortheyearsendedSeptember30: 2015 2014

Interestincome $390,248 $397,589 Realizedandunrealized(losses)gains (159,735) 255,585 Investmentfees (51,716) (52,891)

NetInvestmentReturn $178,797 $600,283

15 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note3FairValueMeasurements Accountingstandardsestablishaframeworkformeasuringfairvalue.Theframeworkprovidesafairvaluehierarchythat prioritizestheinputstovaluationtechniquesusedtomeasurefairvalue.Thehierarchygivesthehighestpriorityto unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities(Level1)andthelowestprioritytounobservable inputs(Level3). Thethreelevelsofthefairvaluehierarchyaredescribedasfollows: Level1Unadjustedquotedpricesavailableinactivemarketsforidenticalassetsorliabilities; Level2InputsotherthanLevel1thatareobservable,eitherdirectlyorindirectly,suchasquotedpricesinactive marketsforsimilarassetsorliabilities,quotedpricesforidenticalorsimilarassetsorliabilitiesinmarketsthatare notactive,orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdataforsubstantially thefulltermoftheassetsorliabilities;or Level3Unobservableinputsthataresignificanttothefairvaluemeasurement. Afinancialinstrument’slevelwithinthefairvaluehierarchyisbaseduponthelowestlevelofanyinputthatissignificanttothe fairvaluemeasurement.Valuationtechniquesusedneedtomaximizetheuseofobservableinputsandminimizetheuseof unobservableinputs.Thesefinancialinstrumentswerevaluedusingamarketapproach. Followingisadescriptionofthevaluationmethodologiesusedforassetsandliabilitiesmeasuredatfairvalue.Therehave beennochangesinthemethodologiesusedatSeptember30,2015and2014. CashandMoneyMarketFundsIncludesmoneymarketfundsvaluedatcostplusaccruedinterest,which approximatesfairvalue. EquitySecuritiesValuedattheclosingpricereportedontheactivemarketonwhichthesecuritiesaretraded. DebtSecuritiesValuedusingbidevaluationsfromsimilarinstrumentsinactivelyquotedmarkets.

16 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note3Continued FairValuesMeasuredonaRecurringBasisFairvaluesofassetsmeasuredonarecurringbasisareasfollowsat September 30: FairValueMeasurementsatSeptember30,2015 Level1 Level2 Level3 Total

Cashandmoneymarketfunds $ 6,461,970 $ $ $ 6,461,970

Equitysecurities Consumerrelated 297,757 297,757 Financial 344,575 344,575 Healthcare 415,702 415,702 Energyandindustrials 164,928 164,928 Technology 429,229 429,229 Basicmaterials 62,328 62,328 Services 234,864 234,864 Realestate 35,684 35,684 Exchangetradedfunds 36,896 36,896

Totalequitysecurities 2,021,963 2,021,963

Debtsecurities Government 8,362,901 8,362,901 Corporate 7,099,532 7,099,532

Totaldebtsecurities 15,462,433 15,462,433

TotalInvestmentsatFairValue$ 8,483,933 $15,462,433 $ $ 23,946,366

17 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note3Continued FairValueMeasurementsatSeptember30,2014 Level1 Level2 Level3 Total

Cashandmoneymarketfunds $ 6,349,622 $ $ $ 6,349,622

Totalequitysecurities 2,146,078 2,146,078

Debtsecurities Government 8,171,235 8,171,235 Corporate 7,320,492 7,320,492

Totaldebtsecurities 15,491,727 15,491,727

TotalInvestmentsatFairValue$ 8,495,700 $15,491,727 $ $ 23,987,427 Note4PropertyandEquipment PropertyandequipmentconsistedofthefollowingatSeptember30: 2015 2014

Landandlandimprovements $36,934,585 $36,807,460 Buildings 216,990,736 208,744,362 Furnitureandequipment 14,251,226 13,326,699

268,176,547 258,878,521

Lessaccumulateddepreciation (74,770,300) (64,273,986)

193,406,247 194,604,535

Constructioninprogress 1,808,843 773,452

PropertyandEquipment,Net $195,215,090 $195,377,987

18 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note4Continued ConstructioninprogressatSeptember30,2015and2014,consistedprimarilyofapartmentremodelsandrenovationsat ParkShore,ExeterHouse,andSkyline. Subsequenttoyearend,PRCNenteredintoapurchaseandsaleagreementtoacquireapieceofSeattlerealestateinthe amountof$1,465,000.ThesaleisexpectedtocloseinFebruary2016. Note5LongTermDebt AsofSeptember30,2015and2014,longtermdebtconsistedof: 2015 2014

WashingtonStateHousingFinanceCommission(WSHFC)Revenue bonds,2007ASeries,interestratesrangingfrom5.25%to5.625%, maturingbeginningJanuary1,2017throughJanuary1,2038. $101,025,000 $103,015,000

WSHFCRevenuebonds,2012BSeries,interestratesof7.0%, maturingin2029. 5,463,250 5,463,250

WSHFCRevenuebonds,2013Series,interestratesrangingfrom 5.0%to5.25%,maturingbeginningJanuary1,2023throughJanuary 1,2043. 14,485,000 14,720,000

FredLindManormortgagenotepayabletoMidlandBank.Monthly installmentsof$15,350includinginterestat2.93%andmaturesin August2044.MortgageisinsuredbyHUDandissecuredbyassets oftheproperty. 3,602,078

NotepayabletoformerownerofGerontologicalServices,Inc.for purchasepricepayableoverfiveyears.Monthlyprincipaland interestof$2,300beginningonApril6,2015.Notepayablebears interest at a fixed rate of 6.9% and matures in March 2020. 123,401

124,698,729 123,198,250 Lesscurrentportion (2,458,345) (2,225,000) TotalLongTermDebt $122,240,384 $120,973,250 TheSeries2007A,Series2007B,andSeries2007CbondsaresecuredbyFH,LLCassetsandrevenues.During2009,Skyline experiencedawatermainrupturethatresultedinsignificantwaterdamagetofloorsoftheindependentlivingtower.The damageincurredledtoadelayinbuildingcompletionandoccupancyalongwiththefailureofrelatedcovenantsforthe Series2007A,Series2007B,andSeries2007CbondsduringtheyearendedSeptember30,2011.

19 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note5Continued InMarch2012,FH,LLCissuedSeries2012bondsforthepurposeofrefinancingtheSeries2007Bbonds.Thenewbond issuanceextendedthematuritydatefromJanuary2013outtoJanuary2019.TheSeries2007Cbondissuancewassupported byaletterofcreditfromBankofAmericathroughOctober31,2013,withquarterlyletterofcreditfeesof2.5%perannum throughMay2013and3.0%thereafter.Theamendedletterofcreditagreementwaivedallpastdefaultsonthebondseries andadjustedcovenantlevelsintothefuture.InMay2013,FH,LLCsettledtheSeries2007Cbondinfull. InJune2013,PRCNissuedSeries2013bondsforthepurposeofrefinancingtheSeries1999Abonds,andforthecostof acquisitionofland,construction,remodelingandrenovationsatParkShore,ExeterHouse,andthecorporateoffice.The bondagreementcontainsvariouscovenants.PRCNisincompliancewithitscovenantsasofthedateoftheauditreport. FortheyearsendedSeptember30,2015and2014,PRCNincurred$6,842,091and$7,000,157,respectively,intotal interestcostsrelatedtolongtermdebt. Subsequenttoyearend,FH,LLCissuedSeries2015bondsforthepurposeofrefinancingtheSeries2012bonds.Thenew bondeffectiveDecember2,2015,intheamountof$8,740,000,hasavariableinterestrate.Annualprincipalandinterest paymentsbeginSeptember30,2016throughmaturityofSeptember30,2045.Thecurrentportionofthelongtermdebt presentedontheconsolidatedstatementoffinancialpositionatSeptember30,2015,isbasedonthepaymentschedule underthisnewloan. Thetotalscheduledprincipalrepaymentobligationsareasfollowsandreflectsthedebtrefinancedescribedintheprior paragraph: FortheFiscalYearEndingSeptember30,

2016 $2,682,928 2017 2,693,913 2018 2,820,495 2019 2,973,993 2020 3,123,696 Thereafter 113,678,704

$127,973,729 Note6SewerCapacityPayable DuringtheyearsendedSeptember30,2012and2011,PRCNwasleviedtwocapacitychargesbyKingCountyoftheStateof WashingtonrelatedtothenewsewerconnectionattheSkylineatFirstHillbuilding.PRCNelectedtofinancethesecharges withtheCountyoverfifteenyears.Interestisstatedat5.5%,withquarterlypaymentstotaling$22,412,includingprincipal andinterest,duethroughMay2026.

20 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note6Continued Thetotalscheduledprincipalrepaymentobligationsareasfollows: FortheFiscalYearEndingSeptember30,

2016 $52,943 2017 56,242 2018 59,748 2019 63,471 2020 67,429 Thereafter 324,218

$624,051 Note7QualifiedEmployeeBenefitPlan PRCNhasa403(b)profitsharingplanthatcoverssubstantiallyallemployeeswhohavecompletedoneyearofservice. PRCNmatches100%oftheemployees’contributionsupto4%ofeachemployee’stotalsalary.Employercontributionsfor theyearsendedSeptember30,2015and2014,totaled$243,730and$190,834,respectively. Note8LeaseCommitments OperatingLeasesPRCNleasesofficeequipmentundernoncancelableoperatingleasesthatexpirethroughAugust2023. Theequipmentleasescallformonthlypaymentsof$23,972. Futureminimumrentalpaymentsundernoncancelableoperatingleasesareasfollows: FortheFiscalYearEndingSeptember30,

2016 $277,504 2017 204,679 2018 133,352 2019 99,402 2020 99,402 Thereafter 281,640

$1,095,979 Rentexpenseforoperatingleasestotaled$287,658and$200,245fortheyearsendedSeptember30,2015and2014, respectively. CapitalLeasesPRCNleasescopiersunderthreecapitalleaseagreements.Theinterestratesonthecapitalizedleases rangefrom14.6%to19.0%andareimputedbasedonthelowerofPRCN’sincrementalborrowingrateattheinceptionof eachlease,orthelessor’simplicitrateofreturn.Thegrosscapitalizedassetvalueis$252,819,withaccumulated amortizationof$128,348and$97,352atSeptember30,2015and2014,respectively.

21 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note8Continued Requiredminimumpaymentsforcapitalleaseobligationsareasfollows: FortheFiscalYearEndingSeptember30,

2016 $65,070 2017 54,579 2018 36,386

156,035 Lessamountrepresentinginterest (29,121)

$126,914 Note9FunctionalExpenses The costs of providing the various programs and other activities have been summarized on a functional basis below. Accordingly,certaincostshavebeenallocatedamongtheprogramsandsupportingservicesbasedonthebenefitsderived. Program activities include the healthcare, assisted living, dining services, maintenance and housekeeping, resident transportationservicesandresidentactivitiesprograms.Programexpensesaretheactualcostofoperatingtheprograms. Overheadcostsareincludedinthegeneralandadministrativeexpense.Depreciationexpenseisallocatedtobothprogram andgeneralandadministrativeexpensesbasedonsquarefootage.Totalexpensesoftheconsolidatedentityonafunctional basisareasfollowsfortheyearsendedSeptember30: 2015 2014

Programactivities $40,928,661 $38,033,076 Generalandadministrative 10,970,788 9,184,661

TotalExpenses $51,899,449 $47,217,737 Note10Development PRCNdevelopedwithinFH,LLCanew“TypeA”CCRCinwhichitsresidentswillpayforhigherlevelsofassistedlivingand healthcareatresidentiallivingrates.Thefacility,knownasSkylineatFirstHill,islocatedindowntownSeattle,andhas199 residentialapartments,60assistedlivingapartments,16memorysupportapartments,and34skillednursingbeds.The CertificateofOccupancywasreceivedSeptember24,2009.AsofSeptember30,2015,approximately93%ofthetotalunitsat Skylineareoccupied.Skylinehasreceiveda10%depositon3additionalunits. InFebruary2007,FH,LLCissuedbondsintheamountof$214,700,000tofinancethedevelopmentoftheproject(Note5). Refundabledepositsreceivedtotaled$771,506and$560,293atSeptember30,2015and2014,respectively.

22 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note11LegalContingencies PRCNinthenormalcourseofitsbusinessoperationsisoccasionallysubjecttolegalmatters.PRCNdoesnotbelievethatthe outcomeofsuchmatterswillhaveamaterialimpactonitsconsolidatedfinancialstatements. Note12TemporarilyRestrictedNetAssets NetassetsweretemporarilyrestrictedforthefollowingpurposesatSeptember30: 2015 2014

Communityfunds $475,186 $457,811 Specialprojects 216,750 242,266 Employeeeducation 191,807 176,257 FriendsofParkShoreHeritageCurrentFundcharitycare 95,004 95,032 Residentsupportcharitycare 83,091 69,360 Accumulated,unappropriatedearningsonendowments 42,755 42,780 SkyOperaprogram 7,110 6,530 Emergencyfunds 240

TotalTemporarilyRestrictedNetAssets $1,111,943 $ 1,090,036 TheHeritageFundisrestrictedtouseforParkShore.Theremainingfundsarerestrictedasspecifiedbydonors.Netassets of$152,132werereleasedfromrestrictionduringtheyearendedSeptember30,2015,bysatisfyingtherestricted purposes. Note13PermanentlyRestrictedNetAssets Permanentlyrestrictednetassetsrepresentgiftsrestrictedbydonorstobeinvestedinperpetuity.Investmentincomemay beusedforgeneraloperationsorisrestrictedforprogramservices.Spendingoftheendowmentearningsisgovernedby PRCN’sendowmentspendingpolicy(Note14). NetassetswerepermanentlyrestrictedbydonorsforthefollowingpurposesatSeptember30: 2015 2014

FriendsofParkShoreHeritageendowmentcharitycare $717,345 $717,571 Generalendowment 45,699 45,699 Residentsupportendowmentcharitycare 2,647 2,650

TotalPermanentlyRestrictedNetAssets $765,691 $765,920 FriendsofParkShoreHeritageendowmentrequiresthatinvestmentearningsbemaintainedintherestrictedendowment untilitgrowsto$1,000,000invalue.Oncethatvalueisachieved,onehalfoftheendowmentearningsmaybeusedfor approvedprojects,withtheotheronehalfofendowmentearningstobereinvestedtogrowtheendowment.Income earnedonallotherendowmentsisconsideredtemporarilyrestricteduntilappropriatedbytheBoardofDirectorsfor generalsupportofPRCNorforresidentsupport. 23 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note14Endowments PRCN’sendowmentsconsistoffundsestablishedforavarietyofpurposes.Itsendowmentsincludebothdonorrestricted endowmentfundsandfundsdesignatedbytheBoardofDirectorstofunctionasendowments(quasiendowments).As requiredbyU.S.GAAP,netassetsassociatedwithendowmentfunds,includingquasiendowments,areclassifiedand reportedbasedontheexistenceorabsenceofdonorimposedrestrictions. InterpretationofRelevantLawTheBoardofDirectorsofPRCNFoundationhasreviewedtheWashingtonStatePrudent ManagementofInstitutionalFundsAct(PMIFA),and,havingconsidereditsrightsandobligationsthereunder,has determinedthatitisdesirabletopreserve,onalongtermbasis,thefairvalueoftheoriginalgiftasofthegiftdateofthe donorrestrictedendowmentfunds,absentexplicitdonorstipulationstothecontrary.Asaresultofthisdetermination, PRCNclassifiesaspermanentlyrestrictednetassets(a)theoriginalvalueofgiftsdonatedtothepermanentendowment, (b)theoriginalvalueofsubsequentgiftstothepermanentendowment,and(c)accumulationstothepermanent endowmentmadeinaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationis addedtothefund. Theremainingportionofthedonorrestrictedendowmentfundthatisnotclassifiedinpermanentlyrestrictednetassetsis classifiedastemporarilyrestrictednetassetsuntilthoseamountsareappropriatedforexpenditurebyPRCNinamanner consistentwiththestandardofprudenceprescribedbyPMIFA.InaccordancewithPMIFA,PRCNconsidersthefollowing factorsinmakingadeterminationtoappropriateoraccumulatedonorrestrictedendowmentfunds: Thedurationandpreservationofthefund; ThepurposesofPRCNandthedonorrestrictedendowmentfund; Generaleconomicconditions; Thepossibleeffectofinflationanddeflation; Theexpectedtotalreturnfromincomeandtheappreciationofinvestments; OtherresourcesofPRCN;and TheinvestmentpoliciesofPRCN. EndowmentnetassetsconsistedofthefollowingatSeptember30,2015: Temporarily Permanently Unrestricted Restricted Restricted Total

Donorrestrictedendowmentfunds $ $42,755 $765,691 $808,446

Boarddesignatedquasiendowmentfunds 305,722 305,722

TotalEndowmentNetAssets $305,722 $42,755 $765,691 $ 1,114,168

24 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note14Continued EndowmentnetassetsconsistedofthefollowingatSeptember30,2014: Temporarily Permanently Unrestricted Restricted Restricted Total

Donorrestrictedendowmentfunds $ $42,780 $765,920 $808,700

Boarddesignatedquasiendowmentfunds 305,818 305,818

TotalEndowmentNetAssets $305,818 $42,780 $765,920 $ 1,114,518 ChangestoendowmentnetassetsareasfollowsfortheyearsendedSeptember30: Temporarily Permanently Unrestricted Restricted Restricted 2015Total 2014Total Endowmentnetassets, beginningofyear $305,818 42,780$ 765,920$ $1,114,518 $956,787

Endowmentinvestmentreturn Interestanddividends 3,186 953 7,476 11,615 11,337 Realizedandunrealized(loss)gain (3,282) (978) (7,705) (11,965) 38,366

Contributions 108,028

TotalEndowmentNetAssets, EndofYear $305,722 42,755$ 765,691$ $1,114,168 $1,114,518 FundsWithDeficienciesFromtimetotime,thefairvalueofassetsassociatedwithindividualdonorrestricted endowmentfundsmayfallbelowthelevelthatthedonororPMIFArequiresPRCNtoretainasafundofperpetual duration.InaccordancewithU.S.GAAP,deficienciesofthisnaturearereportedinunrestrictednetassets.Subsequent gainsthatrestorethefairvalueoftheassetsoftheendowmentfundtotherequiredlevelwillbeclassifiedasanincreasein unrestrictednetassets.TherewerenofundswithdeficienciesasofSeptember30,2015or2014.

25 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note14Continued ReturnObjectivesandRiskParametersPRCNhasadoptedinvestmentandspendingpoliciesforendowmentassetsthat attempttoprovideapredictablestreamoffundingtoprogramssupportedbyitsendowmentswhileseekingtomaintain thepurchasingpoweroftheendowmentassets.Endowmentassetsincludethoseassetsofdonorrestrictedfundsthat PRCNmustholdinperpetuityorfordonorspecifiedperiodsaswellasboarddesignatedfunds.Underthispolicy,as approvedbytheBoardofDirectors,theendowmentassetsareinvestedinamannerthatisintendedtoproduceresults thatexceedthepriceandyieldresultsofabenchmarkforsimilarinvestments.UnderPRCN’sinvestmentpolicy, permanentlydonorrestrictedinvestmentsaretobecomposedof100%ofequitysecurities.Quasiendowmentsaretobe investedasfollows:equitysecuritiesratedBorbetterasratedbyStandard&Poor’s,whichshallnotexceed15%ofcash andinvestments,lessrestrictedbondfundsandtheFoundationfunds;andfixedincomewhichshallnotexceed50%of totalcashandinvestments,lessrestrictedbondfundsandtheFoundationfundsandshallbeinvestedinSecuritiesU.S. GovernmentorGovernmentAgencyratedAorbetterwhileassumingamoderatelevelofinvestmentrisk.PRCNexpectsits endowmentfunds,overtime,toprovideanaveragerealrateofreturnofapproximately1%annually.Actualreturnsinany givenyearmayvaryfromthisamount. StrategiesEmployedforAchievingObjectivesTosatisfyitslongtermrateofreturnobjectives,PRCNreliesonatotal returnstrategyinwhichinvestmentreturnsareachievedthroughbothcapitalappreciation,realizedandunrealized,and currentyieldsuchasinterestanddividends.PRCNtargetsadiversifiedassetallocationthatplacesagreateremphasison equitybasedsecuritiesinvestmentswithastrategyofinvestmentsinequitysecuritiesandfixedincomesecuritiesto achieveitslongtermreturnobjectiveswithinprudentriskconstraints. SpendingPolicyandHowtheInvestmentObjectivesRelatetoSpendingPolicyPRCNconsideredthelongtermexpected returnonitsendowment.Accordingly,overthelongterm,PRCNexpectsthecurrentspendingpolicytoallowits endowmenttogrowtoabalanceof$1,000,000fortheFriendsofParkShoreHeritageendowmentannuallybeforeits plannedpayouts.ThisisconsistentwithPRCN'sobjectivetomaintainthepurchasingpoweroftheendowmentassetsheld inperpetuityorforaspecifiedtermaswellastoprovideadditionalrealgrowththroughnewgiftsandinvestmentreturn. Note15Liquidity PRCN’sunrestrictednetassetsarenegativeatSeptember30,2015and2014.Theshortfallresultsprimarilyfromoperating lossesexperiencedbySkylineduringitsfirstyearsofoperations.OccupancyofthebuildingwasdelayeduntilOctober2009 duetoextensivedamagecausedbyadefectivewatermain.Assuch,revenuesfortheyearsendedSeptember30,2011and 2010,werelowerthanoriginallyplanned.OccupancyforSkylinewas93%,92%,93%,90%,and74%atSeptember31,2015, 2014,2013,2012,and2011,respectively.Managementconsidersthissituationtemporaryandisworkingdiligentlytobring thebuildingtofulloccupancy.Managementhasalsorenegotiatedcertaintermsofthebuilding’sdebtagreementstotake delayedoccupancyintoconsiderationwithregardtothedebt’sfinancialcovenants(Note5).Operatingperformanceis expectedtoimprovesignificantlyduringtheyearendedSeptember30,2016.Finally,depreciationandamortization expensetotaled$9,248,363and$8,727,522fortheyearsendedSeptember30,2015and2014,respectively.Depreciation andamortizationareexpensesnotrequiringtheuseofcash.Cashflowfromoperationswaspositiveforboththeyears endedSeptember30,2015and2014.

26 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES NotestoConsolidatedFinancialStatements FortheYearEndedSeptember30,2015 Note16PriorPeriodEntry DuringtheyearendedSeptember30,2015,managementdiscoveredcertaintimingdifferencesintheactuarialreports resultinginrevenuebeingrecognizedimproperlyforentrancefees.Assuch,entrancefeesearnedintheprioryearwere understatedanddeferredrevenuefromentrancefeeswasoverstated.Assuch,thefinancialstatementshavebeen restatedasfollowsasofandfortheyearendedSeptember30,2014: Previously Reported AsRestated ConsolidatedStatementofFinancialPosition Deferredrevenuefromentrancefees $ 143,847,587 $ 142,793,619 Netassets (36,485,294) (35,431,326)

ConsolidatedStatementofOperationsandChangesinNetAssets Entrancefeesearned $7,235,683 $8,289,651 Changeinnetassets (4,166,259) (3,112,291)

SUPPLEMENTARYINFORMATION

PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofFinancialPositionAssets September30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total Assets

CurrentAssets: Cashandcashequivalents $ 4,552,234 $1,305,654 $ 7,526,763 $100 $ 193,381 $ 70,883 $ $ 13,649,015 Receivables Residentandthirdpartypayors,net 384,933 1,482,300 28,925 1,896,158 Otherreceivables 8,055,732 00077,011 448 (7,957,379) 175,812 Fundsheldintrust 14,004 4,638 18,642 Inventory 20,783 15,236 36,019 Prepaidexpenses 379,489 3,049 296,951 32,877 712,366

TotalCurrentAssets 13,386,392 1,308,703 9,326,797 100 270,392 153,007 (7,957,379) 16,488,012

InvestmentsPRCNandFoundation 8,385,436 947,283 9,332,719 InvestmentsFH,LLCrefundabledeposits 771,506 771,506 Limiteduseassetswaitinglistdeposits 229,540 96,557 32,315 358,412 Limiteduseassetsbondfundsheldbytrustee 2,016,279 11,519,881 13,536,160 Limiteduseassetsreserveforreplacementsandescrow 637,824 637,824 Limiteduseassetsresidualreceiptsreserve 307,906 307,906 Goodwill 278,044 278,044 Notereceivable 5,598,591 500,000 (6,098,591) 0 Deferredfinancingfees,net 435,168 4,138,075 75,160 4,648,403 Capitalizedmarketingcosts,net 2,376,036 2,376,036 Propertyandequipment,net 26,877,850 166,767,573 8,876 1,964,760 (403,969) 195,215,090

TotalAssets $56,929,256 $2,255,986 $194,996,425 $500,100 $ 557,312 $3,170,972 $(14,459,939) $243,950,112

Seeindependentauditor’sreport. 28 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofFinancialPositionLiabilitiesandNetAssets September30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total Liabilities

CurrentLiabilities: Intercompanyclearing $(4,266,532) $1,144,920 $ 3,121,612 $ $ $ $ $ Accountspayable 466,506 650 243,243 3,428 103,561 0 817,388 Accruedexpenses 7,543,794 (4,110) 7,031,390 41,620 151,527 (9,605,970) 5,158,251 Residentrefundsdue 430,600 375,900 806,500 Currentportionofcapitalleaseobligations 9,807 38,049 47,856 Currentportionofsewercapacitypayable 52,943 52,943 Currentportionoflongtermdebt 245,000 2,319,583 29,496 88,849 2,682,928

TotalCurrentLiabilities 4,429,175 # 1,141,460 13,182,720 0 74,544 343,937 (9,605,970) 9,565,866

Longtermcapitalleaseobligations, lesscurrentportion 0 79,058 79,058 Longtermsewercapacitypayable, lesscurrentportion 571,108 571,108 Deferredrevenuefromentrancefees 23,897,891 126,470,530 150,368,421 Waitinglistdeposits 229,540 96,557 32,315 358,412 Refundabledeposits 627,400 771,506 1,398,906 Accruedmarketingfees 830,358 830,358 Longtermdebt,lesscurrentportion 14,240,000 108,118,667 593,905 3,513,229 (4,450,000) 122,015,801

TotalLiabilities 43,424,006 1,141,460 250,120,504 0 668,449 3,889,481 (14,055,970) 285,187,930

NetAssets: Unrestricted 13,505,010 (762,868) (55,124,079) 500,100 (111,137) (718,509) (403,969) (43,115,452) Temporarilyrestricted 240 1,111,703 1,111,943 Permanentlyrestricted 765,691 765,691

TotalNetAssets 13,505,250 1,114,526 (55,124,079) 500,100 (111,137) (718,509) (403,969) (41,237,818) TotalLiabilitiesandNetAssets $56,929,256 $2,255,986 $194,996,425 $500,100 $557,312 $3,170,972 $(14,459,939) $243,950,112

Seeindependentauditor’sreport. 29 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofOperationsandChangesinNetAssets FortheYearEndedSeptember30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total OperatingRevenue: Independentliving $ 7,978,358 $ $ 11,007,126 $ $ $ 2,392,468 $ $ 21,377,952 Healthcare 3,414,265 5,468,504 8,882,769 Assistedliving 2,980,746 4,157,449 7,138,195 Interestincome 403,959 23,735 155,449 00 (192,895) 390,248 Other 3,749,568 31 948,596 500,100 128,025 110,619 (3,402,248) 2,034,691

18,526,896 23,766 21,737,124 500,100 128,025 2,503,087 (3,595,143) 39,823,855 Residentsubsidies (105,049) (221,348) 0 (326,397)

Netresidentservicerevenue 18,421,847 23,766 21,515,776 500,100 128,025 2,503,087 (3,595,143) 39,497,458 Entrancefeesearned 2,876,316 4,717,761 7,594,077

TotalOperatingRevenue 21,298,163 23,766 26,233,537 500,100 128,025 2,503,087 (3,595,143) 47,091,535

CostofServicesProvided: Healthcare 1,914,236 3,740,568 5,654,804 Diningservices 3,512,506 3,594,819 7,107,325 Generalandadministrative 6,101,164 23,607 3,575,703 239,162 (500,000) 9,439,636 FredLindManoroperatingcosts 2,413,404 2,413,404 Managementandrentalfees 1,798,029 1,040,421 (2,838,450) Maintenanceandhousekeeping 2,758,788 2,568,843 5,327,631 Assistedliving 1,441,549 2,208,696 3,650,245 Residentialtransportationservices 184,161 260,214 444,375 Residentactivities 748,179 731,480 1,479,659 Interestandfinancingexpense 795,926 6,795,957 (192,895) 7,398,988 Provisionfordoubtfulaccounts 30,552 (102,638) (72,086) Costofservicesprovidedbefore depreciationandamortization 19,285,090 23,607 24,414,063 239,162 2,413,404 (3,531,345) 42,843,981

Depreciationandamortization 2,359,247 6,756,234 132,882 9,248,363

TotalCostofServicesProvided 21,644,337 23,607 31,170,297 239,162 2,546,286 (3,531,345) 52,092,344

(Deficiency)ExcessofRevenues(Under) OverCostsBeforeNonoperatingActivities (346,174) 159 (4,936,760) 500,100 (111,137) (43,199) (63,798) (5,000,809) Seeindependentauditor’sreport. 30 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofOperationsandChangesinNetAssets(Continued) FortheYearEndedSeptember30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total NonoperatingActivities: Charitablecontributions 178,911 1,000 000 179,911 Charitablegrantexpense (162,631) 63,798 (98,833) Investmentlosses (126,744) (34,706) (50,001) (211,451)

ChangeinNetAssetsFrom NonoperatingActivities (126,744) (18,426) (49,001) 63,798 (130,373)

ChangeinNetAssets (472,918) (18,267) (4,985,761) 500,100 (111,137) (43,199) (5,131,182)

Netassets,beginningofyear, (Asrestated,Note16) 13,978,168 1,132,793 (50,138,318) (403,969) (35,431,326) Netassetsacquired(Note1) (675,310) (675,310)

NetAssets,EndofYear $13,505,250 $ 1,114,526 $(55,124,079) $500,100 $ (111,137) $ (718,509) $ (403,969) $(41,237,818)

Seeindependentauditor’sreport. 31 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofCashFlows FortheYearEndedSeptember30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total OperatingActivities: Changeinnetassets $(472,918) $(18,267) $(4,985,761) $500,100 $ (111,137) $(43,199) $ $ (5,131,182) Adjustmentstoreconcilechangeinnetassetsto netcashprovidedby(usedin)operatingactivities Depreciation 2,361,853 5,596,235 130,276 8,088,364 Investmentlosses 126,744 34,706 50,001 211,451 Entrancefeeadditions 10,214,500 14,137,319 24,351,819 Amortizationofentrancefees,demiseincome, andadministrativefeesearned (2,876,316) (4,717,761) (7,594,077) Amortizationofdeferredfinancingfees 4,028 491,442 2,606 498,076 Amortizationofcapitalizedmarketingcosts 1,159,999 1,159,999 Accruedinterestincomeonintercompanynotes (192,895) 192,895 Cashprovidedby(usedin)changesin operatingassetsandliabilities: Receivablesandintercompanyreceivables,net (1,514,233) 5,568 735,747 (77,011) (3,626) 1,788,037 934,482 Fundsheldintrust 97,117 (30) 97,087 Inventory (3,093) (2,793) (5,886) Prepaidexpenses (60,864) (3,049) 85,382 12,134 33,603 Intercompanyclearing (1,346,453) 24,464 1,321,989 Accountspayable,accrued expensesandintercompany 1,961,594 (4,318) 3,834 45,048 55,339 (1,980,932) 80,565 Residentrefundsdue (1,053,968) (1,053,968) Waitinglistdeposits 24,540 82,900 30 107,470 Goodwill (278,044) (278,044) NetCashProvidedby(Usedin)OperatingActivities 8,326,697 39,104 12,904,265 500,100 (421,144) 150,737 21,499,759

Seeindependentauditor’sreport. 32 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES ConsolidatingScheduleofCashFlows(Continued) FortheYearEndedSeptember30,2015 ObligatedGroup (PRCN,ParkShore, PRCN PRCNServices, Transforming FredLind Eliminating ExeterHouse) Foundation FH,LLC LLC Age,Inc. Manor Entries Total

InvestingActivities: Changeininvestmentsforrefundabledeposits (239,340) 211,213 (28,127) Netdepositstoreserves (26,252) (26,252) Deposittoandinterestretainedinresidualreceipts (4,859) (4,859) Purchaseofpropertyandequipment (3,932,918) (1,447,695) (8,876) (48,307) (5,437,796) PurchaseofinvestmentsPRCNandFoundation (10,310,084) (810,413) (11,120,497) SaleofinvestmentsPRCNandFoundation 10,079,263 786,679 10,865,942 Purchaseoflimiteduseassets (2,100,775) (16,489,245) (18,590,020) Saleoflimiteduseassets 2,688,553 15,978,016 18,666,569 NetCashUsedinInvestingActivities (3,815,301) (23,734) (1,747,711) (8,876) (79,418) (5,675,040)

FinancingActivities: Proceedsfromlongtermdebt 0 (500,000) 623,401 123,401 Principalpaymentsonlongtermdebt (235,000) 0 (2,039,838) (79,561) (2,354,399) Paymentsforcapitalizedloanfees (4,872) 0 (147,311) (152,183) Paymentsoncapitalleaseobligations (17,004) 0 (32,298) (49,302) Refundofentrancefees (1,072,860) (7,303,580) (8,376,440)

NetCash(Usedin)ProvidedbyFinancingActivities (1,329,736) (9,523,027) (500,000) 623,401 (79,561) (10,808,923)

NetChangeinCashandCashEquivalents 3,181,660 15,370 1,633,527 100 193,381 (8,242) 5,015,796

Cashandcashequivalentsbalance,beginningofyear 1,370,574 1,290,284 5,893,236 8,554,094 Cashacquired(Note1) 79,125 79,125

CashandCashEquivalentsBalance,EndofYear $4,552,234 $ 1,305,654 $ 7,526,763 $100 $193,381 $70,883 $ $ 13,649,015

SupplementalDisclosure: Cashpaidduringtheyearforinterest $ 188,719 $ $ 6,100,992 $ $ $ $ $ 6,289,711 Noncashacquisitionofproperty $ 258,138 $ $ 182,803 $ $ $ $ $ 440,941

Seeindependentauditor’sreport. 33 PRESBYTERIANRETIREMENTCOMMUNITIESNORTHWESTANDSUBSIDIARIES StatementofFinancialPositionExeterHouse FortheYearEndedSeptember30,2015 Assets

CurrentAssets: Receivables Residentandthirdpartypayors,net $39,998 Otherreceivables 738 Prepaidexpenses 76,313

TotalCurrentAssets 117,049

Deferredfinancingfees,net 207,140 Propertyandequipment,net 5,748,839

TotalAssets $ 6,073,028

Liabilities

CurrentLiabilities: Accountspayable $60,052 Accruedexpenses 2,413,846 Currentportionofcapitalleaseobligations 9,030 Currentportionoflongtermdebt 109,745 DuetoMember 11,758,272

TotalCurrentLiabilities 14,350,945

Deferredrevenuefromentrancefees 315,354 Waitinglistdeposits 52,040 Longtermdebt,lesscurrentportion 6,654,750

TotalLiabilities 21,373,089

NetAssets: Unrestricted (15,300,061)

TotalNetAssets (15,300,061)

TotalLiabilitiesandNetAssets $ 6,073,028

Seeindependentauditor’sreport. 34 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX C

FINANCIAL FEASIBILITY STUDY

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Presbyterian Retirement Communities Northwest Obligated Group

Financial Feasibility Study

Five Years Ending September 30, 2020

Presbyterian Retirement Communities Northwest Obligated Group Financial Feasibility Study Five Years Ending September 30, 2020

TABLE OF CONTENTS

Independent Accountants' Examination Report ...... C-1

Forecasted Financial Statements: Forecasted Statements of Operations and Changes in Net Assets ...... C-4 Forecasted Statements of Cash Flows ...... C-5 Forecasted Balance Sheets ...... C-6 Forecasted Financial Ratios ...... C-8

Summary of Significant Forecast Assumptions and Accounting Policies Basis of Presentation ...... C-9 Background ...... C-9 Description of the Obligated Group ...... C-10 Summary of Refinancing ...... C-16 Description of the Residency Agreements ...... C-19 Summary of Significant Accounting Policies ...... C-24 Summary of Revenue and Entrance Fee Assumptions ...... C-26 Summary of Operating Expense Assumptions ...... C-30 Limited Use Assets ...... C-30 Property and Equipment and Depreciation Expense ...... C-31 Debt and Interest Expense ...... C-32 Sewer Capacity Payable ...... C-34 Capital Lease Obligations ...... C-34 Early Extinguishment of Debt ...... C-35 Related Party Receivables ...... C-35 Current Assets and Current Liabilities ...... C-35

Independent Accountant’s Report on Supplemental Information ...... C-36

INDEPENDENT ACCOUNTANTS’ EXAMINATION REPORT

Boards of Directors Presbyterian Retirement Communities Northwest Obligated Group Seattle, Washington

We have prepared a financial feasibility study of the plans of Presbyterian Retirement Communities Northwest (“PRCN” or the “Corporation”), a nonprofit organization located in Seattle, Washington which owns, operates, and develops residential senior living communities.

The Corporation, FH, LLC, and Fred Lind Manor are to be members of an obligated group (the “Obligated Group”) to be created to secure the existing and proposed debt associated with three senior living communities: Skyline at First Hill, Park Shore and Fred Lind Manor (collectively defined as the “Communities”), all located in Seattle.

Management of the Corporation (“Management”) intends to refund outstanding Washington State Housing Finance Commission Nonprofit Revenue Bonds (Skyline at First Hill Project), Series 2007A (the “Series 2007A Bonds”) of approximately $98,930,000, to refinance an outstanding mortgage note payable to a bank and insured by the United States Department of Housing and Urban Development of approximately $3,533,000 (the “HUD Loan”), and to fund and reimburse for certain projects (the “Projects”), including approximately $30,000,000 for renovations at Park Shore, approximately $3,475,000 for the purchase of three condominium units adjacent to Park Shore, and approximately $2,500,000 for capital improvements at Fred Lind Manor.

The feasibility study was undertaken to evaluate the Obligated Group’s ability to generate sufficient funds to meet its operating expenses, working capital needs and other financial requirements, including the debt service requirements associated with the proposed $132,545,000 Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016 (the “Series 2016 Bonds”).

As provided by the Obligated Group’s underwriter, B.C. Ziegler and Company (the “Underwriter”), the Series 2016 Bonds are assumed to be rated, tax-exempt and taxable bonds, assumed to be issued at a premium, with assumed interest rates ranging from 4.00 to 5.00 percent per annum.

C-1

The proceeds from the Series 2016 Bonds and trustee held funds associated with the Series 2007A Bonds are assumed to be used as follows: To refund the outstanding Series 2007A Bonds and HUD Loan; To fund and reimburse for all costs of the Projects, including development, construction and architectural costs; To fund a debt service reserve fund for the Series 2016 Bonds; and To pay costs associated with the issuance of the Series 2016 Bonds. Our procedures included analysis of: The Obligated Group’s history, objectives, timing and financing; Debt service requirements and estimated financing costs; Staffing requirements, salaries and wages, related fringe benefits and other operating expenses; Anticipated entrance fees (as applicable), monthly fees and per diem charges for each resident of the Communities; Sources of other operating and non-operating revenues; and Revenue/expense/volume relationships.

The accompanying financial forecast for each of the years in the five year period ending September 30, 2020 is based on assumptions that were provided by Management. The financial forecast includes the following financial statements and the related summary of significant forecast assumptions and accounting policies:

Forecasted Statements of Operations and Changes in Net Assets; Forecasted Statements of Cash Flows; Forecasted Balance Sheets; and Forecasted Financial Ratios.

We have examined the financial forecast. Management is responsible for the forecast. Our responsibility is to express an opinion on the forecast based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (“AICPA”) and, accordingly, included such procedures as we considered necessary to evaluate both the assumptions used by Management and the preparation and presentation of the forecast. We believe that our examination provides a reasonable basis for our opinion.

Legislation and regulations at all levels of government have affected and may continue to affect the operations of continuing care retirement communities. The financial forecast is based upon legislation and regulations currently in effect. If future legislation or regulations related to the Obligated Group’s operations are subsequently enacted, such legislation or regulations could have a material effect on future operations.

Management’s financial forecast is based on the achievement and maintenance of occupancy levels as determined by Management. We have not been engaged to evaluate the effectiveness of Management, and we are not responsible for future marketing efforts and other Management actions upon which actual results will depend.

C-2

The assumed interest rates, principal payments and other financing assumptions are described in the section entitled “Summary of Significant Forecast Assumptions and Accounting Policies.” If actual interest rates or principal payments are different from those assumed in this study, the amount of the Series 2016 Bonds and associated debt service requirements would need to be adjusted accordingly from those indicated in the forecast. If such interest rates and principal payments are lower than those assumed, such adjustments would not adversely affect Management’s forecast.

Our conclusions are presented below: In our opinion, the accompanying financial forecast is presented in conformity with guidelines for presentation of a financial forecast established by the AICPA.

In our opinion, the underlying assumptions provide a reasonable basis for Management’s forecast. However, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material.

The accompanying financial forecast indicates that sufficient funds could be generated to meet the Obligated Group’s operating expenses, working capital needs and other financial requirements, including the debt service requirements associated with the proposed Series 2016 Bonds, during the forecast period. However, the achievement of any financial forecast is dependent upon future events, the occurrence of which cannot be assured.

We have no responsibility to update this report for events and circumstances occurring after the date of this report.

Atlanta, Georgia July 28, 2016

C-3 Presbyterian Retirement Communities Northwest Obligated Group

Forecasted Statements of Operations and Changes in Net Assets For the Years Ending September 30, (In Thousands)

2016 2017 2018 2019 2020

Operating Revenue: Independent Living 16,432$ 17,676$ 18,333$ 18,900$ $ 19,423 Healthcare 8,463 8,933 8,661 8,469 8,362 Assisted Living 11,302 12,490 12,791 13,118 13,473 Interest income 436 339 506 598 687 Other 2,179 1,912 1,947 1,985 2,025 $ 38,812 41,350$ 42,238$ 43,070$ $ 43,970 Resident subsidies (998) (1,041) (1,081) (1,114) (1,146) Net resident service revenue 37,814$ 40,309$ 41,157$ 41,956$ $ 42,824 Entrance fees earned 7,491 7,320 7,174 7,055 6,958 Total Operating Revenue $ 45,305 47,629$ 48,331$ 49,011$ $ 49,782

Cost of Services Provided: Healthcare $ 6,863 $ 8,400 $ 8,515 $ 8,764 $ 9,018 Dining Services 6,967 7,263 7,346 7,559 7,777 General and administrative 8,741 8,836 9,070 9,342 9,623 Maintenance and housekeeping 5,117 5,455 5,529 5,689 5,853 Assisted living 4,110 3,842 3,825 3,939 4,057 Residential transportation services 358 474 486 500 517 Resident activities 969 1,072 1,091 1,123 1,156 Interest and financing expense 7,392 5,468 6,020 6,509 6,951 Cost of services provided before depreciation and amortization 40,517$ 40,810$ 41,882$ 43,425$ $ 44,952

Depreciation and amortization 8,858 9,322 8,350 8,386 9,390 Total Cost of Services Provided $ 49,375 50,132$ 50,232$ 51,811$ $ 54,342

(Deficiency) of Revenues Over Costs Before Nonoperating Activities $ (4,070) $ (2,503) $ (1,901) $ (2,800) $ (4,560)

Nonoperating Activities: Loss on early extinguishment of debt (212) (3,513) - - - Loss on forgiveness of related party receivables (6,614) - - - - Change in Net Assets From Nonoperating Activities $ (6,826) $ (3,513) -$ -$ -$

Change in Net Assets $ (10,896) $ (6,016) $ (1,901) $ (2,800) $ (4,560)

Net assets, beginning of year, $ (35,616) $ (46,512) $ (52,528) $ (54,429) $ (57,229) $ (46,512) $ (52,528) $ (54,429) $ (57,229) $ (61,789) Net Assets, End of Year

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Examination Report C-4 Presbyterian Retirement Communities Northwest Obligated Group

Forecasted Statements of Cash Flows For the Years Ending September 30, (In Thousands)

2016 2017 2018 2019 2020

Operating Activities: Change in net assets $ (10,896) $ (6,016) $ (1,901) $ (2,800) $ (4,560) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities- Depreciation 7,698 8,162 8,294 8,386 9,390 Entrance fee additions 21,846 22,267 23,298 24,218 24,628 Amortization of entrance fees, demise income, and administrative fees earned (7,491) (7,320) (7,174) (7,055) (6,958) Amortization of original issue premium - (523) (523) (523) (523) Amortization of deferred financing fees 501 195 195 195 174 Amortization of capitalized marketing costs 1,160 1,160 56 - - Loss on early extinguisment of debt 212 3,513 - - - Loss on forgiveness of related party receivables 6,614 - - - - Cash provided by (used in) changes in operating assets and liabilities: Receivables and intercompany receivables, net (804) (192) (49) (53) (58) Funds held in trust Inventory 1 (2) (1) (1) (1) Prepaid expenses (40) (45) (11) (21) (22) Accounts payable, accrued expenses and intercompany 295 1,875 50 117 119 Net Cash Provided by (Used in) Operating Activities $ 19,096 23,074$ 22,234$ 22,463$ 22,189$

Investing Activities: Purchase of property and equipment - Park Shore Project -$ $ (10,021) $ (10,021) $ (10,021) -$ Purchase of property and equipment - Condominium Purchases (3,475) - - - - Purchase of property and equipment - Ongoing capital expenditures (5,500) (3,209) (2,275) (2,343) (2,413) Interest cost capitalized during construction (150) (1,656) (1,113) (543) - Change in investments (6,391) (19,483) (9,336) (8,956) (8,241) Change of limited use assets 38 (18,904) 10,021 10,022 2 Net Cash Used in Investing Activities $ (15,478) $ (53,273) $ (12,724) $ (11,841) $ (10,652)

Financing Activities: Proceeds from long-term debt - Series 2015 Bonds $ 8,740 -$ -$ -$ -$ Proceeds from long-term debt - Series 2016 Bonds - 132,545 - - - Original issue premium - 11,858 - - - Deferred financing fees (485) (2,435) - - - Repayment of long-term debt - Series 2007A Bonds - (98,930) - - - Repayment of long-term debt - Series 2012 Bonds (5,463) - - - - Repayment of long-term debt - HUD Loan - (3,533) - - - Principal payments on long-term debt - Series 2007A Bonds (2,095) - - - - Principal payments on long-term debt - Series 2013 Bonds (125) (135) (140) (145) (155) Principal payments on long-term debt - Series 2015 Bonds (215) (115) (120) (125) (130) Principal payments on long-term debt - Series 2016 Bonds - (1,500) (1,470) (1,530) (1,595) Principal payments on long-term debt - HUD Loan (80) - - - - Payments on capital lease obligations (39) (45) (34) - - Payments on sewer capacity payable (53) (56) (60) (63) (67) Payments on accrued marketing fee (830) - - - - Refund of entrance fees (5,961) (6,842) (7,542) (8,467) (9,290) Net Cash (Used in) Provided by Financing Activities $ (6,606) 30,812$ $ (9,366) $ (10,330) $ (11,237)

Net Change in Cash and Cash Equivalents $ (2,988) 613$ 144$ 292$ 300$

Cash and cash equivalents balance, beginning of year 12,150$ $ 9,162 9,775$ 9,919$ 10,211$ Cash and Cash Equivalents Balance, End of Year $ 9,162 $ 9,775 9,919$ 10,211$ 10,511$ See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Examination Report C-5 Presbyterian Retirement Communities Northwest Obligated Group

Forecasted Balance Sheets As of September 30, (In Thousands)

2016 2017 2018 2019 2020

Assets

Curre nt Asse ts: Cash and cash equivalents $ 9,162 $ 9,775 $ 9,919 $ 10,211 $ 10,511 Receivables- Resident and third-party payors, net 2,599 2,779 2,826 2,875 2,930 Other receivables 160 172 174 178 181 Funds held in trust 19 19 19 19 19 Inventory 35 37 38 39 40 Prepaid expenses 673 718 729 750 772 Total Current Assets 12,648$ 13,500$ 13,705$ 14,072$ $ 14,453

Investments $ 14,776 34,259$ 43,595$ 52,551$ $ 60,792 Investments - refundable deposits 772 772 772 772 772 Limited use assets - waiting list deposits 306 306 306 306 306 Limited use assets - Bond Fund 4,572 1,972 1,972 1,973 1,971 Limited use assets - Project Fund - Series 2016 Bonds - 20,044 10,023 - - Limited use assets - Debt Service Reserve Fund - Series 2007A 7,765 - - - - Limited use assets - Debt Service Reserve Fund - Series 2013 510 510 510 510 510 Limited use assets - Debt Service Reserve Fund - Series 2015 606 606 606 606 606 Limited use assets - Debt Service Reserve Fund - Series 2016 - 10,216 10,216 10,216 10,216 Limited use assets - reserve for replacements and escrow 683 - - - - Limited use assets - residual receipts reserve 308 - - - - Capitalized marketing costs, net 1,216 56 - - - Property and equipment, net 190,885 197,609 202,724 207,245 200,268 Total Assets 235,047$ 279,850$ 284,429$ 288,251$ $ 289,894

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Examination Report C-6 Presbyterian Retirement Communities Northwest Obligated Group

Forecasted Balance Sheets (continued) As of September 30, (In Thousands)

2016 2017 2018 2019 2020

Liabilities

Curre nt Liabilitie s: Accounts payable $ 869 927$ 941$ 969$ 997$ Accrued expenses 3,399 3,626 3,680 3,788 3,899 Accrued interest 1,603 3,193 3,175 3,156 3,136 Resident refunds due 811 811 811 811 811 Current portion of capital lease obligations 45 34 - - - Current portion of sewer capacity payable 56 60 63 67 72 Current portion of long-term debt 250 1,730 1,800 1,880 1,955 Total Current Liabilities $ 7,033 10,381$ 10,470$ 10,671$ $ 10,870

Long-term capital lease obligations, less current portion $ 34 -$ -$ -$ -$ Long-term sewer capacity payable, less current portion 515 455 392 325 253 Deferred revenue from entrance fees 158,447 166,552 175,134 183,830 192,210 Waiting list deposits 306 306 306 306 306 Refundable deposits 1,399 1,399 1,399 1,399 1,399 Long-term debt, less current portion - Series 2007A Bonds 98,930 - - - - Long-term debt, less current portion - Series 2013 Bonds 7,160 7,020 6,875 6,720 6,560 Long-term debt, less current portion - Series 2015 Bonds 8,410 8,290 8,165 8,035 7,895 Long-term debt, less current portion - Series 2016 Bonds - 129,575 128,045 126,450 124,795 Long-term debt, less current portion - HUD Loan 3,533 - - - - Deferred financing fees, net (4,208) (2,935) (2,740) (2,545) (2,371) Original issue premium - 11,335 10,812 10,289 9,766 Total Liabilities $ 281,559 332,378$ 338,858$ 345,480$ $ 351,683

Net Assets: Unrestricted $ (46,512) $ (52,528) $ (54,429) $ (57,229) $ (61,789) Total Net Assets $ (46,512) $ (52,528) $ (54,429) $ (57,229) $ (61,789) Total Liabilities and Net Assets $ 235,047 279,850$ 284,429$ 288,251$ $ 289,894

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Examination Report C-7 Presbyterian Retirement Communities Northwest Obligated Group

Forecasted Financial Ratios For the Years Ending September 30, (In Thousands, Except for Ratios)

Debt Service Coverage Ratio 2016 2017 2018 2019 2020 Increase (Decrease) in Net Assets $ (10,896) $ (6,016) $ (1,901) $ (2,800) $ (4,560) Less: Amortization of Entrance Fees (7,491) (7,320) (7,174) (7,055) (6,958) Entrance Fee Refunds (5,961) (6,842) (7,542) (8,467) (9,290) Add: Depreciation 7,698 8,162 8,294 8,386 9,390 Amortization of capitalized marketing costs 1,160 1,160 56 - - Loss on early extinguisment of debt 212 3,513 - - - Loss on forgiveness of related party receivables 6,614 - - - - Interest expense (a) 7,392 5,468 6,020 6,509 6,951 Entrance Fee Receipts from Attrition 21,846 22,267 23,298 24,218 24,628 Funds available for debt service 20,574$ 20,392$ 21,051$ 20,791$ $ 20,161 Maximum annual debt service (b) $ 8,896 $ 8,995 $ 8,995 $ 8,995 $ 8,995 Maximum annual debt service coverage ratio 2.31 x 2.27 x 2.34 x 2.31 x 2.24 x

Days Cash on Hand 2016 2017 2018 2019 2020 Cash $ 9,162 $ 9,775 $ 9,919 $ 10,211 $ 10,511 Investments 14,776 34,259 43,595 52,551 60,792 Cash on hand 23,938$ 44,034$ 53,514$ 62,762$ $ 71,303

Total expenses 49,375 50,132 $ 50,232 51,811$ $ 54,342 Less: Depreciation (7,698) (8,162) (8,294) (8,386) (9,390) Amortization of original issue premium - 523 523 523 523 Amortization of deferred financing fees (501) (195) (195) (195) (174) Amortization of capitalized marketing costs (1,160) (1,160) (56) - - Total expenses, less depreciation and amortization 40,016 41,138 $ 42,210 43,753$ $ 45,301 Daily operating expenses (c) 110 113 116 120 124 Days cash on hand 218 390 461 523 575

Cash to Debt Ratio 2016 2017 2018 2019 2020 Cash $ 9,162 $ 9,775 $ 9,919 $ 10,211 $ 10,511 Investments 14,776 34,259 43,595 52,551 60,792 Limited use assets - Bond Fund 4,572 1,972 1,972 1,973 1,971 Limited use assets - Debt Service Reserve Fund - Series 2007A 7,765 - - - - Limited use assets - Debt Service Reserve Fund - Series 2013 510 510 510 510 510 Limited use assets - Debt Service Reserve Fund - Series 2015 606 606 606 606 606 Limited use assets - Debt Service Reserve Fund - Series 2016 - 10,216 10,216 10,216 10,216 Cash available for debt service 37,391$ 57,338$ 66,818$ 76,067$ $ 84,606 Long-term indebtedness outstanding (d) $ 118,283 146,615$ 144,885$ 143,085$ $ 141,205 Cash to debt ratio 0.32 x 0.39 x 0.46 x 0.53 x 0.60 x (a) Interest expense includes amortization of deferred financing fees and original issue premium. (b) The Maximum Annual Debt Service is equal to the greatest debt service requirement in the then current or any future fiscal year. (c) Daily operating expenses are equal to total operating expenses less depreciation and amortization divided by 365 days. (d) Long-term indebtedness outstanding includes the Series 2007A Bonds ,the Series 2013 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, and the HUD Loan.

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Examination Report C-8 Presbyterian Retirement Communities Northwest Obligated Group

Summary of Significant Forecast Assumptions and Accounting Policies

Basis of Presentation

The accompanying financial forecast presents, to the best of the knowledge and belief of management (“Management”) of Presbyterian Retirement Communities Northwest (“PRCN” or the “Corporation”), the expected financial position, results of operations, and cash flows of an obligated group (the “Obligated Group”) as of and for each of the five years ending September 30, 2020. Accordingly, the financial forecast reflects the judgment of management of the Obligated Group (“Management”) as of July 28, 2016, the date of this forecast, of the expected conditions and its expected course of action during the forecast period. However, there will usually be differences between the forecast and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material.

Background

PRCN is a Washington nonprofit corporation, originally organized in 1956 for the purpose of developing, owning and operating senior living facilities. The affairs of PRCN are managed by a Board of Directors (the “Board”), a self-perpetuating body of not less than five or more than 21 individuals that currently consists of 13 members. Directors (other than those who serve ex officio) are elected by the PRCN Board to serve staggered terms of three years each. No director is eligible for re-election after completing three successive three year terms until the expiration of at least one year, except that the term of a director who completes the third year of his or her third term while serving as Chair of the Board will be extended one year. The President of PRCN is a voting ex-officio director. The PRCN Board may appoint other non-voting ex-officio directors from time to time. PRCN’s bylaws require that all directors support the mission, values and vision of PRCN.

PRCN received a determination letter from the Internal Revenue Service (“IRS”) stating the corporation is an organization exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as an organization described in Section 501(c)(3) of the Code.

The Corporation owns or controls three senior living communities in Seattle, Washington: Skyline at First Hill (“Skyline”), Park Shore, and Fred Lind Manor (“Fred Lind”). Skyline is owned by FH, LLC, a controlled affiliate of PRCN. Park Shore is operated as a division of PRCN. Fred Lind is owned by Fred Lind Manor, a controlled affiliate of PRCN. A fourth community, Exeter House, also located in Seattle, was owned and operated by Exeter LLC, a controlled affiliate of PRCN, until its sale on May 31, 2016.

The Presbyterian Retirement Communities Northwest Foundation (the “Foundation”) is a nonprofit organization organized exclusively for the charitable, educational and religious benefit of PRCN.

See Independent Accountants’ Examination Report C-9

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

PRCN is also the sole managing member of the following organizations:

PRCN Services, LLC (“PRCN Services”) - Formed to provide senior services and other services as determined by PRCN; and, Transforming Age, Inc. (“Transforming Age”) - Formed to provide for-profit services as determined by PRCN. Transforming Age is the sole managing member of the following organization: Transforming Age Services, Inc. (“Transforming Age Services”) - Formed to provide third- party management and consulting services to other senior living organizations; and, Gerontological Services, LLC (“Gerontological Services”) – Formed to provide market research, master planning and consulting services for senior living and aging services organizations.

The Obligated Group

PRCN, FH, LLC, and Fred Lind Manor are to be members of the Obligated Group, which is to be created to secure the existing and proposed debt associated with Park Shore, Fred Lind and Skyline communities (collectively defined as the “Communities”).

The Foundation, Transforming Age, PRCN Services, Transforming Age Services and Gerontological Services would not be part of the Obligated Group. The Obligated Group is solely responsible for the payment of debt service on the proposed Series 2016 Bonds (hereinafter defined).

Upon formation, the Obligated Group is to own and operate the Communities, all of which are located in Seattle, King County, Washington. The following table shows the unit mix for the Communities:

Table 1 The Communities – Unit Mix Assisted Independent Assisted Living Nursing Living Living Memory Care Care Community Units Units Beds Beds Total Skyline at First Hill 199 48 28 34 309 Park Shore 113(1) 30 – 28 171 Fred Lind 20 62(2) – – 82 Total 332 140 28 62 562 Source: Management (1) Does not include two independent living apartments that are currently utilized as guest units and that are assumed to be unavailable for occupancy. (2) The 82 apartments at Fred Lind may be occupied by independent living residents or by assisted living residents, provided that the number of assisted living residents does not exceed the current licensed capacity of 62.

See Independent Accountants’ Examination Report C-10

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The following map depicts the locations of the Communities.

Legend Skyline Fred Lind Manor Park Shore

Source: Microsoft MapPoint

Skyline

Skyline is a lifecare CCRC located in two adjacent high-rise buildings in downtown Seattle. The two buildings consist of a 26-floor tower building, which houses the independent living units, common areas as well as parking for residents and guests, and a 13-floor building with the health center units and beds, administrative offices, retail spaces and additional common areas. Opened in October 2009, Skyline currently consists of the following: 199 independent living apartment units (the “Skyline Independent Living Units”); 48 assisted living units (the “Skyline Assisted Living Units”); 28 memory support assisted living units (“Skyline Memory Support Units); The health center, which includes 34 skilled nursing beds (the “Skyline Nursing Beds”).

Common areas and amenities include a main dining room; private dining room; bistro; lounge; living room; auditorium/multi-purpose room; club room; library; wellness and fitness center with an aquatic center, pool and spa; business center; beauty salon; barber shop; massage room; creative arts center; continuing education room/board room; one guest unit and mail center.

The Skyline Assisted Living Units, Skyline Memory Support Units and the Skyline Nursing Beds are collectively defined as the “Skyline Health Center”.

See Independent Accountants’ Examination Report C-11

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The following table summarizes the type, number, approximate square footage, Entrance Fees and Monthly Fees for the Skyline Independent Living Units.

Table 2 Skyline Independent Living Unit Configuration Number Entrance Fee / Independent Living Unit Type of Units Square Footage Monthly Fees(1)(2) 80% Refundable(1)(2) One Bedroom Bainbridge 1 750 $3,142 $472,166 Birch 2 766 $3,267 $467,954 – $472,497 Camano 20 785 $3,394 $501,938 – $667,601 Cascade 1 814 $3,267 $585,165 Cedar 1 871 $3,520 $633,026 Columbia 3 886 $3,520 $661,918 Elliott 19 907 $3,773 $663,812 – $842,510 Emerald 20 923 $3,898 $654,091 – $822,765 Evergreen 2 1,019 $3,520 $709,040 Garland 1 1,051 $3,773 $737,620 Juniper 1 1,159 $4,149 $854,297 Two Bedroom Kingston 20 1,110 $4,401 $841,297 – $1,044,464 Madrona 2 1,206 $4,528 $870,455 Magnolia 3 1,223 $4,653 $868,601 Mercer 20 1,262 $4,905 $957,937 – $1,200,000 Neah 2 1,314 $4,780 $1,003,481 Noble 4 1,213 $4,780 $975,586 – $1,197,320 Olympic 16 1,279 $4,905 $878,606 – $998,996 Rainier 20 1,353 $5,031 $1,005,834 – $1,232,665 Seaview 2 1,440 $5,156 $1,084,287 Vashon 19 1,534 $5,284 $1,091,479 - $1,363,227 Washington 1 1,694 $5,912 $1,818,259 Watermark 1 1,832 $6,037 $1,882,475 Three Bedroom Victoria 18 1,601 $5,409 $1,125,872 - $1,600,000 Total / Weighted Averages 199 1,182 $4,507 $918,236 Source: Management (1) Entrance Fees and Monthly Fees are in 2016 dollars (effective as of October 1, 2015). (2) The second person Entrance Fee and Monthly Fee is $35,000 and $1,253, respectively.

See Independent Accountants’ Examination Report C-12

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The following table summarizes the unit types, approximate square footages, Monthly Fees, and Daily Fees for the Skyline Assisted Living Units, Skyline Memory Support Units, and Skyline Skilled Nursing Beds (collectively, the “Skyline Health Center”), respectively.

Table 3 Skyline Health Center Configuration Number Square Monthly Daily Health Center of Units Footage Fee(1)(2) Service Fee Assisted Living: (1) Studio 20 472 $5,700 N/A One Bedroom 28 530 $6,300 N/A

Total/Weighted Average – Assisted Living 48 N/A Memory Support: Memory Support Studio 16 321 $9,000 N/A Memory Support Studio Deluxe 5 472 $10,000 N/A Memory Support One Bedroom 7 530 $11,000 N/A

Total/Weighted Average – Memory N/A 28 400 $9,679 Support Skilled Nursing: Semi-Private Room 8 222(3) N/A $385 Private Room 26 310 N/A $449

Total/Weighted Average – Skilled Nursing 34 289 N/A $435 Total 110 Source: Management (1) Monthly Fees for the Skyline Assisted Living Units are not all-inclusive. Residents are regularly assessed and assigned care points based on acuity. Additional charges for assistance with activities of daily living are based on a monthly rate of $53 per care point. (2) Monthly Fees for the Skyline Memory Support Units are all-inclusive. (3) Total square feet for semi-private rooms are 444.

Park Shore

Housed within a 15-story building plus two basement levels with occupied areas and a 64-stall parking, Park Shore is situated in the Madison Park neighborhood of Seattle, with frontage and views of Lake Washington. Constructed in 1963, with renovations and updates completed since opening, Park Shore currently consists of the following: 113 independent living apartment units (the “Park Shore Independent Living Units”); 30 assisted living units (the “Park Shore Assisted Living Units”); and, The Health Care Center, which includes 28 skilled nursing beds (the “Park Shore Nursing Beds”).

See Independent Accountants’ Examination Report C-13

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

According to Management, there are two independent living apartments that are currently utilized as guest units and that are assumed to be unavailable for occupancy. Common areas and amenities include a dining room; living room/lounge; multi-purpose room suitable for private dining, meetings, movie viewing, presentations and musical performances; several smaller lounges and meeting rooms; chapel/multi-purpose room; computer center; painting/floral studio; fitness center; massage therapy; hair and acupuncture salons; 15-floor lounge area with outdoor walking balcony; lakeside pavilion; boat dock and moorage; and two lakeside garden areas.

The Park Shore Assisted Living Units and the Park Shore Nursing Beds are collectively defined as the “Park Shore Health Center”. The following table summarizes the type, number, approximate square footage, Entrance Fees and Monthly Fees Daily Rates and/or Daily Rates for the units at Park Shore.

Table 4 Park Shore Independent Living Units Number Square Monthly (1)(2) (1)(2)(3) Unit Type of Units Footage Fees Entrance Fee Independent Living Apartments Studio(4) 18 357 – 465 $2,512 - $2,782 $145,000 - $190,000 Alcove(4) 14 640 – 644 $3,035 $261,000 - $272,000 One-Bedroom – Small 20 672 – 783 $3,414 $274,000 - $399,000 One-Bedroom – Lakeside 8 685 – 839 $3,698 - $4,123 $369,000 - $451,000 One-Bedroom w/den 3 783 – 810 $3,834 $319,000 - $352,000 One-Bedroom – Large 11 839 – 997 $3,834 - $4,610 $342,000 - $552,000 One-Bedroom w/alcove 5 1,045 $4,381 $438,000 - $720,000 Two-Bedroom – Small 12 1,077 – 1,260 $4,610 $457,000 - $514,000 Two-Bedroom – Lakeside 12 1,090 – 1,196 $5,150 $587,000 - $776,000 Two-Bedroom – Large 10 1,248 – 2,063 $5,044 - $5,887 $563,000 - $804,000 Total/Weighted Average – Independent 113 880 $3,967 $396,566 Living Assisted Living Studio 18 357 – 465 $4,727 N/A Alcove 2 640 $5,377 N/A One Bedroom 7 672 – 844 $5,896 N/A One Bedroom Lakeside 3 685 – 839 $6,558 N/A Total/Weighted Average – Assisted Living 30 542 $5,226 Nursing Daily Fee Private 1 280 $470 N/A Semi-Private 27 280 $400 N/A Total/Weighted Average – Nursing 28 280 $403 Source: Management (1) Entrance Fees and Monthly Fees are effective as of October 1, 2015. (2) Second person Entrance Fee and Monthly Fee for the Park Shore Independent Living Units is $16,000 and $1,363, respectively. The second person Monthly Fee for the Park Shore Assisted Living Units is $2,369. (3) Three Entrance Fee plans are available for the Park Shore Independent Living Units: a non-refundable Entrance Fee Plan (shown in the table), a 50% refundable plan, and a 90% refund plan (only available for 3 condominium units). Under the 50% refundable plan, Entrance Fee pricing is different for prospective residents aged 84 or younger and prospective residents aged 85 plus.

See Independent Accountants’ Examination Report C-14

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Park Shore Project

Management has plans for a renovation project at Park Shore (the “Park Shore Project”), to include the addition of new common spaces and amenities, as well as the combination of certain existing Park Shore Independent Living Units that upon completion, would result in 104 available Park Shore Independent Living Units. For the purpose of Management’s forecast, it has been assumed that 18 existing studio and alcove Park Shore Independent Living Units will be converted to 9 two- bedroom Park Shore Independent Living Units during fiscal years 2017 – 2019. The following table summarizes the units conversions related to the Park Shore Project.

Table 5 Park Shore Project – Unit Conversions Existing Studio / Year Ending Alcove ILU Taken Two Bedroom September 30, Beginning ILU Out of Service ILU Renovated Ending ILU 2016 113 - - 113 2017 113 (6) 3 110 2018 110 (6) 3 107 2019 107 (6) 3 104 2020 104 - - 104 Source: Management

Fred Lind Manor

Located in the Capital Hill neighborhood of Seattle, Fred Lind was established in 1944 and offers independent and assisted living services to seniors primarily through a rental, month-to-month residency agreement. Fred Lind is housed in a two story building and currently consists of the 82 apartment units (the “Fred Lind Units”). The following table summarizes the unit types, approximate square footages and Monthly Fees for the Fred Lind Units.

Table 6 Fred Lind Unit Configuration Number Square Monthly Fred Lind Units of Units Footage Service Fee (1) Studio 37 392 $2,565 One Bedroom 34 463 – 524 $3,100 One Bedroom Deluxe 7 642 – 690 $3,670 Two Bedroom 4 739 $4,155

Total 82 Source: Management (1) Residents of the Fred Lind Units can receive assistance with wellness needs for an additional monthly fees. Services such medication management, bathing assistance, daily dressing assistance, grooming assistance, personal laundry and meal escort services are available a la carte, each for monthly fees ranging from $180 to $400.

See Independent Accountants’ Examination Report C-15

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The Skyline Independent Living Units and the Park Shore Independent Living Units are defined collectively as the “Independent Living Units”. The Skyline Assisted Living Units and the Park Shore Assisted Living Units are defined collectively as the “Assisted Living Units”. The Skyline Nursing Beds and the Park Shore Nursing Beds are defined collectively as the “Nursing Beds”.

Summary of Financing

Management intends to refund the outstanding Washington State Housing Finance Commission Nonprofit Revenue Bonds (Skyline at First Hill Project), Series 2007A (the “Series 2007A Bonds”), to refinance the outstanding mortgage note payable to Love Funding Corporation and insured by the United States Department of Housing and Urban Development (the “HUD Loan”), to fund the cost of the Park Shore Project and future capital expenditures at Fred Lind, and to reimburse the Corporation for prior capital expenditures and for the purchase of three condominium units (the “Condominium Purchases”) adjacent to Park Shore. The total financial requirements for refunding the Series 2007A Bonds, refinancing the HUD Loan, funding the costs of the Park Shore Project, future capital expenditures at Fred Lind, and reimbursement of prior capital expenditures and the Condominium Purchases are assumed to approximate $154,043,000.

The Corporation proposes to fund these financial requirements primarily through the issuance of Washington State Housing Finance Commission Nonprofit Housing Revenue and refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016 (the “Series 2016 Bonds”) in the amount of $132,545,000, an original issue premium of approximately $11,858,000 and existing funds held by the trustee related to the Series 2007A Bonds to be refunded.

See Independent Accountants’ Examination Report C-16

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Management has assumed the following sources and uses of funds in preparing its financial forecast based on information provided by the Corporation’s underwriter, B.C. Ziegler and Company (the “Underwriter”):

Table 7 Sources and Uses of Funds (In Thousands) Sources of Funds: Series 2016A Bonds (1) $ 120,330 Series 2016B Bonds (1) 12,215 Series 2016 Bonds 132,545 Original Issue Premium (1) 11,858 Series 2016 Bonds, net proceeds $ 144,403

Trustee held funds – Series 2007A Bonds (2) 9,640 Total Sources of Funds $ 154,043 Uses of Funds: Project Costs: Direct construction costs (3) $ 21,316 Design and engineering costs (4) 1,627 Indirect construction costs (5) 1,550 Development (6) 1,427 Miscellaneous costs (7) 2,439 Project contingency (8) 1,705 Total Project Costs $ 30,064

Prior and future capital expenditures (9) $ 2,500 Prior Condominium Purchases (10) 3,475 Refunding of Series 2007A Bonds (11) 101,640 Repayment of HUD Loan (12) 3,713 Debt Service Reserve Fund – Series 2016A Bonds (13) 8,994 Debt Service Reserve Fund – Series 2016B Bonds (13) 1,222 Cost of Issuance and Other Costs (14) 2,435 Total Uses of Funds $ 154,043 Source: Management and the Underwriter

See Independent Accountants’ Examination Report C-17

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

(1) According to the Underwriter, the following series of bonds are assumed to be issued: $120,330,000 of rated tax-exempt fixed rate bonds (the “Series 2016A Bonds”); and, $12,215,000 of rated taxable fixed rate bonds (the “Series 2016B Bonds”). The Series 2016 Bonds are assumed to be issued at a premium of approximately $11,858,000. (2) Trustee held funds associated with the Series 2007A Bonds, including the Series 2007A Bonds Debt Service Reserve Fund of approximately $7,891,000, the Series 2007A Bonds Principal Fund of approximately $1,286,000 and the Series 2007A Bonds Interest Fund of approximately $463,000 are assumed to be available upon closing of the Series 2016 Bonds. (3) Construction, site work, and other costs related to the construction of the Park Shore Project are assumed to approximate $21,316,000, including approximately $6,400,000 for the combination of certain Park Shore Independent Living Units. (4) Design and engineering costs are assumed to approximate $1,627,000 and include interior design, civil engineering, landscaping, and architecture. (5) Indirect construction costs for the Park Shore Project are assumed to approximate $1,550,000, and include furniture and equipment costs. (6) The development fee paid to PRCN Services, LLC for the Park Shore Project is assumed to approximate $1,427,000. (7) Miscellaneous costs are assumed to approximate $2,439,000 and include expenses related to permitting, sales taxes, and legal costs, as provided by Management. (8) Management has included a total contingency of $1,705,000 on the overall project related costs of the Park Shore Project. (9) Proceeds from the Series 2016 Bonds are assumed to be used to reimburse the Corporation for $1,500,000 of prior capital expenditures at Fred Lind and to fund approximately $1,000,000 of future capital expenditures at Fred Lind. (10) Approximately $3,475,000 of proceeds from the Series 2016 Bonds are assumed to be used to reimburse the Corporation for the Condominium Purchases. (11) Outstanding principal of $98,930,000 of the Series 2007A Bonds, plus accrued interest of approximately $2,710,000, is assumed to be paid with proceeds from the Series 2016 Bonds. (12) Outstanding principal of $3,533,000 of the HUD Loan, respectively, plus accrued interest of approximately $180,000, is assumed to be paid with proceeds from the Series 2016 Bonds. (13) The deposits to the Debt Service Reserve Fund for the Series 2016 Bonds are assumed to approximate $10,216,000. (14) Costs of issuance related to the Series 2016 Bonds are assumed to approximate $2,435,000 and include the Underwriter’s discount, accounting fees, legal fees, the feasibility consulting fee, the bond issuance fees, the cost for the printing of the preliminary official statement and official statement, and other miscellaneous financing costs.

See Independent Accountants’ Examination Report C-18

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Description of the Residency Agreements

Skyline and Park Shore

In order to reserve an Independent Living Unit, a prospective resident must execute a Residence and Services Life Care Agreement (the “Skyline Life Care Plan”) or a Continuing Care Residency and Service (the “Skyline Continuing Care Plan”) for a Skyline Independent Living Unit or a Continuing Care Residence and Services Agreement (“Park Shore Continuing Care Plan”) for a Park Shore Independent Living Unit (all contracts collectively referred to as the “Residency Agreement”) and provide payment of an initial Entrance Fee deposit equal to 10 percent of the applicable Entrance Fee pricing (the “Deposit”) for the selected Independent Living Unit (the “Depositor”). The Depositor must also provide a self-disclosure of his or her health and finances.

The Residency Agreement is a contract under which the Obligated Group is contractually obligated, upon payment by the resident of an Entrance Fee and ongoing payments of the Monthly Fee, to provide certain services for life to the resident.

To be accepted for admission to the Independent Living Units, a prospective resident must be at least 62 years of age (or if a couple, one spouse is at least 62 years of age) at the time residency is established, have financial assets adequate to pay the Entrance Fee, and must have sufficient income to meet the anticipated Monthly Fee and other personal expenses not provided under the Residency Agreement (the “Resident”). The remaining 90 percent of the Entrance Fee is due prior to the date the Resident moves into the Community (the “Occupancy Date”).

Services and Amenities Under the Residency Agreement, payment of the Entrance Fee and Monthly Fee entitles all Residents to occupy the selected Independent Living Unit and receive the following services and amenities:

Three meals per day (for Park Shore Independent Living Units) or a monthly meal allowance equal to approximately one meal per person for each day of the month (for Skyline Independent Living Units); Regularly scheduled housekeeping and flat linen services; Sewer, water, waste disposal, electricity, heat/air conditioning and basic cable television service; Security and emergency call system with 24-hour monitoring; General maintenance of the Community’s building and common grounds; Repair, maintenance and replacement of furnishings provided by the Obligated Group in the Independent Living Unit; Scheduled local transportation; Individual storage area; Use of the Community’s common areas; U.S. mailbox in a central location; Coordinated wellness programming and services; and Planned social, cultural and recreation activities.

See Independent Accountants’ Examination Report C-19

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

In addition to the items included in the Monthly Fees, certain services are available to Residents at an additional cost. These services may include, but not limited to, additional housekeeping, personal laundry service, catering for special occasions, delivered meals service and take-out, additional meals, additional parking, personalized transportation services, special events and programs, personal fitness trainer, beauty/barber shop, and guest overnight accommodations.

The Monthly Fee may be revised based on the experience of the Obligated Group and estimates of its future costs, at its sole discretion. The Obligated Group expects to make such adjustments not more than once a year and is required to provide 30 days prior written notice of any such adjustments.

Healthcare Benefit - Skyline

Under the Skyline Residency Agreement, Residents are provided priority access to the Skyline Health Center. For permanent transfers in the case of single occupancy, a Resident needing to vacate their Skyline Independent Living Unit and permanently transfer to the Skyline Health Center are charged the then published Monthly Fee for the Madrona (Two Bedroom Apartment) Skyline Independent Living Unit plus the cost of two additional meals per day (the “Life Care Benefit”). In the case of double occupancy, if one occupant is making a permanent transfer to the Skyline Health Center, the Monthly Fee remains unchanged, and the cost of two additional meals per day is added. Should both Residents transfer to the Health Care Center, the cost is expected to be equal to the Life Care Benefit plus the then current second person Monthly Fee and the cost of two additional meals per day.

Residents needing temporary care in the Skyline Health Center continue to pay the current Monthly Fee for their Skyline Independent Living Unit in addition to the current prorated monthly rate in the Skyline Health Center.

Healthcare Benefit – Park Shore

Under the Park Shore Residency Agreement, Residents are provided with thirty (30) prepaid days per person, per lifetime of care (“Prepaid Days”). Once Prepaid Days are exhausted, Residents permanently transferring to the Park Shore Health Center are charged the current Monthly Fee for a Park Shore studio, alcove or standard one bedroom Assisted Living Unit or Daily Fee for a Park Shore semi-private Nursing Bed, less a 10 percent (10%) discount. Residents needing temporary care in the Park Shore Health Center continue to pay the current Monthly Fee for their Park Shore Independent Living Unit in addition to the current prorated Monthly Fee for a Park Shore Assisted Living Unit or Daily Fee for a Park Shore Nursing Bed.

See Independent Accountants’ Examination Report C-20

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Entrance Fees

The Corporation offers two Entrance Fee plans for the Skyline Independent Living Units and three Entrance Fee plans for the Park Shore Independent Living Units. The Entrance Fee options at Skyline and Park Shore, related amortization schedules and refunds upon termination of the Residency Agreement are as follows:

Entrance Fee Options Amortization Schedule Skyline - 80% Refundable Life 80 percent of the total Entrance Fee paid is to be refunded to Care Plan the Resident upon termination of the Residency Agreement and receipt of sufficient Entrance Fee proceeds to fully fund the refund obligation from the subsequent resale and occupancy of the Skyline Independent Living Unit. Skyline - 80% Refundable 80 percent of the total Entrance Fee paid is to be refunded to Continuing Care Plan the Resident upon termination of the Residency Agreement and receipt of sufficient Entrance Fee proceeds to fully fund the refund obligation from the subsequent resale and occupancy of the Skyline Independent Living Unit. Park Shore - 90% Refundable 90 percent of the total Entrance Fee paid is refundable after Continuing Care Plan the first 90 days of occupancy.

Park Shore - 50% Refundable Entrance Fee amortizes 1.39 percent per month for 36 months Continuing Care Plan from the occupancy date. After 36 months, the Entrance Fee is 50 percent refundable. Park Shore - Non-Refundable Entrance Fee amortizes 2.78 percent per month for 36 months Continuing Care Plan from the occupancy date. After 36 months of occupancy, no refund is due to the Resident.

Source: Management

Prior Residency Agreements

Management previously offered alternative Residency Agreements for the Skyline Independent Living Units including: a 100 percent refundable life care plan (the “Life Care 100% Refund”), a 90 percent life care plan (the “Life Care 90% Refund”); a non-refundable life care plan (the “Life Care Non-Refund”), and life care contracts of varying refund amounts with an additional health care benefit of 30 free lifetime days in the Skyline Health Center (the “Life Care w/ 30 Free Days”).

Management previously offered alternative Residency Agreements for the Park Shore Independent Living Units including: a continuing care contract with 20 prepaid days of temporary health care services annually, with no annual carry-over of prepaid days (“Continuing Care 20 Days Annual”), a continuing care contract with 30 lifetime prepaid healthcare days with variations on the discounts provided in the Park Shore Health Center beyond the prepaid days (“Continuing Care 30 Days Lifetime”).

These historical plans are no longer available to new Residents of Skyline or Park Shore.

See Independent Accountants’ Examination Report C-21

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The following table summarizes the number of Residents utilizing each plan at Park Shore and Skyline as of May 31, 2016.

Table 8 The Communities Utilization of Entrance Fee Options as of May 31, 2016

Plan Type Total(1) Percent of Total Entrance Fee Plans - Skyline Life Care 80% Refund 6 2.8% Continuing Care 80% Refund - 0.0% Historical Plans: (2) Life Care 100% Refund 40 18.7% Life Care 90% Refund 103 48.1% Life Care Non-Refund 6 2.8% Life Care w/ 30 Free Days 57 26.6% Other Contracts 2 1.0% Total Occupied 214 100%

Entrance Fee Plans - Park Shore Continuing Care Non-Refund 15 11.5% Continuing Care 50% Refund 13 10.0% Continuing Care 90% Refund 2 1.5% Rental Plans Rental 7 5.3% Historical Plans: (2) Continuing Care 20 Days Annual 18 13.7% Continuing Care 30 Days Lifetime 73 55.7 Other Contracts 3 2.3% Total Occupied 131 100% Source: Management (1) Represents the total number of first person occupants on the respective Community. (2) These contracts are no longer offered to prospective Residents at the Communities.

Services Provided for the Assisted Living Units and the Skyline Memory Care Units

Residents of the Assisted Living Units and the Skyline Memory Care Units receive three meals per day and between-meal snacks and nourishment; assisted living and extended congregate care services in accordance with the Resident’s written plan of care; laundering of linens and bedding, housekeeping and maintenance, utilities, emergency call service, daily observation of Resident’s general health, safety, physical and emotional well-being; scheduled transportation; social services; and planned recreational activities. The Resident is required to pay any additional charges for additional services and supplies that are not covered in the applicable base fees.

See Independent Accountants’ Examination Report C-22

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Services Provided for the Nursing Beds

Residents of the Nursing Beds receive room and board; nursing care, personal care or custodial care services in accordance with the Resident’s written plan of care; laundered linens and bedding; housekeeping and maintenance; social services; and planned recreational activities. The Resident is required to pay any additional charges for services that are not covered in the applicable base fees for the Nursing Beds.

Fred Lind

To reserve a Fred Lind Unit, a prospective resident must execute a resident agreement (the “Rental Agreement”), which reserves the right of the prospective resident to occupy the selected Fred Lind Unit.

Payment of the Monthly Fee entitles the resident to occupy the selected Fred Lind Unit and receive the following services and amenities: Three meals per day; Sewer, water, waste disposal, electricity, heat/air conditioning, and cable television service; Weekly housekeeping and laundering of flat linens weekly; Maintenance of all common areas and equipment; Daily check-ins; Emergency call system; Planned social activities and recreational programs; and Use of the fitness, dining rooms, lounges, social and recreational rooms and other common activity facilities.

In addition to the items included in the Monthly Fee, certain services are available to residents at an additional cost including, but not limited to, additional housekeeping, laundry services for personal items, meal delivery service in excess of three trays per month, guest meals, and barber and beauty services.

See Independent Accountants’ Examination Report C-23

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Summary of Significant Accounting Policies

(a) Basis of Accounting The Corporation maintains its accounting and financial records according to the accrual basis of accounting. (b) Deferred Costs Costs associated with the issuance of debt are capitalized and amortized over the expected lives of the related indebtedness using the effective interest method. Management has implemented ASU No. 2015-03 “Interest – Imputation of Interest” and simplified the presentation of debt issuance costs. Under the new Standard, the debt issuance costs are netted against the related debt on the balance sheet and the amortization is included in interest expense on the statement of operations. Marketing costs incurred by the Corporation in connection with acquiring initial Resident contracts of the Skyline Independent Living Units are capitalized and amortized on a straight- line basis over a period approximating the average life expectancy of the initial Skyline Independent Living Unit residents. (c) Cash and Cash Equivalents Cash and cash equivalents include investments in highly liquid securities with an original maturity of three months or less when purchased. (d) Property, Equipment and Depreciation Expense Property and equipment are recorded at cost. Depreciation expense is calculated on the straight-line method over the estimated useful lives of depreciable assets. The cost of maintenance and repairs is charged to operations as incurred, whereas significant renewals and betterments are capitalized. (e) Assets Limited as to Use Assets limited as to use are assumed to be carried at fair value, which, based on the nature of the underlying securities, is assumed to approximate historical cost. Management assumes no material changes in fair values that result in material net realized or unrealized gains or losses during the forecast period. (f) Investment Income Investment income is reported as operating revenue unless restricted by donor or law. Management assumes no changes in fair values that result in material net realized or unrealized gains or losses during the forecast period. (g) Costs of Borrowing Net interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets. (h) Deferred Revenue from Entrance Fees The non-refundable portion of an Entrance Fee is recorded as deferred revenue and is amortized into revenue over the estimated remaining life expectancy of the Residents in the Independent Living Units. The refundable portion of an Entrance Fee, to the extent of subsequent re-occupancy proceeds, is recorded as deferred revenue and is amortized to revenue over the estimated remaining useful life of the building.

See Independent Accountants’ Examination Report C-24

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

(i) Estimated Obligation to Provide Future Services Management annually calculates the present value of the net cost of future service and use of facilities to be provided to current residents and compares that amount with balance of deferred revenue from entrance fees. The obligation to provide future (the “Future Service Obligation”) services to residents represents the estimated net future costs to serve residents, net of revenue from those residents, who were parties to an occupancy agreement on the Obligated Group’s fiscal year end. If the present value of the net cost of future services and use of facilities exceeds the deferred revenue from entrance fees, a liability is recorded. No liability was recorded at September 30, 2015, because the present value of the estimated net costs of future services and use of facilities is less than deferred revenue from entrance fees. For purposes of the forecast, no provision for future service obligations is assumed to be required during the forecast period.

See Independent Accountants’ Examination Report C-25

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Summary of Revenue and Entrance Fee Assumptions

Independent Living Revenues

Independent living revenues are based upon charges for services provided to Residents of the Independent Living Units and the assumed occupancy and the Monthly Fees of the respective units. Independent living revenues also include charges for services provided to Fred Lind Unit Residents, which include fees for assistance with ADLs. Resident subsidies include monthly service fee credits offered to Residents at Skyline and Park Shore as marketing incentives. Management assumes the Monthly Fees for the Independent Living Units and the Fred Lind Units are to increase 3.0 percent annually beginning October 1, 2017 and throughout the remainder of the forecast period.

Assisted Living Revenues

Assisted living revenues are generated from services provided to internal residents of the Communities transferring from independent living units as well as direct admissions from the local surrounding area. The monthly fees for assisted living and memory support units are assumed to increase 3.0 percent annually beginning October 1, 2017 and throughout the remainder of the forecast period.

Historical and forecasted occupancy for the Fred Lind Units are presented in the following table:

Table 9 Fred Lind Unit Utilization Year Ending September 30, Total Units Occupied (1) Total Units Available Occupancy Fred Lind

Historical: 2013 70.6 82.0 86.1% 2014 70.3 82.0 85.7% 2015 66.3 82.0 80.9% 2016 (2) 67.5 82.0 82.3% Forecasted: 2016 67.5 82.0 82.3% 2017 (3) 80.4 82.0 98.0% 2018 80.4 82.0 98.0% 2019 80.4 82.0 98.0% 2020 80.4 82.0 98.0% Source: Management (1) For the purpose of Management’s forecast, approximately 50 percent of residents at Fred Lind are assumed to utilize assisted living services throughout the forecast period. (2) Average year to date occupancy through May 31, 2016. (3) Management assumes that approximately 12.9 current residents of Exeter House will be transitioned to Fred Lind by September 30, 2016.

See Independent Accountants’ Examination Report C-26

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Historical and forecasted occupancy for the Skyline and Park Shore Independent Living Units and

Assisted Living Units are presented in the following table:

Table 10 Skyline and Park Shore Independent Living Unit and Assisted Living Unit Utilization Independent Living Units Assisted Living Units Year Ending Total Total Total Total September 30, Occupied Available Occupancy Occupied Available Occupancy Skyline Historical: 2013 195.2 199.0 98.1% 60.2 76.0 79.2% 2014 194.5 199.0 97.7% 60.0 76.0 78.9% 2015 189.8 199.0 95.4% 59.6 76.0 78.4% 2016(1) 194.1 199.0 97.5% 74.1 76.0 97.4% Forecasted: 2016 194.1 199.0 97.5% 74.1 76.0 97.4% 2017 195.0 199.0 98.0% 73.0 76.0 96.1% 2018 195.0 199.0 98.0% 73.0 76.0 96.1% 2019 195.0 199.0 98.0% 73.0 76.0 96.1% 2020 195.0 199.0 98.0% 73.0 76.0 96.1% Park Shore

Historical: 2013 98.7 116.0 85.1% 27.1 30.0 90.3% 2014 96.8 116.0 83.4% 24.6 30.0 82.0% 2015 97.8 115.0 85.0% 22.5 30.0 75.0% 2016 (1) 98.4 111.0 88.6% 25.2 30.0 84.0% Forecasted: 2016 98.4 111.0 88.6% 25.2 30.0 84.0% 2017 (2) 101.5 110.3 92.0% 28.0 30.0 93.3% 2018 (2) 101.4 107.3 94.5% 28.0 30.0 93.3% 2019 (2) 99.3 104.3 95.2% 28.0 30.0 93.3% 2020 99.0 104.0 95.2% 28.0 30.0 93.3% Source: Management (1) Average year to date occupancy through May 31, 2016. (2) For the purpose of Management’s forecast, it has been assumed that 18 existing studio and alcove Park Shore Independent Living Units will be vacated, converted, and reoccupied by couples as 9 two-bedroom Park Shore Independent Living Units during fiscal years 2017 – 2019.

The double occupancy percentage in the Skyline Independent Living Units is assumed to be 39 percent of occupied units in fiscal year 2016, declining to 36 percent in fiscal year 2020. The double occupancy percentage in the Park Shore Independent Living Units is assumed to be 25 percent of occupied units in fiscal year 2016, increasing to 33 percent in fiscal year 2020.

See Independent Accountants’ Examination Report C-27

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Assumed Independent Living Turnover

The assumed turnover of the Independent Living Units due to death, withdrawal or transfer to the assisted living, memory care or nursing beds at the Communities, and double occupancy of the independent living units at the Communities has been estimated by Management based on its experience at each Community and on an actuarial report for Skyline provided by the Obligated Group’s actuary, A.V. Powell and Associates LLC (the “Actuary”). The following table presents the assumed Entrance Fees received and Entrance Fees refunded.

Table 11 Entrance Fees Receipts and Refunds (In Thousands) For the Year Ending September 30, 2016 2017 2018 2019 2020 Number of Entrance Fees Received (Attrition) Skyline 17.0 16.0 17.0 17.0 17.0 Park Shore 16.0 14.3 14.3 14.3 14.3 Total number of Entrance Fees received 33.0 30.3 31.3 31.3 31.3 Entrance Fees Received (Attrition) Skyline $ 12,365 $ 15,266 $ 16,101 $ 16,819 $ 17,480 Park Shore (1) 9,481 7,001 7,197 7,399 7,148 Entrance Fees received (Attrition) $ 21,846 $ 22,267 $ 23,298 $ 24,218 $ 24,628 Entrance Fees Refunded (Attrition) Skyline $ (4,932) $ (6,025) $ (6,700) $ (7,600) $ (8,397) Park Shore (1,029) (817) (842) (867) (893) Entrance Fees Refunded $ (5,961) $ (6,842) $ (7,542) $ (8,467) $ (9,290)

Entrance Fees Received, Net of Refunds $ 15,885 $ 15,425 $ 15,756 $ 15,751 $ 15,338 Source: Management and the Actuary (1) Includes Entrance Fees from move-ins to the two-bedroom independent living units related to the Park Shore Project during 2017 - 2019.

Entrance Fees are assumed to increase 3.5 percent annually for Skyline and 3.0 percent annually for Park Shore during the forecast period.

Skilled Nursing Revenues

Skilled nursing revenues are generated from services provided to internal Skyline and Park Shore residents transferring from the Independent Living Units, Assisted Living Units or Skyline Memory Support Units as well as direct admissions from the surrounding area. Skyline and Park Shore participate in Medicare and Medicaid reimbursement programs for certain nursing residents. Nursing service fees are assumed to increase at an average of 3.0 percent beginning October 1, 2017 and annually thereafter. Additionally, it includes health care ancillary revenue related to therapies, incontinence fees, medical supplies, and other billable ancillary services.

See Independent Accountants’ Examination Report C-28

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The following table summarizes both the historical and assumed utilization of the Skyline and Park Shore Nursing Beds by payor type.

Table 12 Community Utilization – Nursing Beds

Payor Mix Year Ending Private Pay/ Medicare/ Medicaid/ Total Total Beds September 30, Lifecare Managed Care Hospice Occupancy Available Occupancy Skyline Historical: 2013 7.9 3.0 18.2 29.1 34.0 85.6% 2014 16.6 14.1 - 30.7 34.0 90.3% 2015 16.0 14.6 - 30.6 34.0 83.1% 2016 (1) 14.4 16.2 - 30.6 34.0 90.0% Forecasted: 2016 14.4 16.2 - 30.6 34.0 90.0% 2017 18.0 13.0 - 31.0 34.0 91.2% 2018 18.0 13.0 - 31.0 34.0 91.2% 2019 18.0 13.0 - 31.0 34.0 91.2% 2020 18.0 13.0 - 31.0 34.0 91.2% Park Shore

Historical: 2013 17.5 3.9 3.1 24.5 28.0 87.5% 2014 17.1 3.5 4.4 25.0 28.0 89.3% 2015 16.0 3.3 4.4 23.7 28.0 84.6% 2016 (1) 16.5 4.8 3.2 24.5 28.0 87.5% Forecasted: 2016 16.5 4.8 3.2 24.5 28.0 87.5% 2017 18.0 4.0 4.0 26.0 28.0 92.9% 2018 18.0 4.0 4.0 26.0 28.0 92.9% 2019 18.0 4.0 4.0 26.0 28.0 92.9% 2020 18.0 4.0 4.0 26.0 28.0 92.9% Source: Management (1) Average year to date occupancy through May 31, 2016.

Other Revenue

Other revenue is generated from additional resident meals and snacks, catering, additional laundry and maintenance services, guest meals, guest apartment rentals, and other miscellaneous sources. These revenues are assumed to increase 3.0 percent annually beginning October 1, 2017 and throughout the remainder of the forecast period.

Investment Income

Management has assumed a 1.0 percent annual rate of return on the Obligated Group’s unrestricted cash and investments, assets whose use is limited. Management has assumed a 0.5 percentage average annual rate of return on trustee-held funds.

See Independent Accountants’ Examination Report C-29

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Summary of Operating Expense Assumptions

Operating expenses are estimated by Management based on its experience at each Community and with the development and operation of other similar retirement communities. Staff salaries and benefits are based on prevailing local salary and wage rates and are assumed to increase 3.0 percent annually beginning October 1, 2017 and throughout the remainder of the forecast period.

The following table summarizes the assumed staffing levels for all departments.

Table 13 Schedule of Staffing Levels (FTEs) – Fiscal Year 2017 Department Skyline Park Shore Fred Lind PRCN Total Healthcare 39.8 25.9 - - 65.7 Dining 50.9 34.1 13.8 - 98.7 General & administrative 10.8 7.6 8.1 40.0 66.5 Maintenance & housekeeping 28.3 14.8 5.5 - 48.6 Assisted living 50.1 10.1 17.4 - 77.6 Residential transportation services 2.5 1.3 - - 3.8 Resident activities 5.4 3.4 - - 8.4

Total FTEs 187.8 97.2 44.8 40.0 369.8 Source: Management

Other non-salary operating expenses are assumed to include ongoing marketing costs, raw food costs, utilities, supplies, maintenance and security contracts, building and general liability insurance, legal and accounting fees and other miscellaneous expenses. The cost of these non- salary operating expenses is assumed to increase 3.0 percent annually throughout the forecast period.

Limited Use Assets

U.S. Bank, N.A., as the Bond Trustee and the Master Trustee, is assumed to maintain the following funds and accounts for the Series 2013 Bonds, the Series 2015 Bonds, and the Series 2016 Bonds.

(1) Bond Fund, which contains the bond principal and interest payments to be used for payment of debt service on the Series 2013 Bonds, the Series 2015 Bonds, and the Series 2016 Bonds (2) Project Fund, to be funded at closing from the Series 2016 Bonds proceeds, to be used to pay for construction and related costs for the Community. (3) The Debt Service Reserve Funds have been funded with proceeds received from the issuance of the Series 2013 Bonds and the Series 2015 Bonds and is assumed to be further funded with proceeds to be received from the closing of the Series 2016 Bonds.

See Independent Accountants’ Examination Report C-30

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

The Corporation maintains the following restricted accounts: (1) Waiting list deposits, which includes refundable deposits for prospective Residents. (2) Reserves for replacement and escrow, to satisfy a requirement under the terms of a regulatory agreement to set aside monthly deposits of $3,759 for replacement of property and other expenditures at Fred Lind approved by HUD and assumed to be released upon repayment of the HUD Loan. (3) Residual receipts reserve, to satisfy a requirement to deposit within 60 days after the end of each fiscal year any residual receipts realized from the operation of Fred Lind. Funds may only be released with prior approval from HUD and are assumed to be released upon repayment of the HUD Loan.

Property and Equipment and Depreciation Expense

Management anticipates that the Obligated Group is to incur routine capital additions during the forecast period that are to be capitalized as property and equipment. Depreciation expense for all capital assets is computed based on the straight-line method for buildings and equipment over estimated average useful lives of 40 and 20 years, respectively. The Obligated Group’s property and equipment costs, net of accumulated depreciation, during the forecast period are summarized in the table below.

Table 14 Schedule of Property and Equipment (In Thousands)

Years Ending September 30, 2016 2017 2018 2019 2020 Property and equipment, gross Beginning balance $ 264,228 $ 273,353 $ 288,239 $ 301,648 $ 314,555 Construction costs – Park Shore Project - 10,021 10,021 10,021 - Capitalized interest – Park Shore Project 150 1,656 1,113 543 - Condominium Purchases 3,475 - - - - Renovations - Skyline 1,500 - - - - Renovations – Fred Lind 1,500 1,000 - - - Routine capital additions 2,500 2,209 2,275 2,343 2,413 Property and equipment, gross $ 273,353 $ 288,239 $ 301,648 $ 314,555 $ 316,968 Accumulated depreciation $ (82,468) $ (90,630) $ (98,924) $ (107,310) $ (116,700) Property and equipment, net ending balance $ 190,885 $ 197,609 $ 202,724 $ 207,245 $ 200,268 Source: Management

See Independent Accountants’ Examination Report C-31

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Debt and Interest Expense

As of September 30, 2015, the Obligated Group had debt outstanding of approximately $117,510,000, including approximately $113,908,000 of outstanding Washington State Housing Finance Commission (“WSHFC”) revenue bonds (the “Existing Bonds”), and approximately $3,613,000 of mortgage note payable to a bank and insured by the United States Department of Housing and Urban Development (“HUD”) (the “HUD Loan”).

Series 2007A Bonds As of September 30, 2015, approximately $101,025,000 of the Series 2007A Bonds remained outstanding. The outstanding Series 2007A Bonds are comprised of rated tax-exempt fixed rate bonds, at coupon rate ranging from 5.25 percent to 5.625 percent per annum. Interest on the Series 2007A Bonds is payable on January 1 and July 1 of each year. Principal on the Series 2007A Bonds is paid annually on January 1, with a final maturity on January 1, 2038. Management assumes that approximately $2,095,000 of principal will be paid on the Series 2007A Bonds during fiscal year 2016 and that approximately $98,930,000 of the Series 2007A Bonds would be refunded upon the closing of the Series 2016 Bonds.

Series 2012 Bonds As of September 30, 2015, approximately $5,463,000 of WSHFC Nonprofit Housing Revenue Revenue Bonds (Skyline at First Hill Project), Series 2012 (the “Series 2012 Bonds”) remained outstanding. The outstanding Series 2012 Bonds were comprised of non-rated tax-exempt fixed rate bonds, at a coupon rate of 7.00 percent per annum. The 2012 Bonds were refunded in November 2015 with proceeds from the issuance of WSHFC Nonprofit Housing Revenue and Refunding Revenue Bonds (Skyline at First Hill Project), Series 2015 (the “Series 2015 Bonds”).

Series 2013 Bonds As of September 30, 2015, approximately $7,420,000 of WSHFC Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Project), Series 2013 (the “Series 2013 Bonds”) were allocated to the Obligated Group and remained outstanding. The outstanding Series 2013 Bonds are comprised of non-rated tax-exempt fixed rate bonds, at coupon rates ranging from 5.00 percent to 5.25 percent per annum. Interest on the Series 2013 Bonds is payable on January 1 and July 1 of each year. Principal on the Series 2013 Bonds is paid annually beginning in January 1, 2023 with a final maturity on January 1, 2043.

HUD Loan As of September 30, 2015, approximately $3,613,000 of the HUD Loan was outstanding. The HUD Loan has monthly principal and interest payments of $15,350, with an annual interest of 2.93 percent per annum. The HUD Loan matures on August 2044. Management assumes that approximately $80,000 of principal will be paid on the HUD Loan during fiscal year 2016 and that approximately $3,533,000 of the HUD Loan will be repaid upon the closing of the Series 2016 Bonds.

See Independent Accountants’ Examination Report C-32

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Series 2015 Bonds In November 2015, $8,740,000 of Series 2015 Bonds were issued to refund the outstanding Series 2012 Bonds and to pay for capital expenditures and accrued development fees related to the development of Skyline. The Series 2015 Bonds are comprised of non-rated tax-exempt fixed rate bonds, at coupon rates ranging from 4.125 percent to 6.00 percent per annum. Interest on the Series 2015 Bonds is payable on January 1 and July 1 of each year. Principal on the Series 2015 Bonds is paid annually beginning in January 1, 2016 with a final maturity on January 1, 2045.

Series 2016 Bonds The WSHFC intends to issue the Series 2016 Bonds, the proceeds of which are to be lent to the Obligated Group to refund the outstanding Series 2007A Bonds and the outstanding HUD Loan. The Series 2016A Bonds are assumed to consist of $120,330,000 of rated tax-exempt fixed rate bonds, assumed be issued at a premium, with assumed coupon rate of 5.00 percent per annum. Interest on the Series 2016A Bonds is assumed to be payable semi-annually on January 1 and July 1 of each year beginning January 1, 2017. Principal on the Series 2016A Bonds is assumed to be payable annually commencing January 1, 2024 with a final maturity on January 1, 2051.

The Series 2016B Bonds are assumed to consist of $12,215,000 of rated taxable fixed rate bonds, with an assumed interest rate of 4.00 percent per annum. Interest on the Series 2016B Bonds is assumed to be payable semi-annually on January 1 and July 1 of each year beginning January 1, 2017. Principal on the Series 2016B Bonds is assumed to be payable annually commencing January 1, 2017 with a final maturity on January 1, 2024. The following table presents the assumed annual debt service during the forecast period.

Table 15 Schedule of Annual Debt Service (In Thousands)

Series 2007A Bonds Series 2013 Bonds Series 2015 Bonds Series 2016 Bonds

Year Ending Interest Interest Interest Interest September 30, Principal Payment Principal Payment Principal Payment Principal Payment Total 2016 $2,095 $5,612 $125 $378 $215 $304 $ - $ - $8,729

2017 - - 135 371 115 486 1,500 4,777 7,384

2018 - - 140 364 120 482 1,470 6,416 8,992

2019 - - 145 357 125 476 1,530 6,356 8,989

2020 - - 155 350 130 471 1,595 6,294 8,995

Thereafter - - 6,720 4,766 8,035 7,733 126,450 126,094 279,798

Total $2,095 $5,612 $7,420 $6,586 $8,740 $9,952 $132,545 $149,937 $322,887 Source: Management and the Underwriter (1) In addition to the debt service presented, interest payments on the Series 2012 Bonds of $381,000 is assumed to be paid during the fiscal year ending September 30, 2016. (2) In addition to the debt service presented, principal and interest payments on the HUD Loan, of approximately $80,000 and $87,000 respectively, are to be paid during the fiscal year ending September 30, 2016.

See Independent Accountants’ Examination Report C-33

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Sewer Capacity Payable

During fiscal years 2011 and 2012, PRCN was levied two sewer capacity charges (the “Sewer Capacity Payable”) by King County related to the new sewer connections at Skyline. These charges have been financed over 15 years, with assumed quarterly payments of approximately $22,000, including annual interest of 5.5 percent, through May 2026. The following table presents the assumed payments related to the Sewer Capacity Payable during the forecast period.

Table 16 Sewer Capacity Payable (In Thousands) Year Ending September 30, Principal Interest Total Payments 2016 53 36 89 2017 56 33 89 2018 60 29 89 2019 63 26 89 2020 67 22 89 Source: Management

Capital Lease Obligations

PRCN leases copiers under two capital lease agreements (the “Capital Lease Obligations”). The assumed interest rates on the capital leases range from 16.5 percent to 19.0 percent. The following table presents the assumed payments related to the Capital Lease Obligations during the forecast period.

Table 17 Capital Lease Obligations (In Thousands) Year Ending September 30, Principal Interest Total Payments 2016 39 17 56 2017 45 10 55 2018 34 2 36 2019 - - - 2020 - - - Source: Management

See Independent Accountants’ Examination Report C-34

Presbyterian Retirement Communities Summary of Significant Forecast Northwest Obligated Group and Accounting Policies, Continued

Early Extinguishment of Debt

The losses on the early extinguishment of the Series 2012 Bonds and the Series 2007A Bonds are reflected as operating expense items in the Forecasted Statements of Operations during the fiscal years ending September 30, 2016 and September 30, 2017. The loss on the early extinguishment of debt resulting from the refunding of the Series 2012 Bonds is approximately $212,000 and is calculated as the unamortized deferred issuance costs associated with the Series 2012 Bonds. The loss on the early extinguishment of debt resulting from the refunding of the Series 2007A Bonds is approximately $3,513,000 and is calculated as the unamortized deferred issuance costs associated with the Series 2007A Bonds.

Related Party Receivables

As of September 30, 2015, the Obligated Group had outstanding receivables due from Exeter House and the Foundation (the “Related Parties”) of approximately $6,614,000, associated with the ongoing financial support provided to the Related Parties. Management assumes that during fiscal year 2016, the outstanding receivables from the Related Parties would be forgiven in full and that the Obligated Group would record an operating loss in the Forecasted Statement of Operations for the year ending September 30, 2016.

Current Assets and Current Liabilities

Operating expenses exclude amortization, depreciation, other non-cash expenses and interest expense. Operating revenues include the monthly and daily services fees for each Community and other revenue. Working capital components have been estimated based on industry standards and Management’s historical experience as follows:

Table 18 Working Capital – Days on Hand Resident and third-party receivables 25 days operating revenues Other receivables 2 days operating revenues Prepaid expenses 7 days operating expenses Accounts payable 10 days operating expenses Accrued expenses 37 days operating expenses Source: Management

See Independent Accountants’ Examination Report C-35

INDEPENDENT ACCOUNTANTS’ REPORT ON SUPPLEMENTAL INFORMATION

Boards of Directors Presbyterian Retirement Communities Northwest Obligated Group Seattle, Washington

Our examination of the financial forecast presented in the preceding section of this document was made for the purpose of forming an opinion on whether the financial forecast is presented in conformity with AICPA guidelines for the presentation of a forecast and that the underlying assumptions provide a reasonable basis for the forecast. The study was undertaken to evaluate the Obligated Group’s ability to generate sufficient funds to meet its operating expenses, working capital needs and other financial requirements, including the debt service requirements associated with the proposed Series 2016 Bonds based on Management’s assumptions of future operations of the Obligated Group. However, future events could occur which could adversely affect the financial forecast of the Obligated Group and its ability to meet debt service requirements. These factors include, among others, legislation and regulatory action, changes in assumptions concerning occupancy, the rate of entrance fee producing unit turnover, per diem rates, financing and operating costs.

The accompanying supplemental information is presented for purposes of providing additional analysis and is not a required part of the financial forecast nor considered an all-inclusive list. Such information has not been subjected to procedures applied in the examination of the financial forecast and, accordingly, we express no opinion or any other form of assurance on it.

The following supplemental analyses are presented for the purpose of demonstrating the significance of certain assumptions and are not to be considered an all-inclusive list.

Atlanta, Georgia July 28, 2016

C-36

Presbyterian Retirement Communities Northwest Obligated Group Supplemental Disclosure

Sensitivity Analysis I – Obligated Group Operating Revenue

Operating revenue can vary depending upon economic conditions, the competitive environment, and Management’s ability to execute the marketing and sales plan.

Sensitivity Analysis I The data presented in the table below demonstrates the impact if operating revenue from Skyline,

Park Shore, and Fred Lind was reduced by 25 percent in fiscal year 2020.

Table 19 Sensitivity Analysis I – Operating Revenue Estimated Financial Information For the Year Ending September 30, 2020 (In Thousands, Except for Ratios) (1)(2) As Forecasted Sensitivity I Operating Revenue:

Independent Living $ 19,423 $ 14,567 Healthcare $ 8,362 $ 6,272

Assisted Living $ 13,473 $ 10,105

Long-Term Debt Service Coverage Ratio 2.24x 1.09x

Days Cash on Hand 575 498

Cash to Debt Ratio 0.60x 0.53x

Source: Management (1) For purposes of the sensitivity analysis, operating revenue was reduced without a corresponding adjustment to operating expenses. In addition, no adjustments were made to the repayment of debt. (2) For purposes of the sensitivity analysis, the assumed schedule for the repayment of debt remained as originally forecasted.

C-37 Presbyterian Retirement Communities Northwest Obligated Group Supplemental Disclosure

Sensitivity Analysis II – Obligated Group Entrance Fee Cash Flow

Actual Entrance Fee cash flow receipts from turnover may vary from Management’s assumptions included in the forecast in regard to either Entrance Fee pricing or the number of turnover residents. These assumptions are especially sensitive to variation and may or may not occur evenly throughout the forecast period.

Sensitivity Analysis II

The data presented in the table below is provided to demonstrate the impact of assuming a 25 percent reduction in Entrance Fees received in each year of the forecast period. For purposes of this analysis, the number of turnover Entrance Fees received and number and amount of Entrance Fee refunds paid have not been adjusted.

Table 20 Sensitivity Analysis – II Estimated Financial Information For the Year Ending September 30, 2020 (In Thousands, Except for Ratios) As Forecasted Sensitivity II Turnover Entrance Fee Received $ 24,628 $ 18,471 Entrance Fee Refunds Paid $ (9,290) $ (9,290) Net Entrance Fees Received $ 15,338 $ 9,188 Long-Term Debt Service Coverage Ratio 2.24x 1.53x

Days Cash on Hand (1) 575 335

Cash to Debt Ratio (1) 0.60x 0.39x

Source: Management (1) For purposes of the sensitivity analysis, the assumed schedule for the repayment of debt remained as originally forecasted.

C-38 Presbyterian Retirement Communities Northwest Obligated Group Supplemental Disclosure

Sensitivity Analysis III – Obligated Group Expense and Revenue Control

Management assumes operating expenses increase over time, with a corresponding ability to increase per monthly or daily rates and charges. Management’s ability to raise revenues may vary from the forecast assumptions. Management has assumed certain operating revenues would increase three percent beginning October 1, 2017, and annually thereafter. Additionally, Management has assumed expenses would increase three percent beginning October 1, 2017 and annually thereafter.

The data presented in the table below are provided to demonstrate the impact on the overall financial performance of the Obligated Group assuming the operating expense inflation increases from three percent to four percent while maintaining the assumed three percent operating revenue inflation increase.

Table 21 Sensitivity Analysis – III Estimated Financial Information For the Year Ending September 30, 2020 As Forecasted Sensitivity III Inflation Percentage: Revenues Inflation (October 1, 2017 and annually thereafter) 3.0% 3.0% Expenses Inflation (October 1, 2017 and annually thereafter) 3.0% 4.0% Long-Term Debt Service Coverage Ratio 2.24x 2.13x

Days Cash on Hand (1) 575 545

Cash to Debt Ratio (1) 0.60x 0.58x

Source: Management (1) For purposes of the sensitivity analysis, the assumed schedule for the repayment of debt remains as originally forecasted.

C-39 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX D

SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL BOND DOCUMENTS

TABLE OF CONTENTS

CERTAIN DEFINITIONS ...... D-1 BOND INDENTURE ...... D-10 Funds and Accounts ...... D-10 Tax Covenants with With Respect to Tax-Exempt Bonds ...... D-14 Extension of Payment ...... D-15 Loan Documents ...... D-15 Events of Default ...... D-15 Acceleration of Maturity ...... D-16 Enforcement of Covenants and Conditions ...... D-17 Application of Money ...... D-18 Limitation on Rights and Remedies of Bondowners ...... D-18 Removal of and Resignation by the Bond Trustee ...... D-19 Supplemental Bond Indentures Requiring Consent of Bondowners ...... D-20 Supplemental Bond Indentures Not Requiring Consent of Bondowners ...... D-21 Consent of Borrower to Supplemental Indentures ...... D-21 Amendments to Loan Documents Not Requiring Consent of Bondowners ...... D-22 Amendments to Loan Documents Requiring Consent of Bondowners ...... D-22 Defeasance ...... D-23 LOAN AGREEMENT ...... D-24 Loan ...... D-24 Loan Repayment ...... D-24 Credits on Series 2016 Obligations...... D-26 Additional Payments ...... D-26 Prepayment ...... D-27 Nature of Borrower’s Obligations ...... D-27 Borrower Covenants ...... D-28 Loan Agreement Defaults ...... D-28 Notice of Default and Opportunity to Cure ...... D-29 Remedies ...... D-30

The following statements are a brief summary of certain provisions of the Bond Indenture and the Loan Agreement that have not been described elsewhere in this Official Statement. The summary does not purport to be complete and reference is made to the actual documents available from the Bond Trustee for a complete statement of the provisions thereof. Definitions used in these summaries and not otherwise defined herein shall have the meanings provided in the front part of this Official Statement.

CERTAIN DEFINITIONS

“Acceleration Date” means the date specified in a Declaration of Acceleration pursuant to the Bond Indenture.

“Account” means any one or more of the separate special trust accounts created by the Bond Indenture, and shall include any subaccount or subaccounts included in such account.

“Act” means Laws of 1983, Ch. 161, codified at chapter 43.180 RCW, as amended.

“Authorized Denomination” means $100,000 or any integral multiple of $5,000 in excess of $100,000 within a maturity of the Bonds, unless otherwise permitted in accordance with the Bond Indenture.

“Bond Closing” means the date upon which there is an exchange of the Bonds for the proceeds representing the purchase of the Bonds by the initial purchasers thereof.

“Bond Counsel” means an attorney at law or a firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions, who is or are selected by the Commission and is or are duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia.

“Bond Register” means the registration books required to be maintained by the Bond Trustee for the registration and transfer of the Bonds.

“Bond Year” means each one-year period that ends at the close of business on the day in the calendar year that is selected by the Borrower. The first and last Bond Years may be short periods. If no day is selected by the Borrower before the earlier of the final maturity of the Bonds or the date that is five years after the Bond Closing, each Bond Year ends on each anniversary of the Bond Closing and on the final maturity of the Bonds.

“Bondowner” or “Owner” or “Registered Owner” means the person or persons in whose name or names a Bond shall be registered on books of the Bond Registrar kept for that purpose in accordance with the terms of the Bond Indenture.

“Borrower” means, for purposes of this Appendix D, collectively, Fred Lind Manor, PRCN and Skyline.

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“Borrower Representative” means the person or persons at the time designated by the Borrower to act on behalf of the Borrower by written certificate furnished to the Commission and the Bond Trustee containing the specimen signature(s) of such person or persons.

“Borrower Tax Certificate” means the Tax Certificate of the Borrower executed by the Borrower of even date with the Bonds.

“Business Day” means any day other than (a) a Saturday or a Sunday, or (b) a day on which commercial banks in the city (or cities) in which are located the Principal Office(s) of the Bond Trustee, Bond Registrar or any other paying agent are authorized or required by law or executive order to close.

“Code” means the Internal Revenue Code of 1986, as amended, together with corresponding and applicable final, temporary or proposed regulations and revenue rulings issued or amended with respect thereto by the United States Treasury Department or Internal Revenue Service, to the extent applicable to the Bonds. All references herein to sections, paragraphs or other subdivisions of the Code or the regulations promulgated thereunder shall be deemed to be references to correlative provisions of any predecessor or successor code or regulations promulgated thereunder.

“Commission Tax Certificate” means the Non-Arbitrage Certificate dated as of the Bond Closing executed by the Commission and the exhibits thereto.

“Cost of Issuance Fund” means such Fund created pursuant to the Bond Indenture.

“Counsel” means an attorney at law or a firm of attorneys (who may be an employee of or counsel to the Commission, the Borrower, or the Bond Trustee) duly admitted to the practice of law before the highest court of any state of the United States of America or of the District of Columbia.

“Debt Service” means the scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation.

“Debt Service Fund” means such Fund created pursuant to the Bond Indenture.

“Debt Service Reserve Assets” means, as of any calculation date collectively, the money or securities on deposit in the Debt Service Reserve Fund (which shall not include interest accrued on such securities or market premium until received).

“Debt Service Reserve Deposits” means any payment required to be made by the Borrower to the Bond Trustee for deposit into the Debt Service Reserve Fund, from time to time, as required pursuant to the Loan Agreement.

“Debt Service Reserve Fund” means the Debt Service Reserve Fund created pursuant to the Bond Indenture.

“Debt Service Reserve Fund Deficiency Notice” means the notice which the Bond Trustee is required to give the Borrower and the Commission pursuant to the Bond Indenture if

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the value of the Debt Service Reserve Assets is less than the Debt Service Reserve Requirement on any Valuation Date applicable thereto.

“Debt Service Reserve Requirement” means with respect to the each series of Bonds, as of any Valuation Date, an amount no greater than the least of (i) 10% of the proceeds of such series of Bonds; (ii) the Maximum Annual Debt Service on the Bonds of such series then Outstanding; or (iii) 125% of average annual Debt Service for all Bonds of such series then Outstanding; provided, however, that the dollar amount required for a series of Bonds shall not be greater than the maximum dollar amount permitted by the Code, including applicable regulations thereunder, to be allocated to a bond reserve account from bond proceeds without requiring a balance to be invested at a restricted yield. At Bond Closing, the Debt Service Reserve Requirement for the Reserve Account (Series 2016A Bonds) will be $[______], and the Debt Service Reserve Requirement for the Reserve Account (Series 2016B Bonds) will be $[______].

“Declaration of Acceleration” means the written notice of the acceleration of the principal of the Bonds and the interest accrued thereon, given by the Bond Trustee as provided in the Bond Indenture.

“Determination of Taxability” means written notice to the Bond Trustee of (a) failure to make any amendment to the Bond Indenture, the Loan Agreement or the Tax Certificates or to take any other action that, in the written opinion of Bond Counsel, is necessary to preserve the exclusion for purposes of federal income taxation from gross income of interest on the Tax- Exempt Bonds, or (b) a final judgment or order of a court of competent jurisdiction, or a final ruling or decision of the Internal Revenue Service, in either case to the effect that the interest on the Tax-Exempt Bonds is includable for federal income tax purposes in the gross incomes of the recipients thereof. A judgment or order of a court of competent jurisdiction or a ruling or decision of the Internal Revenue Service shall be considered final only if no appeal or action for judicial review has been filed (and is pending) and the time for filing such appeal or action has expired.

“Escrow Agreement” means the Escrow Deposit Agreement between the Commission and U.S. Bank National Association, as Escrow Agent, dated as of October ___, 2016 relating to the refunding of the Series 2007A Bonds.

“Fiscal Year” means the fiscal year of the Borrower, initially the period from October 1 through September 30 of the succeeding year.

“Fred Lind Manor” means Fred Lind Manor, a Washington nonprofit corporation.

“Fund” means any one or more of the separate special trust funds created pursuant to the Bond Indenture.

“Funding Requisitions” means a requisition, substantially in the form attached to the Loan Agreement.

“Government Obligations” means noncallable, direct, general obligations of the United States of America (including the obligations issued or held in book-entry form on the books of

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the Department of the Treasury of the United States of America) or any obligations unconditionally guaranteed as to the full and timely payment of principal and interest by the full faith and credit of the United States of America. Obligations guaranteed as to payment of interest only are Government Obligations only with respect to such interest payments.

“Holdback Account” means the Account of such name created within the Project Fund pursuant to the Bond Indenture.

“HUD Loan Refunding Account” means the Account of such name created within the Project Fund pursuant to the Bond Indenture.

“Interest Payment Date” means (a) January 1 and July 1 of each year, commencing January 1, 2017, or (b) any other day upon which interest and/or principal on the Bonds is due and payable, whether by maturity, acceleration, prior redemption (or purchase in lieu of redemption) or otherwise.

“Issuance Costs” means all costs and expenses of issuance of the Bonds, including, but not limited to:

(a) underwriter’s discount or fee;

(b) counsel fees and expenses, including bond counsel, underwriter’s counsel, Commission’s counsel, Borrower’s counsel, as well as any other specialized counsel fees incurred in connection with the issuance of the Bonds;

(d) initial fees and expenses of the Bond Trustee and Master Trustee, including Bond Trustee and Master Trustee counsel fees and expenses, if any, in connection with the issuance of the Bonds;

(e) costs of printing the preliminary official statement and the final official statement for the Bonds;

(f) publication or copying costs associated with the financing proceedings relating to the Bonds; and

(g) initial fees and expenses of the Commission relating to the Bonds.

“Loan” means the loan by the Mortgage Lender to the Borrower and acquired by the Commission pursuant to the Loan Agreement in the aggregate principal amount of not to exceed $[______], plus interest thereon, to provide permanent financing for the Project.

“Loan Documents” means the Loan Agreement, the Tax Certificates and the Series 2016 Obligations.

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“Maximum Annual Debt Service” means the maximum amount of scheduled principal of (including mandatory sinking fund payments) and interest on such series of Bonds coming due in the then-current or any future Fiscal Year.

“Moody’s” means Moody’s Investors Service, Inc., and its successors and assigns.

“Mortgaged Facilities” means the facilities of the Borrower subject to the 2016 Deeds of Trust.

“Outstanding” or “Bonds Outstanding,” in connection with the Bonds means, as of the time in question, all Bonds authenticated and delivered under the Bond Indenture, except: (a) Bonds theretofore cancelled or required to be cancelled thereunder; (b) Bonds which are deemed to have been paid in accordance therewith; and (c) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant thereto.

In determining whether the Registered 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 known by the Bond Trustee to be owned by the Borrower, the Commission, or any other obligor on the Bonds, or any affiliate of any one of said entities (for the purpose of this definition an “affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person) shall be disregarded and deemed not to be Outstanding under the Bond Indenture for the purpose of any such determination. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. Bonds (in certificated form) so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee shall establish to the satisfaction of the Bond Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Borrower, the Commission, or any other obligor on the Bonds, or any affiliate of the foregoing. In case of a dispute as to such right, any decision by the Bond Trustee taken upon the advice of Counsel shall be full protection to the Bond Trustee.

“Paying Agent” means the Bond Trustee, its successors and assigns, unless the Bond Trustee shall designate another entity as Paying Agent, with the consent of the Commission.

“Permitted 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

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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, certificates of deposit and banker’s acceptances of any bank, trust company, or savings and loan association, including the 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 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 (i) 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 (ii) if the 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;

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(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 without limitation the Master Trustee, Bond Trustee or their 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, to the knowledge of the Bond Trustee, 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, (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 (as applicable) in the custody of the Bond Trustee or the Bond Trustee’s agent;

(i) investments in a money market fund, which may be funds of the Bond Trustee or the Master Trustee or their affiliate, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency; and

(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 of 1933, as amended, and whose investments consist solely of Permitted Investments as defined in paragraphs (a) through (i) above, including money market mutual funds from which the Bond Trustee, the Master Trustee or their 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 Permitted Investment remains a Permitted 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 Commission 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.

“Person” means any natural person, firm, partnership, association, corporation, trust or public body.

“PRCN” means Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation.

“Principal Office” means (a) when used with respect to the Bond Trustee, the agency office of the Bond Trustee located in Seattle, Washington, at the address shown in the Bond Indenture, provided that with respect to the Bond Registrar and payments on the Bonds and any exchange, transfer or surrender of the Bonds, means c/o U.S. Bank National Association, 60 Livingston Avenue, St. Paul, Minnesota 55107 or such other or additional offices as may be specified to the Commission and the Borrower with respect to either the Bond Trustee or Bond

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Registrar; and (b) when used with respect to any Paying Agent, means the office of such paying agent as designated by notice given by the Bond Trustee to the Bondowners.

“Project” means, collectively, to finance or refinance (a) the reimbursement of PRCN of the cost of the acquisition of three condominium units located proximate to the Park Shore Facilities, (b) the construction, renovation and equipping of senior housing and related facilities of the Borrower at Park Shore and Fred Lind Manor (each as described in Appendix A to this Official Statement), (c) the payoff or reimbursement of Fred Lind Manor for the cost of prepaying a taxable loan incurred for Fred Lind Manor, (d) the current refunding of the outstanding Series 2007A Bonds, (e) the funding of a debt service reserve fund, and (f) the payment of costs of issuing the Bonds.

“Project Accounts” means the Series 2016A Project Account and the Series 2016B Project Account within the Project Fund created pursuant to the Bond Indenture.

“Project Facilities” means the facilities originally financed or refinanced with proceeds of the Bonds and Refunded Bonds, as further described in the Loan Agreement.

“Project Fund” means such Fund created pursuant to the Bond Indenture.

“Qualified Project Costs” means costs and expenses of the Project that are properly chargeable to a capital account and, to the extent that such expenditures do not exceed 5% of the Sale Proceeds of the Tax-Exempt Bonds, non-capital costs that are directly related to the Project, or that are costs of refunding the Refunded Bonds. Qualified Project Costs do not include (i) costs and expenses for portions of the Project to be used for activities constituting unrelated trades or businesses determined by applying Section 513(a) of the Code, (ii) amounts to be used to reimburse expenditures paid before the date of issuance of the Bonds other than Qualified Reimbursable Costs, or (iii) Issuance Costs of the Tax-Exempt Bonds. In addition, interest during the construction period will be allocated between Qualified Project Costs and other costs and expenses to be paid from the proceeds of the Tax-Exempt Bonds, and interest following the construction period will not constitute a Qualified Project Cost. Letter of credit fees and municipal bond insurance premiums which represent a transfer of credit risk will be allocated between Qualified Project Costs and other costs and expenses to be paid from the proceeds of the Tax-Exempt Bonds, and letter of credit fees and municipal bond insurance premiums which do not represent a transfer of the credit risk will not constitute Qualified Project Costs.

“Qualified Reimbursable Costs” means (i) expenditures paid for Issuance Costs of the Tax-Exempt Bonds, (ii) preliminary capital expenditures (within the meaning of United States Treasury Regulations Section 1.150-2(f)(2)) with respect to the Project (such as architectural, engineering and soil testing services) incurred before commencement of acquisition or construction of the Project that do not exceed 20% of the issue price of the Tax-Exempt Bonds, and (iii) capital expenditures that (1) were paid no earlier than 60 days before the date of the adoption by the Commission or the Borrower of a declaration of intent to reimburse such expenditures from the proceeds of obligations, and (2) are reimbursed no later than 18 months after the later of the date the expenditure was paid or the date the Project Facilities are placed in service (but no later than 3 years after the expenditure is paid).

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“Rating Agency” means Moody’s, or 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 rating agency or agencies designated by the Commission, which maintains a rating on any of the Bonds.

“Rebate Amount” means the amount, if any, determined to be payable with respect to the Tax-Exempt Bonds by the Commission to the United States of America pursuant to Section 148 of the Code, calculated in accordance with the Tax Certificates.

“Rebate Fund” means the Fund of that name created pursuant to the Bond Indenture.

“Record Date” means, except for payment of defaulted interest, the opening of business on the fifteenth day of the month preceding a scheduled Interest Payment Date. With respect to any payment of defaulted interest, a Special Record Date shall be established by the Bond Trustee in accordance with the provisions of the Bond Indenture.

“Refunded Bonds” or “Series 2007A Bonds” means the Commission’s Nonprofit Revenue Bonds (Skyline at First Hill Project), Series 2007A in the original principal amount of $106,700,000 issued pursuant to a Bond Trust Indenture dated as of January 1, 2007 and outstanding in the principal amount of $98,930,000.

“Refunding Accounts” means the Series 2007A Refunding Account and the HUD Loan Refunding Account within the Project Fund created pursuant to the Bond Indenture.

“Regulations” means the applicable proposed, temporary or final Income Tax Regulations promulgated under the Code or, to the extent applicable to the Code, under the Internal Revenue Code of 1954, as such regulations may be amended or supplemented from time to time.

“Reserve Account (Series 2016A Bonds)” means the Reserve Account (Series 2016A Bonds) created in the Debt Service Reserve Fund pursuant to the Bond Indenture.

“Reserve Account (Series 2016B Bonds)” means the Reserve Account (Series 2016B Bonds) created in the Debt Service Reserve Fund pursuant to the Bond Indenture.

“Revenues” means the amounts pledged under the Bond Indenture to the payment of the principal of, redemption premium, if any, and interest on the Bonds, including the following: (i) money held in the Funds and Accounts (excluding the Cost of Issuance Fund and the Rebate Fund), together with investment earnings thereon received by the Bond Trustee which the Bond Trustee is authorized to receive, hold and apply pursuant to the terms of the Bond Indenture; and (ii) all income, revenues, proceeds, obligations, securities and other amounts received by the Bond Trustee and derived from or in connection with the Series 2016 Obligations, the Loan or the Loan Documents, but excluding amounts payable as the Commission Fee (as defined in the Bond Indenture), the Bond Trustee Fee (as defined in the Bond Indenture), the Rebate Amount or the fee for the calculation of the Rebate Amount and the indemnification or reimbursement of the Commission and the Bond Trustee.

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“Sale Proceeds” means any amounts actually or constructively received from the sale (or other disposition) of any Bond, including amounts used to pay underwriter’s discount or compensation and accrued interest other than pre-issuance accrued interest. Sale Proceeds also include amounts derived from the sale of a right that is associated with any Bond and that is described in Section 1.148-4 of the Regulations.

“Series 2007A Refunding Account” means the Account of such name created within the Project Fund pursuant to the Bond Indenture.

“Series 2016 Obligations” means, together, the Series 2016A Obligation and the Series 2016B Obligation.

“Series 2016A Obligation” means, the $______principal amount Presbyterian Retirement Communities Northwest Direct Note Obligation No. 2 of the Obligated Group, issued under, and in substantially the form attached to, the Second Supplemental Master Indenture.

“Series 2016A Project Account” means the Series 2016A Project Account within the Project Fund created pursuant to the Bond Indenture.

“Series 2016B Obligation” means the $______principal amount Presbyterian Retirement Communities Northwest Direct Note Obligation No. 3 of the Obligated Group, issued under, and in substantially the form attached to, the Second Supplemental Master Indenture.

“Series 2016B Project Account” means the Series 2016B Project Account within the Project Fund created pursuant to the Bond Indenture.

“Skyline” means FH, LLC, a Washington limited liability company, the sole member of which is PRCN.

“Sole Member” means PRCN as the sole member of Skyline.

“Special Record Date” means, with respect to the payment of any defaulted interest on the Bonds, a date fixed by the Bond Trustee pursuant to the Bond Indenture.

“Supplemental Bond Indenture” means any agreement authorized and entered into between the Commission and the Bond Trustee after the date of the Bond Indenture, which amends, modifies or supplements and forms a part of the Bond Indenture.

“Tax Certificates” means the Borrower Tax Certificate and Commission Tax Certificate.

“Tax-Exempt Bonds” means the Series 2016A Bonds.

“Trust Estate” means the property conveyed to the Bond Trustee pursuant to the Granting Clauses of the Bond Indenture.

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“Valuation Date” means fifteen Business Days prior to January 1 of each year and any day on which the Bond Trustee applies any funds held in the Debt Service Reserve Fund as provided in the Bond Indenture.

BOND INDENTURE

Funds and Accounts

The Bond Indenture establishes the Funds and Accounts with the Bond Trustee. The Bond Trustee will maintain each Fund and Account as a separate and distinct trust fund or account to be held, managed, invested, disbursed and administered as provided in the Bond Indenture. All money deposited in the Funds and Accounts will be used solely for the purposes set forth in the Bond Indenture. The Bond Trustee will be entitled to establish other trust funds and accounts, including but not limited to a Rebate Fund, as the Bond Trustee deems necessary in order to properly administer the Trust Estate.

Project Fund. On Bond Closing, the Bond Trustee will deposit into the accounts within the Project Fund the amounts described in the Bond Indenture and will use such amounts as follows.

(a) Refunding Accounts.

(i) On Bond Closing, an amount equal to $[______], representing a portion of the proceeds of the Series 2016A Bonds and an amount equal to $______representing [equity funds from the Borrower/amounts transferred from the debt service reserve fund securing the Series 2007A Bonds] shall be deposited with U.S. Bank National Association, as Escrow Agent, and held pursuant to an Escrow Agreement for the redemption and defeasance of the Series 2007A Bonds. Upon completion of such disbursement, the Bond Trustee shall close the Series 2007A Refunding Account.

(ii) On Bond Closing, an amount equal to $______representing a portion of the proceeds of the Series 2016B Bonds [and an amount equal to $______representing equity funds from the Borrower] shall be disbursed pursuant to instructions set forth in a closing memorandum prepared by the Underwriter and approved by the Commission and the Borrower to pay, or reimburse Fred Lind Manor for the payment of, principal and interest on the outstanding loan from the United States Department of Housing and Urban Development (the “HUD Loan”), or repay short-term indebtedness incurred by Fred Lind Manor to repay the HUD Loan. Upon completion of such disbursement, the Bond Trustee shall close the HUD Loan Refunding Account.

(b) Project Accounts. Amounts in the Project Accounts will be held by the Bond Trustee in trust to be applied or disbursed in accordance with the Bond Indenture and the Loan Agreement.

The Bond Trustee may conclusively rely upon any Funding Requisition in the forms set forth in the Loan Agreement without independent investigation or inquiry into the purposes for which such Funding Requisition is made and each payment from a Project Account pursuant to a Funding Requisition shall be presumed properly made.

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Amounts, if any, remaining in the Series 2016A Project Account on August 15, 2019 shall be transferred to the Debt Service Fund on October 1, 2019 (unless those dates are extended pursuant to the Loan Agreement) and used to redeem the Series 2016A Bonds in accordance with the Bond Indenture. Unless there has been an extension of the prepayment date as provided in the Loan Agreement, no Funding Requisition for amounts in the Series 2016A Project Account will be honored after August 15, 2019.

Amounts, if any, remaining in the Series 2016B Project Account on August 15, 2020 shall be transferred to the Debt Service Fund on October 1, 2020 (unless those dates are extended pursuant to the Loan Agreement) and used to redeem the Series 2016B Bonds in accordance with the Bond Indenture. Unless there has been an extension of the prepayment date as provided in the Loan Agreement, no Funding Requisition for amounts in the Series 2016B Project Account will be honored after August 15, 2020.

Amounts in the Project Accounts shall be invested only in Permitted Investments described in written instructions from the Borrower.

(c) Holdback Account. An amount equal to $[______] will be retained in the Holdback Account of the Project Fund and not used for the redemption of the Series 2016A Bonds until receipt of confirmation from the Commission that, based solely on the information provided by the Bond Trustee with respect to the dates on which Series 2016A Bond proceeds have been disbursed, a spending exception from arbitrage rebate has been met with respect to the proceeds of the Series 2016A Bonds used to finance capital projects. Upon confirmation that no arbitrage rebate is owed, amounts in the Holdback Account will be transferred to the Series 2016A Project Account and may be requisitioned and disbursed as set forth in the Bond Indenture and the Holdback Account shall be closed.

Cost of Issuance Fund. Money on deposit in the Cost of Issuance Fund will be applied to pay Issuance Costs set forth in a closing memorandum prepared by the Underwriter and approved by the Commission and the Borrower, or as otherwise approved in writing by the Borrower. Any money remaining in the Cost of Issuance Fund on the 180th day following Bond Closing shall be transferred to the Project Accounts and the Cost of Issuance Fund will be closed; provided, that any requests for payments of additional fees and costs incurred in connection with the issuance of the Bonds received after the 180th day following Bond Closing shall be immediately paid for by the Borrower. Money in the Cost of Issuance Fund shall be invested only in Permitted Investments as described in subsection (j) of such definition.

Debt Service Fund. Money on deposit in the Debt Service Fund shall be applied to pay the principal of premium, if any, and interest on the Bonds as the same become due and payable. The Bond Trustee will deposit into the Debt Service Fund (a) money, if any, representing accrued interest at Bond Closing; (b) money received with respect to principal and interest from the Borrower under the Series 2016 Obligations including amounts on deposit with the Bond Trustee pursuant to the Loan Agreement or the Bond Indenture; (c) investment earnings on the money therein; (d) amounts transferred to the Bond Trustee in order to effect an extraordinary mandatory redemption in the event of damage to or destruction of, or the condemnation of, or sale consummated under threat of condemnation of, the Mortgaged Facilities of any Member or any part thereof pursuant to the provisions of the Bond Indenture; and (e) any other Revenues

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collected by the Bond Trustee and available to pay principal of or interest on the Bonds, including amounts on hand in the Debt Service Reserve Fund, in that order of priority, in an amount sufficient to pay the principal of and premium, if any, and interest becoming due and payable on the Bonds on the next Interest Payment Date, at scheduled maturity, upon acceleration or by prior redemption.

On each scheduled Interest Payment Date on the Bonds, the Bond Trustee will remit or cause to be remitted in accordance with the Bond Indenture to the Bondowner as of the Record Date for such interest payment, an amount from the Debt Service Fund sufficient to pay the interest on the Bonds becoming due and payable on such date. On each date on which any principal or premium becomes payable on the Bonds, the Bond Trustee will set aside and hold in trust an amount from the Debt Service Fund sufficient to pay the amount of principal of and premium, if any, on the Bonds becoming due and payable on such date.

Debt Service Reserve Fund. On Bond Closing, the Bond Trustee will deposit into the Accounts within the Debt Service Reserve Fund an amount sufficient to meet the Debt Service Reserve Requirement applicable to each series of Bonds. Amounts on deposit in the Debt Service Reserve Fund shall be pledged as provided in the Bond Indenture and described in the Official Statement.

In addition to the initial deposits into the Accounts held in the Debt Service Reserve Fund, there shall be deposited into Accounts held in the Debt Service Reserve Fund any Debt Service Reserve Deposits delivered by the Borrower to the Bond Trustee pursuant to the Loan Agreement. In addition, there shall be deposited into the Accounts held in the Debt Service Reserve Fund all moneys required to be transferred thereto pursuant to the Bond Indenture, all money received from the Master Trustee when accompanied by directions that such money is to be paid into the applicable Account held in the Debt Service Reserve Fund, and all other moneys received by the Bond Trustee when accompanied by directions that such moneys are to be paid into the applicable Account held in the Debt Service Reserve Fund. There will also be retained in the applicable Account held in the Debt Service Reserve Fund all interest and other income received on investments of money held in the corresponding Account in the Debt Service Reserve Fund to the extent provided in the Bond Indenture.

If there shall be an insufficiency of funds in the Debt Service Fund to make any required payment of principal of or interest on any Series 2016A Bonds or Series 2016B Bonds and the Bond Trustee is holding cash in the applicable Reserve Account for such series, the Bond Trustee shall transfer funds from such Reserve Account to the Debt Service Fund in an amount necessary to make up such insufficiency, which transfer shall be made at least three days prior to the date of such required principal or interest payment on the applicable series of Bonds and in any case in sufficient time to prevent the occurrence of an Event of Default under the Bond Indenture.

The value of the Debt Service Reserve Assets will be maintained at a level at least equal to the Debt Service Reserve Requirement, except as follows: (a) when the Bond Trustee has given a Declaration of Acceleration; or (b) when the Bond Trustee has transferred funds from the Debt Service Reserve Fund to the Debt Service Fund or Rebate Fund in accordance with the Bond Indenture.

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Amounts on deposit in the Accounts held in the Debt Service Reserve Fund shall be invested in Permitted Investments defined under subparagraph (i) of the definition thereof pending further instruction of the Borrower to invest such amounts in other Permitted Investments.

Notwithstanding anything in the Bond Indenture to the contrary, under no circumstances shall any amount on deposit in the Reserve Account (Series 2016A Bonds) be used to pay principal of or interest on the Series 2016B Bonds or any amount on deposit in the Reserve Account (Series 2016B Bonds) be used to pay principal of or interest on the Series 2016A Bonds.

Rebate Fund. If the Bond Trustee receives amounts determined in accordance with the Tax Certificates, the Bond Trustee will establish a Rebate Fund, deposit such amounts therein, and withdraw such amounts to pay the Rebate Amount required to be paid to the United States of America in accordance with the Tax Certificates.

Tax Covenants With Respect to Tax-Exempt Bonds

The Commission shall not use or knowingly permit the use of any proceeds of the Tax- Exempt Bonds or any other funds of the Commission, directly or indirectly, in any manner, and shall not take or permit to be taken any other action or actions, which would result in any of the Tax-Exempt Bonds being treated as an obligation not described in Section 103(a) of the Code.

The Commission covenants with all Bondowners that, so long as any of the Tax-Exempt Bonds remain Outstanding, money on deposit with the Bond Trustee under the Bond Indenture, whether such money was derived from the proceeds of the sale of the Tax-Exempt Bonds or from any other source, will not knowingly be used in a manner which will cause the Tax-Exempt Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code and any regulations proposed or promulgated thereunder, as the same exist on the date of the Bond Indenture, or may from time to time thereafter be amended, supplemented or revised; provided, however, that the Commission and the Bond Trustee will rely upon certain certificates of the Borrower as to arbitrage.

The Commission will pay, or cause to be paid, from amounts provided by the Borrower, the Rebate Amount, if any, to the United States of America at the times and in the amounts necessary to meet the requirements of the Code to maintain the federal income tax exemption for interest payments on the Tax-Exempt Bonds, in accordance with the Tax Certificates. The Bond Trustee shall have no responsibility to independently make any calculation or determination or to review the Commission’s or rebate analyst’s calculations or determinations of the Rebate Amount.

Until such time as it is determined that no rebate is owed, within 30 days after the end of every fifth Bond Year, and within 55 days after the date on which no Tax-Exempt Bonds are Outstanding, the Borrower shall cause the rebate analyst to deliver to the Bond Trustee and the Commission a certificate stating whether any rebate payment is required to be made, as set forth

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in the Tax Certificates, and the Borrower shall deliver to the Bond Trustee any amount so required to be paid.

Extension of Payment

The Commission shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any interest thereon, and in case the maturity of any of the Bonds or the time of payment of interest shall be extended, such Bonds shall not be entitled, in case of any default under the Bond Indenture, to the benefits of the Bond Indenture, except subject to the prior payment in full of the principal of and interest on all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. No provision of the foregoing sentence shall be deemed to limit the right of the Commission to issue bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Loan Documents

So long as any of the Bonds remain outstanding and subject to the terms of the Bond Indenture, the Commission and the Bond Trustee shall faithfully and punctually perform and observe all obligations and undertakings on their part to be performed and observed under the Loan Documents to which they are a party. The Commission and the Bond Trustee shall take no action, shall permit no action to be taken by others within their control and shall not knowingly omit to take any action, which action or omission might release the Borrower from its liabilities or obligations under the Loan Documents to which it is a party or result in the surrender, termination, amendment or modification of or impair the validity of such documents. The Commission covenants to enforce diligently all covenants, undertakings and obligations of the Borrower under the Loan Documents to which the Borrower is a party, and, subject to the following, authorizes and directs the Bond Trustee to enforce any and all of its rights under the Loan Documents on behalf of the Commission and the Registered Owners of the Bonds; provided, that the Commission is not obligated to independently investigate or ascertain whether the Borrower is in compliance with its covenants, undertakings and obligations and shall not be liable under any circumstances to the Registered Owners of the Bonds as a result of any failure of the Borrower to comply with the Borrower’s covenants, undertakings and obligations. The Commission disclaims any responsibility with respect to the financial covenants of the Loan Agreement.

Events of Default

If any of the following events occurs, it is defined as and constitutes a Default and an Event of Default under the Bond Indenture:

(a) Failure to make payment of interest upon any Bond when the same shall have become due and payable;

(b) Failure to make due and punctual payment of the principal of or premium, if any, on any Bond, whether at the stated maturity thereof, upon proceedings for redemption thereof, or upon the maturity thereof by declaration;

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(c) Any material representation or warranty made by the Commission in the Bond Indenture or the Bonds shall be determined by the Bond Trustee to have been untrue when made or any failure by the Commission to observe and perform any covenant, condition or agreement on its part to be observed and performed under the Bond Indenture or the Bonds, other than as referred to in (i) or (ii) above, shall continue for a period of 60 days after written notice specifying such breach or failure and requesting that it be remedied, is given to the Commission, and the Bondowners by the Bond Trustee or to the Commission and the Bond Trustee by the Registered Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, unless (a) the Bond Trustee shall agree in writing to an extension of such time prior to its expiration or (b) if the breach or failure be such that it cannot be corrected within the applicable period, corrective action is instituted by the Commission within the applicable period and is being diligently pursued; and

(d) The occurrence of any Loan Agreement Default as defined in the Loan Agreement and the expiration of any applicable cure periods.

Acceleration of Maturity

If any Event of Default shall have occurred and be continuing, the Bond Trustee shall give a Declaration of Acceleration and the principal of all Outstanding Bonds, and the interest accrued thereon, shall be subject to acceleration as follows:

(a) the Bond Trustee, in its sole discretion, may declare the principal of all Outstanding Bonds and the interest accrued thereon to be due and payable immediately after the occurrence of any Event of Default; or

(b) the Bond Trustee shall declare the principal of all Outstanding Bonds and the interest accrued thereon to be due and payable immediately after the occurrence of any Event of Default at the written request of the Owners of not less than 25% in aggregate principal amount of Outstanding Bonds.

Any acceleration of the Bonds and the interest accrued thereon by the Bond Trustee in the circumstances described above shall be made by giving to the Commission and the Borrower a Declaration of Acceleration, which Declaration of Acceleration shall state that the principal of all Outstanding Bonds shall become due and payable on the Acceleration Date (which date shall not be later than 30 days after the date of the Declaration of Acceleration), together with all interest accrued on such Outstanding Bonds to such Acceleration Date.

Upon giving any such Declaration of Acceleration to the Commission and the Borrower, the Bond Trustee shall give written notice forthwith of such Declaration of Acceleration and its consequences to the Owners in the same manner and with the same effect as the notice of redemption, except that (a) the notice shall be mailed no more than two Business Days after the date upon which the Bond Trustee gives the Declaration of Acceleration, and (b) interest shall cease to accrue on the Bonds after the Acceleration Date, which fact shall be disclosed in the notice, if amounts are available on such date for the payment of principal of and interest to such date on the Bonds.

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Any such acceleration of the Bonds is subject to the condition that if, at any time after such Declaration of Acceleration and before the Acceleration Date, the Commission or the Borrower shall deposit with the Bond Trustee a sum sufficient to pay all the overdue principal of and interest on the Bonds, with interest on such overdue principal at the rate(s) borne by the respective Bonds, and the reasonable charges and expenses of the Bond Trustee (including those of its Counsel), and any and all other defaults known to the Bond Trustee (other than in the payment of principal of and interest on the Bonds which become due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Bond Trustee or provision deemed by the Bond Trustee to be adequate shall have been made therefor, then and in every such case, the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds may rescind and annul such declaration and its consequences and waive such default on behalf of all the Owners, by written notice to the Commission, the Borrower, and the Bond Trustee; provided that no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Enforcement of Covenants and Conditions

Upon the occurrence of any Event of Default described in subparagraph (c) under the caption above entitled “Events of Default” which has not been waived as permitted in the Bond Indenture and subject to any right of the Bond Trustee to indemnification, the Bond Trustee’s remedy, in addition to those set forth in the Bond Indenture, shall be to take appropriate action, including, but not limited to, the commencement and prosecution of appropriate legal or equitable proceedings, to compel the Commission to perform such obligations, which remedy (a) may be pursued by the Bond Trustee in its discretion or (b) shall be pursued upon the written request of the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds.

Upon the occurrence of any Event of Default which has not been waived as permitted in the Bond Indenture, and in addition to any other remedies available thereunder, the Bond Trustee (a) may proceed in its discretion, or (b) upon the written request of the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds shall proceed, forthwith by suit(s) at law or in equity or by any other appropriate remedy to enforce payment of the Bonds; to enforce application to such payment of the funds, revenues and income appropriated thereto by the Bond Indenture and by the Bonds; to enforce the assigned rights of the Commission under the Loan Agreement and the Series 2016 Obligations; subject to the Master Indenture, to enforce the security interests granted in the Loan Agreement and the Series 2016 Obligations in accordance with the applicable laws of the State; to pursue all remedies of a secured creditor under the applicable laws of the State; and to enforce any such other appropriate legal or equitable remedy as the Bond Trustee, being advised by Counsel, shall deem most effectual to protect and enforce any of its rights or any of the rights of the Owners of the Bonds. Notwithstanding the foregoing, the Bond Trustee need not proceed upon any such written request of the Owners of the Outstanding Bonds as aforesaid, unless such Owners shall have offered to the Bond Trustee security and indemnity satisfactory to it against the fees, costs, expenses and liabilities to be incurred therein or thereby.

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Application of Money

Immediately upon giving a Declaration of Acceleration, the Bond Trustee will first transfer all Rebate Amounts from the Debt Service Fund to the Rebate Fund, as determined by the Commission or its agent, and then after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the fees, expenses, liabilities and advances incurred or made by the Bond Trustee (including those of its attorneys), will apply all remaining money in the Debt Service Fund to the payment of the principal and interest then due and unpaid upon the Bonds through and including the Acceleration Date, without preference or priority of principal over interest or of interest over principal or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or privilege, plus, to the extent permitted by applicable law, interest on overdue installments of interest or principal at the rate borne by each respective Bond.

All other money received by the Bond Trustee pursuant to any right given, remedy pursued or action taken under the provisions of the Bond Indenture or by virtue of action taken under provisions of the Loan Agreement after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the fees, expenses, liabilities and advances incurred or made by Bond Trustee (including those of its attorneys), will be deposited into the Debt Service Fund and applied as follows:

(a) In case the principal of all Outstanding Bonds shall not have become due and shall remain unpaid, to the payment of interest on Outstanding Bonds, in the order of the maturity of the installments of interest on such Bonds, such payments to be made ratably to the Owners entitled thereto, without discrimination or preference and any excess remaining shall be applied to the principal on any Bonds; or

(b) If there has been a Declaration of Acceleration, and the principal of all Outstanding Bonds shall have become due or shall have been declared due and payable, to the payment of the principal and interest then due and unpaid upon such Bonds through and including the Acceleration Date, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Owners entitled thereto without any discrimination or privilege, plus, to the extent permitted by applicable law, interest on overdue installments of interest or principal at the rate borne by the respective Bonds.

(c) Whenever all principal of and interest on all Outstanding Bonds have been paid under the provisions of this Section 804 and all fees, expenses and charges of the Bond Trustee and the Commission have been paid, any balance remaining with the Bond Trustee or in the Debt Service Fund shall be paid to the Borrower.

Limitation on Rights and Remedies of Bondowners

No Bondowner shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Bond Indenture or for the execution of any trust thereof or for

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the appointment of a receiver or any other remedy thereunder unless (a) an Event of Default has occurred of which the Bond Trustee has been notified, (b) the Registered Owners of not less than a majority in aggregate principal amount of Bonds then Outstanding shall have made written request to the Bond Trustee, shall have offered the Bond Trustee reasonable opportunity either to proceed to exercise the powers therein granted or to institute such action, suit or proceeding in its own name, and shall have offered to the Bond Trustee indemnity satisfactory to the Bond Trustee as provided in the Bond Indenture, and (c) the Bond Trustee shall for a period of 60 days thereafter fail or refuse to exercise the powers therein granted, or to institute such action, suit or proceeding in its own name as Bond Trustee; and such notification, request and offer of opportunity and indemnity are declared in every case conditions precedent to the execution of the powers and trusts of the Bond Indenture, and to any action or cause of action for the enforcement of the Bond Indenture, or for the appointment of a receiver or for any other remedy thereunder. No one or more Bondowners shall have any right in any manner whatsoever to enforce any right thereunder except in the manner therein provided, and all proceedings at law or in equity shall be instituted, had and maintained in the manner therein provided and for the equal and ratable benefit of the Bondowners of all Bonds then Outstanding. Nothing in the Bond Indenture contained shall, however, affect or impair the right of any Bondowner to enforce the payment of the principal of and premium, if any, and interest on, any Bonds at and after the maturity thereof.

Removal of and Resignation by the Bond Trustee

Prior to an Event of Default, the Commission may, and upon direction of the Borrower shall, remove the Bond Trustee at any time with or without cause. If an Event of Default shall have occurred and then be continuing, the Commission shall remove the Bond Trustee only (a) for cause, or (b) if requested to do so by an instrument or concurrent instruments in writing signed by the Bondowners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (c) if at any time the Bond Trustee shall cease to be eligible in accordance with the provisions of the Bond Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Bond Trustee or its property shall be appointed, or any public officer shall take control or charge of the Bond Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; in each case by giving written notice of such removal to the Bond Trustee, the Borrower, and the Commission, as applicable, and the Commission thereupon shall appoint a successor Bond Trustee by an instrument in writing.

The Bond Trustee may at any time resign by giving 60 days written notice of such resignation to the Commission and the Borrower, by registered or certified mail or by overnight courier service. Upon receiving such notice of resignation, the Commission shall promptly appoint a successor Bond Trustee by an instrument in writing. Any removal or resignation of the Bond Trustee and appointment of a successor Bond Trustee shall only become effective upon acceptance of appointment by the successor Bond Trustee. Promptly upon such acceptance, the Commission shall give notice thereof to the Registered Owners by first-class mail postage prepaid, and to the Borrower by registered or certified mail. If no successor Bond Trustee shall have been appointed and have accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the incumbent Bond Trustee, the Borrower or any Bondowner (on behalf of himself and all other Bondowners) may petition any court of competent

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jurisdiction for the appointment of a successor Bond Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Bond Trustee.

Supplemental Bond Indentures Requiring Consent of Bondowners

The Bond Indenture and the rights and obligations of the Commission, the Bondowners and the Bond Trustee may be modified or amended at any time by a Supplemental Bond Indenture which shall become effective when signed by the parties to the Bond Indenture and the written consents of the Registered Owners of 51% or more of the aggregate principal amount of Bonds Outstanding shall have been filed with the Bond Trustee; provided, that if such modification or amendment will, by its terms, not take effect so long as any Bonds remain Outstanding, the consent of the Registered Owners of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Bonds under this heading. No such modification or amendment shall (i) extend the fixed maturity of any Bond, or reduce the amount of principal thereof or reduce the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Registered Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of the aggregate principal amount of Bonds then Outstanding the consent of the Registered Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Revenues and other assets pledged under the Bond Indenture prior to or on a parity with the lien created by the Bond Indenture, or deprive the Bondowners of the lien created by the Bond Indenture upon such Revenues and other assets (except as expressly provided in the Bond Indenture or the Loan Agreement), without the consent of the Bondowners of all of the Bonds then Outstanding.

If at any time the Commission shall request the Bond Trustee to enter into any such Supplemental Bond Indenture for any of the purposes allowed by this subsection, the Bond Trustee will, at the request of the Commission and upon being indemnified to its satisfaction with respect to costs, cause notice of the proposed execution of such Supplemental Bond Indenture to be given to the Bondowners in substantially the manner provided in the Bond Indenture with respect to redemption of Bonds. Such notice (which will be prepared by the Commission) will briefly set forth the nature of the proposed Supplemental Bond Indenture and shall state that copies thereof are on file at the Principal Office of the Bond Trustee for inspection by all Bondowners. If, within 60 days or such longer period as is prescribed by the Commission following the mailing of such notice, the Registered Owners of 51% or more of the aggregate principal amount of Bonds then Outstanding at the time of the execution of any such Supplemental Bond Indenture have consented to and approved the execution thereof as herein provided, no Registered Owner of any Bond will 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 Commission from executing the same or from taking any action pursuant to the provisions thereof. The Commission has the right to extend from time to time the period within which such consent and approval may be obtained from Bondowners.

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Supplemental Bond Indentures Not Requiring Consent of Bondowners

The Bond Indenture and the rights and obligations of the Commission, the Bondowners and the Bond Trustee may also be modified or amended at any time by a Supplemental Bond Indenture, without the consent of any Bondowners, when signed by the parties to the Bond Indenture which amendment shall become effective upon execution (or such later date as may be specified in such Supplemental Bond Indenture), but only to the extent permitted by law and only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Commission contained in the Bond Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds, or, except as provided in the Bond Indenture, to surrender any right or power reserved in the Bond Indenture to or conferred upon the Commission; provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Bondowners;

(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Bond Indenture, or in regard to matters or questions arising under the Bond Indenture, as the Commission may deem necessary or desirable and not inconsistent with the Bond Indenture, and which shall not materially adversely affect the interests of the Bondowners;

(c) to modify, amend or supplement the Bond Indenture in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939 (Act of August 3, 1939, 53 Stat. 1149, 15 U.S.C., Secs. 77aaa-77bbbb), as amended, or any similar federal statute in effect after the date of the Bond Indenture, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Bondowners;

(d) to modify, amend or supplement the Bond Indenture in any other way which shall not materially adversely affect the interests of the Bondowners;

(e) to provide for the delivery of Bonds in fully certificated form;

(f) to comply with state or federal securities laws; or

(g) to modify, amend or supplement the Bond Indenture in any other way necessary in the opinion of Bond Counsel to preserve the exclusion of interest on the Tax-Exempt Bonds from gross income for federal income tax purposes.

Consent of Borrower to Supplemental Indentures

A Supplemental Bond Indenture which adversely affects any rights of the Borrower in any manner not contemplated by the Loan Documents shall not become effective unless and until the Borrower shall have consented to the execution and delivery of such Supplemental Bond Indenture. In this regard, the Bond Trustee will cause notice of the proposed execution and delivery of any such Supplemental Bond Indenture to be mailed by certified or registered mail to the Borrower and its Counsel at least 15 days prior to the date of the first mailing of notice of the

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proposed execution of such Supplemental Bond Indenture as hereinbefore provided under the heading “Supplemental Bond Indentures Requiring Consent of Bondowners.” The Borrower will be deemed to have consented to the execution and delivery of any such Supplemental Bond Indenture if the Bond Trustee does not receive a letter of protest or objection thereto, signed by or on behalf of the Borrower, on or before 12:00 p.m., Seattle time, on the thirtieth day after the mailing of said notice and a copy of the proposed Supplemental Bond Indenture.

Amendments to Loan Documents Not Requiring Consent of Bondowners

Subject to the provisions of the Bond Indenture, but without the consent of or notice to any of the Bondowners, the Bond Trustee and the respective parties thereto may enter into any amendment, change or modification of the Loan Documents in connection with (i) carrying out the provisions of the Loan Documents or the Bond Indenture, (ii) curing any ambiguity or formal defect or omission, (iii) adding any additional rights acquired in accordance with the provisions of the Loan Documents, (iv) modifying the provisions of the Loan Agreement relating to continuing disclosure deemed necessary or advisable, in the opinion of Bond Counsel, in order to comply with the requirements of federal or state securities laws, or (v) any other change therein which, in the reasonable judgment of the Bond Trustee, is not to the material prejudice of the Trust Estate or the Bondowners of the Bonds.

Amendments to Loan Documents Requiring Consent of Bondowners

Except for the amendment, changes or modifications described above and subject to the provisions of the Bond Indenture, neither the Commission nor the Borrower shall enter into any other amendment, change or modification of the Loan Documents without mailing of notice and the written approval or consent of the Bondowners of not less than 51% or more of the aggregate principal amount of Bonds then Outstanding given and procured as provided in this subsection; provided, however, that no provision described in this paragraph shall permit or be construed as permitting (i) an extension of the time of the payment of any amounts payable under the Loan Agreement or the Series 2016 Obligations, or (ii) a reduction in the amount of any payment or in the total amount due under the Series 2016 Obligations, without the consent of the Bondowners of all Bonds then Outstanding.

If at any time the Commission and the Borrower shall request the consent of the Bond Trustee to any such proposed amendment, change or modification of the Loan Documents, the Bond Trustee will, at the request of the Commission and upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be given to Bondowners in the same manner as provided by the Bond Indenture with respect to redemption of Bonds; provided, that the Bond Trustee shall not be required to consent to any amendment that affects its rights or responsibilities under the Bond Indenture or under the Loan Documents. Such notice (which will be prepared by either the Borrower or the Commission) shall briefly set forth the nature of such proposed amendment, change or modification and will state that copies of the instruments modifying the same are on file with the Bond Trustee for inspection by all Bondowners. If, within 60 days, or such longer period as shall be prescribed by the Commission, following the mailing of such notice, the Owners of 51% or more of the aggregate principal amount of Bonds then Outstanding at the time of the execution of any such amendment, change or modification shall have consented to and approved the execution thereof

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as herein provided, no Bondowner 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 Borrower, the Bond Trustee or the Commission from executing the same or from taking any action pursuant to the provisions thereof, or the Bond Trustee from consenting thereto. The Commission will have the right to extend from time to time the period within which such consent and approval may be obtained from Bondowners. Upon the execution of any such amendment, change or modification as in this subsection permitted and provided, the Loan Documents shall be and be deemed to be modified, changed and amended in accordance therewith.

Defeasance

If the Commission pays or causes to be paid, or makes provisions for payment, to or for the Bondowners, of the principal of, premium, if any, and interest due or to become due on the Bonds at the times and in the manner stipulated therein, and if the Commission has kept, performed and observed all the covenants and promises in the Bonds and in the Bond Indenture expressed to be kept, performed and observed by it or on its part, and pays or causes to be paid to the Bond Trustee all sums of money due or to become due according to the provisions of the Bond Indenture, then the Bond Indenture and the lien, rights, estate and interests created thereby shall cease, terminate and become null and void (except as to any rights of registration, transfer or exchange of Bonds therein provided for, which shall survive), whereupon the Bond Trustee shall take all such actions to cancel and discharge the lien of the Bond Indenture and to terminate the trust created therein, and shall, upon payment of all fees and expenses payable to the Bond Trustee and the Commission under the Bond Indenture or the Loan Agreement, release, assign and deliver unto the Borrower any and all the estate, right, title and interest in and to any and all rights assigned or pledged to the Bond Trustee or otherwise subject to the Bond Indenture, except (a) money, obligations or securities held by the Bond Trustee for the payment of the principal of, premium, if any, and interest on the Bonds and (b) any other money remaining in any Fund or Account created pursuant to the Bond Indenture, which money will be delivered to the Borrower.

Any Bond or portions thereof in Authorized Denominations shall, prior to the maturity or redemption thereof, be deemed to be paid and defeased within the meaning of the Bond Indenture when:

(a) payment of the principal of and premium, if any, on such Bonds or portion thereof, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in the Bond Indenture, or otherwise), either: shall have been made or caused to be made in accordance with the terms of the Bond Indenture or shall have been provided for, by irrevocably depositing with the Bond Trustee, in trust, and irrevocably setting aside exclusively for such payment any combination of money which shall be sufficient to make such payment when due and/or non-prepayable Government Obligations purchased with such money maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient money to make such payment;

(b) the Bond Trustee, not less than five Business Days prior to such defeasance, shall have received a certificate in a form acceptable to the Bond Trustee from a firm of certified

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public accountants acceptable to the Bond Trustee that the money so deposited will be sufficient, without reinvestment, to pay debt service on all Bonds to be paid with the deposit described in paragraph (a) above to the due date thereof;

(c) all necessary and proper fees, compensation and expenses of the Bond Trustee pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Bond Trustee; and

(d) the Bond Trustee shall have received an opinion of Bond Counsel to the effect that all of the requirements of the Bond Indenture for defeasance have been complied with.

At such time as a Bond or portion thereof shall be deemed to be paid under the Bond Indenture, as aforesaid, it shall no longer be secured by or entitled to the benefits of the Bond Indenture, except for the purposes of provisions relating to registration, transfer, exchange, replacement, and nonpresentment and shall be payable only from such money or Government Obligations.

LOAN AGREEMENT

Loan

In order to provide funds for the purpose of acquiring the Loan, the Commission agrees to sell the Bonds and cause them to be delivered to the initial purchaser thereof and deposit the proceeds thereof with the Bond Trustee in accordance with the Bond Indenture. The Commission agrees to assign the Series 2016 Obligations to the Bond Trustee in accordance with the Loan Agreement. The Borrower, for itself and on behalf of future Members of the Obligated Group, agrees to execute and deliver the Series 2016 Obligations to the Commission simultaneously with the execution of the Loan Agreement. The Mortgage Lender makes to the Borrower and agrees to fund, and the Borrower (a) accepts from the Mortgage Lender, upon the terms and conditions set forth in the Loan Agreement and the Bond Indenture, the Loan and (b) agrees to have the proceeds of the Loan applied and disbursed in accordance with the provisions of the Loan Agreement and the Bond Indenture. The Loan will be deemed made when the Bond Trustee acknowledges receipt of the proceeds of the Bonds and satisfaction of the conditions specified in the Loan Agreement. The Mortgage Lender assigns without recourse or warranty whatsoever the Series 2016 Obligations to the Bond Trustee, on behalf of the Commission, and the Bond Trustee accepts such assignment.

Loan Repayment

The Loan shall be evidenced by the Series 2016 Obligations, which Series 2016 Obligations shall be executed and delivered by the Obligated Group Representative to the Mortgage Lender and assigned and endorsed by the Mortgage Lender to the Bond Trustee, on behalf of the Commission, without recourse or warranty whatsoever. The Borrower consents to such assignment. The Borrower agrees to pay to the Bond Trustee the principal of, premium (if any) and interest on the Series 2016 Obligations at the times, in the manner and in the amount set forth therein. To secure its obligations to repay the Series 2016 Obligations, and the other Obligations, as defined in and outstanding under the Master Indenture, the Borrower has granted to the Master Trustee a security interest in certain of the Project Facilities pursuant to the terms

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of the 2016 Deeds of Trust, and the Borrower agrees to the Master Trustee’s exercising all of its respective rights and remedies under the 2016 Deeds of Trust upon the occurrence of a Loan Agreement Default or an event of default under the Loan Agreement or the 2016 Deeds of Trust, in accordance with their terms.

The Borrower will duly and punctually pay the principal of, premium, if any, and interest on the Series 2016 Obligations at the dates and the places and in the manner mentioned in the Series 2016 Obligations and the Loan Agreement, according to the true intent and meaning of each. Notwithstanding any schedule of payments upon the Series 2016 Obligations, the Borrower agrees to make payments upon the Series 2016 Obligations and be liable therefor at such times and in such amounts (including principal, interest and premium, if any) so as to provide for payment of the principal of, premium, if any, and interest on the Bonds outstanding under the Bond Indenture when due whether upon a scheduled Interest Payment Date, at maturity or by mandatory redemption, acceleration or otherwise upon the Bonds. The Borrower also agrees to make any payments as required under the Borrower Tax Certificate.

The Borrower covenants and agrees to make the following payments in respect of the Series 2016 Obligations directly to the Bond Trustee for deposit, into the appropriate fund established by the Bond Indenture, on the following dates:

Interest. On or before the 25th day of each month commencing October 25, 2016, an amount which, together with an equal amount to be deposited on the 25th day of each month preceding the next regularly scheduled semi-annual Interest Payment Date (or, in the case of the month immediately preceding the Interest Payment Date, the remaining balance), is equal to not less than the interest to become due on the next succeeding regularly scheduled semi-annual Interest Payment Date of the Bonds; provided, however, that the Borrower may be entitled to certain credits on such payments as permitted under the Loan Agreement.

Principal. On or before the 25th day of each month, commencing October 25, 2016, an amount, which, together with an equal amount to be deposited on the 25th day of each month preceding the next regularly scheduled principal payment date and mandatory sinking fund payment date (or, in the case of the month immediately preceding the Interest Payment Date, the remaining balance), if any, is equal to not less than the principal and mandatory sinking fund payment, if any, to become due on the Bonds on such date until such time as the principal amount of the Bonds is paid in full; provided, that such amounts shall take into account amounts on deposit in or to be transferred to the Debt Service Fund representing investment earnings and funds held under the Bond Indenture.

Debt Service Reserve Fund. If on any Valuation Date, the amount on deposit in any Account in the Debt Service Reserve Fund is less than 100% of the respective Debt Service Reserve Requirement as a result of such Account in the Debt Service Reserve Fund having been drawn upon, the Bond Trustee shall notify the Commission and the Borrower of such transfer and the Borrower agrees to restore the amount on deposit in such Account of the Debt Service Reserve Fund to an amount equal to the respective Debt Service Reserve Requirement by the deposit with the Bond Trustee of an amount

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equal to such deficiency in not more than 12 substantially equal monthly installments beginning with the first day of the seventh month after the month in which such draw occurred. If on any Valuation Date, the amount on deposit in an Account within the Debt Service Reserve Fund is less than 90% of the respective Debt Service Reserve Requirement as a result of a decline in the market value of investments on deposit in an Account within the Debt Service Reserve Fund, the Borrower agrees to pay an amount equal to the amounts of the deficiency in such Account within the Debt Service Reserve Fund in order to restore the amount on deposit in such Account within the Debt Service Reserve Fund to an amount equal to the respective Debt Service Reserve Requirement within not more than 120 days following the date the Borrower receives notice of such deficiency.

Credits on Series 2016 Obligations

In addition to any credits on the Series 2016 Obligations resulting from the payment or prepayment thereof from other sources:

(a) any moneys deposited or credited by the Bond Trustee or the Borrower in the Debt Service Fund maintained under the Bond Indenture shall be credited against the obligation of the Borrower to pay interest on the Series 2016 Obligations as the same become due;

(b) the principal amount of Bonds purchased by any Member of the Obligated Group and delivered to the Bond Trustee, or purchased by the Bond Trustee and cancelled, shall be credited against the obligation of the Borrower to pay the principal of the Series 2016 Obligations; and

(c) the amount of any moneys transferred by the Bond Trustee from an Account of the Debt Service Reserve Fund and deposited in the Debt Service Fund shall be credited against the obligation of the Borrower to pay interest or principal on the respective Series 2016 Obligation pledged under the Bond Indenture as the same become due.

Additional Payments

The Borrower shall pay all taxes and assessments, general or special, including, without limitation, all ad valorem taxes, concerning or in any way related to the Project Facilities, or any part thereof, and any other governmental charges and impositions whatsoever, foreseen or unforeseen, and all utility and other charges and assessments; provided, however, that the Borrower reserves the right to contest in good faith the legality of any tax or governmental charge concerning or in any way related to the Project Facilities.

The Borrower shall pay (a) the Bond Trustee Fee (as defined in the Bond Indenture), (b) the Commission Fee (as defined in the Bond Indenture), and (c) all fees and costs (including, but not limited to, time spent by the Commission staff at the then applicable hourly fee of the Commission) incurred by the Commission for the calculation of the Rebate Amount, including the fees and expenses of the rebate analyst, as well as the Rebate Amount which will be paid to the Bond Trustee, if any, required to be paid to the United States of America.

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The Borrower shall pay to the Commission, forthwith upon written notice from the Commission, all costs and expenses reasonably incurred by the Commission in connection with the enforcement of the Loan Agreement, the Tax Certificates or the Bond Indenture.

The Borrower shall pay to the Bond Trustee, forthwith upon written notice from the Bond Trustee, all costs and expenses reasonably incurred by the Bond Trustee.

The Borrower shall pay all charges, costs, advances, indemnities and expenses, including agent and counsel fees of the Commission incurred by the Commission at any time in connection with the Bonds or the Project, including, without limitation, reasonable counsel fees and expenses incurred in connection with the interpretation, performance, enforcement or amendment of the Bond Indenture or the Loan Agreement or any other documents relating to the Project or the Bonds or in connection with questions or other matters arising under such documents or in connection with any federal or state tax audit.

Prepayment

The Series 2016 Obligations shall be prepaid to the extent and in the manner permitted or required by the Bond Indenture for redemption of the Bonds. If such prepayment is made in compliance with the terms of the Master Indenture, the Commission agrees to accept prepayment of the Series 2016 Obligations to the extent required to provide for a permitted or required prepayment of the Bonds. On any partial prepayment of the Series 2016 Obligations, each installment of interest which shall thereafter be payable on such Series 2016 Obligations shall be reduced, taking into account the interest rate or rates on the respective series of Bonds remaining outstanding after the redemption of such Bonds from the proceeds of such partial prepayment and after the purchase and delivery and cancellation of such Bonds so that the interest remaining payable on the Series 2016 Obligations shall be sufficient to pay the interest on such respective outstanding Bonds when due.

Nature of Borrower’s Obligations

The Borrower shall repay the Loan pursuant to the terms of the Loan Agreement and the Series 2016 Obligations, irrespective of any rights of set-off, recoupment or counterclaim it might have against the Commission, the Bond Trustee or any other person; provided, that any such payment shall not constitute a waiver by the Borrower of any claim for recoupment or of any counterclaim. The Borrower will not suspend, discontinue or reduce any such payment or (except as expressly provided in the Loan Agreement) terminate the Loan Agreement for any cause, including, without limiting the generality of the foregoing, (a) any delay or interruption in the operation of the Project Facilities; (b) the failure to obtain any permit, order or action of any kind from any governmental agency relating to the Project Facilities or the Loan Documents; (c) any event constituting force majeure; (d) any acts or circumstances that may constitute commercial frustration of purpose; (e) the termination of the Loan Agreement or the Series 2016 Obligations; (f) any change in the laws of the United States of America, the State or any political subdivision thereof; or (g) any failure of the Commission to perform or observe any covenant whether expressed or implied, or to discharge any duty, liability or obligation arising out of or connected with the Series 2016 Obligations; it being the intention of the parties that, as long as the Series 2016 Obligations or any portion thereof remains outstanding and unpaid, the

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obligation of the Borrower to repay the Loan and provide such moneys shall continue in all events.

Borrower Covenants

Additional Tax Covenants. The Commission and the Borrower will take all actions necessary to assure the exclusion of interest on the Tax-Exempt Bonds from the gross income of the Owners of the Tax-Exempt Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Tax- Exempt Bonds.

Covenant to Maintain Status. The Sole Member and Fred Lind Manor each covenants to maintain its status as an organization described in Section 501(c)(3) of the Code and its exemption from federal income taxation under Section 501(a) of the Code. Skyline has not and will not (i) elect under Treasury Regulation Section 301.7701-3(c)(1) to be classified for U.S. federal income tax purposes other than as provided in Treasury Regulation Section 301.7701- 3(b)(ii), or (ii) file Form 8832 Entity Classification Election (or successor form), to change its classification under Treasury Regulation Section 301.7701-3(c)(1) from that provided by Treasury Regulation Section 301.7701-3(b)(ii).

Maintenance of Corporate Existence. The Borrower covenants and agrees that, so long as any of the Bonds are Outstanding, each Borrower entity will maintain its existence as nonprofit corporations (in the case of PRCN and Fred Lind Manor) or as a single-member limited liability company (in the case of Skyline) qualified to do business in the State and will not dissolve, sell or otherwise dispose of all or substantially all of its assets or consolidate with or merge into another corporation. Notwithstanding the foregoing, the Borrower or Sole Member may, without violating the covenants contained under this heading, consolidate with or merge into another corporation, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, if: (a) the surviving, resulting or transferee corporation, as the case may be: (i) qualifies under the Act as a nonprofit corporation eligible to borrow funds from the Commission to finance or refinance all or part of the capital expense of any nonprofit facility; (ii) assumes in writing, if such corporation is not the Borrower, all of the obligations of the Borrower under the Loan Agreement; (iii) is not, after such transaction, otherwise in default under any provisions of the Loan Agreement; and (iv) is an organization described in Section 501(c)(3) of the Code, or a corresponding provision of the federal income tax laws then in effect; (b) the Commission and the Bond Trustee shall have received a certificate of the Borrower to the effect that the covenants under the Loan Agreement will be met after such consolidation, merger, sale or transfer; and (c) the Bond Trustee and the Commission shall have received an opinion of Bond Counsel to the effect that such merger, consolidation, sale or other transfer will not cause interest on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes under Section 103 of the Code.

Loan Agreement Defaults

Each of the following shall be a “Loan Agreement Default”:

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(a) the Borrower shall fail to pay or cause to be paid amounts required to pay principal of, premium, if any, or interest on the Series 2016 Obligations on the dates required; or

(b) the Borrower shall fail to pay amounts required to be paid to the Bond Trustee for deposit to an Account held in the Debt Service Reserve Fund, as described above under the caption “Additional Payments,” or as an indemnification amount required under the Loan Agreement, and five Business Days have elapsed after notice of such event has been sent by fax with hard copy promptly deposited in first class mail to the parties to the Loan Agreement; or

(c) the Borrower shall fail to perform or observe any of its other obligations, covenants or agreements contained in the Loan Agreement, including a failure to repay any amounts which have been previously paid but are recovered, attached or enjoined pursuant to an insolvency, liquidation or similar proceedings; or

(d) any representation or warranty of the Borrower shall be determined by the Bond Trustee to have been materially false when made, or the Bond Trustee has received notice from the Commission of such determination; or

(e) if the Borrower admits insolvency or bankruptcy or its inability to pay its debts as they mature, or is generally not paying its debts as such debts become due, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for the Borrower or for the major part of its property; or

(f) if a trustee, custodian or receiver is appointed for the Borrower or for the major part of its property 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 under any bankruptcy law or similar law for the relief of debtors are instituted by or against the Borrower (other than bankruptcy proceedings instituted by the Borrower against third parties), and if instituted against the Borrower are allowed against the Borrower 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, principal or premium on any Bond shall not be made when the same shall become due and payable under the provisions of the Bond Indenture.

Notice of Default and Opportunity to Cure

No default described in paragraph (c), (d), (e), (f), (g) or (h) under the caption above entitled “Loan Agreement Defaults” shall constitute a Loan Agreement Default until:

(a) The Bond Trustee or the Commission shall give notice to all parties to the Loan Agreement of such default specifying the same and stating that such notice is a “Notice of Default”; and

(b) The Borrower shall have had 60 days after receipt of such notice to correct the default described in such paragraph (c), (d), (e), (f), (g) or (h); provided, however, that if the

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default stated in the notice is of such a nature that it cannot be corrected within 60 days, such default shall not constitute a Loan Agreement Default so long as (i) the applicable party institutes corrective action within said 60 days and diligently pursues such action until the default is corrected, and (ii) in the opinion of Bond Counsel, the failure to cure said default within such 60 days will not adversely affect the exemption from federal income taxation of interest on the Tax- Exempt Bonds.

Remedies

Upon the occurrence of any Loan Agreement Default, which has not been cured within any applicable cure period, any one or more of the following steps may be taken:

Acceleration. Immediately upon the occurrence of any Loan Agreement Default described in paragraph (a), (b) or (h) under the caption above entitled “Loan Agreement Defaults” and immediately upon the request of the Commission upon the occurrence of any Loan Agreement Default described in paragraph (c), (d), (e), (f) and (g) under such caption, the Bond Trustee shall declare all amounts due under the Loan Agreement and the Series 2016 Obligations to be immediately due and payable. However, if at any time after the Loan shall have been so declared immediately due and payable and before any judgment or decree for the payment of the money due shall have been obtained or entered, every default in the observance or performance of any covenant, condition or agreement contained in the Loan Agreement shall be made good or be secured to the satisfaction of the Bond Trustee or provision shall be made therefor in a manner satisfactory to the Bond Trustee, then and in every such case, the Bond Trustee, by written notice to the Borrower and the Commission, may waive such Loan Agreement Default, and may rescind and annul such declaration and its consequences, but no such waiver, rescission or annulment shall extend to or affect any subsequent Loan Agreement Default or impair any right incident thereto; provided, however, that it is understood and agreed that a Declaration of Acceleration made pursuant to the Bond Indenture shall constitute an acceleration of the Loan without further action by the Bond Trustee, and that such automatic acceleration of the Loan may only be waived or cured by waiver or cure of the Declaration of Acceleration pursuant to the Bond Indenture.

Additional Remedies.

(a) The Commission and/or the Bond Trustee, as assignee of the Commission, may have access to and inspect, examine and make copies of the books and records (except any materials made private or confidential by federal or State law or regulation) and any and all accounts, data and income tax and other tax revenues of the Borrower.

(b) The Bond Trustee, as assignee of the Commission (but not the Commission), may pursue all remedies of a secured creditor under the applicable laws of the State.

(c) The Bond Trustee, in its own right and as assignee of the Commission, may proceed to protect and enforce its rights in equity or at law, either in mandamus or for the specific performance of any covenant or agreement contained in the Loan Agreement, or for the enforcement of any other appropriate legal or equitable remedy, as the Bond Trustee, being

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advised by counsel, may deem most effectual to protect and enforce any of its rights or interests under the Loan Agreement.

(d) The Bond Trustee, as assignee of the Commission (but not the Commission) may proceed to enforce its rights in equity or at law, either in mandamus or for the specific performance, of any covenant or agreement contained in the Series 2016 Obligations, or for the enforcement of any other appropriate legal or equitable remedy as the Bond Trustee, being advised by counsel, may deem most effectual to protect and enforce any of its rights or interests under the Series 2016 Obligations.

(e) The Bond Trustee, in its own right and as assignee of the Commission (but not the Commission), may take any action in law or equity which appears necessary or desirable to enforce the security provided by, or enforce any provision of, the Bond Indenture in accordance with the provisions thereof, or exercise the remedies available under the Series 2016 Obligations.

(f) The Commission may proceed to protect and enforce its rights in equity or at law, either in mandamus or for the specific performance of any covenant or agreement contained in the Loan Agreement or the other Loan Documents, or for the enforcement of any other appropriate legal or equitable remedy, as the Commission, being advised by counsel, may deem most effectual to protect and enforce any of its concurrent or reserved rights or interests under the Loan Agreement or the Series 2016 Obligations with respect to: (i) the tax exemption of the Tax-Exempt Bonds; (ii) the payment of the Commission Fee or Bond Trustee Fee; (iii) indemnifications and reimbursements due to the Commission; and (iv) receipt of reports and notices.

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APPENDIX E

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST

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TABLE OF CONTENTS

Page

DEFINITIONS OF CERTAIN TERMS ...... E-1 THE MASTER INDENTURE ...... E-17 GENERAL ...... E-17 Authorization of Obligations ...... E-17 Contents of Certificates and Opinions ...... E-18 PARTICULAR COVENANTS OF THE OBLIGATED GROUP REPRESENTATIVE AND EACH MEMBER ... E-18 Payment of Principal and Interest ...... E-18 Pledge of Gross Revenues ...... E-18 COVENANTS AS TO MAINTENANCE OF PROPERTIES, ETC...... E-19 INSURANCE REQUIRED ...... E-20 FILING OF FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION ...... E-20 LIMITATIONS ON ENCUMBRANCES ...... E-23 LIMITATIONS ON ADDITIONAL INDEBTEDNESS ...... E-23 LIMITATIONS ON GUARANTIES ...... E-25 RATES AND CHARGES; DEBT COVERAGE ...... E-26 SALE, LEASE OR OTHER DISPOSITION OF PROPERTY ...... E-28 LIQUIDITY COVENANT ...... E-29 APPROVAL OF CONSULTANTS ...... E-30 CONSOLIDATION, MERGER, SALE OR CONVEYANCE ...... E-31 THE OBLIGATED GROUP ...... E-33 Membership in the Obligated Group ...... E-33 Withdrawal from the Obligated Group ...... E-34 INSURANCE AND CONDEMNATION PROCEEDS ...... E-35 ADDITIONS TO EXCLUDED PROPERTY ...... E-35 DEFAULTS AND REMEDIES ...... E-36 Events of Default ...... E-36 Acceleration; Annulment of Acceleration ...... E-37 Additional Remedies and Enforcement of Remedies ...... E-37 Application of Revenues and Other Moneys After Default ...... E-38 Master Trustee to Represent Holders ...... E-39 Holders’ Control of Proceedings ...... E-39 Termination of Proceedings ...... E-39

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Waiver of Event of Default ...... E-40 Notice of Default ...... E-40 RELATED BOND TRUSTEE OR BONDHOLDERS DEEMED TO BE OBLIGATION HOLDERS ...... E-40 REMOVAL AND RESIGNATION OF THE MASTER TRUSTEE ...... E-40 SUPPLEMENTS AND AMENDMENTS ...... E-41 Supplements Not Requiring Consent of Holders ...... E-41 Supplements Requiring Consent of Holders ...... E-42 SATISFACTION AND DISCHARGE OF MASTER INDENTURE ...... E-43 THE 2016 DEEDS OF TRUST ...... E-43 DEFINITION ...... E-43 SUMMARY ...... E-44

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SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND THE 2016 DEEDS OF TRUST

The following brief description of the Master Indenture (as amended by the First Supplemental Master Indenture and the Second Supplemental Master Indenture) does not purport to be comprehensive or definitive. All of such descriptions are qualified in their entirety by reference to each said document, copies of which are available for review prior to the issuance and delivery of the Bonds at the offices of the Commission and thereafter at the offices of the Bond Trustee.

DEFINITIONS OF CERTAIN TERMS

Where used in this Summary of the Master Indenture, capitalized terms have the following meanings:

“Additional Indebtedness” means any Indebtedness incurred subsequent to the Effective Date of the Master Indenture, other than Indebtedness incurred in connection with the issuance of Obligation No. 1 and the Related Bonds on that same date.

“Affiliate” means a corporation, partnership, joint venture, association, limited liability company, business trust or similar entity (a) which controls, is controlled by or is under common control with, directly or indirectly, a Member; or (b) a majority of the members of the Directing Body of which are members of the Directing Body of a Member. For the purposes of this definition, control means with respect to: (a) a corporation having stock, the ownership, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such corporation; (b) a not for profit corporation not having stock, having the power to elect or appoint, directly or indirectly, a majority of the members of the Directing Body of such corporation; or (c) any other entity, the power to direct the management of such entity through the ownership of at least a majority of its voting securities or the right to designate or elect at least a majority of the members of its Directing Body, by contract or otherwise. For the purposes of this definition, “Directing Body” means with respect to: (a) a corporation having stock, such corporation’s board of directors and the owners, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporation’s directors (both of which groups shall be considered a Directing Body); (b) a not for profit corporation not having stock, such corporation’s members if the members have complete discretion to elect the corporation’s directors, or the corporation’s directors if the corporation’s members do not have such discretion; and (c) any other entity, its governing board or body. For the purposes of this definition, all references to directors and members shall be deemed to include all entities performing the function of directors or members however denominated.

“Annual Debt Service” means, for each Fiscal Year, the aggregate amount (without duplication) of the principal and interest scheduled to become due (either by reason of maturity or by mandatory redemption) and sinking fund payments required to be paid in that Fiscal Year on all Outstanding 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; provided that (i) any annual fees payable in respect of a credit facility issued to secure any series of Related Bonds, if any (other than annual fees to be paid from proceeds of a bond issue escrowed for such purpose) shall be included in the determination of Annual Debt Service; and (ii) to the extent an Interest Rate Agreement has been entered into in connection with any particular Indebtedness, the actual debt service paid after the effect of payments made to or received from the provider of the Interest Rate Agreement shall be included in the determination of Annual Debt Service; and further provided that, whenever the term “Annual Debt

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Service” is used in the calculation of a Debt Service Coverage Ratio for any Fiscal Year, payment obligations with respect to any Guaranty shall be included only to the extent of actual payments by a Member on such Guaranty during such Fiscal Year.

“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 by such Member as its authorized representative pursuant to a written 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 (the “balloon amount”) is scheduled to become due (either by reason of maturity or mandatory redemption) during any 12 consecutive month period if such balloon amount is not required by the documents governing such Indebtedness to be fully amortized by redemption prior to the last day of such 12-month period; provided that, “Balloon Indebtedness” does not include Indebtedness which otherwise would be classified under the Master Indenture as Put Indebtedness.

“Book Value” means, when used in connection with the Property of any Member, the value of such property, net of accumulated depreciation, as it is carried on the books of such Member and in conformity with generally accepted accounting principles; when used in connection with Property of the Obligated Group, means the aggregate values, so determined, of the Property of all Members combined, determined in such a way that no portion of such value of the Property of any Member is included more than once.

“Borrowers” means, collectively, PRCN, Skyline and Fred Lind Manor.

“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.

“Capital Addition” means any additions, improvements, extensions, alterations, relocations, enlargements, expansions, modifications or replacement of or to the Facilities.

“Cash and Liquid Investments” means all unrestricted cash and liquid investment balances, including without limitation, any amounts constituting board designated funds, whether classified as current or noncurrent, held by any Member of the Obligated Group for its corporate purposes, but excluding amounts available under lines of credit and amounts held by the Master Trustee, all as set forth in the most recent financial statements delivered to the Master Trustee in accordance with the Master Indenture. For purposes of calculations under the Master Indenture, an unrestricted contribution from an Affiliate of a Member shall be treated as being made during the period of such calculation so long as the unrestricted contribution is made prior to the date the applicable Officer’s Certificate is required to be delivered with respect to such calculation.

“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 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 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 supplemental statements required by the Master Indenture summarized herein under the caption “THE MASTER INDENTURE – GENERAL – Contents of Certificates and Opinions.”

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“Code” means the Internal Revenue Code of 1986, as in existence on the Effective Date of the Master Indenture or as thereafter amended, and the regulations issued thereunder, or any successor to the Internal Revenue Code of 1986.

“Completion Indebtedness” means any Long-Term Indebtedness incurred by any Member in order to complete a Capital Addition or equip any project that was financed, in whole in part, by previous Long-Term Indebtedness incurred by such Member in accordance with the provisions of the Master Indenture.

“Construction Consultant” means the architect, engineer, development consultant, supervising contractor or other qualified consultant selected by the Obligated Group or any Member in connection with incurrence of Completion Indebtedness or construction of a project.

“Corporate Trust Office” means the office(s) of the Master Trustee at which it will administer the accounts established under the Master Indenture, for purposes including, but not limited to, the redemption, payment, exchange, transfer, surrender and cancellation of any obligation.

“Current Value” means the sum of the Book Value of the personal property of the Members, plus the fair market value of the real property of the Members. The fair market value of real property for purposes of this calculation shall be assumed to be as reflected in the most recent written appraisal report, dated not more than three years prior to the date of calculation of value, prepared by an appraiser who is a member of the American Institute of Real Estate Appraisers (MAI), selected by such Member or the Obligated Group Representative and delivered to the Master Trustee.

“Days Cash on Hand” means the amount determined by dividing (1) the aggregate Cash and Liquid Investments of the Obligated Group as of a particular date by (2) the quotient derived by dividing (a) the Obligated Group’s total operating expenses (less depreciation and amortization and other non-cash items, including, without limitation, losses on refinancing of debt, non-cash termination value of any hedging derivative, interest rate exchange or similar contract, non-cash pension expense, and any one- time charges in connection with development projects that have been abandoned by the Obligated Group) 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.

“Deed of Trust” means any deed of trust, mortgage or other similar agreement creating a Lien against the real property of a Member and related personal property, as security for the payment and performance of the Obligations of the Obligated Group under the Master Indenture, including without limitation, the 2016 Deeds of Trust, as supplemented and amended from time to time.

“Debt Service Coverage Ratio” means, for any period of time, the ratio determined by dividing Income Available for Debt Service during such period by Annual Debt Service for such period, except as otherwise described herein under the caption “THE MASTER INDENTURE – RATES AND CHARGES; DEBT COVERAGE.”

“Effective Date” means, unless the context otherwise requires, the date of original execution by all parties and delivery of an agreement or other instrument.

“EMMA” means the Electronic Municipal Market Access system as described in the Securities Exchange Act of 1934, as amended by Release No. 59062, and maintained by the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12, or any similar system that is acceptable to the Securities and Exchange Commission.

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“Entrance Fees” means fees, other than security deposits, monthly rentals or monthly service charges, paid to a Member by one or more individuals for the purpose of obtaining the right to reside in a living unit(s) and/or to obtain a parking space(s), including any refundable resident deposits described in any lease, residency agreement or similar agreement with respect to those living units or parking spaces, but not including amounts held in escrow or otherwise set aside pursuant to the requirements of any such agreement or a reservation agreement prior to the occupancy of a living unit or parking space covered by such lease, residency agreement or similar agreement (which amounts shall be included if and when occupancy occurs).

“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 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 Code, 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).

“Event of Default” means any of the events described herein under the caption “THE MASTER INDENTURE – DEFAULTS AND REMEDIES – Events of Default.”

“Excluded Property” means any assets of “employee pension benefit plans” as defined in the Employee Retirement Income Security Act of 1974, as amended, maintained by or for the benefit of the Obligated Group, any moneys and securities held as an entrance fee or security deposit, or in a resident trust fund, for any resident of any Facility of a Member, any real property that a Member may hold temporarily as a convenience to an Affiliate, the real property described in Exhibit C to the Master Indenture, now and as amended from time to time in accordance with the provisions of the Master Indenture summarized herein under the caption “THE MASTER INDENTURE – ADDITIONS TO EXCLUDED PROPERTY,” and all improvements, fixtures, tangible personal property and equipment located thereon and used in connection therewith. References to Property set forth in the Master Indenture and herein do not include Excluded Property.

“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 all land and improvements, including buildings, fixtures, furnishings and equipment (as defined in the Uniform Commercial Code or equivalent statute in effect in the state where such fixtures or equipment are located) of a Member, including but not limited to fee and leasehold interests; excluding, however, real and personal property constituting Excluded Property.

“Fair Market Value”, when used in connection with Property, means the fair market value of such Property as determined by either (1) in the case of real property, an appraisal made within three years of the date of determination of fair market value, prepared by a member of the American Institute of

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Real Estate Appraisers; by an appraisal of Property which is not real property made within three years of the date of determination by any expert (provided that any such appraisal shall be performed by a person or firm 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 of fair market value, as established by an Officer’s Certificate.

“First Supplemental Master Indenture” means the First Supplemental Master Trust Indenture, by and between PRCN, for itself and as Obligated Group Representative, and the Master Trustee, dated as of June 1, 2013, pursuant to which Obligation No. 1 was issued.

“Fiscal Year” means that period adopted by the 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 succeeding year.

“Fitch” means Fitch 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, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Representative.

“Fred Lind Manor” means Fred Lind Manor, a nonprofit corporation duly organized and existing under the laws of the State of Washington, of which PRCN is the sole member, and its successors and assigns and any surviving, resulting or transferee organization.

“Governing Body” means, when used with respect to any Member, its board of directors, board of trustees, or other governing body vested with all of the powers of such Member except for those powers reserved to its corporate members pursuant to its articles of incorporation or bylaws.

“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.

“Government Obligations” means (i) United States Government Obligations or (ii) 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 satisfactory to the Master Trustee pursuant to the terms of a custody agreement.

“Gross Revenues” means (i) all receipts, revenues, payments, income and other moneys received by or on behalf of a Member from any source (excluding donor-restricted funds and other similarly restricted funds), whether or not in connection with the ownership or the operation of all or any part of a Member’s facilities, including, without limitation, all Entrance Fees (earned and unearned), monthly service fees and all other operating and non-operating revenues, and (ii) all rights to receive the same whether in the form of accounts receivable, contract rights, chattel paper, instruments, general intangibles of a Member and the proceeds thereof, the proceeds of any insurance coverage on and condemnation awards in respect of a Member’s facilities or any gain on the sale or other disposition of property by a Member; and all of the foregoing, whether existing on the Effective Date of the Master Indenture or thereafter coming into existence and whether owned on the Effective Date of the Master Indenture or thereafter acquired by a Member.

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“Guaranty” means all loan commitments and all obligations of any Member guaranteeing in any manner whatsoever, whether directly or indirectly, obligations of another Person that would constitute Indebtedness if such other Person was a Member.

“Holder” means the registered owner of any Obligation issued in registered form or the holder of any Obligation registered to bearer, or otherwise issued in non-registered form.

“Income Available for Debt Service” means, with respect to the Obligated Group, as to any period, the excess of revenues over expenses (or, in the case of for-profit Members, net income after taxes) of the Obligated Group for such period, to which shall be added depreciation, amortization and interest on Indebtedness, 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 or any revenue of an Affiliate which is not a Member, (iii) any one-time charge in connection with a development project that has been abandoned by the Obligated Group, (iv) any unrealized gains or losses resulting from changes in the valuation of Indebtedness, investment securities or any Interest Rate Agreement, and any non-cash termination value of any Interest Rate Agreement, (v) the application of changes in accounting principles, (vi) any other extraordinary or non-recurring losses or gains, or (vii) any other non-cash revenue or expense items. For purposes of this definition, revenues specifically include, but are not limited to (1) resident service revenues, (2) other operating revenues, (3) nonoperating revenues or contributions (other than donor restricted contributions, income derived from the sale or other disposition of assets not in the ordinary course of business or any gain from the extinguishment of debt or other extraordinary item or earnings which constitute funded interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness), and (4) Entrance Fees received minus (a) Entrance Fees amortized during such Fiscal Year, (b) Entrance Fees refunded to residents and (c) Initial Entrance Fees.

“Indebtedness” means, for any Person, (a) all Guaranties by such Person, (b) all liabilities (exclusive of reserves such as those established for deferred taxes or litigation) recorded or required to be recorded as such on the audited financial statements of such Person in accordance with generally accepted accounting principles, and (c) all obligations for the payment of money incurred or assumed by such Person (i) due and payable in all events or (ii) if incurred or assumed primarily to assure the repayment of money borrowed or credit extended, due and payable upon the occurrence of a condition precedent or upon the performance of work, possession of Property as lessee, rendering of services by others or otherwise; provided that Indebtedness shall not include Indebtedness of one Member to another Member, any Guaranty by any Member of Indebtedness of any other Member, the joint and several liability of any Member on Indebtedness issued by another Member, Interest Rate Agreements, or any obligation to repay moneys deposited by patients or others with a Member as security for or as prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities to Entrance Fees (whether amortized into income or not), endowment or similar funds deposited by or on behalf of such residents including but not limited to any deferred obligations for the refund or repayment of Entrance Fees, any rent, development, marketing, operating or other fees that have been deferred from the year in which they were originally due as a result of deferral or subordination.

“Independent Consultant” means a firm (but not an individual) which (1) is in fact independent of and has no relationship with PRCN or other 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 or any Affiliate and (3) is not connected with any Member or any Affiliate as an officer, employee, 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

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Obligated Group and having a 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.

“Initial Entrance Fees” means the Entrance Fees (including any such fees collected for the purpose of obtaining a parking space) received by a Member with respect to any newly-constructed independent living units not previously occupied.

“Insurance Consultant” means a person or firm (which may be an insurance broker or agent, or a risk management consultant, of a Member) who is not, and no member, director, officer or employee of which is, an officer or employee of any Member or any Affiliate, designated by the Obligated Group Representative and qualified to survey risks and to recommend insurance coverage for hospitals, health- related facilities and services and organizations engaged in such operations.

“Interest Rate Agreement” means an interest rate exchange, hedge or similar agreement, expressly identified in an Officer’s Certificate 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; however, the amounts payable and received by a Member under an Interest Rate Agreement shall be taken into account in the calculation of Annual Debt Service as provided in the definition of such term.

“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 other than Interim Indebtedness prior to the final maturity thereof.

“Land” means the real property owned or leased by the Obligated Group upon which the primary operations of the Members are conducted as described in Exhibit B to the Master Indenture, as amended from time to time in accordance therewith, including all buildings, improvements and fixtures located thereon, but excluding therefrom all Excluded Property.

“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 specifically 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 the original incurrence or issuance thereof unless, by its terms, such Indebtedness is not permitted to be outstanding for a period of at least 30 consecutive days during each calendar year; provided, however, that fees and other amounts due to an Affiliate of a Member for money borrowed, credit extended or services rendered, the payment of which are deferred or not yet payable at the time of calculation and which are subordinate

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to payments due on all Obligations issued under the Master Indenture in accordance with written agreements between such Affiliates and a Member shall not be considered Long-Term Indebtedness.

“Master Indenture” means the Master Trust Indenture, dated as of June 1, 2013, by and between PRCN and the Master Trustee, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms of the Master Indenture.

“Master Trustee” means U.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America and, subject to the limitations contained in Section 5.7, any other corporation or association appointed and serving as co- trustee or successor master trustee or co-trustee in the trusts created under the Master Indenture.

“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 each Member, 20% of the annual principal and interest requirements with respect to the debt of any Person subject to a Guaranty by such Member; provided that, if any Member has been required by reason of its Guaranty to make a payment in respect of another Person’s debt within the immediately preceding two Fiscal Years, the Long-Term Indebtedness of such Member shall include all of the annual principal and interest requirements with respect to the debt subject to the Guaranty.

(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 rate of interest equal to the Projected Rate; provided, however, that if the Projected Rate cannot be determined, the rate shall be assumed to be a fixed rate of interest equal to the most recently published Bond Buyer 30-year Revenue Bond Index or a similar index.

(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 published average of the Securities Industry and Financial

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Markets Association (SIFMA) Municipal Swap Index over the preceding ten years (or a similar index if unavailable), plus the cost of any credit enhancement fees and remarketing fees, if any.

(f) Anything in the Master Indenture to the contrary notwithstanding, the 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 Obligated Group.

“Member” means each Person (other than the Master Trustee) that is a signatory to the Master Indenture or otherwise obligated under the Master Indenture, to the extent and in accordance with the provisions described herein under the caption “THE MASTER INDENTURE – THE OBLIGATED GROUP – Membership in the Obligated Group,” from and after the date upon which such Person joins the Obligated Group, but excluding any Person which withdraws from the Obligated Group to the extent and in accordance with the provisions described herein under the caption “THE MASTER INDENTURE – THE OBLIGATED GROUP – Withdrawal from the Obligated Group,” from and after the date of such withdrawal.

“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, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Representative.

“Mortgaged Property” means the Property subject to the Deed of Trust from time to time, including after-acquired Property.

“Nonrecourse Indebtedness” means any Indebtedness which is not a general obligation, and which is secured solely by a lien or security interest against an interest in Property, liability for which is effectively limited to the Property subject to such lien or security interest, with no recourse, directly or indirectly, to any other Property of any Member.

“Obligated Group” means, collectively, all of the Members from time to time.

“Obligated Group Representative” means PRCN or such other Member as may be so designated pursuant to written notice to the Master Trustee, executed by all of the Members.

“Obligation” means any obligation of the Obligated Group issued under the Master Indenture, as a joint and several obligation of the Members and each of them, which may be in any form set forth in the 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 series of Obligations issued pursuant to a single Related Supplement.

“Obligation No. 1” has the meaning assigned to such term by the First Supplemental Master Indenture.

“Obligation No. 2” has the meaning assigned to such term by the Second Supplemental Master Indenture.

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“Obligation No. 3” has the meaning assigned to such term by the Second Supplemental Master Indenture.

“Obligation No. 4” has the meaning assigned to such term by the Second Supplemental Master Indenture.

“Officer’s Certificate” means a written certificate signed by the Authorized Representative of the Obligated Group Representative.

“Opinion of Bond Counsel” means an opinion of nationally recognized municipal bond counsel, which opinion is accepted in the national tax-exempt capital markets as to the issuance and validity of municipal securities and as to the interest paid thereon being excluded from gross income for federal income taxation purposes.

“Opinion of Independent Counsel” means an opinion in writing signed by an attorney or firm of attorneys, duly admitted to practice law before the highest court of any state and, without limitation, may include independent legal counsel for the Obligated Group Representative.

“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. 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 and any Related Bonds, pari passu;

(b) Liens arising by reason of good faith deposits made in the ordinary course of business (for other than borrowed money), deposits made to secure public or statutory obligations or deposits to secure, or in lieu of, surety, stay or appeal bonds, and deposits made as security for the payment of taxes or assessments or other similar charges;

(c) any Lien arising by reason of deposits with, or the giving of any form of security to any Person, required by any 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 worker’s 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;

(d) any judgment Lien against any Member so long as such judgment is being contested in good faith and execution thereon is stayed;

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(e) 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, to:

(1) terminate any right, power, franchise, grant, license or permit in any Property, provided, that the termination of such right, power, franchise, grant, license or permit 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;

(f) any Liens on any of the Property 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 90 days;

(g) 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;

(h) 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;

(i) leases or licenses of the use of all or a part of the Property of any Member permitted in accordance with the Master Indenture;

(j) Liens on moneys deposited with any Member as security for or as prepayment for the cost of patient care (other than Entrance Fees);

(k) donor restrictions on Property received by gift, grant or bequest;

(l) Liens on Property due to rights of third-party payors for recoupment of amounts paid to any Member;

(m) purchase money security interests and security interests existing on any Property prior to the time of its acquisition by a Member through purchase, merger, consolidation or otherwise, or placed upon Property to secure a portion of the purchase price thereof, and lessors’ interests in leased Property (whether or not required to be capitalized in accordance with GAAP);

(n) any Lien described in Exhibit A to the Master Indenture which is existing on its Effective Date, any Lien on other Property acquired by a Member after the Effective Date of the Master Indenture that exists at the time of acquisition, and any Lien which exists on the Property of a Person at the time that it becomes a Member of the Obligated Group, provided that no such Lien (or the amount of Indebtedness secured thereby) may be increased, extended or renewed, or modified to apply to any other Property of any Member not subject to such Lien, unless such Lien as so extended, renewed or modified otherwise qualifies as a Permitted Encumbrance under the Master Indenture;

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(o) Liens on funds or securities posted in a collateral account held by a counterparty to an Interest Rate Agreement, or by a third party custodian therefore;

(p) Liens in favor of a trustee on the proceeds of Indebtedness prior to the application of such proceeds;

(q) Liens arising by reason of any escrow or reserve fund established to pay debt service with respect to Indebtedness;

(r) Liens arising in connection with the deposit of funds to pay costs of construction, remodeling, renovation or equipping of facilities, prior to the application of such funds for such purpose pursuant to the requirements of agreements relating to Indebtedness;

(s) Liens and security interests securing Nonrecourse Indebtedness;

(t) Bailors’ interests in Property in the possession of any Member as a bailee;

(u) Liens securing Indebtedness which has been defeased and is no longer Outstanding; and

(v) Liens against Excluded Property.

“Person” means any natural person, firm, joint venture, association, partnership, business trust, corporation, limited liability company, public body, agency, political subdivision, or other similar entity.

“PRCN” means Presbyterian Retirement Communities Northwest, a nonprofit corporation duly organized and existing under the laws of the State of Washington, and its successors and assigns and any surviving, resulting or transferee organization.

“Primary Obligor” means that Member or those Members primarily obligated to make Required Payments with respect to any Indebtedness secured by an Obligation.

“Projected Rate” means the projected yield at par of an obligation as set forth in the report of an Independent Consultant. Such report shall state that in determining the Projected Rate such Independent Consultant reviewed the yield evaluations at par of no fewer than three obligations selected by such Independent Consultant, the interest on which is entitled to the exemption from federal income tax afforded by Section 103(a) of the Code or any successor thereto (or, if it is not expected that it will be reasonably possible to issue such tax-exempt obligations, then obligations the interest on which is subject to federal income taxation) which obligations such Independent Consultant states in its report are reasonable comparators for utilizing in developing such Projected Rate and which obligations: (i) were outstanding on a date selected by the Independent Consultant which date so selected occurred during the 90-day period preceding the date of the calculation utilizing the Projected Rate in question, (ii) to the extent practicable, are obligations of Persons engaged in operations similar to those of the Obligated Group and having a credit rating similar to that of the Obligated Group, (iii) are not entitled to the benefits of any credit enhancement, including without limitation any letter or line of credit or insurance policy, and (iv) to the extent practicable, have a remaining term and amortization schedule substantially the same as the obligation with respect to which such Projected Rate is being developed.

“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 Obligated Group for the most recent Fiscal Year for

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which they are available. Property shall not include the land, leasehold interests, buildings, fixtures or equipment constituting Excluded Property.

“Property, Plant and Equipment” means any Property of the Obligated Group which constitutes property, plant and equipment in accordance with generally accepted accounting principles.

“Qualified Investments” means, if and to the extent the same are at the time legal for investment of funds held under the Master Indenture,

(a) Dollar denominated investments, as follows:

(1) Government Obligations;

(2) 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;

(3) 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;

(4) U.S. denominated deposit account, certificates of deposit and banker’s acceptances of any bank, trust company, or savings and loan association, including the Master Trustee or a Related 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; provided, the amount invested in any individual issuer does not exceed FDIC insurance limits and any such certificate of deposit can be readily converted to cash without any prepayment penalties;

(5) 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;

(6) 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 Agency in any of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);

(7) investment agreements with banks that at the time such 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 (i) 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 such

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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 (ii) 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 such 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 such non-bank financial institutions will be permitted;

(8) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clauses (2) and (3) above, which agreements may be entered into with a bank (including without limitation, a Related Bond Trustee or the Master Trustee or their 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 Master Trustee or a custodial agent of the Master 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, (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 Master Trustee or the Master Trustee’s agent;

(9) investments in a money market fund, which may be funds of a Related Bond Trustee or the Master Trustee or an affiliate thereof, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency; and

(10) 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 of 1933, and whose investments consist solely of Qualified Investments as defined in paragraphs (1) through (9) above, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency, including money market mutual funds from which the Master Trustee, a Related Bond Trustee or their affiliates derive a fee for investment advisory or other services to the fund.

(b) The Master 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.

(c) Obligations issued or held in the name of the Master Trustee (or in the name of a Government Issuer and payable to the Master 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 Master Trustee.

(d) The Shareholder Communications Act of 1985 and its regulations require that banks and trust companies make an effort to facilitate communication between registrants of U.S. securities and the parties who have the authority to vote or direct the voting of those securities regarding proxy dissemination and other corporate communications. Unless the Obligated Group Representative notifies the Master Trustee otherwise, in writing, the Master Trustee shall provide the obligatory information to

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the registrant only upon written request. Any objection will apply to all securities held by the Master Trustee pursuant to the Master Indenture unless the Obligated Group Representative notifies the Master Trustee otherwise, in writing.

(e) The Obligated Group Representative acknowledges, for itself and on behalf of future Members of the Obligated Group that, to the extent that regulations of the Comptroller of the Currency or other applicable regulatory agency grant any Member the right to receive brokerage confirmations of security transactions, all Members waive receipt of such confirmations. The Master Trustee shall furnish the Obligated Group Representative periodic statements which include detail of all investment transactions made by the Master Trustee pursuant to any provision of the Master Indenture.

“Rating Agency” means Moody’s, S&P 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 Issuer” means the Government Issuer of any issue of Related Bonds, including the Washington State Housing Finance Commission.

“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(s), means the Related Bond Issuer.

“Related Bonds” means any revenue bonds, certificates of participation or other obligations issued or executed and delivered by any Government Issuer pursuant to a Related Bond Indenture, the proceeds of which are loaned or otherwise made available to PRCN or another 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 or documents (including without limitation any loan agreement, lease, sublease or installment sales contract) pursuant to which any proceeds of any Related Bonds are advanced to any Member (or any Property financed or refinanced with such proceeds is loaned, leased, subleased or sold to a Member).

“Related Supplement” means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master Indenture.

“Required Information Recipients” means the Master Trustee, B.C. Ziegler and Company, as the initial purchaser of the Related Bonds issued in 2013, each Related Bond Trustee, EMMA or any other nationally recognized municipal securities information repositories identified by the Securities and Exchange Commission, the Washington State Housing Finance Commission, and all owners of $500,000 or more in aggregate principal amount of Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership).

“Required Payment” means any payment with respect to Indebtedness required to be made by any Member, whether at maturity or as the result of acceleration, redemption or otherwise, including, but not limited to requirements in respect of the payment of principal, interest and premium, and lease payments.

“Responsible Officer” means, with respect to the Master Trustee, an officer of the Master Trustee designated to serve in such capacity, by written certificate.

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“Rule 15c2-12” means Rule 15c2-12 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended, or any subsequent rule replacing such Rule.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a nationally recognized statistical ratings organization, any other nationally recognized statistical ratings organization designated by the Obligated Group Representative.

“Second Supplemental Master Indenture” means the Second Supplemental Master Trust Indenture, by and between PRCN, for itself and as Obligated Group Representative, and the Master Trustee, dated as of October 1, 2016, pursuant to which Obligation Nos. 2, 3 and 4 are issued.

“Short-Term Indebtedness” means, with respect to any Member, all Indebtedness of such Member having an original term to maturity of less than or equal to one year, which is not renewable at the unilateral option of such Member for a term greater than one year.

“Skyline” means FH, LLC, a Washington limited liability company, the sole member of which is PRCN, and its successors and assigns and any surviving, resulting or transferee organization.

“Stable Occupancy” means, with respect to any Capital Addition, the occupancy of the number of units within such Capital Addition that is not less than the substantially sustainable capacity for which the Capital Addition was designed or “stabilized occupancy,” in either case, as specified in an Independent Consultant’s report delivered to the Master Trustee in connection with the incurrence of Indebtedness to fund such Capital Addition, in whole or in part; provided that, if such an Independent Consultant’s report was not required to be delivered to the Master Trustee in connection with a Capital Addition, “Stable Occupancy” with respect to such Capital Addition means the occupancy of not less than 90% of the units in such Capital Addition; and further provided that Stable Occupancy shall be deemed to have been achieved only if the average level of occupancy is sustained at the required level for a period of not less than one full fiscal quarter.

“Start-Up Period” shall have the meaning described herein under the caption “THE MASTER INDENTURE – RATES AND CHARGES; DEBT COVERAGE.”

“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.

“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 taxation 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 Obligated Group, determined in accordance with generally accepted accounting principles.

“2016 Deeds of Trust” means (i) the Amended and Restated Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Park Shore), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 531810-2110-07 and 531810-2110-98; (ii) the Deed of Trust, Security Agreement, Assignment of

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Leases and Rents, and Fixture Filing (Skyline), dated as of October 1, 2016, executed and granted by Skyline, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 859040- 0825-04; 859040-0826-03; 859040-0827-02; 859040-0830-07; 859040-0835-02; 859040-0845-00; 859040-0845-91; 859040-0850-02; (iii) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Fred Lind Manor), dated as of October 1, 2016, executed and granted by Fred Lind Manor, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel No. 808090-0020-03; (iv) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1611 Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 780300-0010- 02; (v) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1623 Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 780439-0030-02; and/or (vi) the Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (McGilvra Place Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 531680-0070-06, respectively or collectively, as the context implies.

“UCC” means the Uniform Commercial Code in the form enacted in Title 62A RCW from time to time.

THE MASTER INDENTURE

GENERAL

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, and subject to the terms, conditions and limitations established under the Master Indenture and in any Related Supplement. The issuance, authentication and delivery of any Obligation or Series of Obligations is subject to the following conditions:

(a) The Obligated Group Representative and the Master Trustee shall have entered into a Related Supplement providing for the terms and conditions of such Obligations and the repayment thereof.

(b) The Master Trustee shall have received an Officer’s Certificate to the effect that each Member is in full compliance with all warranties, covenants and agreements set forth in the Master Indenture and in any Related Supplement.

(c) The Master Trustee shall have received an Officer’s Certificate to the effect that neither an Event of Default nor any event which with the passage of time or the giving of notice or both would become an Event of Default has occurred or would occur upon issuance of such Obligations or is continuing under the Master Indenture or any Related Supplement.

(d) All requirements and conditions to the issuance of such Obligations, if any, set forth in the Related Supplement shall have been complied with and satisfied, as provided in an Officer’s Certificate, a certified copy of which shall be delivered to the Master Trustee.

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(e) An Opinion of Independent Counsel to the effect that registration of the Obligation under the Securities Act of 1933, as amended, is not required, or, if such registration is required, that the Obligated Group has complied with all applicable provisions of said Act, and that all requirements and conditions to the issuance of such Obligation have been complied with and satisfied.

(f) If an Obligation constitutes Indebtedness, the applicable requirements of the Master Indenture described below under the caption “THE MASTER INDENTURE – LIMITATIONS ON ADDITIONAL INDEBTEDNESS” shall have been satisfied.

Contents of Certificates and Opinions. Every Certificate or opinion provided in accordance with the Master Indenture shall include (1) a statement that the Person making or giving such Certificate or opinion has read such provision and the definitions of the Master Indenture relating thereto; (2) a brief statement as to the nature and the scope of the examination or investigation upon which the Certificate or opinion is based; (3) a statement that, in the opinion of such Person, he or she has made, or caused to be made, such examination or investigation as is necessary to enable him or her to express an informed opinion with respect to the subject matter referred to in the instrument to which his or her signature is affixed; and (4) a statement as to whether, in the opinion of such Person, such provision has been complied with.

Any such Certificate or opinion made or given by an officer of a Member or the Master Trustee may be based, insofar as it relates to legal, accounting or management matters, upon a Certificate or opinion or representation of counsel, an accountant or Independent Consultant unless such officer knows, or in the exercise of reasonable care should have known, that the Certificate, opinion or representation with respect to the matters upon which such Certificate, opinion or representation may be based, as aforesaid, is erroneous. Any such Certificate, opinion or representation made or given by counsel, an accountant or an Independent Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of any Member) upon the Certificate or opinion of, or representation by an officer of any Member unless such counsel, accountant or Independent Consultant knows, or in the exercise or reasonable care should have known, that the Certificate, opinion of or representation by such officer, with respect to the factual matters upon which such Person’s Certificate or opinion may be based, as aforesaid, is erroneous. The same officer of any Member or the same counsel or accountant or Independent Consultant, as the case may be, need not certify as to all the matters required to be certified under any provision of the Master Indenture, but different officers, counsel, accountants or Independent Consultants may certify as to different matters, respectively.

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.

Pledge of Gross Revenues. To secure the obligations of the Obligated Group under the Master Indenture and each Outstanding Obligation, pari passu, the Borrowers grant, and each Person which hereafter becomes a Member, as a condition precedent to such membership, shall grant, to the Master Trustee, a security interest in their Gross Revenues, subject only to Permitted Encumbrances. Such security interests are required to be perfected only as and to the extent described in the forepart of this Official Statement under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Security

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Interest in Gross Revenues Under the Master Indenture”. Upon written request from the Obligated Group Representative, accompanied by a Certificate of the Obligated Group Representative to the effect that the applicable requirements of the Master Indenture with respect to the incurrence of Short-Term Indebtedness have been met, the Master Trustee shall take all procedural steps necessary to effect the subordination of its security interest in the Gross Revenues granted in the Master Indenture to security interests constituting Permitted Encumbrances, granted by a Member in order to secure such Short-Term Indebtedness. The Master Trustee shall further provide prompt written notice of any such subordination to the Holders of all Obligations.

COVENANTS AS TO MAINTENANCE OF PROPERTIES, ETC.

Each Member, respectively, covenants and agrees:

(a) That it will operate and maintain its 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 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 thereafter at any time constituting part of its 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.

(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 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 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 Lien at such time existing upon its Property or any part thereof or securing any of its Indebtedness noncompliance which would have a material adverse effect on the operations of the 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 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.

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(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 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.

The Obligated Group Representative is required to consult with an Insurance Consultant at least every two years to review the insurance requirements of the Members, unless the Obligated Group is self- insured, in which case an Insurance Consultant must be consulted not less than annually to review insurance requirements of the Members. If the Insurance Consultant makes recommendations for the increase of any Members’ insurance coverage, the Obligated Group Representative shall increase or cause to be increased such coverage in accordance with such recommendations, subject to a good faith determination of the Governing Body of the Obligated Group Representative that such recommendations, in whole or in part, are in the best interests of the Obligated Group. In lieu of maintaining insurance coverage that the Governing Body of the Obligated Group Representative deems necessary, the Members shall have the right to adopt alternative risk management programs that the Governing Body of the Obligated Group Representative determines to be reasonable and that shall not have a material adverse impact on reimbursement from third party payors; including, without limitation, the right to self-insure in whole or in part individually or in connection with other institutions, to participate in programs of captive insurance companies, to participate with other health care institutions in mutual or other cooperative insurance or other risk management programs, to participate in state or federal insurance programs, to take advantage of state or federal laws in existence on or after the Effective Date of the Master Indenture limiting medical and malpractice liability, or to establish or participate in other alternative risk management programs; all as may be approved, in writing, as reasonable and appropriate risk management by the Insurance Consultant and reviewed each year thereafter.

The Master Trustee shall not be responsible for the sufficiency of any insurance herein required or for the obtaining of such insurance and in all events shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by any Member. The Obligated Group Representative shall cause to be delivered to the Master Trustee on the date the Master Indenture is executed and at least biannually (annually with respect to self-insurance) thereafter, no later than within 150 days following the date audited financial statements are required to be furnished pursuant to the Master Indenture, an Officer’s Certificate stating that the Obligated Group is in compliance with this covenant, together with a certificate of an Insurance Consultant which certificate indicates that the insurance then being maintained by the Members is customary in the case of corporations that own and operate facilities of similar character and size. The Master Trustee may conclusively rely on such certificates.

FILING OF FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION

(a) Under the Master Indenture, 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 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

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generally accepted accounting principles would require consolidation of certain financial information of entities which are not Members of the 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 Obligated Group may be delivered in satisfaction of the requirements summarized under this caption so long as: (i) supplemental information in sufficient detail to separately identify the information with respect to the Members of the 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 hereof 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 Required Information Recipients the following:

(1) Quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 60 days after the completion of such fiscal quarter, including a combined or combining, if applicable, statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, and a combined or combining, if applicable, balance sheet as of the end of each such fiscal quarter, showing in each case in comparative form the financial figures for the same period in the previous year, and a calculation of the Days Cash on Hand for the second and last fiscal quarters of each year as required by the Master Indenture and summarized under the caption “LIQUIDITY COVENANT” herein, a calculation of Debt Service Coverage Ratio for the last fiscal quarter as required by the Master Indenture and summarized under the caption “RATES AND CHARGES; DEBT COVERAGE” herein, and sales information and occupancy levels of all of the facilities operated by the Obligated Group by level of care as of the end of each such 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 stating that the 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 Obligated Group prepared by a firm of certified public accountants, including a combined and an unaudited combining, if applicable, balance sheet as of the end of such Fiscal Year and a combined and an unaudited combining, if applicable, statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining, if applicable, statement of revenues and expenses and statement of cash flows of the Obligated Group 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 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) For all reporting periods, at the same time and in addition to the other information required to be furnished in accordance with paragraphs (b)(1) and (b)(2) above, a comparison of actual revenue and expense of the Obligated Group for each relevant period against the operating budget of the Obligated Group (on a monthly and year-to-date basis) for such period;

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(4) Within the time period required by any continuing disclosure agreement entered into by a Member in connection with any Obligations or Related Bonds (including without limitation the Continuing Disclosure Agreement, dated as of June 19, 2013, and the Continuing Disclosure Agreement, dated as of October 1, 2016, each by PRCN, for itself and as Obligated Group Representative, on behalf of the Obligated Group), such additional information as may be required by such continuing disclosure agreement for so long as it remains in effect; and

(5) If the Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 for any September 30, the Obligated Group will deliver the financial information and the calculations described in paragraph (1) above on a monthly basis, with the Debt Service Coverage Ratio calculated on a year-to-date basis each month, within 45 days of the end of each month until the Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1.

(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 each Required Information Recipient a copy of each Independent Consultant’s report or counsel’s opinion required to be prepared under the terms of the Master Indenture.

(e) The Obligated Group Representative shall give prompt written notice of a change of accountants by the 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 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, provided that the Master Trustee shall have no duty to visit or inspect.

(g) The Obligated Group Representative may designate a different Fiscal Year for the Members of the 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 Obligated

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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, together with a separate written statement of the accountants preparing such report containing a calculation of the Obligated Group’s Debt Service Coverage Ratio for the Interim Period 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).

LIMITATIONS ON ENCUMBRANCES

Each Member covenants not to create, assume or suffer to exist any Lien upon its Property (including without limitation, the Gross Revenues), other than Permitted Encumbrances.

LIMITATIONS ON ADDITIONAL INDEBTEDNESS

Each Member, respectively, agrees not to 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 the provisions of the Master Indenture summarized in this clause (1) does not exceed 10% of the Total Operating Revenues of the 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 that the pro forma Long-Term Debt Service Coverage Ratio, taking into account all Outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred as if such Long-Term Indebtedness had been issued at the beginning of the most recent Fiscal Year for which audited financial statements are available, is not less than 1.20:1; 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 the most recent Fiscal Year for which audited financial statements are available, the Long-Term Debt Service Coverage Ratio is not less than 1.20:1; 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 Fiscal Year 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 Fiscal Year 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 Year, accompanied by a statement of the

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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 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), each of 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; 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 Fiscal Year 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 Fiscal Year 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 Year, 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 subject project, if there is delivered to the Master Trustee a Construction Consultant’s certificate to the effect that the Completion Indebtedness proposed to be incurred is (i) necessary 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) 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 (iii) 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 clauses (i) and (ii) 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.

(d) Short-Term Indebtedness, provided that: (1) such Short-Term Indebtedness is incurred in compliance with the provisions of the Master Indenture, 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 15% of Total Operating Revenues of the 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 Obligated Group for the most recent Fiscal Year for which audited financial statements of the Obligated Group are available.

(e) Subordinated Indebtedness without limitation.

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(f) Balloon Indebtedness or Interim Indebtedness provided that the conditions described in subparagraph (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.”

(g) Extendable Indebtedness provided that the conditions described in the Master Indenture 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.”

(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 this paragraph.

(i) Nonrecourse Indebtedness, without limitation.

(j) Indebtedness to fund a Capital Addition if, prior to incurrence thereof, there is delivered to the Master Trustee (i) a written report of an Independent Consultant (prepared in accordance with industry standards) which states, in effect, that the Long-Term Debt Service Coverage Ratio of the Obligated Group for the first full Fiscal Year following the later of (A) the estimated date of completion of the Capital Addition, and (B) the projected date of Stable Occupancy of the Capital Addition (which must be a date that is no later than the last day of the sixth full Fiscal Year following the incurrence of the proposed Indebtedness) is projected to be not less than 1.25:1, and which includes forecast balance sheets, statements of revenues and expenses and statements of changes in financial position for such Fiscal Year and a statement of the relevant assumptions upon which such forecasted statements are based, indicating that sufficient revenues and cash flow could be generated to pay the operating expenses of the Obligated Group’s proposed and existing facilities and debt service on the Obligated Group’s Indebtedness, and (ii) an Officer’s Certificate, dated the date of the incurrence of the proposed Indebtedness, to the effect that (A) the Obligated Group is then in compliance with all covenants in the Master Indenture and no Event of Default or event that with the passage of time could become an Event of Default then exists with respect to the Master Indenture, (B) the Primary Obligor on the proposed Indebtedness has executed and delivered a guaranteed maximum price construction contract, stipulated sum construction contract or such other construction contract that establishes the complete construction cost with respect to the Capital Addition, (C) a construction monitor having the skill and experience necessary to perform its duties with respect to the monitoring of the construction process and having a favorable reputation for such skill and experience has been engaged with respect to the Capital Addition, (D) all permits required to be obtained for the commencement of construction of the Capital Addition have been obtained or receipt of any such permit is perfunctory and will be received prior to such commencement, and (E) the facilities constituting the Capital Addition will be constructed on Mortgaged Property.

LIMITATIONS ON GUARANTIES

Each Member covenants and agrees that it will not enter into, or become liable with respect to, any Guaranty except:

(a) Guaranties of Indebtedness of another Member;

(b) Guaranties of Obligations issued under the Master Indenture;

(c) Guaranties provided that the conditions summarized in subsection (a) above under “LIMITATIONS ON ADDITIONAL INDEBTEDNESS” are satisfied with respect to the issuance of such

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Guaranty utilizing the assumptions specified in clause (a) of the definition of “Maximum Annual Debt Service;” or

(d) Guaranties issued pursuant to this subparagraph (d), the outstanding aggregate principal amount of which do not exceed $5,000,000.

RATES AND CHARGES; DEBT COVERAGE

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 and interest on 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 described under this heading.

(a) Within 150 days after the end of each Fiscal Year (commencing with the first full Fiscal Year following the Effective Date of the Master Indenture), the Obligated Group Representative shall compute the Income Available for Debt Service, Annual Debt Service and the Debt Service Coverage Ratio and promptly furnish to the Required Information Recipients a Certificate setting forth the results of such computation.

(b) If the Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to select an Independent Consultant within 30 days following the calculation described in the immediately preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year.

For purposes of calculations made pursuant to the previous paragraph, an unrestricted contribution from any Affiliate of a Member of the Obligated Group may, at the sole discretion of the Obligated Group Representative, be treated as Income Available for Debt Service being earned during the period of such calculation so long as the unrestricted contribution is made prior to the date the applicable Certificate is required to be delivered with respect to such calculation. If the unrestricted contribution is counted in a period prior to the date of such transfer in accordance with the previous sentence, it shall not be included in the calculation for the period in which such contribution was actually made.

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 calculated pursuant to this heading to be met, then such ratio shall be reduced to 1.00:1 for such Fiscal Year and determined by computing the Debt Service Coverage Ratio for such Fiscal Year.

The provisions of this subparagraph (b) are subject to the provisions of subparagraph (e) below with respect to Capital Additions.

(c) A copy of the Independent Consultant’s report and recommendations, if any, shall be filed with each of the Required Information Recipients 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

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Member) and permitted by law. These provisions of the Master Indenture shall not be construed to prohibit any Member from serving indigent persons 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 persons 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 heading.

(d) Notwithstanding any other provisions of the Master Indenture, an Event of Default arising from the Debt Service Coverage Ratio shall only occur under the Master Indenture if one or more of the following conditions applies: (i) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.20:1 and fails to take all necessary action to comply with the procedures described under this heading for preparing a report, adopting a plan, and following all recommendations contained in such report or plan to the extent feasible (as determined by the Governing Body of the Obligated Group Representative) and permitted by law; or (ii) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year and the Days Cash on Hand of the Obligated Group as of the last day of such Fiscal Year is less than 150 days; or (iii) the Obligated Group fails to achieve a Debt Service Coverage Ratio of at least 1.00:1 for two consecutive Fiscal Years.

(e) Notwithstanding any provision of the Master Indenture to the contrary, if any Member of the Obligated Group incurs Additional Indebtedness, the debt service requirements in respect of such Additional Indebtedness, together with the revenues and expenses associated with the facilities funded, in whole or in part with the proceeds of such Additional Indebtedness, may be excluded from any required calculation of the Debt Service Coverage Ratio (but not from any required calculation of the Long-Term Debt Service Coverage Ratio) for the applicable period described in the first paragraph immediately below (each a “Start-Up Period”), provided that the conditions set forth in the second paragraph below are satisfied.

The debt service requirements, revenues and expenses described in the immediately preceding paragraph relating to Additional Indebtedness incurred by the Obligated Group and the facilities funded, in whole or in part with such Additional Indebtedness, may be excluded from the calculation of the Debt Service Coverage Ratio until:

(1) In the case of Additional Indebtedness to fund new revenue producing facilities, the earlier of the first full Fiscal Year which is at least 90 days after Stable Occupancy is achieved with respect to such new facilities and the expiration of the fifth full Fiscal Year following the incurrence of such Additional Debt; or

(2) In the case of Additional Indebtedness to fund a capital project not described in clause (1) immediately above, the first full Fiscal Year after the earlier of the date of substantial completion of such project and the date which is six months after the projected date of substantial completion of such project, as set forth in a report of an Independent Consultant described in clause (1) of the next full paragraph below; or

(3) In the case of Additional Indebtedness incurred for any other purpose, the first full Fiscal Year after the date of incurrence of such Additional Indebtedness.

The debt service requirements in respect of any Additional Indebtedness and the associated revenues and expenses of facilities financed with the proceeds of such Additional Indebtedness may only be excluded from the calculation of the Debt Service Coverage Ratio during the applicable Start-Up Period if:

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(1) The Obligated Group shall have delivered to the Master Trustee a report of an Independent Consultant in connection with the incurrence of such Additional Indebtedness to the effect that the Debt Service Coverage Ratio of the Obligated Group, taking into account the debt service requirements in connection the proposed Additional Indebtedness and revenues and expenses associated with facilities to be financed with the proceeds of such Additional Indebtedness, will be not less than 1.20:1.00 for each of the two full Fiscal Years following:

(A) In the case of Additional Indebtedness to fund a capital project, the Fiscal Year in which such capital project is projected to be completed, or, if the capital project is expected to result in revenue producing facilities, the first Fiscal Year after Stable Occupancy is projected to be achieved (which year must be no later than the sixth full Fiscal Year following the incurrence of such Additional Indebtedness); and

(B) In the case of Additional Indebtedness for purposes other than to fund a capital project, the date of incurrence of such Additional Indebtedness.

(2) The interest on such Additional Indebtedness and any projected start-up losses during the applicable Start-Up Period is funded from the proceeds of such Additional Indebtedness or other moneys designated by the Obligated Group, and such proceeds or other moneys continue to be available for such purposes at all times during the applicable Start-Up Period; and

(3) No principal of such Additional Indebtedness shall be payable during the applicable Start-Up Period, other than principal that may become due as the result of the collection of Initial Entrance Fees during such period.

(4) The Debt Service Coverage Ratio described in clause (1) of this paragraph may be reduced to the maximum ratio permitted by law, as set forth in the Independent Consultant’s report, but in no event shall such ratio be less than 100%. If an Independent Consultant’s report is not required or utilized to incur Additional Indebtedness, a Management Report, certified by a designated officer of the Obligated Group, may be used in lieu of the Independent Consultant’s report for purposes of the Master Indenture provisions described under this heading.

SALE, LEASE OR OTHER DISPOSITION OF PROPERTY

Each Member agrees that it will not transfer any Property except as permitted in the provisions of the Master Indenture summarized below.

(a) Each Member may sell, lease or otherwise dispose (including without limitation any involuntary disposition) of Property (either real or personal, including cash and investments) to another Member.

(b) A Member may transfer Property, including cash or cash equivalents, to a Person other than a Member if:

(1) the Long-Term Debt Service Coverage Ratio of the Obligated Group was at least 1.25:1 for the last Fiscal Year, and

(2) the Long-Term Debt Service Coverage Ratio on a pro forma basis after giving effect to earnings on the transferred asset not being available would have been at least 1.25:1, and

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(3) if as of the end of the last fiscal quarter, (A) the Obligated Group had not less than 150 Days Cash on Hand after giving effect to the transaction, the Property sold, leased or otherwise disposed of does not, for any consecutive 12-month period, exceed 3% of the total Book Value or the Current Value of all Property of the Obligated Group; or (B) the Obligated Group had not less than 300 Days Cash on Hand after giving effect to the transaction, the Property sold, leased or otherwise disposed of does not, for any consecutive 12-month period, exceed 5% of the total Book Value or the Current Value of all Property of the Obligated Group; or (C) the Obligated Group had not less than 400 Days Cash on Hand after giving effect to the transaction, the Property sold, leased or otherwise disposed of does not, for any consecutive 12- month period, exceed 7.5% of the total Book Value or the Current Value of all Property of the Obligated Group; or (D) the Obligated Group had not less than 500 Days Cash on Hand after giving effect to the transaction, the Property sold, leased or otherwise disposed of does not, for any consecutive 12-month period, exceed 10% of the total Book Value or the Current Value of all Property of the Obligated Group.

(c) A Member may transfer Property, including cash or cash equivalents, to a Person other than a Member without limitation if: (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 (3) prior to such sale, lease or other disposition there is delivered to the Master Trustee an Officer’s Certificate 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.

(d) Any other provision of the Master Indenture notwithstanding:

(1) No Property financed with the proceeds of any Related Bonds issued as tax- exempt bonds may be transferred to a third party unless the Bond Trustee has received an Opinion of Bond Counsel to the effect that such transfer shall not adversely affect the validity of the Related Bonds or any exemption from federal income taxation to which such Related Bonds would otherwise be entitled;

(2) If any Property to be disposed in accordance with the provisions of the Master Indenture summarized under this heading is subject to a Lien, including a Deed of Trust, the Master Trustee shall, upon the request of the Obligated Group Representative, release such Property from the Lien, including the Deed of Trust, pursuant to the terms of any documentation creating the Lien; and

(3) Nothing in the Master Indenture shall prohibit any Member from making secured or unsecured loans provided that (A) any such loan is evidenced in writing, (B) the Obligated Group Representative reasonably expects such loan to be repaid and (C) 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 Obligated Group as of September 30 and March 31 of each Fiscal Year (each such date being a “Testing Date”).

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The Obligated Group shall include such calculations in the Officer’s Certificate delivered pursuant to the Master Indenture.

Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have not less than 150 Days Cash on Hand.

If the amount of Days Cash on Hand as of any Testing Date is less than 150, 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 Obligated Group has not achieved 150 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 30 days after receipt of the Officer’s Certificate disclosing such deficiency, select 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, shall be filed with each of the Required Information Recipients 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 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

(a) 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 the captions “THE MASTER INDENTURE – RATES AND CHARGES; DEBT COVERAGE” and “– LIQUIDITY COVENANT,” such Independent Consultant shall be engaged in the manner set forth below in the provisions summarized under this caption.

(b) Upon selecting an Independent Consultant as required under the aforementioned provisions of the Master Indenture, the Obligated Group Representative shall promptly notify the Master Trustee in writing 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 15 days of the date that the notice is sent to the

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Obligation holders. No later than two Business Days after the end of the 15-day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If two-thirds (66 2/3%) 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 1/3%) in aggregate principal amount of the holders 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 of the provisions summarized under this caption.

The Master Indenture further provides that all Independent Consultant reports required thereunder shall be prepared in accordance with then-effective industry-appropriate standards.

(c) When the Master Trustee notifies the holders of Obligations of such selection, the Master Trustee shall also request that any Related Bond Trustee send a notice containing the information required by subparagraph (b) above 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 2/3%) or more in aggregate principal amount of the Related Bonds have been deemed to have consented to the selection of the Independent Consultant, the Bond Trustee shall approve the Independent Consultant within five days of receiving notice of that consent. If more than one-third (33 1/3%) in aggregate principal amount of the owners of the Related Bonds have objected to the Independent Consultant selected, the Bond Trustee shall reject the Independent Consultant within 14 days after receiving notice of such objection.

The 15-day notice period described in (b) above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 15 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 caption.

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

Each Member agrees that it will not merge into, or consolidate with, one or more corporations which are not Members, 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, unless:

(a) 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 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;

(b) 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;

(c) 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

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Fiscal Year include the revenues and expenses of such other corporation (1) immediately after such merger or consolidation, sale or conveyance, the Long-Term Debt Service Coverage Ratio of the 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 1.25:1, or that such pro forma Long-Term Debt Service Coverage Ratio of the Obligated Group is not less than the Long-Term Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year prior to such merger or consolidation, sale or conveyance and (2) immediately after such merger or consolidation, sale or conveyance, the Days Cash on Hand of the Obligated Group as set forth on the most recent quarterly financial statements delivered to the Master Trustee would be not less than 150 or that such calculation of Days Cash on Hand of the Obligated Group is greater than such calculation would be immediately prior to such merger or consolidation, sale or conveyance;

(d) 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

(e) 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.

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 as such Member. Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the conditions described in the Master Indenture 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 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 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 by such prior Member without any such consolidation, merger, sale or conveyance having occurred.

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.

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 summarized under this heading and that it is proper for the Master Trustee under the provisions of the Master Indenture relating to the Master Trustee to join in the execution of any instrument required to be executed and delivered thereby.

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THE OBLIGATED GROUP

Membership in the 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; (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; and (4) (i) causes Exhibit B to the Master Indenture to be amended as required to include a description of the real property of such proposed new Member upon which the primary operations of such Person are conducted and a description of any Permitted Encumbrances of the type described in paragraph (n) of the definition thereof, and (ii) amends Exhibit C to the Master Indenture to include a description of the Property of the Person becoming a Member which is to be considered Excluded Property (provided that such Property may be treated as Excluded Property only if such Property is real or tangible personal property and the primary operations of such Person are not conducted upon such real property);

(c) an Opinion of Independent 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, such proposed new Member will be bound by the terms of the Master Indenture;

(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 Master Indenture) showing that the Obligated Group could issue at least one dollar of Long-Term Indebtedness under subsections (a)(2), (3) or (4) of the provisions of the Master Indenture summarized under the heading “THE MASTER INDENTURE – LIMITATIONS ON ADDITIONAL INDEBTEDNESS” immediately following the addition of such Member to the Obligated Group; and (ii) (a) 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 (b) demonstrating that the Long-Term Debt Service Coverage Ratio of the Obligated Group for each of the two most recent Fiscal Years would have been equal to or greater than 1.20:1 assuming entry of the new Member occurred at the beginning of the first of such two most recent Fiscal Years; and (iii) demonstrating that immediately after the addition of such Member to the Obligated Group, the Obligated Group (a) would have not less than 150 Days Cash on Hand or (b) would have a greater number of Days Cash on Hand than immediately prior to the addition of such Member to the Obligated Group based on the most recently quarterly financial statements delivered to the Master Trustee pursuant to the provisions of the Master Indenture summarized under the heading “THE MASTER INDENTURE – FILING OF FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION”;

(f) an Opinion of Bond Counsel to the effect that the addition of such Member (1) 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 otherwise entitled to such exemption; and (2) will not cause the Master Indenture or the Obligations issued thereunder to be subject to

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registration under federal 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 such 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 at least one Rating Agency; and

(i) such additional documentation as may be required by the Related Supplements.

Pursuant to the Second Supplemental Master Indenture, Skyline and Fred Lind Manor will each agree to become an Obligated Group Member under the Master Indenture, effective as of the date of issuance of the Bonds.

Withdrawal from the 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 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 party to any Related Loan Documents with respect to Related Bonds which remain Outstanding;

(c) an Officer’s Certificate (i) showing that the Obligated Group could issue at least one dollar of Long-Term Indebtedness under subsections (a)(2), (3) or (4) of the provisions of the Master Indenture summarized under the heading “THE MASTER INDENTURE – LIMITATIONS ON ADDITIONAL INDEBTEDNESS” immediately following the withdrawal of such Member from the Obligated Group, or (ii) (a) demonstrating that an Event of Default under the Master Indenture will be cured if the Member withdraws from the Obligated Group, or (b) demonstrating that the Long-Term Debt Service Coverage Ratio of the Obligated Group for each of the two most recent Fiscal Years would have been equal to or greater than 1.20:1 assuming withdrawal of the new Member occurred at the beginning of the first of such two most recent Fiscal Years, and (iii) demonstrating that immediately after the withdrawal of such Member from the Obligated Group, the Obligated Group would (a) have not less than 150 Days Cash on Hand or (b) a greater number of Days Cash on Hand than immediately prior to the withdrawal of such Member, based on the most recently quarterly financial statements delivered to the Master Trustee pursuant to the provisions of the Master Indenture summarized under the heading “THE MASTER INDENTURE – FILING OF FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION”;

(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 Related 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 such Rating Agency that, after such Member withdraws from

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the Obligated Group, all Related Bonds will have a rating of at least “BBB-” (or an equivalent rating) from at least one Rating Agency.

Upon compliance with the conditions summarized under this caption, the Master Trustee shall execute any documents reasonably requested by the withdrawing Member to evidence the termination of such Member’s obligations under the Master Indenture, under any Related Supplements and under all Obligations.

INSURANCE AND CONDEMNATION PROCEEDS

Subject to the following paragraph, any insurance proceeds, condemnation award or payment in lieu of condemnation in an amount more than $1,000,000 or 3% of the Obligated Group’s assets, whichever is greater, shall, at the option of the Obligated Group Representative: be deposited with the Master Trustee to apply to the prepayment or redemption of Obligations outstanding, on a pro rata basis; be applied by the Obligated Group to repair, renovate or rebuild the facilities subject to the payment; be applied for any other legitimate purpose, in the sole discretion of the Obligated Group Representative; or be applied in any combination of the foregoing; provided, however, that notwithstanding the foregoing, in the case of the destruction of the Obligated Group’s facilities or any portion thereof as a result of fire or other casualty, or any damage to such facilities or portion thereof as a result of fire or other casualty, any related proceeds in an amount more than $1,000,000 or 3% of the Obligated Group’s assets, whichever is greater, shall be applied pursuant to the Deed of Trust and the Master Indenture.

Any Member may make agreements and covenants with the holder of any Indebtedness which is incurred in compliance with the provisions of the Master Indenture and which is secured by a Permitted Encumbrance with respect to the application or use to be made of insurance proceeds or condemnation awards which may be received in connection with Property which is subject to such Permitted Encumbrance.

ADDITIONS TO EXCLUDED PROPERTY

As of the date of issuance of the Bonds, the term “Excluded Property” will include only certain land acquired by PRCN with proceeds of the Series 2013 Bonds. Hereafter, the provisions of the Master Indenture defining “Excluded Property” shall be deemed to be amended to include additional real property acquired by a Member and all improvements, fixtures, tangible personal property and equipment located thereon and used in connection therewith, upon satisfaction of the requirements described in the next paragraph below.

As a condition precedent to the inclusion of additional property as Excluded Property, the Obligated Group Representative shall deliver to the Master Trustee an Officer’s Certificate identifying the new assets to be treated as Excluded Property and certifying that, as of the date thereof:

(a) None of the Excluded Property (including the assets proposed to included as additional Excluded Property) includes Property owned or leased by a Member upon which the primary operations of the Member are conducted; and

(b) The total value of the Excluded Property (including the value of assets proposed to be included as additional Excluded Property, but excluding the value of Excluded Property existing on the Effective Date of the Master Indenture) does not exceed an amount equal to 10% of the sum of the total value of all Property and all Excluded Property of the Obligated Group (calculated on the basis of the Book Value or Current Value at the option of the Obligated Group).

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DEFAULTS AND REMEDIES

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, or interest on 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 Obligation) for a period of 30 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; provided that, if in the judgment of the Master Trustee, such default cannot with due diligence and dispatch be wholly cured so that such failure no longer constitutes an “Event of Default” under the Master Indenture within 30 days but can be wholly cured, the failure of the Member to remedy such default within such 30 day period shall not constitute a default under the Master Indenture if the Member 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.

(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 thereafter be created, and any period of grace with respect thereto shall have expired, or an event of default, as defined in any mortgage, indenture or instrument, under which there may be secured or evidenced any Indebtedness, whether such Indebtedness exists on or shall be created after the Effective Date of the Master Indenture, shall occur; provided, however, that such default shall not constitute an Event of Default within the meaning summarized under this caption 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 in effect on or after the Effective Date of the Master Indenture, 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 remains 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 in effect on or after the Effective Date of the Master Indenture, (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 any Deed of Trust.

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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 under clause (a) of the section immediately above entitled “Events of Default” 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.

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.

No such annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon.

Additional Remedies and Enforcement of Remedies. Upon the occurrence and continuance of any Event of Default, the Master Indenture provides that the Master Trustee may, and upon the request of (a) the Holders of not less than 25% in aggregate principal amount of the Obligations Outstanding, (b) any Holder which, pursuant to a Related Supplement, is given the right to require the Master Trustee to institute actions described in this paragraph, or (c) any Holder if an Event of Default under clause (a) of the section above entitled “Events of Default” has occurred, shall upon the indemnification of the Master Trustee to its satisfaction therefor, proceed forthwith to protect and enforce its rights and the rights of the Holders under the Master Indenture by such suits, actions or proceedings as the Master Trustee, being advised by its counsel, shall deem expedient, including but not limited to:

(1) Suit upon all or any part of the Obligations;

(2) Civil action to require any Person holding moneys, documents or other property pledged to secure payment of amounts due or to become due on the Obligations to account as if it were the trustee of an express trust for the Holders of Obligations;

(3) Civil action to enjoin any acts or things, which may be unlawful or in violation of the rights of the Holders of Obligations; and

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(4) Enforcement of any other right or remedy of the Holders conferred under the Master Indenture, by law or under any Deed of Trust.

Regardless of the happening of an Event of Default, the Master Trustee shall, if requested in writing by the Holders of not less than 25% in aggregate principal amount of the Obligations then Outstanding and upon being indemnified to its satisfaction therefor, institute and maintain such suits and proceedings as it may be advised shall be necessary or expedient (1) to prevent any impairment of the security under the Master Indenture by any acts which may be unlawful or in violation thereof, or (2) to preserve or protect the interests of the Holders. However, the Master Trustee shall not comply with any such request or institute and maintain any such suits or proceedings that are in conflict with any applicable law or the provisions thereof or that, in the sole judgment of the Master Trustee, is unduly prejudicial to the interest of the Holders of Obligations not making such request.

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 then due on the Obligations, whether at maturity or by call for redemption, 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 principal 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), to the payment of the principal and interest then due and unpaid upon 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, of interest 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.

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.

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Whenever all Obligations have been paid under the terms of the Master Indenture summarized above 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 Members, their successors, 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. All rights of action under the Master Indenture, the Obligations or Related Supplement, or otherwise may be prosecuted and enforced by the Master Trustee without the possession of any of the Obligations or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Master Trustee shall be brought in the name of the Master Trustee for the benefit and protection of all the Holders of such Obligations, subject to the provisions of the Master Indenture.

Holders’ Control of Proceedings. If an Event of Default shall have occurred and be continuing, notwithstanding anything 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 or for the appointment of a receiver or any other proceedings under the Master Indenture. However, the Master Trustee shall not follow any such direction that is in conflict with any applicable law or the provisions thereof or, in the sole judgment of the Master Trustee, is unduly prejudicial to the interest of Holders not joining in such direction. Nothing in this paragraph shall impair the right of the Master Trustee in its discretion to take any other action authorized by the Master Indenture that it may deem proper and which is not inconsistent with such direction by Holders. Nothing in the Master Indenture shall affect or impair the rights of any Holder to enforce the payment of principal of, interest on and other amounts due under the Obligation held by such Holder or any agreement or instrument secured by such Obligation, by suit or other action available pursuant thereto or in law or in equity.

Termination of Proceedings. In case any proceeding taken by the Master Trustee on account of an Event of Default is discontinued or abandoned for any reason or is determined adversely to the Master Trustee or to the Holders, then the Members, the Master Trustee and the Holders shall be restored to their former positions and rights thereunder, and all rights, remedies and powers of the Master Trustee and the Holders shall continue as if no such proceeding had been taken.

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Waiver of Event of Default. No delay or omission of the Master Trustee or of any Holder to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of or acquiescence to any such Event of Default. Every power and remedy given to the Master Trustee and the Holders under this heading entitled “THE MASTER INDENTURE – DEFAULTS AND REMEDIES” may be exercised from time to time and as often as may be deemed expedient by them. 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. Notwithstanding anything contained in the Master Indenture to the contrary, 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 and its consequences; provided, however, that, except under the circumstances set forth in the second paragraph of “THE MASTER INDENTURE – DEFAULTS AND REMEDIES – Acceleration; Annulment of Acceleration”, a default in the payment of the principal of, premium, if any, or interest on any Obligation when due may not be waived without the written consent of the Holders of all Outstanding Obligations.

If the Master Trustee waives an Event of Default under the Master Indenture, the Members, the Master Trustee and the Holders shall be restored to their former positions and rights. No such waiver shall extend to, or impair any right with respect to any other Event of Default.

Notice of Default. Within ten days after the Master Trustee has actual knowledge or has received written notice of the occurrence of an Event of Default, the Master Trustee shall mail to all Holders notice of such Event of Default, unless such Event of Default shall have been cured before the giving of such notice, subject to conditions set forth in the Master Indenture. For the purposes of the provisions of the Master Indenture summarized in this paragraph, the term “Event of Default” is defined to be the events specified in subparagraphs (a) – (f) above under the heading “THE MASTER INDENTURE – DEFAULTS AND REMEDIES – Events of Default,” not including any periods of grace provided for in subparagraphs (b), (c) and (d) respectively, and irrespective of the giving of written notice specified in subparagraph (b)). Except in the case of default in the payment of the principal of or premium, if any, or interest on any of the Obligations and the Events of Default specified in subparagraphs (d) and (e) under the heading “THE MASTER INDENTURE – DEFAULTS AND REMEDIES – Events of Default,” the Master Trustee shall be protected in withholding such notice if and so long as the Master Trustee in good faith determines that the withholding of such notice is in the best interests of the Holders.

RELATED BOND TRUSTEE OR BONDHOLDERS DEEMED TO BE OBLIGATION HOLDERS

For the purposes of the Master Indenture, unless a Related Bond Trustee elects to the contrary or contrary provision is made in a Related Bond Indenture, each Related Bond Trustee shall be deemed the Holder of the Obligation or Obligations pledged to secure the Related Bonds with respect to which such Related Bond Trustee is acting as trustee. If such a Related Bond Trustee so elects or the Related Bond Indenture so provides, the Holders of each series of Related Bonds shall be deemed the Holders of the Obligations to the extent of the principal amount of the Obligations to which their bonds relate.

REMOVAL AND RESIGNATION OF THE MASTER TRUSTEE

The Master Trustee may be removed at any time by an instrument or instruments in writing signed by the Holders of not less than a majority of the principal amount of Obligations then Outstanding or, unless an Event of Default has occurred and is then continuing, the Obligated Group Representative.

The Master Trustee may at any time resign by giving written notice of such resignation to the Obligated Group Representative and by giving the Holders of all Obligations then Outstanding notice of

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such resignation by mail at the addresses shown on the registration books maintained by the Master Trustee.

No such resignation or removal shall become effective unless and until a successor Master Trustee has been appointed and has assumed the trusts created in the Master Indenture. Written notice of removal shall be given to the Members and to each Holder at the address then reflected on the books of the Master Trustee. A successor Master Trustee may be appointed at the direction of the Holders of not less than a majority in aggregate principal amount of Obligations Outstanding, or, if the Master Trustee has resigned or has been removed by the Obligated Group Representative, by the Obligated Group Representative. If a successor Master Trustee has not been appointed and qualified within 60 days of the date notice of resignation is given, the Master Trustee, any Member or any Holder may apply to any court of competent jurisdiction for the appointment of an interim successor Master Trustee to act until such time as a permanent successor is appointed.

Unless otherwise ordered by a court or regulatory body having competent jurisdiction, or unless required by law, any successor Master Trustee shall be a trust company or bank having the powers of a trust company as to trusts, qualified to do and doing trust business in one or more states of the United States of America and having an officially reported combined capital, surplus, undivided profits and reserves (or if the Master Trustee is a subsidiary of such financial institution, the parent institution shall satisfy these requirements) aggregating at least $50,000,000, if there is such an institution willing, qualified and able to accept the trust upon reasonable or customary terms.

Every successor Master Trustee howsoever appointed under the Master Indenture shall execute, acknowledge and deliver to its predecessor and also to each Member an instrument in writing, accepting such appointment. Upon the delivery of such acceptance, such successor Master Trustee shall, without further action, become fully vested with all the rights, immunities, powers, trusts, duties and obligations of its predecessor. The predecessor Master Trustee shall execute and deliver an instrument transferring to such successor Master Trustee all the rights, powers and trusts of such predecessor Master Trustee. The predecessor Master Trustee shall execute any and all documents necessary or appropriate to convey all interest it may have to the successor Master Trustee. The predecessor Master Trustee shall promptly deliver all records relating to the trust or copies thereof and communicate all material information it may have obtained concerning the trust to the successor Master Trustee.

Each successor Master Trustee, not later than 10 days after its assumption of the duties under the Master Indenture, shall mail a notice of such assumption to each Holder.

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 or one or more amendments to the Deed of Trust for one or more of the following purposes: (a) to cure any ambiguity or formal defect or omission in the Master Indenture or in the Deed of Trust; (b) to correct or supplement any provision of the Master Indenture or of the Deed of Trust 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 and security for additional Obligations or Series of Obligations as permitted thereunder; (f) to obligate a successor to any Member as permitted in the Master Indenture; (g) to add a new Member or

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have a Member withdraw as permitted in the Master Indenture; or (h) to provide for the release in accordance with the provisions of the Deed of Trust of any Property subject to the lien of such Deed of Trust.

Supplements Requiring Consent of Holders.

(a) Other than Related Supplements and amendments to the Deed of Trust and subject to the terms and provisions and limitations contained in the Master Indenture, the Holders of not less than 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 and amendments to the Deed of Trust 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 therein. 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 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 this heading entitled “THE MASTER INDENTURE – SUPPLEMENTS AND AMENDMENTS,” 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.

(b) The Master Trustee may execute a Related Supplement or an amendment to the Deed of Trust (in substantially the form delivered to it as described below) without liability or responsibility to any Holder (whether or not such Holder has consented to the execution of such Related Supplement or amendment to the Deed of Trust) if the Master Trustee receives: (1) a Request of the Obligated Group Representative to enter into such Related Supplement or amendment to the Deed of Trust; (2) a certified copy of the resolution of the Governing Body of the Obligated Group Representative approving the execution of such Related Supplement or amendment to the Deed of Trust; (3) the proposed Related Supplement or amendment to the Deed of Trust; and (4) an instrument or instruments executed by the Holders of not less than the aggregate principal amount or number of Obligations specified in subparagraph (a) above for the Related Supplement or amendment to the Deed of Trust in question which instrument or instruments shall refer to the proposed Related Supplement or amendment to the Deed of Trust 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.

(c) 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 or amendment to the Deed of Trust, 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 or amendment to the Deed of Trust, the Master Trustee shall deliver a written statement to that effect to the Obligated Group Representative. Such written statement shall be conclusive that such consents have been so filed.

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(d) 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 or amendment to the Deed of Trust, 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) 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 pursuant to an agreement between a Member and such bank or trust company) as cash or Escrow Obligations or both, sufficient to pay at maturity or upon redemption all Obligations not previously cancelled or delivered to the Master Trustee for cancellation, including without limitation principal and interest due or to become due 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 by the Members, then the Master Indenture shall cease to be of further effect, and the Master Trustee, on demand of the Members and at the cost and expense of the Members, shall execute proper instruments acknowledging satisfaction of and discharging the Master Indenture. The Members shall cause a report to be prepared by a firm nationally recognized for providing verification services regarding the sufficiency of funds for such discharge and satisfaction, upon which report the Master Trustee may rely.

THE 2016 DEEDS OF TRUST

DEFINITION

On the date of issuance of the Bonds, (a) PRCN will execute, deliver, and cause to be recorded (i) that certain Amended and Restated Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Park Shore), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 531810-2110- 07 and 531810-2110-98; (ii) that certain Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1611 Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 780300- 0010-02; (iii) that certain Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (1623 Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 780439-0030- 02; and (iv) that certain Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (McGilvra Place Condominium), dated as of October 1, 2016, executed and granted by PRCN, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel Nos. 531680-0070- 06(b) Skyline will execute, deliver, and cause to be recorded that certain Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Skyline), dated as of October 1, 2016, executed and granted by Skyline, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County

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Assessor Tax Parcel Nos. 859040-0825-04; 859040-0826-03; 859040-0827-02; 859040-0830-07; 859040-0835-02; 859040-0845-00; 859040-0845-91; 859040-0850-02; and (c) Fred Lind Manor will execute, deliver, and cause to be recorded that certain Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (Fred Lind Manor), dated as of October 1, 2016, executed and granted by Fred Lind Manor, as grantor, to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, as grantee/beneficiary, to be recorded as a lien against King County Assessor Tax Parcel No. 808090-0020-03. When used in this summary of such Deeds of Trust, the term “2016 Deeds of Trust” means such Deeds of Trust, respectively or collectively, as the context implies.

SUMMARY

Each 2016 Deed of Trust will be recorded simultaneously with issuance of the Bonds as a first- position lien against the real property legally described therein, subject only to Permitted Encumbrances. The 2016 Deeds of Trust together convey to Chicago Title Insurance Company, as trustee, for the benefit of the Master Trustee, interests in certain land, improvements and fixtures owned and operated by the Borrowers (see “MISCELLANEOUS –2016 Deeds of Trust” in Appendix A to this Official Statement) all present and future leases related to or generated by such Property, and any proceeds of any such items. The 2016 Deeds of Trust also (i) grant security interests in favor of the Master Trustee in equipment, furniture, and other personal property owned by the respective Borrower under its related 2016 Deed of Trust and located in, generated by, or used in connection with such Property (ii) function as fixture filings under Article 9 of the Washington Uniform Commercial Code (RCW 62A.9-402(6)) with respect to any of such Property that may be fixtures, and (iii) assign all leases and rents related to such Property to the Master Trustee as security for Obligations issued and Outstanding under the Master Indenture from time to time.

Except as otherwise permitted by the Master Indenture, the each Borrower covenants under its respective the 2016 Deed of Trust to keep the Property subject to such 2016 Deed of Trust free from liens (other than Permitted Encumbrances and other liens being contested in good faith), to use the Project Facilities in accordance with all laws, to keep the Project Facilities free of hazardous substances (except for normal products used in accordance with all rules and regulations), to maintain the Project Facilities in good condition and repair, and to timely pay all taxes and assessments due with respect to the Project Facilities.

In the event of a default under a 2016 Deed of Trust, the Master Trustee may cause any or all of the real property encumbered by such 2016 Deed of Trust to be sold at a judicial or non-judicial foreclosure sale, and/or, with respect to personal property security under such 2016 Deed of Trust, may exercise all rights and remedies of a secured party under the Uniform Commercial Code (“UCC”), including but not limited to a UCC foreclosure sale. Following a default under a 2016 Deed of Trust, the Master Trustee also may seek the appointment of a receiver and/or pursue any other rights or remedies available at law or in equity.

The 2016 Deeds of Trust with respect to condominium units are each subject to the condominium declaration and the survey map and plans described on Exhibit A to each such 2016 Deed of Trust, and to the bylaws, rules and regulations of any condominium association established thereunder. Each such 2016 Deed of Trust shall extend to all of PRCN’s estate, right, title, claim and interest in such condominium unit, including in all common elements and limited common elements appurtenant thereto and in all voting and other rights with respect to such unit (provided that the Master Trustee shall be entitled to exercise such rights only following foreclosure of the related Deed of Trust following an Event of Default in accordance with its terms).

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APPENDIX F

FORMS OF APPROVING OPINIONS OF BOND COUNSEL

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October [__], 2016

Washington State Housing Finance Commission Seattle, Washington

U.S. Bank National Association, as bond trustee Seattle, Washington

Ziegler Investment Banking, a division of B.C. Ziegler & Company Scottsdale, Arizona

Re: Washington State Housing Finance Commission Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A - $[______]

Ladies and Gentlemen:

We have examined the Constitution and laws of the State of Washington (the “State”) and a certified transcript of the proceedings taken by the Washington State Housing Finance Commission (the “Commission”) in the matter of the issuance by the Commission of its Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A, in the aggregate principal amount of $[______] (the “Bonds”) and its Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B, in the aggregate principal amount of $[______] (the “Series 2016B Bonds”). Proceeds of the Bonds will be used to provide part of the funds with which to acquire a mortgage loan (the “Loan”) made to Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation (“PRCN”), FH, LLC, a Washington limited liability company, the sole member of which is PRCN, and Fred Lind Manor, a Washington nonprofit corporation (collectively, the “Borrowers”) in accordance with a Mortgage Loan Origination and Financing Agreement (the “Loan Agreement”) to be executed by the Commission, the Borrowers, U.S. Bank National Association, as the mortgage lender, and U.S. Bank National Association, as the bond trustee (the “Bond Trustee”). Proceeds of the Mortgage Loan will be used for (1) the reimbursement of PRCN of the cost of the acquisition of three condominium units, (2) the construction, renovation and equipping of senior housing and related facilities of the Borrowers at Park Shore and Fred Lind Manor, (3) the payoff or reimbursement of Fred Lind Manor for the cost of prepaying a taxable loan incurred for Fred Lind Manor, (4) the current refunding of outstanding bonds of the Commission issued in 2007, (5) the funding of a debt service reserve fund, and (6) the payment of costs of issuing the Bonds (collectively, the “Project”). The Commission has executed a Non-Arbitrage Certificate (the “Commission Tax Certificate”) and the Borrowers have executed a Tax Certificate of the Borrowers (the “Borrower Tax Certificate” and together, the “Tax Certificates”) each of even date herewith regarding the use of the proceeds of the Bonds.

F-1 October [___], 2016 Page 2

The Bonds have been authorized pursuant to Chapter 161, Laws of Washington, 1983, a resolution of the Commission adopted July 28, 2016 (the “Resolution”), and an Indenture of Trust dated as of October 1, 2016 (the “Bond Indenture”), between the Commission and the Bond Trustee. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bond Indenture.

The Bonds are fully registered, are dated the date of issuance, and mature on [______1, 20__]. The Bonds shall bear interest from the closing date at the rates set forth in the Bond Indenture, payable semiannually on each January 1 and July 1 until paid at the maturity date or upon earlier redemption or acceleration, calculated on the basis of a 360-day year comprised of twelve 30-day months. The Bonds are subject to redemption and acceleration prior to their stated dates of maturity as provided in the Bond Indenture.

The Commission has not designated the Bonds as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”).

The Bonds are special limited obligations of the Commission. The principal of, redemption premium, if any, and interest on the Bonds are payable solely from and secured by a pledge of certain moneys, securities and earnings held in the funds and accounts created under the Bond Indenture and pledged to the Bonds. The Bonds are secured by the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 2 (the “Series 2016 Obligation”) issued pursuant to a Master Trust Indenture dated as of June 1, 2013, by and between the Borrowers, as the Members of the Obligated Group, and U.S. Bank National Association, as the master trustee (the “Master Trustee”), as amended by a Second Supplemental Master Trust Indenture dated as of October 1, 2016, between the Borrowers, as the Members of the Obligated Group, and the Master Trustee.

We have examined executed counterparts of the Bond Indenture, the Loan Agreement, the Tax Certificates and such other documents, rules, regulations or other matters as we have deemed relevant in arriving at the opinion stated below. In rendering the following opinion, we have relied on the opinion of Hillis Clark Martin & Peterson P.S., counsel to the Borrowers, to the effect that PRCN and Fred Lind Manor are exempt from taxation pursuant to Section 501(a) of the Code by virtue of being an organization described in Section 501(c)(3) of the Code and that the facilities financed and refinanced with the proceeds of the Bonds are not being used in an unrelated trade or business of the Borrowers within the meaning of Section 513(a) of the Code.

From our examination, it is our opinion that:

1. The Commission has been duly created and organized as a public body corporate and politic constituting an instrumentality of the State with full legal right, power and authority to adopt the Resolution, to enter into the Bond Indenture, the Loan Agreement and the Commission Tax Certificate (together, the “Bond Documents”), to issue, sell and deliver the Bonds, to acquire, pledge and assign the Mortgage Loan, to provide funds for such purpose by

F-2 October [___], 2016 Page 3

the issuance of the Bonds, to perform its obligations under the Resolution and Bond Documents and to carry out the transactions contemplated thereby.

2. The Commission has duly adopted the Resolution and has duly authorized and executed the Bond Documents, and the Bond Indenture and the Loan Agreement constitute the legal, valid and binding obligations of the Commission in accordance with their terms.

3. The Bonds have been duly authorized, executed and delivered, constitute legal, valid and binding special limited obligations of the Commission in accordance with their terms and are entitled to the benefits and security provided by the Bond Indenture.

4. The Bond Indenture creates the valid pledge of and lien on the proceeds of the Series 2016 Obligation, other money and securities, funds, accounts, guarantees, insurance and other items held by the Bond Trustee under the Bond Indenture which it purports to create to secure and/or support the payment of principal of, redemption premium, if any, on and interest on the Bonds, 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.

5. The Bonds are not an obligation of the State or of any political subdivision of the State or any municipal corporation or other subdivision of the State. Neither the State nor any municipal corporation or other political subdivision of the State, other than the Commission, is liable on the Bonds. The Bonds are not a debt, indebtedness or the borrowing of money within the meaning of any prohibition on the issuance of bonds contained in the Constitution of the State.

6. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in this paragraph is subject to the condition that the Commission and the Borrowers comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Commission and the Borrowers have covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

Except as expressly stated above, we express no opinion regarding any tax consequences related to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on, the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds.

F-3 October [___], 2016 Page 4

With respect to the opinions expressed herein, the enforceability of rights and obligations under the Bonds, the Bond Indenture, the Resolution, the Tax Certificates and the Loan Agreement and against the assets pledged by the Bond Indenture is subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and subject to the exercise of judicial discretion in appropriate cases.

Very truly yours,

PACIFICA LAW GROUP LLP

F-4

October [__], 2016

Washington State Housing Finance Commission Seattle, Washington

U.S. Bank National Association, as bond trustee Seattle, Washington

Ziegler Investment Banking, a division of B.C. Ziegler & Company Scottsdale, Arizona

Re: Washington State Housing Finance Commission Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B - $[______]

Ladies and Gentlemen:

We have examined the Constitution and laws of the State of Washington (the “State”) and a certified transcript of the proceedings taken by the Washington State Housing Finance Commission (the “Commission”) in the matter of the issuance by the Commission of its Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A, in the aggregate principal amount of $[______] (the “Series 2016A Bonds”) and its Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B, in the aggregate principal amount of $[______] (the “Bonds”). Proceeds of the Bonds will be used to provide part of the funds with which to acquire a mortgage loan (the “Loan”) made to Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation (“PRCN”), FH, LLC, a Washington limited liability company, the sole member of which is PRCN, and Fred Lind Manor, a Washington nonprofit corporation (collectively, the “Borrowers”) in accordance with a Mortgage Loan Origination and Financing Agreement (the “Loan Agreement”) to be executed by the Commission, the Borrowers, U.S. Bank National Association, as the mortgage lender, and U.S. Bank National Association, as the bond trustee (the “Bond Trustee”). Proceeds of the Mortgage Loan will be used for (1) the reimbursement of PRCN of the cost of the acquisition of three condominium units, (2) the construction, renovation and equipping of senior housing and related facilities of the Borrowers at Park Shore and Fred Lind Manor, (3) the payoff or reimbursement of Fred Lind Manor for the cost of prepaying a taxable loan incurred for Fred Lind Manor, (4) the current refunding of outstanding bonds of the Commission issued in 2007, (5) the funding of a debt service reserve fund, and (6) the payment of costs of issuing the Bonds (collectively, the “Project”).

F-5 October [___], 2016 Page 2

Bond Trustee. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bond Indenture.

The Bonds are special limited obligations of the Commission. The principal of, redemption premium, if any, and interest on the Bonds are payable solely from and secured by a pledge of certain moneys, securities and earnings held in the funds and accounts created under the Bond Indenture and pledged to the Bonds. The Bonds are secured by the Presbyterian Retirement Communities Northwest Direct Note Obligation No. 3 (the “Series 2016 Obligation”) issued pursuant to a Master Trust Indenture dated as of June 1, 2013, by and between the Borrowers, as the Members of the Obligated Group, and U.S. Bank National Association, as the master trustee (the “Master Trustee”), as amended by a Second Supplemental Master Trust Indenture dated as of October 1, 2016, between the Borrowers, as the Members of the Obligated Group, and the Master Trustee.

We have examined executed counterparts of the Bond Indenture, the Loan Agreement and such other documents, rules, regulations or other matters as we have deemed relevant in arriving at the opinion stated below.

From our examination, it is our opinion that:

1. The Commission has been duly created and organized as a public body corporate and politic constituting an instrumentality of the State with full legal right, power and authority to adopt the Resolution, to enter into the Bond Indenture and the Loan Agreement (together, the “Bond Documents”), to issue, sell and deliver the Bonds, to acquire, pledge and assign the Mortgage Loan, to provide funds for such purpose by the issuance of the Bonds, to perform its obligations under the Resolution and Bond Documents and to carry out the transactions contemplated thereby.

4. The Bond Indenture creates the valid pledge of and lien on the proceeds of the Series 2016 Obligation, other money and securities, funds, accounts, guarantees, insurance and

F-6 October [___], 2016 Page 3

other items held by the Bond Trustee under the Bond Indenture which it purports to create to secure and/or support the payment of principal of, redemption premium, if any, on and interest on the Bonds, 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.

6. Interest on the Bonds is not intended to be excluded from gross income for federal income tax purposes.

With respect to the opinions expressed herein, the enforceability of rights and obligations under the Bonds, the Bond Indenture, the Resolution and the Loan Agreement and against the assets pledged by the Bond Indenture is subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and subject to the exercise of judicial discretion in appropriate cases.

Very truly yours,

PACIFICA LAW GROUP LLP

F-7 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX G

FORM OF CONTINUING DISCLOSURE AGREEMENT

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CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by Presbyterian Retirement Communities Northwest, a Washington nonprofit corporation (“PRCN”) for itself and as Obligated Group Representative on behalf of FH, LLC (“Skyline”), a Washington limited liability company, the sole member of which is PRCN, and Fred Lind Manor (“Fred Lind Manor” and, together with PRCN and Skyline, the “Borrowers”), a Washington nonprofit corporation, as of October 1, 2016. (As of the date of this Disclosure Agreement, the Borrowers are the sole Members of the Obligated Group.) The Obligated Group Representative covenants and agrees as follows:

Section 1. Definitions. Any capitalized terms used herein but not defined herein shall have the meanings assigned to them in the hereinafter described Master Indenture, and the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Obligated Group pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Bond Indenture” shall mean the Indenture of Trust, dated as of October 1, 2016, between the Commission and U.S. Bank National Association, as bond trustee, pursuant to which the Series 2016 Bonds are issued.

“Bond Trustee” shall have the meaning assigned such term in the Bond Indenture.

“Bondholders” shall mean the owners and beneficial owners from time to time of the Series 2016 Bonds.

“Borrowers” shall have the meaning assigned in the first paragraph of this Disclosure Agreement.

“Commission” shall mean the Washington State Housing Finance Commission.

“Days Cash on Hand” shall have the meaning set forth in the Master Indenture.

“Debt Service Coverage Ratio” shall have the meaning set forth in the Master Indenture.

“Disclosure Agreement” shall mean this agreement.

“Dissemination Agent” shall mean (i) the Obligated Group Representative or any Dissemination Agent designated in writing by the Obligated Group Representative and which has filed with the Obligated Group Representative a written acceptance of such designation, and (ii) initially, U.S. Bank National Association.

“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.

G-1 “Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“Loan Agreement” shall mean the Mortgage Origination and Financing Agreement, dated as of October 1, 2016, among the Borrowers, the Bond Trustee, the Mortgage Lender and the Commission relating to the Series 2016 Bonds.

“Master Indenture” shall mean the Master Trust Indenture dated as of June 1, 2013 among the Borrowers and the Master Trustee, as amended and supplemented from time to time.

“Master Trustee” shall mean U.S. Bank National Association, as master trustee.

“Member” shall have the meaning set forth in the Master Indenture.

“Monthly Report” shall mean any Monthly Report provided by the Obligated Group pursuant to Sections 3 and 4 of this Disclosure Agreement.

“Mortgage Lender” shall mean U.S. Bank National Association, as mortgage lender.

“MSRB” shall mean the Municipal Securities Rulemaking Board or any successor entity as described in the Rule.

“Obligated Group” shall have the meaning set forth in the Master Indenture.

“Obligated Group Representative” shall have the meaning set forth in the Master Indenture.

“Obligated Person” shall have the meaning set forth in the Rule.

“Offering Document” shall mean the final Official Statement, dated ______, 2016 relating to the Series 2016 Bonds.

“Quarterly Report” shall mean any quarterly report provided by the Obligated Group 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.

“SEC” shall mean the United States Securities and Exchange Commission.

“Series 2016 Bonds” means collectively, the Series 2016A Bonds and the Series 2016B Bonds.

“Series 2016A Bonds” means the Commission’s Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A.

G-2 “Series 2016B Bonds” means the Commission’s Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B.

“Underwriter” shall mean B.C. Ziegler and Company, or any additional purchaser of the Series 2016 Bonds required to comply with the Rule in connection with an offering of the Series 2016 Bonds.

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 2016 Bonds. The Obligated Group Representative represents that the Borrowers are the only Obligated Persons with respect to the Series 2016 Bonds at the time the Series 2016 Bonds are delivered to the Underwriter. In its actions under this Disclosure Agreement, if any, the Dissemination Agent shall be entitled to the same protections afforded to the Master Trustee under the Master Indenture.

Section 3. Provision of Annual Reports, Quarterly Reports and Monthly 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 Borrowers (beginning with the fiscal year ending September 30, 2016), provide or cause to be provided to the MSRB (in an electronic format by transmission to EMMA and accompanied by identifying information as prescribed by the MSRB) an Annual Report that is consistent with the requirements of Section 4(a) of this Disclosure Agreement.

(b) The Obligated Group Representative shall, or shall cause the Dissemination Agent to, not later than 60 days after the completion of each fiscal quarter of the Borrowers (beginning with the fiscal quarter ending December 31, 2016), provide or cause to be provided to the MSRB (in an electronic format by transmission to EMMA and accompanied by identifying information as prescribed by the MSRB) a Quarterly Report that is consistent with the requirements of Section 4(b) of this Disclosure Agreement.

(c) During the period of time any Monthly Report is required under Section 4(c) hereof, the Obligated Group Representative shall, or shall cause the Dissemination Agent to, provide to the MSRB (in an electronic format by transmission to EMMA and accompanied by identifying information as prescribed by the MSRB), a Monthly Report as described in and consistent with the requirements of Section 4(c) hereof.

(d) In each case the Annual Report, the Quarterly Report and the Monthly Report may be submitted as a single document or as a package comprising separate documents. Any or all of the items constituting the Annual Report, the Quarterly Report or the Monthly Report may be incorporated by reference from other documents that have been submitted to the MSRB or the SEC. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Obligated Group Representative shall clearly identify each such other document so incorporated by reference.

G-3 (e) The Dissemination Agent shall (if the Dissemination Agent is other than the Obligated Group Representative) file a report with the Obligated Group Representative certifying that the Annual Report, the Quarterly Report or the Monthly Report, as applicable, has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the MSRB.

(f) With respect to each Annual Report, Quarterly Report or Monthly Report required to be submitted to the MSRB in this Section 3, the Obligated Group Representative agrees to deliver such information or, alternatively, a notice of the Obligated Group Representative’s intent to act as its own Dissemination Agent with respect to such information, to the Dissemination Agent at least five (5) Business Days prior to the date required for dissemination to the MSRB. If the Dissemination Agent does not receive an Annual Report, Quarterly Report or Monthly Report or a notice of the Obligated Group Representative’s intent to act as Dissemination Agent with respect to such information on or before such date, then the Dissemination Agent shall file with the MSRB a Notice of Failure to file in the form attached as Exhibit A hereto. If the Obligated Group Representative is unable to provide to the MSRB an Annual Report, Quarterly Report or Monthly Report by the dates required in this Section 3 and the Dissemination Agent has not filed with the MSRB a related Notice of Failure to file in the form attached as Exhibit A hereto, the Obligated Group Representative shall send or cause to be sent a notice of such fact to the MSRB.

(g) Each Annual Report, Quarterly Report and Monthly Report submitted hereunder shall be in readable PDF or other acceptable electronic form.

Section 4. Content of Annual, Quarterly and Monthly Reports.

(a) The Annual Report to be delivered under Section 3(a) shall include the audit of the Obligated Group and consolidated affiliates for the fiscal year immediately preceding the due date of the Annual Report, prepared in accordance with generally accepted accounting principles and audited by an independent certified public accountant, together with, for each Member of the Obligated Group and prepared in accordance with generally accepted accounting principles, a combined or combining, if applicable, balance sheet as of the end of such fiscal year, a combined and an unaudited combining, if applicable, statement of changes in fund balances for such fiscal year and a combined and an unaudited combining, if applicable, statement of revenues and expenses and a statement of cash flows for such fiscal year. The Annual Report shall also include a separate written statement of the accountants preparing such report containing calculations of the Obligated Group’s Debt Service Coverage Ratio for such fiscal year and of the Obligated Group’s 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 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; 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. The Annual Report to be delivered under Section 3(a) shall also provide the following financial and operating data:

G-4 (1) A report on unit mix and fees for all of the facilities operated by the Obligated Group as of the end of each such fiscal year, providing the information contained in Exhibit 1 to APPENDIX A – “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “Independent Living Units” and “Assisted Living Units.”

(2) A report on occupancy levels of all of the facilities operated by the Obligated Group by level of care as of the end of each such fiscal year, providing, with respect to such occupancy levels, the information contained in Exhibit 1 to APPENDIX A – “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “Point-in-Time Occupancy” and “Average Occupancy.”

(3) A report of the payor mix of any Obligated Group Member’s skilled nursing beds, providing, with respect to such beds, the information contained in Exhibit 1 to APPENDIX A – “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the heading “Health Center Revenue Sources.”

(4) To the extent not otherwise provided, an update of the operating data contained in APPENDIX A – “INFORMATION CONCERNING PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST OBLIGATED GROUP” under the headings “FINANCIAL INFORMATION – Obligated Group Pro Forma Summary Statement of Financial Position,” “– Obligated Group Pro Forma Summary Statement of Operations (Unrestricted),” “– Debt Service Coverage Ratios” and “– Liquidity.”

(b) The Quarterly Report to be delivered under Section 3(b) shall contain management-prepared financial statements in a format similar to the financial statements contained in the Offering Document, including a combined or combining, if applicable, statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining, if applicable, balance sheet as of the end of each such fiscal quarter, and a calculation of the Days Cash on Hand for the second and last fiscal quarters of each year, a calculation of Debt Service Coverage Ratio for the fiscal year reported as of the end of the last fiscal quarter and occupancy levels of all of the facilities operated by the Obligated Group by level of care as of the end of each such 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 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. Each Quarterly Report shall also include a comparison of actual revenue and expense of the Obligated Group for each relevant period against the operating budget of the Obligated Group (on a monthly and year-to-date basis) for such period.

(c) In any fiscal year where the Obligated Group’s Debt Service Coverage Ratio for the preceding fiscal year, calculated as of September 30, was less than 1.00:1, a Monthly Report under this Section 4(c) shall be required, until the Obligated Group’s Debt Service Coverage Ratio is at least 1.00:1. The first such Monthly Report shall be submitted not later than 45 days

G-5 after the end of such fiscal year. The Monthly Report to be delivered under Section 3(c) shall contain the same information required to be included in the Quarterly Reports, as detailed in Section 4(b) above.

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 2016 Bonds:

(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 2016A Bonds, or other material events affecting the tax status of the Series 2016A 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 Series 2016 Bonds, if material;

(11) rating changes;

(12) bankruptcy, insolvency, receivership or similar event of an Obligated Group Member;

(13) the consummation of a merger, consolidation, or acquisition involving an Obligated Group Member or the sale of all or substantially all of the assets of an Obligated Group Member, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action

G-6 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 a notice of such occurrence with the MSRB (in an electronic format by transmission to EMMA and accompanied by identifying information as prescribed by the MSRB). Such notice shall be filed within ten (10) Business Days after the occurrence of the Listed Event. If the Obligated Group Representative determines that it failed to give notice as required by this Section, it shall promptly file a notice of such occurrence in the same manner.

Section 6. Termination of Reporting Obligation. The Obligated Group’s obligations under this Disclosure Agreement with respect to the Series 2016 Bonds shall terminate upon the defeasance, prior redemption or payment in full of all the Series 2016 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. Dissemination Agent. From time to time, the Obligated Group Representative may appoint or engage a Dissemination Agent to assist the Borrowers in carrying out their obligations under this Disclosure Agreement, and may discharge any such agent, with or without appointing a successor Dissemination Agent. 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 U.S. Bank National Association. The sole remedy of any party against the Dissemination Agent shall be nonmonetary and specific performance. The Dissemination Agent shall not be responsible for the form or content of any Annual Report, Quarterly Report, notice of Listed Event, or other document furnished to the Dissemination Agent by the Obligated Group Representative. The Dissemination Agent shall receive reasonable compensation for its services provided hereunder. The Dissemination Agent may resign at any time by providing at least 60 days’ notice to the Obligated Group Representative.

Section 8. Amendment; Waiver; Modification. The Obligated Group 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 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 Group 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 Commission or the Obligated Group Members, materially impair the interests of the Bondholders.

G-7 Section 9. Additional Information. The Obligated Group Members 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, Quarterly 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 Obligated Group chooses to include any information in any Annual Report, Quarterly 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, Quarterly Report or notice of occurrence of a Listed Event.

Section 10. Default. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Master Indenture, 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 Obligated Group or the Obligated Group Representative, on behalf of the Obligated Group, to comply with this Disclosure Agreement shall be an action to compel performance.

Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Borrowers, the Underwriter and the Bondholders, and shall create no rights in any other person or entity.

Section 12. Responsible Officer. The Obligated Group Representative’s Chief Financial Officer shall be the officer, agency, or agent of the Obligated Group Representative responsible for providing Annual Reports, Quarterly Reports and giving notice of Listed Events, to the extent required hereunder, and any inquiries regarding this Disclosure Agreement should be directed to the Obligated Group Representative, to the attention of its Chief Financial Officer.

[Signature appears on the following page]

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IN WITNESS WHEREOF, the Obligated Group Representative caused this Disclosure Agreement to be executed by its duly authorized officer as of the date first set forth above.

PRESBYTERIAN RETIREMENT COMMUNITIES NORTHWEST, as Obligated Group Representative

By______President and Chief Executive Officer

[Signature Page to Continuing Disclosure Agreement - PRCN 2016]

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The undersigned has reviewed this Disclosure Agreement and acknowledges and agrees to perform the duties of Dissemination Agent thereunder as of the date set forth above.

U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent

By: ______Authorized Signatory

[Signature Page to Continuing Disclosure Agreement - PRCN 2016]

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EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE

Name of Issuer: Washington State Housing Finance Commission

Name of Obligor: Presbyterian Retirement Communities Northwest

Name of Bond Issue: WASHINGTON STATE HOUSING FINANCE COMMISSION Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Project), Series 2016A and Series 2016B

Date of Bond October [___], 2016 Issuance:

NOTICE IS HEREBY GIVEN that Presbyterian Retirement Communities Northwest (the “Obligor”) has not provided an [Annual Report][Quarterly Report][Monthly Report] with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of October 1, 2016, between the Obligor and the Dissemination Agent named therein. The Obligor has informed the Dissemination Agent that the Obligor anticipates the [Annual Report][Quarterly Report][Monthly Report] will be filed by ______.

Dated: ______

[______], as Dissemination Agent

By: ______

cc: Presbyterian Retirement Communities Northwest

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APPENDIX H

BOOK-ENTRY ONLY SYSTEM

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BOOK-ENTRY ONLY SYSTEM

THE INFORMATION PROVIDED IN THIS APPENDIX H HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE COMMISSION, THE BORROWERS, 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 of such maturity, 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 a Standard & Poor’s rating of 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 and www.dtc.org. Neither the information on these websites, nor on any links from them, 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

H-1

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.

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 affect 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 notices be provided directly to them. THE COMMISSION, THE BORROWERS, THE UNDERWRITER AND THE BOND TRUSTEE WILL NOT 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 within a maturity 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 Commission 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).

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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 Commission 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 Commission, 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 Commission 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 Commission or the Bond Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered as described in the Bond Indenture.

The Commission 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 Commission believes to be reliable, but the Commission takes no responsibility for the accuracy thereof.

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Washington State Housing Finance Commission • Nonprofit Housing Revenue and Refunding Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016A Taxable Nonprofit Housing Revenue Bonds (Presbyterian Retirement Communities Northwest Projects), Series 2016B