REFUNDING ISSUE—Book-Entry Only RATING: S&P “A+”See “RATING” herein.

In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, subject to compliance by the Authority and the Corporation with certain covenants, under present law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See “TAX MATTERS” herein.

$11,965,000CALIFORNIA HEALTH FACILITIES

FINANCING AUTHORITY Insured Refunding Revenue Bonds

(Lincoln Glen Manor for Senior Citizens) Series 2015

Dated: Date of delivery Due: April 1, as shown below

The $11,965,000 California Health Facilities Financing Authority Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2015 (the “Bonds”), will constitute limited obligations of the California Health Facilities Financing Authority (the “Authority”) secured under the provisions of the Indenture and the Loan Agreement described herein, and will be equally and ratably payable from loan payments made by Lincoln Glen Manor for Senior Citizens (the “Corporation”) to the Authority under the Loan Agreement and from certain funds held under the Indenture.

The proceeds of the Bonds will be used to (a) provide for the advance refunding of a portion of the outstanding California Municipal Finance Authority Insured Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2011 (the “Refunded 2011 Bonds”), the proceeds of which were used to (i) refund, on a current basis, all outstanding ABAG Finance Corporation for Nonprofit Corporations Insured Certificates of Participation (Lincoln Glen Manor for Senior Citizens), Series 2000, executed and delivered to (A) refinance certain existing indebtedness of the Corporation, (B) finance the renovation of existing buildings, and (C) finance the costs of construction of a 31 unit assisted living facility; (ii) finance the conversion of 8 independent living units (from a 20 unit building) into 11 memory care beds for patients suffering from Alzheimer’s disease and dementia; and (iii) finance the expansion, remodeling and updating of the Corporation’s Central Manor, all located at the Corporation’s multi-level facility for the elderly at 2671 Plummer Avenue in the City of San Jose, California, owned or to be owned and operated by the Corporation; (b) fund a reserve fund for the Bonds; and (c) pay a portion of the costs of issuance of the Bonds (collectively, the “Refinancing Plan”). See “THE REFINANCING PLAN” herein.

Bonds will not be secured by any property of the Authority other than the pledge of Revenues, as and to the extent specified in the Indenture. Revenues will primarily consist of loan payments made by the Corporation. No form of taxation will be pledged or levied to provide for payment with respect to the Bonds. The Authority will assign to U.S. Bank National Association, San Francisco, California, as trustee (the “Trustee”), its interests under the Loan Agreement and will grant to the Trustee a lien on and pledge of Revenues, monies and investments held in the funds and accounts created under the Indenture. The Loan Agreement shall contain terms and conditions that are on parity with those terms and conditions of the loan agreement relating to the Refunded 2011 Bonds. Pursuant to the Loan Agreement, the Corporation will be required to make payments to the Authority sufficient to pay all principal of and interest on the Bonds. See “SECURITY FOR THE BONDS” herein.

The Bonds will be issued as fully registered bonds and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. Individual purchases of interests in the Bonds will be made in book-entry form only. Purchasers of such interests will not receive physical certificates. Interest on the Bonds is payable semiannually on each April 1 and October 1, commencing October 1, 2015. Principal of and interest on the Bonds is payable directly to DTC by the Trustee. Upon receipt of payments of principal of, premium, if any, and interest on the Bonds, DTC will in turn remit such payments to the DTC Participants for subsequent disbursement to the beneficial owners of the Bonds, as described herein. See “The BONDS—Description of the Bonds” and “—Book-Entry Only System” herein and APPENDIX F — “BOOK-ENTRY ONLY SYSTEM.”

The Bonds will be subject to redemption prior to maturity as described herein.

Pursuant to the California Constitution Article XVI, Section 4, and California Health and Safety Code, Division 107, Part 6, Chapter 1, payment of the principal of and interest on the Bonds will be insured by the Office of Statewide Health Planning and Development of the State of California (the “Office”), and all debentures issued in payment of any claims under such insurance will be fully and unconditionally guaranteed by the State of California, all as more fully described herein.

The following firm served as registered municipal advisor to the Corporation on this financing: HG WILSON MUNICIPAL FINANCE INC.

THE BONDS ARE NOT A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE OF CALIFORNIA OR ANY SUCH POLITICAL SUBDIVISION BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. NEITHER THE STATE OF CALIFORNIA NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE PREMIUM, IF ANY, OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT AND THE INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE PREMIUM, IF ANY, OR INTEREST ON THE BONDS, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED THROUGH THE INSURANCE PROGRAM DESCRIBED HEREIN. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED THROUGH THE INSURANCE PROGRAM DESCRIBED HEREIN. THE AUTHORITY HAS NO TAXING POWER.

SEE THE INSIDE FRONT COVER FOR THE MATURITY SCHEDULES FOR THE BONDS

For a discussion of some of the risks associated with the purchase of the Bonds, see “BONDHOLDERS’ RISKS” herein.

This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Bonds will be offered when, as and if issued and received by the Underwriters, subject to an approving legal opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the Authority by its counsel, the Attorney General of the State of California. Certain matters will be passed upon for the Underwriters by their counsel, Jennings, Strouss & Salmon, PLC, Phoenix, Arizona. Certain matters will be passed upon for the Corporation by Wilson Law Group, PC, San Diego, California, as Counsel to the Corporation and as Disclosure Counsel. It is expected that the Bonds, in definitive form, will be available for delivery through the facilities of DTC, on or about February 11, 2015.

HONORABLE JOHN CHIANG Treasurer of the State of California

As Agent for Sale

Southwest Securities Dated: January 30, 2015

$11,965,000CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY

Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens)

Series 2015

MATURITY SCHEDULE CUSIP† Prefix: 13033L

Maturity (April 1)

Principal Amount

InterestRate Yield Price

CUSIP†

Suffix2018 $95,000 2.000% 0.980% 103.144% 5F0 2019 95,000 3.000 1.210 107.204 5G8 2020 100,000 3.000 1.450 107.647 5H6 2021 105,000 3.000 1.670 107.728 5J2 2022 560,000 5.000 1.880 120.750 5K9 2023 585,000 5.000 2.050 122.007 5L7 2024 615,000 5.000 2.200 123.063 5M5 2025 650,000 5.000 2.340 123.882 5N3 2026 680,000 5.000 2.490 122.365c 5P8 2027 715,000 5.000 2.610 121.167c 5Q6 2028 750,000 5.000 2.700 120.277c 5R4 2029 785,000 3.000 3.120 98.634 5S2 2030 810,000 3.000 3.200 97.612 5T0 2031 835,000 3.125 3.270 98.190 5U7 2032 860,000 3.125 3.320 97.464 5V5 2033 890,000 3.125 3.360 96.824 5W3 2034 915,000 3.250 3.380 98.176 5X1 2035 945,000 3.250 3.420 97.537 5Y9 2036 975,000 3.250 3.440 97.159 5Z6

† – Copyright 2014, American Bankers Association. CUSIP data in this Official Statement are provided by CUSIP Global Service operated by CUSIP Service Bureau, which is managed on behalf of the American Bankers Association by Standard & Poor's. Standard & Poor's is a unit of The McGraw-Hill Companies, Inc. The data are not intended to create a database and do not serve in any way as a substitute for the CUSIP Global Services. CUSIP numbers are provided for convenience of reference only. None of the Authority, the Office, the Corporation, and the Underwriters assume any responsibility for the accuracy of the CUSIP data. The CUSIP number for a specific maturity is subject to being changed after delivery of the Bonds as a result of various subsequent actions, including a refunding in whole or in part or as the result of the procurement of a secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

c – Priced to the April 1, 2025 par call date.

i

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Corporation, in any press release and in any oral statement made with the approval of an authorized officer of the Corporation, the words or phrases “will likely result,” “are expected to”, “will continue”, “is anticipated”, “estimate”, “project,” “forecast”, “expect”, “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. 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, give rise to any implication that there has been no change in the affairs of the Corporation since the date hereof.

Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Authority to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority or the underwriting firms designated on the front cover hereof and set forth herein under the caption “UNDERWRITING” (the “Underwriters”). 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 a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Involvement of Underwriters. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Involvement of Authority. The information relating to the Authority set forth herein under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION—The Authority” has been furnished by the Authority. The Authority does not warrant the accuracy of the statements contained herein relating to the Corporation nor does it directly or indirectly guarantee, endorse or warrant (1) the creditworthiness or credit standing of the Corporation, (2) the sufficiency of the security for the Bonds or (3) the value or investment quality of the Bonds. The Authority makes no representations or warranties whatsoever with respect to any information contained therein except for the information under the sections entitled “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION—The Authority.”

ii

Information Subject to Change. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the Corporation since the date hereof. All summaries of the documents referred to in this Official Statement, are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.

Offer and Sale of Bonds. The Underwriters may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY A FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

iii

TABLE OF CONTENTS Page Page

INTRODUCTORY STATEMENT............................1 THE AUTHORITY ....................................................3 THE CORPORATION ...............................................4 ESTIMATED SOURCES AND USES OF FUNDS.5 THE BONDS ..............................................................6

General...............................................................6 Redemption........................................................7 Debt Service Requirements...............................9 Book-Entry Only System................................10

SECURITY FOR THE BONDS ..............................10 Pledge Under the Indenture; Gross Revenues 10 Debt Service Reserve Account .......................11 Insurance..........................................................12 The Office’s Control of Remedies..................12 Deed of Trust...................................................13 Rate Covenant and Other Financial

Covenants ..............................................13 Parity Debt and Other Indebtedness ...............14

CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM .....................................................14 Description of the Insurance Policy................14 The Office, the Program and the Insurance

Fund .......................................................16 CERTAIN FINANCIAL INFORMATION

REGARDING THE STATE...........................21 BONDHOLDERS’ RISKS.......................................22

General.............................................................22 State Bond Insurance.......................................22 The Office’s Control of Remedies..................23 Maintenance of Credit Rating .........................23 Present and Prospective Federal and State

Regulation..............................................25 Health Care Regulation ...................................26 Impact of Disruptions in the Credit Markets

and General Economic Factors .............30 General Risks of Long Term Care Facilities ..30 Residential and Service Revenues and

Sources...................................................30 Licensing and Enforcement Matters ...............34

Regulatory and Enforcement Matters .............35 Risks Related to Tax Exempt-Status of Bonds

and Corporation.....................................39 Business Relationships and Other Business

Matters ...................................................42 Amendments to the Documents......................43 Additional Indebtedness..................................43 Bankruptcy ......................................................43 Certain Matters Relating to Enforceability.....44 Certain Risks Associated with the Deed of

Trust.......................................................45 Office’s Exclusive Rights under Deed of

Trust.......................................................47 Trustee’s Conditional Obligation to Foreclose47 Rights of Residents..........................................47 Limited Use Facility........................................47 Environmental Matters....................................48 Seismic Risk ....................................................48 Marketability of the Bonds .............................49 Other Possible Risk Factors ............................49

ABSENCE OF MATERIAL LITIGATION............50 The Authority ..................................................50 The Corporation ..............................................50

CONTINUING DISCLOSURE ...............................51 TAX MATTERS.......................................................53 APPROVAL OF LEGALITY ..................................56 RATING....................................................................56 UNDERWRITING ...................................................56 VERIFICATION OF MATHEMATICAL

COMPUTATIONS .........................................57 THE TRUSTEE ........................................................57 MUNICIPAL ADVISOR .........................................58 INDEPENDENT AUDITORS; FINANCIAL

STATEMENTS...............................................58 CERTAIN RELATIONSHIPS AMONG THE

PARTIES.........................................................58 MISCELLANEOUS .................................................59

APPENDIX A - INFORMATION CONCERNING THE CORPORATION APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CORPORATION APPENDIX C - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D - FORM OF FINAL OPINION OF BOND COUNSEL APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F – BOOK ENTRY SYSTEM APPENDIX G – FORM OF CONTRACT OF INSURANCE

OFFICIAL STATEMENT

$11,965,000CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY

Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens)

Series 2015

INTRODUCTORY STATEMENT

This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement.

This Official Statement is furnished in connection with the offering of $11,965,000 aggregate principal amount of Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2015 (the “Bonds”), issued by the California Health Facilities Financing Authority (the “Authority”). All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in that certain Indenture, dated as of February 1, 2015 (the “Indenture”), by and between the Authority and U.S. Bank National Association, San Francisco, California, as trustee (the “Trustee”). See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Definitions.”

The Bonds will be issued under Articles 1 through 4 (commencing with section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Act”), and the Indenture. The proceeds of the sale of the Bonds will be loaned to Lincoln Glen Manor for Senior Citizens, a California nonprofit public benefit corporation (the “Corporation”), pursuant to a Loan Agreement, dated as of February 1, 2015, between the Authority and the Corporation (the “Loan Agreement”) and, together with certain funds provided by the Corporation, will be used to (a) provide for the advance refunding of a portion of the outstanding California Municipal Finance Authority Insured Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2011 (the “Refunded 2011 Bonds”), the proceeds of which were used to (i) refund, on a current basis, all outstanding ABAG Finance Corporation for Nonprofit Corporations Insured Certificates of Participation (Lincoln Glen Manor for Senior Citizens), Series 2000, executed and delivered to (A) refinance certain existing indebtedness of the Corporation, (B) finance the renovation of existing buildings, and (C) finance the costs of construction of a 31 unit assisted living facility; (ii) finance the conversion of 8 independent living units (from a 20 unit building) into 11 memory care beds for patients suffering from Alzheimer’s disease and dementia; and (iii) finance the expansion, remodeling and updating of the Corporation’s Central Manor, all located at the Corporation’s multi-level facility for the elderly at 2671 Plummer Avenue in the City of San Jose, California, owned or to be owned and operated by the Corporation; (b) fund a reserve fund for the Bonds; and (c) pay a portion of the costs of issuance of the Bonds, all as more

2

particularly described herein. See “ESTIMATED SOURCES AND USES OF FUNDS” and “THE REFINANCING PLAN” herein.

The Loan Agreement shall contain terms and conditions that are on parity with those terms and conditions of the loan agreement relating to the Refunded 2011 Bonds. Pursuant to the Loan Agreement, the Corporation will be required to make payments to the Authority sufficient to pay all principal of, interest and premium, if any, on the Bonds. Such payments constitute revenues of the Authority (the “Revenues” as defined herein) pledged for payment of the Bonds.

In accordance with the California Health Facility Construction Loan Insurance Law, Chapter 1 of Part 6 of Division 107 of the California Health and Safety Code (the “Insurance Law”), the Authority and the Office of Statewide Health Planning and Development of the State of California (the “Office”) will enter into a Contract of Insurance, dated as of February 1, 2015, with the Corporation (the “Contract of Insurance”) pursuant to which the Office will insure the payment of principal of and interest on the Bonds in the event that amounts received by the Trustee pursuant to the Loan Agreement are not sufficient to pay in full, when due, principal of and interest on the Bonds. If monies are not available to pay principal of and interest on the Bonds, the Office will be obligated to continue to make payments on the Bonds or will instruct the Trustee to declare the principal of all Bonds then outstanding and interest accrued thereon to be due and payable immediately and make payment of such principal and interests and, upon the occurrence of certain events, shall notify the Treasurer of the State of California (the “State”) and the Treasurer will issue debentures to the holders of the Bonds, fully and unconditionally guaranteed by the State, in an amount equal to the principal of and the accrued interest on the Bonds. In connection with the Contract of Insurance, the Corporation will enter into a Regulatory Agreement, dated as of February 1, 2015 (the “Regulatory Agreement”), with the Authority and the Office. For a more detailed description of the obligation of the Office to insure the payment of the principal of and interest on the Bonds, the procedures with respect to an insurance default, the obligations of the Corporation pursuant to the Regulatory Agreement and the financial condition of the Office and the State of California, see “CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM,” “CERTAIN FINANCIAL INFORMATION REGARDING THE STATE,” “BONDHOLDER’S RISKS – State Bond Insurance,” “RATING,” APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – REGULATORY AGREEMENT,” and APPENDIX G—“FORM OF CONTRACT OF INSURANCE.”

THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. NEITHER THE STATE OF CALIFORNIA NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE REDEMPTION PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED THEREFOR UNDER THE LOAN AGREEMENT, AND THE INDENTURE AND THE CONTRACT OF INSURANCE (EACH DESCRIBED HEREIN) OR TO THE EXTENT EXPRESSLY PROVIDED THROUGH THE INSURANCE PROGRAM DESCRIBED

3

HEREIN, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE REDEMPTION PREMIUM OR INTEREST ON THE BONDS, EXCEPT WITH RESPECT TO THE STATE OF CALIFORNIA, TO THE EXTENT EXPRESSLY PROVIDED IN THE CONTRACT OF INSURANCE OR THROUGH THE INSURANCE PROGRAM DESCRIBED HEREIN. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT EXCEPT, WITH RESPECT TO THE STATE OF CALIFORNIA, TO THE EXTENT EXPRESSLY PROVIDED IN THE CONTRACT OF INSURANCE OR THROUGH THE INSURANCE PROGRAM DESCRIBED HEREIN. THE AUTHORITY HAS NO TAXING POWER.

See the section of this Official Statement entitled “BONDHOLDERS’ RISKS” for a discussion of special factors that should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds.

All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Indenture, the Loan Agreement and the Regulatory Agreement. See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS OF CERTAIN TERMS.”

Brief descriptions of the Bonds, the sources of payment for the Bonds, the Authority, the Corporation, special risk factors, the Indenture and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Indenture and other documents are qualified in their entirety by reference to each such document and the information with respect thereto included in the Bonds, such Indenture and other documents. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

THE AUTHORITY

The Authority is a public instrumentality of the State of California organized and existing under and by virtue of the California Health Facilities Financing Authority Act, constituting Part 7.2 of Division 3of Title 2 of the California Government Code (the “Act”). The intent of the California Legislature in enacting the Act was to provide financing to health facilities and to pass along to the consuming public all or part of any savings realized by a participating health institution (as defined in the Act) as a result of tax-exempt financing. Pursuant to the Act, the Authority is authorized to issue its revenue bonds for the purpose of financing (including reimbursing expenditures made or refinancing indebtedness incurred for such purpose) the construction, expansion, remodeling, renovation, furnishing, equipping or acquisition of health

4

facilities operated by participating health institutions. The State Treasurer is authorized under the Act to sell such revenue bonds on behalf of the Authority.

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

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

Organization and Membership

The Act provides that the Authority shall consist of nine members, including the State Treasurer, who shall serve as Chairman, the State Controller, the Director of Finance and two members appointed by each of the Senate Rules Committee, the Speaker of the State Assembly and the Governor of the State of California. The Chairman of the Authority appoints the Executive Director.

Outstanding Indebtedness of the Authority

As of September 30, 2014, the Authority had issued obligations aggregating $31,466,537,017 in an original principal amount and had outstanding obligations in the aggregate principal amount of $13,077,498,998.

THE CORPORATION

The Corporation is a California nonprofit public benefit corporation as described in section 501(c)(3) of the Code and is exempt from income taxation pursuant to section 501(a) of the Code. For more detailed information concerning the history, governance, organization, facilities, operations, and financial performance of the Corporation, see APPENDIX A—“INFORMATION CONCERNING THE CORPORATION” and APPENDIX B—“AUDITED FINANCIAL STATEMENTS OF THE CORPORATION.”

5

ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds related to the Bonds.

Sources of Funds:

Principal Amount of Bonds $11,965,000.00 Plus: Net Bond Premium 860,186.85 Equity Contribution by Corporation 50,907.57 Transfer of Funds from Refunded 2011 Bonds 967,520.04 Total Sources of Funds $13,843,614.46

Uses of Funds:

Deposit to Escrow Fund(1) $12,595,612.05 Deposit to Debt Service Reserve Account(2) 554,843.76 Costs of Issuance Fund(3) 290,207.57 Bond Insurance Premium Fee 402,951.08 Total Uses of Funds $13,843,614.46

(1) Amounts deposited in the Escrow Fund will be used to redeem the Refunded 2011 Bonds. See “THE REFINANCING PLAN” herein below. (2) Represents an annual amount equal to the Debt Service Reserve Account Requirement on the Bonds. (3) Includes Underwriters’ discount (see “UNDERWRITING” herein below), legal, accounting, consultant, financial advisory, and printing costs; rating agency, Trustee, and Authority fees; and other miscellaneous costs of issuance of the Bonds.

THE REFINANCING PLAN

The proceeds of the Bonds, and certain moneys of the Corporation, will be used to (a) refund the Refunded 2011 Bonds, (b) fund the Debt Service Reserve Fund in an initial amount, and (c) pay a portion of the costs of issuance of the Bonds.

A portion of the proceeds from the sale of the Bonds will be deposited into an escrow fund (the “Escrow Fund”) to be created and maintained by US. Bank National Association, as escrow bank (the “Escrow Bank”), under an escrow agreement by and between the Corporation and Escrow Bank. A portion of the moneys deposited in the Escrow Fund will be invested in U.S. Treasury Securities—State and Local Series (“SLGS”). The moneys, the maturing SLGS and the interest therein and any uninvested cash will be an amount sufficient to (a) provide for the payment of principal of and interest on the Refunded 2011 Bonds maturing on April 1, 2015, 2016 and 2017 on their scheduled interest and principal payment dates, and (b) provide for the payment of interest to and including April 1, 2016 on the Refunded 2011 Bonds maturing on or after April 1, 2022, and the redemption on April 1, 2016 of the Refunded 2011 Bonds maturing on or after April 1, 2022 at the redemption price of 102% of the principal amount thereof.

6

Following the foregoing redemption of the Refunded 2011 Bonds, the California Municipal Finance Authority Insured Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2011 (the “2011 Bonds”) with maturity dates of April 1, 2018 through April 1, 2021 shall remain outstanding. See “THE BONDS—Debt Service Reserve Account” herein below.

Sufficiency of the deposits in the Escrow Fund, the maturing principal of the SLGS therein, the investment earnings on such SLGS and the uninvested cash will be verified by Public Finance Grant Thornton LLP (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL ACCURACY” herein below. Assuming the accuracy of the Verification Agent’s computations, the Corporation’s obligations with respect to the Refunded 2011 Bonds will be discharged.

Upon the delivery of the Bonds and the deposit in the Escrow Fund of moneys sufficient to provide for the refunding of the Refunded 2011 Bonds, the Refunded 2011 Bonds will be deemed defeased and no longer outstanding. The holders of the Refunded 2011 Bonds will be entitled to payment solely out of the moneys or securities deposited in the Escrow Fund.

THE BONDS

General

The Bonds will be dated as of their date of delivery, and will bear interest at the rates set forth on the cover page of this Official Statement, payable semi-annually on each April 1 and October 1, commencing October 1, 2015. Subject to the redemption provisions set forth below, the Bonds will be payable at the principal corporate trust office of the Trustee, in San Francisco, California. Interest on the Bonds will be payable by check mailed by the Trustee on each interest payment date to the registered owners thereof as of the 15th day of the calendar month preceding the interest payment date (a “Record Date”) at the address shown on the registration books maintained by the Trustee.

The Bonds will be issued in denominations of $5,000 or any amounts in excess thereof in even $5,000 increments. The Bonds will be issuable in fully registered form only and, when issued and delivered, will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York (“DTC”). DTC will act as the depository of the Bonds and all payments due on the Bonds will be made to DTC or its nominee. Ownership interests in the Bonds may be purchased in book-entry form only. Purchasers will not receive certificates representing their interest in the Bonds purchased. So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, references herein to the Owner or registered owner will mean Cede & Co. and will not mean the Beneficial Owners of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal, premium, if any, and interest on the Bonds are payable by wire transfer by the Trustee to Cede & Co., as nominee of DTC, which is required in turn, to remit such amount to the Direct Participants for subsequent disbursement by the Direct Participants and the Indirect Participants (as defined herein) to the Beneficial Owners. See APPENDIX F—“BOOK-ENTRY SYSTEM.”

7

Redemption

General. The Bonds are subject to optional redemption, mandatory redemption and extraordinary redemption as described below.

Optional Redemption. The Bonds maturing before April 1, 2025, are not subject to optional redemption prior to maturity.

The Bonds maturing on or after April 1, 2026, are subject to redemption prior to their stated maturity, at the option of the Authority (which option shall be exercised as directed by the Corporation), in whole or in part by lot (in such maturities as are designated by the Corporation, or if the Corporation fails to so designate, in inverse order of maturity, and by lot within a maturity) on any date, upon at least forty-five (45) days prior written notice to the Trustee from the Corporation, from any source of available moneys, on or after April 1, 2025 at a redemption price equal to the principal amount of the Bonds called for redemption, together with accrued interest to the date fixed for redemption, without premium.

Redemption from Net Proceeds of Insurance or Condemnation. The Bonds are also subject to redemption prior to their respective stated maturities at the option of the Authority (which option shall be exercised as directed by the Corporation) in whole on any date, or in any part (in such amounts and of such maturities as may be specified by the Corporation, or if the Corporation fails to designate such maturities, in inverse order of maturity and by lot) on any interest payment date, upon forty-five (45) days prior written notice to the Trustee from the Corporation. Such redemption will be effected with moneys required to be deposited in the Special Redemption Account, which the Corporation has received from insurance or condemnation proceeds, in an amount equal to the principal amount of the Bonds redeemed plus accrued interest to the date fixed for redemption, without premium.

Notice of Redemption. Unless waived by any Owner of Bonds to be redeemed, official notice of any such redemption shall be given by the Trustee by mailing a copy of an official redemption notice by first class mail at least 30 days and not more than 60 days prior to the date fixed for redemption to the respective Owner of the Bond or Bonds to be redeemed at the address shown on the Bond Register.

Each notice of redemption shall state the redemption date, the place or places of redemption, the maturities, the date of issuance of the Bonds, the CUSIP number (if any) of the maturity or maturities and, if less than all of any such maturity, the distinctive numbers (or inclusive ranges of distinctive numbers) of the Bonds of such maturity, to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on said date there will become due and payable on each of said Bonds the Redemption Price thereof or of said specified portion of the principal amount thereof in the case of a fully registered Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the Authority nor the Trustee shall have any responsibility for any defect in

8

the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Authority nor the Trustee shall be liable for any inaccuracy in such numbers.

In the case of optional redemption of the Bonds, the notice of redemption shall state that the redemption is conditioned upon receipt by the Trustee of sufficient moneys to redeem the Bonds on the anticipated redemption date, and that the optional redemption shall not occur if, by no later than the scheduled redemption date, sufficient moneys to redeem the Bonds have not been deposited with the Trustee. In the event that the Trustee does not receive sufficient funds by the scheduled optional redemption date to so redeem the Bonds to be optionally redeemed, the Trustee shall provide written notice that the redemption did not occur as anticipated, and the Bonds for which notice of optional redemption was given shall remain Outstanding as if no optional redemption had been sought.

Official notice of redemption having been given as aforesaid and upon receipt by the Trustee of sufficient moneys to effect any such redemption, the Bonds or portions of Bonds to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date interest with respect to such Bonds or portions of Bonds shall cease to be payable. All Bonds which have been redeemed shall be canceled and destroyed by the Trustee and shall not be reissued.

In addition to the foregoing notice, further notice shall be given by the Trustee to the Authority and to all Securities Depositories and to the Information Services, as set forth in the Indenture, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as prescribed above.

Payment on Redemption of Bonds. Notice having been given as aforesaid, and the moneys for the redemption, including interest accrued from the preceding Payment Date to the date of redemption and premium, if any, having been set aside in the Redemption Fund, the Bonds to be redeemed shall become due and payable on said date of redemption, and, upon presentation and surrender thereof at the office or offices specified in said notice, said Bonds shall be paid at the unpaid principal amount with respect thereto, plus any such unpaid and accrued interest to said date of redemption.

If, on said date of redemption, moneys for the redemption of all the Bonds to be redeemed and premium, if any, together with interest to said date of redemption, shall be held by the Trustee so as to be available therefor on such Payment Date, and, if notice of redemption thereof shall have been given as aforesaid, then, from and after said Payment Date, interest with respect to the Bonds to be redeemed shall cease to accrue and become payable. If said moneys shall not be so available on said Payment Date, interest with respect to such Bonds shall continue to be payable until paid at the same rates as it would have been payable had the Bonds not been called for redemption.

9

Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Trustee shall execute, and deliver to the Owner thereof, at the expense of the Corporation, a new Bond or Bonds of authorized denomination equal in aggregate principal amount to the unredeemed portion of the Bond surrendered and of the same maturity. Such partial redemption shall be valid upon payment of the amount thereby required to be paid to such Owner, and the Authority, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment.

Debt Service Requirements

2015 Bonds. The following table sets forth the annual debt service requirements for the Bonds.

Bond Year Principal Interest Total Ending April 1 Payment Payment Debt Service

2016 -- $523,226.91 $523,226.912017 -- 459,418.76 459,418.762018 $95,000.00 459,418.76 554,418.762019 95,000.00 457,518.76 552,518.762020 100,000.00 454,668.76 554,668.762021 105,000.00 451,668.76 556,668.762022 560,000.00 448,518.76 1,008,518.762023 585,000.00 420,518.76 1,005,518.762024 615,000.00 391,268.76 1,006,268.762025 650,000.00 360,518.76 1,010,518.762026 680,000.00 328,018.76 1,008,018.762027 715,000.00 294,018.76 1,009,018.762028 750,000.00 258,268.76 1,008,268.762029 785,000.00 220,768.76 1,005,768.762030 810,000.00 197,218.76 1,007,218.762031 835,000.00 172,918.76 1,007,918.762032 860,000.00 146,825.00 1,006,825.002033 890,000.00 119,950.00 1,009,950.002034 915,000.00 92,137.50 1,007,137.502035 945,000.00 62,400.00 1,007,400.002036 975,000.00 31,687.50 1,006,687.50

$11,965,000.00 $6,350,958.31 $18,315,958.31

10

2011 Bonds. The following table sets forth the annual debt service requirements for the unrefunded 2011 Bonds not defeased pursuant to the Plan of Financing.

Bond Year Principal Interest Total Ending April 1 Payment Payment Debt Service

2015 -- $74,600.00 $74,600.00 2016 -- 74,600.00 74,600.00 2017 -- 74,600.00 74,600.00 2018 $380,000.00 74,600.00 454,600.00 2019 395,000.00 58,450.00 453,450.002020 415,000.00 40,675.00 455,675.002021 430,000.00 20,962.50 450,962.50

$1,620,000.00 $418,487.50 $2,038,487.50

Book-Entry Only System

The Bonds will be issuable in fully registered form only and, when issued and delivered, will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York (“DTC”). DTC will act as the depository of the Bonds and all payments due on the Bonds will be made to DTC or its nominee. Ownership interests in the Bonds may be purchased in book-entry form only. See APPENDIX F—“BOOK-ENTRY SYSTEM.”

SECURITY FOR THE BONDS

Pledge Under the Indenture; Gross Revenues

Subject to and for the purposes and on the terms and conditions set forth in the Indenture, there are pledged to secure the payment of the principal of, and interest on, the Bonds, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund). Subject to the terms of the Loan Agreement, the Gross Revenues of the Corporation are pledged to the payment of Loan Repayments and to secure the payments of the principal of, and interest on the Bonds and Parity Debt. “Gross Revenues” means, in general, all revenues, income, receipts and money received in any period by or on behalf of the Corporation related to the Facilities (other than donor-restricted gifts, grants, bequests, donations and contributions). See APPENDIX A—“INFORMATION CONCERNING THE CORPORATION—Sources of Revenues” and APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— Definitions.” The pledge constitutes a lien on, and security interest in, such assets. The Authority assigns to the Trustee, for the benefit of the Owners, all of the rights, title and interest of the Authority in the Loan Agreement. The Trustee shall be entitled to and shall be required to take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority under the Loan Agreement.

11

The Corporation agrees that, so long as any Bonds remain outstanding under the Indenture, all of the Gross Revenues shall be deposited as soon as practicable upon receipt in a fund designated as the “Gross Revenue Fund” which the Corporation shall establish and maintain at such banking or financial institution or institutions located in the State of California as the Corporation shall designate for such purpose (the “Depository Bank(s)”). Subject only to the provisions of the Loan Agreement permitting the application thereof for the purposes and on the terms and conditions set forth therein, the Corporation pledges and, to the extent permitted by law, grants a security interest to the Trustee in the Gross Revenue Fund to secure the payment of the principal of and interest on the Bonds and Parity Debt of the Corporation.

The pledge of Gross Revenues will be perfected to the extent that such security interest may be perfected by filing under the Uniform Commercial Code of the State of California and by entering into a deposit account control agreement, and the pledge may be subordinated to the interest and claims of others. Some examples of cases of subordination or prior 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 in any federal statutes or regulations, (iv) constructive trusts, equitable liens or other rights impressed or conferred by any State or federal court in the exercise of its equitable jurisdiction, (v) federal or State of California bankruptcy laws that may affect the enforceability of the Indenture or pledge of Gross Revenues, (vi) rights of third parties in Gross Revenues converted to cash and not in the possession of the Trustee or the Depository Bank(s), (vii) provisions prohibiting the direct payment of amounts due to providers from Medicare and Medi-Cal and other governmental programs to persons other than such providers; (viii) certain judicial decisions that cast doubt upon the right of the Trustee, in the event of the bankruptcy of the Corporation, to collect and retain accounts receivable from Medicare and Medi-Cal and other governmental programs; (ix) commingling of proceeds of Gross Revenues with other moneys of the Corporation not subject to the security interest in the Gross Revenues; (x) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the California Uniform Commercial Code, as from time to time in effect; and (xi) claims that might arise if a deposit account control agreement is not in effect as to the bank deposits holding Gross Revenues. In addition, it may not be possible to perfect a security interest in any manner whatsoever in certain types of Gross Revenues (e.g., gifts, donations, certain insurance proceeds and grants) prior to actual receipt by the Corporation for deposit in the Gross Revenue Fund. Further, it is uncertain whether a security interest may be granted in Medicare and Medi-Cal and other governmental payments. While providers are currently prohibited from assigning such receivables, it is unclear whether this prohibition will be interpreted so as to preclude the granting of security interests. See “Parity Debt and Other Indebtedness” and “BONDHOLDERS’ RISKS—Certain Matters Relating to Enforceability” herein below. See also APPENDIX A—“INFORMATION CONCERNING THE CORPORATION—-Financial Information—Outstanding Indebtedness.”

Debt Service Reserve Account

On the date of delivery of the Bonds, the Debt Service Reserve Account will be funded in the amount of $554,843.76 from Bond proceeds. Upon the final maturity of the unrefunded 2011 Bonds on April 1, 2021, the remaining amount on deposit in the debt service reserve account for the 2011 Bonds ($455,675.00) will be transferred to the Trustee for deposit in the Debt Service

12

Reserve Account, bringing the total therein to $1,010,518.76, being equal to the Debt Service Reserve Account Requirement on such date. The Debt Service Reserve Account Requirement is, as of any date of calculation on and after April 1, 2021, an amount equal to the Maximum Annual Bond Service. “Maximum Annual Bond Service” is defined in the Indenture as, as of any date of calculation on and after April 1, 2021, the sum of (a) the interest falling due on the Outstanding Bonds (assuming that all then Outstanding Serial Bonds are retired on their respective maturity dates and that all then Outstanding Term Bonds are retired at the times and in the amounts provided for by Mandatory Sinking Account Payments), (b) the principal amount of then Outstanding Serial Bonds falling due by their terms, and (c) the aggregate amount of all Mandatory Sinking Account Payments required; all as computed for the Bond Year in which sum shall be largest. The Debt Service Reserve Account is required to be maintained in Investment Securities having a value equal to the Debt Service Reserve Account Requirement as such value is determined by the Trustee on or before each April 1 and October 1. The Corporation is required to make up any deficiencies resulting therein. See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE” and “—LOAN AGREEMENT.”

Loan Agreement on Parity with That of Refunded 2011 Bonds

In connection with the issuance of the Bonds, the Corporation will execute the Loan Agreement pursuant to which the Corporation shall agree to abide by, adhere to and perform terms, conditions and covenants that shall be on parity with those terms, conditions and covenants of the loan agreement entered into by the Corporation in connection with the issuance of the Refunded 2011 Bonds. See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—LOAN AGREEMENT.”

Insurance

The principal of and interest on the Bonds will be insured by the Office. If moneys are not available to pay the principal of or interest on the Bonds, the Office will be obligated to continue to make payments on the Bonds or shall instruct the Trustee to declare the principal of all Bonds then Outstanding and interest accrued thereon to be due and payable immediately and make payment of such principal and interest. Upon the occurrence of certain events, the Office shall notify the Treasurer, and the Treasurer shall issue debentures to the Holders of the Bonds fully and unconditionally guaranteed by the State in an amount equal to the principal of and accrued interest on the Bonds. See “CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM” herein.

The Office’s Control of Remedies

For as long as the Office is obligated and in compliance under the Contract of Insurance, all remedies of the Trustee (as assignee of the Authority) and Bondholders under the Indenture, the Loan Agreement, the Regulatory Agreement and the Deed of Trust shall be exercised solely by the Office.

13

Deed of Trust

In connection with the execution of the Loan Agreement and the issuance of the Bonds, the Corporation will execute a deed of trust (the “Deed of Trust”) pursuant to which the Corporation will grant to the trustee thereunder, for the benefit of the Office, holders of Parity Debt and the Authority, a first lien on, and security interest in, the certain property owned by the Corporation and located in Santa Clara County, California and described in the Deed of Trust, subject to Permitted Encumbrances, and subject to the right of the Corporation (with the prior consent of the Office) to remove certain property from the lien on and security interest in the Deed of Trust, as security for the performance of the Corporation’s obligations under the Loan Agreement, the Regulatory Agreement and the Contract of Insurance.

For so long as the Office is obligated under the Contract of Insurance, all rights under the Deed of Trust shall be exercised solely by the Office. With the consent of the Office, the Deed of Trust may be amended, subordinated or terminated at any time without the necessity of obtaining the consent of the Trustee, the Authority or the holders of the Bonds or Parity Debt. Accordingly, the Owners of the Bonds should not consider the Deed of Trust as security for payment of the Bonds. An ALTA title insurance policies on the Corporation’s property in an aggregate amount not less than the principal amount of the Bonds will be delivered at the time of issuance of the Bonds. See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEED OF TRUST.”

Rate Covenant and Other Financial Covenants

The Corporation has agreed in the Loan Agreement to use its best efforts to maintain for each Fiscal Year a ratio (referred to as a “Rate Covenant”) of Aggregate Income Available for Debt Service to Maximum Aggregate Annual Debt Service of at least 1.25; provided, however, in computing Maximum Aggregate Annual Debt Service in any Fiscal Year there will not be included any Long-Term Indebtedness debt service on any Long-Term Indebtedness issued in such Fiscal Year unless the Corporation is required to make principal or interest payments on such Long-Term Indebtedness in the year in which such Long-Term Indebtedness is issued and, provided further, that in computing Maximum Aggregate Annual Debt Service in any Fiscal Year there will not be included debt service on any Long-Term Indebtedness if all principal of and interest due on such Long-Term Indebtedness in such Fiscal Year is paid from the proceeds of such Long-Term Indebtedness or from certain monies or certain Investment Securities held by a trustee or escrow agent for that purpose.

If this ratio, as calculated at the end of any Fiscal Year, is below the required level, the Corporation has covenanted to retain a Management Consultant of national recognition, within sixty (60) days after the receipt of all audits for such Fiscal Year, to make recommendations to increase such ratio for subsequent Fiscal Years of the Corporation at least to the level required or, if in the opinion of the Management Consultant the attainment of such level is impracticable, to the highest practicable level. The Corporation agrees, to the extent permitted by law, to follow the recommendations of the Management Consultant. So long as the Corporation (i) retains a Management Consultant of national recognition, (ii) follows such Consultant’s recommendations

14

to the extent permitted by law, and (iii) realizes Net Income Available for Debt Service equal to 1.0 times its Aggregate Debt Service, the Corporation will be deemed to have complied with the above requirement even if such ratio for the subsequent Fiscal Year of the Corporation is below the required level.

The Corporation is also required to maintain a current ratio of 1.50 to 1 and a minimum of 30 days cash on hand.

For information relating to the rate covenant, the current ratio and the days cash on hand requirement see APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—LOAN AGREEMENT—Rates and Charges; Debt Coverage; Current Ratio; Days Cash on Hand” and “—INDENTURE–Events of Default; Remedies Upon Default” and “—REGULATORY AGREEMENT—Rates and Charges; Current Ratio; Debt Coverage; Days Cash on Hand” and “—Remedies on Default.” The Bonds will continue to be insured by the Office in the manner described above even if an Event of Default were to occur.

Parity Debt and Other Indebtedness

The Corporation may incur other obligations or indebtedness, in some cases on a parity basis with the Bonds. Under certain circumstances provided in the Loan Agreement the Corporation may issue Short-Term Indebtedness and secure the lender of such Short-Term Indebtedness with a first priority security interest in the Corporation’s General Revenues pledged in security of the Bonds. In such event, the lien of the Trustee with respect to Gross Revenues comprised of accounts receivable will be junior to such lender’s security interest. See APPENDIX C-“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-Limitation on Indebtedness.”

CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM

Description of the Insurance Policy

General. The Corporation has received a conditional commitment from the Office for insurance of the Corporation’s payment of the principal and interest with respect to the Bonds. Insurance of the full amount of the principal and interest with respect to the Bonds (but not any premium) is evidenced by the Contract of Insurance and the Regulatory Agreement, both of which will be entered into by the Office, the Authority and the Corporation, concurrently with the execution and delivery of the Bonds. See APPENDIX G — “FORM OF CONTRACT OF INSURANCE” for the form and terms of the insurance provided by the Office. The Regulatory Agreement set out many of the financial covenants of the Corporation relating to, among other things, the maintenance of specified debt service coverage levels and the limitations on incurrence of additional indebtedness or disposition of assets by the Corporation. Prospective holders of the Bonds should note that the provisions of the Regulatory Agreement may be amended with the consent of the Office without the necessity of obtaining the consent of the holders of the Bonds or the holders of Parity Debt. See “CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM – Rights of the Office Under the

15

Regulatory Agreement” herein, and APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—REGULATORY AGREEMENT.”

Insurance Law section 129050, subsection (a) requires that a loan must be secured by a first mortgage, first deed of trust or first priority lien on an interest of the borrower in real property and any other security agreement as the Office may require. For this purpose, the Corporation will grant a security interest in the Gross Revenue Fund and all of the Gross Revenues under the Loan Agreement and the Corporation will enter into the Deeds of Trust. Prospective holders of the Bonds should note that the provisions of the Deeds of Trust may be amended, subordinated or terminated at any time with the consent of the Office without the necessity of obtaining the consent of the holders of the Bonds or the holders of Parity Debt.

Incontestability and Non-Cancellability. Under Insurance Law section 129110, the Contract of Insurance is incontestable from the date of execution thereof, except in case of fraud or misrepresentation on the part of the lender. The Insurance Law and the Contract of Insurance impose certain continuing obligations on the Corporation as a condition of insuring the Bonds but specify that the remedies for breach of these obligations shall not include withdrawal or cancellation of the insurance. The insurance provided by the Contract of Insurance will terminate under certain circumstances, including payment in full by the Office of the insurance with respect to the Bonds or defeasance of the Bonds pursuant to the Indenture, as more fully described in APPENDIX G — “FORM OF CONTRACT OF INSURANCE.” See also APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—CONTRACT OF INSURANCE.”

Procedures upon Default. If there is an event of default as specified under the Indenture (an “Event of Default”), the Trustee must notify the Office. The Trustee also must notify the Office if 30 days prior to an interest or principal payment date there are not sufficient available moneys held by the Trustee in the Revenue Fund (other than in the Debt Service Reserve Account) to make the next payment of principal or interest on the Bonds.

Pursuant to the Regulatory Agreement, if there is an Event of Default and the Trustee has notified the Office that available moneys in the Principal and Interest Accounts will be insufficient to pay in full the next succeeding payment of interest and/or principal when due, the Office shall cause a sufficient amount to be deposited in the Principal Account and/or Interest Account at least three Business Days prior to the date on which such payment is due. The money will come from the Debt Service Reserve Account held under the Indenture or from the Health Facility Construction Loan Insurance Fund (the “HFCLIF”) that is established by the Insurance Law (sections 129010, subsection (g) and 129200). The obligation of the Corporation to repay any money advanced from the HFCLIF is secured by the Deeds of Trust.

Following an Event of Default, the Office may either (i) continue to approve such transfers or make such payments described in the preceding paragraph as are necessary to provide for the timely payment of the principal of and interest with respect to the Bonds, (ii) accept title to the Facilities from the Trustee upon foreclosure pursuant to the Deeds of Trust or otherwise, (iii) accept an assignment of the security interest created under the Deeds of Trust and of all claims under the Indenture, or (iv) instruct the Trustee to declare the principal of the Bonds

16

then Outstanding and the interest with respect thereto to be immediately due and payable and make such payment from the HFCLIF. If funds in the HFCLIF are not sufficient to make the required payments described above, the Office shall notify the Treasurer who is required to issue debentures in place of such Bonds. See “The Office, the Program and the Insurance Fund—State Debentures” below.

Rights of the Office under the Regulatory Agreement. The Regulatory Agreement grants the Office extensive rights, including the right to attend and participate in all meetings of the Corporation’s Board of Directors. Additionally, the Regulatory Agreement prohibits the Corporation from taking certain actions without first obtaining the consent of the Office or meeting certain requirements in the Regulatory Agreement, including affiliating with, merging into, or consolidating with any entity; transferring cash or cash equivalents to any entity, including but not limited to a subsidiary or an affiliate of the Corporation; disposing or acquiring property; and incurring indebtedness. Additionally, upon the occurrence of an event of default under the Regulatory Agreement, Deeds of Trust or Indenture, the Office shall have the remedies provided in Insurance Law Section 129173. See APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—REGULATORY AGREEMENT.”

Rate Covenant and Other Financial Covenants. Under the Regulatory Agreement, the Corporation is required to fix, charge and collect rates, fees and charges which are reasonably projected to be sufficient in each Fiscal Year to produce Net Income Available for Debt Service of at least 1.25 times Maximum Aggregate Annual Debt Service for such Fiscal Year. The Regulatory Agreement also requires the Corporation to maintain, as of the end of each Fiscal Year, a ratio of current assets to current liabilities of at least 1.5 to 1, and at least thirty (30) Days Cash on Hand beginning with the Corporation’s Fiscal Year ending September 30, 2015. The measurement of Days Cash on Hand is taken at the end of each particular Fiscal Year. For more specific information relating to these covenants, see APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Regulatory Agreement.”

Covenants contained in the Regulatory Agreement may be waived or amended by the Office without the necessity of obtaining the consent of the owners of the Bonds, the Authority or any other party. For a further description of the rate covenant, the current ratio covenant and the Days Cash on Hand covenant, see APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Regulatory Agreement – Rates and Charges; Debt Coverage; Current Ratio; Days Cash on Hand.” The Bonds will continue to be insured by the Office in the manner described above even if an Event of Default were to occur under financial or other covenants made by the Corporation.

The Office, the Program and the Insurance Fund

General. The California Health Facility Construction Loan Insurance Program (the “Program”) is authorized by Article XVI, Section 4 of the California Constitution and is provided for in the Insurance Law. The Program is operated by the Office, which has adopted regulations implementing the Program. Under the Insurance Law, the Office is currently authorized to insure health facility construction, improvement and expansion loans, as specified in the Insurance Law. Entities which may obtain insurance for their facilities include both public

17

agencies and nonprofit corporations, and authorized health facilities include a wide range from acute care facilities to local clinics, dependency centers and community mental health centers. The Insurance Law authorizes the Program to insure not more than $3,000,000,000 principal amount of loans at any time. As of October 31, 2014, the principal amount of loans insured under the Program was approximately $1,771,161,977, comprised of 110 loans.

Finances of the Program; Financial Reports. The Program is financed by an application fee of 0.5% of the loan applied for, but not to exceed $500 (Insurance Law section 129090), an inspection fee not in excess of 0.4% of the loan that is insured (Insurance Law section 129035), and an insurance premium due in full at closing not in excess of 3.0% of the total amount of principal and interest payable over the term of the loan (Insurance Law section 129040). The fees and premiums charged are deposited in the HFCLIF and are used to defray administrative expenses of the Program, to cure defaults on loans and to pay principal of and interest on insured bonds and certificates of participation prior to issuance of debentures by the Treasurer.

Under the Insurance Law, payments of principal and interest with respect to the Bonds or payments on the debentures would be made by the Office from the HFCLIF. As of October 31, 2014, the cash balance of the HFCLIF was approximately $169,680,900. The moneys in the HFCLIF are continuously appropriated to pay obligations insured by the Office under the Insurance Law. Insurance Law section 129215 states: “The Health Facility Construction Loan Insurance Fund, established pursuant to Section 129200, shall be a trust fund and neither the fund nor the interest or other earnings generated by the fund shall be used for any purpose other than those purposes authorized by this chapter.” The moneys in the HFCLIF are invested in the State’s Pooled Money Investment Account.

The Office is required by law to submit certain reports to the Legislature, consisting of two Annual Reports, and a State Plan. The State Plan is prepared every two years, as of January 1 of each odd- numbered year. The 2013 State Plan has not yet been released but is expected to be available in the Spring of 2015. The 2011 State Plan is available at the website of the Office. The Annual Reports to the Legislature for the year ended June 30, 2013 (the “2013 Annual Reports”), are available at the website of the Office. The Office also prepares monthly reports containing limited financial data. The most recent monthly report available from the Office is for the period ended October 31, 2014.

The following table provides certain statistics for the Program as of the end of the last five fiscal years for which reports are available from the Office:

Fiscal Year Ended June 30 2010 2011 2012 2013 2014Number of Loans Insured 139 132 122 117 109 Principal Amount of Loans Insured ($000)

$ 1,735,068 $ 1,809,696 $ 1,708,991 $ 1,726,980 $1,671,379

Cash Balance of HFCLIF $189,745,143 $180,371,861 $172,924,033 $168,822,959 $174,289,633

18

Program Loans; Status of Borrowers. The future financial status of the Program is directly affected by the financial performance of the borrowers in the Program and their current and projected ability to repay their loans. The Office has established a rating system to implement objective criteria and continues to monitor each borrower for compliance with loan covenants assigning a risk rating (A to F) to that borrower and all its loans.

The risk ratings have a corresponding relationship the financial status of the borrower and risk to the HFCLIF:

A Rating – no material problems;

B Rating – minor problems such as one or more of the following: for more than one fiscal year, some of the borrower’s covenant requirements have not been met; the borrower’s financial trends indicate potential problems; the borrower is more than 6 months late in providing its financial and other reports as required by its Regulatory Agreement;

C Rating – serious problems, such as one or more of the following: the borrower’s last insured loan payment was not paid within 30 days of the delinquency date defined in the borrower’s Regulatory Agreement; the borrower’s day’s cash on hand is low; the last calculation of the insured debt service coverage ratio was below 1.0 and the project does not have a substantial cash cushion either in days cash on hand or in relation to amount of insured debt; payables and receivables indicate inappropriate lag time; economic indicators locally, regionally or statewide are impacting the borrower; management turnover and/or board oversight is in question; borrower has filed for bankruptcy protection but is making full payments on insured debt;

D Rating – very serious problems such as one or more of the following: the debt service reserve fund has been invaded and the borrower is not making substantial progress in fully replenishing its debt service reserve fund, pursuant to the loan documents; financial trends have been escalating downward with no action plan in place to correct the problem; the borrower’s days cash on hand is exceedingly low, such that it does not appear that the borrower will be able to make its next payroll; payment(s) are not being made and HFCLIF may be used within the next 12 months;

E Rating – payments have been or are being made from the HFCLIF, but full recovery is expected. The Office has a work out plan with the borrower; and

F Rating – payments have been or are being made from the HFCLIF and loss of some magnitude is expected.

As of October 31, 2014, there were two borrowers with a total of three loans in the portfolio with D Ratings, two borrowers with a total of five loans with E Ratings, and no borrowers with a F Rating; the total outstanding principal balance of these D and E rated borrower’s loans was $60,775,934.

19

Since the start of the Program in 1972, 20 borrowers (with 28 loans) have defaulted with all required payments coming from the HFCLIF (without cost to the State General Fund). Elder Care Alliance of Union City (“Elder Care”) defaulted on its loan in the fiscal year ended June 30, 2012, resulting in payments from the HFCLIF. After an unsuccessful attempt at a work out, the Office foreclosed on the deed of trust securing principal and interest payments, on May 16, 2014. The property was subsequently sold on May 19, 2014, resulting in full recovery for the Office and no loss to bondholders. Kern Valley Healthcare District (“Kern Valley”) defaulted on its loan in the fiscal year ended June 30, 2011, and required payments from the HFCLIF during calendar year 2014 of approximately $517,000. The Office anticipates that Kern Valley will require advances from the HFCLIF of approximately $4,443,000 through August 2021. Kern Valley is making partial payments through a workout agreement with the Office and the shortfall is expected to be repaid with interest starting in August 2021 through August 2029. On October 17, 2012, Mendocino Coast Health Care District (“Mendocino Coast”) entered Chapter IX bankruptcy. The Office insured three bond issues totaling $9,205,000 and a bank line of credit of $1,000,000 for Mendocino Coast. Mendocino Coast continues to make bond payments. When Mendocino Coast entered bankruptcy, the bank declared the line of credit in default and the Office paid on its insurance and now asserts the claim in bankruptcy. The Office and the District have reached a settlement agreement which restructures the loan, but results in no loss to the Office.

The largest defaulted loan in the Program was a loan to Triad Healthcare Corporation in the original amount of $182.3 million. The project is no longer in existence and the Triad loan is carried as a long-term liability of the Program. As of October 31, 2014, the remaining principal balance of the Triad loan is $66,875,000. The payments from the HFCLIF (net of recoveries) for the Triad loan have been $169,838,073. In December 2013, a portion of the outstanding bonds were refunded so the Program could realize interest expense savings. The HFCLIF will make payments for the Triad loan of approximately $11.5 million each year until August 1, 2018, $12.1 million in 2019 and 2020, and a final payment of $8.2 million on August 1, 2021.

State Debentures. In the event the obligations of the HFCLIF to pay on an issue of defaulted bonds or certificates of participation exceeds the available balances in the HFCLIF, and upon receipt by the Office of title to subject facilities or assignment of the security interest in a deed of trust and upon surrender of the defaulted bonds or certificates of participation to the Office, the Office shall notify the Treasurer and request the Treasurer to issue debentures to the trustee for the benefit of the holders of the defaulted bonds and certificates of participation so surrendered; debentures are to be issued in an amount equal to the total face value of the outstanding principal of and accrued but unpaid interest on the defaulted bonds and certificates of participation, for the term and at the interest rate payable on such bonds and certificates of participation. Pursuant to Insurance Law section 129160, subsection (a), the debentures are fully and unconditionally guaranteed as to principal and interest by the State. Insurance Law section 129160, subsection (b) provides, “In the event of a default, any debenture issued under this article shall be paid on par with general obligation bonds issued by the State.” See “CERTAIN FINANCIAL INFORMATION REGARDING THE STATE” and “RATING” below.

While the Office has not requested the issuance of and the Treasurer has not issued any such debentures since the inception of the Program, and while definitive procedures for their

20

issuance have not been established, including procedures covering matters such as compliance with the provisions of the Code and the Treasury Regulations promulgated thereunder, the Office and the Treasurer have all necessary power to establish such procedures, and it is expected that such procedures would be established in advance of any issuance of debentures. It is expected that, to the same extent as interest on the Bonds is not includable in the gross income of the holders thereof for purposes of federal income taxation, interest on the debentures would not be includable in the gross income of the holders, and that interest on debentures would be exempt under the law as in effect on the date hereof from State personal income taxes. Upon the occurrence of certain Events of Default under the Indenture, there is the possibility that the interest on the Bonds could become subject to federal income taxation. The Indenture provides that there shall be no acceleration of the principal and interest on the Bonds upon the occurrence of an Event of Default under the Indenture without the consent of the Office. If the Bonds were declared taxable by the IRS or another appropriate authority, thereby resulting in an Event of Default under the Indenture, and if the Office did not consent to an acceleration, the holders of the Bonds (and holders of any debentures exchanged for such Bonds) would continue to receive interest payments, but those interest payments would not be excludable from gross income for federal income tax purposes. See APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – INDENTURE – Events of Default; Remedies on Default” and “—Acceleration of Maturities.”

Actuarial Study. The Office obtains an independent actuarial review of the HFCLIF every two years. At the request of the Office, Oliver Wyman Actuarial Consulting, Inc. (“Oliver Wyman”) completed a study in July 2014 (the “2012 Actuarial Study”) to evaluate, among other matters, (1) the reserve sufficiency of the HFCLIF as of June 30, 2012; and (2) the risk to the State’s General Fund from the Program. Oliver Wyman compared the HFCLIF cash balance as of June 30, 2012 of $172.92 million against the reserve and capital requirements standards set by the California Department of Insurance for private financial guaranty insurers; the 2012 Actuarial Study indicated that the Program’s assets were at least $90.17 million below the level which would be required by the California Department of Insurance standards for private insurers (including reserves for projects which are anticipated to default in fiscal year 2012/13). As to the second subject, the 2012 Actuarial Study indicated that the HFCLIF as of June 30, 2012 under the “expected scenario” (which scenario assumed, among other things, a 6.25% default rate) should maintain a positive balance until at least the forecast period of 2041/42. Even under the “most pessimistic scenario” in which a 10% probability of catastrophic loss was used, the 2012 Actuarial Study indicated that there was a 70% likelihood that HFCLIF reserves as of June 30, 2012 would protect against any General Fund losses until at least 2020/21, and a 90% likelihood that HFCLIF reserves as of June 30, 2012, would protect against any General Fund losses until at least 2017/18.

The 2012 Actuarial Study is based on stated assumptions and estimates including, but not limited to, default rates, investment yields, termination rates, claim severities, catastrophic losses and payment patterns. Variation from such estimates or assumptions may cause actual results to vary from the analysis in the 2012 Actuarial Study and such variations could be material. A copy of the 2012 Actuarial Study is available upon request to: Office of Statewide Health Planning and Development, Cal-Mortgage Loan Insurance Division, 400 R Street, Suite 470, Sacramento,

21

CA 95811, Telephone: (916) 319-8800; e-mail: cminsure@oshpd.ca.gov. The actuarial study as of June 30, 2014 (the “2014 Actuarial Study”), has not yet been commenced.

See “BONDHOLDERS’ RISKS—State Bond Insurance” for a discussion of the risks related to the Insurance. See “RATING” in this Official Statement for a discussion of the rating the Bonds are expected to receive due to the insurance by the Office of the Bonds.

FOR A FURTHER DESCRIPTION OF THE REGULATORY AGREEMENT AND THE CONTRACT OF INSURANCE, SEE APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” AND APPENDIX G — “FORM OF CONTRACT OF INSURANCE.”

CERTAIN FINANCIAL INFORMATION REGARDING THE STATE

Information about the financial condition of the State, including the State budget and State spending, is available at various State-maintained websites. Information concerning the current year State budget and the enacted budget for Fiscal Year 2014-15 and the Governor’s Proposed Budget for Fiscal Year 2015-2016 (the “Governor’s Budget”) dated January 9, 2015 may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Analyses of the current year budget and future budget proposals are posted from time to time by the independent Office of the Legislative Analyst at www.lao.ca.gov.Reference is made to the most recent preliminary official statement or official statement issued by the State in connection with general obligation bonds, lease revenue obligations, or revenue anticipation notes, which can be accessed from the website of the State Treasurer’s office, www.treasurer.ca.gov, under the headings “Public Finance Division – Current Offerings” (for preliminary official statements) or through the Electronic Municipal Market Access System (“EMMA”), a facility of the Municipal Securities Rulemaking Board, at http://emma.msrb.org (for official statements). All of such websites and other sources are provided for general informational purposes only and the material on such sites and from such resources is in no way incorporated into this Official Statement. Readers are cautioned that such information is not necessarily fully current and that the reported financial condition of the State may have changed since the date such information was published or posted. Any final official statement currently posted on EMMA does not reflect the information in the Governor’s Budget.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

22

BONDHOLDERS’ RISKS

The following is a discussion of certain risks that could affect payments made in respect of the Bonds, or might otherwise limit a prospective purchaser’s right to recovery and/or enforcement of the Bond (collectively, “Risk Factors”. The following discussion is not exhaustive of all such Risk Factors, should be read in conjunction with all other parts of this Official Statement, and should not be considered a complete description of all risks that could affect a holder of the Bonds. Before purchasing any of the Bonds, prospective purchasers of the Bonds should analyze carefully the information contained in this Official Statement, including the APPENDICES hereto, and additional information in the form of the complete documents summarized herein, copies of which are available as described under “INTRODUCTION”.

General

As described herein under the caption, “SECURITY FOR THE BONDS,” the principal and interest with respect to the Bonds, except to the extent that the Bonds will be payable, under certain circumstances, from proceeds of insurance, sale or condemnation awards are payable solely from amounts payable by the Corporation under the Loan Agreement and certain funds held under the Indenture. No representation or assurance is given or can be made that revenues will be realized by the Corporation in amounts sufficient to pay debt service on the Bonds when due and other payments necessary to meet the obligations of the Corporation. The Risk Factors discussed below should be considered in evaluating the ability of the Corporation to make payments in amounts sufficient to provide for the payment of the principal and interest with respect to the Bonds.

The receipt of future revenues by the Corporation 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 Corporation and future economic and other conditions that are impossible to predict. The extent of the ability of the Corporation to generate future revenues has a direct effect upon the payment of principal and interest with respect to the Bonds. Neither the Underwriters nor the Corporation has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Corporation.

This discussion of Risk Factors is not, and is not intended to be, exhaustive or prioritized.

State Bond Insurance

Because the principal and interest payments on the Bonds will be insured by the Office, if the principal and interest payments on the Bonds are not made by the Corporation, such payments would be made by the Office from the HFCLIF. The last actuarial study of HFCLIF obtained by the Office was as of June 30, 2012, and indicated that the HFCLIF could be depleted prior to the maturity date of the Bonds in the event a 10% probability of catastrophic loss was assumed. The 2012 Actuarial Study is available at the website of the Office. See “CALIFORNIA

23

HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM – The Office, the Program and the Insurance Fund.”

To the extent the HFCLIF reserves are depleted and subject to the requirements of the Insurance Law, the Office shall request the Treasurer to issue debentures which are fully and unconditionally guaranteed as to principal and interest by the State in an amount equal to the then outstanding principal amount of the Bonds. Accordingly, any decline in the State’s fiscal condition could adversely affect the State’s ability to make payment on debentures in the event of a claim on such insurance. See “CERTAIN FINANCIAL INFORMATION REGARDING THE STATE.”

In addition, over certain time periods, deterioration in the State’s budget and cash situation may cause the nationally recognized rating services to reduce the State’s credit ratings. Standard & Poor’s Ratings Services, the rating agency for the Bonds, has indicated that it rates the Office’s insured bonds on par with the rating of the State’s general obligations bonds and that any rating action affecting the State will directly affect the rating on the Cal-Mortgage insurance program. Therefore, any decline in the State’s fiscal condition could adversely affect the rating on the Bonds. See “CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM – The Office, the Program and the Insurance Fund.” See also “CERTAIN FINANCIAL INFORMATION REGARDING THE STATE” and “RATING.”

The Office’s Control of Remedies

For as long as the Office is obligated and in compliance under the Contract of Insurance, all remedies of the Trustee (as assignee of the Authority) and Bondholders under the Indenture, the Loan Agreement, the Regulatory Agreement, and the Deed of Trust will be exercised solely by the Office.

Maintenance of Credit Rating

The Bonds will be rated as to their creditworthiness by Standard & Poor’s Ratings Services (“S&P” or the “Rating Agency”) based upon the credit rating of the obligations insured by the Office under the Program. No assurance can be given that the Bonds will maintain their original rating from the Rating Agency. If the rating on the Bonds decreases, the Bonds may lack liquidity in the secondary market in comparison to other municipal bonds. Adverse developments with respect to the financial condition of the Program or the State may have an unfavorable effect upon a holder’s ability to sell the holder’s Bonds or the bid and ask prices for the Bonds. See also information under the headings “CALIFORNIA HEALTH FACILITY CONSTRUCTION LOAN INSURANCE PROGRAM—The Office, the Program and the Insurance Fund—Financial Information Regarding the State” and “RATING” in this Official Statement.

Debt Service Coverage Default

It was determined that the Corporation failed to meet the Debt Service Coverage requirement in respect of the 2011 Bonds for the Fiscal Years ended September 30, 2012, 2013,

24

and 2014. Despite the Corporation’s failure to comply with Debt Service Coverage requirement, the Office agreed that it would not take any action against the Corporation, issuing a written waiver in April 2014 and indicating a willingness to do so, if requested, in January 2015. There can be no assurance that the Office will waive any subsequent default(s) of the Debt Service Coverage requirement or that it will waive the requirement of hiring a Management Consultant upon the occurrence of any such subsequent default.

California State Budget

The State of California from time to time has experienced deficits in its operations and the future of all health services programs that depend upon funding from the State is uncertain. It is also possible that such programs may be the subject of cost reduction, expansion and payment experimentation, including potential changes involving managed care. As the Corporation’s ability to make Loan Repayments is significantly dependent upon the continued funding of their programs by the State, any reduction in funding or expansion in cost for various health programs currently funded by the State could have a negative impact on the ability of the Corporation to meet its obligations with respect to the Bonds.

The financial challenges facing the State of California may negatively affect the Corporation in a number of ways, including reductions in reimbursement provided under California’s Medicaid program, Medi-Cal. Recent State of California budgets for the fiscal years 2011 and 2012 implemented significant reductions in Medi-Cal payments, including a 10% reduction in Medi-Cal payments for certain outpatient services and for long-term care in the 2010-2011 budget, which reduction was approved by the Centers for Medicare and Medicaid Services; the Ninth Circuit Court of Appeals upheld the reductions in December 2012 and denied a request for rehearing in May 2013. Plaintiffs appealed the ruling to the United States Supreme Court which denied certiorari in January 2014. The State rescinded the reduction on a current basis beginning October 2013. These reductions in Medi-Cal payments applied to 239 of the Corporation’s skilled nursing beds, resulting in a $5.5 million potential payable should California pursue payback of funds for 2010 to October 2013. However, Medi-Cal payments are comprised of federal and State funds, and a portion of the repayment would be owed to the federal government. Unless California rescinds the retrospective rate reduction, the federal government will withhold 5% of current Medi-Cal payments until the full amount is repaid; this is estimated to take ten to fifteen years and will not have a material impact on the Corporation.

Although the State has improved its financial outlook, there are still major budgetary challenges that the State must consider. Nevertheless, the State timely adopted a budget for its 2014-15 fiscal year. According to the Enacted Budget Summary, the budget is balanced, maintains a $955 million reserve, and allocates funds to pay down budgetary debt as part of a multi-year plan to eliminate the “Wall of Debt,” which currently includes $1.8 billion in deferred Medi-Cal costs. The Budget reflects additional deferred Medi-Cal costs of approximately $400 million. This is, at least in part, a result of California’s expansion of Medi-Cal under the Health Reform Act, which anticipates an increase in coverage from 7.9 million to 11.5 million Californians. Consequently, the Budget assumes General Fund commitments to Medi-Cal will increase by $2.4 billion. In response to these rising costs and previous spending cuts, the Budget includes an increase of $23.2 billion to Health and Human Services spending over the 2012-2013

25

budget. Additionally, the Budget discusses the possibility of establishing a Rainy Day fund, resulting in $3 billion in State savings and another $3 billion in additional debt payments in just three years.

Management of the Corporation does not presently expect the 2014-15 State budget to have any material adverse effect on the financial condition or results of operations of the Corporation. However, it is not possible to predict what actions will be taken in the future by the California Legislature, the Governor or citizen initiative actions to address California’s financial problems and implement federal health care legislation. Additional reductions in the levels and timing of healthcare provider reimbursement could have a material adverse effect on the Corporation.

Federal Fiscal Conditions.

The Budget Control Act of 2011 (the “BCA”) mandates significant reductions and spending caps on the federal budget for fiscal years 2013 through 2021. The BCA also created a Joint Select Committee on Deficit Reduction (the “Super Committee’) to develop a plan to further reduce the federal deficit by $1.5 trillion on or before November 23, 2011. Because the Super Committee failed to act, the BCA mandated that a 2% reduction in Medicare spending, among other reductions, would be triggered to take effect on January 2, 2013. The American Taxpayer Relief Act of 2012 (“ATRA”) postponed this scheduled reduction, which totals approximately $11 billion. CMS is recouping this amount over several fiscal years.

It is possible that Congress will take action to eliminate some or all of the reductions in the future and any Congressional action could be made retroactive in order to eliminate some or all of the cuts even to the extent they were imposed. However, there is no certainty that Congress will take any action. Management of the Corporation expects that the impact of the above reductions on the Corporation will not be significant.

Present and Prospective Federal and State Regulation

Generally. 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 Corporation. Further reductions in federal and State funding of health care below levels authorized by present law can be expected.

Nursing care facilities, including those owned by the Corporation, are subject to numerous licensing, certification, accreditation, and other governmental requirements. These include, but are not limited to, requirements relating to State licensing agencies, private payors and accreditation organizations. Sheltered and assisted living facilities, including those owned by the Corporation, 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 Corporation. An adverse determination could result in a loss, fine or reduction in the Corporation’s scope of licensure, certification or accreditation, could affect the

26

ability to undertake certain expenditures or could reduce the payment received or require the repayment of the amounts previously remitted.

California Reform of Residential Care Facilities for the Elderly. In September 2014, the State enacted 10 different laws in reaction to perceived abuses and lack of sufficient oversight, training and enforcement of Residential Care Facilities for the Elderly (“RCFEs”). RCFEs are assisted living facilities that are licensed by the Community Care Licensing Division of the State Department of Social Services (“DSS”) as “non-medical” facilities serving individuals age 60 and over. While 14 different proposals were proposed, only the following 10 laws were enacted:

AB1570—Increasing training requirements for licensees and direct care staff of RCFEs;AB1751—Requiring resident representation on governing boards of RCFEs and quarterly reporting of financial statements; AB1899—Prohibiting the reinstatement of a license for licensees of RCFEs that abandon a facility, resulting in a threat to residents’ health and safety; AB2044—Adding additional staffing as well as health and safety requirements for RCFEs;AB2171—Establishing statutory rights for residents of privately operated RCFEs and requiring that such rights be posted at each RCFE facility; AB2231—Reestablishing property tax deferment program for senior and disabled citizens; SB895—Requiring that RCFEs remedy licensing deficiencies within 10 days of notification thereof; SB911—Increasing training requirements for administrators and certain direct care staff who assist with certain tasks; SB1153—Permits suspension of admissions of new residents to RCFEs that have violated laws that indicate a risk to the health and safety of its residents; and SB1382—Increasing training requirements for licensees, administrators, and staff at RCFEs.

Other laws proposed but not enacted included granting residents a “private right of action” against RCFEs for health and safety violations, increased penalties for violations, and enhanced transparency of financial reporting and enforcement activities. Pursuant to each of the foregoing enacted statutes, the State requires that each applicable State agency issue enabling regulations within 6 months of enactment.

Health Care Regulation

The health care industry in general is highly regulated by a number of governmental and private agencies, including those which administer the Medicare and Medicaid programs. The health care industry is also affected by federal, State and local policies developed to regulate the manner in which health care is provided, administered and paid for nationally and locally. As a result, the health care industry is sensitive to frequent and substantial legislative and regulatory changes. Congress and the states have consistently attempted to curb the growth of federal spending on health care programs. In addition, Congress and other governmental agencies have

27

focused on the provision of care to indigent and uninsured patients, public access to emergency services regardless of ability to pay, the unlawful payment of remuneration in exchange for referral of patients, the unauthorized use or disclosure of patients’ protected health information, billing for services not in accordance with governmental requirements and other issues. Cost shifting to private sources of payment to offset declining federal and State reimbursement is not as prevalent as in the past because private insurance companies have adopted cost containment measures similar to those used by government agencies.

Despite these efforts, due to, among other things, the growing percentage of older persons in the population, improved technology and administrative costs in a highly regulated industry, health care expenditures as a percentage of the gross national product continue to rise. Consequently, it can be expected that aggressive cost containment measures and fraud and abuse investigation and enforcement could have a material adverse effect on the Corporation. Continued efforts in the form of statutory and regulatory activity to reduce the rate of increase in reimbursement for health care costs, particularly costs paid under the Medicare and Medicaid programs, can be expected. The Corporation is subject to governmental regulation under the federal Medicare program and the joint federal and State Medicaid program. Health care providers, including the Corporation, have been and will continue to be affected by changes that have occurred during the last several years in the administration of the Medicare and Medicaid programs.

Federal Health Care Reform. Legislation is periodically introduced in Congress and in the State legislature that could result in limitations on revenues, reimbursements, or charges for health care facilities. At this time, no determination can be made as to whether such additional federal or State legislation will be enacted or, if enacted, its impact on the Corporation.

The “Patient Protection and Affordable Care Act of 2010” and “The Health Care and Education Affordability Reconciliation Act of 2010” (together referred to herein as the “Health Reform Act”) were enacted in 2010, but soon after became the subject of court challenges and efforts to repeal or modify their substantive provisions. On June 20, 2012, the U.S. Supreme Court upheld most of the provisions of the Health Reform Act, but rejected a requirement that states significantly expand Medicaid eligibility. Instead, each State must determine whether federal financial incentives included in the Health Reform Act merit expanding its Medicaid program.

Some of the provisions of the Health Reform Act took effect immediately, while others will take effect over a ten year period. Because of the complexity of the Health Reform Act generally, additional legislation modifying or repealing portions of the Health Reform Act is likely to be considered and enacted over time. New guidelines and regulations related to the Health Reform Act will also likely be enacted. It is impossible to predict what, if any, such new guidelines and regulations will entail or how they may affect the Corporation, its operations or its financial condition.

The Health Reform Act provides changes with respect to how consumers will pay for their own and their families’ health care and how employers will procure health insurance for their employees. In addition, the Health Reform Act requires insurers to change certain

28

underwriting practices and benefit structures in order to cover individuals who previously would have been ineligible for health insurance coverage. As a result, there is expected to be a significant increase in the number of individuals eligible for health insurance coverage.

Some of the specific provisions of the Health Reform Act that may affect the Corporation’s operations, financial performance or financial condition include the following (this listing is not, is not intended to be, nor should be considered to be, comprehensive):

With varying effective dates, the annual Medicare market basket updates for many providers, including skilled nursing, would be reduced, and adjustments to payment for expected productivity gains would be implemented.

With varying effective dates, the Health Reform Act mandates a reduction of waste, fraud and abuse in public programs by allowing provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring Medicare and Medicaid program providers and suppliers to establish compliance programs. The legislation requires the development of a database to capture and share healthcare provider data across federal healthcare programs and also provides for increased penalties for fraud and abuse violations, and increased funding for anti-fraud activities.

Commencing in 2014, a 15-member Independent Payment Advisory Board is to be established to develop proposals to improve the quality of care and limitations on Medicare cost increases. Those proposals would be automatically implemented if Congress does not act to invalidate them.

New transparency requirements for nursing homes requiring additional disclosures related to organizational structure and other items are mandated.

The Health Reform Act provides for the implementation of various demonstration programs and pilot projects to test, evaluate, encourage and expand new payment structures and methodologies to reduce health care expenditures while maintaining or improving quality of care, including bundled payments under Medicare and Medicaid, and comparative effectiveness research programs that compare the clinical effectiveness of medical treatments and develop recommendations concerning practice guidelines and coverage determinations. Other provisions encourage the creation of new health care delivery programs, such as accountable care organizations, or combinations of provider organizations, that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program. The outcomes of these projects and programs, including their effect on payments to providers and financial performance, cannot be predicted.

In addition, many states have enacted or are considering enacting, measures that are designed to reduce their Medicaid expenditures and change private health care insurance. States have adopted or are considering adopting legislation designed to reduce coverage and program

29

eligibility, enroll Medicaid recipients in managed care programs and/or impose additional taxes on skilled nursing facilities to help finance or expand states’ Medicaid systems.

The Health Reform Act also includes The Elder Justice Act, which provides funding for adult protective services aimed at elder abuse prevention and enhanced investigation of elder abuse and neglect. The Elder Justice Act requires prompt reporting to the U.S. Department of Health and Human Services (“DHHS”) by long term care facilities who receive at least $10,000 per year in federal funds of any reasonable suspicion of a crime, as defined by local law, occurring at the long term care facility. This includes Medicare/Medicaid fraud and abuse. Reports are required to be made not later than two hours after forming the suspicion when serious physical injury occurs, and not later than 24 hours after forming suspicion where serious bodily injury was not involved. “Serious bodily injury” is not defined by The Elder Justice Act. Failure to report is subject to penalties up to $200,000 plus potential exclusion from federal programs. Stricter penalties apply if delay led to further injury.

The Health Reform Act also includes the Patient Safety and Abuse Prevention Act, which authorizes DHHS to create a national program to identify best practices for background checks on long term care facility employees who have direct access to patients. The Patient Safety and Abuse Prevention Act creates grants for states who wish to participate in the creation of a nationwide program.

This focus on health care reform may increase the likelihood of significant changes affecting the health care industry possible future changes in the Medicare, Medicaid and other State programs may reduce reimbursements to the Corporation and may also increase operating expenses.

California Healthcare Reform. The State has passed several laws to implement the Health Reform Act. The State has established a health insurance exchange, called “Covered California,” as required by the Health Reform Act. In addition, 47 California counties, including Los Angeles County, are participating in the “Bridge to Reform” program, which implements the Health Reform Act’s Medicaid expansion ahead of schedule. The California legislature will continue to consider legislation related to the implementation of the Health Reform Act. It is not possible to predict what effect such legislation or regulation concerning healthcare reform could have on the Corporation.

The 2014-15 State Budget continues to implement the State’s election of Medicaid Coverage Expansion pursuant to the Health Reform Act. Pursuant to the Health Reform Act, states enacting Medicare Coverage Expansion are eligible for 100% reimbursement from Medicaid for the cost of implementation through 2016, and for a gradually smaller rate until each State is reimbursed for 90% of the additional cost by 2029. The Governor’s Budget relies on the reimbursement for the State’s Medicare Coverage Expansion set forth in the Health Reform Act. Medi-Cal Coverage expansion in the State is expected to increase by approximately 3.6 million enrollees, increasing the State’s dependence on federal Medicaid funding. Medi-Cal Coverage Expansion in the State will substantially increase the potential number of Medicaid beneficiaries and increase the State’s dependence on federal Medicaid funding.

30

Impact of Disruptions in the Credit Markets and General Economic Factors

The current economic crisis has had and may continue to have serious negative consequences on the global and national economies. To date, the crisis has caused a restriction on the availability of credit, extreme volatility in interest rates and the credit and securities markets generally, failures and bankruptcies of businesses and financial institutions and reduced business activity which in turn has reduced personal, corporate and governmental revenues. These consequences may: reduce the Corporation’s revenues from operations and investments, the Corporation’s ability to make payments under the Loan Agreement, and reduce the Corporation’s ability to obtain liquidity and credit facilities or receive funds thereunder.

There have been significant global governmental actions aimed at counteracting the economic crisis. There can be no assurance that these actions will be effective in correcting the global or national economies.

General Risks of Long Term Care Facilities

There are many diverse factors not within the Corporation’s control that have a substantial bearing on the risks generally incident to the operation of its facilities. These factors include generally imposed fiscal policies, adverse use of adjacent or neighboring real estate, the ability to maintain the facilities, community acceptance of the facilities, changes in demand for the facilities, changes in the number of competing facilities, changes in the costs of operation of the facilities, changes in the laws of the State affecting long term care programs, the limited income of the elderly, changes in the long term care and health care industries, difficulties in or restrictions on the Corporation’s ability to raise rates charged, general economic conditions and the availability of working capital.

In recent years, a significant number of long term care facilities throughout the United States have defaulted on various financing obligations or otherwise have failed to perform as originally expected. There can be no assurance the Corporation’s Facilities will not experience one or more of the adverse factors that caused other facilities to fail. Many other factors may adversely affect the operation of facilities like the Corporation’s Facilities and cannot be determined at this time.

Residential and Service Revenues and Sources

Dependence Upon Governmental Funding. The Corporation’s services are generally provided to persons eligible for certain benefits that are funded under federal and State health programs. A significant portion of the Corporation’s revenues is derived from the health programs which are funded through State and federal resources, including Medi-Cal and Medicare (see also “BONDOWNERS’ RISKS—Medicare”). As a result, the success of theCorporation’s operations is significantly dependent upon continued funding of these programs by the State and federal governments.

31

The State from time to time has experienced deficits in its operations and the future of all health services programs that depend upon funding from the State is uncertain. It is also possible that such programs may be the subject of cost reduction and payment experimentation, including potential changes involving managed care. As the Corporation’s ability to make Loan Repayments is significantly dependent upon the continued funding of its programs by the State, any reduction in funding for various health programs currently funded by the State could have a significant negative impact on the ability of the Corporation to meet its obligations with respect to the Bonds.

In Fiscal Year 2014, approximately 2.8% of the Corporation’s net resident service revenues were derived from payments from Medicare and approximately 33.0% of the Corporation’s net resident service revenues was attributable to payments from Medi-Cal. The remaining 64.2% of resident service revenues were derived from private pay and managed care revenue. While it is uncertain whether future federal budgets will result in a decrease in such revenue, any reduction thereof would have an adverse impact on the revenues of the Corporation and the ability to pay the debt service with respect to the Bonds. For a historical percentage breakdown of the Corporation’s dependence upon various governmental funding sources, see APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – Financial Information – Sources of Revenue.”

Medicare. The Medicare program, a federal insurance program under the Social Security Act primarily for individuals aged 65 and over, provides coverage for skilled nursing care (1) up to 100 days per year, (2) immediately following at least three days of hospitalization and (3) for care related to the condition treated by the prior hospitalization. The Balanced Budget Act of 1997 implemented a Prospective Payment System (“PPS”) for all skilled nursing facilities with annual cost reporting periods beginning on or after July 1, 1998. The PPS pays an all-inclusive per diem rate for routine, ancillary and capital costs, and is adjusted geographically for wages and case mix index to reflect a patient’s resource requirements. Higher acuity patients receive more reimbursement under the payment formula. The per diem prospective payment amount covers all Medicare Part A skilled nursing services and any items in therapy services furnished during the patient’s Medicare covered stay (with a few minor exceptions). “Ancillary” services furnished to skilled nursing residents are also covered under Medicare Part B and may be reimbursed after Medicare Part A coverage is exhausted. The Balanced Budget Act of 1997 also provided for the implementation of consolidated billing for skilled nursing facilities, whereby skilled nursing facilities are required to bill the Medicare program for virtually all Medicare services and supplies provided to Medicare residents.

Actual costs incurred by the Corporation are reported annually to the Centers for Medicare and Medicaid Services (formerly Health Care Financing Administration) and are subject to audit. The Medicare program does not provide reimbursement to the Corporation for any services other than skilled nursing care, and ancillary services provided in the skilled nursing center. The Medicare program is highly regulated and subject to change, and there can be no assurance that Medicare reimbursements for covered skilled nursing services rendered to Medicare patients will cover the actual costs incurred by the Corporation in delivering such services.

32

The Corporation expects to derive a portion of its revenues from care provided in its skilled nursing facilities to Medicare recipients. For a historical percentage breakdown of theCorporation’s dependence upon Medicare, see APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – Financial Information – Sources of Revenue.”

Medicaid, or “Medi-Cal.” Medicaid, known as Medi-Cal in California, is a program of financial assistance, funded jointly by the federal government and each of the various states, primarily for medical assistance to certain needy individuals and their dependents. Due to health care reform as well as continuing political and financial pressures, the legal and regulatory environment surrounding the Medicare programs has been changing and is expected to continue to change.

Medi-Cal generally provides a flat per patient payment for each day of service, regardless of cost or severity of illness. The skilled nursing industry in general, and the Corporation in particular, are experiencing more acutely ill patients being admitted, requiring more intensive care. In the future, other reductions or limitations may be imposed on payment for services rendered to Medi-Cal beneficiaries. No assurances can be made that payments to the Corporation in the future will equal or exceed its costs of care.

Current and future changes to Medicaid may alter: (1) services eligible for payment; (2) rates of payment; (3) eligibility requirements to participate or qualify for different levels of payment/reimbursement; (4) consequences of violations; (5) rates and requirements relating to additional payments unrelated to services offered to patients; (6) guidelines relating to interactions between the participating healthcare providers, third party payors and the federal and State governments; and (7) payment methodologies. Moreover, such changes may be instituted retroactively, affecting pending Medi-Cal payments. For more information see “BONDHOLDERS’ RISKS—California State Budget.”

The Corporation expects to derive the majority of its revenues from care provided to Medi-Cal recipients. For a historical percentage breakdown of the Corporation’s dependence upon Medi-Cal, see APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – Financial Information – Sources of Revenue.”

Uncertainty of Revenues. As noted elsewhere, except to the extent that the holders of the Bonds are secured, under certain circumstances, by the proceeds of insurance, sale or condemnation awards, the Bonds will be payable solely from payments or prepayments to be made by the Corporation under the Loan Agreement, and from certain funds held under the Indenture. The ability of the Corporation to make payments under the Loan Agreement is dependent upon the generation by the Corporation of revenues in the amounts necessary for the Corporation to pay the principal and interest with respect to the Bonds, as well as other operating and capital expenses. The realization of future revenues and expenses is subject to, among other things, the capabilities of the management of the Corporation, government regulation and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal and interest with respect to the Bonds. No representation or assurance can be made that revenues will be realized by the Corporation in amounts sufficient to make the required payments with respect to debt service on the Bonds. Neither the Underwriters nor the

33

Corporation have made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Corporation.

Failure to Achieve and Maintain Occupancy. The economic feasibility of the Corporation’s operations depends in large part upon the ability of the Corporation to maintain substantial occupancy throughout the term of the Bonds. This depends to some extent on factors outside the Corporation’s control, such as the residents’ right to terminate their residency agreements. Moreover, if the permanent transfers to the nursing home floors of the community are substantially less than assumed by the Corporation, or if market changes require a reduction in the amount of the fees payable by residents, there would be a consequent impairment of the revenues of the Corporation’s operations. Such impairment could also result if the Corporation is unable to remarket units as they become available. If the Corporation’s operations fail to maintain occupancy levels, remarket independent living units and assisted living units as they become available, or if there is a reduction in the amount of fees received by the Corporation, there may be insufficient funds to pay the debt service with respect to the Bonds.

Rate Setting. Future legislative proposals granting full or partial rate fixing authority to a State or federal agency could prevent the Corporation from increasing rates adequately to cover potential increases in its operating costs or other expenses. In addition, proposed legislation, if enacted, would limit the frequency of rate increases imposed by long term care facilities and the ability to assess separate charges for items and services not authorized in the initial agreement.

Sale of Personal Residences. Prospective residents of the Facilities may be required to sell their current homes to begin occupancy or to meet other financial obligations under their residency agreements. If prospective residents encounter difficulties in selling their current homes due to local or national economic conditions affecting the sale of residential real estate, such prospective residents may not have sufficient funds to meet their financial obligations under their residency agreements, thereby causing a delay in scheduled occupancy of the Corporation’s Facilities or the remarketing of vacated units, either of which would have an adverse impact on the revenues of the Corporation.

Nature of the Income of the Elderly. A large percentage of the monthly income of the residents of the Facilities will be fixed income derived from pensions and Social Security. In addition, some residents will be liquidating assets in order to pay the monthly and other fees. 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. The Corporation’s inability to collect from residents the full amount of their payment obligations may jeopardize the ability of the Corporation to pay amounts due under the Loan Agreement and, consequently, debt service with respect to the Bonds.

Utilization Demand. Several factors could, if implemented, affect demand for services of the Facilities including: (i) efforts by insurers and governmental agencies to reduce utilization of nursing home and long-term care facilities by such means as preventive medicine and home health care programs; (ii) advances in scientific and medical technology; and (iii) increased or

34

more effective competition from nursing home, assisted living facilities and long-term care facilities now or hereafter located in the service areas of the Facilities.

Licensing and Enforcement Matters

General. Health and elder care facilities are subject to regulation by State, local and other regulatory or accrediting agencies created to oversee planning and development of health care resources and services, the governmental and private agencies that administer the Medicaid program and other federal, State and local governmental agencies. Renewal and continuance of certain licenses, certifications and accreditations issued by these agencies are based on inspections, surveys, audits, investigations or other reviews, some of which may require or include affirmative action or response by the management of the Corporation. These activities generally are conducted in the normal course of business. Nevertheless, an adverse result could be the cause of loss or reduction in a facility’s scope of licensure, certification or accreditation or could reduce payments received. In certain instances, failure to comply with the guidelines promulgated by such agencies can result in penalties to the facility (including fines or loss of licensure, certification, accreditation or eligibility for certain reimbursement programs).

Licensure. The Corporation’s facilities are operated as a multi-level care facility consisting of an independent-living facility, an assisted living residential facility, and a skilled nursing health facility (or nursing home), in each case, in a manner consistent with all applicable federal, State and local laws, regulation, rules and ordinances. The Corporation’s independent living facility does not require licensure while its assisted living residential portion is licensed as a RCFE by the Community Care Licensing Division of DSS and consists of both assisted living as well as a memory-care units. The Corporation’s skilled nursing health facility (or nursing home) is licensed as a Skilled Nursing Facility (“SNF”) by the State Department of Public Health (“DPH”). Medi-Cal and Medicare cover SNF services, but do not cover RCFE care.

The Corporation’s RCFE and SNF licenses renew annually upon payment of renewal fees; however, each license is subject to revocation due to, among other things, failure to satisfactorily pass annual inspections conducted to ensure safety and preservation of regulations for the operation of the facilities. See APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – Licensure and Accreditation.”

RCFE Regulation Reform. Recent State legislation has increased the requirements for acquiring and maintaining a RCFE license as well as the importance of passing annual inspections and promptly resolving violations. For a summary of recent State legislation relating to RCFEs see “BONDHOLDERS’ RISKS—Present and Prospective federal and State Regulation-- California Reform of Residential Care Facilities for the Elderly.”

Continuing Compliance. State licensing requirements are subject to change, and there can be no assurance that the Corporation will be able to maintain all licenses needed to operate its Facilities as planned or that it will not incur substantial costs in doing so. Failure to comply with State licensing or certification requirements could result in the loss by the Corporation of the right to conduct all or a portion of its business. Further, the Corporation’s Facilities are subject to periodic inspection by governmental and other regulatory authorities to assure continued

35

compliance with various standards and to provide for continued licensing under State law. For a summary of recent State legislation relating to RCFEs see “BONDHOLDERS’ RISKS—Present and Prospective federal and State Regulation-- California Reform of Residential Care Facilities for the Elderly.”

Enforcement. DPH and DSS both have broad remedial powers to intervene in the operations of a provider who fails to comply with the applicable regulatory requirements once the provider is licensed and in operation. DPH and DSS have the ability to deny licensing and the required permits to the Corporation if either of them is not satisfied with the Corporation’s compliance with the requirements a provider must meet to operate as a skilled nursing facility and/or a RCFE, respectively. In the event a permanent relocation of residents from the Facilities is required due to termination or forfeiture of the Corporation’s license, except in the case of a natural disaster or other event out of the Corporation’s control, certain procedures are required to be followed.

From time to time, the Corporation may receive notices from State regulatory agencies relating to alleged deficiencies for failure to comply with components of the licensure regulations. While the Corporation will endeavor to comply with all applicable regulatory requirements, it may become subject from time to time to various sanctions and penalties resulting from deficiencies alleged by State survey agencies. While a State agency might threaten to revoke licensure in certain instances, management believes that the Corporation will not suffer any material adverse effect as a result of any such threats. There can be no assurance, however, that the Corporation will not be subject to sanctions and penalties in the future as a result of such actions.

For a summary of recent State legislation relating to RCFEs see “BONDHOLDERS’ RISKS—Present and Prospective federal and State Regulation-- California Reform of Residential Care Facilities for the Elderly.”

Other Government Regulation. The Corporation’s Facilities are and will continue to be subject to rules and regulations promulgated by various agencies and bodies of federal, State and local governments which have jurisdiction over such matters as health care, employment, safety, traffic and health. The impact of such rules and regulations on the Corporation’s Facilities is unknown and cannot be predicted. Future orders, pursuant to existing or subsequently enacted rules or regulations, may require the expenditure by the Corporation of substantial sums to effect compliance therewith.

Regulatory and Enforcement Matters

Medicare and Medicaid Anti-Fraud and Abuse Provisions. The Medicare and Medicaid anti-fraud and abuse provisions of the Social Security Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients. Violation of these provisions constitutes a felony and may result in imprisonment for up to five years and fines of up to $25,000. In addition, the DHHS has the authority to impose civil assessments and fines, and may exclude providers engaged in prohibited activities from

36

participation in the Medicare and Medicaid programs, as well as certain other State and federal health care programs. The Secretary of DHHS is required to exclude from such programs any providers convicted of a criminal offense relating to the delivery of Medicare or Medicaid services, for not less than five years. Exclusion from these programs would have a material adverse effect on the operations and financial condition of the Corporation. The scope of prohibited payments in the Anti-Kickback Law is broad. DHHS has published regulations that describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many hospitals, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, health care providers having these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law.

The Corporation has implemented a compliance program to help insure material compliance with the Anti-Kickback Law. In light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti-Kickback Law, there can be no assurances that the Corporation will not be found to have violated the Anti-Kickback Law as to certain of its operations, and, if so, whether any sanction imposed would have a material adverse effect on the operations in certain of its operations or financial condition of the Corporation.

Restrictions on Referrals. Current federal law (known as the “Stark” law provisions) prohibits providers of “designated health services” from billing Medicare or Medicaid when the patient is referred by a physician or an immediate family member with a financial relationship with the designated health services provider, with limited exceptions. “Designated health services” include the following: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The sanctions under the Stark law include denial and refund of payments, civil monetary penalties and exclusion from the Medicare and Medicaid programs.

While the Corporation is diligent in attempting to comply with all laws and regulations affecting its operations, there can be no assurances that the Corporation will not be found to have violated the Stark law provisions as to certain of its operations, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the Corporation.

False Claims Act/Qui Tam Actions. Medicare requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. With respect to certain types of required information, the False Claims Act and the Social Security Act may be violated by mere

37

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. On May 20, 2009, Secretary of DHHS, Kathleen Sebelius and Attorney General Eric Holder announced the creation of the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”), an interagency effort focused specifically on combating health care fraud. HEAT includes senior officials from the Department of Justice (“DOJ”) and DHHS who are strengthening existing programs, as well as investing in new resources and technologies, to prevent and combat fraud, waste, and abuse. As a key component of its efforts, the HEAT taskforce utilizes and supports the joint DHHS-DOJ Medicare Fraud Strike Force team in select locations across the country. The Strike Force teams coordinate law enforcement operations with other federal, State and local law enforcement entities. While management believes that the Corporation’s billing practices will be consistent with Medicare criteria, those criteria are often vague and subject to interpretation and there can be no assurance that aggressive anti-fraud actions will not adversely affect the business of the Corporation.

The False Claims Act provides that an individual may bring a civil action for a violation of the Act. These actions are referred to as Qui Tam actions. In this way, an employee would be able to sue on behalf of the U.S. government if he/she believes that the healthcare entity has committed fraud. If the government proceeds with an action brought by this individual, then he/she could receive as much as 25 percent of any money recovered. The potential exists that a Qui Tam action could be brought against the Corporation.

Federal Privacy and Security Regulations. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) criminalized a wide array of conduct involving public and private health care benefits by creating new offenses of health care fraud and applying pre-existing prohibitions to health plans and contracts. HIPAA dramatically increased the applicable civil monetary penalties, added offenses that trigger exclusion from Medicare, and broadened the group of individuals who could be sanctioned. In addition, HIPAA includes administrative simplification provisions that require standardization of electronic transactions, specific security protections for medical information and processes, privacy protections for patient medical records, and establishment of national employer and provider identifiers. DHHS and CMS have promulgated rules related to electronic transactions, national employer identifiers, national provider identifiers, security, and medical records privacy. Rules regarding national health plan identifiers, claims attachments standards and first report of injury standards have been published in proposed form or are under development.

Provisions in the 2008 Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), enacted as part of Components of the American Recovery and Reinvestment Act of 2009 (the “ARRA”), alters certain rules regarding the use and disclosure of protected health information, extends certain HIPAA provisions to business associates and creates new security breach notification requirements. Under the HITECH Act, DHHS is required to conduct periodic compliance audits of HIPAA covered entities and their business associates. The Corporation may incur significant costs in implementing the policies and systems required to bring itself into compliance with these new requirements.

38

The HITECH Act also broadens the scope of the federal privacy and security regulatory landscape, including significantly expanding the reach of HIPAA. Among other things, the HITECH Act strengthens the HIPAA enforcement provisions, which may result in increased enforcement activity. The HITECH Act broadens the applicability of the criminal penalty provisions under HIPAA to employees of covered entities and requires DHHS to impose penalties on violations resulting from willful neglect. The HITECH Act also significantly increases the amount of civil penalties under HIPAA. In addition, the HITECH Act authorizes State attorneys general to bring civil actions seeking either injunction or damages in response to violations of HIPAA privacy and security regulations that threaten State residents.

Security Breaches and Unauthorized Releases of Personal Information. State and local authorities are increasingly focused on the importance of protecting the confidentiality of individuals’ personal information, including patient health information. Many states have enacted laws requiring businesses to notify individuals of security breaches that result in the unauthorized release of personal information. In some states, notification requirements may be triggered even where information has not been used or disclosed, but rather has been inappropriately accessed. State consumer protection laws may also provide the basis for legal action for privacy and security breaches and frequently, unlike HIPAA, authorize a private right of action. In particular, the public nature of security breaches exposes health organizations to increased risk of individual or class action lawsuits from patients or other affected persons, in addition to government enforcement. Failure to comply with restrictions on patient privacy or to maintain robust information security safeguards, including taking steps to ensure that contractors who have access to sensitive patient information maintain the confidentiality of such information, could consequently damage a health care provider’s reputation and materially adversely affect business operations.

In January 2009, the State established the Office of Health Information Integrity (“OHII”) pursuant to Assembly Bill 211 (“AB211”) to enforce the State’s regulation of health and medical information of its residents under the direction of the California Department of Public Health (“DPH”). In conjunction with HIPAA and the HITECH Act, the State has numerous statutes governing the collection, use and disclosure of certain patient health information, including the California Medical Information Act, Information Practices Act, Lanterman Petris-Short Act, Public Records Act, Lanterman Developmental Disabilities Services Act, Patient Access to Health Records, and Office of HIPAA Implementation / Health Information Integrity. As of January 2009, the State amended its regulatory scheme governing patient health information with the enactment of AB 211 and Senate Bill 541 (“SB541”) so that in certain respects its regulatory scheme would exceed those of HIPAA. With subsequent passage of the HITECH Act it is unclear to what extent AB 211 and SB 541 may now be preempted.

It is generally understood that HIPAA and the HITECH Act only preempt the State’s foregoing regulatory scheme to the extent the coverage, requirements and liability of HIPAA and the HITECH Act exceeds those established by the State. However, incorporating the changes established by AB 211 and SB 541, the State’s regulatory scheme is thought to exceed those of both HIPAA and the HITECH Act in terms of (1) expanding the types of health providers and

39

facilities covered, (2) expanding the types of patient health information subject to protection, (3) requiring written notice to DPH, (4) considerably accelerating the deadline for delivering written notice to affected persons and to DPH, (5) requiring criminal liability for certain violations, (6) providing for enforcement of violations by affected State residents, and (7) increasing penalties and fees for violations. While the effects of the AB 211 and SB 541 cannot be predicted at this time, the obligations and potential liabilities imposed thereunder could have a material adverse effect on the financial condition of the Corporation in the event the Corporation was determined to have violated any such provision.

Risks Related to Tax Exempt-Status of Bonds and Corporation

Tax-Exempt Status of the Corporation. The IRS has determined that the Corporation is a tax-exempt organization described in Section 501(c)(3) of the Code, and exempt from taxation under Section 501(a) of the Code. As a tax-exempt, charitable organization, the Corporation and its operations are subject to various requirements specified by the Code and the regulations promulgated thereunder. Compliance with those requirements is necessary to maintain the tax-exempt status of the Corporation. If the Corporation should fail to meet any of the requirements specified by the Code and regulations thereunder as necessary to maintain its tax-exempt status, action could be initiated by federal or State tax authorities to attempt to subject the Corporation, its property, and its revenues to taxation. If successful, such action could cause interest on the Bonds to be taxable to the owners thereof. Under the Code as amended to the date of this Official Statement, the failure of the Corporation to maintain its tax-exempt status could constitute a default under the Loan Agreement. The Corporation has covenanted in the Loan Agreement that it will not take or omit to take any action, if such act or omission would cause the interest on the Bonds to be includable in the gross income of any owner for federal income tax purposes. Loss of tax-exempt status by the Corporation could result in loss of tax-exemption of the Bonds, and defaults in covenants regarding the Bonds would likely be triggered. Such an event would have material adverse consequences on the financial condition of the Corporation.

The possible modification or repeal of certain existing federal income or State tax laws or other loss by the Corporation of the present advantages of certain provisions of the federal income or State tax laws could materially and adversely affect the status of the Corporation thereby the revenues of the Corporation. Failure of the Corporation or the Authority to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of tax-exempt bonds for facilities such as those being financed with bond proceeds, could cause interest on the Bonds to be included in the gross income of Holders or former Holders of such Bonds for federal income tax purposes. In such event, the Indenture does not contain any specific provision for acceleration of the Bonds nor provides that any additional interest will be paid to the owners of the Bonds. See APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS –THE INDENTURE – Events of Default; Acceleration.”

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

40

the operations and revenues of the Corporation by requiring them to pay income or real estate taxes.

Taxation of Interest on the Bonds. Because the exclusion for federal income tax purposes of the interest on the Bonds from the gross income of the owners thereof depends upon events occurring after the date of execution and delivery of the Bonds, the opinion of Bond Counsel described under “TAX MATTERS” herein assumes the compliance by the Corporation with the provisions of the Code and the regulations relating thereto. No opinion is expressed by Bond Counsel with respect to the exclusion from gross income of the interest on the Bonds in the event of noncompliance with such provisions. The failure of the Corporation to comply with the provisions of the Code and the regulations thereunder may cause the interest on the Bonds to become includable in the gross income of the owners thereof as of the date of execution and delivery of the Bonds.

The Corporation has not sought to obtain a private letter ruling from the Internal Revenue Service (the “IRS”) with respect to the Bonds, and the opinion of Bond Counsel is not binding on the IRS. There is no assurance that an IRS examination of the Bonds will not adversely affect the market value of the Bonds. See “TAX MATTERS” herein.

Bond Audit Risk. Internal Revenue Service officials have indicated that more resources will be invested in audits of tax-exempt bonds. The Bonds may be, from time to time, subject to audits by the Internal Revenue Service. The Corporation believes that the Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the Bonds, as described herein “TAX MATTERS.” No ruling with respect to the tax-exempt status of the Bonds has been or will be sought from the Internal Revenue Service, however, and opinions of counsel are not binding on the Internal Revenue Service or the courts and are not guarantees. There can be no assurance that an audit of the Bonds will not adversely affect the Bonds.

Possible Future federal Tax Legislation. It is possible that future tax legislation could require that the interest on the Bonds be included in the gross income of the owners for federal income tax purposes, and the value or marketability of the Bonds could be adversely affected by any such legislation. See “TAX MATTERS” herein.

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. Previous to the “intermediate sanctions law,” the IRS could punish such violations only through revocation of an entity’s tax-exempt status.

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

41

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 $10,000. A “second tier” penalty excise tax of 200% of the amount of the excess benefit may be imposed on the disqualified person (but not the organizational manager) if the excess benefit transaction is not corrected in a specified time period.

The IRS has issued Revenue Rulings dealing specifically with the manner in which a facility providing residential services to the elderly must operate in order to maintain its exemption under Section 501(c)(3) of the Code. Revenue Rulings 61-72 and 72-124 state 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 or otherwise makes available services for, care and housing to aged 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, (3) renders services that minister to the needs of the elderly and relieve hardship or distress. Revenue Ruling 79-18 states that a facility 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. The Revenue Ruling also states that the organization must be committed, by established policy, to maintaining persons as residents, even if they become unable to pay the monthly charges after being admitted to the facility.

Property Taxes; State and Local Tax Exemption. The Facilities are exempt from property taxation except for minor assessments. In addition, budgetary pressures on local government may lead to increasing pressures for State legislation to amend the property tax statutes to subject to taxation various properties owned by nonprofit organizations or to condition exemption from taxation upon the performance of specific types or level of charitable activity.

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

In recent years, State, county, and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to their property tax exemption for both real and personal property. The Corporation expects the majority of its real and personal property to be exempt from property taxes. Investigations or audits could lead to challenges of the property tax exemption with respect to facilities of the Corporation that, if successful, could adversely and materially affect the property tax exemption with respect to certain of the facilities or property of the Corporation.

42

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 no assurance that future changes in the laws and regulations of federal, State or local governments will not materially or adversely affect the operations and financial condition of the Corporation by requiring it to pay income or local property taxes.

Business Relationships and Other Business Matters

Professional Liability Claims; General Liability Insurance. In recent years, the number of professional and general liability suits and the dollar amounts of damage recoveries have increased nationwide, resulting in substantial increases in professional and general liability insurance premiums and, at times, difficulty obtaining such insurance. Professional liability, elder abuse, and other actions alleging wrongful conduct and seeking punitive damages often are filed against health care and senior care providers such as the Corporation. Insurance does not provide coverage for judgments for punitive damages, and may not provide coverage for allegations of elder abuse. Litigation may also arise from the corporate and business activities of the Corporation and from the Corporation’s status as an employer. As with professional liability, many of these risks are covered by insurance, but some are not. For example, some antitrust claims, business disputes and workers’ compensation claims are not covered by insurance or other sources and, in whole or in part, may be a liability of the Corporation if determined or settled adversely. As noted above, claims for punitive damages are not covered by insurance. Although the Corporation currently carries professional and general liability insurance, which management of the Corporation considers adequate, the Corporation is unable to predict the availability, cost or adequacy of such insurance in the future. There is a risk that the Corporationwill be subject to increases in liability insurance premiums, decreases in liability insurance coverage, and/or unavailability of liability insurance. For a discussion of the insurance coverage of the Corporation, see APPENDIX A—“INFORMATION CONCERNING THE CORPORATION — Insurance Matters.”

Nursing & Technical Staff Shortage. From time to time, the healthcare industry has experienced a shortage of nursing and other technical staff, which has resulted in increased costs and lost revenues due to the need to hire agency nursing personnel at higher rates, increased compensation levels, and the inability to use otherwise available beds as a result of staffing shortages. If such a shortage occurs, it could adversely affect the operations and financial condition of the Corporation.

Competition. Competition from life-care facilities, continuing care retirement communities, congregate housing, assisted living centers, home healthcare agencies and other long-term care facilities which offer sheltered, assisted living or nursing care now or hereafter located in the Corporation’s service area could adversely affect its revenues. The Corporation may face additional competition in the future from other providers of new, expanded, or renovated retirement living and nursing facilities servicing the housing and health care needs of the elderly.

Uncertainty of Investment Income. The investment earnings of, and accumulations in, certain funds established pursuant to the Indenture and otherwise held by the Corporation have

43

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 Trustee is permitted to invest under the 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. Guaranteed investment contracts may be entered into with respect to certain of the funds held under the Indenture.

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 Corporation. There can be no assurance that any such changes would not have a material adverse impact on the Corporation’s compliance with certain covenants contained in the Indenture.

Amendments to the Documents

Certain amendments to the Indenture and the Loan Agreement may be made with the consent of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding under the Indenture. Certain amendments to the Deed of Trust may be made with the consent of the Office and the Corporation. Such amendments may adversely affect the security of the Owners of the Bonds. See APPENDIX C-“SUMMARY OF PRINCIPAL DOCUMENTS-THE INDENTURE-Amendment” and “THE LOAN AGREEMENT-Amendment.”

Additional Indebtedness

The Loan Agreement permits the Corporation to incur Additional Indebtedness which may be equally and ratably secured with the Bonds. Any such additional parity debt would be entitled to share ratably with the Owners of the Bonds in any monies 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 Corporation to make the necessary payments to repay the Bonds may be materially, adversely affected upon the incurrence of Additional Indebtedness. Under certain circumstances provided in the Loan Agreement the Corporation may issue Short-Term Indebtedness and secure the lender of such Short-Term Indebtedness with a first priority security interest in the Corporation’s Gross Revenues pledged in security of the Bonds. In such event, the lien of the Trustee with respect to Gross Revenues comprised of accounts receivable will be junior to such lender’s security interest. See APPENDIX C-“SUMMARY OF PRINCIPAL DOCUMENTS-THE LOAN AGREEMENT-Additional Indebtedness of the Corporation,” “-Limitations on Encumbrances.”

Bankruptcy

If the Corporation 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

44

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 Loan Agreement. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Corporation 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 Corporation despite the security interest of the Trustee therein, provided that “adequate protection” is given to the lienholder.

In a bankruptcy proceeding, the petitioner 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 effectiveness of the security interests in the Corporation’s Gross Revenues granted in the Loan Agreement may be limited by a number of factors, including: (i) provisions prohibiting the direct payment of amounts due to health care providers from Medicare and Medicaid programs to persons other than such providers; (ii) the absence of an express provision permitting assignment of receivables owed to the Corporation under its contracts, and present or future prohibitions against assignment contained in any applicable statutes or regulations; (iii) certain judicial decisions which cast doubt upon the right of the Trustee, in the event of the bankruptcy of the Corporation, to collect and retain accounts receivable from Medicare, Medicaid and other governmental programs; (iv) commingling of the proceeds of Gross Revenues with other monies not subject to the security interest in the Gross Revenues; (v) statutory liens; (vi) rights arising in favor of the United States of America or any agency thereof; (vii) constructive trusts, equitable or other rights impressed or conferred by a federal or State court in the exercise of its equitable jurisdiction; (viii) federal bankruptcy laws or State insolvency laws which may affect the enforceability of the Deed of Trust or the security interest in the Gross Revenues of the Corporation which are earned by the Corporation 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 the Corporation; (ix) rights of third parties in Gross Revenues converted to cash and not in the possession of the Trustee; (x) claims that might arise if appropriate financing or continuation statements are not filed or other documents are not executed in accordance with the California Uniform Commercial Code as from time to time in effect; and (xi) claims that might arise if a deposit account control agreement is not in effect as to the bank deposits holding Gross Revenues. Under the Uniform Commercial Code, such security interest ceases to attach to

45

proceeds of Gross Revenues, e.g., collections of accounts receivable which cannot be traced to a specific account of the Corporation other than the Gross Revenue Account created under the Loan Agreement or otherwise have ceased to be “identifiable cash proceeds.”

There exists, in addition to the foregoing, common law authority and authority under California statutes pursuant to which the California courts may terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court’s own motion pursuant to a petition of the California Attorney General or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses.

Certain Risks Associated with the Deed of Trust

The Corporation has executed the Deed of Trust to secure its obligations pursuant to the Indenture and the Loan Agreement. In the event that there is a default under the Indenture, the Loan Agreement, or any other financing document to which the Corporation is a party, the Trustee has the right to foreclose on the Property and Collateral under certain circumstances. All amounts collected upon foreclosure of the Property and Collateral pursuant to the Deed of Trust will be used to pay certain costs and expenses incurred by, or otherwise related to, the foreclosure, the performance of the Trustee and/or the beneficiary under the Deed of Trust, and then to pay amounts owing under the Indenture with respect to any current or future Obligations.

Any valuation of the Property and Collateral 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 Property and Collateral will at all times be dependent upon many factors beyond the control of the Corporation, 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 Property and Collateral. Any weakened market condition may also depress the value of the Property and Collateral. Any reduction in the market value of the Property and Collateral could adversely affect the security available to the owners of the Bonds. There is no assurance that the amount available upon foreclosure of the Property and Collateral after the payment of foreclosure costs will be sufficient to pay the amounts owing by the Corporation with respect to any current or future Obligations.

In the event of foreclosure, a prospective purchaser of some or all of the Property and Collateral may assign less value to that Property and Collateral than the value of the facilities while owned by the Corporation since such purchaser may not enjoy the favorable financing rates associated with the Bonds, real estate tax exemption and other benefits. To the extent that buyers whose income is not tax-exempt may be willing to pay less for the Property and Collateral than nonprofit buyers, then the resale of either of the Property and Collateral after foreclosure may require more time to solicit nonprofit buyers interested in assuming the financing now applicable to the Property and Collateral. In addition, there can be no assurance

46

that any of the facilities could be sold at one hundred percent (100%) of its fair market value in the event of foreclosure. Although the Trustee will have available the remedy of foreclosure of the Deed 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 Corporation’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 on the Loan Agreement and with respect to any Additional Obligations.

The Deed of Trust will contain power of sale provisions and will be governed by California law. Under California law, the beneficiary of a deed of trust with power of sale may cause the instrument to be foreclosed either judicially (by a court proceeding) or non-judicially by a trustee’s sale.

California has certain statutory prohibitions that limit the remedies of a beneficiary under a deed of trust, such as the Deed of Trust. For example, under one statute, a deficiency judgment is barred where the foreclosure is accomplished by means of a non-judicial trustee’s sale, except where the deed of trust is given to secure the payment of bonds authorized or permitted to be issued by the California Commissioner of Corporations. Under the latter (not intended to be applicable in this situation), a deficiency judgment is barred where a foreclosed deed of trust secures certain purchase money obligations. Another statute, commonly known as the “one-action” rule, requires the beneficiary to exhaust the security under the Deed of Trust by foreclosure and prohibits any personal action against the trust or on the promissory note other than a deficiency judgment following a judicial foreclosure. And yet another statutory provision limits any deficiency judgment obtained by the beneficiary following a judicial sale to the excess of the outstanding debt over the fair market value of the property at the time of sale, thereby preventing a beneficiary from obtaining a large deficiency judgment against the debtor as a result of low bids at the judicial sale.

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

In order to realize on its rights under the Deed of Trust, the Trustee will be required to conduct a foreclosure sale of the facilities under the Indenture and Deed of Trust pursuant to Article 9 of the California Commercial Code. Such a foreclosure sale must be held in a “commercially reasonable” manner, and is subject to subsequent claims that the sale was not “commercially reasonable” and therefore was invalid. Because there is no established market for deeds of trust comparable to the Deed of Trust, little guidance exists for conducting a “commercially reasonable” sale under these circumstances. Therefore, no assurance can be given that a foreclosure sale of the Trustee’s interest in the Deed of Trust will not subsequently be held

47

to be invalid and set aside or that a purchaser could be found for such interests.

IN ORDER TO UNDERSTAND IN FULL THE RISKS AND PROCEDURES INVOLVED IN FORECLOSURE OF THE DEED OF TRUST UNDER CALIFORNIA LAW, POTENTIAL OWNERS OF THE BONDS ARE ADVISED, AND EXPECTED, TO CONSULT WITH AN EXPERT IN THE FIELD BEFORE PURCHASING ANY BONDS.

Office’s Exclusive Rights under Deed of Trust

All rights under the Deed of Trust shall be exercised solely by the Office for so long as the Office is obligated under the Contract of Insurance. With the consent of the Office, the Deed of Trust may be amended, subordinated or terminated at any time without the necessity of obtaining the consent of the Trustee, the Authority or the holders of the Bonds or Parity Debt. Accordingly, the Owners of the Bonds should not consider the Deed of Trust as security for payment of the Bonds. See APPENDIX C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEED OF TRUST.”

Trustee’s Conditional Obligation to Foreclose

The Trustee is authorized by the Loan Agreement and the Deed of Trust to foreclose on real property owned by the Corporation following certain Events of Default. However, the Trustee is not obligated to take possession unless the Trustee determines that certain conditions relating to its potential liability under applicable environmental laws have been satisfied. See APPENDIX C— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS”.

The Indenture further provides that, so long as the Contract of Insurance is in effect and the Office is not in default thereunder, the Office, as co-beneficiary under the Deed of Trust, may foreclose in place of the Trustee.

Rights of Residents

The Corporation enters into residency agreements with its residents. Although these agreements give to each resident a contractual right to use space and do not grant any ownership rights in the Facilities, in the event that either the Trustee or the holders of the Bonds seeks to enforce any of the remedies provided by the Indenture upon the occurrence of a default or the Trustee seeks to enforce remedies under the Deed of Trust, management is unable to predict the resolution that a court might make of competing claims between the Trustee, the Corporation or the holders of the Bonds and a resident of the Facilities who has fully complied with all the terms and conditions of his or her Residency Agreement.

Limited Use Facility

The Facilities have been specially designed as a continuing care retirement community. As a result, in the event of default and eviction of the Corporation from its Facilities, the Trustee’s remedies and the number of entities which would be interested in purchasing or leasing any of the Facilities might be limited, and the sales price or fees generated by a transaction involving

48

the Facilities might thus be adversely affected. In addition, the Health and Safety Code imposes a statutory limitation on transfers of CCRCs, limiting the use of such facilities unless DSS agrees to remove such restriction.

Environmental Matters

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

Seismic Risk

According to the Seismic Safety Commission of the State of California, the State is mapped into seismic hazard zones 3 and 4. Seismic hazard zones account for geographic variation in the expected levels of earthquake ground shaking and are based on the historical records of earthquakes and the location of known earthquake faults. Several earthquake faults run through San Jose, California, the location of the Facilities. Local building codes take into account the likelihood of ground shaking and are intended to provide safety to the building occupants.

There can be no assurance that the occurrence of a significant seismic event in the area in which the Corporation operates would not have a material adverse effect on the Facilities, the operations of the Corporation or the ability of the Corporation to pay the principal and interest with respect to the Bonds. The Corporation does not carry earthquake insurance on its Facilities.

49

Marketability of the Bonds

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.

No assurance can be given that the market price for the Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Code), or changes in interpretation of the Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the Bonds or obligations that present similar tax issues as the Bonds.

Other Possible Risk Factors

The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Corporation:

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

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

(3) Adoption of other federal, State or local legislation or regulations having an adverse effect on the future operating or financial performance of the Corporation;

(4) A decline in the population, a change in the age composition of the population or a decline in the economic conditions of the market area of the Corporation;

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

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

(7) Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Corporation;

(8) Inflation or other adverse economic conditions;

50

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

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

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

(12) The occurrence of natural disasters, including floods and earthquakes, which may damage the Facilities, interrupt utility service to the Facilities, or otherwise impair the operation and generation of revenues from the Facilities;

(13) Scientific and technological advances that could reduce demand for services offered by the Corporation; or

(14) Cost and availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that organizations such as the Corporation generally carry.

ABSENCE OF MATERIAL LITIGATION

The Authority

To the knowledge of the officers of the Authority, there is no litigation of any nature now pending (with service of process having been accomplished) or threatened against the Authority, seeking to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, any proceedings of the Authority taken concerning the issuance or sale thereof, the pledge or application of any moneys or security provided for the payment of the Bonds, or the existence or powers of the Authority relating to the issuance of the Bonds.

The Corporation

There is no controversy of any nature now pending against the Corporation or, to the knowledge of its officers, threatened which seeks to restrain or enjoin the sale, execution or delivery of the Bonds or which in any way contests or affects the validity of the Bonds or any proceedings of the Corporation taken with respect to the execution, delivery or sale thereof, or the pledge or application of any moneys or security provided for the payment of the Bonds, the use of Bond proceeds or the existence or powers of the Corporation relating to the execution and delivery of the Bonds.

Except as described below there is no controversy or litigation of any nature now pending against the Corporation, or to the knowledge of its officers, threatened, which, if successful, would materially adversely affect the operations or financial condition of the Corporation.

51

CONTINUING DISCLOSURE

The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds, and the Authority will not provide any such information. The Corporation has undertaken all responsibilities for any continuing disclosure to Bondholders as described immediately below, and the Authority shall have no liability to the Holders of the Bonds or any other person with respect to any continuing disclosure provided by the Corporation.

The Corporation has covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain annual financial information and operating data relating to the Corporation by not later than one hundred twenty (120) days following the end of the Corporation’s fiscal year, commencing with the report for the fiscal year beginning October 1, 2015 (the “Annual Report”), to provide unaudited quarterly financial information and operating data relating to the Corporation by not later than forty-five (45) days following the end of each calendar quarter, and to provide notices of the occurrence of certain enumerated events within 10 business days of the occurrence thereof. All such information and data and any such notice will be reported to the Municipal Securities Rulemaking Board through EMMA, and shall be available at such times at http://emma.msrb.org. The specific nature of the information and data to be contained in the Annual Report or the notices of enumerated events is set forth in APPENDIX E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

The Corporation has had continuing disclosure obligations with respect to the 2011 Bonds as well as insured certificates of participation issued on its behalf in 2000 (the “2000 COPs”), which are no longer outstanding. The Corporation has determined that it continuing disclosure submissions over the last five years with respect to the 2011 Bonds and 2000 COPs have not fully complied with its continuing disclosure obligations. While all submissions have now been made, some were late.

In December 2014 and again in January 2015, the Corporation supplemented its disclosure submissions with respect to the 2000 COPs and 2011 Bonds by posting additional information with EMMA. The Corporation retains a third-party dissemination agent with which to make all of its continuing disclosure filings with EMMA. Management of the Corporation has indicated that it will seek Board approval at its next Board meeting of compliance procedures relating to its outstanding bonds, including compliance procedures and policies relating its continuing disclosure obligations. The Corporation’s next Board meeting will be held in March 2015. The Corporation has also designated a person from senior management to be responsible for all continuing disclosure of the Corporation with respect to the outstanding bonds. The Corporation and the dissemination agent for all outstanding issues have agreed to have earlier contact with each other in the continuing disclosure process to ensure proper information exchange between the Corporation and dissemination agent and, therefore, to help produce timely and complete continuing disclosure in the future.

52

Set forth below in table form is information outlining separately the required Annual Report, quarterly financial information (as applicable) and operating data disclosures pertaining to the 2011 Bonds and the 2000 COPs. The table shows the date on which each filing was required to have been filed and the actual date on which each filing was posted on EMMA. In no case involving a late filing was a notice of failure to timely file the required continuing disclosure posted to EMMA by the dissemination agent or the Corporation. Recently, however, a notice filing was made with respect to the 2011 Bonds containing the information on the following tables with respect to the 2011 Bonds.

2000 COPs(1) Due Date Date Posted

2009 Annual Report 03/31/2010 04/27/2010 2009 Operating Data(2) 03/31/2010 04/27/2010,

01/12/2015 2010 Annual Report 03/31/2011 04/13/2011(3)

2010 Operating Data(2) 03/31/2011 03/29/2011 2011 Bonds Due Date Date Posted

2011 Annual Report 03/31/2012 03/29/2012 2011 Operating Data(4) 03/31/2012 12/01/2014 2012 Annual Report 03/31/2013 05/11/2013 2012 Operating Data(4) 03/31/2013 12/01/2014 2013 Annual Report 03/31/2014 10/04/2014 2013 Operating Data(4) 03/31/2014 12/01/2014 Quarterly Financials (03/31/11) 05/15/2011 12/01/2014 Quarterly Financials (06/30/11) 08/15/2011 12/01/2014 Quarterly Financials (09/30/11) 11/15/2011 12/01/2014 Quarterly Financials (12/31/11) 02/15/2012 12/01/2014 Quarterly Financials (03/31/12) 05/15/2012 12/01/2014 Quarterly Financials (06/30/12) 08/15/2012 12/01/2014 Quarterly Financials (09/30/12) 11/15/2012 12/01/2014 Quarterly Financials (12/31/12) 02/15/2013 12/01/2014 Quarterly Financials (03/31/13) 05/15/2013 12/01/2014 Quarterly Financials (06/30/13) 08/15/2013 12/01/2014 Quarterly Financials (09/30/13) 11/15/2013 12/01/2014 Quarterly Financials (12/31/13) 02/15/2014 12/01/2014 Quarterly Financials (03/31/14) 05/15/2014 12/01/2014 Quarterly Financials (06/30/14) 08/15/2014 12/01/2014 Quarterly Financials (09/30/14) 11/15/2014 12/30/2014 (1) The 2000 COPs were fully redeemed on or about April 1, 2011. (2) Consists of occupancy, debt service coverage ratio, current ratio, fund balances, days cash on hand, copies of all state inspection reports, outstanding indebtedness, and utilization. (3) Reference is made to the Final Official Statement filed with EMMA in connection with the redemption of the 2000 COPs and the issuance of the 2011 Bonds.(4) Consists of Sources of Revenue, cash and investments, capitalization, outstanding indebtedness, and debt service coverage ratio.

53

Both the 2000 COPs and 2011 Bonds were rated by S&P (defined in “RATING” herein below) based on insurance provided to each issue by the Office. The 2000 COPs were initially rated “AA-” by S&P in March 2000. That rating was changed by S&P several times after that date and prior to full redemption in April 2011. The rating changes were: “AA” (September 2000), “A+” (April 2001), “A” (December 2002), “BBB” (July 2003), “A” (August 2004), “A+” (May 2006), “A” (February 2009), “A-” (January 2010). The 2011 Bonds were initially rated “A-” by S&P in April 2011. Since that date the rating was changed to “A” (January 2013) and “A+” (November 2014). While none of these rating changes were reported by the Corporation to the Municipal Securities Rulemaking Board, these rating changes were otherwise generally known in the marketplace contemporaneously with the rating change action by S&P.

TAX MATTERS

Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority and the Corporation have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

Subject to the Authority’s and the Corporation’s compliance with the above referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, Bond Counsel, interest on the Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. Interest on the Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations.

In rendering its opinion, Bond Counsel will rely upon certifications of the Authority and the Corporation with respect to certain material facts within the Authority’s and the Corporation’s knowledge and will rely on an opinion of the Wilson Law Group, PC, counsel to the Corporation, that the Corporation is a 501(c)(3) organization and certain other matters. Bond Counsel’s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

The Internal Revenue Code of 1986, as amended (the “Code”), includes provisions for an alternative minimum tax (“AMT”) for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation’s alternative minimum taxable income (“AMTI”), which is the corporation’s taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation’s “adjusted current earnings” over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). “Adjusted current earnings” would include certain tax exempt interest, including interest on the Bonds.

54

Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences.

The issue price (the “Issue Price”) for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page of this Official Statement.

If the Issue Price of a maturity of the Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, of the Bonds (the “OID Bonds”) and the principal amount payable at maturity is original issue discount.

For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Authority and the Corporation comply with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the State and local tax consequences of original issue discount on such OID Bonds.

Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price or purchase Bonds subsequent to the initial public offering should consult their own tax advisors.

If a Bond is purchased at any time for a price that is less than the Bond’s stated redemption price at maturity or, in the case of an OID Bond, its Issue Price plus accreted original issue discount reduced by payments of interest included in the computation of original issue discount and previously paid (the “Revised Issue Price”), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not

55

exceed gain realized) or, at the purchaser’s election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price even if the purchase price exceeds par. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds.

An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as “bond premium” and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax exempt bond. The amortized bond premium is treated as a reduction in the tax exempt interest received. As bond premium is amortized, it reduces the investor’s basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond’s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond.

There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures the Service may treat the Authority as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

56

Ownership of the Bonds may result in other State and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such State and local taxes.

Bond Counsel expects to deliver an opinion at the time of delivery of the Bonds in substantially the form set forth in APPENDIX D—FORM OF FINAL OPINION OF BOND COUNSEL.

APPROVAL OF LEGALITY

Legal matters incident to the delivery of the Bonds are subject to the approving opinion of Quint & Thimmig, LLP, San Francisco, California, as Bond Counsel. Certain legal matters will be passed upon for the Authority by the Attorney General of the State of California. Certain legal matters will be passed upon for the Underwriters by their counsel, Jennings, Strouss & Salmon, PLC, Phoenix, Arizona. Certain legal matters will be passed upon for the Corporation by Wilson Law Group, PC, San Diego, California, counsel to the Corporation and as Disclosure Counsel. Certain fees payable to Bond Counsel, Counsel to the Corporation and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. The Attorney General undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.

RATING

Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), has assigned its municipal bond rating of “A+” to the Bonds with the understanding that, upon delivery of the Bonds, payment of principal and interest with respect to the Bonds will be insured by the Office. The rating reflects S&P’s current assessment of the creditworthiness of the Office and the State. The Corporation furnished to the rating agency certain information and material concerning the Bonds. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. Any explanation of the significance of the above rating may only be obtained from S&P. There is no assurance that the rating will remain in effect for any given period of time or that they might not be lowered or withdrawn entirely by the rating agency, if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of any rating might have an adverse effect on the market price or marketability of the Bonds. Under the Corporation’s continuing disclosure undertaking it will report to the Municipal Securities Rulemaking Board any lowering or withdrawal of the rating on the Bonds. See “CONTINUING DISCLOSURE.”

UNDERWRITING

The Bonds are being purchased by the Underwriters at a purchase price of $12,734,979.28, which is the par amount of the Bonds of $11,965,000.00, less an Underwriters’ discount of $90,207.57 and plus a net premium of $860,186.85. The Bond Purchase Agreement for the Bonds provides that the Underwriters will purchase all of the Bonds, if any are purchased,

57

and contains the agreement of the Corporation to indemnify the Underwriters against certain liabilities to the extent permitted by law. The obligation of the Underwriters to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Agreement.

The Underwriters may offer and sell the Bonds to certain dealers and others at prices or yields different from the prices or yields stated on the cover page of this Official Statement. The offering prices or yields may be changed from time to time without notice by the Underwriters.

Piper Jaffray & Co., an Underwriter (“Piper”), and Pershing LLC, a subsidiary of The Bank of New York Mellon (“Pershing LLC”), Corporation entered into an agreement (the “Agreement”) which enables Pershing LLC to distribute certain new issue municipal securities underwritten by or allocated to Piper, including the Bonds. Under the Agreement, Piper will share with Pershing LLC a portion of the fee or commission paid to Piper.

Piper has entered into a distribution agreement (“CS&Co Distribution Agreement”) with Charles Schwab & Co., Inc. (“CS&Co”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to the CS&Co Distribution Agreement, CS&Co will purchase Bonds from Piper at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that CS&Co sells.

Piper has also entered into a distribution agreement (“UnionBank Distribution Agreement”) with UnionBank Investment Securities LLC (“UnionBank”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to the UnionBank Distribution Agreement, UnionBank will purchase Bonds from Piper at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that UnionBank sells.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

The Verification Agent will reexamine the arithmetical accuracy off certain computations included in the schedules relating to the refunding of the Refunded 2011 Bonds. See “THE REFINANCING PLAN.” The Verification Agent has restricted its procedures to examining the arithmetical accuracy of the certain computations and has not made any study or evaluations of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion in the date used, the reasonable of the assumptions, or the achievability of the forecasted outcome.

THE TRUSTEE

The U.S. Bank National Association, a national banking association organized under the laws of the United States, has been appointed to serve as Trustee for the Bonds. The Trustee is to carry out those duties assignable to it under the Indenture. Except for the contents of this section, the Trustee has not reviewed or participated in the preparation of this Official Statement and does not assume any responsibility for the nature, completeness, contents or accuracy of the Official Statement.

58

Furthermore, the Trustee has no oversight responsibility, and is not accountable, for the use or application by the Authority of any of the Bonds authenticated or delivered pursuant to the Indenture or for the use or application of the proceeds of such Bonds by the Authority or the Corporation. The Trustee has not evaluated the risks, benefits, or propriety of any investment in the Bonds and makes no representation, and has reached no conclusions, regarding the value or condition of any assets pledged or assigned as security for the Bonds or the investment quality of the Bonds, about all of which the Trustee expresses no opinion and expressly disclaims the expertise to evaluate.

MUNICIPAL ADVISOR

The Corporation has entered into an agreement with H.G. Wilson Municipal Finance, Inc., of San Diego, California (the “Municipal Advisor”), pursuant to which the Municipal Advisor provides financial recommendations and guidance to the Corporation with respect to preparation and sale of the Bonds, timing of sale, tax-exempt bond market conditions, costs of issuance and other factors related to the sale of the Bonds. The Municipal Advisor is a registered “municipal advisor” with the Municipal Securities Rulemaking Board and the Securities and Exchange Commission.

INDEPENDENT AUDITORS; FINANCIAL STATEMENTS

The consolidated financial statements of the Corporation as of September 30, 2014, have been included herein as APPENDIX B to this Official Statement, and have been audited by C. Rendell Bayless CPA, independent auditors, as stated in their report appearing therein. Investors should review the financial statements prior to purchasing the Bonds.

CERTAIN RELATIONSHIPS AMONG THE PARTIES

Quint & Thimmig LLP, which has acted as Bond Counsel, and Wilson Law Group, PC, which has acted as Disclosure Counsel and Corporate Counsel to the Corporation, have acted as counsel to one or more of the Underwriters in the past and may do so in the future. In addition, H.G. Wilson, the principal of H.G. Wilson Municipal Finance, Inc., the Municipal Advisor on this transaction, and Matthew Wilson, the lead attorney for Wilson Law Group, P.C., are father and son.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

59

MISCELLANEOUS

The foregoing and subsequent summaries or descriptions of provisions of the Bonds, the Indenture, the Loan Agreement, the Regulatory Agreement, the Contract of Insurance and the Deed of Trust and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is made to said documents for full and complete statements of provisions of such documents. The appendices attached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the Indenture, the Loan Agreement, the Regulatory Agreement and the Control Agreement may be obtained during the offering period from the Underwriters and thereafter upon request to the principal corporate trust office of the Trustee.

Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

This Official Statement has been approved by the Corporation. This Official Statement is not to be construed as a contract or agreement between the Corporation and the purchasers, Beneficial Owners or holders of any of the Bonds.

The Authority furnished only the information contained under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION—The Authority” and, except for such information, makes no representation as the adequacy, completeness or accuracy of this Official Statement or the information contained herein.

LINCOLN GLEN MANOR FOR SENIOR CITIZENS

By: /s/ Loren Kroeker Loren Kroeker, Executive Director

CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY

By: /s/ Barbara J. Liebert Barbara J. Liebert, Executive Director

APPENDIX A

INFORMATION CONCERNING THE CORPORATION

The information included in this APPENDIX A to this OFFICIAL STATEMENT has been provided by Lincoln Glen Manor for Senior Citizens, a California nonprofit public benefit corporation (the “Corporation”) and other sources which are believed to be reliable and is not to be construed as a representation of, nor is the accuracy or completeness guaranteed by, the Authority, the Office, the Underwriters or the Municipal Advisor. The information provided in this APPENDIX A is only deemed complete and accurate to the extent it is read in conjunction with the OFFICIAL STATEMENT and all other APPENDICES attached hereto, including the financial statements of the Corporation attached hereto as APPENDIX B to this OFFICIAL STATEMENT.

i

Table of Contents

PageTHE CORPORATION................................................................................................................................................. 1

History and Background........................................................................................................................................ 1Facilities................................................................................................................................................................ 2Services................................................................................................................................................................. 3Board of Trustees .................................................................................................................................................. 4Management ......................................................................................................................................................... 4Employees............................................................................................................................................................. 5Licensure, Memberships and Unit Mix.................................................................................................................. 5Historical Utilization ............................................................................................................................................. 6Competition .......................................................................................................................................................... 7Insurance Matters.................................................................................................................................................. 9

RESIDENCY REQUIREMENTS AND SERVICES PROVIDED .............................................................................. 9Independent Living Services ................................................................................................................................. 9Skilled Nursing Services ..................................................................................................................................... 10Skilled Nursing Services to Nonresidents............................................................................................................ 10Assisted Living Services ..................................................................................................................................... 10Memory Care Services ........................................................................................................................................ 10Admission Agreements ....................................................................................................................................... 11Payor Source for Residents.................................................................................................................................. 11

FINANCIAL INFORMATION.................................................................................................................................. 12Summary of Revenues and Expenses .................................................................................................................. 12Management's Analysis of Financial Performance .............................................................................................. 12Sources of Revenue............................................................................................................................................. 19Cash and Investments.......................................................................................................................................... 20Capitalization ...................................................................................................................................................... 21Outstanding Indebtedness.................................................................................................................................... 21Debt Service Coverage Ratio .............................................................................................................................. 22Retirement Plan................................................................................................................................................... 23

1

INFORMATION CONCERNING LINCOLN GLEN MANOR FOR SENIOR CITIZENS

THE CORPORATION

History and Background

Lincoln Glen Manor for Senior Citizens (the “Corporation”) is a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. The Corporation is exempt from federal income tax under Section 501(c)(3) of the Code and is exempt from State of California franchise tax under the provisions of Section 23701d of the Revenue and Taxation Code of the State of California. Conceived in the early 1960’s by members of the Lincoln Glen Mennonite Brethren Church, the Corporation was organized in 1965 as an independent living facility primarily for the elderly members of the Mennonite community. The Corporation now offers services to any senior citizen in its community, regardless of religious affiliation.

The Corporation operates three facilities on a single campus located on a 6.6 acre parcel in the Willow Glen neighborhood of San Jose, California. The three facilities include Lincoln Glen Manor, which offers 66 independent living units (the “Manor”), Lincoln Glen Assisted Living Center, which offers 31 assisted living units (the “Assisted Living Center”) and 11 memory/dementia care units (“Memory Care”), and Lincoln Glen Skilled Nursing Facility, which offers 59 skilled nursing beds (the “Nursing Facility”).

The Manor was originally constructed in 1969 with financing through the Department of Housing and Urban Development (“HUD”). After completion of the Manor, the need for additional level care became apparent as Manor residents aged but could no longer function independently. In 1977, the Corporation constructed an intermediate care facility with 59 beds through which it offered 24-hour nursing care and assistance. As demand for the Corporation’s services increased in the late 1980’s, the Corporation began to convert intermediate care beds to skilled nursing beds, converting 13 of its 59 beds into skilled nursing beds. In 1992, 14 additional intermediate care beds were converted to skilled nursing beds. The Corporation converted the remainder of its intermediate care beds (32 beds) into skilled nursing beds in 2004. The conversion of the Nursing Facility and construction of the Assisted Living Center in 2000 were completed with the proceeds from certificates of participation issued in 2000. Upon the completion of the Assisted Living Center, the Corporation added 31 additional assisted living units, licensed for 62 assisted living beds.

In 2011, the Corporation determined that a memory care facility would enable it to better care for those patients suffering from dementia, Alzheimer’s, and other similar diseases affecting the mental faculties of its existing and prospective residents and patients. The Corporation constructed its 11 bed memory care facility by converting 8 of its independent living units into memory care units. The construction of the Memory Care Facility was completed with the proceeds from California Municipal Finance Authority Insured Revenue Bonds (Lincoln Glen Manor for Senior Citizens) Series 2011 (the “2011 Bonds”). The Corporation also used the proceeds of the 2011 Bonds to completely remodel the Central Manor Building by remodeling

2

and expanding the Corporation’s kitchen and dining areas, remodeling and relocating the chapel area, and adding a second story.

As of December 31, 2014, the Manor, the Assisted Living Center, the Memory Care Facility, and Nursing Facility were each experiencing vacancies causing the operating level of each to be below their respective historical averages, with the Manor operating at 87.3% occupancy, the Assisted Living Center operating at 86.6% occupancy, the Memory Care Facility operating at 100% occupancy, and the Nursing Facility operating at 98.5% occupancy. Many residents of the Assisted Living Center, the Memory Care Facility and Nursing Facility began as residents of the Manor.

Facilities

The Corporation’s 6.6 acre campus is the location for its four facilities—the Manor, the Assisted Living Center, the Nursing Facility, and the Memory Care Facility. The four below-described facilities are referred to herein as the “Facilities”:

Lincoln Glen Manor (or the “Manor”) – The Manor is comprised of two single-story apartment buildings, which are referred to as “North Manor” and “South Manor,” respectively, 32 cottages units, and an administrative building, which is referred to as “Central Manor.” North Manor has 8 studio apartments and 14 one-bedroom apartments, while South Manor has 3 studio apartments and 9 one-bedroom apartments. The apartments in both North Manor and South Manor each encircle a central courtyard. The cottages are housed in 16 duplex buildings where each unit is a one-bedroom with a kitchen. Residents of North and South Manor and the cottages are serviced by Central Manor, which in addition to the Corporation’s administrative office also houses all the dining and food preparation, a chapel, game room, library, and beauty salon. The Central Manor was completely renovated in 2011 and 2012.

Lincoln Glen Assisted Living Center (or the “Assisted Living Center”) – The Assisted Living Center is two-story building that was completed in 2001 and houses 31 single units with private bathrooms. While designed for single occupancy, each unit can easily accommodate couples. The Assisted Living Center has two open recreation rooms and its occupants are also serviced by Central Manor.

Lincoln Glen Skilled Nursing Facility (or the “Nursing Facility”) – The Nursing Facility was originally constructed in 1977 and was most recently renovated in 2004. It houses 59 licensed skilled-nursing beds arranged in private and semi-private rooms, each room having its own bathroom facility. The facility is staffed with licensed nursing staff seven days a week, 24 hours a day.

Lincoln Glen Memory Care Facility (or the “Memory Care Facility”) – The Memory Care Facility was completed in 2012. This facility constitutes a portion of the Corporation’s “South Manor” and consists of 11 licensed assisted living beds. The memory care units are separated from the independent living units also located in the “South Manor” by doors with magnetic combination locks. The Memory Care Facility also contains a dedicated dining room and common area and a separate egress-controlled space to serve its residents.

3

Services

The Corporation provides a range of senior care services to meet the needs of the citizens over the age of 65 in its community, including independent living, assisted living, memory care, and skilled nursing. A description of the four levels of care provided at the Corporation's health facilities—Manor, Assisted Living Center, Skilled Nursing Facility, and Memory Care Facility—is provided below.

Independent Living - Tenants residing in the Manor maintain an independent lifestyle. Services offered to Manor residents are provided as part of their monthly rental fee and primarily consist of meals as well as other convenience or recreational services, including transportation, planned and supervised recreational activities, on-site beauty salon, emergency health services, housekeeping, and maintenance. Residents of the cottages with a full kitchen may select one meal per day, while studio apartment residents receive three meals per day. A full array of snacks is available to all residents. No State of California license is required to operate the Manor.

Assisted Living - The residential care program is offered through the Assisted Living Center and provides limited health care and personal support services for residents who experience difficulty in maintaining totally independent lifestyles. Residents in this level of care require assistance with daily living activities such as bathing, grooming and the taking of medications. Residents of the residential care facility receive three meals per day, housekeeping, medication supervision, planned activities supervision and laundry service for their monthly fee. The State of California Department of Social Services licenses the Corporation's Assisted Living Center.

Skilled Nursing - Residents residing in the Nursing Facility require 24-hour nursing care by licensed nurses and certified nursing assistants. In addition, many residents require physical, occupational, and speech rehabilitation, special diet, and social services on an ongoing basis. The skilled nursing unit is licensed by the State of California Department of Public Health and is certified for reimbursement from the Medicaid program (Medi-Cal is the State of California's Medicaid program) and the Medicare program.

Memory Care - The memory care program is offered through the Memory Care Facility and provides limited health care and personal support services for residents who suffer from dementia and Alzheimer’s. Residents of this specialized facility are under 24-hour supervision and emergency response and care in a secure environment. Residents in this level of care require assistance with daily living activities such as bathing, grooming and the taking of medications. Residents of the residential care facility receive for their monthly fee: three meals per day, housekeeping, laundry service medication supervision, bedside care for temporary/minor illnesses, observation and supervision for changes in physical, mental, emotional and social functioning, 24 hour monitoring, and assistance with their daily living activities and personal needs. The State of California Department of Social Services licenses the Corporation's Memory Care Facility.

4

Board of Trustees

The Corporation is governed by a board of trustees (the “Board”), whose number of trustees can range from 5 to 9 members. Each Board member must also be a member of the Corporation and is elected to a three-year term by the Corporation's membership at its annual meeting.

Elections of members of the Board are staggered so that at each annual meeting the members of the Corporation must reelect at least one member of the Board. There are no term limits. Present members of the Board, including their occupations, years on the Board and the date their current term ends, are as follows:

Name and Office (if any) OccupationNumber of Years on

Board

YearTermEnds

Rich Uhl Chairman

Retired engineer 11 2015

Larry Gaede Vice Chairman

Bus Driver, Retired businessman

34 2015

Linda Wiens Secretary

Retired accountant 22 2015

Diane Eldridge Treasurer

CFO of the Corporation 13 2016

Robert Mueller Engineer 5 2016 Mary Wiens Safety Consulting

Administrator 2 2016

Randy Ollenburger Engineer 4 2017 Judy Powell Retired employee of City of

San Jose 4 2017

Leon Rondeau Retired employee of PG & E 4 2017

Source: Corporation records.

Management

Principal members of the management staff who are responsible for the operations of the Corporation and the Facilities are profiled below:

Loren Kroeker - Mr. Kroeker has served as Administrator for the Corporation since September 1995. Mr. Kroeker holds licenses from the State of California as a Nursing Homes Administrator and a Residential Care Facility for the Elderly Administrator. He is also a licensed Minster with the Pacific District Conference of Mennonite Brethren Churches. Prior to his employment with the Corporation, Mr. Kroeker was the Administrative Pastor for Lincoln Glen Church from 1990 to 1995. He holds Bachelors of Arts degrees in Pastoral Ministries and Theology from William Jessup University.

Diane Eldridge - Ms. Eldridge currently serves as Treasurer to the Board and Chief Financial Officer of the Corporation. She became the Corporation’s Chief Financial Officer in

5

2009 after serving as member of the Board since 2001. Prior to being elected to the Board, Ms. Eldridge served for nine years as the Pastor of Administration for Lincoln Glen Church where she was responsible for overseeing all of the financial functions of the church as well as negotiating all employee benefit packages and insurance policies of the Corporation. Prior to working at Lincoln Glen Church, Ms. Eldridge worked for many years as finance manager for several successful Silicon Valley companies. Ms. Eldridge holds a Masters of Business Administration degree from San Jose State University in California and a Bachelor of Arts degree in English from Hope College in Holland, Michigan.

Rebecca Turner - Ms. Turner has been employed by the Corporation as an administrator or assistant administrator since 1999. She is licensed by the State of California as a Nursing Home Administrator. Ms. Turner also serves as both President of the Santa Clara Chapter of and a member of the Statewide Committee for the California Association of Health Facilities. Prior to joining the Corporation, she worked with Mountain View Healthcare as its administrator. Ms. Turner earned a Bachelor of Science degree in Health Care Management from San Jose State University, and Masters of Science degree in Gerontology from San Jose State University.

Ruth Deane Kirchner, R.N. – Ms. Kirchner has served as the Director of Nursing for the Corporation since 2007. Prior to coming to the Corporation, Ms. Kirchner served as Director of Nursing for Eden West Convalescent Hospital. Ms. Kirchner has been a Registered Nurse for over 15 years, where she has served as a Charge Nurse, a Director of Staff Development, Clinical Director and a Director of Nursing in other facilities. She began her career in long term care as a Certified Nursing Assistant in 1988. Ms. Kirchner received her Associate’s degree from Shasta College.

Barbara Feiller – Ms. Feiller has served as Assisted Living Administrator for the Corporation since the Assisted Living Center opened in 2001, and has been employed by the Corporation since 1991. She is licensed by the State of California as a Residential Care Facility for the Elderly Administrator.

Employees

As of December 31, 2014, the Corporation employed approximately 152 full-time, part-time and on-call employees. Included in this group are registered nurses, licensed vocational nurses, certified nursing aides, maintenance, housekeeping, food service personnel, and various management, supervisory and clerical employees. Management of the Corporation believes that its relations with employees are good as is evidenced by the Corporation’s consistently low turnover each year. No Corporation employees are represented by a collective bargaining unit and management is not aware of any pending union activity at the Facilities.

Licensure, Memberships and Unit Mix

The Corporation is currently licensed to operate a total of 132 beds (59 skilled nursing beds licensed by the State of California Department of Public Health, 62 residential care beds and 11 memory care beds licensed by the State of California Department of Social Services). Although each of its 31 units located in the Assisted Living Facility is licensed by the State of California

6

Department of Social Services for double occupancy, the Corporation operates the majority of its 31 assisted living residential units on a single-occupancy basis. The Corporation's 66 independent living units are not required to be licensed. The Corporation is a member of the Aging Services of California, American Association of Homes and Services for the Aging, California Association of Health Facilities. The Corporation is also an eligible provider under California's Medi-Cal program and the Medicare program.

Historical Utilization

The following table sets forth the historical utilization of the Facilities for the four years ended September 30, 2014.

Fiscal Year Ended September 30 2011 2012 2013 2014Senior Housing (Independent Living):

Units Available 54 60 62 62 Average Occupancy* 89.4% 83.0% 77.5% 89.0%

Residential Care (Assisted Living):

Licensed Beds 62 62 62 62 Available Beds: 31 31 31 31 Average Occupancy * 87.9% 84.4% 85.8% 80.8%

Residential Care (Memory Care):

Licensed Beds † † 11 11 Available Beds: † † 11 11 Average Occupancy * †% †% 35.9% 93.9%

Skilled Nursing: Licensed Beds 59 59 59 59 Available Beds 59 59 59 59 Average Occupancy * 97.3% 95.7% 95.3% 93.7%

Source: Corporation Records * Based upon available beds † Construction of Memory Care Facility completed November 2012

Variances between available beds and licensed beds for Assisted Living Center is due to the Corporation’s decision to license all Assisted Living Center units for two persons in order to potentially accommodate couples in need of service for one or both, who desire to live in the same unit. Generally, however, the units are used by single seniors who desire a private room.

Beginning in 2011 and for the first time in its operating history, the Corporation’s occupancy levels began to fall. From Fiscal Year 2011 to Fiscal Year 2013, the Manor suffered a decrease in occupancy of nearly 12% (and of more than 34%, if still including the 8 units converted to memory care units and 3 units converted to storage and office space), Assisted Living

7

occupancy fell by 2.1% (or approximately one resident) and Skilled Nursing occupancy fell by 1.6% (or one resident). By the end of Fiscal Year 2014, occupancy levels at the Manor had returned to normal, but occupancy levels at both the Assisted Living and Skilled Nursing Facilities continued to fall—with occupancy at the Skilled Nursing Facility falling another 1.6% (or one resident) from that of Fiscal Year 2013 and at the Assisted Living Facility falling 5% (or approximately 2 residents) from that of Fiscal Year 2013. In contrast, the Memory Care Facility, which opened in November 2012, reached nearly full capacity by the end of Fiscal Year 2014.

Management attributes the overall decrease in the occupancy levels at its facilities to the general economic downturn that impacted much of the United States, including prospective residents of the Corporation’s facilities. In addition to such general economic conditions, management believes that the decrease in occupancy levels of the Manor were due to the conversion and construction projects that directly impacted the units and/or residents of the Manor, and the corresponding spike in occupancy that followed, to the completion of the conversion and construction project. Likewise, management notes that occupancy levels at the Assisted Living Facility were impacted by both the construction and opening of the Memory Care Facility, with the largest drop in occupancy occurring immediately following the opening of the Memory Care Facility. Because the Skilled Nursing Facility is dependent on resident transfers from the Corporation’s other facilities, management believes that the drop in occupancy levels at the Skilled Nursing Facility fell as a result of decreases in the occupancy levels of the Corporation’s other facilities. Management also notes that recent changes to the referral requirements of certain insurance providers also impacted the number of its residents who were eligible to transfer to its Skilled Nursing Facility. Despite recent variances from its historic occupancy averages, management believes that occupancy levels are now equal to or exceeding such historic averages and will continue to do so for the foreseeable future. For more discussion, see “—Management Analysis of Financial Performance” herein below.

Competition

Over 80% of the Corporation's admissions originate from the Corporation’s zip code as well as 7 other zip codes in South and West San Jose, and one zip code in Morgan Hill, California, which is approximately 18 miles from the Corporation. There are 8 competitors in the Corporation’s service area that provide assisted living (“AL”) and memory care (“MC”) services on a single campus, similar to the Corporation. There is also one additional competitor outside the Corporation’s service area that specializes in memory care services. Notwithstanding the number of facilities with competing assisted living units, each competing facility generally has utilization levels that mirror those of the Corporation.

Name and Location of Competing Facility

Distance from the Corporation

Type of Facility

Number of Units and

Beds

Atria Willow Glen San Jose, CA

2.4 Miles ALMC

6320

Merrill Gardens at Willow GlenSan Jose, CA

2.8 Miles ALMC

150 14

8

Rose Garden Court San Jose, CA

2.8 Miles ALMC

3014

Carlton Plaza San Jose San Jose, CA

3.5 Miles ALMC

183 16

Cedar Creek Alzheimer’s and Dementia Center San Jose, California

3.5 Miles MC 58

Belmont Villages at San Jose San Jose, California

8.4 Miles ALMC

137 12

Vintage Silver Creek San Jose, California

8.8 Miles ALMC

140 25

Regency at Evergreen Valley San Jose, California

9.1 Miles ALMC

134 23

Westmont Morgan Hill Morgan Hill, California

18.0 Miles ALMC

6726

The table below provides information provided by management of the Corporation about 6 competing skilled nursing facilities that only provide skilled nursing services within the Corporation’s service area, including the number of licensed skilled nursing beds:

Name and Location of Competing Facility

Distance from the Corporation

Number of Skilled Nursing Beds

Willow Glen Center San Jose, California

2.9 miles 152

Empress Care Center, LLC San Jose, California

3.5 miles 67

Crestwood Manor San Jose, California

3.6 miles 174

White Blossom Care Center San Jose, California

4.3 miles 153

A Grace Sub-Acute And Skilled Care San Jose, California

4.8 miles 166

Skyline Healthcare Center San Jose, California

8.5 miles 253

9

Notwithstanding the number of facilities with competing skilled nursing beds, each competing facility generally has utilization levels that mirror those of the Corporation.

The Corporation is one of the only facilities in its service area that provides multi-service levels of care on a single campus that includes a skilled nursing facility, an independent living facility, an assisted living facility, and a memory care unit. Unlike other facilities in the San Jose area that can offer multi-service levels at a single or multiple locations, the Corporation does not require a large initial buy-in fee or a long-term lease commitment.

Insurance Matters

The Corporation currently carries primary and secondary professional and general liability insurance. The primary insurance coverage insures the Corporation and all its employees, while acting within the scope of their duties, against senior services professional liability and comprehensive general liability up to $1,000,000 for each occurrence and $3,000,000 in the aggregate. The primary insurance is contracted with the Peace Church Risk Retention Group and expires on December 31, 2015. The Corporation does not anticipate any difficulty in renewing its current insurance policy.

The Corporation also maintains a supplemental liability insurance policy that insures the Corporation and all its employees against any claims that exceed the coverage limits of its primary insurance up to $10,000,000 for each occurrence and $10,000,000 in the aggregate. The secondary insurance is contracted with Caring Communities, a reciprocal Risk Retention Group, and expires on December 31, 2015. The Corporation does not anticipate any difficulty in renewing its current insurance policy.

The Corporation is unaware of any claims paid on its behalf. The Corporation does not currently have pending any claims or lawsuits. In accordance with California law, any claims for exemplary damages are not covered by insurance. There are no claims pending against the Corporation which seek exemplary damages.

RESIDENCY REQUIREMENTS AND SERVICES PROVIDED

Independent Living Services

The Corporation accepts as residents to its independent living apartments, Lincoln Glen Manor, persons at least 65 years of age who are able to care for themselves, are reasonably healthy, ambulatory and can demonstrate sufficient financial resources to meet the Corporation’s monthly fee requirements. Services provided and related fees of the Corporation are described in its Residency Agreement executed with each resident. Under the terms of the Residency Agreement, the resident agrees to pay a monthly rental fee, which fee entitles the resident to the following services: bi-weekly housekeeping, three daily meals for residents of North and South Manor and one meal for residents of the cottages, the services of a social director and planned activities, 24-hours access to the nurses’ station, and scheduled transportation services. Until the Corporation is licensed as a CCRC, there is no promise of life care or continuing care services at the Facilities. See “—Management Analysis of Financial Performance” herein below.

10

Skilled Nursing Services

Skilled nursing services are available to all residents of the Corporation as well as to nonresidents. Residents may be admitted directly to the skilled nursing facility from their independent living apartments or assisted living units. Priority is given to independent living and assisted living residents over nonresidents for admission to the skilled nursing facility. Residents who are able are encouraged to return to independent living as soon as possible, and residents who are unable are assigned permanently to the skilled nursing facility or the assisted living facility.

If a resident requires nursing care in the skilled nursing facility for a temporary period of time, nursing care is provided at scheduled daily rates, plus charges for any medication, physical therapy and other related services.

If a resident requires a permanent transfer to the skilled nursing facility, the Corporation will assign the resident’s living unit for occupancy to others. If the Corporation subsequently determines that a resident can resume occupancy in accommodations equivalent to those he or she previously occupied, the resident can relocate to such accommodations as soon as they are available.

Skilled Nursing Services to Nonresidents

In addition to providing skilled nursing services to residents, nonresidents are admitted to the skilled nursing facility, when beds are available, on a fee-for-service basis. As indicated above, priority is given to the Corporation’s assisted living and independent living residents for admission to the skilled nursing facility.

Assisted Living Services

If a resident requires ongoing assistance with services such as bathing, dressing, or administering of medications, the resident would be transferred to the assisted living facility. The Corporation offers four levels of care in its assisted living units. Upon admission of a resident to an assisted living unit, the Corporation’s staff assesses the resident’s needs with the resident, their family and physician to determine the appropriate level of assisted living care required for that resident. A resident’s needs are thereafter reassessed on a 30- or 60-day basis for the remainder of their stay.

Memory Care Services

Residents requiring specialized assistance following a diagnosis of dementia or Alzheimer’s are transferred to the Corporation’s memory care facility from its other facilities. Upon admission to a memory care unit, the resident’s needs are assessed by staff, together with the resident (if possible), their family and physician, to determine the appropriate level of care required. A resident’s needs are thereafter reassessed on an on-going basis for the remainder of their stay.

11

Admission Agreements

The Corporation offers an admission agreement for each level of care at its Facilities. Each admission agreement sets forth the terms and conditions of admission to the Facilities, including what services are included in the base service fee and the cost of services not included.

At the time of the execution of an independent living admission agreement, it is expected that the resident’s health will permit him or her to live independently. The resident’s income is also expected to be sufficient to meet any anticipated increases in their cost of living.

The admission agreement may be rescinded by the resident, without penalty, by giving written notice to the Corporation at least 30 days prior to the date of the resident’s departure. The Corporation does not currently provide life care contracts to any of its residents nor does it require an entrance fee payment upon admission to its Facilities and all rental service fees are based upon market rates. However, when it is licensed as a CCRC, the Corporation will provide life care contracts that do not require an entrance or termination fee, but do entitle a resident to certain additional benefits, including the ability to earn up to 20 days of care free of charge. See “—Management Analysis of Financial Performance” herein below.

Payor Source for Residents

Residents living in the independent living, assisted living and memory care apartments/units are exclusively private pay with little or no government sponsored payors. Patients residing in the skilled nursing facility include Medicare sponsored, Medi-Cal sponsored and private pay, including managed care. More detailed information concerning the payor mix of residents at the Facilities is provided below under the heading “Sources of Revenue.”

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

12

FINANCIAL INFORMATION

Summary of Revenues and Expenses

The following is a summary of the Statements of Revenues and Expenses of the Corporation for each of the four years ended September 30, 2014, derived from its audited financial statements. The summary of Statements of Revenues and Expenses should be read in conjunction with the audited financial statements and notes appearing in APPENDIX B to this Official Statement.

Year Ended September 30, 2011

(audited)2012

(audited)2013

(audited)2014

(audited)Unrestricted Revenues: Elderly and congregate services $5,693,550 $5,822,960 $6,119,632 $6,646,040 Rent 3,432,190 3,286,860 3,364,895 3,687,020 Charitable Contributions 29,376 20,032 29,172 16,642 Laundry and meals 8,237 6,941 6,800 5,316 Other 117,251 70,510 97,661 79,332 Investment Income/(Loss) (237,701)† 95,780 99,000 117,234 Total Unrestricted Revenue 9,042,903 9,302,820 9,717,160 10,551,584 Total Unrestricted Expenses 9,212,924 8,207,566 10,202,931 10,920,552 Increase in Unrestricted Net Assets (170,021) 95,517 (485,771) (368,968) Decrease/Increase in Temporarily Restricted

0 0 0 0

Increase in Net Assets ($170,021) $95,517 ($485,771) ($368,968) Beginning Net Assets 5,661,519 5,491,498 5,587,015 5,101,244 Ending Net Assets $5,491,498 $5,587,015 $5,101,244 $4,732,276

Source: Audited financial statements of the Corporation. † The Corporation recorded a loss of $314,096 arising from a one-time charge off of an outstanding debt owed it, which loss was offset in part by an increase in the Corporation’s investment income of $76,395 during the same period. For more information, please see APPENDIX B “Audited Financial Statements of the Corporation” of this Official Statement.

Management's Analysis of Financial Performance

The Corporation is a multi-level care facility for the elderly that includes unlicensed independent living units, a licensed residential care facility for the elderly (“RCFE”), a Memory Care Facility, and a licensed Skilled Nursing Facility. As such, the utilization of each Facility is very dependent on the number of residents transferring from another of the Corporation’s Facilities as well as a consistent flow of prospective residents admitted directly from the community. Likewise, the Corporation’s annual revenues are entirely dependent on the occupancy level of each of its Facilities. As described in more detail in “—Historical Utilization” herein above, the Corporation’s occupancy levels fell for the first time in the last 20 years of its history at all three levels due in large part to the renovation projects carried out in the center of the campus. Despite

13

decreased occupancy levels, the Corporation’s total revenues continued to grow year over year, albeit at a rate below that of the Corporation’s pre-construction total revenue annual increases. Growth in operating expenses, on the other hand, since Fiscal Year 2011 has outpaced the Corporation’s average annual growth rate in operating expenses it experienced prior to beginning its renovation projects. As discussed in more detail below, management believes that the completion of its renovation projects has begun to correct a number of issues depressing occupancy levels at its Facilities in recent years, and that it has taken corrective actions to rectify those occupancy, revenue and operating expense issues not directly improved by the completion of its renovation efforts, including increasing private pay rates, increasing Manor rent and Assisted Living, and Memory Care rates to reflect current market rate levels, establishing and improving outside referral sources, and controlling operating expenses.

Utilization. As is often the case with multi-level care facilities, the Corporation’s overall decrease in occupancy originated with a drop in occupancy in the Manor in Fiscal Year 2010 that caused a subsequent and corresponding shrinkage in occupancy levels at the Corporation’s Assisted Living and Skilled Nursing Facilities during the fiscal years that followed. Even before its renovation projects began, the Corporation began holding Manor units open because it had determined to convert 8 independent living units into memory care units and needed 3 independent living units to temporarily relocate administrative and resident services offices during construction. Management believes that the decrease in occupancy in the Manor was the direct result of its construction and renovation efforts that began in 2010 because 11 units were vacated prior to the start of construction and the disruption caused by the renovations occurring in the center of the Corporation’s campus. Current and prospective residents of the Manor are generally more flexible in their selection of independent living facilities and are most likely to move out or choose another independent living facility rather than endure the difficulties of living in and around a construction site. Since the Corporation’s renovation projects were completed in 2013, occupancy levels at the Manor have increased nearly 20%, and are now averaging approximately 89%. The Manor’s increased occupancy has occurred despite the Corporation’s decision to increase rents to reflect the improvements to the Central Facility and to the Manor units themselves. Management expects that, for the foreseeable future, occupancy levels at the Manor will remain strong, and Manor rents will continue to rise.

Management attributes the decrease in the occupancy at its Assisted Living Facility since Fiscal Year 2011 to (i) the decrease in number of residents living in the Manor, (ii) the negative impact of the Corporation’s ongoing construction projects on prospective and transferring residents, (iii) prolonged retention of prospective memory-care patients, and (iv) an increase in the bias of insurance providers to approve only continuing care retirement community (“CCRCs”) facilities, especially those with a contracted rate with such providers. As was discussed above, an overall decrease in the occupancy rate in the Manor created a shortage of prospective transfers to the Assisted Living Facility from the Manor, which transfer rate was further diminished by the negative impact of the Corporation’s renovation of the kitchen and dining room areas located next door to the Assisted Living Facility and frequented by residents of that Facility. Occupancy at its Assisted Living Facility was also affected by the Corporation’s decision to retain prospective memory-care residents who previously would have been transferred to another facility, reducing the number of available units as well as the urgency to seek alternative referral sources. Once the Memory Care Facility opened in November 2012, the residents of the Assisted Living Facility

14

needing memory care were transferred to the new Facility, contributing to that new Facility’s occupancy levels reaching 100% within 17 months of its opening. Finally, the Corporation became aware that prospective and existing residents of its Assisted Living Facility were being redirected away from its Facilities by certain insurance providers in favor of CCRC facilities, especially in favor of those CCRCs under contract with such insurance providers. Management believes that the completion of its renovation projects and full occupancy of the Memory Care Facility will return occupancy levels in its Assisted Living Facility to their pre-construction levels. Since the Corporation’s renovation projects were completed in 2013 and full occupancy of the Memory Care Facility reached in March 2014, management notes that occupancy levels at the Assisted Living Facility averaged approximately 89.4% for the last 6 months of the fiscal year ended September 30, 2014, up nearly 19% from its lowest point.

Notwithstanding the recent increase in occupancy of its Assisted Living Facility, the Corporation has taken additional steps to ensure future full occupancy of its Assisted Living Facility, improve the private pay rate received for such residents, and address the demands of insurance providers. During Fiscal Year 2014 Management contracted with third-party payors (e.g. Anthem and Santa Clara Housing Authority) and referral generation sources (e.g. “A Place for Mom”) to generate additional referrals to supplement internal resident transfers between Facilities. Management believes that prospective residents select an assisted living facility based on its perceived quality of service and corresponding daily private pay rate as those aspects are represented by a particular facility’s Medicare rating. To enhance its appeal to prospective patients, the Corporation has taken all necessary steps to secure the highest Medicare rating available—the Medicare “5-Star” rating—for the past several years and, having earned the “5-Star” rating, is now also eligible to earn Medi-Cal pay rates that incorporate up to a 25% premium.

In addition to increasing its referral sources and its private pay rate, the Corporation has decided to convert from a RCFE to a CCRC to accommodate the demands of insurance providers and to reverse the negative impact caused by the recent bias in favor of CCRCs. Upon receipt of its CCRC license, management expects to offer continuing care contracts to current and prospective residents that will provide written assurance of ongoing care and the possibility of up to 20 days of free care, but will neither require the payment of an entry or termination fee, nor guarantee care to residents who do not honor their payment or other contractual obligations. Management contends that its deep commitment to offering existing residents access to all levels of care through its Facilities is consistent with the regulatory requirements of a CCRC, and that its decision to avoid unconditional life-care agreements and entry fees will ensure that its current residents will not be negatively impacted in any way, nor will the day-to-day operations of the Corporation be so impacted. Management has been advised that its CCRC license may be issued in the next 6 months, and that upon the issuance of the CCRC license by the California Department of Social Services (“DSS”), the Corporation will convert to a CCRC without delay. Management further believes that converting to a CCRC will ensure full or near full occupancy levels for the foreseeable future.

Management attributes the recent lower occupancy levels at its Skilled Nursing Facility to the decreased number of residents in its Assisted Living Facility and to the increased bias by insurance providers to send those needing care to their own contracted facilities, regardless of the wishes of those needing care. Additionally, Medicare HMO providers have recently begun to

15

restrict Medicare HMO participants’ choice of facilities under “The California Return Home Bill” to CCRC facilities, not Multi-level facilities. Because of increased bias of insurance providers, including Medicare HMO providers, many of the Corporation's long term residents have been forced by their provider to use a contracted facility rather than the Corporation's Skilled Nursing Facility. As has been the case with occupancy levels at the Manor and the Assisted Living Facility, lower occupancy levels at the Skilled Nursing Facility have been reversed in recent months following the increased occupancy of both the Manor and Assisted Living Facility, the full occupancy of the Memory Care Facility, and the completion of the renovation projects. As with its other Facilities, management reports that for the six month period, June of 2014 through November of 2014, occupancy at the Skilled Nursing Facility averaged approximately 98.04%, up over 9% from its lowest occupancy level. As discussed above, management believes that its conversion to a CCRC will enable the Corporation to qualify under any Medicare HMO plan despite recent restrictions on participants’ choices and seek to become an approved facility by insurance providers.

Management’s actions to increase demand as well as the private pay rates for its Assisted Living Facility have also improved the demand and rates for its Skilled Nursing Facility. As discussed above, the Corporation has contracted with third-party payors and third-party referral generation sources, and worked hard to maintain its Medicare “5-Star” rating. Additionally, management has increased efforts to develop referral relationships with other assisted living care providers in the area, including competitors who do not have skilled nursing facilities (e.g. Cedar Creek and Carlton Plaza), to further supplement demand for its Skilled Nursing Facility. As was the case with its Assisted Living Facility, the Corporation conversion to a CCRC will better address the recent bias of insurance providers, including Medicare HMO providers, the impact of which is particularly troubling in the context of the Skilled Nursing Facility as current residents are being relocated by their insurance provider to a "contracted facility." In essence, converting to a CCRC has the duel effect of enhancing the Corporation’s ability to retain its own private pay residents whose insurance provider may require them to change facilities, as well as making the Skilled Nursing facility more attractive to prospective residents who are evaluating whether the Corporation can effectively meet their individual needs throughout the remainder of their lifetime. Management believes that by adopting the elements of an attractive, caring CCRC community for current and prospective residents and maintaining its Medicare “5-Star” rating the Corporation can enhance its overall competitive advantage as well as increase its private-pay and Medi-Cal rates. In short, management believes that its efforts to improve occupancy have already increased overall occupancy and will likely continue to do so. As discussed directly below, management also believes that increased occupancy and improved private pay rates will significantly improve its operating margins and increase its net assets.

Financial Results of Operations—Revenues. The financial stability of the Corporation is largely dependent upon resident fees and the Corporation’s ability to maintain all units at or near full occupancy. Private pay fees are adjusted annually to assure that operating expenses are met and occupancy levels maintained. As discussed above, the Corporation has recently taken steps to further enhance its private pay rates to reflect current market rates (by instituting 5%-6% fee adjustments, in the case of Manor rents and Assisted Living Facility). Increases in Medi-Cal reimbursement rates have been very minimal the past several years and generally do not cover the ever-increasing total cost of providing the required services. In contrast, Medicare reimbursement

16

rates continue to be a valuable and desirable source of revenue for the Corporation. By becoming a CCRC, management estimates that Medicare eligible residents will increase, improving the overall performance of the Skill Nursing Facility. Accordingly, the Corporation has sought alternative means to offset such losses, including, as was discussed above, seeking to increase the number of private pay residents as well as the private pay rate paid in respect of such residents

Despite falling occupancy levels, the Corporation’s increase in total revenues (without recognizing the $314,096 one-time charge-off of an outstanding note in Fiscal Year 2011) for the three fiscal years ended September 30, 2013—3.5%—was only slightly lower than the increase in its total revenues for the three fiscal years ended September 30, 2010—3.8%. However, in its most recent fiscal year, the Corporation’s total revenues for a single operating year increased 8.6% over the fiscal year ended September 30, 2013. Management believes that total revenues in Fiscal Year 2014 improved substantially following the completion of its renovation projects, the full occupancy of the Memory Care Facility and improved occupancy of its other Facilities for the final 6 months of Fiscal Year 2014. Management expects total revenues to continue to improve as occupancy levels at its Facilities return to pre-construction levels. See “Management Analysis of Financial Performance—Utilization” above.

Elderly and congregate services increased by 7.48% over the three fiscal years ended September 30, 2013, while rents derived from the Manor fell by 2% over the same period. This is directly tied to occupancy and a reduction in the number of available units as Independent Living units were closed out and converted to 11 Memory Care Units over a 30 month period. However, for Fiscal Year 2014, Manor rents increased in response to increased occupancy (discussed above), representing an annual increase in Manor rents of 9.6% over Fiscal Year 2013. Because of improved occupancy at all of the Facilities during the second half of the fiscal year, Elderly and Congregate Services revenues rose in Fiscal Year 2014 by 8.6% over the prior fiscal year. Management believes that Elderly and Congregate Services revenues will improve dramatically as occupancy at the Assisted Living and Skilled Nursing Facilities returns to pre-construction levels, just as has occurred with Manor rent revenues during Fiscal Year 2014. See “Management Analysis of Financial Performance—Utilization” above.

In addition to the positive results caused by the Corporation’s completion of its renovation projects, management has taken steps to improve the number of private pay residents in its Skilled Nursing Facility as well as to improve the private pay rate at both its Assisted Living and Skilled Nursing Facilities. Management’s actions are discussed in detail above and include entering into third-party payor agreements and third-party referral generation arrangements, qualifying as a Medicare “5-Star” rated facility, and converting to a CCRC. See “Management Analysis of Financial Performance—Utilization” above. While management’s efforts to increase its private pay rates and the number of private pay residents may not have an immediate impact on total revenues, management believes that combining its efforts with increased occupancy will ensure improved total annual revenues and increase the speed and probability of the Corporation’s return to overall profitability.

Management acknowledges that increased revenues are only part of the overall solution to the Corporation’s return to profitability. To that end, management has implemented certain cost

17

controls discussed in more detail immediately below to influence the Corporation’s operating expenses.

Financial Results of Operations—Expenses. At the same time that occupancy levels decreased and the growth of total revenues slowed, the Corporation’s operating expenses increased 10.7% over the three fiscal year period ended September 30, 2013, exceeding the increase in operating expenses of the previous three fiscal year period by 4.2%. The Corporation’s operating expenses in a single fiscal year accelerated to 6.9% in Fiscal Year 2014 due in large part to significant increases in interest, tax and depreciation expenses relating to the Corporation’s real property and improvements, and to increases in ancillary nursing, insurance, and housekeeping expenses. As discussed more extensively below, management believes that annual growth in operating expenditures can be restrained by reducing the Corporation’s interest expense through refunding a portion of the 2011 Bonds as described in the OFFICIAL STATEMENT—“PLAN OF REFINANCING” (“Refunded 2011 Bonds”), transitioning its workers’ compensation insurance policy to a new, lower cost alternative provider, and slowing the current practice of replacing all departing LVNs with RNs for purposes of maintaining the Medicare “5-Star” rating.

The Corporation’s largest operating expenses are: (i) Elderly and Congregate Service expense; (ii) “Ancillary Service expenses,” which includes dietary, ancillary nursing, housekeeping, linen and laundry, and activity and social services expenses; (iii) “Property-related expenses,” which includes property taxes and insurance expense, financial (or interest) expense, and depreciation expense; and (iv) Administrative expenses. The following table sets forth the percentage of total operating expenses of each of the Corporation’s largest expenses for the four fiscal years ended September 30, 2014:

Percentage of Total Operating Expenses for Fiscal Year Ended September 30

OPERATING EXPENSES (By Category) 2011 2012 2013 2014 Elderly and Congregate Services 31.1% 31.5% 34.0% 33.9% Ancillary Service 23.2 24.0 22.7 24.0 Property-related 20.1 18.6 22.2 22.3 Administrative 15.3 15.2 12.6 12.4 Miscellaneous 10.3 10.7 8.5 7.4 TOTAL 100.0% 100.0% 100.0% 100.0%

Since the fiscal year ended September 30, 2011, total Elderly and Congregate Service expenses rose 29.2%, with 6.8% of that growth occurring during Fiscal Year 2014 alone. Much of the increase in Elderly and Congregate Service expense is the result of the cost associated with establishing an entirely new facility and corresponding level of service—the Memory Care Facility, which included hiring and training a new staff specialized to service the needs of this new level of care. Total Ancillary Service expenses increased by 14.3% since Fiscal Year 2011, with 5.4% of that growth solely occurring in Fiscal Year 2014. Property-related expenses grew by the largest margin, increasing by 41.2% for that period and 15.7% during Fiscal Year 2014 alone. Of the largest categories of operating expenses, the Corporation’s total Administrative expenses and Miscellaneous expenses were the only categories to decrease, falling by 4.3% and 2.9%, respectively, since Fiscal Year 2011.

18

While management believes that increasing occupancy levels and total revenues are important contributors to returning the Corporation to profitability, management believes that it has taken the necessary action to reduce the annual growth of the Corporation’s operating expenses to ensure a return to overall profitability. One such action includes addressing the Medi-Cal “Bed Tax,” a fee recently assessed on all skilled nursing facilities based on the number of licensed skilled nursing beds. In Fiscal Year 2014, the Corporation was assessed a Medi-Cal “Bed Tax,” amounting to approximately 5.4% of its Elderly and Congregate Service expenses. By converting to a CCRC, the Corporation will significantly reduce the “Bed Tax” by more than 65%, thereby reducing its total Elderly and Congregate Service expenses.

Management believes that its decision to discontinue its practice of unilaterally hiring RNs to replace LVNs as openings occur will also help reduce the amount by which Ancillary Service expenses increase annually. The Corporation pursued the practice of hiring RNs to replace LVNs in order to help secure a Medicare “5-Star” rating as the Center for Medicare and Medicaid Services increased its rating based upon the value it gave to RNs (Registered Nurses). The Corporation now has more than enough RNs on staff to help maintain its “5-star” rating.

Adjusting its capital structure is another means by which management seeks to restrain the annual growth of the Corporation’s operating expenses. Depreciation and interest expenses contributed to the substantial growth in Property-related expenses since Fiscal Year 2011 and, particularly, in Fiscal Year 2014. Management notes that since Fiscal Year 2010, its annual depreciation and interest expenses have nearly doubled. To better match interest payments with the Corporation’s strategy for increasing overall occupancy and rates (described above), management has determined that refunding the Refunded 2011 Bonds will create substantial net present value savings, as well as to enable the Corporation to reduce its initial annual debt service payments and its overall payment schedule over the two next fiscal years. See OFFICIAL STATEMENT—“THE BONDS—Debt Service Requirements.”

Although staffing requirements for the Skilled Nursing, Assisted Living, and Memory Care Facilities generate the largest component of the Corporation's overall operating expense budget, affecting nearly every operating expense category, management does not believe that additional changes to the number of staff or related expense are necessary, now that the Memory Care Facility is fully operational. Contract labor, salaries and related benefits account for nearly 56.2% of all operating expenses for Fiscal Year 2014. The Corporation has maintained staffing levels and salaries at competitive levels, increasing such only as increases become necessary to remain competitive or remain in line with modest total revenue increases while suffering ongoing operating losses. Despite such limitations, management is encouraged by the overall lack of employee and personnel turnover during the Corporation’s recent difficult operating history. Management is also concerned that any reduction in the number of FTEs and/or compensation levels may increase employee turnover, and decrease the overall level of care.

Forward-looking Statements. Management continues to be very focused on the efficient and profitable delivery of elder care to its existing residents and the prospective residents in its market area. However, management cannot and does not guarantee that any of its efforts to increase utilization will be successful or remain so for any length of time, or that when combined

19

with any other efforts to increase revenues or decrease operating expenses will accomplish management’s desired intent or aim or that in doing so the Corporation will achieve profitability or remain profitable. Consequently, management cautions that the financial results reported or discussed in this “Management’s Analysis of Financial Performance” are not indicative of, and should not be considered a guarantee or other form of assurance of the Corporation’s future performance. When used herein, the words or phrases “will likely result,” “are expected to”, “will continue”, “is anticipated”, “estimate”, “project,” “forecast”, “expect”, “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast, projection, expected result or contemplated course of action is subject to such risks and uncertainties. Inevitably, some assumptions on which management’s discussions herein are based will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the projected results discussed herein and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of an Official Statement nor any sale made in respect of the 2015 Bonds shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Corporation since the date hereof.

Official Statement. The OFFICIAL STATEMENT – “BONDHOLDERS’ RISKS” section describes significant global and market economic pressures causing federal and State healthcare budget shortfalls and reductions and increased pressure on tax-exempt organizations and elder care and skilled nursing providers. The “BONDHOLDERS’ RISKS” section also describes many operating uncertainties arising from the enactment and implementation of the ACA and other recent federal, State and local legislation and regulations affecting CCRCs, RCFEs and other healthcare organizations and providers. Many such pressures and operating uncertainties may affect the Corporation’s ability to sustain its current levels of occupancy, revenues and expenditures. Similarly, it is likely that further legislation, regulation and other changes that impact CCRCs, RCFEs, and other healthcare organizations and providers will occur. Any such changes may negatively affect the results of the Corporation’s operation. Consequently, management cautions that the financial results reported or discussed in this Official Statement and attached Appendices may not be indicative of the Corporation’s future performance.

Sources of Revenue

Payments to the Corporation are made on behalf of certain residents residing in its skilled nursing facility by the federal government and the State of California under the Medi-Cal program, while other payments are received from Medicare on behalf of certain residents residing in its skilled nursing facility. Medi-Cal and supplemental security income payments are based on per diem charges set by the State of California and the Social Security Administration, respectively. The vast majority of all other revenues received for services rendered by the Corporation are paid by residents on a private payment basis with a small amount from private insurance companies.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

20

A percentage breakdown by source of payment of the Corporation's gross revenues relating to patient and resident services for each of the four years ended September 30, 2014, is presented below:

Year Ended September 30 2011 2012 2013 2014 Medi-Cal 27.9% 26.3% 34.1% 33.0% Medicare 2.0 1.5 3.1 2.8 Private 70.1 72.2 62.8 64.2

Total 100.0% 100.0% 100.0% 100.0%

Source: Corporation records.

Increases in Medi-Cal revenues have resulted, in part, from a greater increase in reimbursement from Medi-Cal than from Medi-Cal occupancy increases.

Cash and Investments

The following table compares the cash, cash equivalents and investments (assets limited as to use) of the Corporation, exclusive of donor-restricted assets, as of September 30, 2011, 2012, 2013 and 2014, as presented in the Corporation’s audited financial statements. Marketable securities and investments are carried at fair market value. In addition, the Corporation’s days cash on hand as of September 30, 2011, 2012, 2013 and 2014, is provided.

As of September 30

(In Thousands) 2011

(Audited)2012

(Audited)2013

(Audited)2014

(Audited) Cash and Cash Equivalents $3,824 $1,738 $1,231 $1,147 Assets Limited as to Use 0 0 0 0 Total Unrestricted Funds $3,824 $1,738 $1,231 $1,147 Daily Expenses 23.5 $23.5 $25.8 $27.3 Days Cash on Hand(1) 120 74 48 42

Source: Audited financial statements of the Corporation (except as indicated).

(1) Determined by adding cash, cash equivalents plus assets limited as to use for capital improvements; multiplying that sum by 365; and dividing that product by total operating expenses less depreciation, amortization and bad debt expenses.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

21

Capitalization

Capitalization of the Corporation as of September 30, 2014, and pro-forma capitalization as of September 30, 2014, as adjusted to reflect execution and delivery of the Bonds, as if the Bonds had been issued on and the Refunded 2011 Bonds retired by September 30, 2014, are set forth in the following table:

As of September 30, 2014(In Thousands) Actual Pro-Forma Long-Term Debt: The 2015 Bonds - $11,965 The 2011 Bonds $13,040 1,620 Other - - Total Long-Term Debt 13,040 13,585 Less Current Maturities (335) - Net Long-Term Debt 12,705 13,585 Unrestricted Net Assets (fund balance) 4,732 4,732 Total Capitalization $17,437 $18,317 Net Long-Term Debt, as a percentage of Total Capitalization

72.9% 74.2%

Source: Audited financial statements of the Corporation and Underwriters’ estimates.

Outstanding Indebtedness

The Corporation is obligated on $14,000,000 California Municipal Finance Authority Insured Revenue Bonds (Lincoln Glen Manor for Senior Citizens) Series 2011 ($13,040,000 remained outstanding as of September 30, 2014), insured by the Office under the Cal-Mortgage Loan Insurance program.

A portion of the proceeds from the sale of the 2015 Bonds will be deposited into an escrow fund to provide for the payment of the interest on the Refunded 2011 Bonds to and including April 1, 2016, and to the redemption of a substantial portion of the Refunded 2011 Bonds on April 1, 2016, at a redemption price equal to 102% of the principal amount thereof. Upon the delivery of the 2015 Bonds and the deposit in the Escrow Fund of moneys sufficient to provide for the refunding of the Refunded 2011 Bonds, the Refunded 2011 Bonds will be deemed defeased and no longer outstanding. Following the foregoing redemption, only those 2011 Bonds with maturity dates of April 1, 2018 through April 1, 2021 shall remain outstanding. For more information, see OFFICIAL STATEMENT—“THE REFINANCING PLAN.”

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

22

Debt Service Coverage Ratio

The following table provides, on a rounded basis, information from the Corporation’s financial records regarding the debt service coverage ratios for the four-year period ended September 30, 2014, the total funds available to pay the Corporation’s debt service and the extent to which such funds (a) covered actual debt service requirements on all long-term indebtedness of the Corporation during those periods and (b) would have covered on a pro-forma basis, the maximum aggregate annual debt service requirements on the 2015 Bonds and on other remaining long-term indebtedness. For a discussion of the Corporation’s failure to meet its “Debt Service Coverage” obligations in respect of the 2011 Bonds, including the Corporation’s receipt of written waivers of such failures, please see the OFFICIAL STATEMENT—“BONDHOLDERS’RISKS—Debt Service Coverage Default.”

Fiscal Year Ended September 30(In Thousands) 2011 2012 2013 2014

Change in Unrestricted Net Assets ($170) $ 96 ($486) ($369) Add: Depreciation and amortization 479 453 659 897 Interest expense 528 562 710 770 Exclusions: Early Extinguishment of Debt 314 Net Realized/Unrealized Investment Gains/(Losses) (23) (74) (73) (94) Total Available to Meet Debt Service(1) $1,128 $1,037 $ 810 $1,204 Actual Debt Service(1) 684 1,086 1,055 1,062 Historical Debt Service Coverage Ratio(2) 1.65x 0.95x 0.77x 1.13x Pro Forma Maximum Annual Debt Service(3) 1,011 1,011 1,011 1,011 Pro Forma Maximum Annual Debt Service Coverage Ratio(4)

1.12x 1.03x 0.80x 1.19x

Source: Audited financial statements and other records of the Corporation. (1) As reported in the Corporation’s “Annual Reports” prepared by C. Rendell Bayless CPA as part of the Corporation’s Continuing Disclosure Undertaking in respect of the 2011 Bonds. (2) Calculated as the quotient obtained by dividing Total Available for Debt Service by the Actual Debt Service. (3) The Pro Forma Maximum Annual Debt Service represents the maximum aggregate annual debt service requirements

on the 2015 Bonds and any other remaining long-term indebtedness, but excluding on the the Refunded 2011 Bonds, as if such requirements were applicable during the represented fiscal years.

(4) Calculated as the quotient obtained by dividing Total Available for Debt Service by the Pro Forma Maximum Annual Debt Service.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]

23

Retirement Plan

The Corporation maintains a 403(b) retirement plan for all eligible employees. The Corporation can contribute up to a maximum of 2% of an eligible employee’s wages each year. The Corporation incurred a $49,711.11 expense for the retirement plan for the fiscal year ended September 30, 2014.

APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CORPORATION

The information included in this APPENDIX B to this OFFICIAL STATEMENT has been obtained from C. RENDELL BAYLESS CPA and included with his consent. No assurance can be given nor is any representation made by the Authority, the Office, the Underwriters or the Municipal Advisor as to its accuracy or completeness. The information provided in this APPENDIX B is only deemed complete and accurate to the extent it is read in conjunction with the OFFICIAL STATEMENT and all other APPENDICES attached hereto, including the Information Concerning the Corporation attached hereto as APPENDIX A to this OFFICIAL STATEMENT.

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC.

FINANCIAL STATEMENTS

Year Ended September 30,2014

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC.

TABLE OF CONTENTS

Page Number

Independent Auditor's Report ....................................................................... l

Financial Statements

Statement of Financial Position ....................................................... .3

Statement of Activity ........................................................................ 4

Statement of Cash Flows .................................................................. 5

Notes to Financial Statement ............................................................ 6

C. RENDELL BAYLESS CPA 51 E Campbell Ave Ste lOlA

Campbell CA 95008 ( 408) 356-4225

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors Lincoln Glen Manor for Senior Citizens, Inc. San Jose, California

I have audited the accompanying financial statements of Lincoln Glen Manor for Senior Citizens, Inc., which comprise the statement of financial position as of September 30,2014, and the related statements of activity and cash flows for the year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

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

Auditor's Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Board of Directors Page 2 of2

Opinion

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lincoln Glen Manor for Senior Citizens, Inc. as of September 30, 2014 and statements of activity and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Campbell, California January 15, 2015

2

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. STATEMENT OF FINANCIAL POSITION

September 30,2014

Cash and cash equivalents Assets whose use is limited (note 2) Investments (note 3)

ASSETS

Investment in captive insurance company (note 4) Receivables (note 5) Prepaid expense Inventory Property and equipment, net (note 6) Bond issuance costs, net (note 7)

Total assets

LIABILITIES AND NET ASSETS

Accounts payable Accrued Liabilities

Interest Wages and payroll taxes Other accrued expense

Application and other deposits payable Long-Term Debt (note 7)

Total Liabilities

Net assets - unrestricted

Total liabilities and net assets

See accompanying notes to financial statements.

3

$538,879 1,623,648

608,295 137,864 800,104 791,304

4,204 14,171,412

395,978

$19.071 .688

$90,999

369,210 715,406 132,971

16,824 13,014,002

14,339,412

4,732,276

$19.071 ,688

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. STATEMENT OF ACTIVITY

For the Year Ended September 30,2014

REVENUE AND SUPPORT: Elderly and congregate services income $6,646,040 Rent 3,687,020 Contributions and grants received 16,642 Laundry and meals 5,316 Other 79,332 $10,434,350

EXPENSES Administrative 1,351,956 Utilities 241,170 Operating & maintenance 566,922 Property taxes and insurance 206,399 Group health benefits 745,135 Financial 769,741 Dietary expense 1,338,707 Elderly and congregate service expense 3,702,532 Housekeeping expense 238,499 Linens and laundry 94,089 Activities and social services expense 371,569 Depreciation 897,397 Ancillary nursing services 396,436 10,920,552

CHANGE IN NET ASSETS FROM OPERATIONS (486,202)

OTHER INCOME (EXPENSE) Investment income (loss) (note 3) 117,234 117,234

CHANGE IN NET ASSETS (368,968)

NET ASSETS AT BEGINNING OF YEAR 5,101,244

NET ASSETS AT END OF YEAR $411321216

See accompanying notes to financial statements.

4

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. STATEMENT OF CASH FLOWS

For the Year Ended September 30,2014

Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash

provided by operating activities: Depreciation Amortization of debt issuance costs Amortization of bond issue discount Amortization of prepaid mortgage insurance Realized and unrealized (gains) losses on investments Change in operating asset and liability accounts:

Accounts receivable Prepaid expenses Inventory Accounts payable Accrued interest payable Accrued wages and payroll taxes Change in applications and other deposits payable Other accrued expense

Net cash provided by operating activities

Cash flows from investing activities: Acquisition of property and equipment Net (increase) decrease in trustee assets whose use is

limited to debt service and project costs Net cash used in investing activities

Cash flows from financing activities: Bond debt repayment

Net cash provided (used) in financing activities

DECREASE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Cash paid during the year for interest

See accompanying notes to financial statements.

5

$(368,968)

897,397 18,418 2,163

33,712 (94,138)

45,375 (15,696)

1,312 (1,567) (6,500) 87,935 2,800

(43,842) 558,401

(536,826)

126,503 (410,323)

(325,000) (325,000)

(176,922)

715,801

$538.879

$751.420

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization

Lincoln Glen Manor for Senior Citizens, Inc., was incorporated October 1, 1965 under the laws of California as a non-profit corporation for the specific purposes of providing housing for the aged. Subsequently, a new division was formed that currently provides skilled nursing services. In October 2001 a 31 unit Assisted Living Center was placed into service. A completely remodeled Central Manor with a new kitchen, dining area, chapel, offices and activity rooms were placed into service in late 2012 and a new Memory Care Center with 11 units was placed into service in December of2012.

Memberships

Lifetime memberships in the corporation are offered at $500 per individual. Members are entitled to priority admittance to the organization's facilities and have certain other rights including electing the Board of Directors. The benefits and rights represented by the membership terminate at the death of the member.

Accounting Method

The facilities account for all transactions using the accrual method of accounting, whereby income is recorded when earned and expenses are recorded when incurred.

Financial Statement Presentation

The financial statements are presented in conformance with Statement of Financial Accounting Standards (SFAS) No. 117, "Financial Statements of Not-for-Profit Organizations." Under SFAS No. 117, the projects are required to report information regarding the nature and amount of its net assets.

Property and Equipment

Property and equipment are stated at cost and are being amortized or depreciated over their estimated useful lives ranging from 3 to 40 years by use ofthe straight-line method.

Interest costs relating to construction in progress are capitalized. Capitalization of interest costs will cease when the construction is completed and the property is placed into service.

6

Income Taxes

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

There is no provision for income taxes, since the corporation is exempt under provisions ofi.R.C. Section 501 C (3).

The Organization applied the income tax standard for uncertain tax positions. This standard clarifies the accounting for uncertainty in income taxes recognized in an organization's financial statements in accordance with the income tax standard. This standard prescribes recognition and measurement of tax positions taken or expected to be taken on a tax return that are not certain to be realized.

For the year ended September 30, 2014, there were no liabilities recorded for unrecognized tax benefits related to tax positions taken in the current year or past years and no accruals for interest and penalties related to uncertain tax positions.

The Organization files a United States federal tax return and a California state return. The tax years 2010 through 2013 remain open and subject to examination by the appropriate governmental agencies in the United States and California.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

Cash and Cash Equivalents

For the statement of cash flows, all unrestricted investment instruments with original maturities of three months or less are cash equivalents. The organization has no cash equivalents at September 30, 2014. The organization maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The organization has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Investments

Investments in equity and debt securities are reported at fair value in the statement of financial position. Realized and unrealized gains and losses are recognized in the statement of activities.

7

Contributions

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

Contributions are recognized as revenue in the period received. Contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions of assets other than cash are recorded at their estimated fair value at date of donation. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted support.

The Organization's policy is to report donor-imposed restricted contributions whose restrictions are met in the same period as received as unrestricted support.

Contributions of services are recognized when received if the services (a) create or enhance nonfmancial assets or (b) require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. For the year ended September 30, 2014, there were no contributed services meeting the requirements for recognition in the financial statements.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses and accrued liabilities, none of which are held for trading purposes, approximate the fair value due to the short-term maturities of those instruments. The carrying amount of the note payable approximates the fair value.

Fair value measurement applied to reported balances that are required or permitted to be measured at fair value under an existing accounting standard. The Organization emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability and establishes a fair value hierarchy. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:

Levell- Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Organization has the ability to access.

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

8

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

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

Additionally, from time to time, the Organization may be required to record at fair value other assets on a nonrecurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from the application of the lower­of-cost-or-market accounting or write down of individual assets. Nonfinancial assets measured at fair value on a nonrecurring basis would include nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, other real estate owned, and other intangible assets measured at fair value for impairment assessment.

The Organization also adopted the policy of valuing certain financial instruments at fair value. This accounting policy allows entities the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on an instrument-by-instrument basis. The Organization has not elected to measure any existing financial instruments at fair value; however the Organization may elect to measure newly acquired financial instruments at fair value in the future.

Healthcare Services Revenue

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

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

Third Partv Reimbursement Agreements

Medi-Cal The Organization participates in the Medi-Cal program that is administered by the California Department of Health and Human Services Agency, Department of Health Services. The Department determines Medi-Cal rates for the facility every August 1. The rates are determined by re-basing all filed cost reports every three years.

The final rates are set from facility cost reports with minimum and maximum reimbursements calculated from peer facilities. Medi-Cal pays a flat daily rate which does not account for the acuity of the resident. The Organization must submit a cost report for each year based on its fiscal year. Rates derived from the above system are subject to retroactive adjustment by field audit.

9

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC.

Medicare

NOTES TO FINANCIAL STATEMENTS For the Year Ended September 30,2014

A licensed nursing facility which participates in the Medicare program for the year ended September 30,2014 was reimbursed based on a Prospective Payment System (PPS). This program is administered by the United States Department of Health and Human Services. The PPS is a per diem price based system. Annual cost reports are submitted to the designated intermediary; however, they will not contain a cost settlement.

NOTE 2- ASSETS WHOSE USE IS LIMITED

Assets whose use is limited includes assets restricted by bond indentures for construction and debt service. Assets are held by fiscal agents to be used only for specific bond projects, payments of long-term debt and maintaining required reserves.

The estimated fair value and costs of assets limited as to use at September 30, 2014 is as follows:

Cash and Cash Equivalents Corporate Issues

Total

NOTE 3 - INVESTMENTS

Estimated Cost Fair Value

$545,792 1,073,000

$1.618.792

$545,792 1,077,856

$1.623,648

Investments are stated at fair value based on quoted prices in active markets (all Levell measurements) and consist of the following at September 30, 2014:

Mutual Funds & Exchange Traded Funds Total

Investment income consists of the following:

Interest and dividends Net realized and unrealized gains (losses)

Total investment income (loss)

10

$608,295 $608,295

$23,096 94,138

$ 117,234

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

NOTE 4- INVESTMENT IN CAPTIVE INSURANCE COMPANY

In January 2005, the Organization invested in a captive insurance company entitled the Peace Church Risk Retention Group (PCRRG), a joint venture consisting of approximately 40 members. PCRRG is a self-funded and self-governed insurance company, offering its members relief from volatile general and professional liability insurance costs through greater management of risk. PCRRG converted from a stock insurance company to a reciprocal insurance exchange effective December 31, 2007. The Organization accounts for its investment using the equity method.

The investment in PCRRG is $13 7,864 as of September 30, 2014.

NOTE 5 -RECEIVABLES

Receivables are carried at amounts that approximate fair value. Receivables at September 30, 2014 consisted of:

Due from residents and private pay Medi-Cal Medicare Due from employees Allowance for doubtful accounts

Total Receivables

$ 353,332 194,726 270,630 112,300

(130,884)

$800,104

The Organization provides an allowance for doubtful accounts using management's judgment. Residents are not required to provide collateral for services rendered. Payment for services is required upon receipt of invoice. Accounts are periodically analyzed for collectability.

NOTE 6- PROPERTY & EQUIPMENT

Property and equipment consists of the following:

Land Buildings and improvements Construction in progress Equipment, furnishings & other improvements

Less accumulated depreciation Property and equipment, net

$222,773 17,654,631

0 4,868,997

22,746,401 8,574,989

$14.171.412

Depreciation expense for the year ended September 30, 2014 was $897,397.

11

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30, 2014

NOTE 7- LONG TERM DEBT

In April, 2011, the organization issued $14,000,000 California MWlicipal Finance Authority Insured Revenue Bonds, Series 2011. The bonds bear interest at rates between 3.0% to 6.25%, with interest payments made semi-annually on April 1 and October 1. The bonds mature annually from 2012 to 2035, in amoWlts ranging from $310,000 to $1,010,000.

The funds were used to refund all of the outstanding ABAG Finance Corporation for Nonprofit Corporations Insured Certificates of Participation, Series 2000, finance the renovation of existing buildings, finance the costs of construction of a 31 unit assisted living facility, finance the conversion of 8 independent living units into 11 memory care beds for patients suffering from Alzheimer's disease and dementia, finance the expansion, remodeling and updating of the Corporation's Central Manor, fund a reserve fund for Bonds, and pay certain of the costs of issuance of the Bonds.

Land and buildings of the organization's as well as monies and securities held in trust and gross revenues secure the Bonds. The organization is required to meet certain debt coverage covenants. These covenants were met as of September 30, 2014, with the exception that the organization's Debt Service Coverage Ratio for the year ended September 30, 2014 did not meet the 1.25 ratio required by the Regulatory Agreement. Mandatory sinking account payments began in 2011.

An original issue discoWlt of $20,038 is being amortized on a straight-line basis over the life of the obligations.

Bond issuance costs of $458,905 are being amortized on a straight-line basis over the life of the obligations.

Scheduled principal maturities of this debt for the next five years and thereafter are:

Year ended September 30

2015 2016 2017 2018 2019

Thereafter

Less Wlamortized OlD

12

Amount $335,000

350,000 365,000 380,000 395,000

11,215,000 $13,040,000

25,998 $13,014,002

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

The fair value of long-term debt is calculated based on the estimated trade values as of September 30, 2014. The value is estimated using the rates currently offered for like debt instruments with similar remaining maturities.

Cost Fair Value

Long-Term Debt Total

NOTE 8- UNRESTRICTED NET ASSETS

$13.014.002 $13.014.002

$13.014.002 $13.014.002

None of the Organization's net assets are subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets under SFAS No. 117.

NOTE 9- FUNCTIONAL ALLOCATION OF EXPENSES

Functional classification of expenses for the year ended September 30, 2014 consisted of the following:

Program Management and General Support

Total Operating Expenses

$8,493,606 2,426.946

$1 0.920.552

Fund raising expenses incurred during the year were immaterial.

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

NOTE 10- RETIREMENT PLAN

The organization has a 403(b) plan administered by an insurance company that allows eligible employees to contribute money on a pre-tax basis. For the fiscal year ending September 30, 2014, the organization matched 2% of the employees' contributions.

13

LINCOLN GLEN MANOR FOR SENIOR CITIZENS, INC. NOTES TO FINANCIAL STATEMENTS

For the Year Ended September 30,2014

NOTEll-SUBSEQUENTEVENTS

Management has evaluated subsequent events to January 15,2015, the date which the financial statements were available to be issued, and determined that no reportable events occurred.

NOTE 12- CONTINGENCIES AND COMMITMENTS

Government Regulations- Medi-Cal The California Health and Human Services Agency, Department of Health Services, reserves the right to perform field audit examinations of the Organization's records. Any adjustments resulting from such an examination could retroactively adjust Medi-Cal revenue.

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

Other The health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirement, reimbursement for patient services, and Medicare and Medi-Cal fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant fines and penalties, as well as, significant repayments for resident services previously billed.

Litigation The Organization is subject to asserted and unasserted claims encountered in the normal course of business. In the opinion of management, there are no pending legal proceedings or claims that will have a material effect on the Organization's financial condition or results of operation.

14

APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

APPENDIX D FORM OF FINAL OPINION OF BOND COUNSEL

APPENDIXD

FORM OF FINAL OPINION OF BOND COUNSEL

[Letterhead of Quint & Thimmig LLP]

[Closing Date]

California Health Facilities Financing Authority 915 Capitol Mall, Suite 590 Sacramento, CA 95814

OPINIO : $11,965,000 California Health Facilities Financing Authority Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2015

Members of the Authority:

We have acted as bond counsel in connection with the issuance by the California Health Facilities Financing Authority (the "Authority") of $11,965,000 California Health Facil ities Financing Authority Insured Refunding Revenue Bonds (Lincoln Glen Manor for Senior Citizens), Series 2015 (the "Bonds"), pursuant to the California Health Facilities Financing Authority Act, constituting Part 7.2 of Division 3 of Title 2 of the California Government Code (the "Law")_ an Indenture, dated as of February 1, 2015, by and between the Authority and U.S. Bank National Association, as trustee (the "Indenture"), and a resolution adopted by the Authority on December 4, 2014. The Bonds have been issued by the Authority to provide funds to refinance a project for Lincoln Glen Manor for Senior Citizens, a California nonprofit public benefit corporation (the "Corporation"), to be loaned to the Corporation pursuant to a Loan Agreement, dated as of February 1, 2015, by and between the Authority and the Corporation (the "Loan Agreement"). We have examined the (;nv and such certified proceedings and other papers as 1vc deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Indenture, of the Corporation contained in the Loan Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing we are of the opinion, under existing law, as follows:

1. The Authority is duly created and validly existing as a public body with the power to enter into the Indenture and the Loan Agreement, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Indenture and the Loan Agreement have been duly approved by the Authority and constitute valid and binding special obligations of the Authority enforceable against the Authority in accordance with their respective terms.

3. Pursuant to the Law, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds, on a parity with other bonds (if any) issued or to be issued under the Indenture, subject to no prior lien granted under the Law.

4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding special obligations of the Authority, payable solely from the sources provided therefor in the Indenture.

Appendix D Page 1

5. It is our opinion that, subject to compliance by the Authority and the Corporation with certain covenants, under present law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustmen t used in determining the federa l alternative minimum tax for certain corporations. Failure to comply wi th certain of such Authority and the Corporation covenants could cause the interest on the Bonds to be includable in gross income for federa l income tax purposes retroactively to the date of issuance of the Bonds. In rendering our opinion on tax exemption, we have relied on the opinion of the Wilson Law Grou p, counsel to the Corporation, that the Corporation is a 501(c)(3) organization and certain other matters.

6. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.

Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.

Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion, and is not a guarantee of a result. This opinion is given as of the d ate hereof and we assu me no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Respectfully submitted,

Appendix 0 Page 2

APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE

APPENDIX F BOOK ENTRY SYSTEM

Appendix F Page 1

APPENDIX F

BOOK-ENTRY ONLY SYSTEM

THE INFORMATION PROVIDED IN THIS APPENDIX F HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE AUTHORITY, FHN, THE TRUSTEE OR THE UNDERWRITERS 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, 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. 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, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

-purpose trust company organized

under the New he New York Banking Law, a member of the the New York Uniform Commercial Code, 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

posit 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

nts. 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 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

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.

Purchases of Bonds under the DTC system must be made by or through Direct Participants,

which will purchaser of each Bond

will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 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

Appendix F Page 2

requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual ly 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, defaults, and proposed amendments to the Indenture. 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.

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 any other DTC nominee) will consent or vote with respect to

Bonds unless authorized by a Direct Participant in accordprocedures, DTC mails an Omnibus Proxy to an issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal, interest and redemption prices, respectively, on the Bonds will be made to

Cede & Co., or such other nominee as may be requested by an authopractice is to credit information from the Trustee or FHN, on a payable date in accordance with their respective holdings

ecords. 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

will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or FHN, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest and redemption prices to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of FHN or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time

by giving reasonable notice to FHN or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The Corporation may decide to discontinue use of the system of book entry transfers through

DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered for that bond issue.

APPENDIX G FORM OF CONTRACT OF INSURANCE