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John b o x Village

Financial Narrative Series 2007 Bond Issue

For the twelve months ended March 3 1,201 1

Please find attached the John Knox Village's debt obligated group's audited financial statements for the 201 1 fiscal year. The audited financial statements reflect a year over year improvement which was less than expected. We were very pleased to end the year with a 2.41 times debt service ratio which is significantly higher than the 1.2 times required by the bond documents. The accrual deficit was related to a number of factors which are expressed in the following narrative.

The John Knox Village Foundation experienced another year of fewer charitable contributions, still believed to be associated with the donors conservativeness caused by the changes in the economy and their ability to achieve a sufficient return on their investments.

John Knox Village, while showing success in entrance fee sales for the year with 160 contract move ins and the receipt of $6 million in entrance fees which was significantly improved from prior years. We will carry forward to FY 12, deposits on $2 million of entrance fees. Although sales were excellent we still experienced some out of the ordinary operating expenses during the fiscal year.

The unfavorable to budget operating variance was related to the high cost of providing nursing services during the summer months, a lower than budgeted census in the skilled nursing facility during the early part of the fiscal year, fewer Home Health admissions, start up unbudgeted costs of an associate health self insurance program, and an onsite employee health clinic. The skilled nursing facility payer mix and daily census reflected significant improvement during the last quarter. The Hospice program continues to provide a significant operating margin and opened an 11 bed general inpatient hospice unit in the skilled nursing facility in January. This is yet another way administration has raised revenue and better utilized the vacant space in the skilled nursing facility. We plan to add another 8 units in FY12. The new unit covered its direct expenses in the first two months of operation.

Investment returns were good this past year as we set aside in the reserve accounts $300,000 more than budgeted which influenced the final bottom line financial result. Independent Living finished the year ahead of budget. The Residential Care Facility finished the year ahead of budget, and began to plan for an expansion of 17 memory care units in the coming year. We have had a waiting list for memory care units since the opening of our current unit. That waiting list is 37 as we plan the expansion.

Long term debt ended the quarter at $61,102,401. We plan to explore some local bank financing for the expansion of the Memory Care Program and the Hospice Inpatient Program. Additional principal will be retired before the additional borrowing which is estimated to be $2.9 million. We plan to allocate $2 million to the expansion project and the remainder to the renovation of the the memory care unit located in the skilled nursing facility.

The Debt Obligated Group remains in full compliance with the 2007 Bond Covenants.

4 0 0 N.W. Murray Road Lee's Summit, M O 64081-1498 - 816-524-8400 a www.johnknoxvillage.org

The following financial ratios are provided for your review.

Please call me at (8 16) 347-285 1 or Ken Siverly, Director of Finance at (8 16) 347-2852 if you need additional information or have questions.

03/31/2011 03/31/10

Vice President, Finance & Treasurer

Debt Service Coverage (Rolling 12 months)** Operating Ratio Investment Income as % of Total Revenue Days Cash on Hand Current Ratio Days in Accounts Receivable Unrestricted Cash & Investments to Debt Net Operating Ratio

Net Operating Ratio Adjusted ** Computation on rolling twelve months for the current fiscal year.

2.41 96.5% 1.9% 219 1.4 24

61% 5.8%

14.6%

1.75 95.6% 0.9% 214 1.3 20

54.5% 7.2%

12.0%

PremierLife and Affiliates

Accountants’ Report and Consolidated Financial Statements

March 31, 2011 and 2010

PremierLife and Affiliates March 31, 2011 and 2010

Contents

Independent Accountants’ Report ....................................................................................... 1

Consolidated Financial Statements

Balance Sheets.................................................................................................................................... 2

Statements of Operations.................................................................................................................... 3

Statements of Changes in Net Assets ................................................................................................. 4

Statements of Cash Flows................................................................................................................... 5

Notes to Financial Statements ............................................................................................................ 7

Supplementary Information

Consolidating Schedules - Balance Sheets Information

March 31, 2011 ........................................................................................................................... 32

March 31, 2010 ........................................................................................................................... 34

Consolidating Schedules - Statements of Operations Information

Year Ended March 31, 2011 ....................................................................................................... 36

Year Ended March 31, 2010 ....................................................................................................... 37

Consolidating Schedules - Statements of Changes in Net Assets Information

Year Ended March 31, 2011 ....................................................................................................... 38

Year Ended March 31, 2010 ....................................................................................................... 39

Independent Accountants’ Report

Board of Directors PremierLife and Affiliates Lee’s Summit, Missouri We have audited the accompanying consolidated balance sheets of PremierLife and Affiliates (Organization) as of March 31, 2011 and 2010, and the related consolidated statements of operations, changes in net assets and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Organization’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PremierLife and Affiliates as of March 31, 2011 and 2010, and the results of its operations, changes in net assets and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying supplementary consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, statements of operations and statements of changes in net assets of the individual companies, and is not a required part of the basic consolidated financial statements. The consolidating information has been subjected to the procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic consolidated financial statements taken as a whole.

Kansas City, Missouri July 21, 2011

PremierLife and Affiliates Consolidated Balance Sheets

March 31, 2011 and 2010

See Notes to Consolidated Financial Statements

Assets

2011 2010Current Assets

Cash and cash equivalents $ 5,123,280 $ 5,122,707 Accounts receivable, net of uncollectible accounts;

2011 - $524,000, 2010 - $238,000 5,517,043 4,654,898 Current portion of assets limited as to use

Board designated 2,039,599 1,354,596 Held by bond trustee 235,286 324,599

Inventories 587,308 520,099 Prepaid expenses and other 717,824 432,684

Total current assets 14,220,340 12,409,583

Assets Limited as to Use, net of current portionBoard designated 29,222,906 26,626,458 Held by bond trustee 4,828,094 4,849,784 Restricted by donors 2,176,999 2,200,262

36,227,999 33,676,504

Other Investments 989,144 1,289,596

Property and EquipmentLand and land improvements 18,685,951 18,276,758 Buildings and leasehold improvements 144,654,115 144,142,919 Furniture and equipment 29,425,306 29,369,613 Construction in progress 3,095,395 3,580,356

195,860,767 195,369,646 Less accumulated depreciation 107,400,571 102,555,690

Total property and equipment, net 88,460,196 92,813,956

Forward Delivery Agreement 828,084 573,636

Deferred Financing Costs, net 662,808 719,773

$ 141,388,571 $ 141,483,048

2

Liabilities, Deferred Revenue and Net Assets

2011 2010Current Liabilities

Current maturities of long-term debt $ 2,023,940 $ 1,685,784 Accounts payable and accrued expenses 4,745,881 4,268,760 Accrued payroll and vacation pay 3,027,976 3,009,666 Accounts payable for construction of property 87,085 109,945 Accrued interest payable 350,945 359,195

Total current liabilities 10,235,827 9,433,350

Deferred Revenues and DepositsDeposits received in advance on entrance fees and refundable fees 6,408,271 5,499,699 Deferred revenue, entrance fees and monthly service fees 41,039,064 39,898,029

Total deferred revenues and deposits 47,447,335 45,397,728

Asset Retirement Obligation, net of current portion of 2011 - $141,000 and 2010 - $137,000 3,692,046 3,529,395

Long-term Debt, net of current portion 59,178,461 61,294,868

Total liabilities and deferred revenue 120,553,669 119,655,341

Net AssetsUnrestricted 18,946,029 19,901,961 Temporarily restricted 493,046 680,806 Permanently restricted 1,395,827 1,244,940

Total net assets 20,834,902 21,827,707

$ 141,388,571 $ 141,483,048

PremierLife and Affiliates Consolidated Statements of Operations

Years Ended March 31, 2011 and 2010

See Notes to Consolidated Financial Statements 3

2011 2010Operating Revenues

Resident service fees $ 9,443,915 $ 8,819,890 Annual agreement fees 5,730,983 7,042,362 Health service fees, net 41,286,022 38,937,397 Amortization of deferred revenue including attrition and move-outs 3,060,820 3,186,105 Investment income 1,292,381 546,991 Management fees 800 - Net assets released from restrictions used for operations 385,372 313,605 Other 4,965,278 4,243,228

66,165,571 63,089,578

Operating ExpensesSalaries and wages 31,511,559 30,018,165 Employee benefits 6,114,264 5,684,813 Professional fees and contract services 5,146,849 4,780,574 Supplies 5,714,662 5,372,543 Utilities, insurance and taxes 5,688,430 5,789,326 Bad debt expense 683,626 508,111 Other operating expenses 3,095,864 3,020,465 Gain on disposal of property and equipment (16,804) (1,491)Interest 2,874,289 2,668,290 Depreciation 8,276,326 8,239,532 Impairment of asset values - 5,035,331

69,089,065 71,115,659

Revenue Under Expenses Before Gains on Trading Securities

and Reclassification (2,923,494) (8,026,081)

Change in net unrealized gain on trading securities 1,713,114 6,677,925 Change in value of forward delivery agreement 254,448 (979,559)

Revenue Under Expenses Before Reclassification (955,932) (2,327,715)

Net Asset Reclassification Due to Change in Law - (7,375)

Revenue Under Expenses (955,932) (2,335,090)

Contributions from John Knox Village Auxiliary restricted for purchase of equipment - 2,280

Decrease in Unrestricted Net Assets $ (955,932) $ (2,332,810)

PremierLife and Affiliates Consolidated Statements of Changes in Net Assets



2011 2010Unrestricted Net Assets

Revenues under expenses $ (955,932) $ (2,335,090)Contributions from John Knox Village Auxiliary restricted for equipment purchases - 2,280

Decrease in unrestricted net assets (955,932) (2,332,810)

Temporarily Restricted Net AssetsNet asset reclassification due to change in law - 7,375 Contributions 80,573 205,669 Income from investments 31,291 34,317 Net assets released from restriction used for operations (385,372) (313,605)Net change in unrealized gains on investments 85,748 232,350

Increase (decrease) in temporarily restricted net assets (187,760) 166,106

Permanently Restricted Net AssetsContributions 150,887 30,428

Increase in permanently restricted net assets 150,887 30,428

Decrease in Net Assets (992,805) (2,136,276)

Net Assets, Beginning of Year 21,827,707 23,963,983

Net Assets, End of Year $ 20,834,902 $ 21,827,707

PremierLife and Affiliates Consolidated Statements of Cash Flows



2011 2010Operating Activities

Decrease in net assets $ (992,805) $ (2,136,276)Items not requiring (providing) cash

Depreciation and amortization 8,240,824 8,203,178 Amortization of deferred revenue (3,060,820) (3,186,105)Net change in unrealized gains and losses on investments (1,798,862) (6,910,275)Gain on disposal of property and equipment (16,804) (1,491)Permanently restricted contributions (150,887) (30,428)Contributions and income temporarily restricted for acquisition of property and equipmentImpairment of asset values - 5,035,331

Changes inAccounts receivable, net (617,910) 957,290 Inventories (395) (52,125)Prepaid expenses and others (285,140) (2,096)Accounts payable and accrued expenses 251,141 (155,560)Accrued payroll and vacation pay 18,310 152,326 Accrued interest payable (8,250) (717)

Net cash provided by operating activities 1,578,402 1,870,772

Investing ActivitiesPurchase/acquisition of property and equipment (3,736,938) (3,448,294)Change in value of forward delivery agreement (254,448) 979,559 (Increase) decrease in assets limited as to use (935,836) 2,618,150 Proceeds from sale of property and equipment 18,098 2,043

Net cash provided by (used in) investing activities (4,909,124) 151,458

Financing ActivitiesInitial entrance fees received 5,792,332 3,526,447 Deposits received in advance on entrance fees and refundable fees, netEntrance fees refunded to residents (1,005,543) (1,402,566)Health care portion of monthly service fees and other deferred revenue, netPrincipal payments on long-term debt (1,685,784) (1,245,000)Proceeds from issuance of line of credit - 82,108 Permanently restricted contributions 150,887 30,428 Contributions and income temporarily restricted for acquisition of property and equipment

Net cash provided by (used in) financing activities 3,331,295 (1,222,365)

(888,699) (2,359,691)

- 2,280

- (2,280)

968,102 143,629

PremierLife and Affiliates Consolidated Statements of Cash Flows (Continued)



2011 2010

Increase in Cash and Cash Equivalents $ 573 $ 799,865

Cash and Cash Equivalents, Beginning of Year 5,122,707 4,322,842

Cash and Cash Equivalents, End of Year $ 5,123,280 $ 5,122,707

Additional Cash Flows InformationInterest paid $ 2,973,830 $ 2,969,368 Property and equipment financed by accounts payable for construction of property 87,085 109,945

PremierLife and Affiliates Notes to Consolidated Financial Statements

March 31, 2011 and 2010

7

Note 1: Summary of Significant Accounting Policies

Organization and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of PremierLife and its affiliates, including John Knox Village, The John Knox Village Foundation and PremierLife Real Estate Holdings all of which are Missouri nonprofit corporations; John Knox Redevelopment Corporation, PremierLife Enterprises, Inc. and Kaw Valley Management Group, LLC, which are collectively referred to as the Organization. Significant intercompany accounts and transactions have been eliminated in consolidation.

PremierLife is organized as a public benefit corporation for the purpose of carrying out the purposes of John Knox Village, The John Knox Village Foundation and other such organizations. PremierLife is the sole member of John Knox Village, The John Knox Village Foundation, PremierLife Real Es-tate Holdings and Kaw Valley Management Group, LLC and is the sole shareholder of PremierLife Enterprises, Inc.

John Knox Village (the Village) is organized for the purpose of providing residences, health care and related services to senior citizens within a community setting. The Village offers various services throughout the resident’s life in accordance with the terms specified in resident agreements for an initial lump-sum entrance fee and a monthly service fee after occupancy. Such monthly ser-vice fees are subject to adjustment at the discretion of the Village as necessary to meet operating ex-penses, maintain facilities and other contractual commitments. Additional fees are charged for noncontractual services purchased by the resident. The Village has received full accreditation by the Continuing Care Accreditation Commission sponsored by the American Association of Homes and Services for the Aging since 1988.

The John Knox Village Foundation (the Foundation) was established for the purpose of supporting and promoting John Knox Village, including soliciting gifts and bequests from the community. The Foundation’s Board of Trustees is elected by the members of PremierLife’s Board. The Foun-dation operates to assist with the implementation of the strategic and long range plans of Premier-Life and John Knox Village; make gifts and grants for facilities operated and managed by John Knox Village; and to support activities which promote and contribute to the physical, spiritual and mental health of the elderly of society.

PremierLife Real Estate Holdings is organized for the purpose of operating exclusively as a title-holding corporation for the benefit of, to support the activities of, to further the purposes of and be operated in connection with John Knox Village.

The John Knox Village Redevelopment Corporation was incorporated to construct, maintain and operate redevelopment projects for John Knox Village. The sole shareholder of the John Knox Redevelopment Corporation is John Knox Village.

PremierLife Enterprises, Inc. was formed to own, acquire, offer, manage, operate, distribute, sell and/or provide technology products, software and technology supported services to assist the eld-erly and to provide management services to senior care providers.


March 31, 2011 and 2010

8

Kaw Valley Management Group, LLC was organized to manage and operate senior living facilities and to provide related services.

The consolidated financial statements do not include the accounts of the John Knox Village Auxiliary (the Auxiliary) (see Note 8).

Resident Agreements

The Organization provides for a number of different agreements with its residents, ranging from complete life care contracts with entrance fees to annual leasing arrangements with no entrance fee. The primary difference in the entrance fee agreements is the duration of the health care services available to residents at less than full charges and the refund provisions. Monthly service fees are charged under all contractual agreements.

The Organization has retained an independent actuary to provide assistance in evaluating resident agreement pricing structures and policies for funding various accounts designated by the Board of Directors to be used for specific purposes (see Note 4). Based on these actuarial studies, the Or-ganization designates a portion of initial entrance fees and monthly service fees received to be used only for providing future health care services.

Revenue Recognition

The initial entrance fee received from all residents, exclusive of the health care portion, is recorded as deferred revenue and is recognized as revenue ratably over the life expectancy of the resident after occupancy commences. Life expectancy is based upon the experience of the Organization and other continuing care retirement communities included in the actuary’s database adjusted annually with ensuing age. When a resident expires or cancels their resident agreement, the unamortized entrance fee, net of refunds, if any, is recognized as revenue.

The Organization records the health care portion of the initial entrance fee received, together with a portion of monthly service fees, as deferred revenue based on recommendations from the consulting actuary using the Organization’s historical utilization and industry experience. This deferred health care revenue is recognized as income as health care costs are incurred.

Revenue for health care and other services are recognized as services are provided.

Obligation to Provide Future Services

The Organization calculates the present value of the estimated net cost of future services and the use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from advance fees. If the present value of the estimated net cost of future services and the use of facilities exceed the deferred revenue and advance fees, a liability is recorded (obligation to provide future services and use of facilities) with the corresponding charge to income. Based upon actuarial computations, deferred revenue exceeds the present value of the estimated net cost of future services and the use of facilities to be provided to current residents and, accordingly, no provision for future service obligations is required at March 31, 2011 and 2010.


March 31, 2011 and 2010

9

Resident Lease Agreements

The Organization also contracts for living units on an annual basis. These agreements provide for the same services as other resident agreements, except they are for a term of one year and do not include nursing care services. Beginning in fiscal year 2010, new lease agreements starting after April 1, 2009 become month-to-month after the first year of residency. Revenue is recog-nized on a monthly basis and is presented in the accompanying consolidated statements of opera-tions as lease agreement fees.

Cash Equivalents

The Organization considers all liquid investments, other than those limited as to use, with original maturities at the date of purchase of three months or less, to be cash equivalents. At March 31, 2011 and 2010, cash equivalents consisted primarily of money market accounts and repurchase agreements.

Effective July 21, 2010, the FDIC’s insurance limits were permanently increased to $250,000. At March 31, 2011, the Organization’s cash accounts exceeded federally insured limits by approxi-mately $4,158,000.

Resident Accounts Receivable

The Organization reports resident accounts receivable for services rendered at net realizable amounts from third-party payers, residents and others. The Organization provides an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information and ex-isting economic conditions. As a service to the resident, the Organization bills third-party pay-ers directly and bills the resident when the resident’s liability is determined. Patient accounts receivable are due in full when billed. Accounts are considered delinquent and subsequently written off as bad debts based on individual credit evaluation and specific circumstances of the account.

Property and Equipment

Property and equipment additions are recorded at cost, which includes interest capitalized during construction, when material. Donated property and equipment are recorded as additions to the un-restricted net asset account at fair value at date of receipt. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Land improvements 10 – 40 years Buildings and improvements 5 – 50 years Furniture and equipment 4 – 10 years


March 31, 2011 and 2010

10

Long-lived Asset Impairment

The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimate future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

An impairment loss of $4,083,263 was recognized for an estimated decline in the future market-ing and development costs associated with the Forest Lake development for the year ended March 31, 2010. Such impairment was determined to have occurred as a result of the general slowdown in the economic conditions that have resulted in slower than anticipated pre-sales of units in development for Forest Lake. Additional impairment of $952,068 was recognized during 2010 for the anticipated demolition of other buildings. The losses are included in operating ex-penses in the accompanying consolidated statements of operations. Fair value was determined based on the estimated costs incurred for the project and expected permanent contract conver-sions after project completion.

Deferred Financing Costs

Direct financing costs are deferred and amortized over the term of the related financing agreements using the interest method.

Health Care Services

The Organization provides health care services to certain patients whose medical care costs or a portion thereof are paid under government or privately sponsored contractual programs (principally Medicare, Medicaid and supplemental insurance plans). Under these programs, payments are based upon discounted charges or at predetermined rates. The Organization is paid for most Medicare and Medicaid services on a prospective basis or at per diem rates.

Inventories

Inventories consist of supplies and are stated at the lower of cost (first-in, first-out) or market (net realizable value).

Volunteer Program

The Organization’s Volunteer Program primarily benefits residents of the Organization and the Lee’s Summit, Missouri communities. During 2011 and 2010, the Organization Volunteer Program donated 68,000 and 67,000 hours, respectively, providing community services at an estimated value of $780,000 and $670,000, respectively. These items are not reflected in the accompanying consolidated financial statements. In addition, the Organization cooperatively provides other facilities and services to the community.


March 31, 2011 and 2010

11

Income Tax

PremierLife, John Knox Village and the Foundation are not-for-profit organizations as described in Section 501(c)(3) of the Internal Revenue Code and are exempt from federal income taxes on re-lated income pursuant to Section 501(a) of the Internal Revenue Code. PremierLife Real Estate Holdings is exempt from federal income tax pursuant to Code Section 501(a) as an organization described in Code Section 501(c)(2). However, the Organization is subject to federal tax on any unrelated business taxable income. John Knox Redevelopment Corporation and PremierLife Enterprises, Inc. are for-profit corporations and, thus, subject to federal and state income taxes. Kaw Valley Management Group, LLC is a limited liability company of which PremierLife is the sole member and as such, is a disregarded entity for federal income tax purposes.

The Organization is no longer subject to U.S. federal examinations by tax authorities for years before 2008.

Assets Limited as to Use

Assets limited as to use include assets restricted by donors or grantors for specific purposes or time periods, assets designated by the board of directors for specific purposes and assets held by bond trustee for debt service.

Contributions

Unconditional promises to give cash and other assets are reported at fair value at the date the prom-ise is received, which is then treated as cost. The gifts are reported as either temporarily or perma-nently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of operations as net assets released from re-strictions. Donor-restricted contributions whose restrictions are met within the same year as re-ceived are reflected as unrestricted contributions in the accompanying consolidated financial statements.

Temporarily and Permanently Restricted Net Assets

Temporarily restricted net assets are those whose use by the Organization has been limited by do-nors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Organization in perpetuity.

Functional Expenses

The Organization provides residences, health care services and related services to senior citizens within its geographic location, including Lee’s Summit and the greater Kansas City metropolitan area. The Organization incurred total expenses of $68,613,330 and $70,922,613 for the years ended March 31, 2011 and 2010, respectively, of which approximately $26,000,000 and $24,000,000, respectively, were general and administrative costs.


March 31, 2011 and 2010

12

The Foundation provides fundraising activities for the benefit of the Organization. The Foundation had total expenses of $390,445 and $475,570 for the years ended March 31, 2011 and 2010, respectively, of which $18,610 and $27,399, respectively, were for fundraising activities.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses dur-ing the reporting period. Actual results could differ from those estimates.

Investments

Investments in equity securities with readily determinable fair values and all investments in debt securities and private investment funds are measured at fair value in the consolidated balance sheets. Other investments are valued at the lower of cost (or fair value at time of donation, if ac-quired by contribution) or fair value. Investment return includes dividend, interest and other in-vestment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments.

Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is re-flected in the statements of operations and changes in net assets as unrestricted, temporarily re-stricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions.

Derivative Financial Instruments

The Organization has entered into reserve fund forward sale agreements (FSA) on its bond reserve funds as a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations. Under the agreements, the Organization receives a fixed rate of return of 5.211% on its reserve funds and, in return, has agreed to forego the future variable earnings on the reserve funds, effectively converting the future variable interest earnings into fixed rates. The FSAs are based on reserve fund amounts of approximately $4,700,000 and mature in 2032.

The changes in the fair value of the agreements are recorded as unrealized gain or loss in fair value of the forward delivery agreements in the revenues under expenses section on the accompanying Consolidated Statements of Operations. For the years ended March 31, 2011 and 2010, a change in fair value of $254,448 and $(979,559) was recorded for the derivative instruments, respectively. At March 31, 2011, the fair value of the forward delivery agreements was an $828,084 noncurrent asset recorded on the accompanying consolidated balance sheets.


March 31, 2011 and 2010

13

Fair Value of Financial Instruments

The fair value of the Organization’s financial instruments at March 31, 2011 and 2010 approximated its carrying values, except that at March 31, 2011 and 2010, the estimated fair value of fixed rate long-term debt was $50,900,000 and $52,068,000 compared to its book value of $55,125,000 and $56,445,000, respectively.

Revenues Under Expenses

The consolidated statements of operations include revenues under expenses. Changes in unrestricted net assets, which are excluded from operating revenues and expenses consistent with industry practice, include unrealized gains and losses on investments other than trading securities, permanent transfers of assets to and from affiliates for other than goods and services, and contributions of long-lived assets (including assets acquired using contributions, which by donor restriction were to be used for the purposes of acquiring such assets).

Self Insurance

The Organization has elected to self-insure certain costs related to employee health and accident benefit programs. Costs resulting from noninsured losses are charged to income when incurred (See Note 9).

Reclassifications

Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 presentation. The reclassifications had no effect on the changes in financial position.

Subsequent Events

Subsequent events have been evaluated through July 21, 2011, which is the date the financial state-ments were available to be issued.


March 31, 2011 and 2010

14

Note 2: Asset Retirement Obligation

Accounting Standards Codification (ASC) Topic 410, Conditional Asset Retirement Obligation, clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retire-ment obligation associated with the retirement of a tangible long-lived asset in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The Organization’s conditional asset retirement obligation relates to asbestos. Environmental regulations require that asbestos be handled and disposed of in a special manner, if a building undergoes major renovations or is demolished. When the liability is initially recorded, the cost of the asset retirement is capitalized.

A summary of changes in the asset retirement obligation for the years ended March 31, 2011 and 2010, is included in the table below.

2011 2010

Liability, beginning of year $ 3,666,281 $ 3,494,875 Liabilities settled (24,330) (16,613)Accretion expense 191,088 188,019

Liability, end of year $ 3,833,039 $ 3,666,281

Note 3: Long-term Debt

Long-term debt at March 31, 2011 and 2010 consists of the following:

2011 2010

Senior Living Facilities Revenue Bonds (John Knox Obligated Group)Series 2007 A $ 55,125,000 $ 56,445,000

Bank - Term Loan 438,940 365,784 Revolving line of credit issued in

conjunction with 2007 series bonds 4,462,560 4,901,500 Other 100,000 100,000

60,126,500 61,812,284 Plus unamortized premium, net 1,075,901 1,168,368 Less current maturities 2,023,940 1,685,784

$ 59,178,461 $ 61,294,868


March 31, 2011 and 2010

15

In connection with the Industrial Development Authority of the City of Lee’s Summit, Missouri, the Organization entered into an Indenture dated May 24, 2007 that provided for the issuance of Health Facilities Bonds. On that date, the Organization refunded the series 1995, 1999 and 2002 bonds, along with the revolving line of credit resulting in an accounting loss of $1,609,719, which was recognized in earnings.

The 2007 Indenture and related documents require that deposits be made to trustee-held accounts until the bonds are retired and to be used to fund various projects of the Organization. At March 31, 2011, trustee-held funds aggregated $5,063,380, as described in Note 4. Payment of principal and interest is guaranteed under a Deed of Trust, Mortgage and Security Agreement entered into by the Organization for the benefit of the Industrial Development Authority of the City of Lee’s Summit, Missouri. The Organization has granted a security interest in certain property and revenues, as defined, and covenants not to create or permit any other lien on such property and revenues, as defined. The Organization is subject to covenants restricting and limiting the incurrence of additional indebtedness. The covenants also require that certain measures of fi-nancial performance, as defined, be satisfied.

The 2007 Bonds outstanding are separated into three distinct series. Tax Exempt Fixed Rate Serial Bonds, bearing interest at 4.25 – 4.53% with original balance of $15,540,000 and final maturity of August 15, 2017, are subject to annual mandatory redemption and payment requirements beginning August 15, 2009. Tax Exempt Intermediate Fixed Rate Term Bond, bearing interest at 4.81% with original balance of $22,175,000 and final maturity on August 15, 2026, are subject to annual mandatory redemption and payment requirements beginning August 15, 2018. Tax Exempt Final Fixed Rate Term Bond, bearing interest at 4.87% with original balance of $18,865,000 and final maturity on August 15, 2032, are subject to annual mandatory redemption and payment requirements beginning August 15, 2027.

In conjunction with the 2007 Series Bonds, the Organization entered into a Taxable Bank Term Note of $2,285,000 bearing interest at 5.67% with final maturity of August 19, 2009. The balance of this note was paid in full during 2010.

The revolving line of credit issued in conjunction with 2007 series bonds, bears interest due monthly at a rate equal to the LIBOR daily floating rate plus 1%. The maximum borrowing capacity on the line of credit is $5,000,000 with an additional facility to borrow up to $2,285,000, which became fully available in 2010 when the Term Note discussed above was repaid. The principal balance is due on May 1, 2013.


March 31, 2011 and 2010

16

Aggregate annual maturities and sinking fund requirements of long-term debt are due as follows:

Year EndMarch 31,

2012 $ 2,023,940 *2013 2,098,940 *2014 5,868,620 *2015 2,035,000 2016 2,240,000 Thereafter 45,860,000

$ 60,126,500

*The 2012, 2013 and 2014 maturities include the $4,901,500 line of credit discussed above related to Forest Lake pre-development costs.

Note 4: Cash, Cash Equivalents, Assets Limited as to Use and Other Invest-ments

Held by Bond Trustee

In connection with its long-term indebtedness, the Organization is required to maintain certain amounts on deposit with a bond trustee. The assets are invested as follows at March 31, 2011 and 2010:

2011 2010

Mutual funds invested in equity securities $ 235,880 $ 342,684 U.S. government securities 926,981 917,852 Corporate bonds 3,872,416 3,871,543 Accrued interest 28,103 42,304

5,063,380 5,174,383 Less amount available for payment of current liabilities 235,286 324,599

Non-current portion $ 4,828,094 $ 4,849,784


March 31, 2011 and 2010

17

These assets are held in the following required accounts:

2011 2010

Debt service reserve $ 5,063,379 $ 5,063,703 Debt service fund 1 1 Project fund - 110,679

$ 5,063,380 $ 5,174,383

Board-designated Assets, Restricted Assets and Cash and Cash Equivalents

Board-designated assets represent those assets that, by resolution of the Board of Directors and Trustees, have been set aside to be used for specific future expenditures. The Organization maintains control of these assets and may, at its discretion, use these assets for any corporate purpose. The charitable remainder trust is valued at estimated present value of future cash receipts with a related liability established for the present value of estimated annuity payments. All other investments are carried at fair value at March 31, 2011 and 2010.

The fair value of private investment funds invested in hedge funds has been estimated using the net asset value per share of the investments. These investments are primarily hedge funds directed through several money managers that follow multiple investment strategies with a goal to maintain a low volatility with consistent returns. Withdrawals of funds require a written notification to the fund and are subject to certain time restrictions.

As permitted by Topic 825, the Organization has elected to measure the private investment funds at fair value. Management has elected the fair value option for these items because it more accurately reflects the portfolio returns and financial position of the Organization. Changes in fair value for these items are reported in change in net unrealized gains and losses on trading securities in the accompanying consolidated statements of operations.


March 31, 2011 and 2010

18

At March 31, 2011 and 2010, the assets are as follows:

2011 2010

Cash and interest-bearing deposits $ 1,991,892 $ 3,231,921 U.S. government securities 513,343 669,270 Corporate bonds - 102,130 Mutual funds invested in equity securities 7,052,497 6,469,675 Mutual funds invested in debt securities 11,570,278 8,739,340 Private investment funds invested in hedge funds 9,019,394 8,382,530 Common stocks 4,894,316 4,434,748 Charitable remainder trust 110,715 103,874 Accrued interest receivable 38,279 39,353 Pledges receivable 63,636 87,883 Estate receivable - 149,971

$ 35,254,350 $ 32,410,695

These assets are included in the consolidated balance sheets as follows:

2011 2010

Cash and cash equivalents $ 1,814,846 $ 2,229,379 Board-designated assets

Current portion 2,039,599 1,354,596 Non-current portion 29,222,906 26,626,458

Total board-designated 31,262,505 27,981,054 Temporarily restricted (primarily for acquisition of property and equipment) 781,172 955,322 Permanently restricted (primarily for providing financial assistance to residents)

$ 35,254,350 $ 32,410,695

1,395,827 1,244,940


March 31, 2011 and 2010

19

The Board designations are as follows at March 31, 2011 and 2010:

2011 2010

Health care services and other $ 26,489,284 $ 23,927,825 Refunds of entrance fees 4,773,221 4,053,229

$ 31,262,505 $ 27,981,054

Other Investments

Other investments consisted of unrestricted investments totaling $160,988 and $573,475 for the years ended March 31, 2011 and 2010, respectively, and investments held in conjunction with the Organization’s 457(b) deferred compensation plan (see Note 7) that amount to $427,757 and $315,722 for the years ended March 31, 2011 and 2010, respectively. Other investments also in-cluded a cost based investment in the Organization’s multi-provider captive insurance company Caring Communities Insurance Company (CCIC) (see Note 9).

2011 2010

Cash and interest-bearing deposits $ 19,572 $ 33,703 Mutual funds invested in equity securities 463,861 451,415 Mutual funds invested in debt securities 70,208 269,386 Investment in CCIC 400,399 400,399 Common stocks 35,104 134,693

$ 989,144 $ 1,289,596


March 31, 2011 and 2010

20

The following schedule summarizes investment return and its classification in the 2011 and 2010 consolidated statements of operations and changes in net assets:

2011 2010

Investment returnInterest and dividends $ 1,233,474 $ 1,102,490 Realized gains (losses) on sale of securities, net 90,199 (521,182)Net change in unrealized gains and losses

on investments 2,053,310 5,930,716

Total investment return $ 3,376,983 $ 6,512,024

2011 2010

Classification of investment returnUnrestricted net assets Investment income $ 1,292,382 $ 546,991 Net change in unrealized gains and losses on investments 1,713,114 6,677,925 Change in unrealized gains and losses on forward delivery agreement 254,448 (979,559)Temporarily and permanently restricted net assets

Income from investments 31,291 34,317 Net change in unrealized gains and losses on investments 85,748

Total investment return $ 3,376,983 $ 6,512,024

232,350


March 31, 2011 and 2010

21

Note 5: Deferred Revenue, Entrance Fees and Monthly Service Fees

The activity relative to the deferred revenue, entrance fees and the health care portion of monthly service fees for the years ended March 31, 2011 and 2010 is summarized as follows:

2011 2010

Balance at beginning of year $ 39,898,029 $ 41,976,452 Additions

Entrance fees, residents 3,775,667 2,312,627 Entrance fees, health care portion 2,016,665 1,213,820 Monthly service fees and earnings,

health care portion 1,757,991 1,231,869

7,550,323 4,758,316 Reductions

Amortization of deferred revenueResident service 2,129,406 2,229,226 Attrition, move-outs and other 201,643 (133,929)Health care services 3,033,599 3,338,449

Refunds 1,005,543 1,402,566 Other, net 39,097 427

6,409,288 6,836,739

Balance at end of year $ 41,039,064 $ 39,898,029

Included in deferred revenue, entrance fees and monthly service fees is the estimated amount of entrance fees expected to be refunded to current residents under the terms of the resident agree-ments. Based upon historical experience, the amount expected to be refunded to current residents was approximately $6,083,000 and $5,079,000 at March 31, 2011 and 2010, respectively. The gross amount of contractual refund obligations at March 31, 2011 and 2010 was approximately $14,265,000 and $11,791,000, respectively.

Note 6: Deposits Received in Advance on Entrance Fees and Refundable Fees

The Organization requires a cash deposit upon the signing of each resident agreement. Such deposits are substantially refundable in the event and at the time the individual cancels the resident agreement prior to move-in.


March 31, 2011 and 2010

22

Note 7: Retirement Plans

The Organization has a contributory defined contribution pension plan covering substantially all qualified full-time employees. Amounts contributed to the plan by the Organization are determined annually by the Organization’s Board of Directors. There was no discretionary contribution made to the plan in 2011 or 2010. The Organization’s matching contribution is 50% of the participant’s pretax salary contribution, not to exceed 2.5% of the participant’s salary. The Organization’s contributions for the years ended March 31, 2011 and 2010 were $255,735 and $256,738, respectively.

The Organization sponsors a Section 457(b) deferred compensation plan for key employees. The Organization made no contributions to the plan in 2011 and 2010. Total assets and liabilities re-lated to this plan were $427,757 and $315,722 at March 31, 2011 and 2010, respectively.

Note 8: Related Organization

The Auxiliary is a not-for-profit corporation that promotes volunteerism and provides funds for the Organization in support of programs that enhance the lives of residents and the community. The Auxiliary operates a thrift shop, three grocery/gift shops and a care center gift shop. Other funds are generated by quilting and craft committees.

During the year ended March 31, 2010, the Auxiliary made contributions to the Organization restricted for the acquisition of equipment aggregating $2,280. At March 31, 2011 and 2010, the Auxiliary owes the Organization $10,788 and $7,454, respectively, for reimbursement of capital and other expenditures incurred by the Organization.

Note 9: Insurance

The Organization maintains its general liability insurance coverage with a multi-provider captive in-surance company. The policy is retrospectively rated with the ultimate premium based primarily on the Organization’s loss experience. The retrospectively determined premium adjustment cannot exceed the annual policy premium. The Organization records the minimum premium as an expense over the period of coverage and accrues estimated losses from asserted and unasserted claims in excess of the minimum premium, if any, based primarily on existing asserted claims and historical experience.

The Organization is subject to claims and lawsuits that arose in the ordinary course of its activities. It is the opinion of management that the ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the Organization.


March 31, 2011 and 2010

23

The Organization, excluding PremierLife Enterprises, Inc., is self-insured for workers’ compensa-tion claims in the state of Missouri. Coverage has been purchased for individual claims exceeding $350,000. The Organization has accrued for the uninsured portion of the estimated losses based upon pending and historical claims experience.

The Organization has purchased self-insurance for certain costs related to employee health and ac-cident benefit programs that limits its exposure for individual claims to $125,000.

Note 10: Endowment

The Foundation’s endowment consists of two individual funds established for a variety of pur-poses. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As re-quired by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions.


March 31, 2011 and 2010

24

The Foundation’s governing body has interpreted the State of Missouri Prudent Management of Institutional Funds Act (SPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accor-dance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as tempo-rary restricted net assets until those amounts are appropriated for expenditure by the Founda-tion in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Foundation considers the following factors in making a determi-nation to appropriate or accumulate donor-restricted endowment funds:

1. Duration and preservation of the fund 2. Purposes of the Foundation and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of invest-

ments 6. Other resources of the Foundation 7. Investment policies of the Foundation

The composition of net assets by type of endowment fund at March 31, 2011 and 2010, was:

UnrestrictedTemporarily Restricted

Permanently Restricted Total

Donor-restricted endowment funds $ - $ 3,241 $ 1,395,827 $ 1,399,068 Board-designated endowment funds 212,945 - - 212,945

Total endowment funds $ 212,945 $ 3,241 $ 1,395,827 $ 1,612,013

2011



Donor-restricted endowment funds $ (7,375) $ - $ 1,244,940 $ 1,237,565 Board-designated endowment funds 223,147 - - 223,147

Total endowment funds $ 215,772 $ - $ 1,244,940 $ 1,460,712

2010


March 31, 2011 and 2010

25

Changes in endowment net assets for the years ended March 31, 2011 and 2010 were:



Endowment net assets, beginning of year $ 215,772 $ - $ 1,244,940 $ 1,460,712

Investment returnInvestment income (loss) (4,533) 28,473 - 23,940 Net appreciation 29,293 49,472 - 78,765

Total investment return 24,760 77,945 - 102,705

Contributions - - 150,887 150,887 Appropriation of endowment assets for expenditure (27,587) (74,704) - (102,291)

Endowment net assets, end of year $ 212,945 $ 3,241 $ 1,395,827 $ 1,612,013

2011



Endowment net assets, beginning of year $ 266,807 $ (63,918) $ 1,214,512 $ 1,417,401

Net asset reclassification due tochange in law (7,375) 7,375 - -

Investment returnInvestment income 3,608 34,317 - 37,925 Net appreciation 53,570 56,543 - 110,113

Total investment return 57,178 90,860 - 148,038

Contributions - - 30,428 30,428 Appropriation of endowment assets

for expenditure (100,838) (34,317) - (135,155)

Endowment net assets, end of year $ 215,772 $ - $ 1,244,940 $ 1,460,712

2010


March 31, 2011 and 2010

26

Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at March 31, 2011 and 2010, consisted of:

2011 2010

$ 1,395,827 $ 1,244,940

$ 3,241 $ -

by explicit donor stipulation or SPMIFA

Permanently restricted net assets - portion of perpetual

Temporarily restricted net assets - portion of perpertualendowment funds subject to a time restriction underSPMIFA with purpose restrictions

endowment funds required to be retained permanently

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the Foundation is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $7,375 at March 31, 2010. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. There is no longer a deficiency at March 31, 2011.

The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Foundation must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the Foundation’s policies, endowment assets are invested in a manner that is intended to produce results that for the fixed in-come portfolio exceed the Barclays Capital Aggregate Index, for the stock portfolio exceed the S&P 500 Composite Index or specific other similar indices.

To satisfy its long-term rate of return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Foundation targets a diversified asset allocation that places a greater emphasis on bonds-based investments to achieve its long-term return objectives within prudent risk constraints.

The Foundation has a policy (the spending policy) of appropriating for expenditure each year all of its endowment funds’ investment earnings and gains each fiscal year. In establishing this policy, the Foundation considered the long-term expected return on its endowment. Accordingly, over the long term, the Foundation expects the endowment value to be preserved.


March 31, 2011 and 2010

27

Note 11: Current Economic Conditions

The current protracted economic environment presents health care organizations with difficult circumstances and challenges, which in some cases have resulted in large declines in the fair value of investments and other assets, large declines in contributions, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Organization.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change, resulting in material future adjustments in investment val-ues, reduced contributions and sales of resident units that may negatively impact the Organiza-tion’s ability to fund ongoing capital requirements.

Note 12: Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated bal-ance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Investments and Financial Instruments Included in Cash

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange traded equity securities and mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include debt securities. Level 3 securities primarily include hedge funds esti-mated using the net asset value per share.


March 31, 2011 and 2010

28

Forward Delivery Agreement

The fair value is estimated using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy.

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the Topic 820 fair value hierarchy in which the fair value measurements fall at March 31, 2011 and 2010:

Quoted Prices in Active

Markets for Identical Assets

Significant Other

Observable Inputs

Significant Unobservable

Inputs(Level 1) (Level 2) (Level 3)

Financial instruments included in cash $ 85,787 $ 85,787 $ - $ - U.S. government securities 1,440,324 - 1,440,324 - Mutual funds invested in equity securities 7,752,238 7,752,238 - - Mutual funds invested in debt securities 11,640,486 11,640,486 - - Private investment funds invested in hedge funds 9,019,394 - - 9,019,394 Common stocks 4,929,420 4,929,420 - - Corporate bonds 3,872,416 - 3,872,416 - Charitable remainder trusts 110,715 - - 110,715 Forward delivery agreement 828,084 - 828,084 -

2011

Fair Value

Fair Value Measurements Using


March 31, 2011 and 2010

29

Quoted Prices in Active

Markets for Identical Assets

Significant Other

Observable Inputs

Significant Unobservable

Inputs(Level 1) (Level 2) (Level 3)

Financial instruments included in cash $ 274,223 $ 274,223 $ - $ - U.S. government securities 1,587,122 - 1,587,122 - Mutual funds invested in equity securities 7,263,774 7,263,774 - - Mutual funds invested in debt securities 9,008,726 9,008,726 - - Private investment funds invested in hedge funds 8,382,530 - - 8,382,530 Common stocks 4,434,748 4,434,748 - - Corporate bonds 3,973,673 - 3,973,673 - Charitable remainder trusts 103,874 - - 103,874 Forward delivery agreement 573,636 - 573,636 -

Fair Value

Fair Value Measurements Using2010

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unob-servable (Level 3) inputs:

Investments

Charitable Remainder

Trusts

Balance, April 1, 2010 $ 8,382,530 $ 103,874

Total unrealized gains included inrevenues under expenses 530,082 8,218

Purchases 106,782 3,306

Sales - (4,683)

Balance, March 31, 2011 $ 9,019,394 $ 110,715

Total gains or losses for the period included inchange in net assets attributable to the changein unrealized losses related to assets still heldat the reporting date $ 530,082 $ 1,839

2011


March 31, 2011 and 2010

30

Investments

Charitable Remainder

Trusts

Balance, April 1, 2009 $ 6,851,950 $ 86,228

Total unrealized gains included inrevenues under expenses 1,246,660 20,349

Purchases 283,920 3,297

Sales - (6,000)

Balance, March 31, 2010 $ 8,382,530 $ 103,874

Total gains or losses for the period included in changein net assets attributable to the change in unrealizedlosses related to assets still held at the reporting date $ 1,246,660 $ 16,581

2010

Realized and unrealized gains and losses for items reflected in the table above are included in change in unrestricted net assets for the period from April 1, 2009, through March 31, 2010 and April 1, 2010 through March 31, 2011 are reported in the consolidated statements of operations as follows:

Revenue Under

Expenses

Revenue Under

Expenses

Net appreciation in fair value of investments $ 530,082 $ 8,218

2011

Revenue Under

Expenses

Revenue Under

Expenses

Net depreciation in fair value of investments $ 1,246,660 $ 20,349

2010


March 31, 2011 and 2010

31

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents

The carrying amount approximates fair value.

Long-term Debt

Fair values of revenue notes are based on current interest rates on bonds of similar maturities. The fair value of other long-term debt is estimated using discounted cash flow analyses, based on the Organization’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of long-term debt approximates its fair value.

Supplementary Information


Consolidating Schedule - Balance Sheet Information

March 31, 2011

Assets

SubtotalObligated

Group Eliminations ConsolidatedCurrent Assets

Cash and cash equivalents $ 4,846,046 $ 4,846,046 $ 212,531 $ 64,703 $ 5,123,280 Accounts receivable, net 5,503,821 5,503,821 8,722 $ 4,500 5,517,043 Current portion of assets limited as to use

Board designated 2,039,599 2,039,599 2,039,599 Held by bond trustee 235,286 235,286 235,286

Inventories 362,824 362,824 224,484 587,308 Prepaid expenses and other 704,877 704,877 12,947 717,824

Total current assets 13,692,453 13,692,453 212,531 310,856 4,500 14,220,340

Assets Limited as to Use, net of current portion

Board designated 28,955,946 $ 266,960 29,222,906 29,222,906 Held by bond trustee 4,828,094 4,828,094 4,828,094 Restricted by donors 2,176,999 2,176,999 2,176,999

33,784,040 2,443,959 36,227,999 36,227,999

Other Investments 428,757 159,988 588,745 1,164,773 $ (764,374) 989,144

Property and EquipmentLand and land improvements 16,180,457 16,180,457 $ 2,612,168 (106,674) 18,685,951 Buildings and leasehold improvements 143,437,805 143,437,805 1,216,310 144,654,115 Furniture and equipment 29,529,880 29,529,880 51,170 (155,744) 29,425,306 Construction in progress 3,074,471 3,074,471 20,924 3,095,395

192,222,613 192,222,613 3,828,478 72,094 (262,418) 195,860,767 Less accumulated depreciation 107,177,902 107,177,902 228,418 9,431 (15,180) 107,400,571

Total property and equipment, net 85,044,711 85,044,711 3,600,060 62,663 (247,238) 88,460,196

Forward Delivery Agreement 828,084 828,084 828,084

Deferred Financing Costs, net 662,808 662,808 662,808

Due to/from Affiliates 3,942,596 (105,683) 3,836,913 543,931 (3,833,971) (542,373) (4,500) - -

$ 138,383,449 $ 2,498,264 $ 140,881,713 $ 1,921,235 $ (233,911) $ (168,854) $ - $ (1,011,612) $ 141,388,571

Obligated Group

Kaw Valley Management Group, LLCPremierLife

PremierLife Real Estate Holdings

PremierLife Enterprises,

Inc. John Knox

Village

The John Knox Village Foundation

32


Consolidating Schedule - Balance Sheet Information (Continued)

March 31, 2011


SubtotalObligated

Group Eliminations ConsolidatedCurrent Liabilities

Current maturities of long-term debt $ 1,923,940 $ 1,923,940 $ 100,000 $ 2,023,940 Accounts payable and accrued expenses 4,480,067 $ 206,155 4,686,222 $ 9,218 50,441 4,745,881 Accrued payroll and vacation pay 3,027,976 3,027,976 3,027,976 Accounts payable for construction of property 87,085 87,085 87,085 Accrued interest payable 350,945 350,945 350,945

Total current liabilities 9,870,013 206,155 10,076,168 9,218 150,441 10,235,827

Deferred Revenues and DepositsDeposits received in advance on entrance fees and refundable fees 6,514,945 6,514,945 $ (106,674) 6,408,271 Deferred revenue, entrance fees and monthly service fees 41,039,064 41,039,064 41,039,064

Total deferred revenues and deposits 47,554,009 47,554,009 (106,674) 47,447,335

Asset Retirement Obligation, net of current portion $141,000 3,692,046 3,692,046 3,692,046

Long-term Debt, net of current portion 59,178,461 59,178,461 59,178,461

Total liabilities and deferred revenue 120,294,529 206,155 120,500,684 9,218 150,441 (106,674) 120,553,669

Net AssetsUnrestricted 18,088,920 403,236 18,492,156 $ 1,921,235 (243,129) (319,295) (904,938) 18,946,029 Temporarily restricted 493,046 493,046 493,046 Permanently restricted 1,395,827 1,395,827 1,395,827

Total net assets 18,088,920 2,292,109 20,381,029 1,921,235 (243,129) (319,295) (904,938) 20,834,902

$ 138,383,449 $ 2,498,264 $ 140,881,713 $ 1,921,235 $ (233,911) $ (168,854) $ - $ (1,011,612) $ 141,388,571

Obligated Group

Kaw Valley Management Group, LLCPremierLife



Inc.John Knox

Village

The John Knox Village

Foundation

33

PremierLife and Affiliates Consolidating Schedule - Balance Sheet Information

March 31, 2010

Assets

John Knox Village


Foundation

Subtotal Obligated

Group PremierLifePremierLife Real Estate Holding

Premier Life Enterprises, Inc.

Kaw Valley Management Group, LLC Eliminations Consolidated

Current AssetsCash and cash equivalents $ 4,826,235 $ 4,826,235 $ 191,135 $ 105,337 $ 5,122,707 Accounts receivable, net 4,594,458 4,594,458 37,940 $ 22,500 4,654,898 Current portion of assets limited as to use

Board designated 1,354,596 1,354,596 1,354,596 Held by bond trustee 324,599 324,599 324,599

Inventories 386,114 386,114 133,985 520,099 Prepaid expenses and other 415,706 415,706 16,978 432,684

Total current assets 11,901,708 11,901,708 191,135 294,240 22,500 12,409,583

Assets Limited as to Use, net of current portion

Board designated 26,626,458 26,626,458 26,626,458 Held by bond trustee 4,849,784 4,849,784 4,849,784 Restricted by donors $ 2,200,262 2,200,262 2,200,262

31,476,242 2,200,262 33,676,504 33,676,504

Other Investments 316,722 572,475 889,197 401,439 $ (1,040) 1,289,596

Property and EquipmentLand and land improvements 15,771,264 15,771,264 $ 2,612,168 (106,674) 18,276,758 Buildings and leasehold improvements 142,926,609 142,926,609 1,216,310 144,142,919 Furniture and equipment 29,353,437 29,353,437 118,700 (102,524) 29,369,613 Construction in progress 3,593,527 3,593,527 (13,171) 3,580,356

191,644,837 191,644,837 3,828,478 118,700 (222,369) 195,369,646 Less accumulated depreciation 102,388,456 102,388,456 171,353 1,455 (5,574) 102,555,690

Total property and equipment, net 89,256,381 89,256,381 3,657,125 117,245 (216,795) 92,813,956

Forward Delivery Agreement 573,636 573,636 573,636

Deferred Financing Costs, net 719,773 719,773 719,773

Due to/from Affiliates 4,400,788 (132,038) 4,268,750 673,932 (3,838,051) (1,082,131) (22,500) - -

$ 138,645,250 $ 2,640,699 $ 141,285,949 $ 1,266,506 $ (180,926) $ (670,646) $ - $ (217,835) $ 141,483,048

Obligated Group

34


Consolidating Schedule - Balance Sheet Information (Continued)

March 31, 2010


SubtotalObligated

Group Eliminations Consolidated

Current Liabilities

Current maturities of long-term debt $ 1,685,784 $ 1,685,784 $ 1,685,784

Accounts payable and accrued expenses 3,967,003 $ 224,191 4,191,194 $ 751 $ 11,652 $ 65,163 4,268,760

Accrued payroll and vacation pay 3,009,666 3,009,666 3,009,666

Accounts payable for construction of property 109,945 109,945 109,945

Accrued interest payable 359,195 359,195 359,195

Total current liabilities 9,131,593 224,191 9,355,784 751 11,652 65,163 9,433,350

Deferred Revenues and Deposits

Deposits received in advance on entrance fees

and refundable fees 5,606,373 5,606,373 $ (106,674) 5,499,699 Deferred revenue, entrance fees and monthly

service fees 39,898,029 39,898,029 39,898,029

Total deferred revenues and deposits 45,504,402 45,504,402 (106,674) 45,397,728

Asset Retirement Obligation, net of current

portion $137,000 3,529,395 3,529,395 3,529,395

Long-term Debt, net of current portion 61,194,868 61,194,868 100,000 61,294,868

Total liabilities and deferred revenue 119,360,258 224,191 119,584,449 751 11,652 165,163 (106,674) 119,655,341

Net Assets

Unrestricted 19,284,992 490,762 19,775,754 1,265,755 (192,578) (835,809) (111,161) 19,901,961

Temporarily restricted 680,806 680,806 680,806

Permanently restricted 1,244,940 1,244,940 1,244,940

Total net assets 19,284,992 2,416,508 21,701,500 1,265,755 (192,578) (835,809) (111,161) 21,827,707

$ 138,645,250 $ 2,640,699 $ 141,285,949 $ 1,266,506 $ (180,926) $ (670,646) $ - $ (217,835) $ 141,483,048

PremierLifePremierLife Real Estate Holdings

PremierLife Enterprises, Inc.

Kaw Valley Management Group, LLC

Obligated Group

John Knox Village


Foundation

35


Consolidating Schedule - Statement of Operations Information

Year Ended March 31, 2011

SubtotalObligated

Group PremierLife ConsolidatedOperating Revenues

Resident service fees $ 9,518,615 $ (74,700) $ 9,443,915 $ 9,443,915 Annual agreement fees 5,533,584 5,533,584 $ 197,399 5,730,983 Health service fees, net 41,286,022 41,286,022 41,286,022 Amortization of deferred revenue, including attrition and move-outs 3,060,820 3,060,820 3,060,820 Investment income 1,238,177 $ 8,201 1,246,378 $ 188,026 $ (142,023) 1,292,381 Management fees 48,000 $ 800 (48,000) 800 Net assets released from restrictions used for operations 385,372 385,372 385,372 Other 4,637,032 13,322 (375) 4,649,979 503,700 (188,401) 4,965,278

65,274,250 406,895 (75,075) 65,606,070 236,026 197,399 504,500 (378,424) 66,165,571

Operating ExpensesSalaries and wages 31,086,254 145,500 31,231,754 2,608 - 277,197 31,511,559 Employee benefits 6,079,129 6,079,129 344 - 34,791 6,114,264 Professional fees and contract services 5,036,465 5,036,465 3,392 3,988 103,004 5,146,849 Supplies 5,587,461 5,587,461 1,135 168,718 (42,652) 5,714,662 Utilities, insurance and taxes 5,606,467 5,606,467 75 46,237 35,651 5,688,430 Bad debt expense 683,626 683,626 - - 683,626 Other operating expenses 2,960,536 244,945 (75,075) 3,130,406 326 6,000 112,832 (153,700) 3,095,864 Gain on disposal of property and equipment (16,804) (16,804) (16,804)Interest 2,871,218 2,871,218 134,660 10,434 (142,023) 2,874,289 Depreciation 8,220,174 8,220,174 57,065 8,693 (9,606) 8,276,326

68,114,526 390,445 (75,075) 68,429,896 7,880 247,950 751,320 (347,981) 69,089,065

Revenues Over (Under) Expenses BeforeGains on Trading Securities (2,840,276) 16,450 - (2,823,826) 228,146 (50,551) (246,820) (30,443) (2,923,494)

Unrealized gains on trading securities 1,656,632 56,482 1,713,114 1,713,114 Change in value of forward delivery agreement 254,448 254,448 254,448

Revenues Over (Under) Expenses (929,196) 72,932 - (856,264) 228,146 (50,551) (246,820) (30,443) (955,932)

Transfers from parent (427,334) (427,334) 427,334 763,334 (763,334) - Transfers for fixed asset purchases 160,458 (160,458) -

Increase (Decrease) in Unrestricted Net Assets $ (1,196,072) $ (87,526) $ - $ (1,283,598) $ 655,480 $ (50,551) $ 516,514 $ - $ (793,777) $ (955,932)

Obligated Group

Eliminations



Inc.

Kaw Valley Management Group, LLCEliminations

John Knox Village

The John Knox Village Foundation

36


Consolidating Schedule - Statement of Operations Information


SubtotalObligated

Group PremierLife ConsolidatedOperating Revenues

Resident service fees $ 8,923,733 $ (103,843) $ 8,819,890 $ 8,819,890 Annual agreement fees 6,849,606 6,849,606 $ 192,756 7,042,362 Health service fees, net 38,937,397 38,937,397 38,937,397 Amortization of deferred revenue, including attrition and move-outs 3,186,105 3,186,105 3,186,105 Investment income 545,359 $ 24,587 569,946 $ 147,223 $ (170,178) 546,991 Management fees 48,000 (48,000) - Net assets released from restrictions used for operations 313,605 313,605 313,605 Other 3,994,454 7,625 (408) 4,001,671 $ 426,136 (184,579) 4,243,228

62,436,654 345,817 (104,251) 62,678,220 195,223 192,756 426,136 (402,757) 63,089,578

Operating ExpensesSalaries and wages 29,559,201 124,852 29,684,053 5,883 86 328,143 30,018,165 Employee benefits 5,632,083 5,632,083 1,024 19 51,687 5,684,813 Professional fees and contract services 4,589,947 4,589,947 1,699 2,318 210,965 (24,355) 4,780,574 Supplies 5,123,884 5,123,884 1,081 247,578 5,372,543 Utilities, insurance and taxes 5,708,152 5,708,152 160 58,318 22,696 5,789,326 Bad debt expense 506,970 506,970 - 1,141 508,111 Other operating expenses 2,726,808 350,718 (104,251) 2,973,275 1,054 6,006 217,073 (176,943) 3,020,465 Loss on disposal of property and equipment (1,491) (1,491) (1,491)Interest 2,666,103 2,666,103 160,022 12,343 (170,178) 2,668,290 Depreciation 8,185,968 8,185,968 57,065 1,455 (4,956) 8,239,532 Impairment of asset values 5,035,331 5,035,331 5,035,331

69,732,956 475,570 (104,251) 70,104,275 10,901 283,834 1,093,081 (376,432) 71,115,659

Revenue Over (Under) Expenses Before Gain on Trading Securities (7,296,302) (129,753) - (7,426,055) 184,322 (91,078) (666,945) (26,325) (8,026,081)

Unrealized gain on trading securities 6,476,874 201,051 6,677,925 6,677,925 Change in value of forward delivery agreement (979,559) (979,559) (979,559)

Revenues Over (Under) Expenses BeforeReclassification (1,798,987) 71,298 (1,727,689) 184,322 (91,078) (666,945) (26,325) (2,327,715)

Net Asset Reclassification Due toChange in Law (7,375) (7,375) (7,375)

Revenues Over (Under) Expenses (1,798,987) 63,923 - (1,735,064) 184,322 (91,078) (666,945) (26,325) (2,335,090)

Auxiliary restricted for purchase of equipment 2,280 2,280 2,280 Transfers to parent (520,000) (520,000) 520,000 - Transfers for fixed asset purchases 170,079 (170,079) - -

Increase (Decrease) in Unrestricted Net Assets $ (2,146,628) $ (106,156) $ - $ (2,252,784) $ 704,322 $ (91,078) $ (666,945) $ - $ (26,325) $ (2,332,810)

Obligated Group

Eliminations Eliminations





FoundationJohn Knox

Village

37


Consolidating Schedule - Statement of Changes in Net Assets Information


The John SubtotalJohn Knox Knox Village Obligated

Village Foundation Group PremierLife Eliminations ConsolidatedUnrestricted Net Assets

Revenues over (under) expenses $ (929,196) $ 72,932 $ (856,264) $ 228,146 $ (50,551) $ (246,820) $ (30,443) $ (955,932)Contribution to affiliate (427,334) (427,334) 427,334 763,334 (763,334) - Transfers for fixed asset purchases and acquisitions 160,458 (160,458) - -

Increase (decrease) in unrestricted net assets (1,196,072) (87,526) (1,283,598) 655,480 (50,551) 516,514 (793,777) (955,932)

Temporarily Restricted Net AssetsContributions 80,573 80,573 80,573 Income from investments 31,291 31,291 31,291 Net assets released from restriction used for operations (385,372) (385,372) (385,372)Net change in unrealized gains on investments 85,748 85,748 85,748

Decrease in temporarily restricted net sets (187,760) (187,760) (187,760)

Permanently Restricted Net AssetsContributions 150,887 150,887 150,887

Increase in permanently restricted net assets 150,887 150,887 150,887

Increase (Decrease) in Net Assets (1,196,072) (124,399) (1,320,471) 655,480 (50,551) 516,514 (793,777) (992,805)

Net Assets, Beginning of Year 19,284,992 2,416,508 21,701,500 1,265,755 (192,578) (835,809) (111,161) 21,827,707

Net Assets, End of Year $ 18,088,920 $ 2,292,109 $ 20,381,029 $ 1,921,235 $ (243,129) $ (319,295) $ - $ (904,938) $ 20,834,902


Obligated Group



38


Consolidating Schedule - Statement of Changes in Net Assets Information


The John SubtotalJohn Knox Knox Village Obligated

Village Foundation Group PremierLife ConsolidatedUnrestricted Net Assets

Revenues over (under) expenses $ (1,798,987) $ 63,923 $ (1,735,064) $ 184,322 $ (91,078) $ (666,945) $ (26,325) $ (2,335,090)Contributions from John Knox Village Auxiliary restricted for equipment purchases 2,280 2,280 2,280 Contribution to affiliate (520,000) (520,000) 520,000 - Transfers for fixed asset purchases and acquisitions 170,079 (170,079) - -

Increase (decrease) in unrestricted net assets (2,146,628) (106,156) (2,252,784) 704,322 (91,078) (666,945) (26,325) (2,332,810)

Temporarily Restricted Net AssetsNet asset reclassification due to change in law 7,375 7,375 7,375 Contributions 205,669 205,669 205,669 Income from investments 34,317 34,317 34,317 Net assets released from restriction used for operations (313,605) (313,605) (313,605)Net change in unrealized gains on investments 232,350 232,350 232,350

Increase in temporarily restricted net sets 166,106 166,106 166,106

Permanently Restricted Net AssetsContributions 30,428 30,428 30,428

Increase in permanently restricted net assets 30,428 30,428 30,428

Increase (Decrease) in Net Assets (2,146,628) 90,378 (2,056,250) 704,322 (91,078) (666,945) (26,325) (2,136,276)

Net Assets, Beginning of Year 21,431,620 2,326,130 23,757,750 561,433 (101,500) (168,864) (84,836) 23,963,983

Net Assets, End of Year $ 19,284,992 $ 2,416,508 $ 21,701,500 $ 1,265,755 $ (192,578) $ (835,809) $ - $ (111,161) $ 21,827,707

PremierLife Real Estate Holdings Eliminations

Obligated Group



39

john villagejohn knox village, while showing success in entrance fee sales for the year with 160...

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