LAGUNA WOODS MUTUAL NO. FIFTY. Financial Statements and Supplementary Information. December 31, 2015 and 2014

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1 Financial Statements and Supplementary Information (With Independent Auditors Report Thereon)

2 Table of Contents Page Independent Auditors Report 1 Balance Sheets 3 Statements of Operations 4 Statements of Comprehensive Income 5 Statements of Changes in Members Equity 6 Statements of Cash Flows 7 Notes to Financial Statements 8 Supplementary Information Schedule 1 Schedules of Expenses 18 Schedule 2 Future Major Repairs and Replacements 19

3 KPMG LLP Suite Pacifica Irvine, CA Independent Auditors Report The Board of Directors Laguna Woods Mutual No. Fifty: Report on the Financial Statements We have audited the accompanying financial statements of Laguna Woods Mutual No. Fifty (the Mutual), which comprise the balance sheets as of, and the related statements of operations, comprehensive income, changes in members equity, and cash flows for the years 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 U.S. generally accepted accounting principles; 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. Auditors Responsibility 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 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 auditors 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, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Laguna Woods Mutual No. Fifty as of, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the information included in schedule 2 on future major repairs and replacements be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information included in schedule 1 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Irvine, California April 15,

5 Balance Sheets Assets Current assets: Assessments receivable, net of allowance for doubtful accounts of $308,354 in 2015 and $554,572 in 2014 $ 25,993 2,259 Accounts and accrued interest receivable, net 38,599 35,884 Prepaid expenses 18,966 34,840 Receivable from Golden Rain Foundation of Laguna Woods 74,998 Total current assets 158,556 72,983 Restricted cash and investments (note 3) 3,627,652 4,029,239 Rental property, equipment and improvements, at cost 515, ,126 Less accumulated depreciation (458,082) (445,860) Rental property, equipment and improvements, net 57,790 67,266 Beneficial interest in Golden Rain Foundation of Laguna Hills Trust 276, ,890 Interest in Golden Rain Foundation of Laguna Woods 1,868,678 1,800,859 Total assets $ 5,989,430 6,254,237 Liabilities and Members Equity Liabilities: Accounts payable and accrued expenses $ 862, ,557 Payable to Golden Rain Foundation of Laguna Woods 111,148 Income tax payable 49,824 53,383 Member assessments paid in advance and deposits 132, ,074 Total liabilities 1,045,490 1,049,162 Members equity 4,943,940 5,205,075 Total liabilities and members equity $ 5,989,430 6,254,237 See accompanying notes to financial statements. 3

6 Statements of Operations Years ended Revenue: Member assessments: Operating $ 5,754,156 5,769,849 Golden Rain Foundation of Laguna Woods restricted funds 123, ,156 Restricted funds 910, ,068 Total member assessments 6,787,920 6,449,073 Other revenue: Interest income 31,489 32,377 Multiple resident charges 318, ,180 Rental income 552, ,475 Mutual shared operating revenue 20,590 19,823 Food services 154, ,735 Miscellaneous 170, ,029 Total other revenue 1,247,899 1,436,619 Total revenue 8,035,819 7,885,692 Expenses: Direct Mutual operating expenses 2,656,677 2,990,725 Golden Rain Foundation of Laguna Woods and Mutual shared operating expenses 1,045,908 1,175,314 Expenses paid from restricted funds 1,340, ,453 Payments to Golden Rain Foundation of Laguna Woods restricted funds 123, ,156 Food services 2,340,787 2,300,277 Housekeeping 556, ,741 Income tax provision (note 4) 271, ,922 Total expenses 8,335,021 7,805,588 Net (loss) income before other changes (299,202) 80,104 Other changes: Unrealized gain in interest in Golden Rain Foundation of Laguna Woods 67,819 39,136 Unrealized (loss) gain on available for sale manors (2,732) 44,185 Loss from beneficial interest in Golden Rain Foundation of Laguna Hills Trust (7,136) (7,577) Net (loss) income $ (241,251) 155,848 See accompanying notes to financial statements. 4

7 Statements of Comprehensive Income Years ended Net (loss) income $ (241,251) 155,848 Other comprehensive (loss) income: Unrealized (loss) gain on available-for-sale investments arising during the year (19,884) 12,391 Comprehensive (loss) income $ (261,135) 168,239 See accompanying notes to financial statements. 5

8 Statements of Changes in Members Equity Years ended Total Memberships members Number Amount Changes equity Members equity, December 31, $ 139,950 4,896,886 5,036,836 Net income 155, ,848 Unrealized gain on available-for-sale investments, net 12,391 12,391 Members equity, December 31, ,950 5,065,125 5,205,075 Net loss (241,251) (241,251) Unrealized loss on available-for-sale investments, net (19,884) (19,884) Members equity, December 31, $ 139,950 4,803,990 4,943,940 See accompanying notes to financial statements. 6

9 Statements of Cash Flows Years ended Cash flows from operating activities: Net income (loss) $ (241,251) 155,848 Adjustments to reconcile net income to net cash (used in) provided by during the year Depreciation and amortization 12,223 12,738 Loss from beneficial interest in Golden Rain Foundation of Laguna Hills Trust 7,136 7,577 Unrealized gain in voting interest in Golden Rain Foundation of Laguna Woods (67,819) (39,136) Unrealized loss (gain) on available-for-sale manors 2,732 (44,185) Amortization of investment premium and discount, net (1,153) 5,167 Realized losses, net on disposal of rental property 34,189 Effect of changes in operating assets and liabilities: Accounts and accrued interest receivable (2,715) (23,591) Assessments receivable (23,734) 5,432 Prepaid expenses 15, Receivable from Golden Rain Foundation of Laguna Woods (74,998) Income taxes receivable 34,922 Income taxes payable (3,559) Accounts payable and accrued expenses 123,325 54,883 Payable to Golden Rain Foundation of Laguna Woods (111,148) (134,120) Member assessments paid in advance and deposits (12,290) 32,944 Net cash (used in) provided by operating activities (377,377) 103,201 Cash flows from investing activities: Proceeds from sale of available-for-sale rental units 903 Cost to acquire rental property (5,478) Purchase of held-to-maturity investments (499,761) Proceeds from maturities of held-to-maturity investments 499, ,000 Purchases of available-for-sale investments (251,790) (214,130) Proceeds from available-for-sale investments 261, ,317 Deposits to (withdrawals from) restricted funds, net 373,240 (556,786) Net cash provide by (used in) investing activities 377,377 (113,696) Net decrease in cash and cash equivalents (10,496) Cash and cash equivalents, beginning of year 10,496 Cash and cash equivalents, end of year $ See accompanying notes to financial statements. 7

10 Notes to Financial Statements (1) Organization (a) General Laguna Woods Mutual No. Fifty (the Mutual), a nonprofit Mutual benefit corporation, was formed in 1969 to manage, operate, and maintain a 311-unit residential condominium development (manors and common property) for the benefit of its owners/members. This common interest development is part of Laguna Woods Village, Laguna Woods, California (the Village), a housing development consisting of 12,736 manors and various community facilities. The Mutual is a corporate member of Golden Rain Foundation of Laguna Woods (GRF), a nonprofit Mutual benefit corporation. The individual Mutual members have a right to the use of facilities owned or held in trust by GRF appurtenant to their membership in the Mutual. GRF, as trustee, holds title to certain community facilities in trust for the benefit of all Mutual associations that are a part of the Village (the Village Mutuals). (b) Assessments and Management Fees The Mutual receives, on a monthly basis, assessments from its members (member assessments) to conduct its operations. All members of the Mutual, as part of their basic monthly assessments, pay for daily dinner in the common area dining room as well as a weekly basic cleaning service. For 2015 and 2014, respectively, the members were assessed basic monthly member assessments of $1, and $1, per manor per month, for direct and Mutual shared operating costs, costs related to food services, Mutual reserve contributions, and GRF shared operating expenses and restricted funds. Each member s basic monthly member assessment does not include housekeeping, electricity, and gas costs related to their manor. Optional food and housekeeping services are also available to members for additional fees. Total amounts assessed to the members of the Mutual for direct and Mutual shared operating costs, Mutual reserve contributions, food services, and manor-specific costs and GRF shared operating expenses and restricted funds were $6,787,920 and $6,449,073 in 2015 and 2014, respectively. In addition, Professional Community Management (PCM), an unaffiliated California corporation, received a management fee from the Mutual totaling $7,688 and $6,910, for the years ended, respectively. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. (b) Revenue Recognition Revenue is recorded when services are rendered. Amounts collected in advance are recorded as member assessments paid in advance and deposits. 8 (Continued)

11 Notes to Financial Statements (c) Comprehensive Income Accounting Standards Codification (ASC) 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income. Comprehensive income is defined as all changes in an entity s equity, except changes resulting from transactions with owners. It differs from net income, in which certain items currently recorded to equity would be part of comprehensive income. Changes in accumulated other comprehensive income was as follows for 2015 and 2014: Unrealized gains/losses on securities, net Ending balance, December 31, 2013 $ (8,900) Other comprehensive income 12,391 Ending balance, December 31, ,491 Other comprehensive loss (19,884) Ending balance, December 31, 2015 $ (16,393) (d) (e) Cash and Cash Equivalents For purposes of reporting cash flows, the Mutual considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Investments and Restricted Cash and Investments Investments and restricted cash and investments are accounted for under the provisions of ASC 320, Investments Debt and Equity Securities. This statement requires the Mutual to classify and account for investments in equity securities that have readily determinable fair values and for all debt securities into three categories: (1) debt securities that the Mutual has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost; (2) debt and equity securities that are bought and are held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; and (3) debt and equity securities not classified as held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income. The Mutual restricts a portion of member assessments to finance reserves set aside and reported as restricted funds. Disbursements from the restricted funds may be made only in accordance with the purpose established. Interest income earned on restricted funds is retained within the respective fund. Additions to the funds are determined each year as outlined in the annual business plan. (f) Fair Value Measurements The Mutual follows the provisions of ASC 820, Fair Value Measurements (ASC 820), for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a 9 (Continued)

12 Notes to Financial Statements recurring basis. ASC 820 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. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements (note 3). (g) (h) (i) Future Major Repairs and Replacements A study was conducted in 2015 to estimate the remaining useful lives and current replacement costs of certain major components of common property. This study also considered future replacement costs of these certain major components of common property based on the estimated useful lives, assuming a 2.5% inflation factor. The board of directors has a policy to plan additional funds contributions over the estimated useful lives of the components (on a current-cost basis) based on an annual analysis of the adequacy of the funds. Under the assumption that the buildings would not be completely replaced within the next 30 years, replacement funds are not provided for those corporate and community facilities. Actual replacement costs when expended may vary from the estimated future expenditures considered in the fund analysis, and the variations may be material. If additional moneys are needed, the Mutual has the right to adjust the monthly assessment, impose special assessments, or delay expenditures, as appropriate. Equipment and Improvements The cost of equipment and improvements is being depreciated on the straight-line method over estimated useful lives of 5 to 40 years. Interests in Golden Rain Foundation of Laguna Woods and Golden Rain Foundation of Laguna Hills Trust The Mutual reports its approximately 2.4% interest in GRF based on the non-trust net assets of GRF to reflect the influence the Mutual exercises over GRF through its voting interest in accordance with ASC 323, Investments Equity Method and Joint Ventures. Such interest totaled $1,868,678 and $1,800,859 at, respectively. The Mutual also has a beneficial interest in Golden Rain Foundation of Laguna Hills Trust (the GRF Trust), which holds certain community facilities in trust for the Village Mutuals. The Mutual s beneficial interest is calculated based on the Mutual s trusteed sums, defined as the original contribution amounts as stated in the trust agreement, and totals $276,754 and $283,890 at, respectively. 10 (Continued)

13 Notes to Financial Statements Laguna Woods Mutual No. Fifty s interest in the Golden Rain Foundation and Golden Rain Foundation Trust consists of its respective ownership of the following: December Cash and cash equivalents $ 4,842,980 8,588,468 Receivables 1,746,222 2,247,410 Other current assets 1,846,524 1,788,984 Restricted cash and investments 28,743,323 23,307,822 Property and equipment, net 46,007,621 47,611,597 Community facilities, net 12,615,270 13,013,902 Other long-term assets 420, ,989 Total assets $ 96,222,727 97,025,172 Accounts payable and accrued liabilities $ 5,127,856 7,588,824 Deferred income 481, ,436 Long-term debt 1,383,253 2,159,522 Total liabilities 6,992,629 10,088,782 Member s equity in Golden Rain Foundation of Laguna Woods 76,440,689 73,748,349 Noncontrolling interest in consolidated trust 12,789,409 13,188,041 Total equity 89,230,098 86,936,390 Total liabilities and equity $ 96,222,727 97,025,172 Laguna Woods Mutual No. Fifty s 2.4% interest in Golden Rain Foundation of Laguna Woods $ 1,868,678 1,800,859 (j) (k) Income Taxes The Mutual provides for income taxes in accordance with ASC 740, Income Taxes, ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise s financial statements and prescribes a threshold of more likely than not for recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return. ASC 740 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. Management believes that no uncertain tax positions requiring accrual or disclosure existed at. The open years for federal and state tax assessments are for federal and for California. Concentration of Credit Risk The Mutual had restricted cash balances of $2,449,094 and $2,822,334 at December 31, 2015 and 2014, respectively, maintained in a commercial bank and consists of cash on deposit. At December 31, 2015, all noninterest-bearing deposit transaction accounts are insured by the Federal Deposit Insurance 11 (Continued)

14 Notes to Financial Statements Corporation up to a maximum of $250,000 per depositor, per insured bank, for each account ownership category. The Mutual also maintained a money market fund of $52,542 and $12,734 at December 31, 2015 and 2014, respectively, which are insured by the Securities Investor Protection Corporation up to a maximum of $500,000 per institution. (l) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (3) Cash and Cash Equivalents and Restricted Cash and Investments The Mutual s restricted cash and investments are presented as follows on the accompanying balance sheet at : December Restricted cash $ 2,449,094 2,822,334 Available for sale (at fair value): U.S. Treasury notes 559, ,074 GNMAs 619, ,831 Total restricted funds $ 3,627,652 4,029,239 The Mutual follows the provisions of ASC 820 for fair value measurements for financial assets and liabilities that are recognized at fair value in the financial statements on a recurring basis. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical investments that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the investment, either directly or indirectly. Level 3 inputs are unobservable inputs for the investment. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level of input that is significant to the fair value measurement. 12 (Continued)

15 Notes to Financial Statements The Mutual s cash and cash equivalents and restricted cash and investments that are measured at fair value on a recurring basis as reflected on the accompanying balance sheets at are as follows: Level 1 Level 2 Total Restricted cash and investments: Restricted cash $ 2,449,094 2,449,094 Available for sale: U.S. Treasury notes 559, ,455 Government National Mortgage Association securities 619, ,103 Total restricted cash and investments $ 2,449,094 1,178,558 3,627,652 Level 1 Level 2 Total Restricted cash and investments: Restricted cash $ 2,822,334 2,822,334 Available for sale: U.S. Treasury notes 442, ,074 Government National Mortgage Association securities 764, ,831 Total restricted cash and investments $ 2,822,334 1,206,905 4,029,239 The Mutual had no held-to-maturity investments at, respectively. The Mutual s investments and restricted funds are classified as either available-for-sale or held-to-maturity, as applicable, and are summarized as follows: December 31, 2015 Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value Available-for-sale $ 1,194,951 (16,393) 1,178,558 December 31, 2014 Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value Available-for-sale $ 1,203,414 3,491 1,206, (Continued)

16 Notes to Financial Statements For the valuation of investments, the Mutual used significant other observable inputs, particularly dealer market prices for comparable investments as of the valuation date or and are, therefore, classified as Level 2 securities in the fair value hierarchy. There were no significant transfers into or out of Level 3 for the years ended. Investments as of have the following scheduled maturities: December 31, 2015 Amortized Estimated Available for sale cost fair value One to five years $ 391, ,663 Five to ten years 275, ,821 More than ten years 528, ,074 $ 1,194,951 1,178,558 December 31, 2014 Amortized Estimated Available for sale cost fair value One to five years $ 216, ,915 Five to ten years 250, ,235 More than ten years 736, ,755 $ 1,203,414 1,206,905 The Mutual determines realized gains and losses based on the specific-identification method. There were no sales of available-for-sale investments in 2015 and Restricted cash and investments consist of the following reserve funds: Replacement reserves General equipment Capital Preventive Facilities Replacement depreciation equipment maintenance renovation Contingency funds fund fund fund fund fund Total Balance, December 31, 2013 $ 2,700, ,311 33, , , ,072 3,907,416 Member assessments 481,428 74, ,068 Net investment income and other 20,500 3, ,563 1,055 1,564 29,208 Expenditures (319,341) (144,112) (463,453) Balance, December 31, ,883, ,592 33, , , ,164 4,029,239 Member assessments 798, , ,608 Net investment income and other 20,297 3, , ,207 28,191 Expenditures (1,150,429) (189,957) (1,340,386) Balance, December 31, 2015 $ 2,551, ,664 34, , ,200 79,374 3,627, (Continued)

17 Notes to Financial Statements (a) Replacement Reserves Replacement Funds Replacement funds were established to provide funds for replacement of asphalt surfaces, roofs, elevators, and certain equipment that were originally included in the cost of individual manors purchased by the residents. Member assessments for this fund are included in restricted funds member assessments in the accompanying statements of operations. (4) Income Taxes General Equipment Depreciation Fund The general equipment depreciation fund was established to provide funds to replace existing equipment. Capital Equipment Fund The capital equipment fund was established to provide funds to purchase additional equipment as required. Preventive Maintenance Fund The preventive maintenance fund was established to provide funds for relatively large expenditures in the preventive maintenance of buildings, including painting and waterproofing buildings, carports, and balconies. Facilities Renovation Fund The facilities renovation fund was established to provide improvements to common property. Contingency Fund The contingency fund is used for the repair or replacement of Mutual assets damaged by uninsured or unexpected disasters in addition to providing for unanticipated significant expenditures not otherwise identified in the business plan. Member assessments for the contingency fund were included in restricted funds member assessments in the accompanying statements of operations. The Mutual is considered a homeowners association for federal and state income tax purposes and is liable for tax on nonincidental business income. Such nonincidental business income includes interest earned on association funds, association-owned manor rental revenue, recycling revenue, cell phone antenna rental revenue, and miscellaneous merchandise sales revenue. The provision for income taxes for the years ended consists of the following: Federal taxes current $ 214, ,094 State taxes current 57,355 46,828 $ 271, , (Continued)

18 Notes to Financial Statements At, the Mutual has IRC Section 277 excess expenses of $1,047,366 and $105,772 that may be used to offset federal net member income in future years. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below: Deferred tax assets: IRC Section 277 loss carryforwards $ 356,104 35,962 Total gross deferred tax assets 356,104 35,962 Less valuation allowance (356,104) (35,962) Net deferred tax assets $ The valuation allowance for deferred tax assets as of was $356,104 and $35,962, respectively. The net change in the total valuation allowance for the years ended December 31, 2015 and 2014 was an increase of $320,142 and $35,962, respectively. Based upon the level of historical taxable income and projections for future taxable income over periods, which the deferred tax assets are deductible, management believes it is more likely than not the Company will not realize the benefits of the deductible differences. As such, the Company recorded a full valuation allowance against the deferred tax assets at. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income primarily as a result of the increase to the valuation allowance, the variance in tax rates applied to temporary differences in the prior and current years, and other minor adjustments. (5) Pension Plans PCM, Inc. makes contributions to two union-sponsored, multiemployer defined-benefit pension plans (covering most union employees) in accordance with a negotiated labor contract between PCM, Inc. and the labor union. In the event either this plan is terminated or PCM, Inc. withdraws from the plan, PCM, Inc. may be required to contribute additional amounts under the provisions of the Employee Retirement Income Security Act of Such amounts would be reimbursed by GRF and the Village Mutuals. However, no such termination of or withdrawal from the plan is currently contemplated. During 2015, PCM, Inc. sponsored a 401(k) plan covering all eligible employees. Employee contributions to the plan are at the participants discretion. In 2015, PCM, Inc. made contributions to the plan for eligible nonunion employee participants. The Village Mutuals and GRF are not responsible for the management or ultimate funding of the 401(k) plan beyond the agreed-upon annual contributions. Amounts contributed by PCM, Inc. to these plans in 2015 and 2014, and reimbursed by the Company was $54,243 and $55,508 for the defined-benefit pension plan and $21,288 and $18,623, respectively, for the 401(k) plan. 16 (Continued)

19 Notes to Financial Statements (6) Contingencies The Mutual is involved in various legal matters arising in the normal course of business. In the opinion of management, the liability, if any, will not have a material effect on the Mutual s financial position. (7) Subsequent Events Subsequent events have been evaluated through April 15, 2016, which is the date the financial statements were available to be issued. 17

20 SUPPLEMENTARY INFORMATION

21 Schedules of Expenses Years ended Schedule Direct Mutual operating expenses: Building and maintenance $ 1,218,636 1,176,149 Towers administration 426, ,208 Electricity 395, ,042 Natural gas 71,086 99,123 Sewer 77,514 73,409 Water 67,030 74,082 Telephone 8,169 7,092 Trash 18,029 18,228 Water service 18,306 17,785 Professional fees 156, ,080 Elevator maintenance 35,083 37,271 Rental unit costs 20,513 18,704 Property insurance 80,482 86,089 Property and other taxes 6,096 4,871 General maintenance 4,520 7,492 Investment expense 3,298 3,181 Depreciation 12,223 12,738 Other 36, ,181 Total direct Mutual operating expenses 2,656,677 2,990,725 Golden Rain Foundation of Laguna Woods and Mutual shared operating expenses 1,045,908 1,175,314 Expenses paid from restricted funds: Replacement funds 1,150, ,341 Contingency fund 189, ,112 Total expenses paid from restricted funds 1,340, ,453 Food services 2,340,787 2,300,277 Housekeeping 556, ,741 2,897,453 2,849,018 Payments to Golden Rain Foundation of Laguna Woods restricted funds 123, ,156 Income tax provision 271, ,922 Total expenses $ 8,335,021 7,805,588 See accompanying independent auditors report. 18

22 Future Major Repairs and Replacements December 31, 2015 (Unaudited) Schedule 2 The managing agent conducted a study in 2015, as requested by the board of directors (the Board), to estimate the remaining useful lives and current replacement costs of major components of common property, except for certain land improvements, buildings, and building improvements for which major repair and replacement funds are not provided, as these items are expected to last the life of the community or to be maintained from general operating and/or preventive maintenance funds. The estimates were determined from past experience and from information obtained from certain contractors. The following table is based on the Board s study of common property: Estimated funding Components Estimated Estimated requirement of fund Estimated remaining current as of balances as of useful lives useful lives replacement December 31, December 31, Major components (years) (years) costs Roofs/Decks $ 1,159, , ,753 Structure ,450 82,265 71,129 Paint , , ,210 Mechanical/Plumbing/Electrical ,955,700 2,049,196 1,771,800 Flooring , , ,153 Landscape/Hardscape , , ,219 Recreation facilities , , ,452 Other , , ,936 $ 8,441,411 4,195,604 3,627,652 See accompanying independent auditors report. 19