Letter from our President and CEO

October 26, 2009

Dear Resident,

In recent days, you may have heard or seen news reports about Erickson Retirement Communities’ plans to reorganize its company through a bankruptcy proceeding. This news is of particular relevance in Chicagoland, where Erickson is developing two communities- Sedgebrook in Lincolnshire and Monarch Landing in Naperville. Erickson has acknowledged that its ambitious plans for development were derailed by the challenging economy.

We wanted to take this opportunity to share with you some factual information about the steps that are taken to guard the financial integrity of Friendship Village. We hope that you will take comfort – even pride – in the fact that our organization has taken steps for many years to ensure that highly qualified outside observers are in a position to examine our finances at regular intervals:

* Friendship Village is among the 12 percent of communities nationally that submit themselves to an independent, outside review by the Continuing Care Accreditation Commission (CCAC), the only accrediting body in our field. The CCAC measures our performance against 800 measures of quality, and EACH YEAR it measures our performance against standards for financial integrity.

* We were the first Continuing Care Retirement Community (CCRC) in Illinois to earn accreditation and the only one to be re-accredited four times.  Our current accreditation extends through 2013. At our last re-accreditation in 2008, Friendship Village was cited for “exemplary conformance” in preparation of highly detailed and comprehensive reports for our investors.

* Friendship Village is among a small collection of CCRCs that seeks to have its debt rated by an outside rating service. The Fitch Bond Rating Service just RE-AFFIRMED Friendship Village’s bond rating with an “evolving” outlook. Fitch attributed the outlook to Bank of America’s desire to shift away from the senior living sector. We are seeking a lending relationship with a new banking partner.

* Friendship Village’s finances are audited annually by KPMG, a “Top Four” firm whose rulings help set “best practice” financial policy for our entire field.

* An independent actuary, A.V. Powell, reviews Friendship Village’s contract structure annually to ensure that the pricing of Entrance Fees and Monthly Service Fees supports the successful long-term operation of the community.

As you probably are aware, Friendship Village has taken a more conservative approach to growth and expansion than other organizations. We have successfully completed two phases of construction on this campus – Crosswell Trace in 2004 and Bridgewater Place/Friendship Center in 2007. Weare now in the midst of a $2 million reinvestment into the original part of our community to improve our market position and ensure that Friendship Village can easily re-selresident apartments when the time comes.

Despite the national economic crisis, Friendship Village has made steady progress both in increasing occupancy and improving its financial performance. During the most recent fiscal year, we increased the average residential living census by 9 percent – at a time when many CCRCs were losing occupancy. We did this with the active help and support of many of you, who willingly referred your friends to us.

We’re also seeing success on another front. Friendship Village’s parent company, Friendship Senior Options, is developing a new CCRC about 25 miles away called GreenFields of Geneva. Apartments have been selling briskly since June, and only 13 more sales are needed before financing can be secured to begin construction. At this point, we expect to start building GreenFields in spring and open in the summer of 2011.

Our sincere hope is that this letter gives you assurance that you made a good choice when you selected Friendship Village for your retirement future.

If you have any questions about this or any other matters, please feel free to share them at our monthly Town Hall Meetings.

Sincerely,

Robert M. Alston

President & CEO