On the second level of the St. Maria's Orphanage, turn to your left after climbing the stairs. There is a girl behind a gate there, singing itsy-bitsy spider. Approach the gate. The girl runs around and giggles, then vanishes. Open the gate, try chasing the girl, or go through the door on the south into a classroom.
Approach the blackboard. There is a picture of some chains on it. In your inventory, you should be carrying:
Blackboard Eraser
A chalkboard eraser
Use this item to erase the blackboard. The board opens into a new picture, one showing a child flying a kite, grass, and a smiling sun. A cutscene begins. You touch the blackboard, and suddenly you find yourself in some nice park scenery. A boy in front of you is flying a kite, and calls you "Daddy". He tells you to hurry up. You call to him, "Charlie". You run towards him, but you cannot catch up, and soon the scenery disappears and you are back in the grim orphanage classroom.
On one of the desks in the classroom, there is a Silent Hill Artifact - a Canvas Sack. You hear a door slamming and a girl giggling. The door through which you entered is now locked. Exit through the door to the west instead. On the edge of a long table, you find a mystery object: Preliminary Psychological Evaluation, written by Dr. Chloe Zane, attending psychiatrist.
Open the door at the west side of the room, and enter the play room. There is a beach ball here that you can kick around. Use the north door to exit the playroom. Next, open the door to the east and enter a small office. There is a radio there, as well as a first aid kit on the shelf. Locate a desk near the wall with some books on it. Open the drawers to find another mystery item, Psychological Evaluation, from St. Maria's Institute, which is added to your journal. It talks about having used electro shock therapy and isolation tank treatments on a patient with no positive results, and recommends using more aggressive treatments.
Go west, and enter the main room. There is a fire axe on the NE corner if you need one. As you start working your way to the other end, Screamers appear. Make your way around to the door on the west, which is boarded up. Break the wood using your axe, then go into the Hospice, closing the door behind you. Go west, and there are three doors in front of you, one to the west, another to the north, and the last one to the south. The south door has some red curtains which suddenly open. Enter through that door. This is a big room with a TV. On one of the small tables near some couches, you find another mystery clue. This is a condolence letter from Dr. Chloe Zane, Attending Psychiatrist at St. Maria's Institute, informing some parents of the loss of their son following a surgical procedure that went wrong. This letter is added to the journal.