FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
(MARK ONE)
                |X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999
                                       OR
              | |TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934 For
                    the transition period from ___________ to
                                  _____________
                           Commission File No. 1-9321

                                UNIVERSAL HEALTH
                               REALTY INCOME TRUST
             (Exact name of registrant as specified in its charter)

           Maryland                                       23-6858580
 (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                      Identification Number)

   Universal Corporate Center
      367 South Gulph Road
        P.O. Box 61558                                      19406-0958
  King of Prussia, Pennsylvania                             (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (610) 265-0688

           Securities registered pursuant to Section 12(b) of the Act:
      Title of each Class             Name of each exchange on which registered
Shares of beneficial interest,
        $.01 par value                         New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                    Yes   [x]               No   [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |

Aggregate market value of voting shares held by non-affiliates as of January 31,
2000: $139,644,750.
Number of shares of beneficial interest  outstanding of registrant as of January
31, 2000: 8,991,563.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its 2000 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1999 (incorporated by reference
under Part III).
<PAGE>

                                     PART I

         Item 1.  BUSINESS

         General

         The Trust commenced operations on December 24, 1986. As of December 31,
         1999,  the Trust had  investments in thirty-six  facilities  located in
         thirteen states consisting of the following:
<TABLE>
<CAPTION>
     Facility Name                              Location             Type of Facility                     Guarantor
----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>    <C>               <C>                         <C>
Chalmette Medical Center                    (A)   Chalmette, LA      Acute Care                   Universal Health Services, Inc.
Virtue Street Pavilion                      (A)   Chalmette, LA      Rehabilitation               Universal Health Services, Inc.
Inland Valley Regional Medical Ctr.         (A)   Wildomar, CA       Acute Care                   Universal Health Services, Inc.
McAllen Medical Center                      (A)   McAllen, TX        Acute Care                   Universal Health Services, Inc.
Meridell Achievement Center                 (A)   Austin, TX         Behavioral Health            Universal Health Services, Inc.
The Bridgeway                               (A)   N.Little Rock, AR  Behavioral Health            Universal Health Services, Inc.
Wellington Regional Medical Center          (A)   W.Palm Beach, FL   Acute Care                   Universal Health Services, Inc.
Vencor Hospital - Chicago                   (B)   Chicago, IL        Sub-Acute Care               Vencor, Inc.
Tri-State Rehabilitation Hospital           (B)   Evansville, IN     Rehabilitation               HEALTHSOUTH Corporation
Fresno Herndon Medical Plaza                (B)   Fresno, CA         Medical Office Bldg.("MOB")                   ---
Family Doctor's Medical Office Bldg.        (B)   Shreveport, LA     MOB                          Columbia/HCA Healthcare Corp.
Kelsey-Seybold Clinic at Kings Crossing     (B)   Kingwood, TX       MOB                          St. Lukes & Methodist Health Sys.
Professional Bldgs. at Kings Crossing       (B)   Kingwood, TX       MOB                                            ---
Chesterbrook Academy                        (B)   Audubon, PA        Preschool & Childcare        Nobel Education Dynamics & Subs.
Carefree Learning Center                    (B)   New Britain, PA    Preschool & Childcare        Nobel Education Dynamics & Subs.
Carefree Learning Center                    (B)   Newtown, PA        Preschool & Childcare        Nobel Education Dynamics & Subs.
Carefree Learning Center                    (B)   Uwchlan, PA        Preschool & Childcare        Nobel Education Dynamics & Subs.
Southern Crescent Center                    (B)   Riverdale, GA      MOB                                            ---
Desert Samaritan Hospital MOBs              (C)   Phoenix, AZ        MOB                                            ---
Suburban Medical Center MOBs                (D)   Louisville, KY     MOB                                            ---
Maryvale Samaritan Hospital MOBs            (E)   Phoenix, AZ        MOB                                            ---
Desert Valley Medical Center MOB            (F)   Phoenix, AZ        MOB                                            ---
Thunderbird Paseo Medical Plaza             (G)   Glendale, AZ       MOB                                            ---
Cypresswood Professional Center             (H)   Houston, TX        MOB                                            ---
Samaritan West Valley Medical Ctr.          (I)   Goodyear, AZ       MOB, Imaging Ctr.                              ---
Edwards Medical Plaza                       (F)   Phoenix, AZ        MOB                                            ---
Desert Springs Medical Plaza                (J)   Las Vegas, NV      MOB                          Quorum Health Group, Inc.
Pacifica Palms Medical Plaza                (F)   Torrance, CA       MOB                                            ---
St. Jude Heritage Health Complex            (K)   Fullerton, CA      MOB                                            ---
Rio Rancho Medical Center                   (L)   Rio Rancho, NM     MOB                                            ---
Orthopaedic Specialists of Nevada Building  (M)   Las Vegas, NV      MOB                                            ---
Santa Fe Professional Plaza                 (F)   Scottsdale, AZ     MOB                                            ---
East Mesa Medical Center                    (G)   Mesa, AZ           MOB                                            ---
Summerlin Hospital Medical Office Building  (N)   Las Vegas, NV      MOB                                            ---
Sheffield Medical Building                  (B)   Atlanta, GA        MOB                                            ---
Southern Crescent Center, II                (O)   Riverdale, GA      MOB                                            ---
<FN>
(A)  Leased to subsidiaries of Universal Health Services, Inc. ("UHS")
(B)  Real estate assets owned by the Trust and leased to an unaffiliated
     third-party or parties.
(C)  The Trust has a 61% equity interest in a limited liability company ("LLC")
     which owns the real estate assets of this facility.
(D)  The Trust has a 33% equity interest in a LLC which owns the real estate
     assets of this facility. In connection with this property, the Trust posted
     a $3.5 million standby letter of credit for the benefit of the third-party
     lending institution that provided financing which matures in August, 2000.
(E)  The Trust has a 60% interest in a LLC which owns the real estate assets of
     this facility.
(F)  The Trust has a 95% equity interest in a LLC which owns the real estate
     assets of this facility.
(G)  The Trust has a 75% equity interest in a LLC which owns the real estate
     assets of this facility.
(H)  The Trust has provided financing, which matures in August, 2002, to a
     limited partnership in which the Trust owns a 77% controlling interest. In
     connection with this investment, the Trust made a capital contribution of
     $343,000 to the limited partnership.


                                       1
<PAGE>

(I)  The Trust has a 89% equity interest in a LLC which owns the real estate
     assets of this facility
(J)  The Trust has a 99% equity interest in a LLC which owns the real estate
     assets of this facility. Tenants of this medical office building include a
     subsidiary of UHS.
(K)  The Trust has a 48% equity interest in a LLC which owns the real estate
     assets of this facility.
(L)  The Trust has a 80% equity interest in a LLC which owns the real estate
     assets of this facility.
(M)  Land leased from Valley Health Systems, LLC (a UHS subsidiary).
(N)  The Trust has a 98% equity interest in a LLC which owns the real estate
     assets of this facility. The Tenants in this multi-tenant medical office
     building include a subsidiary of UHS.
(O)  The construction on this facility is scheduled to be completed during the
     second quarter of 2000.
</FN>
</TABLE>

         In this  Annual  Report  on Form  10-K,  the term  "revenues"  does not
         include the revenues of the unconsolidated  limited liability companies
         in which the Trust has various non-controlling equity interests ranging
         from 33% to 99%. The Trust  accounts  for its share of the  income/loss
         from these investments by the equity method.

         Included  in the  Trust's  portfolio  is  ownership  of  nine  hospital
         facilities  (aggregate net investment of $131 million) which contain an
         aggregate  of 1,259  licensed  beds.  The leases  with  respect to such
         facilities comprised 80% of the Trust's 1999 revenues, have fixed terms
         with an average of 4.2 years  remaining and provide for renewal options
         for up to six five-year terms. During 1998,  wholly-owned  subsidiaries
         of Universal Health Services,  Inc. ("UHS") exercised five-year renewal
         options on four  hospitals  owned by the Trust which were  scheduled to
         expire  in 1999  through  2001.  The  leases on these  facilities  were
         renewed  at the same  lease  rates  and  terms as the  initial  leases.
         Minimum rents are payable based on the initial acquisition costs of the
         facilities  and,  with  respect  to all  facilities  other than the one
         leased to Vencor Hospital - Chicago, additional rents are payable based
         upon a  percentage  of each  facility's  revenue in excess of base year
         amounts or CPI  increases in excess of base year  amounts.  The lessees
         have rights of first  refusal to purchase  the  facilities  exercisable
         during and in most cases for 180 days after the expiration of the lease
         terms and also have  purchase  options  exercisable  upon  three to six
         months  notice at the end of each  lease  term at the  facility's  fair
         market  value.  During  1999,  the  lease on  Tri-State  Rehabilitation
         Hospital was amended and renewed for a five-year term  commencing  June
         1, 1999 and ending May 31, 2004. Pursuant to the terms of the lease, as
         amended,  the minimum rent has been increased and the  additional  rent
         provision has been eliminated.

         For the hospital  facilities  owned by the Trust, the combined ratio of
         earnings before interest, taxes,  depreciation,  amortization and lease
         and rental  expense  (EBITDAR)  to minimum  rent plus  additional  rent
         payable to the Trust was  approximately  5.0, 5.1 and 4.7 for the years
         ended  December 31,  1999,  1998 and 1997,  respectively.  The coverage
         ratio for individual  facilities varies (see "Relationship to Universal
         Health Services, Inc.").

         Pursuant to the terms of the leases with  subsidiaries  of UHS,  UHS is
         responsible  for  building  operations,   maintenance  and  renovations
         required at the seven hospital  facilities  leased from the Trust.  For
         the Trust's multi-tenant  medical office buildings,  cash reserves have
         been established to fund required building maintenance and renovations.
         Lessees  are  required  to  maintain  all  risk,  replacement  cost and
         commercial  property insurance  policies on the leased properties.  The
         Trust is one of the named  insured and believes  the leased  properties
         are adequately insured.

         Relationship to Universal Health Services, Inc.

         Leases.  As of December 31, 1999,  subsidiaries  of UHS leased seven of
         the nine hospital  facilities owned by the Trust with terms expiring in
         2000 through 2006. The leases to the subsidiaries of UHS


                                       2
<PAGE>

         are guaranteed by UHS and are cross-defaulted with one another. Each of
         the leases  contains  renewal  options of up to six five-year  periods.
         These leases  accounted  for 73% of the total  revenue of the Trust for
         the five years ended December 31, 1999 (70% for the year ended December
         31,   1999).   Including   100%  of  the  revenues   generated  at  the
         unconsolidated  LLCs in which  the Trust  has  various  non-controlling
         equity interests  ranging from 33% to 99%, the UHS leases accounted for
         52% of the combined  consolidated  and  unconsolidated  revenue for the
         five years ended December 31, 1999 (39% for the year ended December 31,
         1999).

         For the year ended December 31, 1999, one UHS facility did not generate
         sufficient EBITDAR to cover the 1999 rent expense payable to the Trust.
         The lease on this facility,  which matures in December, 2000, generated
         5% of the Trust's  1999  rental  revenue.  During the third  quarter of
         1999, the Trust recorded a $2.6 million  provision for investment  loss
         on this  facility  since  management  of the Trust  concluded  that the
         carrying-value   of  the  facility  had  been   permanently   impaired.
         Management  of the  Trust  cannot  predict  whether  the  lease  on the
         facility will be renewed, or if not renewed, on what terms the facility
         could be leased to UHS or a non-related  party (UHS is required to give
         notice  of  intent  by June 30,  2000).  All of the  Trust's  remaining
         hospital  facilities,  including the facilities operated by non-related
         parties,  had a combined  1999 EBITDAR of 5.2 times  (ranging  from 1.1
         times to 9.0  times)  the  1999  rent  expense  payable  to the  Trust.
         Management  of  the  Trust  cannot  predict  whether  the  leases  with
         subsidiaries  of UHS,  which have  renewal  options at  existing  lease
         rates,  or any of the Trust's other leases,  will be renewed at the end
         of their lease  terms.  If the leases are not renewed at their  current
         rates,  the Trust would be required to find other  operators  for those
         facilities and/or enter into leases on terms potentially less favorable
         to the Trust than the current leases.

         In recent years, an increasing  number of legislative  initiatives have
         been introduced or proposed in Congress and in state  legislatures that
         would effect major changes in the healthcare system,  either nationally
         or at the state level (see "Regulation").  In addition,  the healthcare
         industry   has  been   characterized   in  recent  years  by  increased
         competition  and  consolidation.  Management  of the Trust is unable to
         predict the effect,  if any,  these  industry  factors will have on the
         operating  results of its lessees,  including the facilities  leased to
         subsidiaries  of UHS,  or on their  ability to meet  their  obligations
         under the terms of their leases with the Trust.

         Pursuant to the terms of the leases with UHS,  the lessees  have rights
         of first  refusal to: (i) purchase  the  respective  leased  facilities
         during and for 180 days after the lease terms at the same price,  terms
         and conditions of any  third-party  offer,  or; (ii) renew the lease on
         the respective  leased  facility at the end of, and for 180 days after,
         the  lease  term at the  same  terms  and  conditions  pursuant  to any
         third-party   offer.   The  leases  also  grant  the  lessees  options,
         exercisable on at least six months  notice,  to purchase the respective
         leased  facilities  at the end of the lease term or any renewal term at
         the  facility's  then fair market  value.  The terms of the leases also
         provide  that in the event UHS  discontinues  operations  at the leased
         facility for more than one year, or elects to terminate its lease prior
         to the  expiration  of its term for prudent  business  reasons,  UHS is
         obligated  to offer a  substitution  property.  If the  Trust  does not
         accept the substitution  property offered, UHS is obligated to purchase
         the leased facility back from the Trust at a price equal to the greater
         of its then fair market  value or the original  purchase  price paid by
         the Trust. As noted below,  transactions with UHS must be approved by a
         majority  of  the   Trustees  who  are   unaffiliated   with  UHS  (the
         "Independent  Trustees").  The  purchase  options  and  rights of first
         refusal  granted to the  respective  lessees to  purchase  or lease the
         respective leased  facilities,  after the expiration of the lease term,
         may adversely  affect the Trust's  ability to sell or lease a facility,
         and may present a potential  conflict of interest between the Trust and
         UHS since the price and terms offered by a third-party are likely to be
         dependent,  in part,  upon the  financial  performance  of the facility
         during the final years of the lease term.

                                       3
<PAGE>

         Advisory  Agreement.   UHS  of  Delaware,   Inc.  (the  "Advisor"),   a
         wholly-owned subsidiary of UHS, serves as Advisor to the Trust under an
         Advisory  Agreement dated December 24, 1986 between the Advisor and the
         Trust (the "Advisory  Agreement").  Under the Advisory  Agreement,  the
         Advisor is obligated to present an investment  program to the Trust, to
         use its best  efforts to obtain  investments  suitable for such program
         (although  it is not  obligated  to present any  particular  investment
         opportunity to the Trust),  to provide  administrative  services to the
         Trust and to conduct the Trust's day-to-day  affairs. In performing its
         services  under  the  Advisory  Agreement,   the  Advisor  may  utilize
         independent  professional  services,  including  accounting,  legal and
         other  services,  for which the Advisor is  reimbursed  directly by the
         Trust.  The  Advisory  Agreement  expires on  December 31 of each year;
         however,  it is renewable by the Trust,  subject to a determination  by
         the  Independent  Trustees  that  the  Advisor's  performance  has been
         satisfactory.  The Advisory  Agreement may be terminated for any reason
         upon  sixty  days  written  notice  by the  Trust or the  Advisor.  The
         Advisory Agreement has been renewed for 2000. All transactions with UHS
         must be approved by the Independent  Trustees.  The Advisory  Agreement
         provides that the Advisor is entitled to receive an annual advisory fee
         equal to .60% of the average  invested real estate assets of the Trust,
         as derived from its  consolidated  balance  sheet from time to time. In
         addition,  the Advisor is entitled to an annual  incentive fee equal to
         20%  of  the  amount  by  which  cash  available  for  distribution  to
         shareholders  for each  year,  as defined  in the  Advisory  Agreement,
         exceeds  15% of the  Trust's  equity  as  shown on its  balance  sheet,
         determined in accordance with generally accepted accounting  principles
         without  reduction for return of capital  dividends.  No incentive fees
         were paid  during  1999,  1998 and 1997.  The  advisory  fee is payable
         quarterly,  subject  to  adjustment  at year  end  based  upon  audited
         financial statements of the Trust.

         Share  Purchase  Option.  UHS has the  option  to  purchase  shares  of
         beneficial  interest in the Trust at fair market value to maintain a 5%
         interest in the Trust.  As of December  31,  1999,  UHS owned 8% of the
         outstanding shares of beneficial interest.

         Competition

         The Trust  believes  that it is one of  thirteen  publicly  traded real
         estate  investment  trusts  (REITs)  currently  investing  primarily in
         income-producing  real estate with an  emphasis on  healthcare  related
         facilities.  The  REITs  compete  with  one  another  in  that  each is
         continually seeking attractive  investment  opportunities in healthcare
         related facilities.

         The Trust may also  compete with banks and other  companies,  including
         UHS, in the  acquisition,  leasing and financing of healthcare  related
         facilities.  In most geographical areas in which the Trust's facilities
         operate,  there are other facilities which provide services  comparable
         to those offered by the Trust's facilities,  some of which are owned by
         governmental  agencies  and  supported by tax  revenues,  and others of
         which are owned by  nonprofit  corporations  and may be  supported to a
         large extent by endowments and charitable  contributions.  Such support
         is not  available  to the  Trust's  facilities.  In  addition,  certain
         hospitals  which  are  located  in the  areas  served  by  the  Trust's
         facilities are special service hospitals  providing  medical,  surgical
         and  behavioral  health  services that are not available at the Trust's
         hospitals or other general  hospitals.  The  competitive  position of a
         hospital is to a large degree  dependent upon the number and quality of
         staff physicians. Although a physician may at any time terminate his or
         her affiliation with a hospital,  the Trust's  hospitals seek to retain
         doctors of varied specializations on its hospital staffs and to attract
         other qualified  doctors by improving  facilities and maintaining  high
         ethical and professional standards.

         The Trust's hospital facilities continue to experience a shift in payor
         mix resulting in an increase in revenues  attributable  to managed care
         payors and unfavorable  general industry trends which include pressures
         to control  healthcare costs.  Providers  participating in managed care
         programs

                                       4
<PAGE>

         agree to provide  services to patients for a discount from  established
         rates which generally  results in pricing  concessions by the providers
         and lower  margins.  Additionally,  managed  care  companies  generally
         encourage  alternatives  to  inpatient  treatment  settings  and reduce
         utilization of inpatient services. In response to increased pressure on
         revenues,  the operators of the Trust's hospital facilities continue to
         implement  cost control  programs  including  more  efficient  staffing
         standards and re-engineering of services. Pressure on operating margins
         is expected  to continue  due to,  among other  things,  the changes in
         Medicare   payments  mandated  by  the  Balanced  Budget  Act  of  1997
         ("BBA-97") which became effective October 1, 1997 and the industry-wide
         trend  towards  managed  care which  limits the  ability of the Trust's
         hospital facilities to increase their prices.

         Outpatient  treatment and diagnostic  facilities,  outpatient  surgical
         centers,  and freestanding  ambulatory surgical centers also impact the
         healthcare  marketplace.  Many of the  Trust's  facilities  continue to
         experience  an increase in outpatient  revenues  which is primarily the
         result  of  advances  in  medical   technologies   and   pharmaceutical
         improvements, which allow more services to be provided on an outpatient
         basis,  and  increased   pressure  from  Medicare,   Medicaid,   health
         maintenance  organizations  ("HMOs"),  preferred provider organizations
         ("PPOs"),  and insurers to reduce hospital stays and provide  services,
         where  possible,  on a less expensive  outpatient  basis.  The hospital
         industry  in  the  United  States,  as  well  as the  Trust's  hospital
         facilities,  continue to have  significant  unused  capacity  which has
         created  substantial  competition for patients.  Inpatient  utilization
         continues to be negatively  affected by  payor-required,  pre-admission
         authorization  and  by  payor  pressure  to  maximize   outpatient  and
         alternative healthcare delivery services for less acutely ill patients.
         The Trust  expects its hospital  facilities  to continue to  experience
         increased competition, admission constraints and payor pressures.

         A large  portion  of the  Trust's  non-hospital  properties  consist of
         medical  office  buildings  which are located either close to or on the
         campuses of hospital  facilities.  These properties are either directly
         or  indirectly  affected  by the  factors  discussed  above  as well as
         general  real  estate  factors  such as the supply and demand of office
         space and market rental rates.

         The  Trust  anticipates  investing  in  additional  healthcare  related
         facilities and leasing the facilities to qualified  operators,  perhaps
         including UHS and subsidiaries of UHS.

         Regulation

         The Medicare program  reimburses the operators of the Trust's hospitals
         primarily  based on  established  rates by a  diagnosis  related  group
         ("DRG")  for  acute  care  hospitals  and by  cost  based  formula  for
         behavioral health facilities. Historically, rates paid under Medicare's
         prospective   payment  system  ("PPS")  for  inpatient   services  have
         increased, however, these increases have been less than cost increases.
         Pursuant to the terms of BBA-97,  there were no  increases in the rates
         paid to hospitals  for  inpatient  care through  September 30, 1998 and
         reimbursement  for bad debt expense and capital  costs as well as other
         items have been reduced.  Inpatient  operating  payment rates increased
         0.5% for the period of  October 1, 1998  through  September  30,  1999,
         however,  the modest rate increase was less than inflation and was more
         than  offset by the  negative  impact of  converting  reimbursement  on
         skilled nursing facility patients from a cost based  reimbursement to a
         prospective  payment  system  and from  lower DRG  payments  on certain
         patient transfers mandated by BBA-97. Inpatient operating payment rates
         were increased 1.1% for the period of October 1, 1999 through September
         30, 2000,  however,  the modest increase was less than inflation and is
         expected to be more than offset by the  negative  impact of  increasing
         the qualification threshold for additional payments for treating costly
         inpatient cases (outliers).  Payments for Medicare  outpatient services
         historically  have  been  paid  based  on  costs,  subject  to  certain
         adjustments and limits. BBA-97 requires that payment for those services
         be converted to PPS. The Health Care Financing

                                       5
<PAGE>

         Administration's  current plan is to implement PPS for  outpatients  by
         July 1, 2000,  however,  there is a possibility that outpatient PPS may
         be  delayed  until  January,   2001.  Since  final  provisions  of  the
         outpatient  Medicare PPS are not yet  available,  the  operators of the
         Trust's facilities can not completely  estimate the resulting impact on
         their  future  results  of  operations.  The Trust  expects  continuing
         pressure to limit  expenditures  by governmental  healthcare  programs.
         Further  changes  in  the  Medicare  or  Medicaid  programs  and  other
         proposals to limit  healthcare  spending could have a material  adverse
         impact on the  operating  results  of the  Trust's  facilities  and the
         healthcare industry.

         In  addition  to the  Medicare  and  Medicaid  programs,  other  payors
         continue to actively  negotiate  the amounts they will pay for services
         performed.  In general,  the operators of the Trust's facilities expect
         to continue to  experience  an increase in business  from  managed care
         programs,  including HMOs and PPOs.  The  consequent  growth in managed
         care  networks  and the  resulting  impact  of  these  networks  on the
         operating  results of the Trust's  facilities vary among the markets in
         which the Trust's facilities operate.



















                                       6
<PAGE>


                      Executive Officers of the Registrant

          Name                       Age      Position

         Alan B. Miller              62       Chairman of the Board and
                                              Chief Executive Officer

         Kirk E. Gorman              49       President, Chief Financial
                                               Officer, Secretary and Trustee

         Charles F. Boyle            40       Vice President and Controller

         Cheryl K. Ramagano          37       Vice President and Treasurer

         Timothy J. Fowler           44       Vice President, Acquisition
                                               and Development

         Alan C. Hale                32       Vice President, Acquisition
                                               and Development

         Mr. Alan B. Miller has been  Chairman of the Board and Chief  Executive
         Officer  of the  Trust  since  its  inception  in 1986.  He  served  as
         President of the Trust until March,  1990. Mr. Miller has been Chairman
         of the Board,  President and Chief  Executive  Officer of UHS since its
         inception  in 1978.  Mr.  Miller also serves as a director of CDI Corp.
         and Penn Mutual Life Insurance Company.

         Mr. Kirk E. Gorman has been  President and Chief  Financial  Officer of
         the Trust  since  March,  1990 and was elected to the Board of Trustees
         and Secretary in December,  1994. Mr. Gorman had  previously  served as
         Vice  President and Chief  Financial  Officer of the Trust since April,
         1987. Mr. Gorman was elected Senior Vice President, Treasurer and Chief
         Financial  Officer  of UHS in  1992  and  served  as  its  Senior  Vice
         President and Treasurer since 1989.

         Mr.  Charles F. Boyle was elected Vice  President and Controller of the
         Trust in June, 1991. Mr. Boyle was promoted to Assistant Vice President
         -  Corporate  Accounting  of UHS in 1994 and served as its  Director of
         Corporate Accounting since 1989.

         Ms. Cheryl K. Ramagano was elected Vice  President and Treasurer of the
         Trust in  September,  1992.  Ms.  Ramagano  was  promoted to  Assistant
         Treasurer  of UHS in 1994 and served as its  Director of Finance  since
         1990.

         Mr.  Timothy J.  Fowler was elected  Vice  President,  Acquisition  and
         Development of the Trust upon the  commencement  of his employment with
         UHS in October,  1993. Prior thereto,  he served as a Vice President of
         The Chase Manhattan Bank, N.A. since 1986.

         Mr.  Alan  C.  Hale  was  elected  Vice   President,   Acquisition  and
         Development,  of the Trust in October,  1998.  Mr. Hale had  previously
         served  as  Vice  President,  Acquisition  and  Development,  for  UHS,
         Ambulatory Services Division,  since the commencement of his employment
         with UHS in November, 1996. Prior thereto, he served as Vice President,
         Acquisition and Development for EquiMed, Inc. since 1994.

            The Trust's officers are all employees of UHS and as of December 31,
         1999, the Trust had no salaried  employees.  In both 1999 and 2000, the
         Trustees  awarded a $50,000  bonus to Mr.  Kirk E.  Gorman,  President,
         Chief Financial  Officer,  Secretary and Trustee of the Trust. Also, in
         both 1999 and 2000,  UHS agreed to a $50,000  reduction in the advisory
         fee paid by the Trust.



                                       7
<PAGE>

Item 2. Properties

The following table shows the Trust's  investments in hospital facilities leased
to Universal Health Services,  Inc. and other non-related  parties. The table on
the next page provides  information  related to various  properties in which the
Trust has significant investments, some of which are accounted for by the equity
method.  The  capacity in terms of beds (for the  hospital  facilities)  and the
five-year occupancy levels are based on information provided by the lessees.
<TABLE>
<CAPTION>
                                                                                                                Lease Term
                                                                                                      -----------------------------
                                              Number of                                                           End of
                                              available            Average Occupancy (1)                        initial    Renewal
Hospital Facility               Type of        beds @      ----------------------------------------   Minimum    or renewed   term
 Name and Location             facility       12/31/99     1999     1998     1997     1996     1995     rent        term     (years)
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                 <C>        <C>     <C>      <C>      <C>      <C>    <C>             <C>       <C>
Chalmette Medical Centers
  Virtue Street Pavilion (3)  Rehabilitation      45        61%     63%      64%      61%      57%   $1,261,000       2004      25
  Chalmette Medical Center    Acute Care         118        65%     61%      64%      66%      67%    1,229,000       2003      15
  Chalmette, Louisiana (2)

Inland Valley Regional
  Medical Center              Acute Care          80        68%     60%      52%      49%      49%    1,857,000       2006      30
  Wildomar, California (3)

McAllen Medical Center        Acute Care         472        69%     69%      76%      88%      87%    5,485,000       2001      30
  McAllen, Texas (3)

Wellington Regional
  Medical Center              Acute Care         120        41%     37%      36%      36%      30%    2,495,000       2006      30
  West Palm Beach,
  Florida (3)

The BridgeWay                 Behavioral Health   70        78%     79%      68%      62%      65%      683,000       2004      25
  North Little Rock,
  Arkansas (3)

Meridell Achievement Center   Behavioral Health  114        49%     53%      47%      45%      65%    1,071,000       2000      20
  Austin, Texas

Tri-State Regional
  Rehabilitation Hospital     Rehabilitation      80        74%     82%      74%      59%      59%    1,206,000       2004      20
  Evansville, Indiana (4)

Vencor Hospital               Sub-Acute Care     114        46%     42%      50%      45%      38%    1,179,000       2001      25
  Chicago, Illinois (5)


                                                                 8
<PAGE>

Item 2. Properties (continued)


                                                                                                         Lease Term
                                                                                             -------------------------------------
                                                                                                         End of
                                                         Average Occupancy (1)                           initial           Renewal
Hospital Facility               Type of          ----------------------------------------     Minimum   or renewed          term
 Name and Location             facility          1999     1998     1997     1996     1995       rent       term            (years)
----------------------------------------------------------------------------------------------------------------------------------

Fresno - Herndon Medical
   Plaza                      Medical            100%      100%    100%      100%    100%    $688,000    2000 -2003        various
   Fresno, California (6)     Office Building

Kelsey-Seybold Clinic
  at King's Crossing                             100%      100%    100%      100%    100%     264,000       2005             10
Professional Center           Medical
   at King's Crossing         Office Buildings   100%      100%    100%       93%    100%     295,000    2000 -2005        various
   Kingwood, Texas (7)

The Southern Crescent
   Center I                   Medical            100%      100%    100%       89%      -      628,000    2000 -2006        various
   Riverdale, Georgia (8)     Office Building

The Cypresswood Professional  Medical
   Center Spring, Texas (9)   Office Building    100%      100%     96%        -       -      545,000    2002 -2007        various


Desert Springs Medical Plaza  Medical             99%      100%      -         -       -    1,655,000     2000-2006        various
   Las Vegas, Nevada (10)     Office Building

Orthopaedic Specialists
   of Nevada Las Vegas,       Medical            100%        -       -         -       -      183,000    Bldg. 2009          20
   Nevada (11)                Office Building                                                  20,000    Ground 2049   non-renewable

Sheffield Medical Office
   Building                   Medical             90%        -       -         -       -    1,371,000     2000-2012        various
   Atlanta, Georgia (12)      Office Building

The Southern Crescent
   Center II                  Medical            N/A         -       -         -       -      415,000       2010             10
   Atlanta, Georgia (13)      Office Building
</TABLE>



                                                                 9
<PAGE>

         (1) Average occupancy rate for the hospital  facilities is based on the
         average number of available  beds occupied  during the five years ended
         December 31, 1999. Average occupancy rate for the multi-tenant  medical
         office  buildings  is  based on the  occupied  square  footage  of each
         building.  See  "Management's  Discussion  and  Analysis  of  Financial
         Condition and Results of Operations"  for effects of various  occupancy
         levels at the Trust's hospital  facilities.  Average  available beds is
         the number of beds which are  actually in service at any given time for
         immediate patient use with the necessary  equipment and staff available
         for patient  care.  A hospital may have  appropriate  licenses for more
         beds than are in service  for a number of  reasons,  including  lack of
         demand, incomplete construction, and anticipation of future needs.

          (2) The operations of The Virtue Street Pavilion and Chalmette Medical
         Center,  two facilities which are separated by approximately  one mile,
         were combined at the end of 1989. Each facility is leased pursuant to a
         separate  lease.  The Chalmette  Medical  Center  facility is a 122-bed
         medical/surgical   facility.   The  Virtue  Street  Pavilion  is  a  73
         licensed-bed  facility  made  up  of a  physical  rehabilitation  unit,
         skilled nursing and inpatient  behavioral health services.  In December
         of 1994,  the  operator of the Virtue  Street  Pavilion  entered into a
         three year sub-lease  agreement with Lifecare Hospitals of New Orleans,
         LLC ("Lifecare"),  for a portion of the facility. Annual rental is $1.1
         million under the provisions of this  agreement.  The sub-lease,  which
         expires in December,  2000,  contains  one three year  extension at the
         lessee's  option.  Management of the Trust can not predict  whether the
         sub-lease  agreement  with  Lifecare  will be renewed at the end of the
         initial term.  No assurance can be given as to the effect,  if any, the
         consolidation  of the two  facilities  as mentioned  above,  had on the
         underlying  value of the Virtue Street  Pavilion and Chalmette  Medical
         Center.  Rental commitments and the guarantee by UHS under the existing
         leases  continue  for the  remainder  of the  respective  terms  of the
         leases.  In October,  1999,  the Trust  purchased $3.2 million of newly
         constructed acute care capacity at Chalmette Medical Center including a
         new  operating  room and stat lab,  16 beds and  administrative  space.
         Under  the  existing  lease  terms,  base  rent  on this  facility  was
         increased by $308,000 per year as a result of this additional purchase.

          (3) During 1998, wholly-owned  subsidiaries of UHS exercised five-year
         renewal  options  on four  hospitals  owned  by the  Trust  which  were
         scheduled to expire in 1999 through 2001 (Virtue Street  Pavilion,  The
         Bridgeway, Inland Valley Regional Medical Center and Wellington Medical
         Center).  The leases on these facilities were renewed at the same lease
         rates  and  terms  as the  initial  leases.  As  part  of  the  renewal
         agreement, the Trust also agreed to grant additional fixed rate renewal
         options to a  wholly-owned  subsidiary of UHS commencing in 2022 on the
         real property of McAllen Medical Center.

          (4) Tri-State  Regional  Rehabilitation  Hospital was purchased by the
         Trust in 1989 at which time the Trust  entered into an  agreement  with
         the operator, an unaffiliated third-party, to lease the facility for an
         initial fixed term of 10 years,  with the operator having the option to
         extend the lease for five  five-year  renewal  terms.  During 1999, the
         lease on this  facility  was amended  and renewed for a five-year  term
         commencing on June 1, 1999 and ending on May 31, 2004.  Pursuant to the
         terms of the lease as amended,  the minimum rent has been increased and
         the additional rent provision has been eliminated.

          (5) During  December of 1993,  UHS, the former  lessee and operator of
         Belmont  Community  Hospital,  sold the  operations  of the facility to
         THC-Chicago,  Inc.,  an indirect  wholly-owned  subsidiary of Community
         Psychiatric Centers ("CPC").  Concurrently, the Trust purchased certain
         related  real  property  from  UHS for $1  million  in cash  and a note
         payable  with a  carrying  value  of $1.3  million  (including  accrued
         interest) at December 31, 1999. The note payable has a face value of $1
         million and is due on December 31, 2001. The amount of interest payable
         on this

                                       10
<PAGE>

         note is  contingent  upon  the  financial  performance  of this  leased
         facility and its  estimated  fair value at the end of the initial lease
         term.  The Trust has estimated the total amount payable under the terms
         of this note and has discounted the payments to their net present value
         using a 6% rate.  Included in the  Trust's  1999  financial  results is
         approximately  $76,000 of  interest  expense  related to this note.  In
         connection  with  this  transaction,  UHS's  lease  with the  Trust was
         terminated  and the Trust  entered  into an eight year lease  agreement
         with THC-Chicago. In 1997, CPC was acquired by Vencor, Inc. who assumed
         their  obligations  under the lease and  renamed  the  facility  Vencor
         Hospital-Chicago.  The lease is guaranteed by Vencor, Inc. During 1999,
         Vencor,  Inc. filed for  bankruptcy and as a result,  the Trust did not
         receive or record approximately  one-half of a month of rental revenue.
         Management of Vencor,  Inc. has informed the Trust that pursuant to its
         petition for debt reorganization,  it intends on paying all rent due to
         the Trust pursuant to the terms of the lease.  Vencor, Inc. was granted
         a Motion for an Order  Pursuant to Section  365(d)(4) of the Bankruptcy
         Code Further  Extending  the Time Within  Which  Debtors Must Assume or
         Reject Unexpired Leases of Non-residential Property, extending the date
         to June 13, 2000.  Rental  payments on this facility have been received
         through March, 2000.

          (6)  Fresno-Herndon  Medical  Plaza,  a  multi-tenant  medical  office
         building,  was  purchased by the Trust in 1994 for  approximately  $6.3
         million.  The  building  is leased to  several  tenants,  including  an
         outpatient   surgery  center   operated  by   Columbia/HCA   Healthcare
         Corporation,  under the terms of leases with  expiration  dates ranging
         from  February,  2000 to March,  2003. The Trust has granted the seller
         the option to repurchase the property in November, 2001 for $7,250,000.

         (7) During 1994 and 1995, the Trust financed  construction  and in 1995
         purchased  the  single  tenant  and  two  multi-tenant  medical  office
         buildings for the total  construction cost of $4.3 million.  The single
         tenant  building  consists  of 20,000 net square  feet and is leased to
         Kelsey-Seybold  for  an  initial  term  of  10  years.  This  lease  is
         guaranteed  50%  by St.  Luke's  Episcopal  Health  System  and  50% by
         Methodist  Health Care System.  The two  multi-tenant  buildings  total
         27,535 net square feet and are occupied by tenants consisting primarily
         of medical professionals.

          (8) During 1996, the Trust  purchased The Southern  Crescent Center I,
         for  approximately  $6 million.  The Southern  Crescent  Center I, is a
         41,400  square  foot,  multi-tenant  medical  office  building  located
         adjacent to the Southern Regional Medical Center in Riverdale, Georgia.

         (9)  Construction on the Cypresswood  Professional  Center,  located in
         Houston,  Texas,  was  completed  during  1997 for a total cost of $4.4
         million.  In  connection  with  this  investment,  the  Trust  provided
         five-year  financing  (which  matures  in  August,  2002) to a  limited
         partnership  which owns the real estate  assets of this  facility.  The
         Trust owns a 77% controlling interest in the partnership.

         (10)  During  1998,  the Trust  invested  a total of $10.1  million  to
         acquire a 99%  non-controlling  interest in a limited liability company
         that owns the  Desert  Springs  Medical  Plaza  located  in Las  Vegas,
         Nevada.  The 89,000  square  foot  medical  office  building,  which is
         located on the campus of Desert Springs Hospital,  is master leased and
         guaranteed  by  Quorum  Health  Group,  Inc.  In  connection  with this
         investment  the  limited  liability   company  obtained   non-recourse,
         third-party financing, which has an outstanding balance at December 31,
         1999 of $5.9 million.

         (11) During 1999, the Trust  purchased the  Orthopaedic  Specialists of
         Nevada  Building  in Las  Vegas,  Nevada  for $1.6  million.  The lease
         extends for a period of ten years,  with two ten-year  renewal options.
         The land on which this building is located is leased from Valley Health
         Systems, LLC, a subsidiary of UHS.


                                       11
<PAGE>

         (12) On November 15, 1999,  the Trust  purchased the Sheffield  Medical
         Office  Building in Atlanta,  Georgia for $11.5 million.  The leases on
         this  multi-tenant  building have expiration  dates ranging from April,
         2000 to December, 2012.

         (13) As of December 31, 1999,  the Trust has invested $2.1 million in a
         $7.3  million  development  project to  construct a 60,000  square foot
         medical office  building to be called The Southern  Crescent Center II,
         adjacent to the Southern Crescent Center I in Atlanta,  GA. The project
         is  scheduled  for  completion  in the spring of 2000.  The building is
         master leased to Southern Regional  Medical Center under the terms of a
         ten year lease agreement, with two five year renewal terms.

         Item 3. LEGAL PROCEEDINGS

         Not applicable.

         Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not  applicable.  No matter was submitted  during the fourth quarter of
         the year ended December 31, 1999 to a vote of security holders.












                                       12
<PAGE>
                                     PART II

          Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                          STOCKHOLDER MATTERS

         The Trust's  shares of  beneficial  interest are listed on the New York
         Stock  Exchange.  The high and low closing  sales  prices for the Trust
         shares of  beneficial  interest for each quarter in the two years ended
         December 31, 1999 and 1998 are summarized below:

<TABLE>
<CAPTION>
                                                    1999                                     1998
                                    ------------------------------------    ---------------------------------------
                                    High Price        Low Price             High Price           Low Price
                                    ----------------- ------------------    -------------------- ------------------
<S>                                 <C>              <C>                   <C>                 <C>
         First Quarter              $20 1/2           $19 1/4               $22 1/2              $21
         Second Quarter             $20 5/16          $19 5/16              $21 3/8              $18 13/16
         Third Quarter              $19 13/16         $17 1/16              $20 1/4              $18 1/16
         Fourth Quarter             $17 7/8           $14 5/8               $20 1/4              $18 3/8
</TABLE>


         As of January 31, 2000,  there were  approximately  885 shareholders of
         record of the Trust's shares of beneficial interest.  It is the Trust's
         intention to declare  quarterly  dividends to the holders of its shares
         of beneficial  interest so as to comply with applicable sections of the
         Internal  Revenue  Code  governing  real  estate   investment   trusts.
         Covenants  relating to the revolving  credit facility limit the Trust's
         ability to increase  dividends in excess of 95% of cash  available  for
         distribution unless additional distributions are required to be made so
         as to comply with applicable  sections of the Internal Revenue Code and
         related regulations governing real estate investment trusts. In each of
         the past five years, dividends per share were declared as follows:

<TABLE>
<CAPTION>
                                1999          1998            1997         1996          1995
                             ---------      ---------      ---------     --------      --------
<S>                          <C>            <C>            <C>           <C>           <C>
         First Quarter       $    .450      $    .435      $    .425     $   .420      $    .42
         Second Quarter           .450           .435           .425         .425           .42
         Third Quarter            .455           .440           .425         .425           .42
         Fourth Quarter           .455           .445           .430         .425           .42
                             ---------      ---------      ---------     --------      --------
                             $   1.810      $   1.755      $   1.705     $  1.695      $   1.68
                             =========      =========      =========     ========      ========
</TABLE>







                                       13
<PAGE>
         Item 6.  SELECTED FINANCIAL DATA

         Financial  highlights  for the Trust for the five years ended  December
         31, 1999 were as follows:
<TABLE>
<CAPTION>
                                                                     (000s except per share amounts)
                                       -----------------------------------------------------------------------------------------
                                               1999 (1)          1998 (1)          1997 (1)            1996             1995
         -----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>               <C>
         Revenues                               $23,865           $23,234           $22,764           $21,923           $20,417

         Net Income                             $13,972           $14,337           $13,967           $14,158           $13,584

         Funds from
         Operations (2)                         $21,772           $19,857           $18,809           $18,174           $17,024


         Per Share Data:
         Net income-Basic                         $1.56             $1.60             $1.56             $1.58             $1.52

         Net income-Diluted                       $1.56             $1.60             $1.56             $1.58             $1.52

         Dividends                               $1.810            $1.755            $1.705            $1.695            $1.680
</TABLE>



          (1)  See "Management's  Discussion and Analysis of Financial Condition
               and Results of Operations."

          (2)  Funds from  operations  ("FFO") may not be calculated in the same
               manner for all companies, and accordingly, FFO as presented above
               may not be  comparable  to  similarly  titled  measures  by other
               companies.  FFO does not represent cash flows from  operations as
               defined by generally  accepted  accounting  principles and should
               not be considered as an alternative to net income as an indicator
               of the  Trust's  operating  performance  or to  cash  flows  as a
               measure of liquidity. FFO shown above is calculated as follows:

<TABLE>
<CAPTION>
                                                                          (000s)
                                          -------------------------------------------------------------
                                               1999          1998          1997        1996       1995
    ---------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>          <C>          <C>        <C>
    Net income                               $13,972       $14,337      $13,967      $14,158    $13,584
    Depreciation expense:
     Consolidated investments                  3,833         3,809        3,740        3,554      3,315
     Unconsolidated affiliates                 2,322         1,587          978          337         --
    Amortization of interest
     rate cap                                     62           124          124          125        125
    Provision for investment loss, net         1,583            --           --           --         --
                                             -------       -------      -------      -------    -------
    Total                                    $21,772       $19,857      $18,809      $18,174    $17,024
                                             =======       =======      =======      =======    =======
</TABLE>

<TABLE>
<CAPTION>
    -----------------------------------------------------------------------------------------------
    At End of Period       1999            1998            1997            1996             1995
    -----------------------------------------------------------------------------------------------
<S>                      <C>             <C>             <C>             <C>             <C>
     Total Assets        $178,821        $169,406        $146,755        $148,566        $132,770

     Debt                $ 76,889        $ 66,016        $ 42,347        $ 43,082        $ 26,396
</TABLE>




                                       14
<PAGE>
         Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

         Forward Looking Statements

         The matters  discussed  in this  report,  as well as the news  releases
         issued  from  time to time by the  Trust,  include  certain  statements
         containing the words "believes",  "anticipates",  "intends", "expects",
         and  words  of  similar  import,   which  constitute   "forward-looking
         statements" within the meaning of Private Securities  Litigation Reform
         Act of 1995. Such forward-looking  statements involve known and unknown
         risks,  uncertainties  and other  factors  that may  cause  the  actual
         results, performance or achievements of the Trust's or industry results
         to be materially  different  from any future  results,  performance  or
         achievements  expressed or implied by such forward-looking  statements.
         Such factors include,  among other things, the following: a substantial
         portion  of  the  Trust's  revenues  are  dependent  on  one  operator,
         Universal Health Services,  Inc., ("UHS"); a substantial portion of the
         Trust's  leases  are  involved  in the  healthcare  industry  which  is
         undergoing  substantial  changes and is subject to possible  changes in
         the  levels  and terms of  reimbursement  from  third-party  payors and
         government reimbursement programs, including Medicare and Medicaid; the
         Trust's ability to finance its growth on favorable terms; liability and
         other  claims  asserted  against the Trust or  operators of the Trust's
         facilities,  and other factors  referenced  herein.  Additionally,  the
         operators of the Trust's facilities, including UHS, are confronted with
         other issues such as: industry capacity;  demographic changes; existing
         laws and  government  regulations  and  changes in or failure to comply
         with laws and  governmental  regulations;  the  ability  to enter  into
         managed care provider agreements on acceptable terms; competition;  the
         loss  of  significant   customers;   technological  and  pharmaceutical
         improvements that increase the cost of providing,  or reduce the demand
         for  healthcare;  and the  ability  to  attract  and  retain  qualified
         personnel,  including physicians.  Management of the Trust is unable to
         predict the effect,  if any,  these  factors will have on the operating
         results of its lessees, including the facilities leased to subsidiaries
         of UHS. Given these uncertainties,  prospective investors are cautioned
         not to place undue  reliance on such  forward-looking  statements.  The
         Trust  disclaims  any  obligation  to  update  any such  factors  or to
         publicly   announce  the  result  of  any   revisions  to  any  of  the
         forward-looking statements contained herein to reflect future events or
         developments.

         Liquidity and Capital Resources

         General

         The Trust commenced operations on December 24, 1986. As of December 31,
         1999,  the Trust had  investments in thirty-six  facilities  located in
         thirteen states.

         It is the  Trust's  intention  to declare  quarterly  dividends  to the
         holders  of its  shares of  beneficial  interest  so as to comply  with
         applicable  sections of the Internal Revenue Code governing real estate
         investment trusts. Convenants relating to the revolving credit facility
         limit the  Trust's  ability to increase  dividends  in excess of 95% of
         cash available for distribution  unless  additional  distributions  are
         required to be made to comply with applicable  sections of the Internal
         Revenue Code and related  regulations  governing real estate investment
         trusts.  During 1999, dividends of $1.81 per share, or $16.2 million in
         the aggregate, were declared and paid.

         Net cash  generated by operating  activities was $19.6 million in 1999,
         $18.7  million in 1998 and $17.7  million  in 1997.  The  $900,000  net
         increase in 1999 as compared to 1998 was due  primarily  to: (i) a $1.1
         million increase in net income plus the addback of the non-cash charges
         (depreciation,  amortization, amortization of interest rate cap expense
         and  provisions  for investment  losses);  (ii) a

                                       15
<PAGE>

         $113,000  unfavorable  change in rent receivable,  and; (iii) a $96,000
         unfavorable  change  in other  net  working  capital  accounts.  The $1
         million net increase in 1998 as compared to 1997 was due  primarily to:
         (i) a $500,000  increase in net income plus the addback of the non-cash
         charges (as defined above);  (ii) a $100,000  favorable  change in rent
         receivable,  and; (iii) a $400,000  favorable change in tenant escrows,
         deposits and prepaid rents.

         During 1999,  the $19.6 million of cash flows  generated from operating
         activities,  the $10 million of cash  received  for the  repayments  of
         three  short-term loans advanced to separate LLCs during 1998, the $1.2
         million of cash  distributions  received  in excess of income  from the
         Trust's investments in LLCs, the $10.8 million of additional borrowings
         and the $998,000 proceeds recorded from the sale of Lakeshore  Hospital
         were used primarily to: (i) purchase a 95% equity interest in a limited
         liability company that owns the Santa Fe Professional  Plaza located in
         Scottsdale, Arizona ($1.2 million); (ii) purchase a 98% equity interest
         in a limited liability company that owns the Summerlin Hospital Medical
         Office  Building  located in Las Vegas,  Nevada ($5.0  million);  (iii)
         purchase a 75% equity interest in a limited liability company that owns
         the East Mesa Medical Center located in Mesa,  Arizona ($1.6  million);
         (iv) invest  additional  capital in existing LLCs ($1.0  million);  (v)
         acquire a medical office building in Las Vegas,  Nevada ($1.6 million);
         (vi) acquire the Sheffield  Medical  Building  ($11.5  million);  (vii)
         finance  capital  expenditures  ($4.4  million);  (viii)  purchase land
         ($307,000), and; (ix) pay dividends ($16.2 million).

         During 1998, the $18.7 million of cash flows generated from operations,
         the $23.6  million  of  additional  borrowings,  the  $900,000  of cash
         distributions received in excess of income from the Trust's investments
         in LLCs and the $600,000  reduction in cash were used primarily to: (i)
         pay dividends ($15.7 million); (ii) investments in and advances to five
         limited  liability  companies  ($27.9 million,  see Note 3), and; (iii)
         purchase real property and additions to land and buildings  ($200,000).
         Included in the $27.9 million invested in/advanced to limited liability
         companies  was $10.0  million of  short-term  loans  advanced  to three
         separate LLCs in which the Trust has ownership  interests  ranging from
         48% to 95%.  These  loans,  which  earned  interest at  variable  rates
         depending  upon the  length  of time the loan was  outstanding,  earned
         interest at an annual average rate of 9% for 1998. The loans were fully
         repaid  to the  Trust  during  1999  when the LLCs  secured  long-term,
         third-party financing.

         During 1997, the $17.7 million of cash flows generated from operations,
         the $6.8 million of cash received for repayments under a mortgage and a
         construction  note receivable (net of $3.4 million of advances in 1997)
         and the  $600,000  of cash  distributions  received in excess of income
         from the Trust's  investments  in LLCs were used  primarily to: (i) pay
         dividends ($15.3 million); (ii) purchase real property and additions to
         land and buildings ($4.2 million);  (iii) purchase equity  interests in
         two limited liability  companies ($3.7 million,  see Note 3), and; (iv)
         repay debt  ($800,000).  As of December  31,  1997,  the Trust had a $1
         million  short-term cash investment which was used to repay debt in the
         beginning of January, 1998.

         During 1999, the Trust amended its unsecured,  non-amortizing revolving
         credit agreement (the "Agreement"),  which expires on June 24, 2003, to
         increase its borrowing  capacity to $100 million from $80 million.  The
         Agreement   provides  for  interest  at  the  Trust's  option,  at  the
         certificate of deposit rate plus 5/8% to 1 1/8%,  Eurodollar  rate plus
         1/2% to 1 1/8% or the prime  rate.  A fee of .175% to .375% is required
         on the  unused  portion  of  this  commitment.  The  margins  over  the
         certificate of deposit rate, Eurodollar rate and the commitment fee are
         based upon the Trust's  debt to total  capital  ratio as defined by the
         Agreement.  At  December  31,  1999  the  applicable  margin  over  the
         certificate  of  deposit  and  Eurodollar  rates  were  7/8% and  5/8%,
         respectively,   and  the  commitment   fee  was  .20%.   There  are  no
         compensating balance  requirements.  The Agreement contains a provision


                                       16
<PAGE>

         whereby  the  commitments  will  be  reduced  by 50%  of  the  proceeds
         generated from any new equity offering. At December 31, 1999, the Trust
         had approximately $21 million of available borrowing capacity.

         Covenants  relating  to  the  revolving  credit  facility  require  the
         maintenance  of a minimum  tangible net worth and  specified  financial
         ratios,  limit the Trust's ability to incur  additional debt, limit the
         aggregate amount of mortgage  receivables and limit the Trust's ability
         to  increase   dividends  in  excess  of  95%  of  cash  available  for
         distribution,  unless  additional  distributions are required to comply
         with the  applicable  section of the Internal  Revenue Code and related
         regulations governing real estate investment trusts.

         The  Trust has  entered  into  interest  rate  swap  agreements  and an
         interest rate cap agreement  which are designed to reduce the impact of
         changes in interest rates on its floating rate revolving  credit notes.
         At December 31, 1999, the Trust had five  outstanding  swap  agreements
         for notional  principal  amounts of $35,580,000  which mature from May,
         2001 through November,  2006. These swap agreements effectively fix the
         interest rate on $35,580,000  of variable rate debt at 6.64%  including
         the revolver spread of .625%.  The Trust had one interest rate cap, for
         which the Trust paid  $622,750,  which matured in June,  1999 and fixed
         the maximum rate on $15 million of variable rate revolving credit notes
         at 7.625%  including  the revolver  spread of .625%.  The interest rate
         swap and cap agreements  were entered into in  anticipation  of certain
         borrowing  transactions  made by the  Trust. The effective  rate on the
         Trust's  revolving credit notes including  commitment fees and interest
         rate swap expense was 6.2%,  6.7% and 6.9% during 1999,  1998 and 1997,
         respectively.  Additional  interest expense recorded as a result of the
         Trust's hedging activity,  which is included in the effective  interest
         rates shown above,  was $135,000,  $136,000 and $118,000 in 1999,  1998
         and 1997,  respectively.  The Trust is  exposed  to credit  loss in the
         event of nonperformance by the counterparties to the interest rate swap
         agreements.  These counterparties are major financial  institutions and
         the Trust  does not  anticipate  nonperformance  by the  counterparties
         which are rated A or better by Moody's Investors  Service.  Termination
         of the interest  rate swaps at December 31, 1999 would have resulted in
         payments  from  the   counterparties  to  the  Trust  of  approximately
         $862,000.  The fair  value of the  interest  rate  swap  agreements  at
         December 31, 1999 reflects the  estimated  amounts that the Trust would
         pay or receive to terminate  the contracts and are based on quotes from
         the counterparties.

         Results of Operations

         Total  revenues  increased  3% or $631,000 to $23.9  million in 1999 as
         compared  to  1998  and 2% or  $470,000  to  $23.2  million  in 1998 as
         compared to $22.8 million in 1997.  The $631,000  increase  during 1999
         over 1998 was due primarily to a $451,000 increase in base rentals from
         non-related  parties and a $170,000  increase in interest  income.  The
         $451,000  increase in base rentals from  non-related  parties  resulted
         primarily  from:  (i) revenues  generated  from the  Sheffield  Medical
         Building and the Orthopaedic  Specialists of Nevada  Building,  both of
         which were acquired during the fourth quarter of 1999 ($275,000),  and;
         (ii)  a  $134,000   increase   in  the  base   rentals   of   Tri-State
         Rehabilitation Hospital resulting from the June 1, 1999 lease amendment
         which  increased the minimum rent and eliminated  the  additional  rent
         provision. The $170,000 increase in interest income is primarily due to
         the interest earned on short-term loans advanced to three separate LLCs
         (in which the Trust has ownership interests),  all of which were repaid
         to the Trust by June 30, 1999. The $470,000  increase  during 1998 over
         1997 was due  primarily  to a $788,000  increase in base  rentals  from
         non-related parties (due primarily to the completion of The Cypresswood
         Professional  Center during the third quarter of 1997),  and a $122,000
         increase in bonus rental income from UHS  facilities.  These  favorable
         changes were partially offset by a $473,000 decrease in interest income
         due to a mortgage loan receivable  which was fully repaid in June, 1997
         and a construction loan receivable which was repaid in December,  1997.


                                       17
<PAGE>

         The  average  occupancy  rate of a hospital  is affected by a number of
         factors, including the number of physicians using the hospital, changes
         in the number of beds,  the  composition  and size of the population of
         the  community  in which the  hospital  is  located,  general and local
         economic conditions, variations in local medical and surgical practices
         and the degree of  outpatient  use of the  hospital  services.  Current
         industry  trends in utilization  and occupancy have been  significantly
         affected by changes in reimbursement  policies of third-party payors. A
         continuation  of such  industry  trends  could have a material  adverse
         impact upon the future  operating  performance of the Trust's  hospital
         facilities.  The Trust's hospital facilities have experienced growth in
         outpatient  utilization  over the past several  years.  The increase in
         outpatient  services  is  primarily  the result of  advances in medical
         technologies and pharmaceutical improvements, which allow more services
         to be provided on an  outpatient  basis,  and  increased  pressure from
         Medicare, Medicaid, managed care companies and other insurers to reduce
         hospital stays and provide services where possible, on a less expensive
         outpatient basis. The hospital industry in the United States as well as
         the Trust's hospital  facilities  continue to have  significant  unused
         capacity  which  has  created  substantial  competition  for  patients.
         Inpatient   utilization   continues  to  be   negatively   affected  by
         payor-required,  pre-admission  authorization  and by payor pressure to
         maximize  outpatient and alternative  healthcare  delivery services for
         less acutely ill patients. The Trust expects the increased competition,
         admission  constraints and payor pressures to continue.  The ability of
         the Trust's hospital  facilities to maintain or grow their net revenues
         and operating  margins is dependent upon their ability to  successfully
         respond  to  these  trends  as  well  as   reductions  in  spending  on
         governmental healthcare programs.

         The Medicare program  reimburses the operators of the Trust's hospitals
         primarily  based on  established  rates by a  diagnosis  related  group
         ("DRG")  for  acute  care  hospitals  and by  cost  based  formula  for
         behavioral health facilities. Historically, rates paid under Medicare's
         prospective   payment  system  ("PPS")  for  inpatient   services  have
         increased, however, these increases have been less than cost increases.
         Pursuant to the terms of The  Balanced  Budget Act of 1997  ("BBA-97"),
         there were no increases in the rates paid to  hospitals  for  inpatient
         care through  September 30, 1998 and reimbursement for bad debt expense
         and capital costs as well as other items have been  reduced.  Inpatient
         operating  payment  rates  increased  0.5% for the period of October 1,
         1998 through September 30, 1999, however,  the modest rate increase was
         less than inflation and was more than offset by the negative  impact of
         converting  reimbursement on skilled nursing  facility  patients from a
         cost based reimbursement to a prospective payment system and from lower
         DRG payments on certain patient transfers mandated by BBA-97. Inpatient
         operating  payment rates were  increased 1.1% for the period of October
         1, 1999 through  September 30, 2000,  however,  the modest increase was
         less than  inflation  and is  expected  to be more  than  offset by the
         negative   impact  of  increasing  the   qualification   threshold  for
         additional  payments for treating costly  inpatient  cases  (outliers).
         Payments for Medicare outpatient  services  historically have been paid
         based on costs,  subject  to certain  adjustments  and  limits.  BBA-97
         requires  that payment for those  services be converted to  prospective
         payment  systems  (PPS).  The Health  Care  Financing  Administration's
         current  plan is to  implement  PPS for  outpatients  by July 1,  2000,
         however,  there is a  possibility  that  outpatient  PPS may be delayed
         until January,  2001. Since final provisions of the outpatient Medicare
         PPS are not yet available,  the operators of the Trust's facilities can
         not completely estimate the resulting impact on their future results of
         operations. The Trust expects continuing pressure to limit expenditures
         by governmental healthcare programs. Further changes in the Medicare or
         Medicaid  programs  and other  proposals to limit  healthcare  spending
         could have a material  adverse  impact on the operating  results of the
         Trust's facilities and the healthcare industry.

         In  addition  to the  Medicare  and  Medicaid  programs,  other  payors
         continue to actively  negotiate  the amounts they will pay for services
         performed.  In general,  the operators of the Trust's facilities expect
         to continue to  experience  an increase in business  from  managed care
         programs,  including HMOs and

                                       18
<PAGE>

         PPOs. The consequent  growth in managed care networks and the resulting
         impact  of these  networks  on the  operating  results  of the  Trust's
         facilities  vary  among the  markets  in which the  Trust's  facilities
         operate.

         Interest expense increased  $514,000 or 15% in 1999 as compared to 1998
         and  $547,000 or 19% in 1998 as compared to 1997 due  primarily  to the
         additional   borrowings  used  to  finance  the  1999,  1998  and  1997
         investments described in Note 3 of the financial statements.

         Depreciation and  amortization  expense  decreased  slightly in 1999 as
         compared  to 1998 and  increased  $104,000 or 3% in 1998 as compared to
         1997. The increase in 1998 as compared to 1997 was due primarily to the
         depreciation expense related to the 1997 acquisitions described in Note
         3.

         Other operating  expenses  decreased $115,000 or 6% in 1999 as compared
         to  1998  primarily  due  to a  favorable  expense  reserve  adjustment
         recorded in the third quarter of 1999,  relating to Lakeshore Hospital,
         which was sold during the third  quarter of 1999 for net cash  proceeds
         of $998,000. Other operating expenses increased $479,000 or 34% in 1998
         as compared to 1997 due to the  operating  expenses on the  Cypresswood
         Professional  Center on which  construction  was  completed  during the
         third  quarter  of 1997 and an  increase  in  various  other  operating
         expenses.  Included in the Trusts'  other  operating  expenses were the
         expenses  related to the medical office  buildings,  in which the Trust
         has a  controlling  ownership  interest  which  totaled $1.0 million in
         1999,  $1.0 million in 1998 and $770,000 in 1997. The majority of these
         expenses  are passed on directly  to the  tenants  and are  included as
         revenues in the Trust's statements of income.

         During 1999, the operating performance declined significantly at one of
         the Trust's  behavioral  health  services  facilities  operated by, and
         leased  to,  a  wholly-owned  subsidiary  of UHS.  Changes  in  CHAMPUS
         utilization  and the  increasing  influence of managed care have led to
         shorter lengths of stay for patients at this facility which is operated
         as an adolescent residential treatment center. During the twelve months
         ended December 31, 1999 patient days and average length of stay at this
         facility  decreased  7%  and  20%,  respectively,  as  compared  to the
         comparable prior year period. In the twelve month period ended December
         31,  1999,   this  facility  had  earnings  before   interest,   taxes,
         depreciation,  amortization  and base rental  expense  (EBITDAR) of 0.8
         times the annual rent payable to the Trust.  The lease on this facility
         expires in  December,  2000 and  represented  5% of the Trust's  rental
         revenue for the twelve month period ended  December 31, 1999.  Although
         management of the Trust is actively  negotiating  the sale/lease of the
         property  with UHS as well as  non-related  parties,  management of the
         Trust has  concluded  that,  based on an analysis of future cash flows,
         there has been a permanent  impairment  in the  carrying  value of this
         facility.  As a result, the Trust recorded a $2.6 million provision for
         investment loss during 1999.

         Also during  1999,  the Trust sold the real estate  assets of Lakeshore
         Hospital  for net  proceeds of  $998,000.  Since the book value of this
         facility had previously  been reduced to zero, this amount was recorded
         as a gain and netted against the provision for  investment  loss during
         1999.

         Included in the  Trust's  financial  results was $2.6  million in 1999,
         $1.5 million in 1998 and $400,000 in 1997, of income generated from the
         Trust's  ownership  in limited  liability  companies  which own medical
         office  buildings  in  Arizona,  California,  Kentucky,  New Mexico and
         Nevada (Note 8 of the financial statements).

         Net  income for 1999 was $14.0  million or $1.56 per basic and  diluted
         share compared to $14.3 million or $1.60 per basic and diluted share in
         1998 and $14.0 million or $1.56 per basic and diluted share in 1997.

                                       19
<PAGE>

         Funds from  operations  ("FFO"),  which is the sum of net  income  plus
         depreciation  expense for consolidated  investments and  unconsolidated
         investments  and  amortization  of interest  rate cap expense,  totaled
         $21.8 million in 1999, $19.9 million in 1998 and $18.8 million in 1997.
         FFO may not be  calculated  in the same manner for all  companies,  and
         accordingly,  may not be  comparable  to similarly  titled  measures by
         other  companies.  FFO does not represent cash flows from operations as
         defined by generally accepted  accounting  principles and should not be
         considered  as an  alternative  to net  income as an  indicator  of the
         Trust's  operating  performance  or  to  cash  flows  as a  measure  of
         liquidity.

         General

         During 1999, the lease on Tri-State Rehabilitation Hospital was amended
         and renewed for a five-year term  commencing on June 1, 1999 and ending
         on May 31,  2004.  Pursuant to the terms of the lease as  amended,  the
         minimum rent has been increased and the  additional  rent provision has
         been eliminated.

         During the third  quarter  of 1998,  wholly-owned  subsidiaries  of UHS
         exercised  five-year  renewal  options on four  hospitals  owned by the
         Trust  which were  scheduled  to expire in 1999  through  2001  (Virtue
         Street Pavilion,  The Bridgeway,  Inland Valley Regional Medical Center
         and Wellington Regional Medical Center). The leases on these facilities
         were  renewed at the same lease rates and terms as the initial  leases.
         As part of the  renewal  agreement,  the  Trust  also  agreed  to grant
         additional  fixed rate renewal options to a wholly-owned  subsidiary of
         UHS commencing in 2022 on the real property of McAllen  Medical Center.
         Management  of the  Trust  can not  predict  whether  the  leases  with
         subsidiaries  of UHS,  which have  renewal  options at  existing  lease
         rates,  or any of the Trust's other leases,  will be renewed at the end
         of their initial term or first five-year renewal term.

         The Trust did not experience any significant Year 2000 computer related
         issues as a result of the turn of the century.

         Market Risks Associated with Financial Instruments

         The Trust's  interest  expense is  sensitive  to changes in the general
         level  of  domestic   interest   rates.   To  mitigate  the  impact  of
         fluctuations in domestic  interest rates, a portion of the Trust's debt
         is  fixed  rate  accomplished  by  entering  into  interest  rate  swap
         agreements.  The  interest  rate swap  agreements  are  contracts  that
         require the Trust to pay a fixed and receive a floating  interest  rate
         over the life of the agreements.  The floating-rates are based on LIBOR
         and the  fixed-rates  are  determined  upon  consummation  of the  swap
         agreements.  The  interest  rate  swap  agreements  do  not  constitute
         positions independent of the underlying  exposures.  The Trust does not
         hold or issue derivative  instruments for trading purposes and is not a
         party to any instruments with leverage  features.  The Trust is exposed
         to credit losses in the event of  non-performance by the counterparties
         to its  financial  instruments.  The  counterparties  are  creditworthy
         financial institutions,  rated A or better by Moody's Investor Services
         and the Trust anticipates that the counterparties will be able to fully
         satisfy  their  obligations  under the  contracts.  For the years ended
         December 31, 1999, 1998 and 1997, the Trust received a weighted average
         rate of  6.09%,  5.24% and  5.79%,  respectively,  and paid a  weighted
         average rate on its interest rate swap  agreements of 6.02%,  6.94% and
         6.94%, respectively.

         The table  below  presents  information  about the  Trust's  derivative
         financial   instruments  and  other  financial   instruments  that  are
         sensitive to changes in interest rates,  including  interest rate swaps
         as of December  31,  1999.  For debt  obligations,  the table  presents
         principal  cash flows and related  weighted-average  interest  rates by
         contractual  maturity  dates.  For interest rate swap  agreements,  the
         table presents  notional amounts by expected maturity date and weighted
         average interest rates based on rates in effect at December 31, 1999.


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                            Maturity Date, Fiscal Year Ending December 31
                                            ---------------------------------------------
                                                                                                           There-
   (Dollars in thousands)              2000         2001          2002         2003          2004          after        Total
                                       ----         ----          ----         ----          ----          -----        -----
<S>                                  <C>           <C>            <C>         <C>           <C>           <C>          <C>
   Long-term debt:
     Fixed rate                                    $1,289                                                               $1,289

   Average interest rates                             6.0%

   Variable rate long-term debt                                               $75,600                                  $75,600

   Interest rate swaps:
     Pay fixed/receive
       variable notional amounts                   $1,580         $4,000                    $10,000       $20,000      $35,580
     Average pay rate                                6.80%        6.6025%                   6.10375%        6.02%
     Average receive rate                         3 month        6 month                    3 month       3 month
                                                   LIBOR          LIBOR                      LIBOR         LIBOR
</TABLE>


         Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Trust's  Balance  Sheets and its  Statements of Income,  Changes in
         Shareholders' Equity and Cash Flows, together with the report of Arthur
         Andersen LLP,  independent public  accountants,  are included elsewhere
         herein.  Reference  is made to the "Index to Financial  Statements  and
         Schedules."

         Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                 AND FINANCIAL DISCLOSURE

         Not applicable.


                                    PART III

         Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         There is hereby  incorporated  by reference the  information  to appear
         under the caption  "Election  of  Trustees"  in the Trust's  definitive
         Proxy Statement to be filed with the Securities and Exchange Commission
         within 120 days after December 31, 1999. See also  "Executive  Officers
         of the Registrant" appearing in Part I hereof.

         Item 11.   EXECUTIVE COMPENSATION

         There is hereby  incorporated  by reference the  information  under the
         caption "Executive  Compensation" and "Compensation  Pursuant to Plans"
         in  the  Trust's  definitive  Proxy  Statement  to be  filed  with  the
         Securities and Exchange  Commission  within 120 days after December 31,
         1999.


                                       21
<PAGE>


         Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                      AND MANAGEMENT

         There is hereby  incorporated  by reference the  information  under the
         caption   "Security   Ownership  of  Certain   Beneficial   Owners  and
         Management" in the Trust's  definitive Proxy Statement to be filed with
         the Securities and Exchange  Commission  within 120 days after December
         31, 1999.

         Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         There is hereby  incorporated  by reference the  information  under the
         caption  "Transactions  With  Management  and  Others"  in the  Trust's
         definitive Proxy Statement to be filed with the Securities and Exchange
         Commission within 120 days after December 31, 1999.














                                       22
<PAGE>
                                     PART IV

         Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                   FORM 8-K

               (a)  Financial Statements and Financial Statement Schedules:

                    1)   Report of Independent Public Accountants

                    2)   Financial Statements

                         Consolidated  Balance  Sheets - December  31,  1999 and
                         December 31, 1998  Consolidated  Statements of Income -
                         Years  Ended   December   31,   1999,   1998  and  1997
                         Consolidated Statements of Shareholders' Equity - Years
                         Ended  December  31, 1999,  1998 and 1997  Consolidated
                         Statements  of Cash Flows - Years  Ended  December  31,
                         1999,  1998 and 1997  Notes to  Consolidated  Financial
                         Statements - December 31, 1999

                    (3)  Schedules

                         Schedule II - Valuation and Qualifying Accounts -
                         Years Ended December 31, 1999, 1998 and 1997
                         Schedule III - Real Estate and Accumulated Depreciation
                         - December 31, 1999
                         Notes to Schedule III - December 31, 1999

               (b)  Reports on Form 8-K:
                         No  reports  on Form 8-K  were  filed  during  the last
                         quarter of the year ended December 31, 1999

               (c)  Exhibits:

                    3.1   Declaration  of  Trust,   dated  as  of  August  1986,
          previously  filed as Exhibit 3.1 Amendment  No. 3 of the  Registration
          Statement on Form S-11 and Form S-2 of Universal Health Services, Inc.
          and the Trust  (Registration No. 33-7872),  is incorporated  herein by
          reference.

                    3.2 Amendment to Declaration of Trust,  dated as of June 23,
          1993,  previously filed as Exhibit 3.2 to the Trust's Annual Report on
          Form 10-K for the year ended December 31, 1993, is incorporated herein
          by reference.

                    3.3 Amended and  restated  bylaws,  filed as Exhibit 10.1 to
          the  Trust's  Form  10-Q for the  quarter  ended  March 31,  1998,  is
          incorporated herein by reference.

                    10.1  Advisory  Agreement,  dated as of December  24,  1986,
          between  UHS of  Delaware,  Inc.  and The Trust,  previously  filed as
          Exhibit 10.2 to the Trust's  Current Report on Form 8-K dated December
          24, 1986, is incorporated herein by reference.

                    10.2 Agreement  effective January 1, 2000, to renew Advisory
          Agreement  dated as of December  24,  1986  between  Universal  Health
          Realty Income Trust and UHS of Delaware, Inc.

                                       23
<PAGE>

                    10.3  Contract  of  Acquisition,  dated as of  August  1986,
          between  the  Trust  and  certain  subsidiaries  of  Universal  Health
          Services, Inc., previously filed as Exhibit 10.2 to Amendment No. 3 of
          the  Registration  Statement on Form S-11 and S-2 of Universal  Health
          Services,   Inc.  and  the  Trust   (Registration  No.  33-7872),   is
          incorporated herein by reference.

                    10.4 Form of Leases, including Form of Master Lease Document
          Leases,  between certain  subsidiaries of Universal  Health  Services,
          Inc. and the Trust,  previously filed as Exhibit 10.3 to Amendment No.
          3 of the Registration Statement on Form S-11 and Form S-2 of Universal
          Health Services,  Inc. and the Trust  (Registration  No. 33-7872),  is
          incorporated herein by reference.

                    10.5 Share Option Agreement,  dated as of December 24, 1986,
          between the Trust and  Universal  Health  Services,  Inc.,  previously
          filed as Exhibit 10.4 to the Trust's  Current Report on Form 8-K dated
          December 24, 1986, is incorporated herein by reference.

                    10.6  Corporate  Guaranty  of  Obligations  of  Subsidiaries
          Pursuant to Leases and Contract of  Acquisition,  dated December 1986,
          issued by  Universal  Health  Services,  Inc.  in favor of the  Trust,
          previously filed as Exhibit 10.5 to the Trust's Current Report on Form
          8-K dated December 24, 1986, is incorporated herein by reference.

                    10.7 Contract of  Acquisition  dated August 31, 1988 between
          the  Trust,  Rehab  Systems  Company,   Inc.  and  Tri-State  Regional
          Rehabilitation Hospital, Inc., previously filed as Exhibit 10.2 to the
          Trust's  September  30,  1988 Form  10-Q,  is  incorporated  herein by
          reference.

                    10.8 Key Employees'  Restricted Share Purchase Plan approved
          by the Trustees on December 1, 1988 which  authorized  the issuance of
          up to 50,000 common shares,  previously  filed as Exhibit 10.11 to the
          Trust's  Annual  Report on form 10-K for the year ended  December  31,
          1988, is incorporated herein by reference.

                    10.9  Share   Compensation   Plan  for   Outside   Trustees,
          previously filed as Exhibit 10.12 to the Trust's Annual Report on Form
          10-K for the year ended December 31, 1991, is  incorporated  herein by
          reference.

                    10.10 1988  Non-Statutory  Stock  Option  Plan,  as amended,
          previously filed as Exhibit 10.13 to the Trust's Annual Report on Form
          10-K for the year ended December 31, 1991, is  incorporated  herein by
          reference.

                    10.11 Lease  dated  December  22,  1993,  between  Universal
          Health Realty Income Trust and THC-Chicago, Inc. as lessee, previously
          filed as Exhibit  10.14 to the Trust's  Annual Report on Form 10-K for
          the year ended December 31, 1993, is incorporated herein by reference.

                    10.12  Mortgage  Modification,  Consolidation  and Extension
          Agreement and Consolidated  Note dated December 28, 1993 in the amount
          of  $6,500,000  from  Crouse  Irving  Memorial  Properties,   Inc.  to
          Universal  Health  Realty Income  Trust,  previously  filed as Exhibit
          10.15 to the  Trust's  Annual  Report on Form 10-K for the year  ended
          December 31, 1993, is incorporated herein by reference.

                    10.13   Agreement  for  Purchase  and  Sale  and  Repurchase
          Agreement  dated  as  of  November  4,  1994  between   Fresno-Herndon
          Partners, Limited and Universal Health Realty Income Trust, previously
          filed as Exhibit  10.16 to the Trust's  Annual Report on Form 10-K for
          the year ended December 31, 1994, is incorporated herein by reference.

                                       24
<PAGE>

                    10.14 Agreement of Purchase and Sale, and Construction  Loan
          Agreement  dated as of December 20, 1994 between Turner  Adreac,  L.C.
          and Universal Health Realty Income Trust,  previously filed as Exhibit
          10.17 to the  Trust's  Annual  Report on Form 10-K for the year  ended
          December 31, 1994, is incorporated herein by reference.

                    10.15 Sale Agreement,  dated as of September 1, 1995, by and
          among  Universal  Health  Realty  Income  Trust and Desert  Commercial
          Properties Limited  Partnership,  previously filed as Exhibit 10.18 to
          the Trust's Annual Report on Form 10-K for the year ended December 31,
          1996, is incorporated herein by reference.

                    10.16 Operating Agreement of DSMB Properties,  L.L.C., dated
          as of September 1, 1995, by and among  Universal  Health Realty Income
          Trust and Desert Commercial Properties Limited Partnership, previously
          filed as Exhibit  10.19 to the Trust's  Annual Report on Form 10-K for
          the year ended December 31, 1996, is incorporated herein by reference.

                    10.17 Agreement and Escrow Instructions,  dated as of August
          15, 1995, by and between Phase III Desert  Samaritan  Medical Building
          Partners  and  Desert  Commercial   Properties  Limited   Partnership,
          previously filed as Exhibit 10.20 to the Trust's Annual Report on 10-K
          for the year  ended  December  31,  1996,  is  incorporated  herein by
          reference.

                    10.18  Universal  Health Realty Income Trust 1997  Incentive
          Plan,  previously  filed as Exhibit  10.1 to the Trust's Form 10-Q for
          the quarter  ended  September  30,  1997,  is  incorporated  herein by
          reference.

                    10.19  Amendment  No. 1 to Lease,  made as of July 31, 1998,
          between  Universal  Health Realty Income Trust, a Maryland real estate
          investment  trust  ("Lessor"),  and  Inland  Valley  Regional  Medical
          Center, Inc., a California Corporation ("Lessee"), previously filed as
          Exhibit 10.1 to the Trust's Form 10-Q for the quarter ended  September
          30, 1998, is incorporated herein by reference.

                    10.20  Amendment  No. 1 to Lease,  made as of July 31, 1998,
          between  Universal  Health Realty Income Trust, a Maryland real estate
          investment trust ("Lessor"),  and McAllen Medical Center,  L.P. (f/k/a
          Universal   Health  Services  of  McAllen,   Inc.),  a  Texas  Limited
          Partnership  ("Lessee"),  amends the lease,  made as of  December  24,
          1986,  between Lessor and Lessee,  previously filed as Exhibit 10.2 to
          the Trust's Form 10-Q for the quarter  ended  September  30, 1998,  is
          incorporated herein by reference.

                    10.21  Amendment to REVOLVING  CREDIT  AGREEMENT as of April
          30, 1999 among (i) UNIVERSAL HEALTH REALTY INCOME TRUST, a real estate
          investment trust organized under the laws of the State of Maryland and
          having its principal  place of business at 367 South Gulph Road,  King
          of Prussia,  Pennsylvania  19406, (ii) VARIOUS FINANCIAL  INSTITUTIONS
          and (iii) FIRST UNION NATIONAL BANK, as  administrative  agent for the
          Banks,  previously  filed as exhibit 10.1 to the Trusts' Form 10-Q for
          the quarter ended March 31, 1999, is incorporated herein by reference.

                    10.22  Dividend  Reinvestment  and  Share  Purchase  Plan is
          hereby incorporated by reference from Registration Statement Form S-3,
          Registration No. 333-81763, as filed on June 28, 1999.


                                       25
<PAGE>



                    10.23 Sale  agreement,  dated October 26, 1999, by and among
          FB Sheffield Partners, LLC, a Georgia limited liability company having
          an office at 1827 Powers  Ferry Road,  Building 13,  Atlanta,  Georgia
          30339,  Health America Realty Group,  LLC, a Georgia limited liability
          company and Universal Health Realty Income Trust,  having an office at
          367 South Gulph Road, King of Prussia, Pennsylvania 19406.

                    27 Financial Data Schedule
















                                       26
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
         Exchange Act of 1934,  the registrant has duly caused this report to be
         signed on its behalf by the undersigned, thereunto duly authorized.

         Date:  March 21, 2000

                                   UNIVERSAL HEALTH REALTY INCOME TRUST
                                               (Registrant)





                           By:  /s/ Alan B. Miller
                               ----------------------------------------
                                  Alan B. Miller, Chairman of the Board
                                  and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
         this report has been signed below by the following persons on behalf of
         the registrant and in the capacities and on the dates indicated.

              Date                  Signature and Title


                                     /s/ Alan B. Miller
                                     -------------------------------------------
         March 21, 2000              Alan B. Miller, Chairman of the Board
                                       and Chief Executive Officer

                                     /s/ Kirk E. Gorman
                                     -------------------------------------------
         March 24, 2000              Kirk E. Gorman, President, Chief
                                       Financial Officer, Secretary and Trustee

                                     /s/ James E. Dalton, Jr
                                     -------------------------------------------
         March 24, 2000              James E. Dalton, Jr., Trustee

                                     /s/ Myles H. Tanenbaum
                                     -------------------------------------------
         March 23, 2000              Myles H. Tanenbaum, Trustee

                                     /s/ Daniel M. Cain
                                     -------------------------------------------
         March 21, 2000              Daniel M. Cain, Trustee

                                     /s/ Miles L. Berger
                                     -------------------------------------------
         March 21, 2000              Miles L. Berger, Trustee

                                     /s/ Elliot J. Sussman
                                     -------------------------------------------
         March 21, 2000              Elliot J. Sussman, M.D., M.B.A., Trustee



                                       27
<PAGE>
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES




                                                                         Page

Report of Independent Public Accountants                                  F-2

Consolidated Balance Sheets - December 31, 1999 and December 31, 1998     F-3

Consolidated Statements of Income - Years Ended December 31, 1999,
1998 and 1997                                                             F-4

Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1999, 1998 and 1997                                          F-5

Consolidated Statements of Cash Flows - Years Ended December 31,
1999, 1998 and 1997                                                       F-6

Notes to the Consolidated Financial Statements - December 31, 1999        F-7

Schedule II - Valuation and Qualifying Accounts -
Years Ended December 31, 1999, 1998 and 1997                              F-20

Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1999                                                         F-21

Notes to Schedule III - December 31, 1999                                 F-22




                                      F-1
<PAGE>


                    Report of Independent Public Accountants

To The Shareholders and Board of Trustees of
Universal Health Realty Income Trust:

We have audited the accompanying consolidated balance sheets of Universal Health
Realty Income Trust and Subsidiaries (a Maryland real estate  investment  trust)
as of  December  31, 1999 and 1998 and the related  consolidated  statements  of
income,  shareholders'  equity and cash flows for each of the three years in the
period ended December 31, 1999. These consolidated  financial statements and the
schedules  referred to below are the  responsibility of the Trust's  management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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  consolidated  financial  position  of
Universal Health Realty Income Trust and  Subsidiaries,  as of December 31, 1999
and 1998 and the  consolidated  results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles in the United States.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial statements taken as a whole. The schedules listed in the
Index to Financial  Statements  and  Schedules on Page F-1 are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not a  required  part of the  basic  consolidated  financial  statements.  These
schedules have been subjected to the auditing procedures applied in our audit of
the basic consolidated financial statements and, in our opinion, fairly state in
all material  respects the  financial  data  required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.



Philadelphia, Pennsylvania                       Arthur Andersen LLP
     January 19, 2000


                                      F-2
<PAGE>

                              Universal Health Realty Income Trust
                                   Consolidated Balance Sheets
                                     (amounts in thousands)
<TABLE>
<CAPTION>
                                                                    December 31,   December 31,
Assets:                                                                1999           1998
                                                                    ---------      ---------
<S>                                                                 <C>            <C>
Real Estate Investments:
     Buildings & improvements                                       $ 154,792      $ 142,871
     Accumulated depreciation                                         (37,800)       (34,006)
                                                                    ---------      ---------
                                                                      116,992        108,865
     Land                                                              23,128         21,061
     Construction in progress                                           1,247             28
     Reserve for investment losses                                         --           (116)
                                                                    ---------      ---------
                        Net Real Estate Investments                   141,367        129,838
                                                                    ---------      ---------

     Investments in and advances to limited liability companies        35,748         38,165

Other Assets:
     Cash                                                                 852            572
     Bonus rent receivable from UHS                                       723            681
     Rent receivable from non-related parties                              67             24
     Deferred charges and other assets, net                                64            126
                                                                    ---------      ---------
                                                                    $ 178,821      $ 169,406
                                                                    =========      =========

Liabilities and Shareholders' Equity:

Liabilities:
     Bank borrowings                                                $  75,600      $  64,800
     Note payable to UHS                                                1,289          1,216
     Accrued interest                                                     411            281
     Accrued expenses & other liabilities                               1,367          1,300
     Tenant reserves, escrows, deposits and prepaid rents                 404            374

     Minority interest                                                     75             87

Shareholders' Equity:
     Preferred shares of beneficial interest,
       $.01 par value; 5,000,000 shares authorized;
       none outstanding                                                    --             --
     Common shares, $.01 par value;
       95,000,000 shares authorized; issued
       and outstanding: 1999 - 8,990,825
       1998 - 8,955,465                                                    90             90
     Capital in excess of par value                                   129,255        128,685
     Cumulative net income                                            140,430        126,458
     Cumulative dividends                                            (170,100)      (153,885)
                                                                    ---------      ---------
                        Total Shareholders' Equity                     99,675        101,348
                                                                    ---------      ---------
                                                                    $ 178,821      $ 169,406
                                                                    =========      =========
</TABLE>

The accompanying notes are an integral part of these financial statements.



                                       F-3


<PAGE>
<TABLE>
<CAPTION>
                                         Universal Health Realty Income Trust
                                          Consolidated Statements of Income
                                          ---------------------------------
                                   (amounts in thousands, except per share amounts)

                                                                                      Year ended December 31,
                                                                               -------------------------------------
                                                                                 1999           1998          1997
                                                                               -------        -------        -------
Revenues (Note 2):
<S>                                                                            <C>            <C>            <C>
      Base rental - UHS facilities                                             $13,828        $13,764        $13,731
      Base rental - Non-related parties                                          6,844          6,393          5,605
      Bonus rental                                                               2,912          2,966          2,844
      Interest                                                                     281            111            584
                                                                               -------        -------        -------
                                                                                23,865         23,234         22,764
                                                                               -------        -------        -------


Expenses:

      Depreciation & amortization                                                3,857          3,879          3,775
      Interest expense                                                           4,004          3,490          2,943
      Advisory fees to UHS (Note 2)                                              1,214          1,161          1,099
      Other operating expenses                                                   1,789          1,904          1,425
      Provision for investment loss, net                                         1,583              0              0
                                                                               -------        -------        -------
                                                                                12,447         10,434          9,242
                                                                               -------        -------        -------

      Income before equity in limited liability companies                       11,418         12,800         13,522

      Equity in income of limited liability companies                            2,554          1,537            445
                                                                               -------        -------        -------
               Net Income                                                      $13,972        $14,337        $13,967
                                                                               =======        =======        =======


          Net Income Per Share - Basic                                           $1.56          $1.60          $1.56
                                                                               =======        =======        =======

          Net Income Per Share - Diluted                                         $1.56          $1.60          $1.56
                                                                               =======        =======        =======

Weighted average number of shares outstanding - Basic                            8,956          8,952          8,952
Weighted average number of share equivalents                                        21             22             15
                                                                               -------        -------        -------
Weighted average number of shares and equivalents outstanding - Diluted          8,977          8,974          8,967
                                                                               =======        =======        =======
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                                         F-4
<PAGE>
<TABLE>
<CAPTION>
                                              Universal Health Realty Income Trust
                                        Consolidated Statements of Shareholders' Equity
                                      For the Years Ended December 31, 1999, 1998 and 1997
                                        (amounts in thousands, except per share amounts)


                                                 Common Shares
                                        ---------------------------         Capital in
                                            Number                          excess of          Cumulative          Cumulative
                                           of Shares        Amount          par value          net income           dividends
                                        --------------------------------------------------------------------------------------
<S>                                       <C>               <C>           <C>                  <C>                <C>
January 1, 1997                             8,952             $90           $128,643             $98,154            ($122,905)

Net Income                                     --              --                 --              13,967                   --

Issuance of shares of
beneficial interest                             3              --                  7                  --                   --

Dividends ($1.705/share)                       --              --                 --                  --              (15,264)


------------------------------------------------------------------------------------------------------------------------------

January 1, 1998                             8,955              90            128,650             112,121             (138,169)

Net Income                                     --              --                 --              14,337                   --

Issuance of shares of
beneficial interest                             1              --                 35                  --                   --

Dividends ($1.755/share)                       --              --                 --                  --              (15,716)

------------------------------------------------------------------------------------------------------------------------------

January 1, 1999                             8,956              90            128,685             126,458             (153,885)

Net Income                                     --              --                 --              13,972                   --

Issuance of shares of
beneficial interest                            35              --                570                  --                   --

Dividends ($1.810/share)                       --              --                 --                  --              (16,215)


------------------------------------------------------------------------------------------------------------------------------
           December 31, 1999                8,991             $90           $129,255            $140,430            ($170,100)
==============================================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.


                                                              F-5
<PAGE>
                                    Universal Health Realty Income Trust
                                   Consolidated Statements of Cash Flows
                                           (amounts in thousands)

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                      ------------------------------------
                                                                        1999          1998          1997
                                                                      --------      --------      --------
Cash flows from operating activities:
<S>                                                                    <C>           <C>           <C>
      Net income                                                       $13,972       $14,337       $13,967
      Adjustments to reconcile net income to net cash
       provided by operating activities:
      Depreciation & amortization                                        3,857         3,879         3,775
      Amortization of interest rate cap                                     62           124           124
      Provision for investment loss, net                                 1,583            --            --
      Changes in assets and liabilities:
      Rent receivable                                                      (85)           28           (67)
      Accrued expenses & other liabilities                                 150           170           197
      Tenant escrows, deposits & deferred rents                             30           106          (247)
      Accrued interest                                                     130            64           (17)
      Deferred charges & other                                            (120)          (53)          (26)
                                                                      --------      --------      --------
          Net cash provided by operating activities                     19,579        18,655        17,706
                                                                      --------      --------      --------

Cash flows from investing activities:
      Investments in LLCs                                               (8,713)      (17,912)       (3,741)
      Advances received from (made to) LLCs                              9,980        (9,980)           --
      Acquisitions and additions to land, buildings and CIP            (17,852)         (158)       (4,246)
      Payments made for CIP                                                 --           (28)
      Proceeds received from sale of assets                                998            --            --
      Cash distributions in excess of income from LLCs                   1,150           863           598
      Advances under construction notes receivable                          --            --        (3,414)
      Repayments under mortgage and construction notes receivable           --            --        10,262
                                                                      --------      --------      --------
          Net cash used in investing activities                        (14,437)      (27,215)         (541)
                                                                      --------      --------      --------

Cash flows from financing activities:
      Additional borrowings                                             10,800        23,600            --
      Repayments of long-term debt                                          --            --          (800)
      Dividends paid                                                   (16,215)      (15,716)      (15,264)
      Issuance of shares of beneficial interest                            553            10            --
                                                                      --------      --------      --------
          Net cash (used in) provided by financing activities           (4,862)        7,894       (16,064)
                                                                      --------      --------      --------

      Increase (decrease)  in cash                                         280          (666)        1,101
      Cash, beginning of period                                            572         1,238           137
                                                                      --------      --------      --------
Cash, end of period                                                       $852          $572        $1,238
                                                                      ========      ========      ========

Supplemental disclosures of cash flow information:
      Interest paid                                                     $3,739        $3,232        $2,770
                                                                      ========      ========      ========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                                    F-6
<PAGE>
                      Universal Health Realty Income Trust
                 Notes to the Consolidated Financial Statements
                                December 31, 1999

(1) Summary of Significant Accounting Policies

Nature of Operations

Universal Health Realty Income Trust and Subsidiaries (the "Trust") is organized
as a Maryland real estate  investment  trust.  As of December 31, 1999 the Trust
had investments in thirty-six  facilities  located in thirteen states consisting
of  investments  in healthcare and human service  related  facilities  including
acute  care  hospitals,   behavioral   healthcare   facilities,   rehabilitation
hospitals,  sub-acute care facilities,  surgery centers,  childcare  centers and
medical  office  buildings.  Seven of the Trust's  hospital  facilities  and two
medical  office  buildings  are  leased  to  subsidiaries  of  Universal  Health
Services, Inc., ("UHS").

Federal Income Taxes

No  provision  has been made for  federal  income tax  purposes  since the Trust
qualifies  as a real estate  investment  trust under  Sections 856 to 860 of the
Internal  Revenue Code of 1986,  and intends to continue to remain so qualified.
As such, it is required to distribute at least 95% of its real estate investment
taxable income to its shareholders.

The Trust is subject to a federal  excise tax computed on a calendar year basis.
The excise tax equals 4% of the excess,  if any, of 85% of the Trust's  ordinary
income  plus 95% of any  capital  gain  income for the  calendar  year over cash
distributions  during the calendar year, as defined. No provision for excise tax
has been reflected in the financial statements as no tax was due.

Earnings  and  profits,  which will  determine  the  taxability  of dividends to
shareholders,  will  differ from net income  reported  for  financial  reporting
purposes  due to the  differences  for federal tax purposes in the cost basis of
assets and in the estimated  useful lives used to compute  depreciation  and the
recording of provision for investment losses.

Real Estate Properties

The Trust records acquired real estate at cost and uses the straight-line method
of depreciation for buildings and improvements over estimated useful lives of 25
to 45 years.

It is the Trust's policy to review the carrying  value of long-lived  assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  value  of such  assets  may  not be  recoverable.  Measurement  of the
impairment loss is based on the fair value of the asset.  Generally,  fair value
will be  determined  using  valuation  techniques  such as the present  value of
expected future cash flows.

The Trust invests primarily in healthcare-related  facilities and, therefore, is
subject to certain  industry risk factors,  which directly  impact the operating
results of its lessees.  In recent years,  an increasing  number of  legislative
initiatives   have  been  introduced  or  proposed  in  Congress  and  in  state
legislatures  that would effect major changes in the healthcare  system,  either
nationally or at the state level. In addition,  the healthcare industry has been
characterized  in recent years by increased  competition and  consolidation.

                                      F-7
<PAGE>

In assessing  the  carrying  value of the Trust's  real estate  investments  for
possible impairment,  management reviews estimates of future cash flows expected
from each of its  facilities and evaluates the  creditworthiness  of its lessees
based on their current operating performance and on current industry conditions.

During 1999,  the operating  performance  declined  significantly  at one of the
Trust's  behavioral  health  services  facilities  operated by, and leased to, a
wholly-owned   subsidiary  of  UHS.  Changes  in  CHAMPUS  utilization  and  the
increasing  influence  of managed  care have led to shorter  lengths of stay for
patients  at this  facility  which  is  operated  as an  adolescent  residential
treatment center.  During the twelve months ended December 31, 1999 patient days
and average length of stay at this facility decreased 7% and 20%,  respectively,
as compared to the  comparable  prior year  period.  In the twelve  month period
ended  December 31, 1999,  this facility had earnings  before  interest,  taxes,
depreciation,  amortization  and base rental expense  (EBITDAR) of 0.8 times the
annual  rent  payable  to the  Trust.  The  lease on this  facility  expires  in
December,  2000 and  represented 5% of the Trust's rental revenue for the twelve
month  period  ended  December 31,  1999.  Although  management  of the Trust is
actively  negotiating  the  sale/lease  of the  property  with  UHS as  well  as
non-related  parties,  management of the Trust has concluded  that,  based on an
analysis  of future cash flows,  there has been a  permanent  impairment  in the
carrying value of this facility.  As a result, the Trust recorded a $2.6 million
provision for investment loss during 1999.

Also during 1999,  the Trust sold the real estate  assets of Lakeshore  Hospital
for net proceeds of $998,000.  Since the book value of this facility was reduced
to zero in a prior year,  this amount was recorded as a gain and netted  against
the provision for investment loss during 1999.

Management  of the Trust is unable  to  predict  the  effect,  if any,  that the
industry  factors  discussed  above  will have on the  operating  results of its
lessees or on their ability to meet their  obligations  under the terms of their
leases with the Trust.  In  addition,  management  of the Trust  cannot  predict
whether any of the leases will be renewed on their current terms or at all. As a
result,  management's  estimate of future cash flows from its leased  properties
could be materially  affected in the near term, if certain of the leases are not
renewed at the end of their lease terms.

Investments in Limited Liability Companies

The consolidated  financial  statements of the Trust include the accounts of its
controlled  investments.  In accordance with the American Institute of Certified
Public  Accountants'  Statement of Position 78-9  "Accounting for Investments in
Real Estate  Ventures" and Emerging  Issues Task Force Issue 96-16,  "Investor's
Accounting  for an  Investee  When the  Investor  Has a  Majority  of the Voting
Interest but the Minority  Shareholder or Shareholders  Have Certain Approval or
Veto  Rights",  the Trust  accounts  for its  investment  in  limited  liability
companies which it does not control using the equity method of accounting. These
investments, which represent 33% to 99% non-controlling ownership interests, are
recorded initially at the Trust's cost and subsequently adjusted for the Trust's
net equity in income and cash contributions and distributions.

Earnings Per Share

Basic  earnings  per share are based on the  weighted  average  number of common
shares  outstanding during the year. Diluted earnings per share are based on the
weighted average number of common shares during the year adjusted to give effect
to common stock equivalents.


                                      F-8
<PAGE>
Stock-Based Compensation

Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based Compensation" encourages a fair value based method of accounting for
employee stock options and similar equity  instruments,  which  generally  would
result in the  recording  of  additional  compensation  expense  in the  Trust's
financial statements. The Statement also allows the Trust to continue to account
for stock-based employee  compensation using the intrinsic value-based method of
accounting as prescribed by Accounting  Principals Board ("APB") Opinion No. 25,
"Accounting   for  Stock  Issued  to  Employees."  The  Trust  has  adopted  the
disclosure-only  provisions of SFAS No. 123.  Accordingly,  no compensation cost
has been  recognized  for the stock option plans in the  accompanying  financial
statements.

Statements of Cash Flows

For purposes of the  Consolidated  Statements of Cash Flows, the Trust considers
all highly  liquid  investment  instruments  with  original  maturities of three
months or less to be cash equivalents.

Interest Rate Protection Agreements

In managing interest rate exposure, the Trust at times enters into interest rate
swap  agreements and interest rate cap  agreements.  When interest rates change,
the  differential  to be paid or received  under the Trust's  interest rate swap
agreements is accrued as interest expense.  Premiums paid for purchased interest
rate cap  agreements  are  amortized  to interest  expense over the terms of the
caps.  Unamortized premiums are included in deferred charges in the accompanying
balance  sheet.  Amounts  receivable  under the cap  agreements are accrued as a
reduction of interest expense.

Fair Value of Financial Instruments

The fair value of the Trust's  interest rate swap agreements and investments are
based on quoted  market  prices.  The carrying  amounts  reported in the balance
sheet for cash, accrued liabilities, and short-term borrowings approximate their
fair  values due to the  short-term  nature of these  instruments.  Accordingly,
these  items  have  been  excluded  from the  fair  value  disclosures  included
elsewhere in these notes to consolidated financial statements.

Comprehensive Income

Net income as reported by the Trust reflects total comprehensive  income for the
years ended December 31, 1999, 1998 and 1997.

Use of Estimates

The preparation of financial  statements in conformity  with 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.


                                      F-9
<PAGE>
Accounting Pronouncement Not Yet Adopted

In June  1999,  the  FASB  issued  SFAS  No.  137,  "Accounting  for  Derivative
Instruments and Hedging  Activities - Deferral of the Effective Date of SFAS No.
133",  which  deferred  the  effective  date of SFAS No.  133 for one year.  The
Statement  establishes  accounting and reporting  standards requiring that every
derivative  instrument  (including  certain derivative  instruments  embedded in
other  contracts)  be  recorded  in the  balance  sheet  as  either  an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  accounting  criteria are met.  Special  accounting for qualifying  hedges
allows a derivative's  gains and losses to offset related  results on the hedged
item  in the  income  statement,  and  requires  that a  company  must  formally
document,  designate,  and assess the effectiveness of transactions that receive
hedge accounting.

The Trust will be required to adopt SFAS No. 133 effective as of January 1, 2001
and has not  yet  quantified  the  impact  of  adopting  this  statement  on its
financial  statements.  Further,  the Trust  has not  determined  the  method of
adoption of SFAS No. 133. However, SFAS No. 133 could increase the volatility in
earnings and other comprehensive income.

Reclassifications

Certain prior year amounts have been  reclassified  to conform with current year
financial statement presentation.

(2) Related Party Transactions

UHS of Delaware, Inc. (the "Advisor"),  a wholly-owned subsidiary of UHS, serves
as Advisor to the Trust  under an Advisory  Agreement  dated  December  24, 1986
between the Advisor and the Trust (the "Advisory Agreement"). Under the Advisory
Agreement,  the Advisor is  obligated  to present an  investment  program to the
Trust, to use its best efforts to obtain  investments  suitable for such program
(although it is not obligated to present any particular  investment  opportunity
to the Trust),  to provide  administrative  services to the Trust and to conduct
the Trust's  day-to-day  affairs.  In performing its services under the Advisory
Agreement, the Advisor may utilize independent professional services,  including
accounting,  legal and other  services,  for which  the  Advisor  is  reimbursed
directly by the Trust. The Advisory  Agreement  expires on December 31st of each
year; however,  it is renewable by the Trust,  subject to a determination by the
Independent Trustees that the Advisor's  performance has been satisfactory.  The
Advisory  Agreement  may be  terminated  for any reason upon sixty days  written
notice by the Trust or the Advisor.  The Advisory Agreement has been renewed for
2000. All transactions with UHS must be approved by the Independent Trustees.

The  Advisory  Agreement  provides  that the  Advisor is  entitled to receive an
annual advisory fee equal to .60% of the average  invested real estate assets of
the Trust, as derived from its consolidated  balance sheet from time to time. In
addition, the Advisor is entitled to an annual incentive fee equal to 20% of the
amount by which cash available for distribution to  shareholders,  as defined in
the Advisory Agreement, for each year exceeds 15% of the Trust's equity as shown
on  its  balance  sheet,   determined  in  accordance  with  generally  accepted
accounting  principles  without  reduction for return of capital  dividends.  No
incentive fees were paid during 1999, 1998 and 1997. The advisory fee is payable
quarterly,  subject  to  adjustment  at year end based  upon  audited  financial
statements of the Trust.


                                      F-10
<PAGE>
For the  years  ended  December  31,  1999,  1998 and  1997,  70%,  71% and 72%,
respectively,  of the Trust's revenues were earned under the terms of the leases
with wholly-owned  subsidiaries of UHS. Including 100% of the revenues generated
at the unconsolidated LLCs in which the Trust has various non-controlling equity
interests ranging from 33% to 99%, the UHS leases accounted for 39% in 1999, 46%
in  1998  and  53% in  1997  of the  combined  consolidated  and  unconsolidated
revenues.  The  leases  to  subsidiaries  of  UHS  are  guaranteed  by  UHS  and
cross-defaulted with one another.

During the third  quarter of 1998,  wholly-owned  subsidiaries  of UHS exercised
five-year  renewal  options  on four  hospitals  owned by the Trust  which  were
scheduled to expire in 1999 through 2001 (Virtue Street Pavilion, The Bridgeway,
Inland Valley Regional  Medical Center and Wellington  Regional Medical Center).
The leases on these facilities were renewed at the same lease rates and terms as
the initial leases. As part of the renewal  agreement,  the Trust also agreed to
grant additional fixed rate renewal options to a wholly-owned  subsidiary of UHS
commencing in 2022 on the real property of McAllen Medical Center. Management of
the Trust can not predict  whether the leases with  subsidiaries  of UHS,  which
have  renewal  options at existing  lease  rates,  or any of the  Trust's  other
leases,  will be renewed  at the end of their  initial  term or first  five-year
renewal term.

In recent  years,  an increasing  number of  legislative  initiatives  have been
introduced or proposed in Congress and in state  legislatures  that would effect
major changes in the healthcare system, either nationally or at the state level.
In addition,  the healthcare  industry had been characterized in recent years by
increased  competition and  consolidation.  Management of the Trust is unable to
predict the effect,  if any, these  industry  factors will have on the operating
results of its lessees,  including the facilities leased to subsidiaries of UHS,
or on their  ability to meet their  obligations  under the terms of their leases
with the Trust.

Revenues received from UHS and from other non-related parties were as follows:


                                                          (000s)
                                          --------------------------------------
                                                  Year Ended December 31,
                                          --------------------------------------
                                            1999           1998           1997
                                          --------------------------------------
Base rental - UHS facilities              $13,828        $13,764        $13,731
Base rental - Non-related parties           6,844          6,393          5,605
                                          -------        -------        -------
  Total base rental                        20,672         20,157         19,336
                                          -------        -------        -------

Bonus rental - UHS facilities               2,817          2,737          2,615
Bonus rental - Non-related parties             95            229            229
                                          -------        -------        -------
  Total bonus rental                        2,912          2,966          2,844
                                          -------        -------        -------

Interest - Non-related parties                281            111            584
                                          -------        -------        -------
  Total revenues                          $23,865        $23,234        $22,764
                                          =======        =======        =======

At December  31, 1999,  approximately  8% of the Trust's  outstanding  shares of
beneficial  interest  were held by UHS.  The Trust has granted UHS the option to
purchase  Trust  shares in the  future  at fair  market  value to enable  UHS to
maintain a 5% interest in the Trust.

During  December  of 1993,  UHS,  the  former  lessee  and  operator  of Belmont
Community Hospital, sold the operations of the facility to THC-Chicago, Inc., an
indirect  wholly-owned  subsidiary  of Community  Psychiatric  Centers  ("CPC").
Concurrently,  the Trust purchased certain related real

                                      F-11
<PAGE>

property  from UHS for $1  million  in cash and a note  payable  with a carrying
value of $1.3 million  (including  accrued  interest) at December 31, 1999.  The
note payable has a face value of $1 million and is due on December 31, 2001. The
amount  of  interest  payable  on this  note is  contingent  upon the  financial
performance  of this leased  facility and its estimated fair value at the end of
the initial lease term.  The Trust has estimated the total amount  payable under
the terms of this note and has  discounted  the  payments  to their net  present
value using a 6% rate.

During 1999,  the Trust paid $5.0 million to acquire a 98% interest in a limited
liability  company that owns the Summerlin  Hospital  Medical  Office  Building,
which was constructed in 1997 and is connected to the Summerlin Hospital Medical
Center in Las Vegas,  Nevada.  Summerlin  Hospital  Medical Center is owned by a
limited liability company in which UHS holds a 72% ownership interest. Summerlin
Hospital  Medical  Office  Building  was  owned by this same  limited  liability
company  prior to the sale to the limited  liability  company in which the Trust
holds a 98% ownership interest.

Also during 1999,  the Trust  acquired  the  Orthopaedic  Specialists  of Nevada
Building in Las Vegas, Nevada for $1.6 million. The ground lease on this medical
office building is based upon an agreement between Valley Health Systems, LLC (a
UHS subsidiary) and the Trust.

The Trust's  officers are all employees of UHS and as of December 31, 1999,  the
Trust had no salaried  employees.  In both 1999 and 2000, the Trustees awarded a
$50,000  bonus  to Mr.  Kirk E.  Gorman,  President,  Chief  Financial  Officer,
Secretary and Trustee of the Trust. Also, in both 1999 and 2000, UHS agreed to a
$50,000 reduction in the annual advisory fee paid by the Trust.

(3) Acquisitions and Dispositions

2000 - Subsequent to the year ended  December 31, 1999,  the Trust invested $6.4
million,  including a $4.5 million  non-recourse  mortgage,  in a medical office
building  in Danbury,  Connecticut.  Additionally,  during the first  quarter of
2000,  UHT  purchased a 95% equity  interest for $1.8 million in a LLC that owns
and  operates  the Skypark  Professional  Medical  Building on the campus of the
Torrance Memorial Medical Center in Torrance, California.

1999 - During  1999,  the Trust  added  five new  investments  to its  portfolio
consisting  of the  following:  (i) the  purchase of a 95% equity  interest in a
limited  liability  company  ("LLC") that owns the Santa Fe  Professional  Plaza
located in Scottsdale, Arizona ($1.2 million); (ii) the purchase of a 98% equity
interest  in a LLC that owns the  Summerlin  Hospital  Medical  Office  Building
located in Las Vegas, Nevada ($5.0 million);  (iii) the purchase of a 75% equity
interest  in a LLC that  owns the East  Mesa  Medical  Center  located  in Mesa,
Arizona ($1.6 million);  (iv) the purchase of the  single-tenant the Orthopaedic
Specialists of Nevada Building,  and; (v) a multi-tenant medical office building
located in Atlanta, Georgia ($11.5 million).

1998 - During  1998,  the Trust  added  five new  investments  to its  portfolio
consisting of the following: (i) the purchase of a 99% equity interest in a LLC,
that owns Desert  Springs  Medical  Plaza  located in Las Vegas,  Nevada  ($10.1
million);  (ii) the  purchase  of a 95% equity  interest  in a LLC that owns the
Edwards  Medical Plaza located in Phoenix,  Arizona  ($3.8  million);  (iii) the
purchase of a 95% equity  interest in a LLC that owns the Pacifica Palms Medical
Plaza located in Torrance, California ($1.7 million); (iv) the purchase of a 48%
equity  interest in a LLC that owns the St. Jude Heritage Health Complex located
in Fullerton,  California ($1.4 million), and; (v) the purchase of an 80% equity
interest  in a LLC that owns the Rio Rancho  Medical  Center,  a medical

                                      F-12
<PAGE>
office building located in Rio Rancho, New Mexico ($900,000). In connection with
the  purchase of equity  interest in LLCs that own the  Pacifica  Palms  Medical
Plaza,  the St. Jude Heritage  Health Complex and the Rio Rancho Medical Center,
the  Trust  advanced  a total of $10.0  million  of  short  term  loans to three
separate LLCs.  The loans,  which earned  interest at a combined  average annual
rate of 9% during 1998, were fully repaid to the Trust during 1999.

1997 - During 1997, the Trust added new investments to its portfolio  consisting
of the following:  (i) the purchase of a capital  addition to one of its medical
office buildings and two additional  properties located in Louisiana and Georgia
($1.4  million);  (ii)  the  purchase  of a 75%  equity  interest  in a LLC that
purchased  the  Thunderbird  Paseo  Medical  Plaza  ($1.9  million);  (iii)  the
completion of construction of The Cypresswood  Professional  Center,  located in
Houston,  Texas in which the Trust has a 77%  controlling  equity interest ($4.4
million  including $1.2 million of construction in progress  capitalized  during
1996), and; (iv) the completion of construction of Samaritan West Valley Medical
Center  located  in  Goodyear,  Arizona  in which  the Trust  owns a 89%  equity
interest  in a LLC  which  owns the real  estate  assets of the  facility  ($1.8
million).

(4)  Leases

All of the Trust's leases are classified as operating  leases with initial terms
ranging from 5 to 15 years with up to six five-year  renewal options.  Under the
terms of the  leases,  the Trust  earns  fixed  monthly  base rents and may earn
periodic  additional  rents  (see Note 2).  The  additional  rent  payments  are
generally  computed as a percentage of the facility's net patient revenue or CPI
increase  in excess of a base  amount.  The base year  amount is  typically  net
patient  revenue for the first full year of the lease.  The Trust  records these
additional  rents on a pro  rata  basis  over the  annual  lease  period  if the
achievement of the specific net patient revenue target amounts is probable.

Minimum future base rents on non-cancelable leases are as follows (000s):

             2000                                     $ 21,644
             2001                                       20,793
             2002                                       13,810
             2003                                       12,899
             2004                                       11,429
             Later Years                                24,888
                                                 --------------
             Total Minimum Base Rents                $ 105,463
                                                 ==============

Under the terms of the  hospital  leases,  the lessees  are  required to pay all
operating costs of the properties  including  property insurance and real estate
taxes.  Tenants of the medical  office  buildings  generally are required to pay
their  pro-rata  share of the  property's  operating  costs  above a  stipulated
amount.





                                      F-13
<PAGE>
(5)  Debt

During 1999, the Trust amended its unsecured,  non-amortizing  revolving  credit
agreement  (the  "Agreement"),  which  expires on June 24, 2003, to increase its
borrowing capacity to $100 million from $80 million.  The Agreement provides for
interest at the Trust's option,  at the certificate of deposit rate plus 5/8% to
1 1/8%, Eurodollar rate plus 1/2% to 1 1/8% or the prime rate. A fee of .175% to
 .375% is required on the unused portion of this commitment. The margins over the
certificate  of deposit rate,  Eurodollar  rate and the commitment fee are based
upon the Trust's debt to total  capital  ratio as defined by the  Agreement.  At
December  31, 1999 the  applicable  margin over the  certificate  of deposit and
Eurodollar  rates were 7/8% and 5/8%,  respectively,  and the commitment fee was
 .20%. There are no compensating balance  requirements.  The Agreement contains a
provision  whereby  the  commitments  will  be  reduced  by 50% of the  proceeds
generated  from any new equity  offering.  At December 31,  1999,  the Trust had
approximately $21 million of available borrowing capacity.

The average amounts  outstanding  under the revolving  credit  agreement  during
1999, 1998 and 1997 were $62,042,000, $49,195,000 and $40,774,000, respectively,
with corresponding  effective interest rates,  including commitment fees but not
including the effect of interest rate swaps of 5.9%,  6.3% and 6.4%. The maximum
amounts  outstanding  at  any  month  end  were  $75,600,000,   $64,800,000  and
$44,300,00 during 1999, 1998 and 1997, respectively.

Covenants relating to the revolving credit facility require the maintenance of a
minimum  tangible net worth and specified  financial  ratios,  limit the Trust's
ability  to incur  additional  debt,  limit the  aggregate  amount  of  mortgage
receivables and limit the Trust's ability to increase dividends in excess of 95%
of cash available for distribution, unless additional distributions are required
to comply with the applicable  section of the Internal  Revenue Code and related
regulations governing real estate investment trusts.

The Trust has entered into  interest rate swap  agreements  and an interest rate
cap  agreement  which are  designed  to reduce the impact of changes in interest
rates on its floating rate  revolving  credit notes.  At December  31,1999,  the
Trust had five  outstanding  swap agreements for notional  principal  amounts of
$35,580,000  which mature from May,  2001  through  November,  2006.  These swap
agreements  effectively  fix the interest rate on  $35,580,000  of variable rate
debt at 6.64% including the revolver spread of .625%. The Trust had one interest
rate cap, for which the Trust paid  $622,750,  which  matured in June,  1999 and
fixed the maximum rate on $15 million of variable rate revolving credit notes at
7.625%  including the revolver  spread of .625%.  The interest rate swap and cap
agreements were entered into in anticipation of certain  borrowing  transactions
made by the Trust.  The  effective  rate on the Trust's  revolving  credit notes
including commitment fees and interest rate swap expense was 6.2%, 6.7% and 6.9%
during 1999, 1998 and 1997,  respectively.  Additional interest expense recorded
as a result of the Trust's hedging activity,  which is included in the effective
interest rates shown above,  was $135,000,  $136,000 and $118,000 in 1999,  1998
and 1997,  respectively.  The Trust is  exposed  to credit  loss in the event of
nonperformance by the counterparties to the interest rate swap agreements. These
counterparties  are  major  financial   institutions  and  the  Trust  does  not
anticipate  nonperformance by the counterparties  which are rated A or better by
Moody's  Investors  Service.  Termination of the interest rate swaps at December
31, 1999 would have resulted in payments from the counterparties to the Trust of
approximately  $862,000.  The fair value of the interest rate swap agreements at
December  31, 1999  reflects the  estimated  amounts that the Trust would pay or
receive  to  terminate   the   contracts  and  are  based  on  quotes  from  the
counterparties.

                                      F-14
<PAGE>
(6)  Dividends

Dividends of $1.81 per share were  declared and paid in 1999,  of which  $1.4664
per share was  ordinary  income  and  $.3436  per share was a return of  capital
distribution.  Dividends of $1.755 per share were  declared and paid in 1998, of
which $1.682 per share was  ordinary  income and $.073 per share was a return of
capital  distribution.  Dividends of $1.705 per share were  declared and paid in
1997,  of which $1.624 per share was  ordinary  income and $.081 per share was a
return of capital distribution

(7)  Incentive Plans

In 1991,  the Trustees  adopted a share  compensation  plan for Trustees who are
neither  employees nor officers of the Trust ("Outside  Trustees").  Pursuant to
the plan, each Outside Trustee may elect to receive, in lieu of all or a portion
of the  quarterly  cash  compensation  for services as a Trustee,  shares of the
Trust based on the closing  price of the shares on the date of  issuance.  As of
December 31, 1999 no shares have been issued under the terms of this plan.

During  1992  and  1993,  the  Trust  granted  options   pursuant  to  the  1988
Non-Statutory  Stock  Option  Plan.  Pursuant  to the terms of this plan,  which
expired in December of 1998,  the granted  options  vested  ratably 25% per year
beginning  one year after the date of grant and expired ten years from the grant
date. As of December 31, 1999,  58,024 options were  outstanding and exercisable
at an aggregate purchase price of $973,137 or $16.77 per share.

During 1997, the Trust's Board of Trustees  approved the Universal Health Realty
Income Trust 1997  Incentive  Plan ("The Plan"),  which is a newly created stock
option  and  dividend  equivalents  rights  plan  for  employees  of the  Trust,
including officers and directors. There are 400,000 shares reserved for issuance
under The Plan.  All stock options were granted with an exercise  price equal to
the fair market value on the date of the grant. The options granted vest ratably
at 25% per year  beginning  one year after the date of grant,  and expire in ten
years.  Dividend  equivalent  rights  reduce  the  exercise  price  of the  1997
Incentive  Plan  options  by an  amount  equal to the  cash or  stock  dividends
distributed  subsequent to the date of grant.  Since inception  through December
31, 1999, there have been 80,000 stock options with dividend  equivalent  rights
granted to officers and trustees of the Trust.  Subsequent to December 31, 1999,
an additional 25,000 stock options with dividend  equivalent rights were granted
at an original exercise price of $14.75. The Trust recorded expenses relating to
the dividend equivalent rights of $132,000 in 1999, $123,000 in 1998 and $60,000
in 1997. As of December 31, 1999,  there were 35,000 options  exercisable  under
The Plan with an average exercise price, adjusted to give effect to the dividend
equivalent rights, of $14.40 per share.










                                      F-15
<PAGE>

SFAS No. 123 requires the Trust to disclose  pro-forma  net income and pro-forma
earnings  per share as if  compensation  expense  were  recognized  for  options
granted beginning in 1995. Because the SFAS No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995 and since there were no
stock options granted by the Trust during 1995 or 1996, no pro forma disclosures
are  required.  Using this  approach,  the Trust's net earnings and earnings per
share would have been the pro forma amounts indicated below:

                                      (000s except per share amounts)
                          -------------------------------------------------
Year Ended December 31,         1999               1998            1997
---------------------------------------------------------------------------

Net Income:
  As Reported                    $13,972         $14,337         $13,967
  Pro Forma                      $13,833         $14,201         $13,898

Earnings Per Share:
  As Reported:
    Basic                       $   1.56        $   1.60        $   1.56
    Diluted                     $   1.56        $   1.60        $   1.56

  Pro Forma:
    Basic                       $   1.54        $   1.59        $   1.55
    Diluted                     $   1.54        $   1.58        $   1.55


The fair value of each option grant was estimated on the date of grant using the
Black-Scholes  option-pricing model with the following range of assumptions used
for the four option grants that  occurred  during 1998 and 1997. No options were
granted during 1999, therefore the following table is not applicable ("N/A") for
the year ended December 31, 1999:

Year Ended December 31         1999        1998         1997
-------------------------------------------------------------------

Volatility                      N/A          15%         15%
Interest rate                   N/A        5% - 6%     6 % - 7%
Expected life (years)           N/A          7.9         7.9
Forfeiture rate                 N/A          2%           2%
-------------------------------------------------------------------

Stock-based  compensation  costs on a pro forma  basis  would have  reduced  net
income by  $139,000 in 1999,  $136,000 in 1998 and $69,000 in 1997.  Because the
SFAS No. 123 method of accounting has not been applied to options  granted prior
to  January  1,  1995,   the  resulting  pro  forma   disclosures   may  not  be
representative of that to be expected in future years.



                                      F-16
<PAGE>

Stock  options to purchase  shares of  beneficial  interest have been granted to
officers  and  directors  of the Trust under  various  plans.  Information  with
respect to these options is summarized as follows:
<TABLE>
<CAPTION>
                                       Number of Shares   Average Option Price             Range
      Outstanding Options                                                                (High-Low)
-------------------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>                          <C>
      Balance, January 1, 1997             58,024            $16.77                   $16.875/$16.125
      Granted                              70,000            $18.625                      $18.625
      Exercised                                 0              N/A                          N/A
      Cancelled                                 0              N/A                          N/A

-------------------------------------------------------------------------------------------------------------
      Balance, January 1, 1998            128,024            $17.79                  $18.625/$16.125
      Granted                              10,000            $19.45                 $21.4375/$18.375
      Exercised                             (625)            $18.625                      $18.625
      Cancelled                           (4,375)            $18.625                      $18.625

-------------------------------------------------------------------------------------------------------------
      Balance, January 1, 1999            133,024            $17.88                  $21.4375/$16.125
      Granted                                   0              N/A                          N/A
      Exercised                                 0              N/A                          N/A
      Cancelled                                 0              N/A                          N/A

-------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                133,024            $17.88                  $21.4375/$16.125
-------------------------------------------------------------------------------------------------------------
</TABLE>

(8)  Summarized Financial Information of Equity Affiliates

The following table represents summarized unaudited financial information of the
limited liability companies ("LLCs") accounted for by the equity method. Amounts
presented include investments in the following LLCs as of December 31, 1999:

  Name of LLC                        Property Owned by LLC
  ------------------------------     ---------------------

  DSMB Properties                    Desert Samaritan Hospital MOBs
  DVMC Properties                    Desert Valley Medical Center MOBs
  Parkvale Properties                Maryvale Samaritan Hospital MOBs
  Suburban Properties                Suburban Medical Center MOBs
  Litchvan Investments               Samaritan West Valley Medical Center
  Paseo Medical Properties II        Thunderbird Paseo Medical Plaza
  Willetta Medical Properties        Edwards Medical Plaza
  DesMed                             Desert Springs Medical Plaza
  PacPal Investments                 Pacifica Palms Medical Plaza
  RioMed Investments                 Rio Rancho Medical Center
  West Highland Holdings             St. Jude Heritage Health Complex
  Santa Fe Scottsdale                Santa Fe Professional Plaza
  Bayway Properties                  East Mesa Medical Center
  653 Town Center Drive              Summerlin Hospital Medical Office Building




                                      F-17
<PAGE>
                                                      December 31,
                                        ------------------------------------
                                                1999                 1998
                                        ------------------------------------
                                                 (amounts in thousands)
   Net property                               $116,599              $95,732
   Other assets                                  6,701                5,430
   Liabilities and third-party debt             82,456               58,118
   Loans payable to the Trust                   ------                9,980
   Equity                                       40,844               33,063
   UHT's share of equity                        35,748               28,185




                                        For the Year Ended December 31,
                                  --------------------------------------------
                                       1999            1998            1997
                                  --------------------------------------------
                                                 (amounts in thousands)
   Revenues                              $18,387         $12,942       $8,135
   Operating expenses                      6,772           4,677        2,727
   Depreciation & amortization             3,385           2,450        1,846
   Interest, net                           5,436           4,133        3,093
   Net income                              2,794           1,682          469
   UHT's share of net income               2,554           1,537          445

As of December  31,  1999,  these LLCs had $79.3  million of  non-recourse  debt
payable  to   third-party   lending   institutions.   Aggregate   maturities  of
non-recourse debt payable to third-parties is as follows (000s):

                         2000                 $2,080
                         2001                  5,860
                         2002                  2,140
                         2003                  2,234
                         2004                  1,814
                        Later                 65,126
                                             -------
                        Total                $79,254
                                             =======







                                      F-18
<PAGE>

(9) Quarterly Results (unaudited - amounts in thousands, except per share
    amounts)

<TABLE>
<CAPTION>
                                                                           1999
------------------------------------------------------------------------------------------------------------------------
                                           First           Second          Third           Fourth
                                          Quarter         Quarter         Quarter         Quarter           Total
------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>              <C>
Revenues                                   $6,056          $5,885          $5,782          $6,142           $23,865

Net Income                                 $3,928          $3,811          $2,266          $3,967           $13,972
Earnings Per Share-Basic                    $0.44           $0.43           $0.25           $0.44             $1.56
Earnings Per Share-Diluted                  $0.44           $0.42           $0.25           $0.44             $1.56
</TABLE>

During  the third  quarter  of 1999,  the Trust  recorded  a net  provision  for
investment loss of $1.6 million or $.18 per share, (basic and diluted). Included
in the provision for investment loss was a non-cash asset  impairment  charge of
$2.6  million to reduce  the  carrying-value  of a  behavioral  health  services
facility which has a lease expiration date of December,  2000. The provision for
investment loss was partially offset by a $1.0 million cash gain realized on the
sale of Lakeshore Hospital.

<TABLE>
<CAPTION>
                                                                             1998
------------------------------------------------------------------------------------------------------------------------
                                           First           Second          Third           Fourth
                                          Quarter         Quarter         Quarter         Quarter           Total
------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>              <C>
Revenues                                  $5,857          $5,793          $5,694          $5,890           $23,234

Net Income                                $3,569          $3,528          $3,471          $3,769           $14,337
Earnings Per Share-Basic                   $0.40           $0.39           $0.39           $0.42             $1.60
Earnings Per Share-Diluted                 $0.40           $0.39           $0.39           $0.42             $1.60
</TABLE>











                                      F-19
<PAGE>
                      Universal Health Realty Income Trust
                 Schedule II - Valuation and Qualifying Accounts
                 -----------------------------------------------
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                           Balance at      Charged to                               Balance
                                           beginning        costs and                               at end
                  Description              of period        expenses              Other            of period

Reserve for Investment Losses:
<S>                                         <C>           <C>               <C>
    Year ended December 31, 1999                $116          $1,583(b)         ($1,699)(a)              -
                                            ========         ========            =======            =======

    Year ended December 31, 1998                 $89             $300              ($273)(a)           $116
                                            ========         ========            =======            =======

    Year ended December 31, 1997                $151             $227              ($289)               $89
                                            ========         ========            =======            =======
</TABLE>



(a)  Amounts charged against the reserve.

(b)  Consists of the following:

     Provision for investment loss recorded on
          Behavioral Health Services facility                       $2,581
     Cash proceeds generated from sale of Lake Shore Hospital         (998)
                                                                  ---------
                                                                    $1,583
                                                                  =========




                                      F-20
<PAGE>
<TABLE>
<CAPTION>
                                                            Schedule III
                                                Universal Health Realty Income Trust
                                    Real Estate and Accumulated Depreciation - December 31, 1999
                                                       (amounts in thousands)


                          Initial Cost to       Cost
                          Universal Health   capitalized       Gross amount                             Date of
                         Realty Income Trust  subsequent         at which                             construction
                                            to acquisition    carried at close                          or most
                                                                  of period                              recent
                                                                                        Accumulated    significant          Average
                                                                                        Depreciation   expansion             Deprec-
                                   Building    Land &              Building &              as of          or       Date      iable
Description                Land    & Improv.   Improv.     Land     Improv.     Total  Dec. 31, 1999  renovation  Acquired   Life
<S>                       <C>        <C>       <C>       <C>        <C>       <C>         <C>            <C>      <C>      <C>
Virtue Street Pavilion    $1,825     $9,445          -    $1,770     $9,445    $11,215     $3,513         1975     1986     35 Years
 Chalmette Medical Center  2,000      7,473     $3,148     2,000     10,621     12,621      2,607         1999     1988     34 Years
  Chalmette, Louisiana

Inland Valley Regional
 Medical Center
  Wildomar, California     2,050     10,701      2,868     2,050     13,569     15,619      3,465         1986     1986     43 Years

McAllen Medical Center
  McAllen, Texas           4,720     31,442     10,188     6,281     40,069     46,350     10,207         1994     1986     42 Years

Wellington Regional
 Medical Center
  West Palm Beach,
  Florida                  1,190     14,652      4,822     1,663     19,001     20,664      4,799         1986     1986     42 Years

The Bridgeway
 North Little Rock,
  Arkansas                   150      5,395        499       150      5,894      6,044      2,173         1983     1986     35 Years

Meridell Achievement
 Center
  Austin, Texas            1,350      3,782      1,558     1,350      5,340      6,690      2,996         1991     1986     28 Years

Tri-State Rehabilitation
 Hospital
  Evansville, Indiana        500      6,945      1,062       500      8,007      8,507      2,023         1993     1989     40 Years

Vencor Hospital-Chicago
  Chicago, Illinois          158      6,404      1,837       158      8,241      8,399      3,869         1993     1986     25 Years

Fresno-Herndon
 Medical Plaza
  Fresno, California       1,073      5,266         24     1,073      5,290      6,363        598         1992     1994     45 Years

Family Doctor's Medical
 Office Building
  Shreveport, Louisiana       54      1,526        494        54      2,020      2,074        188         1991     1995     45 Years

Kelsey-Seybold Clinic
 at King's Crossing          439      1,618          6       439      1,624      2,063        153         1995     1995     45 Years
Professional Center
 at King's Crossing          439      1,837         43       439      1,880      2,319        170         1995     1995     45 Years
  Kingwood, Texas

Chesterbrook Academy
  Audubon, Pennsylvania      307        996          -       307        996      1,303         81         1996     1996     45 Years

Carefree Learning Center
  New Britain, Pennsylvania  250        744          -       250        744        994         61         1991     1996     45 Years

Carefree Learning Center
  Uwchlan, Pennsylvania      180        815          -       180        815        995         66         1992     1996     45 Years

Carefree Learning Center
  Newtown, Pennsylvania      195        749          -       195        749        944         61         1992     1996     45 Years

The Southern Crescent
 Center                    1,130      5,092         21     1,130      5,113      6,243        400         1994     1996     45 Years
The Southern Crescent
 Center II                     -          -        806       806          -        806          -         1998     1998     35 Years
  Riverdale, Georgia

The Cypresswood
 Professional Center
  Spring, Texas              573      3,842        187       573      4,029      4,602        288         1997     1997     35 Years

Orthopaedic Specialists
 of Nevada Building
  Las Vegas, Nevada            -      1,579          -         -      1,579      1,579         16         1999     1999     25 Years

Sheffield Medical
 Building
  Atlanta, Georgia         1,760      9,766          -     1,760      9,766     11,526         66         1999     1999     25 Years
                         -------   --------    -------   -------   --------   --------    -------
           TOTALS        $20,343   $130,069    $27,563   $23,128   $154,792   $177,920    $37,800
                         =======   ========    =======   =======   ========   ========    =======
</TABLE>

                                                                F-21

<PAGE>
                      Universal Health Realty Income Trust
                              Notes to Schedule III
                                December 31, 1999
                                -----------------
                              (amount in thousands)



(1) Reconciliation of Real Estate Properties


The following table  reconciles the Real Estate  Properties from January 1, 1997
to December 31, 1999:


<TABLE>
<CAPTION>
                                               1999           1998           1997
                                            ---------      ---------      ---------
<S>                                        <C>            <C>            <C>
Balance at January 1                         $163,932       $163,855       $158,083
Additions and acquisitions                     16,639            158          4,526
SFAS 121 asset write-down                      (2,581)            --             --
Reclasses from construction in progress            --             --          1,246
Dispositions                                      (70)           (81)            --
                                            ---------      ---------      ---------
Balance at December 31                       $177,920       $163,932       $163,855
                                            =========      =========      =========
</TABLE>



(2)  Reconciliation of Accumulated Depreciation


The following table reconciles the Accumulated Depreciation from January 1, 1997
to December 31, 1999:



                                        1999          1998           1997
                                      --------      --------      --------
Balance at January 1                   $34,006       $30,280       $26,540
Current year depreciation expense        3,832         3,807         3,740
Dispositions                               (39)          (81)           --
                                      --------      --------      --------
Balance at December 31                 $37,799       $34,006       $30,280
                                      ========      ========      ========




The aggregate cost basis and net book value of the properties for Federal income
tax  purposes  at  December  31,  1999  are   approximately   $172,000,000   and
$133,000,000, respectively.






                                      F-22