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, 1997
                                       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,
1998: $181,635,256.
Number of shares of beneficial interest  outstanding of registrant as of January
31, 1998: 8,954,840.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its 1998 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1997 (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,
         1997,  the Trust had  investments in twenty-six  facilities  located in
         twelve states consisting of the following:
<TABLE>
<CAPTION>
     Facility Name                                  Location             Type of Facility                Guarantor
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>      <C>                   <C>                    <C>                             
De La Ronde                                (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.                      ---
Family Doctor's Medical Office Bldg.       (B)    Shreveport, LA        Medical Office Bldg.     Columbia/HCA Healthcare Corp.
Kelsey-Seybold Clinic at Kings Crossing    (B)    Kingwood, TX          Medical Office Bldg.     Caremark International, Inc.
Professional Bldgs. at Kings Crossing      (B)    Kingwood, TX          Medical Office Bldg.                      ---
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         Medical Office Bldg.                      ---
Desert Samaritan Hospital MOBs             (C)    Phoenix, AZ           Medical Office Bldg.                      ---
Suburban Medical Center MOBs               (D)    Louisville, KY        Medical Office Bldg.                      ---
Maryvale Samaritan Hospital MOBs           (E)    Phoenix, AZ           Medical Office Bldg.                      ---
Desert Valley Medical Center MOB           (F)    Phoenix, AZ           Medical Office Bldg.                      ---
Thunderbird Paseo Medical Plaza            (G)    Glendale, AZ          Medical Office Bldg.                      ---
Cypresswood Professional Center            (H)    Houston, TX           Medical Office Bldg.                      ---
Samaritan West Valley Medical Ctr.         (I)    Goodyear, AZ          MOB, Imaging Ctr.                         ---
Lake Shore Hospital                        (J)    Manchester, NH        Unoccupied                                ---
<FN>
     (A)  Leased to subsidiaries of Universal Health Services, Inc.
     (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 an LLC which  owns the real
          estate  assets of this  facility on which  construction  was completed
          during the third quarter of 1996. 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 May, 1999.
     (E)  The Trust has a 60%  interest  in an LLC  which  owns the real  estate
          assets of this facility.
     (F)  The  Trust has a 95%  equity  interest  in an LLC which  owns the real
          estate assets of this facility.
     (G)  The  Trust has a 75%  equity  interest  in an 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. Construction on this facility was completed on a substantial
          portion of the building  and the facility was opened  during the third
          quarter of 1997. In connection with this investment,  the Trust made a
          capital contribution of $343,000 to the limited partnership.
     (I)  The  Trust has a 89%  equity  interest  in an LLC which  owns the real
          estate  assets of this  facility.  Construction  was completed and the
          facility opened during the fourth quarter of 1997.
     (J)  The Trust  received  free and clear title to the real estate assets of
          Lake Shore  Hospital  during  1995.  The Trust  continues  to actively
          negotiate  with third parties  interested in purchasing or leasing the
          real estate assets of the Lake Shore facility.
</FN>
</TABLE>
                                       1
<PAGE>

         As of December  31,  1997,  the Trust has invested an aggregate of $175
         million in various real estate  assets,  mortgage  loans,  construction
         loans and limited liability  companies and limited  partnerships  which
         own real estate assets.  Included in the Trust's portfolio is ownership
         of nine  hospital  facilities  (aggregate  investment  of $136 million)
         which  contain an aggregate  of 1,279  licensed  beds.  The leases with
         respect to such  facilities  have fixed  terms with an average of three
         years remaining and provide for renewal options for up to six five-year
         terms.  The initial  terms of these  leases  expire  beginning in 1999.
         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.

         For the hospital  facilities  owned by the Trust, the combined ratio of
         earnings before interest, taxes,  depreciation,  amortization and lease
         and rental  expense  (EBITDAR)  (excluding  a favorable  prior year net
         revenue  adjustment   recorded  during  1996  at  one  of  the  Trust's
         facilities) to minimum rent plus  additional  rent payable to the Trust
         was  approximately  4.7, 5.0, and 5.3 for the years ended  December 31,
         1997,  1996 and 1995,  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  Universal
         Health  Services,   Inc.  ("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, 1997,  subsidiaries  of UHS leased seven of
         the nine  hospital  facilities  owned by the Trust with  initial  terms
         expiring in 1999 through 2003.  The leases to the  subsidiaries  of UHS
         are guaranteed by UHS and are cross-defaulted with one another. Each of
         the leases contains renewal options of up to six 5-year periods.  These
         leases accounted for 79% of the total revenue of the Trust for the five
         years ended  December 31, 1997 (75% for the three years ended  December
         31, 1997).

         For the year ended  December 31, 1997,  three of the UHS facilities did
         not generate  sufficient EBITDAR to cover the 1997 rent expense payable
         to the Trust. The leases on these facilities, one which matures in 2000
         and two which mature in 2001,  generated 27% of the Trust's 1997 rental
         income. All of the Trust's remaining hospital facilities, including the
         facilities operated by non-related parties, had a combined 1997 EBITDAR
         of 6.5  times  (ranging  from 2.2  times to 8.5  times)  the 1997  rent
         expense payable to the Trust.

         For the year ended December 31, 1996, two of the UHS facilities did not
         generate  sufficient  EBITDAR to cover the 1996 rent expense payable to
         the Trust.  The leases on these  facilities,  which  mature in 2000 and
         2001,  generated 18% of the Trust's 1996 rental income.  One additional
         UHS facility  had 1996  EBITDAR  which was less than 1.5 times the 1996
         rent payable to the Trust. The lease on this facility, which matures in
         2001,  generated 10% of the Trust's 1996 rental

                                       2
<PAGE>
         income.  One  additional  UHS facility  had 1996  EBITDAR  (excluding a
         favorable  prior year net revenue  adjustment)  which was less than 2.0
         times the 1996 rent  expense  payable to the  Trust.  The lease on this
         facility, which matures in 1999 generated 6% of the Trust's 1996 rental
         income. All of the Trust's remaining hospital facilities, including the
         facilities operated by non-related parties, had a combined 1996 EBITDAR
         of 7.5  times  (ranging  from 2.1  times to 8.9  times)  the 1996  rent
         expense payable to the Trust.

         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.

         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 initial lease terms.  Representatives  of UHS and the Trustees
         who  are  unaffiliated  with  UHS  (the  "Independent  Trustees")  have
         commenced  informal  discussions  regarding  the terms  under which UHS
         would be willing to extend  the leases on those  facilities  with terms
         expiring in 1999 through  2003,  some of which have had EBITDAR of less
         than 1.0 times the rent  payable  to the Trust.  There is no  assurance
         that an agreement will be reached or, if an agreement is reached,  what
         terms  will be agreed  upon.  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.

         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 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.

         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

                                       3
<PAGE>

         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 1998. 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  1997,  1996 and 1995.  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,  1997,  UHS owned 8% of the
         outstanding shares of beneficial interest.


         Competition

         The Trust  believes  that it is one of  fifteen  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  competitive  position of a
         hospital is also affected by alternative  healthcare  delivery  systems
         such as preferred provider organizations  ("PPOs"),  health maintenance
         organizations  ("HMOs") and indemnity insurance programs.  Such systems
         normally involve a discount from a hospital's  established charges. The
         Trust's  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.  In  response to  increased  pressure on
         revenues,  the Trust's  facilities  continue to implement  cost control
         programs at its facilities  including more efficient staffing standards
         and re-engineering of services.

                                       4
<PAGE>
         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, HMOs, 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 acute care 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
         facilities to continue to experience increased  competition,  admission
         constraints and payor pressures.

         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 Balanced Budget Act of 1997 (the "1997 Act"),  enacted on August 5,
         1997,  calls for the government to trim the growth of federal  spending
         on  Medicare by $115  billion  and on Medicaid by $13 billion  over the
         next five years.  The 1997 Act also calls for  reductions in the future
         rate of increases to payments  made to hospitals and reduces the amount
         of reimbursement for outpatient services,  rehabilitation services, bad
         debt expense and capital costs.  Both  Republicans and Democrats appear
         to be  working  towards  a  balanced  budget by the year 2002 and it is
         likely that future budgets will contain certain  further  reductions in
         the rate of increase in Medicare  and Medicaid  spending.  Payments for
         Medicare  outpatient  services  provided at general  hospitals  and all
         services  provided at rehabilitation  hospitals  historically have been
         reimbursed on costs,  subject to certain limits.  The 1997 Act requires
         that the reimbursement for these services be converted to a prospective
         payment  system,  which  will be  phased  in over  time.  An  increased
         proportion  of the  revenues  generated at the Trust's  facilities  are
         derived from fixed payment services,  including  Medicare and Medicaid.
         While management of the Trust is unable to predict what, if any, future
         health reform legislation may be enacted at the federal or state level,
         the Trust expects its facilities to continue to experience  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.

                                       5
<PAGE>
                      Executive Officers of the Registrant

               The executive officers of the Trust are as follows:

       Name                    Age              Position

   Alan B. Miller              60               Chairman of the Board and
                                                Chief Executive Officer

   Kirk E. Gorman              47               President, Chief Financial
                                                Officer, Secretary and Trustee

   Charles F. Boyle            38               Vice President and
                                                Controller

   Cheryl K. Ramagano          35               Vice President and
                                                Treasurer

   Timothy J. Fowler           42               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,  Genesis Health  Ventures 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 - 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.

The Trust has no salaried  employees and the Trust's  officers are all employees
of UHS and receive no cash compensation from the Trust.

                                       6
<PAGE>

Item 2. Properties

The  following  table shows the Trust's  individual  investments  by the type of
facility, capacity in terms of beds, and five-year occupancy levels based on the
information provided by the lessees or mortgagors.

<TABLE>
<CAPTION>
                                                                                                                              Lease
                                                           Number of                                                          Term 
                                                           available                                                  End of Renewal
                                               Type of       beds @            Average Occupancy (1)      Minimum    initial  term
Facility Name and Location                    facility      12/31/97   1997   1996   1995   1994   1993     rent      term   (years)
<S>                                        <C>                <C>      <C>    <C>    <C>    <C>    <C>    <C>          <C>      <C>
Virtue Street Pavilion                      Rehabilitation     45       64%    61%    57%    92%    81%    $1,261,000   1999     25
De La Ronde                                  Acute Care       118       64%    66%    67%    66%    68%       879,000   2003     15
       Chalmette, Louisiana (2)

Inland Valley Regional Medical Center        Acute Care        80       52%    49%    49%    45%    50%     1,857,000   2001     30
       Wildomar, California (3)

McAllen Medical Center                       Acute Care       467       76%    88%    87%    89%    86%     5,485,000   2001     30
       McAllen, Texas (3)

Wellington Regional Medical Center           Acute Care       120       36%    36%    30%    32%    35%     2,495,000   2001     30
       West Palm Beach, Florida (3)

The BridgeWay                              Behavioral Health   70       68%    62%    65%    61%    57%       683,000   1999     25
       North Little Rock, Arkansas

Meridell Achievement Center                Behavioral Health  114       47%    45%    65%    47%    44%     1,071,000   2000     20
       Austin, Texas

Tri-State Regional Rehabilitation Hospital  Rehabilitation     80       74%    59%    59%    61%    71%     1,113,000   1999     25
       Evansville, Indiana (4)

Vencor Hospital - Chicago                   Sub-Acute Care     81       50%    45%    38%    38%      -     1,065,000   2001     25
       Chicago, Illinois (5)

Fresno - Herndon Medical Plaza                Medical           -      100%   100%   100%      -      -       729,000   1999 various
       Fresno, California (6)               Office Building                                                             -2003

Family Doctor's Medical Office Building       Medical           -      100%   100%   100%      -      -       240,000   2011     10
       Shreveport, Louisiana (7)            Office Building

                                       7
<PAGE>

Item 2. Properties (continued)
                                                                                                                              Lease
                                                           Number of                                                          Term 
                                                           available                                                  End of Renewal
                                               Type of       beds @            Average Occupancy (1)      Minimum    initial  term
Facility Name and Location                    facility      12/31/97   1997   1996   1995   1994   1993     rent      term   (years)

Kelsey-Seybold Clinic at King's Crossing      Medical           -      100%   100%   100%      -      -      $247,000   2005     10
Professional Center at King's Crossing      Office Buildings    -      100%    93%   100%      -      -       278,000   2000 various
       Kingwood, Texas (8)                                                                                              -2005 

Chesterbrook Academy                        Preschool &         -       92%    81%      -      -      -       155,000   2010     14
       Audubon, Pennsylvania (9)            Childcare

Carefree Learning Center                    Preschool &         -       88%    71%      -      -      -       118,000   2010     14
       New Britain, Pennsylvania (9)        Childcare

Carefree Learning Center                    Preschool &         -       61%    61%      -      -      -       113,000   2010     14
       Newtown, Pennsylvania (9)            Childcare

Carefree Learning Center                    Preschool &         -       96%    93%      -      -      -       118,000   2010     14
       Uwchlan, Pennsylvania (9)            Childcare

The Southern Crescent Center                  Medical           -      100%    89%      -      -      -       802,000   1999 various
       Riverdale, Georgia (10)              Office Buildings                                                            -2006

The Cypresswood Professional Center           Medical           -       96%      -      -      -      -       525,000   2002 various
       Houston, Texas (11)                  Office Buildings                                                            -2007
</TABLE>

                                       8

<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, 1997. Average occupancy rate for the multi-tenant  medical
         office  buildings  is  based on the  occupied  square  footage  of each
         building and the average occupancy rate for the preschool and childcare
         centers  is based  on  enrollment.  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 De La Ronde,  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 De La Ronde is a  118-bed  medical/surgical  facility.  The
         Virtue  Street  Pavilion  is a 73-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, for a portion of the  facility.  Annual
         rental is $1.1 million  under the  provisions  of this  agreement.  The
         sub-lease,  which  expired in December,  1997,  contains two three year
         extensions  at the  lessee's  option.  The operator of the facility has
         granted  the lessee a  month-to-month  extension  under the lease while
         renewal discussions are being held. 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 De
         La  Ronde.  Rental  commitments  and the  guarantee  by UHS  under  the
         existing leases  continue for the remainder of the respective  terms of
         the leases.

         (3)  During  the third  quarter of 1995,  UHS  purchased  the assets of
         Westlake  Medical Center,  ("Westlake") a 126-bed hospital of which the
         majority  of real  estate  assets were owned by the Trust and leased to
         UHS.  In  exchange  for the real  estate  assets  of  Westlake  and the
         termination of the lease,  the Trust received  substitution  properties
         valued at  approximately  $19 million  (the Trust's  original  purchase
         price of Westlake)  consisting of  additional  real estate assets which
         were owned by UHS but related to three acute care facilities,  of which
         the Trust owns the real estate and which are  operated by UHS  (McAllen
         Medical Center,  Inland Valley  Regional  Medical Center and Wellington
         Regional Medical Center). These additional real estate assets represent
         major  additions and expansions  made to these  facilities by UHS since
         the purchase of the facilities by the Trust from UHS in 1986. The Trust
         also  purchased  from UHS,  additional  real estate  assets  related to
         McAllen Medical Center for  approximately  $1.9 million in cash.  Total
         annual base rental  payments  from UHS to the Trust on the  substituted
         properties amount to $2.4 million which equals the total base and bonus
         rental earned by the Trust on the Westlake  facility  during 1994 ($2.1
         million base and $300,000 bonus).  Total annual base rental payments on
         the additional real estate assets purchased  related to McAllen Medical
         Center will be approximately $200,000.  Bonus rental on the substituted
         and  purchased  real estate assets will be equal to 1% of the growth in
         revenues, in excess of base year amounts, generated by these additional
         assets.  The guarantee by UHS under the existing leases,  as amended to
         include the additional property, will continue.

         (4) The Trust  purchased  this hospital  during 1989 for  approximately
         $7.5 million.  During 1993, the Trust purchased for approximately  $1.1
         million,  a 20 bed addition which was added to the facility.  The Trust
         entered into an agreement  with the  operator,  an  unaffiliated  third

                                       9
<PAGE>

         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 5-year
         renewal terms.

         (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 $1,147,000 at December 31, 1997.  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.
         Included in the Trust's 1997 financial results is approximately $65,000
         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.

         (6) In November of 1994, the Trust purchased the Fresno-Herndon Medical
         Plaza located in Fresno, California for $6.3 million. The 37,800 square
         foot medical office 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  November,  1999 to March,  2003. The Trust has granted the seller
         the option to repurchase the property in November, 2001 for $7,250,000.

         (7) During  the third  quarter of 1995,  the Trust  purchased  for $1.6
         million, a medical office building on the campus of a hospital owned by
         Columbia/HCA  Healthcare Corporation located in Shreveport,  Louisiana.
         The medical office  building is currently  being leased under the terms
         of a master lease agreement with Columbia/HCA Healthcare Corporation.

         (8) In  December  of 1994,  the Trust  agreed to  provide  construction
         financing for the Professional Center at Kings Crossing,  of which $1.1
         million was advanced  during 1994 and $3.2 million was advanced  during
         1995.  During the fourth quarter of 1995, upon completion and occupancy
         of the  properties,  the Trust  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,  a subsidiary of Caremark
         International,  Inc.,  for  an  initial  term  of  10  years.  The  two
         multi-tenant buildings total 27,535 net square feet and are occupied by
         tenants consisting primarily of medical professionals.

         (9)  During  the  second  quarter  of 1996,  the Trust  purchased  four
         preschool and childcare centers located in southeast Pennsylvania for a
         total of $3.9 million. The childcare centers, which were purchased from
         a subsidiary of Nobel Education Dynamics,  Inc. ("Nobel"),  were leased
         back to Nobel pursuant to the terms of long-term, triple net leases.

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

                                       10
<PAGE>
         (11) 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.

         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, 1997 to a vote of security holders.


                                       11
<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, 1997 and 1996 are summarized below:

<TABLE>
<CAPTION>
                                                    1997                                     1996
                                    ------------------------------------    ---------------------------------------
                                    High Price        Low Price             High Price           Low Price
                                    ----------------- ------------------    -------------------- ------------------
<S>                                 <C>               <C>                   <C>                  <C> 
           First Quarter            $22 3/8           $19 3/4               $20                  $17 1/2
           Second Quarter           $20               $18 1/2               $19 7/8              $18 1/8
           Third Quarter            $21 1/2           $18 15/16             $19 7/8              $18 3/8
           Fourth Quarter           $21 7/8           $20 1/16              $20 1/2              $18 1/2
</TABLE>


         As of January 31, 1998 there were  approximately  1,074 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>
                                   1997       1996      1995       1994        1993
<S>                              <C>        <C>        <C>        <C>        <C>   
          First Quarter          $ .425     $ .420     $ .42      $ .415     $ .415
          Second Quarter           .425       .425       .42        .415       .415
          Third Quarter            .425       .425       .42        .415       .415
          Fourth Quarter           .430       .425       .42        .420       .415
                                 ------     ------     ------     ------     ------
                                 $1.705     $1.695     $1.68      $1.665     $1.66
                                 ======     ======     ======     ======     ======
</TABLE>

                                       12
<PAGE>
         Item 6.  SELECTED FINANCIAL DATA

         Financial  highlights  for the Trust for the five years ended  December
         31, 1997 were as follows:
<TABLE>
<CAPTION>
                                              1997 (1)          1996(1)           1995(1)             1994              1993
<S>                                         <C>               <C>               <C>               <C>               <C>        
           Revenues                         $22,764,000       $21,923,000       $20,417,000       $18,826,000       $18,263,000

           Net income                       $13,967,000       $14,158,000       $13,584,000       $14,312,000       $12,259,000

           Funds from
           Operations (2)                   $18,809,000       $18,174,000       $17,024,000       $17,501,000       $14,911,000


           Per Share Data:
           Net income-Basic                       $1.56             $1.58             $1.52             $1.60             $1.45

           Net income-Diluted                     $1.56             $1.58             $1.52             $1.60             $1.45

           Dividends                             $1.705            $1.695             $1.68            $1.665             $1.66
</TABLE>

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

         (2) Funds from  operations,  which does not represent  cash provided by
         operating  activities  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, is calculated as follows:

<TABLE>
<CAPTION>
                                              1997              1996              1995           1994             1993
<S>                                      <C>              <C>              <C>              <C>              <C>         
          Net income                     $ 13,967,000     $ 14,158,000     $ 13,584,000     $ 14,312,000     $ 12,259,000
          Depreciation expense:
           Consolidated investments         3,740,000        3,554,000        3,315,000        3,127,000        3,023,000
           Unconsolidated affiliates          978,000          337,000               --               --               --
          Amortization of interest
           rate cap                           124,000          125,000          125,000           62,000               --
          Gain on disposal of assets               --               --               --               --         (371,000)
                                         ============     ============     ============     ============     ============
          Total                          $ 18,809,000     $ 18,174,000     $ 17,024,000     $ 17,501,000     $ 14,911,000
                                         ============     ============     ============     ============     ============
</TABLE>

<TABLE>
<CAPTION>
       At End of Period        1997             1996             1995             1994             1993
<S>                        <C>              <C>              <C>              <C>              <C>         
          Total Assets     $146,755,000     $148,566,000     $132,770,000     $128,907,000     $126,657,000

          Debt             $ 42,347,000     $ 43,082,000     $ 26,396,000     $ 21,283,000     $ 18,947,000
</TABLE>


                                       13
<PAGE>

         Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS

         Liquidity and Capital Resources

         General

         The Trust commenced operations on December 24, 1986. As of December 31,
         1997,  the Trust had  investments in twenty-six  facilities  located in
         twelve states consisting of the following:
<TABLE>
<CAPTION>
    Facility Name                                 Location              Type of Facility                Guarantor
<S>                                       <C>    <C>                   <C>                     <C>       
De La Ronde                                (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.                      ---
Family Doctor's Medical Office Bldg.       (B)    Shreveport, LA        Medical Office Bldg.     Columbia/HCA Healthcare Corp.
Kelsey-Seybold Clinic at Kings Crossing    (B)    Kingwood, TX          Medical Office Bldg.     Caremark International, Inc.
Professional Bldgs. at Kings Crossing      (B)    Kingwood, TX          Medical Office Bldg.                      ---
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         Medical Office Bldg.                      ---
Desert Samaritan Hospital MOBs             (C)    Phoenix, AZ           Medical Office Bldg.                      ---
Suburban Medical Center MOBs               (D)    Louisville, KY        Medical Office Bldg.                      ---
Maryvale Samaritan Hospital MOBs           (E)    Phoenix, AZ           Medical Office Bldg.                      ---
Desert Valley Medical Center MOB           (F)    Phoenix, AZ           Medical Office Bldg.                      ---
Thunderbird Paseo Medical Plaza            (G)    Glendale, AZ          Medical Office Bldg.                      ---
Cypresswood Professional Center            (H)    Houston, TX           Medical Office Bldg.                      ---
Samaritan West Valley Medical Ctr.         (I)    Goodyear, AZ          MOB, Imaging Ctr.                         ---
Lake Shore Hospital                        (J)    Manchester, NH        Unoccupied                                ---
<FN>
     (A)  Leased to subsidiaries of Universal Health Services, Inc.
     (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 an LLC which  owns the real
          estate  assets of this  facility on which  construction  was completed
          during the third quarter of 1996. 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 May, 1999.
     (E)  The Trust has a 60%  interest  in an LLC  which  owns the real  estate
          assets of this facility.
     (F)  The  Trust has a 95%  equity  interest  in an LLC which  owns the real
          estate assets of this facility.
     (G)  The  Trust has a 75%  equity  interest  in an 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. Construction on this facility was completed on a substantial
          portion of the building  and the facility was opened  during the third
          quarter of 1997. In connection with this investment,  the Trust made a
          capital contribution of $343,000 to the limited partnership.
     (I)  The  Trust has a 89%  equity  interest  in an LLC which  owns the real
          estate  assets of this  facility.  Construction  was completed and the
          facility opened during the fourth quarter of 1997.
     (J)  The Trust  received  free and clear title to the real estate assets of
          Lake Shore  Hospital  during  1995.  The Trust  continues  to actively
          negotiate  with third parties  interested in purchasing or leasing the
          real estate assets of the Lake Shore facility.
</FN>
</TABLE>
                                       14
<PAGE>

         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 1997,  dividends of $1.705 per share, or $15,264,000 in
         the aggregate, were declared and paid.

         Net cash  generated by operating  activities was $17.7 million in 1997,
         $18.0  million in 1996 and $17.1  million  in 1995.  The  $300,000  net
         decrease in 1997 as compared  to 1996 was due  primarily  to a $100,000
         decrease  in net  income  plus  the  addback  of the  non-cash  charges
         (depreciation,   amortization,   reserve  for  investment   losses  and
         amortization  of interest rate cap expense) and $200,000 of unfavorable
         changes  in other  net  working  capital  accounts.  The  $900,000  net
         increase in 1996 as compared to 1995 was due  primarily to a $1 million
         increase  in net income plus the  addback of the  non-cash  charges (as
         defined above).

         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 1996, the $18.0 million of cash flows  generated from operations
         and the $16.6 million of additional  borrowings were used primarily to:
         (i) pay  dividends  ($15.2  million);  (ii)  purchase  additional  real
         property ($10.2 million, see Note 3); (iii) purchase equity interest in
         various limited  liability  companies ($7.6 million,  see Note 3), and;
         (iv) begin  construction on two new medical office buildings which will
         be owned by limited  liability  companies and limited  partnerships  in
         which the Trust will own equity interests ($1.6 million, see Note 3).

         The Trust has a $70 million unsecured  non-amortizing  revolving credit
         agreement (the  "Agreement"),  which expires on September 30, 2001. The
         Agreement   provides  for  interest  at  the  Trust's  option,  at  the
         certificate of deposit rate plus 3/4% to 1 1/8%,  Eurodollar  rate plus
         5/8% to 1 1/8% or the prime rate. A fee of .15% 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 cash flow ratio as defined by the  Agreement.  At
         December 31, 1997 the applicable margin over the certificate of deposit
         and  Eurodollar  rates  were  7/8%  and  3/4%,  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, 1997, the Trust had approximately
         $25 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.

                                       15
<PAGE>
         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.
         The Trust has three outstanding swap agreements for notional  principal
         amounts of $5 million,  $4 million and $1,580,000  which mature in May,
         1999,  July,  2002 and May, 2001,  respectively.  These swap agreements
         effectively  fix the interest rate on $10,580,000 of variable rate debt
         at 7.69%.  The interest  rate cap,  for which the Trust paid  $622,750,
         (unamortized premium of $187,000 at December 31, 1997) matures in June,
         1999 and  fixes  the  maximum  rate on $15  million  of  variable  rate
         revolving  credit  notes  at  7.75%.  The  interest  rate  swap and cap
         agreements  were  entered  into in  anticipation  of certain  borrowing
         transactions  made  by the  Trust  during  1995,  1996  and  1997.  The
         effective  rate  on  the  Trust's   revolving  credit  notes  including
         commitment  fees and interest rate swap expense was 6.9%, 6.8% and 7.5%
         during 1997, 1996 and 1995,  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 $118,000, $130,000 and
         $69,000 in 1997, 1996 and 1995,  respectively.  The Trust is exposed to
         credit loss in the event of nonperformance by the counterparties to the
         interest rate swap and cap 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, 1997
         would have resulted in payments to the  counterparties of approximately
         $255,000 and  termination  of the interest rate cap would have resulted
         in a payment to the Trust of  approximately  $3,800.  The fair value of
         the interest rate swap and cap agreements at December 31, 1997 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  4% or $841,000 to $22.8  million in 1997 as
         compared  to 1996 and 7% or $1.5  million  to $21.9  million in 1996 as
         compared  to 1995.  The  $841,000  increase  during  1997 over 1996 was
         primarily  attributable to an increase in base rentals from non-related
         parties due to the various  acquisitions  made by the Trust  during the
         second  quarter of 1996 and the third quarter of 1997 (see Note 3). The
         $1.5 million  increase during 1996 as compared to 1995 was attributable
         to an  increase in base  rentals  from  non-related  parties due to the
         various  acquisitions  made by the Trust  during the fourth  quarter of
         1995 and the second quarter of 1996 (see Note 3).

         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 facilities.
         The  Trust's   facilities   have   experienced   growth  in  outpatient
         utilization  over the past several years. The increase 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  acute  care
         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

                                       16
<PAGE>

         authorization and payor pressure to maximize outpatient and alternative
         healthcare  delivery services for less acutely ill patients.  The Trust
         expects its facilities to continue to experience increased competition,
         admission constraints and payor pressures.

         An  increased  proportion  of the  revenues  generated  at the  Trust's
         hospital facilities are derived from fixed payment services,  including
         Medicare and  Medicaid.  The Medicare  program  reimburses  the Trust's
         hospital facilities primarily based on established rates by a diagnosis
         related  group 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 (the "1997
         Act"),  there will be no increases  in the rates paid to hospitals  for
         inpatient care through  September 30, 1998.  Reimbursement for bad debt
         expense and capital costs,  as well as other items,  have been reduced.
         Payments for Medicare outpatient services provided at general hospitals
         and all services provided at rehabilitation hospitals historically have
         been  reimbursed  on costs,  subject  to certain  limits.  The 1997 Act
         requires that the  reimbursement  for these  services be converted to a
         PPS,  which will be phased in over  time.  While the Trust is unable to
         predict what, if any,  future health reform  legislation may be enacted
         at the federal or state  level,  the Trust  expects its  facilities  to
         continue to experience  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 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.  Management  of the Trust is unable to predict the
         rate of growth of the net revenues of its  facilities and the resulting
         impact on bonus  revenues,  which are computed as a percentage  of each
         facility's net revenues in excess of base year amounts or CPI increases
         in excess of base year amounts.  Net revenues of the Trust's facilities
         are dependent upon  developments in medical  technologies and physician
         practice  patterns,  both of which are beyond the control of management
         of the facilities.

         Interest expense increased  $378,000 or 15% in 1997 as compared to 1996
         due primarily to the additional borrowings used to finance the 1996 and
         1997   acquisitions  and  additions  (see  Note  3).  Interest  expense
         increased  $740,000 or 41% in 1996 as compared to 1995 due primarily to
         the  additional  borrowings  used to  finance  the  purchase  of equity
         interests  in  various   limited   liability   companies   and  limited
         partnerships during the first and second quarters of 1996, the purchase
         of four preschool and  child-care  centers during the second quarter of
         1996, and the medical office buildings acquired by the Trust during the
         third and fourth quarters of 1996 (see Note 3).

         Depreciation and amortization  expense increased $139,000 or 4% in 1997
         as compared to 1996 due primarily to the  depreciation  expense related
         to the 1997 and 1996 acquisitions described in Note 3. Depreciation and
         amortization  expense  increased  $254,000 or 8% in 1996 as compared to
         1995  due to the  depreciation  expense  related  to the  1996 and 1995
         acquisitions (see Note 3).

         Other operating  expenses increased $276,000 or 24% in 1997 as compared
         to 1996 due  primarily  to the expenses  related to the medical  office
         buildings  acquired by the Trust during the second  quarter of 1996 and
         the third  quarter of 1997 and a  $100,000  increase  in various  other
         operating expenses.  Other operating expenses increased $476,000 or 70%
         in 1996 as compared

                                       17
<PAGE>

         to 1995 due  primarily  to the expenses  related to the medical  office
         buildings  acquired by the Trust during the fourth  quarter of 1995 and
         the  second  quarter  of 1996 and a $220,000  increase  in the  reserve
         established for future expenses  related to the settlement of Lakeshore
         Hospital.  The expenses related to the medical office buildings totaled
         $769,000 in 1997,  $551,000 in 1996 and $290,000 in 1995.  The majority
         of these  expenses  are  passed  on  directly  to the  tenants  and are
         included as revenues in the Trust's statements of income.

         Net  income for 1997 was $14.0  million or $1.56 per basic and  diluted
         share compared to $14.2 million or $1.58 per basic and diluted share in
         1996 and $13.6 million or $1.52 per basic and diluted share in 1995.

         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
         $18.8 million in 1997, $18.2 million in 1996 and $17.0 million in 1995.
         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

         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 the 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  achievements  of the  Trust 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 fact that a
         substantial  portion  of the  Trust's  revenues  are  dependent  on one
         operator,   Universal  Health  Services,   Inc.,  ("UHS")  and  that  a
         substantial   portion  of  the  Trust's  leases  are  involved  in  the
         healthcare  industry  which is  undergoing  substantial  changes and is
         subject to pressure from  government  reimbursement  programs and other
         third  party  payors.   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.  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. 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.

         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 initial lease terms.  Representatives  of UHS and the Trustees
         who are  unaffiliated  with UHS  have  commenced  informal  discussions
         regarding  the terms  under  which UHS would be  willing  to extend the
         leases on those  facilities  with terms  expiring in 1999 through 2003,
         some of which have had EBITDAR of less than 1.0 times the rent  payable
         to the Trust (see Note 2). There is no assurance that an agreement will
         be reached or, if an  agreement  is reached,  what terms will be agreed
         upon. 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.

                                       18
<PAGE>

         Management of the Trust  recognizes  the need to evaluate the impact on
         its  operations of the change to calendar year 2000 and does not expect
         the total cost of required  building  related  modifications  to have a
         material  impact on its results of operations.  However,  management of
         the Trust cannot  estimate the  magnitude of calendar year 2000 related
         issues on the  operations  of its tenants and no estimates can be given
         on the potential  adverse  impact on the Trust's  results of operations
         resulting  from  failure of its tenants to  adequately  prepare for the
         year 2000.

         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, 1997. 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,
         1997.

         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, 1997.

         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, 1997.

                                       19

<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,  1997 and
                         December 31, 1996
                         Consolidated   Statements   of  Income  -  Years  Ended
                         December 31, 1997, 1996 and 1995
                         Consolidated Statements of Shareholders' Equity - Years
                         Ended December 31, 1997, 1996 and 1995
                         Consolidated  Statements  of Cash  Flows - Years  Ended
                         December 31, 1997, 1996 and 1995
                         Notes to Consolidated  Financial  Statements - December
                         31, 1997

                    (3)  Schedules
                         Schedule II - Valuation and Qualifying Accounts - Years
                         Ended December 31, 1997, 1996 and 1995
                         Schedule III - Real Estate and Accumulated Depreciation
                         - December 31, 1997
                         Notes to Schedule III - December 31, 1997

               (b) Reports on Form 8-K:
                       No reports on Form 8-K were filed during the last quarter
                       of the year ended December 31, 1997

               (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  3.2 to the
         Trust's  Annual  Report on Form 10-K for the year  ended  December  31,
         1988, 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.

                                       20
<PAGE>

              10.2  Agreement  effective  January  1,  1998,  to renew  Advisory
         Agreement dated as of December 24, 1986 between Universal Health Realty
         Income Trust and UHS of Delaware, Inc.

              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.

                                       21
<PAGE>

              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.

              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 Amendment to Credit Agreement dated as of September 27, 1996
         by and among  Universal  Health Realty Income Trust,  Corestates  Bank,
         N.A.  as agent,  NationsBank,  N.A,  and  First  Union  National  Bank,
         previously  filed as  Exhibit  10.1 to the  Trust's  Form  10-Q for the
         quarter ended September 30, 1996, is incorporated herein by reference.

              10.19  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.

              27 Financial Data Schedule

              28.1 Dividend Reinvestment Plan for Stockholders, previously filed
         as Exhibit  28.1 to the Trust's  Form 10-Q for the quarter  ended March
         31, 1987, is incorporated herein by reference.


                                       22
<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 5, 1998
                          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 5, 1998         Alan B. Miller, Chairman of the Board
                                   and Chief Executive Officer

                                   /s/ Kirk E. Gorman
             March 5, 1998         Kirk E. Gorman, President, Chief
                                   Financial Officer, Secretary and Trustee

                                   /s/ James E. Dalton, Jr.
             March 9, 1998         James E. Dalton, Jr., Trustee

                                   /s/ Peter Linneman
             March 5, 1998         Peter Linneman, Trustee

                                   /s/ Myles H. Tanenbaum
             March 5, 1998         Myles H. Tanenbaum, Trustee

                                   /s/ Michael R. Walker
             March 5, 1998         Michael R. Walker, Trustee

                                   /s/ Daniel M. Cain
             March 5, 1998         Daniel M. Cain, Trustee

                                   /s/ Charles F. Boyle
             March 5, 1998         Charles F. Boyle, Vice President and
                                   Controller

                                   /s/ Cheryl K. Ramagano
             March 5, 1998         Cheryl K. Ramagano, Vice President and
                                   Treasurer

                                   /s/ Timothy J. Fowler
             March 9, 1998         Timothy J. Fowler, Vice President,
                                   Acquisitions and Development

                                       23
<PAGE>

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


                                                                          Page

Report of Independent Public Accountants                                  F-2

Consolidated Balance Sheets - December 31, 1997 and December 31, 1996     F-3

Consolidated Statements of Income - Years Ended December 31, 1997,
1996 and 1995                                                             F-4

Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1997, 1996 and 1995                                          F-5

Statements of Cash Flows - Years Ended December 31, 1997,
1996 and 1995                                                             F-6

Notes to Consolidated Financial Statements - December 31, 1997            F-7

Schedule II - Valuation and Qualifying Accounts -
Years Ended December 31, 1997, 1996 and 1995                              F-17

Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1997                                                         F-18

Notes to Schedule III - December 31, 1997                                 F-19

                                      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, 1997 and 1996 and the related  consolidated  statements  of
income,  changes  in  shareholders'  equity and cash flows for each of the three
years in the period ended December 31, 1997. These 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 financial  statements and
schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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, 1997
and 1996 and the  consolidated  results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
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  financial  statements.  These  schedules  have been
subjected to the auditing procedures applied in our audit of the basic 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
financial statements taken as a whole.



Philadelphia, Pennsylvania                      Arthur Andersen LLP
January 20, 1998


                                      F-2
<PAGE>
                      Universal Health Realty Income Trust
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                 December 31,     December 31,
Assets:                                                                             1997              1996
<S>                                                                            <C>               <C>         
Real Estate Investments:
   Buildings & improvements                                                    $143,600,000      $138,400,000
   Accumulated depreciation                                                     (30,280,000)      (26,540,000)
                                                                              -------------     -------------
                                                                                113,320,000       111,860,000
   Land                                                                          20,255,000        19,683,000
   Mortgage loans receivable, net                                                        --         6,405,000
   Construction loan and interest receivable                                             --           398,000
   Construction in progress                                                              --         1,246,000
   Reserve for investment losses                                                    (89,000)         (151,000)
                                                                              -------------     -------------
                    Net Real Estate Investments                                 133,486,000       139,441,000

Other Assets:
   Cash                                                                           1,238,000           137,000
   Bonus rent receivable from UHS                                                   653,000           634,000
   Rent receivable from non-related parties                                          80,000            32,000
   Investments in limited liability companies                                    11,075,000         7,932,000
   Deferred charges and other assets, net                                           223,000           390,000
                                                                              -------------     -------------
                                                                               $146,755,000      $148,566,000
                                                                              =============     =============

Liabilities and Shareholders' Equity:

Liabilities:
   Bank borrowings                                                              $41,200,000       $42,000,000
   Note payable to UHS                                                            1,147,000         1,082,000
   Accrued interest                                                                 217,000           234,000
   Accrued expenses & other liabilities                                           1,130,000           686,000
   Tenant reserves, escrows, deposits and prepaid rental                            268,000           515,000
   Minority interest                                                                101,000            67,000

Commitments and Contingencies (Note 1)
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: 1997 - 8,954,840
         1996 - 8,952,340                                                            90,000            90,000
   Capital in excess of par value                                               128,650,000       128,643,000
   Cumulative net income                                                        112,121,000        98,154,000
   Cumulative dividends                                                        (138,169,000)     (122,905,000)
                                                                              -------------     -------------
                    Total Shareholders' Equity                                  102,692,000       103,982,000
                                                                              -------------     -------------
                                                                               $146,755,000      $148,566,000
                                                                              =============     =============
</TABLE>

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

                                       F-3
<PAGE>
                      Universal Health Realty Income Trust
                        Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                                    1997           1996           1995
Revenues (Note 2):
<S>                                                                             <C>            <C>            <C>        
     Base rental - UHS facilities                                               $13,731,000    $13,731,000    $13,491,000
     Base rental - Non-related parties                                            5,605,000      4,706,000      3,195,000
     Bonus rental                                                                 2,844,000      2,735,000      2,773,000
     Interest                                                                       584,000        751,000        958,000
                                                                                -----------    -----------    -----------
                                                                                 22,764,000     21,923,000     20,417,000
                                                                                -----------    -----------    -----------


Expenses:

     Depreciation & amortization                                                  3,775,000      3,636,000      3,382,000
     Interest expense                                                             2,943,000      2,565,000      1,825,000
     Advisory fees to UHS (Note 2)                                                1,099,000      1,044,000        953,000
     Other operating expenses                                                     1,425,000      1,149,000        673,000
                                                                                -----------    -----------    -----------
                                                                                  9,242,000      8,394,000      6,833,000
                                                                                -----------    -----------    -----------

     Income before equity in limited liability companies                         13,522,000     13,529,000     13,584,000

     Equity in income of limited liability companies                                445,000        629,000             --
                                                                                -----------    -----------    -----------
                                  Net Income                                    $13,967,000    $14,158,000    $13,584,000
                                                                                ===========    ===========    ===========


                         Net Income Per Share - Basic                                 $1.56          $1.58          $1.52
                                                                                ===========    ===========    ===========

                        Net Income Per Share - Diluted                                $1.56          $1.58          $1.52
                                                                                ===========    ===========    ===========

     Weighted average number of shares outstanding - Basic                        8,954,000      8,952,000      8,947,000
     Weighted average number of share equivalents                                    13,000          6,000             --
                                                                                -----------    -----------    -----------
     Weighted average number of shares and equivalents outstanding - Diluted      8,967,000      8,958,000      8,947,000
                                                                                ===========    ===========    ===========
</TABLE>

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

                                      F-4
<PAGE>


                      Universal Health Realty Income Trust
                 Consolidated Statements of Shareholders' Equity
              For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                        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, 1995                     8,947,192          $89,000     $128,643,000      $70,412,000     ($92,699,000)

Net Income                                 --               --               --       13,584,000               --

Dividends ($1.68/share)                    --               --               --               --      (15,032,000)

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

January 1, 1996                     8,947,192           89,000      128,643,000       83,996,000     (107,731,000)

Net Income                                 --               --               --       14,158,000               --

Issuance of shares of
beneficial interest                     5,148            1,000               --               --               --

Dividends ($1.695/share)                   --               --               --               --      (15,174,000)

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

January 1, 1997                     8,952,340           90,000      128,643,000       98,154,000     (122,905,000)

Net Income                                 --               --               --       13,967,000               --

Issuance of shares of
beneficial interest                     2,500               --            7,000               --               --

Dividends ($1.705/share)                   --               --               --               --      (15,264,000)

-----------------------------------------------------------------------------------------------------------------
           December 31, 1997        8,954,840          $90,000     $128,650,000     $112,121,000    ($138,169,000)
=================================================================================================================
</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
<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                             1997             1996              1995
<S>                                                                     <C>               <C>               <C>   
Cash flows from operating activities:
       Net income                                                       $13,967,000       $14,158,000       $13,584,000
       Adjustments to reconcile net income to net cash
          provided by operating activities:
            Depreciation & amortization                                   3,775,000         3,636,000         3,382,000
            Amortization of interest rate cap                               124,000           125,000           125,000
            Provision for investment losses                                 227,000           220,000                --
       Changes in assets and liabilities:
            Rent receivable                                                 (67,000)          (47,000)           70,000
            Accrued expenses & other liabilities                            197,000            77,000           (22,000)
            Tenant escrows, deposits & prepaid rents                       (247,000)          (29,000)          180,000
            Construction & mortgage loan interest receivable                  7,000            (7,000)            3,000
            Accrued interest                                                (17,000)           77,000            40,000
            Payments made  for investment losses                           (289,000)         (227,000)         (332,000)
            Deferred charges & other                                         29,000            20,000            43,000
                                                                       ------------      ------------      ------------
               Net cash provided by operating activities                 17,706,000        18,003,000        17,073,000
                                                                       ------------      ------------      ------------

Cash flows from investing activities:
       Investments in limited liability companies                        (3,741,000)       (7,624,000)         (308,000)
       Acquisitions and additions to land and buildings                  (4,246,000)      (10,195,000)       (7,794,000)
       Payments made for construction in progress                                --        (1,246,000)               --
       Advances under construction note receivable                       (3,414,000)         (391,000)       (3,190,000)
       Repayments under mortgage and construction notes receivable       10,262,000                --         4,333,000
       Cash distributions in excess of income from LLCs                     598,000                --                --
                                                                       ------------      ------------      ------------
               Net cash used in investing activities                       (541,000)      (19,456,000)       (6,959,000)
                                                                       ------------      ------------      ------------

Cash flows from financing activities:
       Additional borrowings, net of financing costs                             --        16,625,000         5,055,000
       Repayment of debt                                                   (800,000)               --                --
       Dividends paid                                                   (15,264,000)      (15,174,000)      (15,032,000)
                                                                       ------------      ------------      ------------
               Net cash (used in) provided by financing activities      (16,064,000)        1,451,000        (9,977,000)
                                                                       ------------      ------------      ------------

       Increase (decrease) in cash                                        1,101,000            (2,000)          137,000
       Cash, beginning of period                                            137,000           139,000             2,000
                                                                       ------------      ------------      ------------
                               Cash, end of period                       $1,238,000          $137,000          $139,000
                                                                       ============      ============      ============

Supplemental disclosures of cash flow information:
       Interest paid                                                     $2,770,000        $2,302,000        $1,602,000
                                                                       ============      ============      ============
</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, 1997

(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, 1997 the Trust
had investments in twenty-six  facilities located in twelve 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 which  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 percent 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 flow.

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 reviewed estimates of future cash flows expected
from each of its  facilities and evaluated the  creditworthiness  of its lessees
based on their current operating performance and on current industry conditions.

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 initial 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",  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  95%  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

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  "Earnings  per Share"  (SFAS  128).  SFAS 128  establishes  standards  for
computing and presenting  earnings per share (EPS). 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.  All per share amounts for all periods presented have been restated
to conform to SFAS 128.

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  is accrued as a
reduction of interest expense.

                                      F-8

<PAGE>

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  approximates
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.

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.

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 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
1998. 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 1997, 1996 and 1995. The advisory fee is payable
quarterly,  subject  to  adjustment  at year end based  upon  audited  financial
statements of the Trust.

                                      F-9
<PAGE>

For the  years  ended  December  31,  1997,  1996 and  1995,  72%,  74% and 79%,
respectively,  of the Trust's gross  revenues were earned under the terms of the
leases with wholly-owned  subsidiaries of UHS. The leases to subsidiaries of UHS
are guaranteed by UHS and cross-defaulted with one another.

For the year  ended  December  31,  1997,  three of the UHS  facilities  did not
generate sufficient earnings before interest, taxes, depreciation,  amortization
and lease and rental expense (EBITDAR) to cover the 1997 rent expense payable to
the Trust.  The leases on these  facilities,  one which  matures in 2000 and two
which mature in 2001,  generated 27% of the Trust's 1997 rental  income.  All of
the Trust's remaining hospital facilities,  including the facilities operated by
non-related  parties, had a combined 1997 EBITDAR of 6.5 times (ranging from 2.2
times to 8.5 times) the 1997 rent expense payable to the Trust.

For the year ended December 31, 1996, two of the UHS facilities did not generate
enough EBITDAR to cover the 1996 rent expense  payable to the Trust.  The leases
on these facilities, which mature in 2000 and 2001, generated 18% of the Trust's
1996 rental income.  One additional UHS facility had 1996 EBITDAR which was less
than 1.5 times the 1996 rent payable to the Trust.  The lease on this  facility,
which  matures in 2001,  generated  10% of the Trust's 1996 rental  income.  One
additional UHS facility had 1996 EBITDAR  (excluding a favorable  prior year net
revenue  adjustment)  which was less than 2.0 times the 1996 rent payable to the
Trust.  The lease on this  facility,  which matures in 1999  generated 6% of the
Trust's 1996 rental income.  All of the Trust's remaining  hospital  facilities,
including the facilities  operated by non-related  parties,  had a combined 1996
EBITDAR of 7.5 times (ranging from 2.1 times to 8.9 times) the 1996 rent expense
payable to the Trust.

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.

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  initial  lease  terms.
Representatives  of UHS and the  Trustees  who are  unaffiliated  with  UHS have
commenced  informal  discussions  regarding  the terms  under which UHS would be
willing to extend the leases on those  facilities  with terms  expiring  in 1999
through  2003,  some of which  have had  EBITDAR of less than 1.0 times the rent
payable to the Trust.  There is no assurance  that an agreement  will be reached
or, if an  agreement is reached,  what terms will be agreed upon.  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.

                                      F-10
<PAGE>

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

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                           1997             1996           1995
<S>                                    <C>             <C>             <C>        
Base rental - UHS facilities           $13,731,000     $13,731,000     $13,491,000
Base rental - Non-related parties        5,605,000       4,706,000       3,195,000
                                       -----------     -----------     -----------
  Total base rental                     19,336,000      18,437,000      16,686,000
                                       -----------     -----------     -----------

Bonus rental - UHS facilities            2,615,000       2,506,000       2,552,000
Bonus rental - Non-related parties         229,000         229,000         221,000
                                       -----------     -----------     -----------
  Total bonus rental                     2,844,000       2,735,000       2,773,000
                                       -----------     -----------     -----------

Interest - Non-related parties             584,000         751,000         958,000
                                       -----------     -----------     -----------
  Total revenues                       $22,764,000     $21,923,000     $20,417,000
                                       ===========     ===========     ===========
</TABLE>

At December  31, 1997,  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.

The Trust has no salaried  employees and the Trust's  officers are all employees
of UHS and receive no cash compensation from the Trust.


(3)  Acquisitions and Dispositions

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  limited
liability  company that  purchased  the  Thunderbird  Paseo  Medical Plaza ($1.9
million);  (iii) the  completion of  construction  of  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 an LLC  which  owns the real  estate  assets  of the
facility ($1.8 million).

1996 - During 1996,  the Trust added  eleven new  investments  to its  portfolio
consisting  of the  following:  (i) the  purchase of a 50% equity  interest in a
limited  liability  company  ("LLC") which owns three medical  office  buildings
located on the campus of Desert Samaritan Hospital in Phoenix,  Arizona totaling
approximately  219,000  gross  square feet and leased to several  tenants  ($5.0
million);  (ii) the purchase of four preschool and child-care centers located in
southeastern, Pennsylvania ($3.9 million); (iii) the acquisition of a 33% equity
interest  in an LLC which owns a 94,000  square  foot  medical  office  building
located on the campus of Columbia/HCA Healthcare  Corporation's 260-bed Suburban
Medical  Center in  Louisville,  Kentucky;  (iv) the purchase of a 41,400 square
foot,  multi-tenant  medical office building  adjacent to the Southern  Regional
Medical Center in Riverdale,  Georgia ($6.2 million);  (v) the purchase of a 50%
equity interest in an LLC which owns two medical office  buildings on the campus
of Maryvale Samaritan Hospital located in 

                                      F-11
<PAGE>
Phoenix,  Arizona ($1.4 million);  (vi) the purchase of a 95% equity interest in
an LLC which  purchased the Desert Valley  Medical  Center,  a 54,000 net square
foot medical  office  building  located on the campus of the  Columbia  Paradise
Valley  Hospital in Phoenix,  Arizona  ($4.3 million  including  $2.7 million of
long-term, non-recourse debt); (vii) the agreement to provide up to $4.1 million
of construction  financing to a limited  partnership,  of which the Trust owns a
77%  controlling   equity   interest,   for  the   construction  of  Cypresswood
Professional  Center  located in  Houston,  Texas ($1.2  million  advanced as of
December 31, 1996 including a $343,000  capital  contribution),  and; (viii) the
agreement  to provide up to $5.1  million of  construction  financing  to an LLC
(excluding $525,000 of capital to be contributed by the Trust upon completion of
the center in the fourth quarter of 1997), of which the Trust owns a 50% initial
equity  interest,  for the  construction of Samaritan West Valley Medical Center
located in Goodyear,  Arizona  ($391,000  advanced as of December 31, 1996).  In
connection  with the  Trust's  acquisition  of a 33% equity  interest in the LLC
which owns the medical office building on the campus of Suburban Medical Center,
the Trust posted a $3.5 million  standby letter of credit for the benefit of the
lender  providing the financing.  Construction on the  Cypresswood  Professional
Center and the Samaritan  West Valley  Medical Center was completed in the third
and fourth quarters of 1997, respectively.

1995 - During the third  quarter of 1995,  the Trust sold the real estate assets
of  Westlake  Medical  Center  ("Westlake")  a  126-bed  hospital,  of which the
majority  of real  estate  assets  were owned by the Trust and leased to UHS. In
exchange  for the real estate  assets of  Westlake  and the  termination  of the
lease, the Trust received  substitution  properties  valued at approximately $19
million  (the  Trust's  original  purchase  price  of  Westlake)  consisting  of
additional real estate assets which were owned by UHS but related to three acute
care facilities,  of which the Trust owns the real estate and which are operated
by UHS (McAllen  Medical  Center,  Inland  Valley  Regional  Medical  Center and
Wellington  Regional  Medical  Center).  These  additional  real  estate  assets
represent major  additions and expansions made to these  facilities by UHS since
the  purchase of the  facilities  by the Trust from UHS in 1986.  The Trust also
purchased from UHS,  additional  real estate assets  related to McAllen  Medical
Center for approximately $1.9 million in cash. Total annual base rental payments
from UHS to the Trust on  substituted  properties  amount to $2.4 million  which
equals  the total  base and  bonus  rental  earned by the Trust on the  Westlake
facility during 1994 ($2.1 million base and $300,000  bonus).  Total annual base
rental  payments on the  additional  real  estate  assets  purchased  related to
McAllen  Medical  Center will be  approximately  $200,000.  Bonus  rental on the
substituted  and purchased  real estate assets will be equal to 1% of the growth
in  revenues,  in excess of base year  amounts,  generated  by these  additional
assets.  The guarantee by UHS under the existing  leases,  as amended to include
the additional property, will continue.

During the third  quarter  of 1995,  the Trust  purchased  for $1.6  million,  a
medical  office  building   located  on  the  campus  of  a  hospital  owned  by
Columbia/HCA  Healthcare  Corporation  located  in  Shreveport,  Louisiana.  The
medical  office  building is currently  being leased under the terms of a master
lease agreement with Columbia/HCA Healthcare Corporation.

(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  5-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 facility  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.

                                      F-12
<PAGE>

Minimum future base rents on noncancelable leases are as follows:

                1998                                              $19,234,000
                1999                                               19,271,000
                2000                                               15,983,000
                2001                                               14,910,000
                2002                                                3,911,000
                Later Years                                        10,465,000
                                                                 ------------
                Total Minimum Base Rents                          $83,774,000
                                                                  ===========

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  are  required  to pay their
pro-rata share of the property's operating costs above a stipulated amount.

(5)  Debt

The Trust has a $70 million, unsecured non-amortizing revolving credit agreement
(the  "Agreement")  which expires on September 30, 2001. The Agreement  provides
for interest at the Trust's option, at the certificate of deposit rate plus 3/4%
to 1 1/8%,  Eurodollar rate plus 5/8% to 1 1/8% or the prime rate. A fee of .15%
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 cash flow  ratio.  At  December  31,  1997 the
applicable margin over the certificate of deposit and Eurodollar rates were 7/8%
and  3/4%,  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, 1997, the Trust had  approximately $25 million
of available borrowing capacity.

The average amounts  outstanding  under the revolving  credit  agreement  during
1997,   1996  and  1995  were   $40,774,000,   $34,410,000,   and   $21,589,000,
respectively,  with corresponding effective interest rates, including commitment
fees but not  including  the effect of interest  rate swaps of 6.4%,  6.3%,  and
7.2%.  The  maximum  amounts  outstanding  at any  month  end were  $44,300,000,
$42,200,000 and $25,375,000 during 1997, 1996 and 1995, 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.  The  Trust  has  three
outstanding  swap agreements for notional  principal  amounts of $5 million,  $4
million and  $1,580,000  which  mature in May,  1999,  July 2002 and May,  2001,
respectively.  These  swap  agreements  effectively  fix  the  interest  rate on
$10,580,000 of variable rate debt at 7.69%. The interest rate cap, for which the
Trust paid  $622,750,  (unamortized  premium of $187,000 at December  31,  1997)
matures in June, 1999 and fixes the maximum rate

                                      F-13
<PAGE>

on $15 million of variable rate revolving  credit notes at 7.75%.  The effective
rate on the  Trust's  revolving  credit  notes  including  commitment  fees  and
interest rate swap expense was 6.9%,  6.8% and 7.5% during 1997,  1996 and 1995,
respectively.  Additional  interest  expense recorded as a result of the Trust's
hedging  activity was  $118,000,  $130,000  and $69,000 in 1997,  1996 and 1995,
respectively. The Trust is exposed to credit loss in the event of nonperformance
by the  counterparties  to the  interest  rate  swap and cap  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, 1997 would have resulted in payments to the  counterparties of approximately
$255,000  and  termination  of the  interest  rate cap would have  resulted in a
payment to the Trust of  approximately  $3,800.  The fair value of the  interest
rate swap and cap agreements at December 31, 1997 reflects the estimated amounts
that the Trust would pay or receive to terminate  the contracts and are based on
quotes from the counterparties.

(6)  Dividends

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.  Dividends of $1.695 per share were  declared and paid in 1996, of
which $1.622 per share was  ordinary  income and $.073 per share was a return of
capital  distribution.  Dividends  of $1.68 per share were  declared and paid in
1995,  of which $1.575 per share was  ordinary  income and $.105 per share was a
return of capital distribution.

(7)  Financing

In 1993,  the Trust  funded $6.5  million for the purchase of the real assets of
the Madison Irving Medical Center, by Crouse Irving Memorial Properties, located
in Syracuse,  New York. The entire outstanding  mortgage loan balance was repaid
to the  Trust  on  June  2,  1997.  Interest  on the  mortgage  loan,  including
amortization of prepaid  commitment fees,  accrued at an average annualized rate
of 11.1% during 1997, 11.3% during 1996 and 11.5% during 1995.

During 1995, the Trust received free and clear title to Lake Shore Hospital,  on
which the Trust held a mortgage loan receivable.  During 1994, the Trust reached
a  settlement  agreement  with Lake Shore  Hospital,  Inc.  and  Community  Care
Systems,  Inc.  concerning  the default of their  obligations  under the Trust's
mortgage  loan  with Lake  Shore  Hospital.  Under  the terms of the  settlement
agreement,  the Trust  received  $1.5 million in cash  payments  during 1994, of
which $1,050,000 was included in net income as recovery of investment losses and
$450,000 was  reserved  for future  expenses  related to the  settlement  of the
facility.  The carrying  value of this facility was reduced to zero in 1992. The
Trust  continues  to  actively   negotiate  with  third  parties  interested  in
purchasing or leasing the real estate assets of the Lake Shore facility.

(8) Incentive Plans

During 1988, the Trustees  approved a Key Employees'  Restricted  Share Purchase
Plan.  Under the terms of this plan,  which expires in 1998, up to 50,000 shares
have been reserved for issuance to key employees  (45,000  shares  available for
grant as of December 31, 1997).  Eligible  employees may purchase  shares of the
Trust at par value subject to certain restrictions.  The restrictions lapse over
four years if the employee remains employed by the Trust.

                                      F-14
<PAGE>

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, 1997, no shares have been issued under the terms of this plan.

During  1992,  the Trust  amended the 1988  Non-Statutory  Stock  Option Plan to
increase the number of shares reserved under the plan from 50,000 to 200,000. As
of December 31, 1997,  options to purchase 95,000 shares of beneficial  interest
were granted,  of which 85,000 were granted to officers of the Trust during 1992
at an exercise  price of $16.875 per share and 10,000 were granted to an officer
of the Trust during 1993 at an exercise  price of $16.125.  During 1996,  36,976
options were exercised.  As of December 31, 1997, all 58,024  remaining  options
were exercisable at an aggregate purchase price of $973,137.

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.  Although  The Plan  has  been  unanimously
approved by the Trust's Board, it is contingent upon shareholder approval, which
will be solicited in the spring of 1998.  There are 400,000 shares  reserved for
issuance  under The Plan.  Pursuant to the terms of The Plan,  70,000 options to
purchase shares of the Trust were granted to officers and directors of the Trust
on June 23, 1997, at an exercise price of $18.625 per share. The options granted
vest  ratably at 25% per year  beginning  one year after the date of grant,  and
expire in ten years. As of December 31, 1997, there were no options  exercisable
under The Plan.  Also on June 23, 1997,  there were 70,000  dividend  equivalent
rights granted to officers and trustees of the Trust.

In October 1995, the Financial  Accounting  Standards Board issued Statement No.
123 "Accounting for Stock-Based  Compensation" (SFAS 123). SFAS 123 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 an entity's  financial  statements.  The statement also
allows an entity to continue to account for  stock-based  employee  compensation
using the intrinsic value for equity  instruments  using APB Opinion No. 25. The
Trust has adopted the  disclosure-only  provisions of SFAS 123.  Accordingly  no
compensation  cost has been  recognized for the stock option plans.  Because the
SFAS 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. Additionally, no pro
forma  disclosures  are  required  for  the  options  granted  during  1997,  as
shareholder approval has not yet been obtained.

(9)  Summarized Financial Information of Equity Affiliates

The following table represents summarized unaudited financial information of the
limited liability companies ("LLC") accounted for by the equity method.  Amounts
presented include investments in the following LLCs: DSMB Properties, LLC (61%);
DVMC Properties, LLC (95%); Parkvale Properties, LLC (60%), Suburban Properties,
LLC (33%); Litchvan Investments, LLC (89%); and Paseo Medical Properties II, LLC
(75%).


                                      F-15
<PAGE>
                                          1997
                                         (000s)

          Total assets                  $58,700
          Liabilities and debt          $44,261
          Equity                        $14,439
          UHT's share of equity         $11,075

          Revenue                        $8,215
          Net income                       $469
          UHT's share of net income        $445


(10) Quarterly Results (unaudited)

<TABLE>
<CAPTION>
                                                         1997

                                     First            Second            Third             Fourth
                                    Quarter          Quarter           Quarter            Quarter           Total
<S>                               <C>               <C>               <C>               <C>               <C>        
Revenues                          $5,700,000        $5,769,000        $5,560,000        $5,735,000        $22,764,000

Net Income                        $3,658,000        $3,550,000        $3,342,000        $3,417,000        $13,967,000

Earnings Per Share-Basic               $0.41             $0.40             $0.37             $0.38              $1.56

Earnings Per Share-Diluted             $0.41             $0.40             $0.37             $0.38              $1.56


                                                         1996

                                     First            Second            Third             Fourth
                                    Quarter          Quarter           Quarter            Quarter           Total
Revenues                          $5,343,000        $5,379,000        $5,611,000        $5,590,000        $21,923,000

Net Income                        $3,583,000        $3,590,000        $3,466,000        $3,519,000        $14,158,000

Earnings Per Share-Basic               $0.40             $0.40             $0.39             $0.39              $1.58

Earnings Per Share-Diluted             $0.40             $0.40             $0.39             $0.39              $1.58
</TABLE>



                                      F-16

<PAGE>
                      Universal Health Realty Income Trust
                 Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                 Balance at     Charged to                      Balance
                                 beginning      costs and                       at end
         Description             of period      expenses        Other          of period
<S>                             <C>          <C>          <C>                 <C>    
Reserve for Investment Losses:
Year ended December 31, 1997      $151,000     $227,000     ($289,000)(a)       $89,000
                                 =========     ========     =========         =========

Year ended December 31, 1996      $158,000     $220,000     ($227,000)(a)      $151,000
                                 =========     ========     =========         =========

Year ended December 31, 1995      $490,000           --     ($332,000)(a)      $158,000
                                 =========     ========     =========         =========
</TABLE>


(a)  Amounts charged against the reserve.


                                      F-17

<PAGE>


                                  Schedule III
                      Universal Health Realty Income Trust
          Real Estate and Accumulated Depreciation - December 31, 1997
                             (amounts in thousands)
<TABLE>
<CAPTION>

                                Initial Cost to    Cost capitalized     Gross amount                     Date of
                                Universal Health    subsequent to         at which                      construction
                              Realty Income Trust    acquisition          carried at        Accumulated   or most            
                                                                        close of period     Depreciation   recent            Average
                                                                                               as of    significant          Deprec-
                                          Building  Land &  Carrying     Building             Dec. 31, expansion or  Date    iable
Description                       Land    & Improv. Improv. Costs   Land & Improv.   Total      1997    renovation  Acquired  Life
<S>                               <C>       <C>                   <C>      <C>       <C>        <C>        <C>      <C>    <C>     
Virtue Street Pavilion            $1,825    $9,445        -   -   $1,770   $9,445    $11,215    $2,974     1975     1986   35 Years
De La Ronde                        2,000     7,473        -   -    2,000    7,473      9,473     2,145     1981     1988   34 Years
  Chalmette, Louisiana

Inland Valley Regional 
Medical Center
  Wildomar, California             2,050    10,701    2,868   -    2,050   13,569     15,619     2,826     1986     1986   43 Years

McAllen Medical Center
  McAllen, Texas                   4,720    31,442   10,188   -    6,281   40,069     46,350     8,316     1994     1986   42 Years

Wellington Regional 
Medical Center
  West Palm Beach, Florida         1,190    14,652    4,822   -    1,663   19,001     20,664     3,899     1986     1986   42 Years

The Bridgeway
  North Little Rock, Arkansas        150     5,395      499   -      150    5,894      6,044     1,835     1983     1986   35 Years

Meridell Achievement Center
  Austin, Texas                    1,350     3,782    4,139   -    1,350    7,921      9,271     2,451     1991     1986   28 Years

Tri-State Rehabilitation 
Hospital
  Evansville, Indiana                500     6,945    1,062   -      500    8,007      8,507     1,616     1993     1989   40 Years

Vencor Hospital - Chicago
  Chicago, Illinois                  158     6,404    1,907   -      158    8,311      8,469     3,207     1993     1986   25 Years

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

Family Doctor's Medical 
Office Building
  Shreveport, Louisiana               54     1,526      494   -       54    2,020      2,074        93     1991     1995   45 Years

Kelsey-Seybold Clinic at 
King's Crossing                      439     1,618        -   -      439    1,618      2,057        81     1995     1995   45 Years
Professional Center at
King's Crossing                      439     1,837       43   -      439    1,880      2,319        86     1995     1995   45 Years
  Kingwood, Texas

Chesterbrook Academy
  Audubon, Pennsylvania                -       996        -   -        -      996        996        37     1996     1996   45 Years

Carefree Learning Center
  New Britain, Pennsylvania          250       744        -   -      250      744        994        27     1991     1996   45 Years

Carefree Learning Center
  Uwchlan, Pennsylvania              180       815        -   -      180      815        995        30     1992     1996   45 Years

Carefree Learning Center
  Newtown, Pennsylvania              195       749        -   -      195      749        944        28     1992     1996   45 Years

The Southern Crescent Center
  Riverdale, Georgia               1,130     5,092      864   -    1,130    5,956      7,086       211     1994     1996   45 Years

The Cypresswood Professional
Center
  Houston,Texas                      573     3,842                   573    3,842      4,415        55     1997     1997   35 Years
                                 -------  --------  ------- ---  -------  -------   --------   -------
                  TOTALS         $18,276  $118,724  $26,910  $-  $20,255 $143,600   $163,855   $30,280
                                 =======  ========  ======= ===  ======= ========   ========   =======
</TABLE>


                                      F-18
<PAGE>
                      Universal Health Realty Income Trust
                              Notes to Schedule III
                                December 31, 1997

(1) Reconciliation of Real Estate Properties


The following table  reconciles the Real Estate  Properties from January 1, 1995
to December 31, 1997:


<TABLE>
<CAPTION>
                                                        1997                1996             1995
<S>                                                 <C>               <C>               <C>         
        Balance at January 1                         $158,083,000      $147,888,000      $143,069,000
        Additions and acquisitions                      4,526,000        10,195,000         7,794,000
        Reclasses from construction in progress         1,246,000                --                --
        Dispositions                                           --                --        (2,975,000)(a)
                                                    -------------     -------------     -------------
        Balance at December 31                       $163,855,000      $158,083,000      $147,888,000
                                                    =============     =============     =============
</TABLE>


(2)  Reconciliation of Accumulated Depreciation


The following table reconciles the Accumulated Depreciation from January 1, 1995
to December 31, 1997:


<TABLE>
<CAPTION>
                                                   1997             1996             1995
<S>                                           <C>              <C>              <C>        
        Balance at January 1                   $26,540,000      $22,986,000      $22,646,000
        Current year depreciation expense        3,740,000        3,554,000        3,315,000
        Dispositions                                    --               --       (2,975,000)(a)
                                              ------------     ------------     ------------
        Balance at December 31                 $30,280,000      $26,540,000      $22,986,000
                                              ============     ============     ============
</TABLE>


(a) The real property of Westlake Medical Center (original cost of approximately
$20  million and  accumulated  depreciation  of  approximately  $3 million)  was
exchanged during 1995 for additional real estate assets (valued at approximately
$20 million) of three acute care  facilities  owned by the Trust and operated by
UHS.  The  swapping  of these  assets  was  accounted  for as an  exchange,  and
therefore no gain was recognized.


The aggregate cost basis and net book value of the properties for federal income
tax  purposes  at  December  31,  1997  are   approximately   $153,000,000   and
$120,000,000, respectively.

                                      F-19
<PAGE>


                                INDEX TO EXHIBITS


10.2     Agreement, Effective January 1, 1998, to renew Advisory Agreement dated
         as of December 24, 1986 between Universal Health Realty Income Trust
         and UHS of Delaware, Inc.



27.       Financial Data Schedule.