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, 1998
                                       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,
1999: $168,231,750.
Number of shares of beneficial interest  outstanding of registrant as of January
31, 1999: 8,955,465.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1998 (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,
         1998,  the Trust had  investments in thirty-one  facilities  located in
         fourteen states consisting of the following:
<TABLE>
<CAPTION>

               Facility Name                        Location              Type of Facility                       Guarantor
--------------------------------------------- ----- --------------------- ------------------------ --------------------------------
<S>                                         <C>     <C>                 <C>                       <C>       
Chalmette Medical Center                      (A)   Chalmette, LA         Acute Care               Universal Health Services, Inc.
Virtue Street Pavilion                        (A)   Chalmette, LA         Rehabilitation           Universal Health Services, Inc.
Inland Valley Regional Medical Ctr.           (A)   Wildomar, CA          Acute Care               Universal Health Services, Inc.
McAllen Medical Center                        (A)   McAllen, TX           Acute Care               Universal Health Services, Inc.
Meridell Achievement Center                   (A)   Austin, TX            Behavioral Health        Universal Health Services, Inc.
The Bridgeway                                 (A)   N.Little Rock, AR     Behavioral Health        Universal Health Services, Inc.
Wellington Regional Medical Center            (A)   W.Palm Beach, FL      Acute Care               Universal Health Services, Inc.
Vencor Hospital - Chicago                     (B)   Chicago, IL           Sub-Acute Care           Vencor, Inc.
Tri-State Rehabilitation Hospital             (B)   Evansville, IN        Rehabilitation           HEALTHSOUTH Corporation
Fresno Herndon Medical Plaza                  (B)   Fresno, CA            Medical Office Bldg.                      ---
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.                         ---
Edwards Medical Plaza                         (F)   Phoenix, AZ           Medical Office Bldg.                      ---
Desert Springs Medical Plaza                  (J)   Las Vegas, NV         Medical Office Bldg.     Quorum Health Group, Inc.
Pacifica Palms Medical Plaza                  (F)   Torrance, CA          Medical Office Bldg.                      ---
St. Jude Heritage Health Complex              (K)   Fullerton, CA         Medical Office Bldg.                      ---
Rio Rancho Medical Center                     (L)   Rio Rancho, NM        Medical Office Bldg.                      ---
Lake Shore Hospital                           (M)   Manchester, NH        Unoccupied                                ---
</TABLE>

     (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 a 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 a LLC  which  owns the real  estate
          assets of this facility.
     (F)  The  Trust has a 95%  equity  interest  in a LLC  which  owns the real
          estate assets of this facility.
     (G)  The  Trust has a 75%  equity  interest  in a LLC  which  owns the real
          estate assets of this facility.
     (H)  The Trust has provided financing,  which matures in August, 2002, to a
          limited  partnership  in  which  the  Trust  owns  a  77%  controlling
          interest. 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 a LLC  which  owns the real
          estate  assets of this  facility.  Construction  was completed and the
          facility opened during the fourth quarter of 1997.


                                       1
<PAGE>
     (J)  The  Trust has a 99%  equity  interest  in a LLC  which  owns the real
          estate  assets  of this  facility.  
     (K)  The  Trust has a 48%  equity  interest  in a LLC  which  owns the real
          estate assets of this facility.
     (L)  The  Trust has a 80%  equity  interest  in a LLC  which  owns the real
          estate assets of this facility.
     (M)  The Trust  received  free and clear title to the real estate assets of
          Lake Shore Hospital  during 1995.  The Trust  continues to market this
          facility to third parties interested in purchasing or leasing the real
          estate assets.

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

         As of December  31,  1998,  the Trust has invested an aggregate of $202
         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  comprised 81% of the Trust's 1998 revenues,
         have fixed terms with an average of 5.2 years remaining and provide for
         renewal   options  for  up  to  six  five-year   terms.   During  1998,
         wholly-owned  subsidiaries of Universal Health  Services,  Inc. ("UHS")
         exercised  five-year  renewal  options on four  hospitals  owned by the
         Trust which were  scheduled to expire in 1999 through 2001.  The leases
         on these  facilities  were renewed at the same lease rates and terms as
         the initial  leases.  Minimum  rents are  payable  based on the initial
         acquisition costs of the facilities and, with respect to all facilities
         other  than the one leased to Vencor  Hospital  -  Chicago,  additional
         rents are payable based upon a percentage of each facility's revenue in
         excess of base year  amounts  or CPI  increases  in excess of base year
         amounts.  The  lessees  have rights of first  refusal to  purchase  the
         facilities  exercisable during and in most cases for 180 days after the
         expiration  of  the  lease  terms  and  also  have   purchase   options
         exercisable  upon three to six  months  notice at the end of each lease
         term at the  facility's  fair market value.  Subsequent to December 31,
         1998,  the lease on Tri-State  Rehabilitation  Hospital was amended and
         renewed for a five-year term commencing June 1, 1999 and ending May 31,
         2004. Pursuant to the terms of the lease, as amended,  the minimum rent
         has  been  increased  and  the  additional   rent  provision  has  been
         eliminated.

         For the hospital  facilities  owned by the Trust, the combined ratio of
         earnings before interest, taxes,  depreciation,  amortization and lease
         and rental  expense  (EBITDAR)  (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  5.1,  4.7 and 5.0 for the years ended  December 31,
         1998,  1997 and 1996,  respectively.  The coverage ratio for individual
         facilities  varies (see  "Relationship  to Universal  Health  Services,
         Inc.").

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

         Relationship to Universal Health Services, Inc.

         Leases.  As of December 31, 1998,  subsidiaries  of UHS leased seven of
         the nine hospital  facilities owned by the Trust with terms expiring in
         2000 through 2006. The leases to the subsidiaries of UHS are guaranteed
         by UHS and are  cross-defaulted  with one  another.  Each of the leases
         contains 

                                       2
<PAGE>
         renewal options of up to six five-year periods.  These leases accounted
         for 75% of the total  revenue  of the Trust  for the five  years  ended
         December 31, 1998 (72% for the three years ended December 31, 1998).

         During the third  quarter  of 1998,  wholly-owned  subsidiaries  of UHS
         exercised  five-year  renewal  options on four  hospitals  owned by the
         Trust  which were  scheduled  to expire in 1999  through  2001  (Virtue
         Street Pavilion,  The Bridgeway,  Inland Valley Regional Medical Center
         and Wellington Regional Medical Center). The leases on these facilities
         were  renewed at the same lease rates and terms as the  initial  leases
         and these  renewals  remove the  majority of the  previously  disclosed
         uncertainty  regarding the lease renewals with  subsidiaries of UHS. As
         part  of  the  renewal  agreement,  the  Trust  also  agreed  to  grant
         additional  fixed rate renewal options to a wholly-owned  subsidiary of
         UHS commencing in 2022 on the real property of McAllen  Medical Center.
         The  leases  on the  four  renewed  facilities  represented  30% of the
         Trust's  rental  revenue for the twelve month period ended December 31,
         1998. On a combined  basis,  these four  facilities had earnings before
         interest,  taxes,  depreciation,  amortization  and  lease  and  rental
         expense  (EBITDAR) for the twelve month period ended  December 31, 1998
         of 1.8 times the annual rent payable to the Trust  (ranging from 1.2 to
         3.0). The remaining UHS facilities,  including  McAllen Medical Center,
         had a combined  EBITDAR for the twelve month period ended  December 31,
         1998 of 7.7 times the annual rent  payable to the Trust  (ranging  from
         1.1 to 8.6).  The lease on one UHS facility,  which had EBITDAR for the
         twelve  month  period  ended  December  31,  1998 of 1.1 times the rent
         payable to the Trust, expires in 2000 and represented  approximately 5%
         of the  Trust's  rental  revenue  for the  twelve  month  period  ended
         December 31, 1998.  Management of the Trust can not predict whether the
         leases with subsidiaries of UHS, which have renewal options at existing
         lease rates, or any of the Trust's other leases, will be renewed at the
         end of their initial term or first five-year renewal term.

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

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


                                       3
<PAGE>
         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  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 1999. 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  1998,  1997 and 1996.  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,  1998,  UHS owned 8% of the
         outstanding shares of beneficial interest.

         Competition

         The Trust believes that it is one of twelve 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 

                                       4
<PAGE>
         qualified doctors by improving  facilities and maintaining high ethical
         and professional standards.

         The Trust's hospital facilities continue to experience a shift in payor
         mix resulting in an increase in revenues  attributable  to managed care
         payors and unfavorable  general industry trends which include pressures
         to control  healthcare costs.  Providers  participating in managed care
         programs  agree to provide  services  to patients  for a discount  from
         established rates which generally results in pricing concessions by the
         providers  and lower  margins.  Additionally,  managed  care  companies
         generally  encourage  alternatives to inpatient  treatment settings and
         reduce  utilization  of  inpatient  services.  In response to increased
         pressure on  revenues,  the  Trust's  hospital  facilities  continue to
         implement  cost control  programs  including  more  efficient  staffing
         standards and re-engineering of services. Pressure on operating margins
         is expected  to continue  due to,  among other  things,  the changes in
         Medicare  payments  mandated by the  Balanced  Budget Act of 1997 which
         became effective  October 1, 1997 and the  industry-wide  trend towards
         managed  care  which  limits  the  ability  of  the  Trust's   hospital
         facilities to increase their prices.

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

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

         Regulation

         The Medicare program  reimburses the operators of the Trust's hospitals
         primarily based on established  rates by a diagnosis  related group 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. The Balanced Budget
         Act 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 act also calls for the reductions in the future rate of
         increases  to  payments  made to  hospitals  and  reduces the amount of
         reimbursement  for  outpatient  services,  bad debt expense and capital
         costs. It is likely that future budgets will contain further reductions
         in the rate of increase of Medicare and Medicaid spending,  as evidence
         by the Clinton Administration's  proposed fiscal year 2000 budget which
         includes  a  proposal  to  freeze  Medicare   hospital  payment  rates.
         Outpatient  reimbursement for Medicare patients is scheduled to convert
         to a PPS during the second quarter of 2000.  Since final  provisions of
         the  outpatient  Medicare PPS are not yet  available,  operators of the
         Trust's  hospitals can not completely  estimate the resulting impact on
         their  future  results  of  operations.  While  the  Trust is unable to
         predict whether this most recent  proposal,  or any other future health
         reform legislation,  will ultimately be enacted at the federal 

                                       5
<PAGE>
         or  state  level,  the  Trust  expects  continuing  pressure  to  limit
         expenditures by governmental  healthcare  programs.  Further changes in
         the  Medicare  or  Medicaid  programs  and  other  proposals  to  limit
         healthcare  spending  could  have  a  material  adverse  impact  on the
         operating  results  of  the  Trust's   facilities  and  the  healthcare
         industry.

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



                                       6
<PAGE>
                      Executive Officers of the Registrant

               The executive officers of the Trust are as follows:
<TABLE>
<CAPTION>
                Name                                        Age          Position
<S>                                                        <C>          <C>
                Alan B. Miller                              61           Chairman of the Board and
                                                                         Chief Executive Officer

                Kirk E. Gorman                              48           President, Chief Financial
                                                                         Officer, Secretary and Trustee

                Charles F. Boyle                            39           Vice President
                                                                         and Controller

                Cheryl K. Ramagano                          36           Vice President and
                                                                         Treasurer

                Timothy J. Fowler                           43           Vice President, Acquisition
                                                                         and Development
</TABLE>

         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
         -  Corporate  Accounting  of UHS in 1994 and served as its  Director of
         Corporate Accounting since 1989.

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

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

         The Trust's  officers  are all  employees of UHS and as of December 31,
         1998,   the  Trust  had  no  salaried   employees   and  paid  no  cash
         compensation. In 1999, the Trustees awarded a $50,000 bonus to Mr. Kirk
         E. Gorman, President, Chief Financial Officer, Secretary and Trustee of
         the Trust.  UHS agreed to a $50,000  reduction in the 1999 advisory fee
         paid by the Trust.

                                       7
<PAGE>
Item 2. Properties

The following table shows the Trust's  investments in hospital facilities leased
to Universal Health Services,  Inc. and other non-related  parties. The table on
the next page provides  information  related to various  properties in which the
Trust has significant investments, some of which are accounted for by the equity
method.  The  capacity in terms of beds (for the  hospital  facilities)  and the
five-year occupancy levels are based on information provided by the lessees.
<TABLE>
<CAPTION>
<S>                                          <C>             <C>    <C>   <C>   <C>   <C>   <C>         <C>         <C>        <C>
                                                           Number of                                              Lease Term
                                                           available                                   -----------------------------
                                                             beds @       Average Occupancy (1)           Minimum   End of
                                              Type of   ------------------------------------------                 initial   Renewal
Hospital Facility Name and Location          facility      12/31/98  1998  1997  1996  1995  1994         rent   or renewed   term
                                                                                                                    term     (years)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                   
Chalmette Medical Centers
     Virtue Street Pavilion (3)              Rehabilitation     45    63%   64%   61%   57%   92%      $1,261,000     2004       25
     Chalmette Medical Center                 Acute Care       118    61%   64%   66%   67%   66%         921,000     2003       15
     Chalmette, Louisiana (2)

Inland Valley Regional Medical Center         Acute Care        80    60%   52%   49%   49%   45%       1,857,000     2006       30
     Wildomar, California (3)

McAllen Medical Center                        Acute Care       472    69%   76%   88%   87%   89%       5,485,000     2001       30
     McAllen, Texas (3)

Wellington Regional Medical Center            Acute Care       120    37%   36%   36%   30%   32%       2,495,000     2006       30
     West Palm Beach, Florida (3)

The BridgeWay                             Behavioral Health     70    79%   68%   62%   65%   61%         683,000     2004       25
     North Little Rock, Arkansas (3)

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

Tri-State Regional Rehabilitation Hospital   Rehabilitation     80    82%   74%   59%   59%   61%       1,167,000     2004       20
     Evansville, Indiana (4)

Vencor Hospital                              Sub-Acute Care     75    42%   50%   45%   38%   38%       1,065,000     2001       25
     Chicago, Illinois (5)
</TABLE>

                                       8
<PAGE>
Item 2. Properties (continued)
<TABLE>
<CAPTION>
                                                                                                           Lease Term
                                                                                                 -----------------------------------
                                                Type of            Average Occupancy (1)         Minimum  End of initial    Renewal
                                                             -------------------------------                                 term
Facility Name and Location                     facility        1998  1997  1996  1995  1994        rent   or renewed term  (years)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>   <C>   <C>   <C>    <C>       <C>      <C>   <C>       <C>
Fresno - Herndon Medical Plaza                  Medical        100%  100%  100%  100%    -       $740,000  1999 -2003       various
      Fresno, California (6)                Office Building

Kelsey-Seybold Clinic at King's Crossing        Medical        100%  100%  100%  100%    -        264,000     2005             10
Professional Center at King's Crossing     Office Buildings    100%  100%   93%  100%    -        299,000  2000 -2005       various
      Kingwood, Texas (7)

The Southern Crescent Center                    Medical        100%  100%   89%    -     -        795,000  1999 -2006       various
      Riverdale, Georgia (8)                Office Building

The Cypresswood Professional Center             Medical        100%   96%    -     -     -        524,000  2002 -2007       various
      Spring, Texas (9)                     Office Building

Desert Samaritan Medical Buildings             Medical          99%   97%   97%    -     -      4,147,000  1998-2008        various
      Phoenix, Arizona (10)                Office Buildings

Desert Springs Medical Plaza                    Medical        100%    -     -     -     -      1,633,000  1999-2002        various
      Las Vegas, Nevada (11)                Office Building

Edwards Medical Plaza                           Medical         87%    -     -     -     -      2,212,000  1999-2005        various
      Phoenix, Arizona (12)                 Office Building
</TABLE>

                                       9
<PAGE>


         (1) Average occupancy rate for the hospital  facilities is based on the
         average number of available  beds occupied  during the five years ended
         December 31, 1998. Average occupancy rate for the multi-tenant  medical
         office  buildings  is  based on the  occupied  square  footage  of each
         building.  See  "Management's  Discussion  and  Analysis  of  Financial
         Condition and Results of Operations"  for effects of various  occupancy
         levels at the Trust's hospital  facilities.  Average  available beds is
         the number of beds which are  actually in service at any given time for
         immediate patient use with the necessary  equipment and staff available
         for patient  care.  A hospital may have  appropriate  licenses for more
         beds than are in service  for a number of  reasons,  including  lack of
         demand, incomplete construction, and anticipation of future needs.

          (2) The operations of The Virtue Street Pavilion and Chalmette Medical
         Center,  two facilities which are separated by approximately  one mile,
         were combined at the end of 1989. Each facility is leased pursuant to a
         separate  lease.  The Chalmette  Medical  Center  facility is a 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  expires  in  December,  2000,
         contains one three year extension at the lessee's option.  No assurance
         can be given as to the effect,  if any,  the  consolidation  of the two
         facilities  as  mentioned  above,  had on the  underlying  value of the
         Virtue Street Pavilion and Chalmette Medical Center. Rental commitments
         and the  guarantee  by UHS under the existing  leases  continue for the
         remainder of the respective terms of the leases.

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

          (4) 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-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.  Subsequent to December 31, 1998,  the lease on
         this facility was amended and renewed for a five-year  term  commencing
         on June 1, 1999 and ending on May 31,  2004.  Pursuant  to the terms of
         the lease as  amended,  the  minimum  rent has been  increased  and the
         additional rent provision has been eliminated

          (5) During  December of 1993,  UHS, the former  lessee and operator of
         Belmont  Community  Hospital,  sold the  operations  of the facility to
         THC-Chicago,  Inc.,  an indirect  wholly-owned  subsidiary of Community
         Psychiatric Centers ("CPC").  Concurrently, the Trust purchased certain
         related  real  property  from  UHS for $1  million  in cash  and a note
         payable with a carrying value of $1.2 million at December 31, 1998. 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.


                                       10
<PAGE>
         Included in the Trust's 1998 financial results is approximately $69,000
         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) 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.  The lease is
         guaranteed   by  Caremark   International,   Inc.,  a   subsidiary   of
         Medpartners, Inc.

         (8) During the second quarter of 1996, the Trust purchased The Southern
         Crescent   Center,  a  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.

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

         (10) In January  1996,  the Trust  invested $5 million to acquire a 61%
         non-controlling interest in a limited liability company that owns three
         medical  office  buildings  located  in  Phoenix,  Arizona.  The  three
         buildings total approximately  194,000 gross square feet and are leased
         to several  tenants.  In connection  with this  investment  the limited
         liability company obtained non-recourse,  third-party financing,  which
         has outstanding balance at December 31, 1998 of $17.1 million.

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

         (12) In April 1998,  the Trust  invested  $3.8 million to acquire a 95%
         non-controlling  interest in a limited  liability company that owns the
         Edwards  Medical Plaza located in Phoenix,  Arizona.  

                                       11
<PAGE>

         The 85,000  square foot  medical  office  building,  which is leased to
         multiple  tenants,  is  located  on the  campus  of the Good  Samaritan
         Regional Medical Center. In connection with this investment the limited
         liability company obtained  non-recourse,  third-party  financing which
         has an outstanding balance at December 31, 1998 of $7.5 million

         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, 1998 to a vote of security holders.



                                       12
<PAGE>
                                     PART II

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

          The Trust's  shares of beneficial  interest are listed on the New York
         Stock  Exchange.  The high and low closing  sales  prices for the Trust
         shares of  beneficial  interest for each quarter in the two years ended
         December 31, 1998 and 1997 are summarized below:

<TABLE>
<CAPTION>
                                                    1998                                     1997
                                    ------------------------------------    ---------------------------------------
                                    High Price        Low Price             High Price           Low Price
                                    ----------------- ------------------    -------------------- ------------------
<S>                                 <C>              <C>                   <C>                 <C> 
         First Quarter              $22 1/2           $21                   $22 3/8              $19 3/4
         Second Quarter             $21 3/8           $18 13/16             $20                  $18 1/2
         Third Quarter              $20 1/4           $18 1/16              $21 1/2              $18 15/16
         Fourth Quarter             $20 1/4           $18 3/8               $21 7/8              $20 1/16
</TABLE>

          As of January 31, 1999, there were  approximately  982 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>
                          1998         1997          1996          1995           1994
                      ----------    ----------    ----------    ---------     ----------
<S>                   <C>           <C>           <C>           <C>           <C>       
First Quarter         $     .435    $     .425    $     .420    $     .42     $     .415
Second Quarter              .435          .425          .425          .42           .415
Third Quarter               .440          .425          .425          .42           .415
Fourth Quarter              .445          .430          .425          .42           .420
                      ----------    ----------    ----------    ---------     ----------
                      $    1.755    $    1.705    $    1.695    $    1.68     $    1.665
                      ==========    ==========    ==========    =========     ==========
</TABLE>


                                       12
<PAGE>

         Item 6.  SELECTED FINANCIAL DATA

         Financial  highlights  for the Trust for the five years ended  December
         31, 1998 were as follows:
<TABLE>
<CAPTION>

                                             1998 (1)          1997 (1)          1996 (1)            1995              1994
         ----------------------------- ----------------- ----------------- ----------------- ----------------- ----------------- 
<S>                                         <C>               <C>               <C>               <C>               <C>        
         Revenues                           $23,234,000       $22,764,000       $21,923,000       $20,417,000       $18,826,000

         Net income                         $14,337,000       $13,967,000       $14,158,000       $13,584,000       $14,312,000

         Funds from
         Operations (2)                     $19,857,000       $18,809,000       $18,174,000       $17,024,000       $17,501,000


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

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

         Dividends                               $1.755            $1.705            $1.695            $1.680            $1.665
</TABLE>

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

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

<TABLE>
<CAPTION>
                                  1998              1997           1996            1995             1994
<S>                            <C>             <C>             <C>             <C>             <C>        
Net income                     $14,337,000     $13,967,000     $14,158,000     $13,584,000     $14,312,000
Depreciation expense:
 Consolidated investments        3,809,000       3,740,000       3,554,000       3,315,000       3,127,000
 Unconsolidated affiliates       1,587,000         978,000         337,000              --              --
Amortization of interest
 rate cap                          124,000         124,000         125,000         125,000          62,000
                               -----------     -----------     -----------     -----------     -----------
 Total                         $19,857,000     $18,809,000     $18,174,000     $17,024,000     $17,501,000
                               ===========     ===========     ===========     ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
At End of Period     1998              1997            1996             1995             1994 
---------------------------------------------------------------------------------------------------
<S>              <C>              <C>              <C>              <C>              <C>         
Total Assets     $169,406,000     $146,755,000     $148,566,000     $132,770,000     $128,907,000

Debt             $ 66,016,000     $ 42,347,000     $ 43,082,000     $ 26,396,000     $ 21,283,000
</TABLE>

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


         Forward Looking Statements

         The matters  discussed  in this  report,  as well as the news  releases
         issued  from  time to time by the  Trust,  include  certain  statements
         containing the words "believes",  "anticipates",  "intends", "expects",
         and  words  of  similar  import,   which  constitute   "forward-looking
         statements" within the meaning of Private Securities  Litigation Reform
         Act of 1995. Such forward-looking  statements involve known and unknown
         risks,  uncertainties  and other  factors  that may  cause  the  actual
         results, performance or achievements of the Trust's or industry results
         to be materially  different  from any future  results,  performance  or
         achievements  expressed or implied by such forward-looking  statements.
         Such factors include,  among other things, the following: a substantial
         portion  of  the  Trust's  revenues  are  dependent  on  one  operator,
         Universal Health Services,  Inc., ("UHS"); a substantial portion of the
         Trust's  leases  are  involved  in the  healthcare  industry  which  is
         undergoing  substantial  changes and is subject to possible  changes in
         the  levels  and terms of  reimbursement  from  third-party  payors and
         government reimbursement programs, including Medicare and Medicaid; the
         Trust's ability to finance its growth on favorable terms; the impact of
         Year 2000 issues; liability and other claims asserted against the Trust
         or operators of the Trust's  facilities,  and other factors  referenced
         herein.   Additionally,   the  operators  of  the  Trust's  facilities,
         including  UHS,  are  confronted  with other  issues such as:  industry
         capacity; demographic changes; existing laws and government regulations
         and  changes  in or  failure  to  comply  with  laws  and  governmental
         regulations; the ability to enter into managed care provider agreements
         on acceptable terms;  competition;  the loss of significant  customers;
         technological and pharmaceutical improvements that increase the cost of
         providing,  or reduce  the demand for  healthcare;  and the  ability to
         attract  and  retain   qualified   personnel,   including   physicians.
         Management of the Trust is unable to predict the effect,  if any, these
         factors will have on the  operating  results of its lessees,  including
         the   facilities   leased  to   subsidiaries   of  UHS.   Given   these
         uncertainties,  prospective  investors are cautioned not to place undue
         reliance on such  forward-looking  statements.  The Trust disclaims any
         obligation  to update any such  factors  or to  publicly  announce  the
         result  of any  revisions  to any  of  the  forward-looking  statements
         contained herein to reflect future events or developments.

         Liquidity and Capital Resources


         General

         The Trust commenced operations on December 24, 1986. As of December 31,
         1998,  the Trust had  investments in thirty-one  facilities  located in
         fourteen states.

         It is the  Trust's  intention  to declare  quarterly  dividends  to the
         holders  of its  shares of  beneficial  interest  so as to comply  with
         applicable  sections of the Internal Revenue Code governing real estate
         investment trusts. Convenants relating to the revolving credit facility
         limit the  Trust's  ability to increase  dividends  in excess of 95% of
         cash available for distribution  unless  additional  distributions  are
         required to be made to comply with applicable  sections of the Internal
         Revenue Code and related  regulations  governing real estate investment
         trusts.  During 1998,  dividends of $1.755 per share, or $15,716,000 in
         the aggregate,  were declared and paid.

                                       15
<PAGE>
         Net cash  generated by operating  activities was $18.7 million in 1998,
         $17.7  million in 1997 and $18.0  million in 1996.  The $1 million  net
         increase  in 1998 as  compared  to 1997  was due  primarily  to:  (i) a
         $500,000  increase  in net  income  plus the  addback  of the  non-cash
         charges (depreciation,  amortization, and amortization of interest rate
         cap expense); (ii) a $100,00 favorable change in rent receivable,  and;
         (iii) a  $400,000  favorable  change in tenant  escrows,  deposits  and
         prepaid  rents.  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 (as defined above) and $200,000 of unfavorable
         changes in other net working capital accounts.

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

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

         During 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).

         During  1998,  the Trust  replaced  its $70  million  revolving  credit
         agreement with a new $80 million  unsecured,  non-amortizing  revolving
         credit  agreement  (the  "Agreement"),  which is scheduled to expire in
         June, 2003. During the term of the Agreement,  the Trust has the option
         to request an increase in the borrowing  capacity to $100 million.  The
         Agreement   provides  for  interest  at  the  Trust's  option,  at  the
         certificate of deposit rate plus 5/8% to 1 1/8%,  Eurodollar  rate plus
         1/2% to 1 1/8% or the prime  rate.  A fee of .175% to .375% is required
         on the  unused  portion  of  this  commitment.  The  margins  over  the
         certificate of deposit rate, Eurodollar rate and the commitment fee are
         based upon the Trust's  debt to total  capital  ratio as defined by the
         Agreement.  At  December  31,  1998,  the  applicable  margin  over the
         certificate  of  deposit  and  Eurodollar  rates  were  7/8% and  5/8%,
         respectively,   and  the  commitment   fee  was  .20%.   There  are  no
         compensating balance  requirements.  The Agreement contains a provision
         whereby  the  commitments  will  be  reduced  by 50%  of  the  proceeds
         generated from any new equity offering. At December 31, 1998, the Trust
         had approximately $12 million of available borrowing capacity.

                                       16
<PAGE>
         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 7.56% including the revolver spread of .625%. The interest rate cap,
         for which the Trust paid $622,750,  (unamortized  premium of $62,000 at
         December 31, 1998) matures in June,  1999 and fixes the maximum rate on
         $15 million of variable rate revolving credit notes at 7.625% including
         the revolver spread of .625%. The interest rate swap and cap agreements
         were entered into in  anticipation  of certain  borrowing  transactions
         made by the Trust during 1995, 1996 and 1997. The effective rate on the
         Trust's  revolving credit notes including  commitment fees and interest
         rate swap expense was 6.7%,  6.9% and 6.8% during 1998,  1997 and 1996,
         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 $136,000,  $118,000 and $130,000 in 1998,  1997
         and 1996,  respectively.  The Trust is  exposed  to credit  loss in the
         event of  non-performance  by the  counterparties  to the interest rate
         swap and cap  agreements.  These  counterparties  are  major  financial
         institutions and the Trust does not anticipate  non-performance  by the
         counterparties  which  are  rated  A or  better  by  Moody's  Investors
         Service.  Termination  of the interest  rate swaps at December 31, 1998
         would have resulted in payments to the  counterparties of approximately
         $322,000 and  termination  of the  interest  rate cap would have had no
         impact on the Trust.  The fair value of the interest  rate swap and cap
         agreements at December 31, 1998 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  2% or $470,000 to $23.2  million in 1998 as
         compared  to  1997  and 4% or  $841,000  to  $22.8  million  in 1997 as
         compared to 1996. The $470,000  increase  during 1998 over 1997 was due
         primarily  to a $788,000  increase  in base  rentals  from  non-related
         parties  (due   primarily  to  the   completion   of  The   Cypresswood
         Professional  Center during the third quarter of 1997),  and a $122,000
         increase in bonus rental income from UHS  facilities.  These  favorable
         changes were partially offset by a $473,000 decrease in interest income
         due to a mortgage loan receivable  which was fully repaid in June, 1997
         and a construction loan receivable which was repaid in December,  1997.
         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  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  

                                       17
<PAGE>

         industry  trends could have a material  adverse  impact upon the future
         operating  performance of the Trust's hospital facilities.  The Trust's
         hospital  facilities have experienced growth in outpatient  utilization
         over the past several  years.  The increase in  outpatient  services is
         primarily   the  result  of  advances  in  medical   technologies   and
         pharmaceutical  improvements,  which allow more services to be provided
         on an outpatient basis, and increased pressure from Medicare, Medicaid,
         managed care companies and other insurers to reduce  hospital stays and
         provide services where possible,  on a less expensive outpatient basis.
         The  hospital  industry  in the  United  States as well as the  Trust's
         hospital  facilities continue to have significant unused capacity which
         has created substantial competition for patients. Inpatient utilization
         continues to be negatively  affected by  payor-required,  pre-admission
         authorization  and  by  payor  pressure  to  maximize   outpatient  and
         alternative healthcare delivery services for less acutely ill patients.
         The Trust expects the increased competition,  admission constraints and
         payor  pressures  to  continue.  The  ability of the  Trust's  hospital
         facilities to maintain their  historical rate of net revenue growth and
         operating  margins  is  dependent  upon their  ability to  successfully
         respond  to  these  trends  as  well  as   reductions  in  spending  on
         governmental healthcare programs.

         A significant portion 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 a  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.
         The Balanced  Budget Act 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 act also calls for the reductions
         in the future rate of  increases  to  payments  made to  hospitals  and
         reduces the amount of reimbursement for outpatient  services,  bad debt
         expense  and capital  costs.  It is likely  that  future  budgets  will
         contain  further  reductions  in the rate of increase  of Medicare  and
         Medicaid spending, as evidence by the Clinton Administration's proposed
         fiscal year 2000 budget  which  includes a proposal to freeze  Medicare
         hospital payment rates. Outpatient  reimbursement for Medicare patients
         is  scheduled  to convert  to a PPS during the second  quarter of 2000.
         Since  final  provisions  of the  outpatient  Medicare  PPS are not yet
         available,  operators  of the  Trust's  hospitals  can  not  completely
         estimate the resulting  impact on their future  results of  operations.
         While the Trust is unable to predict whether this most recent proposal,
         or any other future  health  reform  legislation,  will  ultimately  be
         enacted at the federal or state  level,  the Trust  expects  continuing
         pressure to limit  expenditures  by governmental  healthcare  programs.
         Further  changes  in  the  Medicare  or  Medicaid  programs  and  other
         proposals to limit  healthcare  spending could have a material  adverse
         impact on the  operating  results  of the  Trust's  facilities  and the
         healthcare industry.

         In general,  the operators of the Trust's hospital 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  $547,000 or 19% in 1998 as compared to 1997
         and  $378,000 or 15% in 1997 as compared to 1996 due  primarily  to the
         additional   borrowings  used  to  finance  the  1998,

                                       18
<PAGE>
         1997 and 1996 investments described in Note 3.

         Depreciation and amortization  expense increased $104,000 or 3% in 1998
         as compared to 1997 and  $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.

         Other operating  expenses increased $479,000 or 34% in 1998 as compared
         to 1997 due to the operating  expenses on the Cypresswood  Professional
         Center on which  construction was completed during the third quarter of
         1997  and an  increase  in  various  other  operating  expenses.  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 an increase in various  other  operating
         expenses.  The expenses  related to the medical  office  buildings,  in
         which the Trust has a  controlling  ownership  interest,  totaled  $1.0
         million in 1998, $770,000 in 1997 and $551,000 in 1996. 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 1998 was $14.3  million or $1.60 per basic and  diluted
         share compared to $14.0 million or $1.56 per basic and diluted share in
         1997 and $14.2 million or $1.58 per basic and diluted share in 1996.

         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
         $19.9 million in 1998, $18.8 million in 1997 and $18.2 million in 1996.
         FFO may not be  calculated  in the same manner for all  companies,  and
         accordingly,  may not be  comparable  to similarly  titled  measures by
         other  companies.  FFO does not represent cash flows from operations as
         defined by generally accepted  accounting  principles and should not be
         considered  as an  alternative  to net  income as an  indicator  of the
         Trust's  operating  performance  or  to  cash  flows  as a  measure  of
         liquidity.

         General

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

                                       19
<PAGE>
         Year 2000 Issue

         The Year 2000 issue is the result of computer  programs  being  written
         using  two  digits  rather  than four to define  the  applicable  year.
         Computer   programs,   certain   building   infrastructure   components
         (including  elevators,  alarm  systems and certain  HVAC  systems)  and
         certain  computer  aided  medical  equipment  that have  time-sensitive
         software  may  recognize a date using "00" as the year 1900 rather than
         the year 2000. This could result in system failures or  miscalculations
         causing disruption of operations or medical equipment malfunctions that
         could affect patient diagnosis and treatment.

         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.  Approximately 72% of the
         Trust's  total  revenues for the three year period  ended  December 31,
         1998,  were  earned  under the terms of the  leases  with  wholly-owned
         subsidiaries of UHS.

         UHS has  undertaken  steps to  inventory  and assess  applications  and
         equipment  at risk to be  affected  by Year 2000 issues and to convert,
         remediate or replace such applications and equipment. UHS has completed
         its  assessment  of its  major  financial  and  clinical  software  and
         believes that such software is substantially Year 2000 compliant. As to
         certain peripheral software, UHS has scheduled upgrades to be completed
         by June,  1999. For its biomedical  equipment,  UHS expects to complete
         the  assessment  phase of its Year 2000 analysis by early in the second
         quarter of 1999. UHS believes that Year 2000 related  remediation costs
         incurred  through  December 31, 1998 have not had a material  impact on
         its  results  of  operations.  However,  UHS is not able to  reasonably
         estimate  the  total   capital  costs  to  be  incurred  for  equipment
         replacement  since  the  equipment  analysis  phase  has not  yet  been
         completed.  Some  replacement or upgrade of systems and equipment would
         take place in the normal course of business.  Several  systems,  key to
         UHS's  operations,  have been  scheduled to be replaced  through vendor
         supplied  systems  before Year 2000.  The costs of  repairing  existing
         systems is expensed  as  incurred.  UHS has  allocated a portion of its
         1999 capital budget as Year 2000 contingency funds and expects that all
         of the  capital  costs can be  accommodated  within  that  budget.  UHS
         presently  believes that with  modifications  to existing  software and
         conversions to new software, the Year 2000 issue will not pose material
         operational  problems  for  its  computer  systems.  However,  if  such
         modifications  and  conversions  are not  made,  or are  not  completed
         timely,  the Year  2000  issue  could  have a  material  impact  on the
         operations of UHS and UHS's ability to meet its  obligations  under the
         terms of its leases with the Trust.

         The  majority  of the  software  used by UHS is  purchased  from  third
         parties.  UHS is relying on software (including UHS's major outsourcing
         vendor which provides the financial and clinical  applications  for the
         majority of UHS's acute care facilities),  hardware and other equipment
         vendors to verify  Year 2000  compliance  of their  products.  UHS also
         depends  on:  fiscal  intermediaries  which  process  claims  and  make
         payments for the Medicare program;  health  maintenance  organizations,
         insurance  companies  and other  private  payors;  vendors  of  medical
         supplies and  pharmaceuticals  used in patient care; and,  providers of
         utilities  such  as  electricity,  water,  natural  gas  and  telephone
         services.  As part of its  Year  2000  strategy,  UHS  intends  to seek
         assurances from these parties that their services and products will not
         be interrupted or malfunction due to the Year 2000 problem.  Failure of
         third  parties to resolve  their Year 2000 issues could have a material
         adverse  effect on UHS's  results  of  operations  and its  ability  to
         provide health care services.

                                       20
<PAGE>
         Each of UHS's  hospitals  has a disaster plan which will be reviewed as
         part of UHS's  Year 2000  contingency  planning  process.  However,  no
         assurance  can be given  that UHS will be able to  develop  contingency
         plans which will enable each of its  facilities  to continue to operate
         in all circumstances.

         This Year 2000 assessment is based on information  currently  available
         to UHS and the Trust and UHS and the Trust will  revise its  assessment
         at it implements its Year 2000  strategy.  UHS can provide no assurance
         that  applications and equipment UHS believes to be Year 2000 compliant
         will not  experience  difficulties  or that  UHS  will  not  experience
         difficulties  obtaining  resources  needed to make  modifications to or
         replace its  affected  systems and  equipment.  Failure by UHS or third
         parties on which it relies to  resolve  Year 2000  issues  could have a
         material  adverse effect on its results of  operations,  its ability to
         provide  health  care  services  and  on  UHS's  ability  to  meet  its
         obligations under the terms of its leases with the Trust. Consequently,
         the Trust can give no assurances  that issues related to Year 2000 will
         not have a  material  adverse  effect on it's  financial  condition  or
         results of operations.

         With respect to the Trust's non-related  properties,  an assessment was
         conducted  by the Trust  which  covered the  compliance  efforts of the
         tenants and based upon the  responses  received,  these  tenants do not
         expect  Year 2000  related  issues to have a  material  impact on their
         operations.  Management  of the Trust will continue to monitor the Year
         2000  compliance  efforts  of its  non-related  tenants  as well as the
         effects of potential non-compliance.

         The Trust will develop contingency plans if, and to the extent,  deemed
         necessary.   However,   based  upon  current  information  and  barring
         developments,  the Trust does not anticipate developing any substantive
         contingency  plans with respect to Year 2000 issues.  In addition,  the
         Trust has no plans to seek  independent  verification  or review of its
         assessments. The Trust believes that its expenditures for assessing and
         correcting  Year 2000 issues have not been material.  In addition,  the
         Trust  is  not  aware  of  any  issues  that  will   require   material
         expenditures  by the Trust or tenants of the Trust's  facilities in the
         future.

         Based upon current information,  the Trust believes that the risk posed
         by the  foreseeable  Year  2000  related  problems  with  its  internal
         systems,  (including both information and  non-information  systems) is
         minimal.  Year 2000  related  problems at certain  third-party  payors,
         service providers and non-related  tenants is greater,  however,  based
         upon current information, the Trust does not believe such problems will
         have a material effect on its operations. While the Trust believes that
         it will be Year 2000  compliant by December  31, 1999,  there can be no
         assurance that the Trust or tenants of the Trust's  properties  will be
         successful in identifying and assessing all compliance  issues, or that
         the efforts of the Trust or tenants of the Trust'  properties to remedy
         all Year 2000  compliance  issues will be effective such that they will
         not have a material  adverse effect on the Trust's  business or results
         of operations.

         Market Risks Associated with Financial Instruments

         The Trust's  interest  expense is  sensitive  to changes in the general
         level  of  domestic   interest   rates.   To  mitigate  the  impact  of
         fluctuations in domestic  interest rates, a portion of the Trust's debt
         is  fixed  rate  accomplished  by  entering  into  interest  rate  swap
         agreements.  The  interest  rate swap  agreements  are  contracts  that
         require the Trust to pay a fixed and receive a floating  interest  rate
         over the life of the agreements.  The floating-rates are based on LIBOR
         and the  fixed-rates  are  determined  upon  consummation  of the  swap
         agreements.  The  interest  rate  swap  agreements  do  not  constitute
         positions independent of the underlying  exposures.  The Trust does not
         hold or

                                       21
<PAGE>

         issue derivative instruments for trading purposes and is not a party to
         any instruments with leverage features.  The Trust is exposed to credit
         losses in the event of  non-performance  by the  counterparties  to its
         financial  instruments.  The counterparties are creditworthy  financial
         institutions,  rated A or better by Moody's  Investor  Services and the
         Trust anticipates that the counterparties will be able to fully satisfy
         their obligations under the contracts. For the years ended December 31,
         1998,  1997 and 1996,  the Trust  received a weighted  average  rate of
         5.24%, 5.79% and 5.60%, respectively,  and paid a weighted average rate
         on its  interest  rate  swap  agreements  of 6.94%,  6.94%  and  6.80%,
         respectively.

         The table  below  presents  information  about the  Trust's  derivative
         financial   instruments  and  other  financial   instruments  that  are
         sensitive to changes in interest rates,  including  interest rate swaps
         as of December  31,  1998.  For debt  obligations,  the table  presents
         principal  cash flows and related  weighted-average  interest  rates by
         contractual  maturity  dates.  For interest rate swap  agreements,  the
         table presents  notional amounts by expected maturity date and weighted
         average interest rates based on rates in effect at December 31, 1998.
<TABLE>
<CAPTION>
                                            Maturity Date, Fiscal Year Ending December 31
                                                                                                           There-
   (Dollars in thousands)                    1999        2000        2001         2002         2003         after        Total
                                             ----        ----        ----         ----         ----         -----        -----
<S>                                     <C>          <C>           <C>          <C>          <C>          <C>           <C>
   Long-term debt:
     Fixed rate                                                     $1,216                                               $1,216

   Average interest rates                                             6.0%

   Variable rate long-term debt                                                                            64,800        64,800

   Interest rate swaps:
     Pay fixed/receive
       variable notional amounts            5,000                   1,580        4,000                                   10,580
     Average pay rate                       7.245%                   6.80%      6.6025%
     Average receive rate                 3 month                 3 month      6 month   
                                            LIBOR                   LIBOR        LIBOR

   Interest rate caps                      15,000                                                                        15,000
   Cap rate                                   7.0%
</TABLE>

         Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         Not applicable.


                                       22
<PAGE>
                                    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, 1998. 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,
         1998.

         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, 1998.

         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, 1998.


                                       23
<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, 1998 and
                            December 31, 1997
                            Consolidated Statements of Income - Years Ended
                            December 31, 1998, 1997 and 1996
                            Consolidated Statements of Shareholders' Equity -
                            Years Ended December 31, 1998, 1997 and 1996
                            Consolidated Statements of Cash Flows - Years Ended
                            December 31, 1998, 1997 and 1996
                            Notes to Consolidated Financial Statements -
                            December 31, 1998

                    (3)  Schedules
                            Schedule II - Valuation and Qualifying Accounts -
                            Years Ended December 31, 1998, 1997 and 1996
                            Schedule III - Real Estate and Accumulated
                            Depreciation - December 31, 1998
                            Notes to Schedule III - December 31, 1998

               (b) Reports on Form 8-K:
                       No reports on Form 8-K were filed during the last quarter
                       of the year ended December 31, 1998

               (c)  Exhibits:

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

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

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

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

                   10.2 Agreement  effective  January 1, 1999, to renew Advisory
         Agreement dated as of December 24, 1986 between Universal Health Realty
         Income Trust and UHS of Delaware, Inc.

                                       24
<PAGE>
                   10.3  Contract  of  Acquisition,  dated  as of  August  1986,
         between  the  Trust  and  certain   subsidiaries  of  Universal  Health
         Services,  Inc., previously filed as Exhibit 10.2 to Amendment No. 3 of
         the  Registration  Statement on Form S-11 and S-2 of  Universal  Health
         Services,   Inc.  and  the  Trust   (Registration   No.  33-7872),   is
         incorporated herein by reference.

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

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

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

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

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

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

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

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

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

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

                                       25
<PAGE>
                  10.14  Agreement of Purchase and Sale, and  Construction  Loan
         Agreement dated as of December 20, 1994 between Turner Adreac, L.C. and
         Universal Health Realty Income Trust, previously filed as Exhibit 10.17
         to the Trust's  Annual Report on Form 10-K for the year ended  December
         31, 1994, is incorporated herein by reference.

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

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

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

                  10.18 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.

                  10.20 Revolving Credit Agreement as of June 24, 1998 among (i)
         Universal  Health Realty Income Trust, a real estate  investment  trust
         organized  under  the laws of the  State of  Maryland  and  having  its
         principal  place of business at 366 South Gulph Road,  King of Prussia,
         Pennsylvania  19406 (the  "Company"),  (ii) The Financial  Institutions
         Listed on Schedule 1 Hereto (individually a "Bank" and collectively the
         "Banks") and (iii) First Union National Bank, as successor by merger to
         CoreStates  Bank,  N.A.,  as  administrative  agent for the Banks  (the
         "Agent"), previously filed as Exhibit 10.1 to the Trust's Form 10-Q for
         the quarter ended June 30, 1998, is incorporated herein by reference.

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

                                       26
<PAGE>
                  10.22  Amendment  No. 1 to  Lease,  made as of July 31,  1998,
         between  Universal  Health Realty Income Trust,  a Maryland real estate
         investment trust  ("Lessor"),  and McAllen Medical Center,  L.P. (f/k/a
         Universal   Health   Services  of  McAllen,   Inc.),  a  Texas  Limited
         Partnership ("Lessee"), amends the lease, made as of December 24, 1986,
         between  Lessor and  Lessee,  previously  filed as Exhibit  10.2 to the
         Trust's  Form  10-Q  for the  quarter  ended  September  30,  1998,  is
         incorporated herein by reference.

                  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.


                                       27
<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  8, 1999
                                 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  8, 1999              Alan B. Miller, Chairman of the Board
                                and Chief Executive Officer

                                /s/ Kirk E. Gorman                         
    March  8, 1999              Kirk E. Gorman, President, Chief
                                Financial Officer, Secretary and Trustee

                                /s/ James E. Dalton                      
    March  8, 1999              James E. Dalton, Jr., Trustee

                                /s/ Myles H. Tanenbaum                   
    March  8, 1999              Myles H. Tanenbaum, Trustee

                                /s/ Daniel M. Cain                       
    March  8, 1999              Daniel M. Cain, Trustee

                                /s/ Miles L. Berger                      
    March  8, 1999              Miles L. Berger, Trustee


                                       28


<PAGE>
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


<TABLE>
<CAPTION>
                                                                                                   Page
<S>                                                                                             <C>
         Report of Independent Public Accountants                                                     F-2

         Consolidated Balance Sheets - December 31, 1998 and December 31, 1997                        F-3

         Consolidated Statements of Income - Years Ended December 31, 1998,
         1997 and 1996                                                                                F-4

         Consolidated Statements of Shareholders' Equity - Years Ended
         December 31, 1998, 1997 and 1996                                                             F-5

         Consolidated Statements of Cash Flows - Years Ended December 31,
         1998, 1997 and 1996                                                                          F-6

         Notes to Consolidated Financial Statements - December 31, 1998                               F-7

         Schedule II - Valuation and Qualifying Accounts -
         Years Ended December 31, 1998, 1997 and 1996                                                 F-19

         Schedule III - Real Estate and Accumulated Depreciation -
         December 31, 1998                                                                            F-20

         Notes to Schedule III - December 31, 1998                                                    F-21
</TABLE>

                                      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, 1998 and 1997 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, 1998. 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, 1998
and 1997 and the  consolidated  results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, 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 19, 1999


                                      F-2
<PAGE>
                      Universal Health Realty Income Trust
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                       December 31,       December 31,
Assets:                                                                    1998                1997
-------                                                               -------------      -------------
<S>                                                                   <C>                <C>          
Real Estate Investments:
       Buildings & improvements                                       $ 142,871,000      $ 143,600,000
       Accumulated depreciation                                         (34,006,000)       (30,280,000)
                                                                      -------------      -------------
                                                                        108,865,000        113,320,000
       Land                                                              21,061,000         20,255,000
       Construction in progress                                              28,000                 --
       Reserve for investment losses                                       (116,000)           (89,000)
                                                                      -------------      -------------
                     Net Real Estate Investments                        129,838,000        133,486,000
                                                                      -------------      -------------

       Investments in and advances to limited liability companies        38,165,000         11,075,000

Other Assets:
       Cash                                                                 572,000          1,238,000
       Bonus rent receivable from UHS                                       681,000            653,000
       Rent receivable from non-related parties                              24,000             80,000
       Deferred charges and other assets, net                               126,000            223,000
                                                                      -------------      -------------
                                                                      $ 169,406,000      $ 146,755,000
                                                                      =============      =============

Liabilities and Shareholders' Equity:

Liabilities:
       Bank borrowings                                                $  64,800,000      $  41,200,000
       Note payable to UHS                                                1,216,000          1,147,000
       Accrued interest                                                     281,000            217,000
       Accrued expenses & other liabilities                               1,300,000          1,130,000
       Tenant reserves, escrows, deposits and prepaid rents                 374,000            268,000

       Minority interest                                                     87,000            101,000

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: 1998 - 8,955,465
             1997 - 8,954,840                                                90,000             90,000
       Capital in excess of par value                                   128,685,000        128,650,000
       Cumulative net income                                            126,458,000        112,121,000
       Cumulative dividends                                            (153,885,000)      (138,169,000)
                                                                      -------------      -------------
                     Total Shareholders' Equity                         101,348,000        102,692,000
                                                                      -------------      -------------
                                                                      $ 169,406,000      $ 146,755,000
                                                                      =============      =============
</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,
                                                               --------------------------------------------
                                                                   1998            1997            1996
                                                               -----------     -----------     ------------
Revenues (Note 2):
<S>                                                            <C>             <C>             <C>        
     Base rental - UHS facilities                              $13,764,000     $13,731,000     $13,731,000
     Base rental - Non-related parties                           6,393,000       5,605,000       4,706,000
     Bonus rental                                                2,966,000       2,844,000       2,735,000
     Interest                                                      111,000         584,000         751,000
                                                               -----------     -----------     -----------
                                                                23,234,000      22,764,000      21,923,000
                                                               -----------     -----------     -----------

Expenses:

     Depreciation & amortization                                 3,879,000       3,775,000       3,636,000
     Interest expense                                            3,490,000       2,943,000       2,565,000
     Advisory fees to UHS (Note 2)                               1,161,000       1,099,000       1,044,000
     Other operating expenses                                    1,904,000       1,425,000       1,149,000
                                                               -----------     -----------     -----------
                                                                10,434,000       9,242,000       8,394,000
                                                               -----------     -----------     -----------

     Income before equity in limited liability companies        12,800,000      13,522,000      13,529,000

     Equity in income of limited liability companies             1,537,000         445,000         629,000
                                                               -----------     -----------     -----------
              Net Income                                       $14,337,000     $13,967,000     $14,158,000
                                                               ===========     ===========     ===========


         Net Income Per Share - Basic                          $      1.60     $      1.56     $      1.58
                                                               ===========     ===========     ===========

         Net Income Per Share - Diluted                        $      1.60     $      1.56     $      1.58
                                                               ===========     ===========     ===========

     Weighted average number of shares outstanding - Basic       8,952,000       8,952,000       8,952,000
     Weighted average number of share equivalents                   22,000          15,000           6,000
                                                               -----------     -----------     -----------
     Weighted average number of shares and equivalents
       outstanding - Diluted                                     8,974,000       8,967,000       8,958,000
                                                               ===========     ===========     ===========
</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, 1998, 1997 and 1996
<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, 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)

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

January 1, 1998                      8,954,840            90,000       128,650,000       112,121,000      (138,169,000)

Net Income                                  --                --                --        14,337,000                --

Issuance of shares of
beneficial interest                        625                --            35,000                --                --

Dividends ($1.755/share)                    --                --                --                --       (15,716,000)
=======================================================================================================================
           December 31, 1998         8,955,465     $      90,000     $ 128,685,000     $ 126,458,000     ($153,885,000)
=======================================================================================================================
</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,
                                                                         ----------------------------------------------------
                                                                              1998               1997                 1996
                                                                         ------------        ------------        ------------
Cash flows from operating activities:
<S>                                                                      <C>                 <C>                 <C>         
      Net income                                                         $ 14,337,000        $ 13,967,000        $ 14,158,000
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation & amortization                                          3,879,000           3,775,000           3,636,000
       Amortization of interest rate cap                                      124,000             124,000             125,000
    Changes in assets and liabilities:
       Rent receivable                                                         28,000             (67,000)            (47,000)
       Accrued expenses & other liabilities                                   170,000             197,000              77,000
       Tenant escrows, deposits & prepaid rents                               106,000            (247,000)            (29,000)
       Accrued interest                                                        64,000             (17,000)             77,000
       Deferred charges & other                                               (53,000)            (26,000)              6,000
                                                                         ------------        ------------        ------------
          Net cash provided by operating activities                        18,655,000          17,706,000          18,003,000
                                                                         ------------        ------------        ------------

Cash flows from investing activities:
       Investments in and advances to limited liability companies         (27,892,000)         (3,741,000)         (7,624,000)
       Acquisitions and additions to land, buildings and CIP                 (158,000)         (4,246,000)        (10,195,000)
       Payments made for construction in progress                             (28,000)                 --          (1,246,000)
       Cash distributions in excess of income from LLCs                       863,000             598,000                  --
       Advances under construction notes receivable                                --          (3,414,000)           (391,000)
       Repayments under mortgage and construction notes receivable                 --          10,262,000                  --
                                                                         ------------        ------------        ------------
          Net cash used in investing activities                           (27,215,000)           (541,000)        (19,456,000)
                                                                         ------------        ------------        ------------

Cash flows from financing activities:
       Additional borrowings, net of financing costs                       23,600,000                  --          16,625,000
       Repayment of debt                                                           --            (800,000)                 --
       Issuance of shares of beneficial interest                               10,000                  --                  --
       Dividends paid                                                     (15,716,000)        (15,264,000)        (15,174,000)
                                                                         ------------        ------------        ------------
          Net cash provided by (used in) financing activities               7,894,000         (16,064,000)          1,451,000
                                                                         ------------        ------------        ------------

       (Decrease) increase  in cash                                          (666,000)          1,101,000              (2,000)
       Cash, beginning of period                                            1,238,000             137,000             139,000
                                                                         ------------        ------------        ------------
Cash, end of period                                                      $    572,000        $  1,238,000        $    137,000
                                                                         ============        ============        ============

Supplemental disclosures of cash flow information:
       Interest paid                                                     $  3,232,000        $  2,770,000        $  2,302,000
                                                                         ============        ============        ============
</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, 1998

(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, 1998 the Trust
had investments in thirty-one  facilities  located in fourteen 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 

                                      F-7
<PAGE>
increased competition and consolidation.

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

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

Investments in Limited Liability Companies

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

Earnings Per Share

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

Stock-Based Compensation

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

Statements of Cash Flows

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


                                      F-8
<PAGE>
Interest Rate Protection Agreements

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

Fair Value of Financial Instruments

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

Comprehensive Income

In June 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
130,  "Reporting  Comprehensive  Income".  The standard  establishes  additional
disclosure for the elements of  comprehensive  income and a total  comprehensive
income  calculation.  Net  income  as  reported  by  the  Trust  reflects  total
comprehensive income for the years ended December 31, 1998, 1997 and 1996.

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.

Accounting Pronouncement Not Yet Adopted

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities." The Statement  establishes  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance  sheet as either an asset or liability  measured at its fair value.  The
Statement  requires  that changes in the  derivative's  fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting  for  qualifying  hedges  allows a  derivative's  gains and losses to
offset related results on the hedged item in the income statement,  and requires
that a company must formally document,  designate,  and assess the effectiveness
of transactions that receive hedge accounting.

                                      F-9
<PAGE>
SFAS No. 133 is effective as of the  beginning of fiscal years  beginning  after
June 15, 1999. A company may also implement the SFAS No. 133 as of the beginning
of  any  fiscal  quarter  after  issuance.   SFAS  No.  133  cannot  be  applied
retroactively. SFAS No. 133 must be applied to: (a) derivative instruments, and;
(b)  certain  derivative  instruments  embedded  in hybrid  contracts  that were
issued,  acquired, or substantially modified after December 31, 1997 (and at the
Trust's election, before January 1, 1998).

The Trust has not yet  quantified  the  impact of  adopting  SFAS No. 133 on its
financial  statements and has not determined the timing of or method of adoption
of SFAS No. 133. However, SFAS No. 133 could increase the volatility in earnings
and other comprehensive income.

Reclassifications

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

(2) Related Party Transactions

UHS of Delaware, Inc. (the "Advisor"),  a wholly-owned subsidiary of UHS, serves
as Advisor to the Trust  under an Advisory  Agreement  dated  December  24, 1986
between the Advisor and the Trust (the "Advisory Agreement"). Under the Advisory
Agreement,  the Advisor is  obligated  to present an  investment  program to the
Trust, to use its best efforts to obtain  investments  suitable for such program
(although it is not obligated to present any particular  investment  opportunity
to the Trust),  to provide  administrative  services to the Trust and to conduct
the Trust's  day-to-day  affairs.  In performing its services under the Advisory
Agreement, the Advisor may utilize independent professional services,  including
accounting,  legal and other  services,  for which  the  Advisor  is  reimbursed
directly by the Trust.  The  Advisory  Agreement  expires on December 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
1999. 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 1998, 1997 and 1996. The advisory fee is payable
quarterly,  subject  to  adjustment  at year end based  upon  audited  financial
statements of the Trust.

For the  years  ended  December  31,  1998,  1997 and  1996,  71%,  72% and 74%,
respectively,  of the Trust's 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.

                                      F-10
<PAGE>
During the third  quarter of 1998,  wholly-owned  subsidiaries  of UHS exercised
five-year  renewal  options  on four  hospitals  owned by the Trust  which  were
scheduled to expire in 1999 through 2001 (Virtue Street Pavilion, The Bridgeway,
Inland Valley Regional  Medical Center and Wellington  Regional Medical Center).
The leases on these facilities were renewed at the same lease rates and terms as
the initial  leases and these  renewals  remove the  majority of the  previously
disclosed  uncertainty regarding the lease renewals with subsidiaries of UHS. As
part of the renewal  agreement,  the Trust also agreed to grant additional fixed
rate renewal  options to a wholly-owned  subsidiary of UHS commencing in 2022 on
the real  property of McAllen  Medical  Center.  The leases on the four  renewed
facilities  represented  30% of the Trust's  rental revenue for the twelve month
period ended December 31, 1998. On a combined  basis,  these four facilities had
earnings before interest, taxes, depreciation, amortization and lease and rental
expense  (EBITDAR)  for the twelve month  period ended  December 31, 1998 of 1.8
times the total  annual rent payable to the Trust in 1998  (ranging  from 1.2 to
3.0). The remaining UHS facilities,  including  McAllen  Medical  Center,  had a
combined  EBITDAR for the twelve  month  period  ended  December 31, 1998 of 7.7
times the total  annual rent payable to the Trust in 1998  (ranging  from 1.1 to
8.6).  The lease on one UHS  facility,  which had EBITDAR  for the twelve  month
period  ended  December  31,  1998 of 1.1 times the rent  payable  to the Trust,
expires in 2000 and represented  approximately  5% of the Trust's rental revenue
for the twelve month period ended December 31, 1998. Management of the Trust can
not predict  whether the leases with  subsidiaries  of UHS,  which have  renewal
options at existing  lease rates,  or any of the Trust's other  leases,  will be
renewed at the end of their initial term or first five-year renewal term.

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

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,        
                                             1998               1997              1996   
                                         -----------------------------------------------
<S>                                      <C>               <C>               <C>        
Base rental - UHS facilities             $13,764,000       $13,731,000       $13,731,000
Base rental - Non-related parties          6,393,000         5,605,000         4,706,000
                                         -----------       -----------       -----------
  Total base rental                       20,157,000        19,336,000        18,437,000
                                         -----------       -----------       -----------

Bonus rental - UHS facilities              2,737,000         2,615,000         2,506,000
Bonus rental - Non-related parties           229,000           229,000           229,000
                                         -----------       -----------       -----------
  Total bonus rental                       2,966,000         2,844,000         2,735,000
                                         -----------       -----------       -----------

Interest - Non-related parties               111,000           584,000           751,000
                                         -----------       -----------       -----------
  Total revenues                         $23,234,000       $22,764,000       $21,923,000
                                         ===========       ===========       ===========
</TABLE>

At December  31, 1998,  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.

                                      F-11
<PAGE>
The Trust's  officers are all employees of UHS and as of December 31, 1998,  the
Trust had no salaried  employees  and paid no cash  compensation.  In 1999,  the
Trustees  awarded  a  $50,000  bonus to Mr.  Kirk E.  Gorman,  President,  Chief
Financial  Officer,  Secretary and Trustee of the Trust. UHS agreed to a $50,000
reduction in the 1999 advisory fee paid by the Trust.

(3)  Acquisitions and Dispositions

1998 - During  1998,  the Trust  added  five new  investments  to its  portfolio
consisting  of the  following:  (i) the  purchase of a 99% equity  interest in a
limited  liability  company  ("LLC"),  that owns Desert  Springs  Medical  Plaza
located in Las Vegas, Nevada ($10.1 million);  (ii) the purchase of a 95% equity
interest  in a LLC that owns the  Edwards  Medical  Plaza  located  in  Phoenix,
Arizona  ($3.8  million);  (iii) the purchase of a 95% equity  interest in a LLC
that owns the Pacifica Palms Medical Plaza located in Torrance, California ($1.7
million);  (iv) the purchase of a 48% equity interest in a LLC that owns the St.
Jude Heritage  Health Complex located in Fullerton,  California  ($1.4 million),
and;  (v) the  purchase  of an 80%  equity  interest  in a LLC that owns the Rio
Rancho Medical  Center,  a medical office  building  located in Rio Rancho,  New
Mexico  ($900,000).  In connection  with the purchase of equity interest in LLCs
that own the Pacifica Palms Medical Plaza,  the St. Jude Heritage Health Complex
and the Rio Rancho Medical  Center,  the Trust advanced a total of $10.0 million
of short term loans to three separate LLCs. The loans,  which earned interest at
a combined  average  annual  rate of 9% during  1998,  are  expected to be fully
repaid to the Trust during 1999.

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

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 LLC
which  owns  three  medical  office  buildings  located  on the campus of Desert
Samaritan Hospital in Phoenix, Arizona ($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 a LLC which owns a
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  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 a LLC which owns two medical office buildings on the
campus  of  Maryvale  Samaritan  Hospital  located  in  Phoenix,  Arizona  ($1.4
million);  (vi) the purchase of a 95% equity  interest in a LLC which  purchased
the Desert Valley  Medical  Center,  a 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)
construction  financing  provided to a limited  partnership,  of which the Trust
owns a 77% controlling equity interest,  for the construction of The Cypresswood
Professional  Center  located in  Houston,  Texas ($1.2  million  advanced as of
December  31,  1996  including a $343,000  capital  contribution),  and;  (viii)
construction  financing  provided to a LLC (excluding 

                                      F-12
<PAGE>
$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.

(4)  Leases

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

Minimum future base rents on non-cancelable leases are as follows:


                1999                                            $  19,373,000
                2000                                               19,180,000
                2001                                               18,116,000
                2002                                               11,442,000
                2003                                               10,616,000
                Later Years                                        24,360,000
                                                                -------------
                Total Minimum Base Rents                         $103,087,000
                                                                 ============

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

(5)  Debt

The Trust has a $80 million unsecured  non-amortizing revolving credit agreement
(the  "Agreement"),  which expires on June 24, 2003. The Agreement  provides for
interest at the Trust's option,  at the certificate of deposit rate plus 5/8% to
1 1/8%, Eurodollar rate plus 1/2% to 1 1/8% or the prime rate. A fee of .175% to
 .375% is required on the unused portion of this commitment. The margins over the
certificate  of deposit rate,  Eurodollar  rate and the commitment fee are based
upon the Trust's debt to total  capital  ratio as defined by the  Agreement.  At
December  31, 1998 the  applicable  margin over the  certificate  of deposit and
Eurodollar  rates were 7/8% and 5/8%,  respectively,  and the commitment fee was
 .20%. There are no compensating balance  requirements.  The Agreement contains a
provision  whereby  the  commitments  will  be  reduced  by 50% of the  proceeds
generated  from any new equity  offering.

                                      F-13
<PAGE>
At December  31,  1998,  the Trust had  approximately  $12 million of  available
borrowing capacity.

The average amounts  outstanding  under the revolving  credit  agreement  during
1998, 1997 and 1996 were $49,195,000, $40,774,000 and $34,410,000, respectively,
with corresponding  effective interest rates,  including commitment fees but not
including the effect of interest rate swaps of 6.3%,  6.4% and 6.3%. The maximum
amounts   outstanding  at  any  month  end  were  $64,800,000,   $44,300,00  and
$42,200,000 during 1998, 1997 and 1996, 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 7.56%  including  the revolver  spread of
 .625%.  The interest rate cap, for which the Trust paid  $622,750,  (unamortized
premium of $62,000 at December  31,  1998)  matures in June,  1999 and fixes the
maximum rate on $15 million of variable  rate  revolving  credit notes at 7.625%
including  the  revolver  spread  of  .625%.  The  interest  rate  swap  and cap
agreements were entered into in anticipation of certain  borrowing  transactions
made by the Trust during 1995,  1996 and 1997. The effective rate on the Trust's
revolving credit notes including  commitment fees and interest rate swap expense
was 6.7%,  6.9% and 6.8% during 1998,  1997 and 1996,  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 $136,000, $118,000 and
$130,000 in 1998,  1997 and 1996,  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, 1998 would have resulted in payments to the counterparties
of  approximately  $322,000 and  termination of the interest rate cap would have
had no impact on the  Trust.  The fair value of the  interest  rate swap and cap
agreements at December 31, 1998  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 $1.755 per share were  declared  and paid in 1998,  of which $1.682
per  share was  ordinary  income  and  $.073  per share was a return of  capital
distribution.  Dividends of $1.705 per share were  declared and paid in 1997, of
which $1.624 per share was  ordinary  income and $.081 per share was a return of
capital  distribution.  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.

                                      F-14
<PAGE>
(7)  Incentive Plans

In 1991,  the Trustees  adopted a share  compensation  plan for Trustees who are
neither  employees nor officers of the Trust ("Outside  Trustees").  Pursuant to
the plan, each Outside Trustee may elect to receive, in lieu of all or a portion
of the  quarterly  cash  compensation  for services as a Trustee,  shares of the
Trust based on the closing  price of the shares on the date of  issuance.  As of
December 31, 1998 no shares have been issued under the terms of this plan.

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

During 1997, the Trust's Board of Trustees  approved the Universal Health Realty
Income Trust 1997  Incentive  Plan ("The Plan"),  which is a newly created stock
option  and  dividend  equivalents  rights  plan  for  employees  of the  Trust,
including officers and directors. There are 400,000 shares reserved for issuance
under The Plan.  All stock options were granted with an exercise  price equal to
the fair market value on the date of the grant. The options granted vest ratably
at 25% per year  beginning  one year after the date of grant,  and expire in ten
years.  Dividend  equivalent  rights  reduce  the  exercise  price  of the  1997
Incentive  Plan  options  by an  amount  equal to the  cash or  stock  dividends
distributed subsequent to the date of grant. On June 23, 1997, there were 70,000
stock options with dividend  equivalent  rights granted to officers and trustees
of the Trust. The Trust recorded  expenses  relating to the dividend  equivalent
rights of $123,000 in 1998 and $60,000 in 1997.  As of December 31, 1998,  there
were 16,250 options  exercisable  under The Plan with an average exercise price,
adjusted to give effect to the dividend equivalent rights, of $16.02 per share.

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


Year Ended December 31                      1998                        1997 
--------------------------------------------------------------------------------
Net Income:
         As Reported                     $14,337,000                $13,967,000
         Pro Forma                       $14,201,000                $13,898,000

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

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


                                      F-15
<PAGE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes  option-pricing model with the following range of assumptions used
for the three option grants that occurred during 1998 and 1997:

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

Volatility                               15%                   15%
Interest rate                          5% - 6%                6.5%
Expected life (years)                   7.9                   7.9
Forfeiture rate                          2%                   2%
----------------------------------------------------------------------------

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

Stock  options to purchase  shares of  beneficial  interest have been granted to
officers  and  directors  of the Trust under  various  plans.  Information  with
respect to these options is summarized as follows:
<TABLE>
<CAPTION>

                                            Number of    Average Option        Range
        Outstanding Options                  Shares           Price          (High-Low)
--------------------------------------------------------------------------------------------
<S>                                        <C>            <C>           <C>        
      Balance, January 1, 1996                95,000         $16.80        $16.875/$16.125
      Granted                                      0            N/A              N/A
      Exercised                              (36,976)        $16.84        $16.875/$16.125
      Cancelled                                    0            N/A              N/A

--------------------------------------------------------------------------------------------
      Balance, January 1, 1997                58,024         $16.77        $16.875/$16.125
      Granted                                 70,000        $18.625        $18.625/$18.625
      Exercised                                    0            N/A              N/A
      Cancelled                                    0            N/A              N/A

--------------------------------------------------------------------------------------------
      Balance, January 1, 1998               128,024         $17.79        $18.625/$16.125
      Granted                                  7,500         $19.40       $21.4375/$18.375
      Exercised                                 (625)       $18.625        $18.625/$18.625
      Cancelled                               (4,375)       $18.625        $18.625/$18.625
--------------------------------------------------------------------------------------------
                                             130,524         $17.85       $21.4375/$16.125
--------------------------------------------------------------------------------------------
</TABLE>

                                      F-16

<PAGE>
(8)  Summarized Financial Information of Equity Affiliates

The following table represents summarized unaudited financial information of the
limited liability companies ("LLCs") accounted for by the equity method. Amounts
presented include investments in the following LLCs:
<TABLE>
<CAPTION>
         Name of LLC                                 Property Owned by LLC  
       ----------------------                      ------------------------------------
<S>                                                 <C>
         DSMB Properties                             Desert Samaritan Hospital MOBs
         DVMC Properties                             Desert Valley Medical Center MOBs
         Parkvale Properties                         Maryvale Samaritan Hospital MOBs
         Suburban Properties                         Suburban Medical Center MOBs
         Litchvan Investments                        Samaritan West Valley Medical Center
         Paseo Medical Properties II                 Thunderbird Paseo Medical Plaza
         Willetta Medical Properties                 Edwards Medical Plaza
         DesMed                                      Desert Springs Medical Plaza
         PacPal Investments                          Pacifica Palms Medical Plaza
         RioMed Investments                          Rio Rancho Medical Center
         West Highland Holdings                      St. Jude Heritage Health Complex
</TABLE>
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                           -----------------------------------
                                                                             1998                      1997
                                                                           -----------------------------------
                                                                                  (amounts in thousands)
<S>                                                                         <C>                       <C>    
   Net property                                                             $95,732                   $54,536
   Other assets                                                               5,430                     4,164
   Liabilities and third-party debt                                          58,118                    44,261
   Loans payable to the Trust                                                 9,980                     -----
   Equity                                                                    33,063                    14,439
   UHT's share of equity                                                     28,185                    11,075

                                                                              For the Year Ended December 31,
                                                                           -----------------------------------
                                                                               1998                      1997
                                                                           -----------------------------------
                                                                                  (amounts in thousands)
   Revenues                                                                 $12,942                    $8,135
   Operating expenses                                                         4,677                     2,727
   Depreciation & amortization                                                2,450                     1,846
   Interest, net                                                              4,133                     3,093
   Net income                                                                 1,682                       469
   UHT's share of net income                                                  1,537                       445
</TABLE>

As of December  31,  1998,  these LLCs had $56.1  million of  non-recourse  debt
payable to  third-party  lending  institutions.  The loans  payable to the Trust
earned  interest  at a combined  average  annual  rate of 9% during 1998 and are
expected  to be fully  repaid to the  Trust  during  1999  once the LLCs  secure
long-term, third-party financing.

                                      F-17
<PAGE>
Aggregate  maturities  of  non-recourse  debt  payable  to  third-parties  is as
follows:

                                          1999                $10,241
                                          2000                    914
                                          2001                  4,674
                                          2002                    934
                                          2003                  1,006
                                         Later                 38,312
                                                              -------
                                         Total                $56,081
                                                              =======

(9) Quarterly Results (unaudited)
<TABLE>
<CAPTION>
                                                                            1998
------------------------------------------------------------------------------------------------------------------------
                                              First          Second          Third           Fourth
                                             Quarter         Quarter         Quarter         Quarter           Total
------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>              <C>        
Revenues                                   $5,857,000      $5,793,000      $5,694,000      $5,890,000       $23,234,000

Net Income                                 $3,569,000      $3,528,000      $3,471,000      $3,769,000       $14,337,000

Earnings Per Share-Basic                        $0.40           $0.39           $0.39           $0.42             $1.60

Earnings Per Share-Diluted                      $0.40           $0.39           $0.39           $0.42             $1.60



                                                                           1997
------------------------------------------------------------------------------------------------------------------------
                                              First           Second          Third          Fourth
                                             Quarter         Quarter         Quarter         Quarter           Total
------------------------------------------------------------------------------------------------------------------------
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
</TABLE>


                                      F-18
<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 (a)    of period

Reserve for Investment Losses:

<S>                             <C>           <C>           <C>            <C>      
Year ended December 31, 1998     $  89,000     $ 300,000     ($273,000)     $ 116,000
                                 =========     =========     =========      =========

Year ended December 31, 1997     $ 151,000     $ 227,000     ($289,000)     $  89,000
                                 =========     =========     =========      =========

Year ended December 31, 1996     $ 158,000     $ 220,000     ($227,000)     $ 151,000
                                 =========     =========     =========      =========
</TABLE>


(a)  Amounts charged against the reserve.


                                      F-19

<PAGE>
                                  Schedule III
                      Universal Health Realty Income Trust
          Real Estate and Accumulated Depreciation - December 31, 1998
                             (amounts in thousands)
<TABLE>
<CAPTION>
                                         Initial 
                                         Cost to
                                        Universal         Cost          Gross amount 
                                         Health       capitalized         at which
                                         Realty        Subsequent          carried                     Date of 
                                         Income        to acquis-         at close          Accumu-     const-
                                          Trust          ition           of period           lated     ruction
                                                                                             Deprec-   or most           
                                                                                             iation    recent             Average
                                              Building   Land &            Building &         as of  significant  Date  Depreciable
Description                            Land   & Improv.  Improv.   Land  Improvements Total  Dec. 31, expansion  Acquired    Life
                                                                                               1998    or reno-
                                                                                                        vation
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>      <C>       <C>       <C>     <C>       <C>         <C>     <C>     <C>     
Virtue Street Pavilion                $1,825    $9,445         -   $1,770    $9,445  $11,215   $3,244      1975    1986    35 Years
Chalmette Medical Center               2,000     7,473         -    2,000     7,473    9,473    2,365      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    3,145      1986    1986    43 Years

McAllen Medical Center
 McAllen, Texas                        4,720    31,442    10,188    6,281    40,069   46,350    9,262      1994    1986    42 Years

Wellington Regional Medical Center
 West Palm Beach, Florida              1,190    14,652     4,822    1,663    19,001   20,664    4,349      1986    1986    42 Years

The Bridgeway
 North Little Rock, Arkansas             150     5,395       499      150     5,894    6,044    2,004      1983    1986    35 Years

Meridell Achievement Center
 Austin, Texas                         1,350     3,782     4,139    1,350     7,921    9,271    2,743      1991    1986    28 Years

Tri-State Rehabilitation Hospital
 Evansville, Indiana                     500     6,945     1,062      500     8,007    8,507    1,819      1993    1989    40 Years

Vencor Hospital - Chicago
 Chicago, Illinois                       158     6,404     1,907      158     8,311    8,469    3,559      1993    1986    25 Years

Fresno-Herndon Medical Plaza
 Fresno, California                    1,073     5,266        24    1,073     5,290    6,363      481      1992    1994    45 Years

Family Doctor's Medical Office Building
 Shreveport, Louisiana                    54     1,526       494       54     2,020    2,074      141      1991    1995    45 Years

Kelsey-Seybold Clinic at King's Crossing 439     1,618         -      439     1,618    2,057      117      1995    1995    45 Years
Professional Center at King's Crossing   439     1,837        43      439     1,880    2,319      127      1995    1995    45 Years
 Kingwood, Texas

Chesterbrook Academy
 Audubon, Pennsylvania                     -       996         -        -       996      996       59      1996    1996    45 Years

Carefree Learning Center
 New Britain, Pennsylvania               250       744         -      250       744      994       43      1991    1996    45 Years

Carefree Learning Center
 Uwchlan, Pennsylvania                   180       815         -      180       815      995       48      1992    1996    45 Years

Carefree Learning Center
 Newtown, Pennsylvania                   195       749         -      195       749      944       44      1992    1996    45 Years

The Southern Crescent Center           1,130     5,092        14    1,130     5,106    6,236      285      1994    1996    45 Years
The Southern Crescent Center II                              806      806         0      806        0      1998    1998    35 Years
 Riverdale, Georgia

The Cypresswood Professional Center
 Spring, Texas                           573     3,842       121      573     3,963    4,536      171      1997    1997    35 Years
                                     -------  --------   -------  -------  -------- --------  -------
            TOTALS                   $18,276  $118,724   $26,987  $21,061  $142,871 $163,932  $34,006
                                     =======  ========   =======  =======  ======== ========  =======
</TABLE>
                                      F-20

<PAGE>
                      Universal Health Realty Income Trust
                              Notes to Schedule III
                                December 31, 1998




(1) Reconciliation of Real Estate Properties


The following table  reconciles the Real Estate  Properties from January 1, 1996
to December 31, 1998:


<TABLE>
<CAPTION>
                                                  1998               1997             1996
                                            -------------      -------------     -------------
<S>                                        <C>                <C>               <C>          
Balance at January 1                        $ 163,855,000      $ 158,083,000     $ 147,888,000
Additions and acquisitions                        158,000          4,526,000        10,195,000
Reclasses from construction in progress                --          1,246,000                --
Dispositions (a)                                  (81,000)                --                --
                                            -------------      -------------     -------------
Balance at December 31                      $ 163,932,000      $ 163,855,000     $ 158,083,000
                                            =============      =============     =============
</TABLE>



(2)  Reconciliation of Accumulated Depreciation


The following table reconciles the Accumulated Depreciation from January 1, 1996
to December 31, 1998:


<TABLE>
<CAPTION>
                                           1998              1997             1996
                                      ------------      ------------     ------------
<S>                                  <C>               <C>              <C>         
Balance at January 1                  $ 30,280,000      $ 26,540,000     $ 22,986,000
Current year depreciation expense        3,807,000         3,740,000        3,554,000
Dispositions (a)                           (81,000)               --               --
                                      ------------      ------------     ------------
Balance at December 31                $ 34,006,000      $ 30,280,000     $ 26,540,000
                                      ============      ============     ============
</TABLE>

(a)     Consists of  accumulated  depreciation  on demolished  houses located on
        land cleared for construction of The Southern  Crescent Center II, a new
        medical office  building which is scheduled to open in the first quarter
        of 2000.




The aggregate cost basis and net book value of the properties for Federal income
tax  purposes  at  December  31,  1998  are   approximately   $153,000,000   and
$122,000,000, respectively.


                                      F-21