UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(MARK ONE)
     ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT  1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.

                                       OR

     TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF THE SECURITIES
EXCHANGE  ACT  OF  1934
                         COMMISSION FILE NUMBER 1-14012

                              EMERITUS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                            WASHINGTON             91-1605464
                (STATE OR OTHER JURISDICTION     (I.R.S. EMPLOYER
            OF INCORPORATION OR ORGANIZATION)     IDENTIFICATION NO.)

                3131 ELLIOTT AVENUE, SUITE 500 SEATTLE, WA 98121
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (206) 298-2909
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


         TITLE OF EACH CLASS     NAME OF EACH EXCHANGE ON WHICH REGISTERED
         -------------------     -----------------------------------------
        Common Stock, $.0001 par value     American Stock Exchange, Inc.

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
     Indicate  by  check  mark  whether the Registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
Registrant  was required to file such reports), (2) and has been subject to such
filing  requirements  for  the  past  90  days.  Yes  No

     Indicate  by check mark that there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will 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  stock  held  by non-affiliates of the
registrant  as  of  February  28,  2002,  was  $25,783,947.

     As of February 28, 2002, 10,196,030 shares of the Registrant's Common Stock
were outstanding.
                      DOCUMENTS INCORPORATED BY REFERENCE:
     The  information  required  by  Part  III  of  Form  10-K  (items 10-13) is
incorporated  herein by reference to the Registrant's definitive Proxy Statement
to  be  filed  on  or  before  April  30,  2002.


<PAGE>
<TABLE>
<CAPTION>
                                                                              PAGE NO.
                                                                             ---------
<S>       <C>                                                                      <C>
                                      .  PART I
ITEM 1..  DESCRIPTION OF BUSINESS                                                   1
ITEM 2..  DESCRIPTION OF PROPERTY                                                   9
ITEM 3..  LEGAL PROCEEDINGS                                                        15
ITEM 4..  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                      16
       .  EXECUTIVE OFFICERS OF EMERITUS                                           16
       .                                 PART II
ITEM 5..  MARKET FOR REGISTRANTCOMMON EQUITY AND RELATED
       .  STOCKHOLDER MATTERS                                                      18

ITEM 6..  SELECTED CONSOLIDATED FINANCIAL DATA                                     19

ITEM 7..  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
       .  AND RESULTS OF OPERATIONS                                                20

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK               38

ITEM 8..  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                              39

ITEM 9..  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
       .  ACCOUNTING AND FINANCIAL DISCLOSURE                                      39

       .                                 PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                       39
ITEM 11.  EXECUTIVE COMPENSATION                                                   39

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
       .  MANAGEMENT                                                               39

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                           39
                            .            PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
       .  FORM 8-K                                                                 40
</TABLE>
<PAGE>
                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS

Overview

Emeritus  is  one  of  the  largest  and  most experienced national operators of
assisted  living  residential communities. Assisted living communities provide a
residential  housing  alternative  for  senior  citizens  who need help with the
activities  of  daily  living,  with an emphasis on assisted living and personal
care  services.

At  December  31,  2001, we held an interest in 133 assisted living communities,
consisting  of  approximately 12,200 units with a capacity for 14,000 residents,
located  in 29 states and Japan. Of these, we operate 132 communities, including
16  communities  that  we  own, 42 communities that we lease, and 74 communities
that  we  manage, including four in which we hold joint venture interests. Under
three  management  agreements covering 46 of our 74 managed communities, we have
options  to  purchase  38  communities  and  rights  of  first  refusal on three
communities  that expire June 30, 2003, and options to purchase five communities
that  expire  December  31,  2003.

We  strive  to  provide  a  wide  variety  of  assisted  living  services  in  a
professionally managed environment that allows our residents to maintain dignity
and  independence.  Our residents are typically unable to live alone, but do not
require  the  intensive  care  provided in skilled nursing facilities. Under our
approach,  seniors  reside  in  a private or semi-private residential unit for a
monthly  fee  based  on each resident's individual service needs. We believe our
residential  assisted  living  communities  allow  seniors  to  maintain  a more
independent  lifestyle  than  is  possible  in  the institutional environment of
skilled nursing facilities. In addition, we believe that our services, including
assisting  residents  with  activities  of  daily  living,  such  as  medication
management,  bathing, dressing, personal hygiene and grooming, are attractive to
seniors  who  are  inadequately  served  by  independent  living  facilities.

The Assisted Living Industry

We  believe  that  the  assisted  living  industry  is the preferred residential
alternative  for  seniors  who  cannot  live  independently  due  to physical or
cognitive  frailties but who do not require the more intensive medical attention
provided  by  a  skilled  nursing  facility.

Generally,  assisted  living  provides  housing  and  24-hour  personal  support
services  designed  to assist seniors with the activities of daily living, which
include  bathing,  eating,  personal  hygiene,  grooming,  medication reminders,
ambulating  and  dressing.  Certain  assisted living facilities may offer higher
levels  of  personal  assistance for residents with Alzheimer's disease or other
forms  of  dementia.

We  believe  that  a  number  of factors will allow assisted living companies to
continue  as  one  of  the  fastest  growing  choices  for  senior  care:

*     Consumer  Preference.  We  believe  that  assisted  living is preferred by
prospective  residents  as  well  as  their families, who are often the decision
makers  for  seniors.  Assisted  living is a cost-effective alternative to other
types  of  care,  offering  seniors  greater independence while enabling them to
reside  longer  in  a  more  residential  environment.

                                        1
<PAGE>

*     Cost-Effectiveness.  The  average  annual  cost  to care for a Medicare or
Medicaid  patient in a skilled nursing home can exceed $40,000. The average cost
to  care  for a private pay patient in a skilled nursing home can exceed $60,000
per  year  in  certain markets. In contrast, assisting living services generally
cost 30% to 50% less than skilled nursing facilities located in the same region.
We  also  believe  that  the cost of assisted living services compares favorably
with home healthcare, particularly when costs associated with housing, meals and
personal  care  assistance  are  taken  into  account.

*     Demographics.  The  target market for our services is generally persons 75
years  and  older  who  represent  the  fastest  growing  segments  of  the U.S.
population.  According  to  the  U.S.  Census  Bureau,  the  portion of the U.S.
population  age 75 and older is expected to increase by 11.5% from approximately
16.6  million in 2000 to approximately 18.6 million by the year 2010. The number
of persons age 85 and older, as a segment of the U.S. population, is expected to
increase  by 33.2% from approximately 4.3 million in 2000 to over 5.7 million by
the  year  2010.  Furthermore,  the number of persons afflicted with Alzheimer's
disease  is  also  expected  to  grow  in  the  coming  years. According to data
published  by  the  Alzheimer's  Association, this population will increase 127%
from  the  current  4.4 million to 10.0 million people by the year 2010. Because
Alzheimer's  disease  and  other forms of dementia are more likely to occur as a
person  ages, we expect the increasing life expectancy of seniors to result in a
greater  number of persons afflicted with Alzheimer's disease and other forms of
dementia  in  future  years,  absent  breakthroughs  in  medical  research.

*     Changing  Family Dynamics. According to the U.S. Census Bureau, the median
income  of the elderly population is increasing. Currently, more that 60 percent
of  the  population  over  the  age of 75 have incomes over $15,000 per year and
slightly  more  than  35  percent  have  annual  incomes  of  at  least $25,000.
Accordingly,  we  believe  that the number of seniors and their families who are
able to afford high-quality senior residential services, such as those we offer,
has  also  increased.  In  addition,  the  number  of  two-income households has
increased  over the last decade and the geographical separation of senior family
members  from their adult children has risen with the geographic mobility of the
U.S.  population.  As  a  result,  many  families  that traditionally would have
provided  the  type  of  care and services we offer to senior family members are
less  able  to  do  so.

* Supply/Demand Imbalance. While the senior population is growing significantly,
the  supply of skilled nursing beds per thousand is declining. We attribute this
imbalance  to  a  number  of factors in addition to the aging of the population.
Many  states,  in  an  effort  to  maintain  control of Medicaid expenditures on
long-term  care,  have  implemented  more  restrictive  Certificate  of  Need
regulations or similar legislation that restricts the supply of licensed skilled
nursing  facility  beds.  Additionally,  acuity-based reimbursement systems have
encouraged  skilled  nursing  facilities  to focus on higher acuity patients. We
also believe that high construction costs and limits on government reimbursement
for  construction  and  start-up  expenses  also have constrained the growth and
supply of traditional skilled nursing beds. We believe that these factors, taken
in  combination,  result  in relatively fewer skilled nursing beds available for
the  increasing  number of seniors who require assistance with the activities of
daily  living  but  do  not  require  24-hour  medical  attention.

                                        2
<PAGE>

Competitive Strengths

We  compete with other assisted living communities located in the areas where we
operate.  These  communities  are  operated  by  individuals, local and regional
businesses  and larger operators of regional and national groups of communities,
including  public companies similar to us. We believe that we have the following
competitive  strengths:

*     State-of-the-Art  Communities.  Of  our  132  operating  communities,  65
communities  have  been  built  and  opened  since  January  1, 1996 and reflect
state-of-the-art  design  and  equipment.  In  addition,  we  have significantly
upgraded  48  of our older communities to improve their appearance and operating
efficiency.  These  upgrades include the finished appearance of the communities,
as  well  as various improvements to kitchens, nurse call systems and electronic
systems,  including  those  for  data  transmission,  data  sharing and e-mail.

*     Large  Operating  Scale.  We  believe  that  our size gives us significant
advantages  over  smaller  operators. Given the scale of our operations, we have
the  opportunity  to  select the best operating systems and service alternatives
and  to  develop a set of best practices for implementation on a national scale.
We also believe that, because of our size, we are able to purchase such items as
food,  equipment,  insurance  and  employee  benefits  at  lower  costs,  and to
negotiate  more  favorable  financing  arrangements.

*     Lower  Cost  of Communities. As of December 31, 2001, the average cost per
unit  of  our communities was approximately $64,700. We believe that these costs
are  less  than the current replacement costs of these communities and below the
average costs incurred by many other public companies operating in the industry.
We  also believe that these lower capital costs give us opportunities to enhance
margins  and  greater flexibility in designing our rate structure and responding
to  varying  regional  economic  and  regulatory  changes.

*     Geographic  Diversification and Regional Focus. We operate our communities
in  29  states  in  all regions of the United States. We believe that because of
this  geographic  diversification  we  are  less  vulnerable to adverse economic
developments  and industry factors, such as overbuilding and regulatory changes,
that are limited to a particular region. We believe that this also moderates the
effects  of  regional employment and competitive conditions. Within each region,
we  have  focused  on  establishing  a critical mass of communities in secondary
markets,  which  enables  us  to  maximize  operating  efficiencies.

*  Experienced Management with Industry Relationships. Daniel R. Baty, our Chief
Executive  Officer,  has  more than 30 years of experience in the long-term care
industry,  ranging  from  independent living to skilled nursing care. We believe
that  his  experience  and  the relationships that he has developed with owners,
operators  and  sources  of  capital have helped us and will continue to help us
develop  operating  efficiencies, investment and joint venture relationships, as
well  as  obtain  sources  of  debt  and  equity  capital.  Mr.  Baty also has a
significant financial and management interest in Holiday Retirement Corporation,
an  operator of independent living facilities, which we believe provides us with
an  informal  but  important  relationship  with  a  complementary  business. In
addition,  our  senior  operating vice presidents have an average of 19 years of
experience  with major companies in the long-term care industry. We believe that
this  strong  senior  leadership,  with  proven

                                        3
<PAGE>

management skills, will allow us to take advantage of the opportunities present
in  the  assisted  living  industry.

Business Strategy

We  believe  that  there  is a significant demand for alternative long-term care
services  that  are  well  positioned  between  the  limited services offered by
independent  living  facilities  and  the higher-level medical and institutional
care  offered  by skilled nursing facilities. Our goal is to become the national
leader in the assisted living segment of the long-term care industry through the
following  strategy:

*     Focus  on  Operations  and  Occupancy. Through 1998, we focused on rapidly
expanding  our  operations  in  order to assemble a portfolio of assisted living
communities  with  a  critical  mass  of  capacity.  We  pursued  an  aggressive
acquisition  and  development  strategy  during  that  time. Having achieved our
growth  objective,  in  1999  and continuing through 2001, we have substantially
reduced  our  pace  of  acquisition and development activities to concentrate on
improving community performance through both increased occupancy and revenue per
occupied unit. Initially, we focused most of our efforts on increasing occupancy
across  our portfolio. Having achieved a portion of our total goal by late 1999,
we  then  shifted  our  efforts  toward  enhancing  our  rates,  particularly in
facilities  that  were substantially below industry averages. This rate strategy
has  led  to  increased  rates  across  most  of  our portfolio. We believe that
continued  focus  on  both  rates  and  occupancy  will continue to generate the
incremental  growth  in  margins  we  are  striving  to  achieve.

*     Expand  Business  through  Third  Party  Management  Agreements.  With the
current  changes  in the capital markets, we may be presented with, or look for,
opportunities  for  revenue  growth  through  the  use of third party management
agreements.  We  will  take  advantage  of  these  opportunities  if the managed
communities  fit into our existing areas of operational strength and appropriate
geological  proximity  to  the communities that we currently own or manage, and,
therefore  require  minimal  incremental  cost.  We  intend  to manage these new
communities  for  a  fee  based  on  a  percentage  of  their  gross  revenue.

*     Acquire  Communities  Selectively.  In  1998,  we  reduced our acquisition
activity  in  part  to  concentrate  on  the  need to improve operations through
occupancy  and rate enhancement. As we achieve these objectives, we expect to be
more  receptive  to  acquisition opportunities that meet designated criteria. We
particularly  expect  to  favor the acquisition of communities that provide more
complete coverage of our existing markets and intend to focus on acquisitions of
communities that have been originally designed as assisted living facilities and
that  will have positive cash flow opportunities. We intend to be more selective
and  measured  in  our  acquisition  strategy  in  the  future.

*     Appeal  to  the Middle Market. The market segment most attractive to us is
middle  to  upper-middle  income  seniors  in  smaller  cities  and suburbs with
populations of 50,000 to 150,000 persons. We believe that this "value-sensitive"
segment  of  the  senior  community is the largest, broadest and most stable. We
think that these markets are receptive to the development of new assisted living
communities  and the expansion of existing communities.

                                        4
<PAGE>

Resident Services

Our  assisted  living communities offer residents a full range of services based
on  individual  resident  needs  in  a  supportive  "home-like"  environment. By
offering  a  full  range  of services, we can accommodate residents with a broad
range  of  service  needs.  The  services  that  we provide to our residents are
designed  to  respond  to their individual needs and to improve their quality of
life.

<TABLE>
<CAPTION>



SERVICE LEVEL           TYPE OF RESIDENT                        DESCRIPTION OF CARE PROVIDED
-------------    -------------------------------  --------------------------------------------------------------


<S>                <C>                             <C>
Basic Services. .  All residents--independent,     We offer these basic services to our residents:
          . . . .  assisted living and those with  *  three meals per day,
          . . . .  Alzheimer's and related         *  social and recreational activities,
          . . . .  dementia                        *  weekly housekeeping and linen service,
          . . . .                                  *  building maintenance and grounds keeping,
          . . . .                                  *  24-hour emergency response and security,
          . . . .                                  *  licensed nurses on staff to monitor and coordinate care
          . . . .                                  needs, and
          . . . .                                  *  transportation to appointments, etc.
----------------------------------------------------------------------------------------------------------------------
Assisted living .  Assisted living residents       We cater our assisted living services to each resident based on
services. . . . .                                  his/her individual requirements for more frequent or intensive
          . . . .                                  assistance or increased care or supervision.  We achieve this
          . . . .                                  individualized care, through consultation with the resident, the
          . . . .                                  resident's physician and the resident's family.
          . . . .
          . . . .                                  We determine an individual resident's level of care by the
          . . . .                                  degree of assistance he/she requires in each of several categories.
          . . . .                                  Our categories of care include, but are not limited to:
          . . . .                                  *  medication management and supervision,
          . . . .                                  *  reminders for dining and recreational activities,
          . . . .                                  *  assistance with bathing, dressing and grooming,
          . . . .                                  *  incontinence,
          . . . .                                  *  behavior management,
          . . . .                                  *  dietary assistance, and
          . . . .                                  *  miscellaneous (which consists of diabetic management,
          . . . .                                  prescription medication, transfer, simple treatment,
          . . . .                                  oxygen set up/maintenance and prosthesis).
----------------------------------------------------------------------------------------------------------------------
Special Care. . .  Residents with Alzheimer's      We have designed our Special Care program to meet the
Program . . . . .  and related dementia            specialized medical, psychological and social needs of our
(Alzheimer's &. .                                  resident afflicted by this condition.  In a manner consistent with
related dementia)                                  our assisted living services, we help structure a service plan for
          . . . .                                  each resident based on his/her individual needs.  Some of the key
          . . . .                                  service areas that we focus on to provide the best care for our
          . . . .                                  residents with Alzheimer's or related dementias center around:
          . . . .                                  *  separate dining program,
          . . . .                                  *  enhanced behavior interpretation and management,
          . . . .                                  *  structured activity planning, and
          . . . .                                  *  counseling for residents and their families.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                        5
<PAGE>

Service Revenue Sources

We rely primarily on our residents' ability to pay our charges for services from
their  own  or  familial  resources  and  expect  that  we  will  do  so for the
foreseeable  future.  Although care in an assisted living community is typically
less  expensive  than  in  a skilled nursing facility, we believe generally that
only  seniors with income or assets meeting or exceeding the regional median can
afford  to  reside  in  our  communities.  Inflation or other circumstances that
adversely  affect  seniors'  ability  to  pay for assisted living services could
therefore  have  an  adverse  effect  on  our  business.

As  third  party  reimbursement  programs and other forms of payment continue to
grow,  we  intend to pursue these alternative forms of payment, depending on the
level  of  reimbursement  provided in relation to the level of care provided. We
also  believe  that  private long-term care insurance will increasingly become a
revenue  source  in  the  future, although it is currently small. All sources of
revenue  other than residents' private resources constitute less than 10% of our
total  revenues.

Management Activities

At  December  31,  2001,  we  managed and provided administrative services to 74
assisted  living  communities under management agreements that typically provide
for  management  fees  ranging  from 3% to 7% of gross revenues. Management fees
were  approximately $8.7 million in 2001. These management agreements have terms
ranging  from  two  to  five  years,  and  may be renewed or renegotiated at the
expiration  of  the  term.  We have various categories of management agreements,
including:

*     management  agreements  covering  46  communities  in  connection with the
Emeritrust  transactions,  which  we  will  refer to extensively throughout this
document  are  summarized as  follows:

     * EMERITRUST I: 25 communities that we began managing in December 1998.
       Until December 31, 2001, we received a base management fee of 5% of gross
       revenues, but were entitled to receive up to 7% depending on the cash
       flow performance of the communities managed. As of January 1, 2002,
       however, we will receive a base management fee of 3% of gross revenues,
       but may receive up to 7% depending on the cash flow performance of the
       communities managed. Additionally, we are required by our management
       contracts to fund cash operating deficits.

     * EMERITRUST  II:  21 communities that we began managing in March 1999,
       consisting  of:

               *     EMERITRUST  II  OPERATING: 16 communities for which we have
                     no obligation to fund cash operating deficits. We receive a
                     base management fee of 5% of gross revenues, but may
                     receive up to 7% depending on the cash flow performance of
                     the communities managed.

               *     EMERITRUST  II  DEVELOPMENT: 5 communities for which we are
                     required to fund cash operating deficits. We receive a base
                     management fee of 5% of gross revenues, but may receive up
                     to 7% depending on the cash flow performance of the
                     communities managed.

*     management  agreements  covering  8 communities owned by Columbia House, a
limited  partnership,  and  10  additional  communities,  all  owned by entities
controlled  by  Mr.  Baty.  We  provide  management  services and administrative
services  in  connection  with acquisition, development and financing activities
and generally receive fees ranging from 4% to 6% of the gross revenues generated
by  the  communities.

                                        6
<PAGE>

*     management agreements covering four communities owned by joint ventures in
which  we  have a financial interest. We receive management fees ranging from 4%
to  7%  of  gross  revenues.

*     management  agreements covering six communities owned by independent third
parties.  We receive management fees ranging from 4% to 7% of gross revenues, or
similar  arrangement  based  on  occupied  capacity.

Prior  to  1999, we did not have material revenue from management agreements. If
we exercise our options to purchase the Emeritrust communities prior to June 10,
2003 (December 10, 2003, for the five Emeritrust II Development communities), or
if  the  management  agreements  expire  on those dates and are not renewed, our
revenue  from  management  fees  will  diminish  substantially.

Marketing and Referral Relationships

Our  operating strategy is designed to integrate our assisted living communities
into the continuum of healthcare providers in the geographic markets in which we
operate.  One  objective  of  this  strategy  is to enable residents who require
additional  healthcare  services  to  benefit  from our relationships with local
hospitals,  physicians, home healthcare agencies, and skilled nursing facilities
in  order  to  obtain  the  most  appropriate  level  of  care. Thus, we seek to
establish  relationships  with  local hospitals, through joint marketing efforts
where  appropriate, and home healthcare agencies, alliances with visiting nurses
associations  and,  on  a  more limited basis, priority transfer agreements with
local,  high-quality  skilled  nursing  facilities.  In  addition  to benefiting
residents,  the  implementation  of this operating strategy has strengthened and
expanded  our  network  of  referral  sources.

Administration

We  employ an integrated structure of management, financial systems and controls
to  maximize  operating  efficiency  and  contain  costs.  In  addition, we have
developed  the  internal  procedures,  policies  and  standards  we  believe are
necessary  for  effective  operation  and  management  of  our  assisted  living
communities.  We  have  recruited  experienced  key  employees  from  several
established  operators  in the long-term care services field and believe we have
assembled  the  administrative,  operational  and  financial  personnel who will
enable  us  to  continue  to  manage  our  operating  strategies  effectively.

We  have  established  Central,  Eastern  and  Western  Operational Divisions. A
division  vice  president heads each division. Each division consists of several
operating  regions  headed  by  a  regional  director of operations who provides
management  support  services  for each of the communities in his/her respective
region.  An  on-site  community  director  who,  in  certain jurisdictions, must
satisfy  certain  licensing  requirements  supervises  day-to-day  community
operations.  We  provide  management support services to each of our residential
communities,  including  establishing operating standards, recruiting, training,
and  financial  and  accounting  services.

We  have centralized finance and other operational functions at our headquarters
in  Seattle, Washington, in order to allow community-based personnel to focus on
resident  care.  The  Seattle office establishes certain policies and procedures
applicable  to  the  entire  company,  oversees  our  financial  and  marketing
functions,  manages  our acquisition and development activities and provides our
overall  strategic  direction.

                                        7
<PAGE>

We  use a blend of centralized and decentralized accounting and computer systems
that  link  each  community with our headquarters. Through these systems, we are
able  to  monitor  operating  costs  and  distribute  financial  and  operating
information  to  appropriate levels of management in a cost efficient manner. We
believe  that  our current data systems are adequate for current operating needs
and  provide  the flexibility to meet the requirements of our operations without
disruption  or  significant modification to existing systems beyond 2002. We use
high quality hardware and operating systems from current and proven technologies
to  support  our  current  technology  infrastructure.

Competition

The  number  of  assisted  living  communities  continues  to grow in the United
States.  We  believe that market saturation has had, and could continue to have,
an  adverse  effect  on  our communities and their ability to reach and maintain
stabilized  occupancy levels. Moreover, the senior housing services industry has
been subject to pressures that have resulted in the consolidation of many small,
local operations into larger regional and national multi-facility operations. We
anticipate  that  our  source  of competition will come from local, regional and
national  assisted  living companies that operate, manage and develop residences
within the geographic area in which we operate, as well as retirement facilities
and  communities,  home  healthcare  agencies,  not-for-profit  or  charitable
operators  and,  to a lesser extent, skilled nursing facilities and convalescent
centers.  We  believe  that  quality of service, reputation, community location,
physical  appearance  and price will be significant competitive factors. Some of
our competitors have significantly greater resources, experience and recognition
within  the  healthcare  community  than  we  do.

Employees

At  December  31,  2001,  we  had  6,005  employees,  including  4,409 full-time
employees, of which approximately 150 were employed at our headquarters. None of
our  employees  are currently represented by a labor union, and we are not aware
of  any  union-organizing  activities  among  our employees. We believe that our
relationship  with  our  employees  is  satisfactory.

Although we believe that we are able to employ sufficiently skilled personnel to
staff  the  communities we operate or manage, a shortage of skilled personnel in
any  of  the  geographic  areas  in  which we operate could adversely affect our
ability  to  recruit and retain qualified employees and to control our operating
expenses.

                                        8
<PAGE>

ITEM  2.   DESCRIPTION  OF  PROPERTY

Communities

Our  assisted  living  communities generally consist of one-story to three-story
buildings  and  include  common  dining  and  social  areas.  Twenty-two  of our
operating  communities  offer  some  independent  living  services and three are
operated  as  skilled nursing facilities. The table below summarizes information
regarding  our  currently  operating  communities  as  of  December  31,  2001.
<TABLE>
<CAPTION>
                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------
<S>                                         <C>                   <C>              <C>      <C>      <C>
ARIZONA
Arbor at Olive Grove * . . . . . . . . . .  Phoenix               Jun. 1994             98      111  Lease
La Villita * (2) . . . . . . . . . . . . .  Phoenix               Jun. 1994             92       92  First Refusal/Manage
Loyalton of Flagstaff (3). . . . . . . . .  Flagstaff             Jun. 1999             61       67  Option/Manage
Loyalton of Phoenix (3). . . . . . . . . .  Phoenix               Jan. 1999            101      111  Option/Manage
Scottsdale Royale~ . . . . . . . . . . . .  Scottsdale            Aug. 1994             63       63  Own

CALIFORNIA
Creston Village~ . . . . . . . . . . . . .  Paso Robles           Feb. 1998            100      110  Joint Venture
Emerald Hills. . . . . . . . . . . . . . .  Auburn                Jun. 1998             89       98  Lease
Fulton Villa . . . . . . . . . . . . . . .  Stockton              Mar. 1995             80       80  Own
Laurel Place *~ (2). . . . . . . . . . . .  San Bernardino        Apr. 1996             71       72  Option/Manage
Northbay Retirement~ . . . . . . . . . . .  Fairfield             Mar. 1998            172      189  Joint Venture
The Terrace~ (2) . . . . . . . . . . . . .  Grand Terrace         Mar. 1996             87       87  Option/Manage
Villa Del Rey *. . . . . . . . . . . . . .  Escondido             Mar. 1997             84       84  Own

CONNECTICUT
Cold Spring Commons *. . . . . . . . . . .  Rocky Hill            Apr. 1997             80       88  Lease

DELAWARE
Gardens at White Chapel (2). . . . . . . .  Newark                Jul. 1998            100      110  Option/Manage
Green Meadows at Dover . . . . . . . . . .  Dover                 Oct. 1995             52       63  Lease

FLORIDA
The Allegro. . . . . . . . . . . . . . . .  St. Augustine         Aug. 1999            111      122  Manage
Barrington Place (2) . . . . . . . . . . .  LeCanto               May-1996              79      120  Option/Manage
Beneva Park Club (2) . . . . . . . . . . .  Sarasota              Jul. 1995             96      102  Option/Manage

                                        9
<PAGE>

                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------
The Pavillion at Crossing
Pointe *~ (2). . . . . . . . . . . . . . .  Orlando               Jul. 1995            174      190  Option/Manage
College Park Club * (2). . . . . . . . . .  Bradenton             Jul. 1995             85       93  Option/Manage
Colonial Park Club (3) . . . . . . . . . .  Sarasota              Aug. 1996             88       90  Option/Manage
Heritage Oaks. . . . . . . . . . . . . . .  Tallahassee           Dec. 1999            120      132  Manage
La Casa Grande . . . . . . . . . . . . . .  New Port Richey       May-1997             200      235  Own
The Lakes. . . . . . . . . . . . . . . . .  Ft. Myers             Jun-2000             154      190  Lease
The Lodge at Mainlands (2) . . . . . . . .  Pinellas Park         Aug. 1996            154      162  Option/Manage
Madison Glen (2) . . . . . . . . . . . . .  Clearwater            May-1996             135      154  First Refusal/Manage
Park Club of Brandon (3) . . . . . . . . .  Brandon               Jul. 1995             88       88  Option/Manage
Park Club of Ft. Myers (3) . . . . . . . .  Ft. Myers             Jul. 1995             77       82  Option/Manage
Park Club of Oakbridge (3) . . . . . . . .  Lakeland              Jul. 1995             88       88  Option/Manage
River Oaks . . . . . . . . . . . . . . . .  Englewood             May-1997             155      200  Own
Springtree (2) . . . . . . . . . . . . . .  Sunrise               May-1996             179      246  Option/Manage
Stanford Centre. . . . . . . . . . . . . .  Altamonte Springs     May-1997             118      180  Own

IDAHO
Bestland Retirement. . . . . . . . . . . .  Coeur d               Nov. 1996             83       86  Manage
Highland Hills~ (3). . . . . . . . . . . .  Pocatello             Oct. 1996             49       55  Option/Manage
Juniper Meadows. . . . . . . . . . . . . .  Lewiston              Nov. 1997             82       90  Own
Loyalton of Coeur d'Alene~(3). . . . . . .  Coeur d'Alene         Mar. 1996            108      114  Option/Manage
Ridge Wind (3) . . . . . . . . . . . . . .  Chubbuck              Aug. 1996             80      106  Option/Manage
Summer Wind. . . . . . . . . . . . . . . .  Boise                 Sep. 1995             49       53  Lease

ILLINOIS
Canterbury Ridge . . . . . . . . . . . . .  Urbana                Nov. 1998            101      111  Lease
Rockford . . . . . . . . . . . . . . . . .  Rockford              Jun. 2000            100      110  Manage

IOWA
Silver Pines . . . . . . . . . . . . . . .  Cedar Rapids          Jan. 1995             80       80  Own

KANSAS
Elm Grove Estates (2). . . . . . . . . . .  Hutchinson            Apr. 1997            121      133  Option/Manage

KENTUCKY
Stonecreek Lodge * . . . . . . . . . . . .  Louisville            Apr. 1997             80       88  Lease

                                       10
<PAGE>

                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------
MARYLAND
Emerald Estates. . . . . . . . . . . . . .  Baltimore             Oct. 1999            120      134  Manage
Loyalton of Hagerstown (3) . . . . . . . .  Hagerstown            Jul. 1999            100      110  Option/Manage

MASSACHUSETTS
Canterbury Woods . . . . . . . . . . . . .  Attleboro             Jun. 2000            130      130  Manage
The Lodge at Eddy Pond . . . . . . . . . .  Auburn                Jan. 2000            108      110  Lease
Meadow Lodge at Drum Hill *. . . . . . . .  Chelmsford            Aug. 1997             80       88  Own
The Pines at Tewksbury * (3) . . . . . . .  Tewksbury             Jan. 1996             49       65  Option/Manage
Woods at Eddy Pond * . . . . . . . . . . .  Auburn                Mar. 1997             80       88  Lease

MISSISSIPPI
Loyalton of Biloxi . . . . . . . . . . . .  Biloxi                Jan. 1999             83       91  Lease
Loyalton of Hattiesburg. . . . . . . . . .  Hattiesburg           Jul. 1999             79       83  Lease
Ridgeland Pointe * . . . . . . . . . . . .  Ridgeland             Aug. 1997             79       87  Joint Venture
Silverleaf Manor . . . . . . . . . . . . .  Meridian              Jul. 1998            101      111  Manage
Trace Point. . . . . . . . . . . . . . . .  Clinton               Oct. 1999            100      110  Manage

MISSOURI
Autumn Ridge~. . . . . . . . . . . . . . .  Herculaneum           Jun. 1997             94       94  Manage

MONTANA
Springmeadows Residence. . . . . . . . . .  Bozeman               Apr. 1997             74       81  Own

NEVADA
Concorde * . . . . . . . . . . . . . . . .  Las Vegas             Nov. 1996            116      128  Own

NEW JERSEY
Laurel Lake Estates. . . . . . . . . . . .  Voorhees              Jul. 1995            117      119  Lease
Loyalton of Cape May . . . . . . . . . . .  Cape May              May 2001             100      110  Manage

NEW YORK
Bassett Manor (1). . . . . . . . . . . . .  Williamsville         Nov. 1996            103      105  Lease
Bassett Park Manor (1) . . . . . . . . . .  Williamsville         Nov. 1996             78       80  Lease
Bellevue Manor (1) . . . . . . . . . . . .  Syracuse              Nov. 1996             90       90  Lease
Colonie Manor (1). . . . . . . . . . . . .  Latham                Nov. 1996             94       94  Lease
East Side Manor (1). . . . . . . . . . . .  Fayetteville          Nov. 1996             80       88  Lease
Green Meadows at Painted Post (1). . . . .  Painted Post          Oct. 1995             73       96  Lease
The Landing at Brockport . . . . . . . . .  Brockport             Jul. 1999             84       92  Manage
The Landing at Queensbury. . . . . . . . .  Queenbury             Nov. 1999             84       92  Manage
Loyalton of Lakewood (3) . . . . . . . . .  Lakewood              Jul. 1999             83       91  Option/Manage
Perinton Park Manor (1). . . . . . . . . .  Fairport              Nov. 1996             78       86  Lease
West Side Manor--Rochester(1) . .. . . . .  Rochester             Nov. 1996             72       72  Lease
West Side Manor--Syracuse(1) . . . . . . .  Syracuse              Nov. 1996             78       80  Lease

                               11
<PAGE>

                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------

Woodland Manor (1) . . . . . . . . . . . .  Vestal                Nov. 1996             60      116  Lease

NORTH CAROLINA
Heritage Hills Retirement Community~ . . .  Hendersonville        Feb. 1996             99       99  Own
Heritage Lodge Assisted Living . . . . . .  Hendersonville        Feb. 1996             20       24  Lease
Pine Park Retirement Community~ . . . . .  Hendersonville        Feb. 1996            110      110  Lease
Pines of Goldsboro . . . . . . . . . . . .  Goldsboro             Sep. 1998            101      111  Manage

OHIO
Brookside Estates (2). . . . . . . . . . .  Middleburg Heights    Sep. 1998             99      101  Option/Manage
The Landing at Canton. . . . . . . . . . .  Canton                Aug. 2000             84       92  Manage
Lodge at Montgomery. . . . . . . . . . . .  Cincinnati            Jun. 2000            214      274  Manage
Park Lane. . . . . . . . . . . . . . . . .  Toledo                Jan. 1998             92      101  Manage

OREGON
Meadowbrook (3). . . . . . . . . . . . . .  Ontario               Jun. 1995             53       55  Option/Manage

PENNSYLVANIA
Green Meadows at Allentown . . . . . . . .  Allentown             Oct. 1995             76       97  Lease
Green Meadows at Latrobe . . . . . . . . .  Latrobe               Oct. 1995             84      125  Lease

SOUTH CAROLINA
Anderson Place--The Summer
House ~(3) . . . . . . . . . . . . . . . .  Anderson              Oct. 1996             30       40  Option/Manage
Anderson Place--Cottages . . . . . . . . .  Anderson              Oct. 1996             75       75  Option/Manage
Anderson Place--The Health
Center # (3) . . . . . . . . . . . . . . .  Anderson              Oct. 1996             22       44  Option/Manage
Bellaire Place * (2) . . . . . . . . . . .  Greenville            May-1997              81       89  Option/Manage
Countryside Park . . . . . . . . . . . . .  Easley                Feb. 1996             48       66  Lease
Countryside Village Assisted Living. . . .  Easley                Feb. 1996             48       78  Lease
Countryside Village Health Care
Center # . . . . . . . . . . . . . . . . .  Easley                Feb. 1996             24       44  Lease
Countryside Village Retirement Center. . .  Easley                Feb. 1996             72       75  Lease
Skylyn Health Center # . . . . . . . . . .  Spartanburg           Feb. 1996             26       48  Lease
Skylyn Personal Care Center. . . . . . . .  Spartanburg           Feb. 1996            115      131  Lease
Skylyn Retirement Community. . . . . . . .  Spartanburg           Feb. 1996            120      120  Lease
York Care. . . . . . . . . . . . . . . . .  York                  Sep. 1999             82      164  Manage

                                       12
<PAGE>

                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------

TENNESSEE
Walking Horse Meadows ~ * (2) .. . . . . .  Clarksville           Jun. 1997             50       55  Option/Manage

TEXAS
Amber Oaks * . . . . . . . . . . . . . . .  San Antonio           Apr. 1997            163      275  Lease
Cambria *. . . . . . . . . . . . . . . . .  El Paso               Sep. 1996             79       87  Lease
Dowlen Oaks (2). . . . . . . . . . . . . .  Beaumont              Dec. 1996             79       87  Option/Manage
Eastman Estates (2). . . . . . . . . . . .  Longview              Jun. 1997             70       77  Option/Manage
Elmbrook Estates (3) . . . . . . . . . . .  Lubbock               Dec. 1996             79       87  Option/Manage
Lakeridge Place (2). . . . . . . . . . . .  Wichita Falls         Jun. 1997             79       87  Option/Manage
Meadowlands Terrace * (2). . . . . . . . .  Waco                  Jun. 1997             71       78  First Refusal/Manage
Myrtlewood Estates (2) . . . . . . . . . .  San Angelo            May-1997              79       87  Option/Manage
The Palisades *~ . . . . . . . . . . . . .  El Paso               Apr. 1997            158      215  Lease
Redwood Springs. . . . . . . . . . . . . .  San Marcos            Apr. 1997             90       90  Lease
Saddleridge Lodge (2). . . . . . . . . . .  Midland               Dec. 1996             79       87  Option/Manage
Seville Estates * (2). . . . . . . . . . .  Amarillo              Mar. 1997             50       55  Option/Manage
Sherwood Place * . . . . . . . . . . . . .  Odessa                Sep. 1996             79       87  Lease
Vickery Towers at Belmont~ . . . . . . . .  Dallas                Apr. 1995            301      331  Manage

UTAH
Emeritus Estates (2) . . . . . . . . . . .  Ogden                 Feb. 1998             83       91  Option/Manage

VIRGINIA
Carriage Hill Retirement . . . . . . . . .  Bedford               Sep. 1994             91      137  Lease
Cobblestones at Fairmont * . . . . . . . .  Manassas              Sep. 1996             75       82  Own
Loyalton of Staunton (3) . . . . . . . . .  Staunton              Jul. 1999            101      111  Option/Manage
Wilburn Gardens. . . . . . . . . . . . . .  Fredericksburg        Jan. 1999            101      111  Manage

WASHINGTON
Arbor Place at Silver Lake . . . . . . . .  Everett               Jun. 1999            101      111  Manage
Charlton Place . . . . . . . . . . . . . .  Tacoma                Jul. 1998             96      105  Manage
Cooper George ~* . . . . . . . . . . . . .  Spokane               Jun. 1996            140      158  Partnership
Courtyard at the Willows * . . . . . . . .  Puyallup              Sep. 1997            101      111  Own
Evergreen Lodge (3). . . . . . . . . . . .  Federal Way           Apr. 1996             98      124  Option/Manage
Fairhaven Estates * (3). . . . . . . . . .  Bellingham            Oct. 1996             50       55  Option/Manage
Garrison Creek Lodge * . . . . . . . . . .  Walla Walla           Jun. 1996             80       88  Lease
Harbour Pointe Shores (2). . . . . . . . .  Ocean Shores          Feb. 1997             50       55  Option/Manage
The Hearthstone (3). . . . . . . . . . . .  Moses Lake            Nov. 1996             84       92  Option/Manage
The Hearthside . . . . . . . . . . . . . .  Issaquah              Feb. 2000             98       98  Own
Kirkland Lodge . . . . . . . . . . . . . .  Kirkland              Mar. 1996             74       84  Own
Renton Villa * . . . . . . . . . . . . . .  Renton                Sep. 1993             79       97  Lease
Richland Gardens . . . . . . . . . . . . .  Richland              May-1998             100      110  Manage

                                       13
<PAGE>

                                                                 EMERITUS
                                                                 OPERATIONS         UNITS     BEDS
        COMMUNITY                           LOCATION             COMMENCED            (A)      (B)        INTEREST
                                                                 ---------      ----------  -------  --------------------

Seabrook * . . . . . . . . . . . . . . . .  Everett               Jun. 1994             60       62  Lease

WEST VIRGINIA
Charleston Gardens . . . . . . . . . . . .  Charleston            Aug. 2001            100      132  Manage

WYOMING
Park Place ~(2). . . . . . . . . . . . . .  Casper                Feb. 1996             60       60  Option/Manage

JAPAN
San Oaks . . . . . . . . . . . . . . . . .  Kurashiki             Dec. 1999            114      158  Joint Venture
                                                                                   -------  -------

Total Operating Communities                                                         12,248   14,026
                                                                                   ========  =======
</TABLE>


     *  Near an existing or proposed Holiday facility.
     ~  Currently offers independent living services.
     #  Currently operates as a skilled nursing facility.
    (a) A unit is a single- or double-occupancy residential living space,
        typically an apartment or studio.
    (b) "Beds" reflects the actual number of beds, which in no event is greater
        than the maximum number of licensed beds allowed under the community's
        license.
    (1) We provide administrative services to the community that is operated by
        Painted Post Partners through a lease agreement with an independent
        third party.
    (2) On December 31, 1998, an investor group acquired these communities
        ("Emeritrust I") from Meditrust. We hold an option or a right of first
        refusal to purchase the communities, expiring on June 10, 2003, at a
        formula price based on a specified return to the investor group. We
        manage the communities during the option term.
    (3) On March 31, 1999, an investor group acquired these communities
        ("Emeritrust II") from Meditrust. We hold an option to purchase the
        communities, expiring on June 10, 2003, or December 10, 2003, for the
        five development communities, at a formula price based on a specified
        return to the investor group. We manage the communities during the
        option term.

                                       14
<PAGE>

Executive  Offices

Our  executive  offices  are  located  in  Seattle,  Washington,  where we lease
approximately  26,500  square feet of space. Our lease agreement includes a term
of  10  years,  expiring  July  2006,  with  two  five-year  renewal  options.



ITEM 3.   LEGAL PROCEEDINGS

In August 2000, Emeritus began arbitration proceedings with Corio Inc. ("Corio")
in  connection  with  a  contract dispute. In 1999, we entered into an agreement
with  Corio, pursuant to which Corio would plan, implement, and finalize our new
accounting software program. In March 2000, Emeritus canceled the implementation
of  the  program  prior  to its completion. Corio asserted a claim for breach of
contract  for  $1.4 million, requesting payment of the full contract value. Both
parties  contacted  AAA  Arbitration  as  specified  in  the leasing and service
contract,  and  the  dispute  was  settled  in  February  2001  for  $500,000,
representing reimbursement for actual expenditures incurred by Corio. Payment of
$300,000  was  made  in  2001.  The remaining payments are to be remitted over a
two-year term as follows: $150,000 in 2002 and $50,000 in 2003. This balance has
been  accrued  and  is included in the consolidated financial statements for the
year  ended  December  31,  2001.

                                       15
<PAGE>

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

Emeritus  did not submit any matter to a vote of its security holders during the
fourth  quarter  of  its  fiscal  year  ended  December  31,  2001.


EXECUTIVE OFFICERS OF EMERITUS

The following table presents certain information about our executive officers.
There are no family relationships between any of the directors or executive
officers.

<TABLE>
<CAPTION>

            Name                Age                   Position
-------------------------   -------  ----------------------------------------------------


<S>                      <C>         <C>
Daniel R. Baty. . . . .          58  Chairman of the Board and Chief Executive Officer
Raymond R. Brandstrom .          49  Vice President of Finance, Secretary, Chief Financial
                                     Officer and Vice Chairman of the Board
Gary S. Becker. . . . .          54  Senior Vice President of Operations
Martin D. Roffe . . . .          54  Vice President, Financial Planning
Suzette McCanless . . .          53  Vice President, Operations--Eastern Division
Russell G. Kubik. . . .          48  Vice President, Operations--Central Division
Peter Kacy Kang . . . .          34  Vice President, Operations--Western Division
Kellie S. Murray. . . .          48  Vice President of Human Resources
Susan A. Scherr . . . .          53  Vice President of Signature Services
</TABLE>

Daniel  R.  Baty,  one  of Emeritus' founders, has served as its Chief Executive
Officer and as a director since its inception in 1993 and became Chairman of the
Board  in  April  1995. Mr. Baty also has served as the Chairman of the Board of
Holiday  Retirement  Corporation  since  1987  and served as its Chief Executive
Officer  from  1991 through September 1997. Since 1984, Mr. Baty has also served
as  Chairman  of  the  Board of Columbia Pacific Group, Inc. and, since 1986, as
Chairman  of  the Board of Columbia Management, Inc. Both of these companies are
wholly  owned  by  Mr.  Baty  and  are  engaged in developing independent living
facilities  and  providing  consulting  services  for  that  market.

Raymond R. Brandstrom, one of Emeritus' founders, has served as a director since
its  inception  in 1993 and as Vice Chairman of the Board since March 1999. From
1993  to March 1999, Mr. Brandstrom also served as Emeritus' President and Chief
Operating  Officer.  In March 2000, Mr. Brandstrom was elected Vice President of
Finance, Chief Financial Officer and Secretary of Emeritus. From May 1992 to May
1997,  Mr. Brandstrom served as Vice President and Treasurer of Columbia Winery,
a company affiliated with Mr. Baty that is engaged in the production and sale of
table  wines.

Gary S. Becker joined Emeritus as Western Division Director in January 1997, was
promoted  to  Vice President, Operations-Western Division in September 1999, and
then  promoted  to Senior Vice President of Operations in March 2000. Mr. Becker
has 28 years of health care management experience. From October 1993 to December
1996  he  was  Vice  President of Operations for the Western Division of Sunrise
Healthcare  Corp.  From 1982 to October 1993 he was Vice President of Operations
for  the  Mid-West  division  of  the  Hillhaven  Corporation.

                                       16
<PAGE>

Martin D. Roffe joined Emeritus as Director of Financial Planning in March 1998,
and  was  promoted  to Vice President of Financial Planning in October 1999. Mr.
Roffe  has  29  years  experience  in the acute care, long-term care, and senior
housing  industries.  Prior  to  joining  Emeritus, from May 1987 until February
1996, Mr. Roffe served as Vice President of Financial Planning for the Hillhaven
Corporation,  at  which  he  also held the previous positions of Sr. Application
Analyst  and  Director  of  Financial Planning, from January 1983 to April 1987.
Prior  to  1983,  Mr.  Roffe served in a Budget Director capacity for Acute Care
Facilities.

Suzette  McCanless joined Emeritus as Eastern Division Director of Operations in
March 1997 and was promoted to Vice President of Operations-Eastern Division, in
September 1999. Ms. McCanless has 21 years of health care management experience.
Prior  to  joining Emeritus, from July 1996 to February 1997, she was Group Vice
President  for  Beverly  Enterprises,  Inc., at which she also held the previous
positions of Administrator and Regional Director of Operations from June 1983 to
March  1994.  In  the interim, Ms. McCanless worked for Delta Health Group, from
April  1994  to  August  1995,  as  Regional  Director  of  Operations,  and  at
Hillhaven/Vencor  Corporation  as the Director of Operations from September 1995
to  June  1996.

Russell  G.  Kubik joined Emeritus as Central Division Director of Operations in
April 1997 and was promoted to Vice President, Operations - Central Division, in
September  1999.  Mr.  Kubik  has 17 years of health care management experience.
Prior  to  joining  Emeritus,  from  1994  to 1997, Mr. Kubik served as Regional
Director of Operations for Sun Healthcare Group in the Seattle/Puget Sound area.
From May 1992 to March 1994, Mr. Kubik worked as Regional Director of Operations
for  Beverly  Enterprises,  Inc.  in  Washington  and  Idaho.

Peter  Kacy Kang joined Emeritus as Regional Director of Operations in June 1997
and  was  promoted  to  Senior  Director  of  Operations  - Western Division, in
February  2001.  Mr.  Kang  was  then promoted to Vice President of Operations -
Western  Division  in August 2001.  Prior to joining Emeritus, Mr. Kang operated
nursing  and rehabilitation facilities for Beverly Enterprises from 1991 to 1994
and  Sun  Health Care from 1994 through 1997.  He also holds a Master of Science
degree  from  Columbia  University  in  Administration.

Kellie  S.  Murray  joined  Emeritus as Director of Human Resources in September
1999.  Ms.  Murray  was  promoted  to Vice President of Human Resources in April
2001.  Ms.  Murray  has  17  years of health care and human resources management
experience.  From January 1995 to September 1999 she was Vice President of Human
Resources for the Western Group of Sunrise Healthcare Corporation.  From 1985 to
December 1994 she was Human Resources Manager for Virginia Mason Medical Center.

Susan A. Scherr joined Emeritus as a Regional Support Specialist in October 1999
and  was promoted to Director of Signature Services and a member of the Emeritus
Senior  Management  team  in  December  1999.  In  April  2001 Susan became Vice
President  of Signature Services, providing leadership and direction to Emeritus
through  Sales  and  Marketing,  Education  and  Training,  Dining Services, and
Wellness  and  Activities  Programming.  Susan  brings  to Emeritus more than 17
years  in  the  assisted living, acute and skilled care, and hospice/home health
industries.

                                       17
<PAGE>

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

Our common stock has been traded on the American Stock Exchange under the symbol
"ESC"  since  November  21,  1995,  the date of our initial public offering. The
following  table  sets  forth for the periods indicated the high and low closing
prices  for  our  common  stock  as  reported  on  AMEX.

<TABLE>
<CAPTION>

                   High       Low
                ---------  --------
<S>             <C>       <C>
2001
First Quarter.  $ 1.7500  $ 0.9000
Second Quarter  $ 2.6000  $ 0.8000
Third Quarter.  $ 2.5000  $ 1.4500
Fourth Quarter  $ 2.3200  $ 1.6000

2000
First Quarter.  $ 7.0000  $ 4.2500
Second Quarter  $ 4.1875  $ 2.5000
Third Quarter.  $ 3.5000  $ 2.1250
Fourth Quarter  $ 2.0000  $ 1.1250

1999
First Quarter.  $15.1250  $11.3750
Second Quarter  $12.1250  $ 9.7500
Third Quarter.  $10.0000  $ 7.5000
Fourth Quarter  $ 7.8125  $ 5.1250
</TABLE>

As  of  February  28, 2002, the number of record holders of our Common Stock was
138.

We  have never declared or paid any dividends on our Common Stock, and expect to
retain  any  future  earnings  to  finance  the  operation  and expansion of our
business.  Future  dividend  payments  will depend on our results of operations,
financial condition, capital expenditure plans and other obligations and will be
at the sole discretion of our Board of Directors. Certain of our existing leases
and  lending  arrangements  contain  provisions that restrict our ability to pay
dividends,  and  it  is  anticipated  that  the  terms of future leases and debt
financing  arrangements  may  contain similar restrictions. Therefore, we do not
anticipate  paying  any  cash  dividends  on our Common Stock in the foreseeable
future.

                                       18
<PAGE>

ITEM  6.   SELECTED  CONSOLIDATED  FINANCIAL  DATA

The selected data presented below under the captions "Consolidated Statements of
Operations  Data"  and  "Consolidated Balance Sheet Data" for, and as of the end
of,  each  of  the  years  in  the five-year period ended December 31, 2001, are
derived  from  the  consolidated  financial  statements of Emeritus Corporation,
which  financial statements have been audited by KPMG LLP, independent auditors.
The  consolidated financial statements as of December 31, 2001 and 2000, and for
each of the years in the three-year period ended December 31, 2001, are included
elsewhere  in  this  document.

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                          -----------------------------------------------------
                                                            2001       2000       1999       1998       1997
                                                          ---------  ---------  ---------  ---------  ---------
<S>                                                       <C>        <C>        <C>        <C>        <C>
Consolidated Statements of Operations Data:
Total operating revenues . . . . . . . . . . . . . . . .  $140,577   $125,192   $122,642   $151,820   $117,772
Total operating expenses . . . . . . . . . . . . . . . .   133,202    125,905    125,330    173,823    140,912
                                                          ---------  ---------  ---------  ---------  ---------
Income (loss) from operations. . . . . . . . . . . . . .     7,375       (713)    (2,688)   (22,003)   (23,140)
Other, net . . . . . . . . . . . . . . . . . . . . . . .   (11,609)   (21,223)   (18,016)    (6,776)    (5,071)
Extraordinary loss on extinguishment of debt . . . . . .         -          -       (333)      (937)         -
Cumulative effect of change in accounting principle. . .         -          -          -     (1,320)         -
                                                          ---------  ---------  ---------  ---------  ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . .    (4,234)   (21,936)   (21,037)   (31,036)   (28,211)
Preferred stock dividends. . . . . . . . . . . . . . . .     6,368      5,327      2,250      2,250        425
                                                          ---------  ---------  ---------  ---------  ---------
 Net loss to common shareholders . . . . . . . . . . . .  $(10,602)  $(27,263)  $(23,287)  $(33,286)  $(28,636)
                                                          =========  =========  =========  =========  =========
Loss per common share before extraordinary item and
   cumulative effect of change in accounting principle--
      basic and diluted. . . . . . . . . . . . . . . . .  $  (1.04)  $  (2.69)  $  (2.19)  $  (2.96)  $  (2.60)
Extraordinary loss per common share--basic and diluted .         -          -      (0.03)     (0.09)         -
Cumulative effect of change in accounting principle. . .
   loss per common share -- basic and diluted. . . . . .         -          -          -      (0.12)         -
                                                          ---------  ---------  ---------  ---------  ---------
Net loss per common share -- basic and diluted . . . . .  $  (1.04)  $  (2.69)  $  (2.22)  $  (3.17)  $  (2.60)
                                                          =========  =========  =========  =========  =========
Weighted average number of common shares outstanding--
 basic and diluted . . . . . . . . . . . . . . . . . . .    10,162     10,117     10,469     10,484     11,000
                                                          =========  =========  =========  =========  =========


Communities in which we have an interest . . . . . . . .       133        135        129        113         99
Number of units. . . . . . . . . . . . . . . . . . . . .    12,248     12,412     11,726      9,972      8,624
</TABLE>
<TABLE>
<CAPTION>
                                                                               December 31,
                                                           ----------------------------------------------------
                                                             2001       2000       1999       1998       1997
                                                           ---------  ---------  ---------  ---------  --------
<S>                                                        <C>        <C>        <C>        <C>        <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . .  $  9,811   $  7,496   $ 12,860   $ 11,442   $ 17,537
Working capital (deficit) . . . . . . . . . . . . . . . .   (12,100)   (81,167)     6,828       (977)    12,074
Total assets. . . . . . . . . . . . . . . . . . . . . . .   168,428    178,079    198,370    192,870    228,573
Long-term debt, less current portion. . . . . . . . . . .   131,070     60,499    128,319    119,674    108,117
Convertible debentures. . . . . . . . . . . . . . . . . .    32,000     32,000     32,000     32,000     32,000
Redeemable preferred stock. . . . . . . . . . . . . . . .    25,000     25,000     25,000     25,000     25,000
Shareholders' equity (deficit). . . . . . . . . . . . . .   (74,141)   (65,803)   (37,290)   (45,964)     1,207
</TABLE>

                     19
<PAGE>

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

OVERVIEW

Emeritus  is  a Washington corporation organized by Daniel R. Baty and two other
founders  in  1993.  In  November 1995, we completed our initial public offering
and  began  our  expansion  strategy.

Through  1998,  we  focused  on  rapidly  expanding  our  operations in order to
assemble  a  portfolio  of  assisted  living communities with a critical mass of
capacity.  We  pursued an aggressive acquisition and development strategy during
that  time,  acquiring 35 and developing 10 communities in 1996, acquiring 7 and
developing 20 communities in 1997, and developing 5 communities in 1998.  During
1999  and  continuing  through  2001,  we have substantially reduced our pace of
acquisition  and  development  activities  to  concentrate  on  improving  our
operations  and  increasing  occupancy  and  our  average  revenue  per  unit.

In  our  consolidated  portfolio,  our rate enhancement program brought about an
increase  in  average  monthly revenue per occupied unit to $2,405 for 2001 from
$2,213  for 2000.  This represents an average revenue increase of $192 per month
per  occupied  unit,  or 8.7%.  The average occupancy rate decreased slightly to
84.1%  in  2001  from  85.8%  during  2000.

In  our  total  operated portfolio, which includes managed communities, our rate
enhancement  program  brought  about  an increase in average monthly revenue per
occupied  unit  to  $2,294  for  2001  from $2,109 for 2000.  This represents an
average  revenue  increase  of  $185 per month per occupied unit, or 8.8% .  The
average  occupancy  rate  decreased  slightly to 81.6% in 2001 from 81.7% during
2000.

We  intend  to  continue  a  selective  growth  strategy  through  acquiring and
developing  new  communities  with operating characteristics consistent with our
current  emphasis on stabilizing occupancy and enhancing our operating model and
service  offerings.

                                       20
<PAGE>

The  following  table  sets  forth  a  summary  of  our  property  interests.

<TABLE>
<CAPTION>


                                                                  As of December 31,
                                         ----------------------------------------------------------------------
                                                  2001                    2000                    1999
                                         ----------------------  ----------------------  ----------------------
                                         Buildings     Units     Buildings     Units     Buildings     Units
                                         ----------  ----------  ----------  ----------  ----------  ----------
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Owned (1) . . . . . . . . . . . . . . .          16       1,579         16       1,579          16       1,572
Leased (1). . . . . . . . . . . . . . .          42       3,444         45       3,700          40       3,302
Managed/Admin Services. . . . . . . . .          70       6,620         69       6,528          68       6,247
Joint Venture/Partnership . . . . . . .           5         605          5         605           5         605
                                         ----------  ----------  ----------  ----------  ----------  ----------
     Operated Portfolio . . . . . . . .         133      12,248        135      12,412         129      11,726

     Percentage increase (decrease) (2)        (1%)        (1%)          5%          6%         14%         18%

Pending Acquisitions. . . . . . . . . .           -           -          -           -           2         206
New Developments (3). . . . . . . . . .           -           -          2         200           6         604
                                         ----------  ----------  ----------  ----------  ----------  ----------
     Total. . . . . . . . . . . . . . .         133      12,248        137      12,612         137      12,536
                                         ----------  ----------  ----------  ----------  ----------  ----------

     Percentage increase (decrease) (2)        (3%)        (3%)          0%          1%       (12%)        (5%)
</TABLE>

--------
     (1) Included in our consolidated portfolio of communities.
     (2) The percentage increase (decrease) indicates the change from the prior
         period.
     (3) The communities under development at December 31, 2000, were developed
         by third parties, but are currently managed by Emeritus.


We rely primarily on our residents' ability to pay our charges for services from
their  own  or  familial  resources  and  expect  that  we  will  do  so for the
foreseeable  future.  Although care in an assisted living community is typically
less  expensive  than  in  a skilled nursing facility, we believe that generally
only  seniors with income or assets meeting or exceeding the regional median can
afford  to  reside  in  our  communities.  Inflation or other circumstances that
adversely  affect  seniors'  ability  to  pay for assisted living services could
therefore  have an adverse effect on our business.  All sources of revenue other
than  residents'  private  resources  constitute  less  than  10%  of  our total
revenues.

We  have  incurred net operating losses since our inception.  As of December 31,
2001,  we  had  an  accumulated  deficit of approximately $141.7 million.  These
losses  resulted  from  a  number  of  factors,  including:

     * occupancy levels at our communities that were lower for longer periods
       than we originally anticipated;

     * financing costs that we incurred as a result of multiple financing and
       refinancing transactions; and

     * administrative and corporate expenses that we increased to facilitate our
       growth and maintain operations.

During  1998,  we  decided  to reduce acquisition and development activities and
dispose  of  select  communities  that had been operating at a loss.  We believe
that  slowing  our  acquisition and development activities has enabled us to use
our  resources  more  efficiently  and increase our focus on enhancing community
operations.

                                       21
<PAGE>

EMERITRUST TRANSACTIONS

In  two separate transactions during the fall of 1998 and the spring of 1999, we
arranged for two investor groups to purchase an aggregate of 41 of our operating
communities and five communities under development for a total purchase price of
approximately  $292.2  million.  Of the 46 communities involved, 43 had been, or
were  proposed to be, leased to us by Meditrust Company LLC under sale/leaseback
financing  arrangements,  and  three  had  been owned by us. The first purchase,
consisting  of  25 communities, which we will call the Emeritrust I communities,
was  completed  in  December  1998  and  the  second  purchase, consisting of 21
communities,  16  of  which we will call the Emeritrust II Operating communities
and  five  of  which  we  call  the  Emeritrust  II Development communities, was
completed  in  March  1999.

Of  the  $168.0  million purchase price for the Emeritrust I communities, $138.0
million  was  financed  through  a  three-year  first  mortgage  loan  with  an
independent third party and $30.0 million was financed through subordinated debt
and  equity  investments from the investor group, which includes Daniel R. Baty,
our Chief Executive Officer, who is also a director and a principal shareholder.
Of the $124.2 million purchase price for the Emeritrust II Operating communities
and  Emeritrust  II  Development  communities,  approximately  $99.6 million was
financed  through three-year first mortgage loans with independent third parties
and  $24.6 million was financed through subordinated debt and equity investments
from  the  investor  group,  which  includes  Mr.  Baty.

The  investor  groups  retained  us  to  manage  all  of the communities through
December  31,  2001,  and  granted us options to purchase the communities during
this  period.  During  2000,  the Emeritrust I communities failed to comply with
covenants  under the $138 million mortgage loan and in 2001 it became clear that
we  would  not  be  able  to  purchase  the communities under the options.  As a
result, in January 2002, the mortgage loans were restructured and the management
agreements  and  options to purchase were extended to June 30, 2003 (to December
31,  2003  in  the case of the five Emeritrust II Development communities).  The
discussion  below  reflects  the  terms  of  these  arrangements  as  modified.

From  January 1, 2002, through June 30, 2003, we will receive for the Emeritrust
I  communities  a  base  management fee of 3% of gross revenues generated by the
communities  and  an additional management fee of 4%, payable out of 50% of cash
flow.  The  availability of cash flow to pay management fees is subject to prior
payment  of  expenses and fees related to the restructuring of the mortgage loan
in  2001.  For  the  Emeritrust  II  Operating communities and the Emeritrust II
Development  communities,  we  have  received  and  continue  to  receive a base
management  fee  of 5% of gross revenues and an additional management fee of 2%,
payable  to  the  extent  that the communities meet certain cash flow standards.
Prior  to  January 1, 2001, the management fees for the Emeritrust I communities
were also computed  in  this  fashion.

Under  the  management  agreements,  we  are obligated to reimburse the investor
groups  for  cumulative  cash  operating losses greater than $4.5 million in the
case  of  the  Emeritrust I communities and $500, 000 in the case of each of the
five  Emeritrust  II  Development  communities. Since these thresholds have been
exceeded,  we are currently responsible for most cash operating losses generated
by  these  communities  if they occur. There is no such funding arrangement with
respect  to the Emeritrust II Operating communities. Our funding obligations for
the  Emeritrust  I  communities  have  been  $1.3 million, $4.9 million and $1.9
million  for  2001, 2000 and 1999, respectively. Our funding obligations for the
Emeritrust  II  Development  communities  have been $310,000 and $1.6 million in
2001  and  2000,  respectively.

                                       22
<PAGE>

2000  and  1999,  respectively.  Our  funding  obligations for the Emeritrust II
Development  communities  have  been $310,000 and $1.6 million in 2001 and 2000,
respectively.

Although the amounts of our funding obligation each year include management fees
earned  by  us  under  the  management  agreements,  we  do  not recognize these
management fees as revenue in our financial statements to the extent that we are
funding  the  cash  operating  losses  that  include  them.  Correspondingly, we
recognize  the  funding  obligation  under  the  agreement,  less the applicable
management  fees,  as  an expense in our financial statements under the category
"Other,  net."  Conversely, if the applicable management fees exceed our funding
obligation,  we  recognize  the  management  fees less the funding obligation as
management  fee  revenue  in  our consolidated financial statements.  Management
fees  earned  for  the  Emeritrust  I  communities  have been $4.0 million, $2.1
million  and  $1.9  million  in 2001, 2000 and 1999, respectively, of which $2.8
million have been recognized in 2001.  Management fees earned for the Emeritrust
II  Development  communities  have been $766,000 and $360,000, of which $673,000
and  $174,000  have  been recognized in 2001 and 2000, respectively.  Management
fees  earned  for the Emeritrust II Operating communities have been $1.9 million
earned  and  recognized  in  both  2001  and  2000.

We have an option to purchase 43 of the 46 Emeritrust Communities and a right of
first  refusal  with  respect  to the remaining three communities, both of which
expire  June  30,  2003 (December 31, 2003 in the case of the five Emeritrust II
Development  communities).  The  option  must  be  exercised with respect to all
communities  or may not be exercised at all. If investor groups require Mr. Baty
to  purchase certain of the communities, upon the conditions described below, we
have the right to exercise our option within 60 days of receiving notice of this
action.  The  option  price  for  the  43 Emeritrust communities is equal to the
original  cost  of the communities of approximately $292 million, plus an amount
that  would  provide  the investor groups with an 18% rate of return, compounded
annually,  on  their  original  investment  of  $54.6  million  (less  any  cash
distributions  received).  In connection with the exercise of the option, we are
also  obligated  to  pay  certain  costs  and  fees.

The  management  agreements,  including  the  options  to  purchase  the related
communities,  are  subject  to  various  termination  provisions,  including
cross-default  provisions among all three groups of communities.  The management
agreement  for  the  Emeritrust  I  communities  may  be  terminated  if  cash
distributions  to  the  investor  group  do  not  meet  certain levels or if the
communities  fail to meet certain coverage requirements under the mortgage loan.
In  addition,  certain of the communities have been refinanced and, accordingly,
our  ability  to  exercise  the  option  will depend on whether we can assume or
refinance  the debt secured by these communities.  Termination of the management
agreements  or  failure  to  exercise  the  options  could result in the loss of
management  fees  and  the  substantial decrease in the number of communities we
operate.

Under  related  agreements, the investor groups may require Mr. Baty to purchase
between  ten  and  twelve  of  the  Emeritrust  communities,  depending  on  the
occurrence  of  any  one  of  the  following events:  (a) we do not exercise our
option  to  purchase  the  communities before the option expires, (b) we default
under  the management agreements, (c) Mr. Baty's net worth falls below a certain
threshold,  (d)  we  experience a change of control or (e) Mr. Baty ceases to be
our  chief  executive  officer.  If Mr. Baty is required to purchase some of the
communities,  he  will  also  have  the option to purchase all of the Emeritrust
communities  on  the  same  terms  under  which  we  are  entitled  purchase the
communities, subject to our prior right to do so within a specified time period.

                                       23
<PAGE>

RESULTS  OF  OPERATIONS

Critical  Accounting  Policies  and  Estimates.

Emeritus's  discussion  and  analysis  of its financial condition and results of
Operations  are  based  upon Emeritus's consolidated financial statements, which
have  been  prepared in accordance with accounting principles generally accepted
in  the  United  States.  The preparation of these financial statements requires
Emeritus  to  make  estimates  and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets  and liabilities. On an on-going basis, Emeritus evaluates its estimates,
including  those  related  to  resident  programs  and  incentives,  bad  debts,
investments,  intangible  assets,  income  taxes,  financing  operations,
restructuring,  long-term  service  contracts,  contingencies,  and  litigation.
Emeritus  bases  its  estimates  on  historical  experience and on various other
assumptions  that  are  believed  to  be reasonable under the circumstances, the
results  of  which form the basis for making judgments about the carrying values
of  assets  and  liabilities  that  are not readily apparent from other sources.
Actual  results  may  differ from these estimates under different assumptions or
conditions.

Emeritus  believes  the  following  critical  accounting  policies  are  more
significant  to  the  judgments  and  estimates  used  in the preparation of its
consolidated  financial  statements.  Revisions in such estimates are charged to
income  in  the  period in which the facts that give rise to the revision become
known.  Emeritus maintains allowances for doubtful accounts for estimated losses
resulting  from the inability of its residents to make required payments. If the
financial condition of Emeritus's residents were to deteriorate, resulting in an
impairment  of  their  ability  to  make  payments, additional allowances may be
required.  Emeritus  holds shares in ARV Assisted Living, Inc. amounting to less
than  5%  of  its shares. ARV is publicly traded and has a volatile share price.
Emeritus  records  an  investment  impairment  charge  when  it  believes  this
investment  has  experienced  a  decline  in value that is other than temporary.
Future adverse changes in market conditions or poor operating results underlying
this  investment  could result in losses or an inability to recover the carrying
value  of  the investment that may not be reflected in this investment's current
carrying  value,  thereby possibly requiring an impairment charge in the future.
Emeritus  records a valuation allowance to reduce its deferred tax assets to the
amount  that  is more likely than not to be realized, which at this time shows a
net asset valuation of zero. While Emeritus has considered future taxable income
and  ongoing  prudent and feasible tax planning strategies in assessing the need
for a valuation allowance, in the event Emeritus were to determine that it would
be  able  to  realize its deferred tax assets in the future in excess of its net
recorded  amount,  an adjustment to the deferred tax asset would increase income
in  the  period  such  determination  was  made.

                                       24
<PAGE>

The  following  table  sets forth, for the periods indicated, certain items from
our  Condensed  Consolidated  Statements  of Operations as a percentage of total
revenues  and the percentage change of the dollar amounts from period to period.

<TABLE>
<CAPTION>

                                                            Percentage of Revenues                       Year-to-Year
                                                           Years Ended December 31,             Percentage Increase (Decrease)
                                                    ----------------------------------------  ----------------------------------
                                                        2001          2000          1999         2000-2001         1999-2000
                                                    ------------  ------------  ------------  ----------------  ----------------
<S>                                                 <C>           <C>           <C>           <C>               <C>
Revenues . . . . . . . . . . . . . . . . . . . . .        100.0%        100.0%        100.0%             12.3%              2.1%
Expenses:
     Community operations. . . . . . . . . . . . .         57.5          61.4          63.8               5.2              (1.7)
     General and administrative. . . . . . . . . .         12.8          13.9          12.6               3.2              12.3
     Depreciation and amortization . . . . . . . .          5.2           5.9           5.4              (1.7)             12.1
     Facility lease expense. . . . . . . . . . . .         19.3          19.4          20.5              11.5              (3.3)
                                                    ------------  ------------  ------------  ----------------  ----------------
         Total operating expenses. . . . . . . . .         94.8         100.6         102.3               5.8               0.5
                                                    ------------  ------------  ------------  ----------------  ----------------
Income (loss) from operations. . . . . . . . . . .          5.2          (0.6)         (2.3)              N/A             (74.4)
Other income (expense):
     Interest income . . . . . . . . . . . . . . .          0.7           0.8           0.5              (1.0)             47.8
     Interest expense. . . . . . . . . . . . . . .         (9.4)        (12.0)        (11.2)            (11.9)              9.6
     Impairment of investment securities . . . . .            -             -          (6.1)              N/A             (99.6)
     Other, net. . . . . . . . . . . . . . . . . .          0.5          (5.7)          2.0               N/A            (386.6)
                                                    ------------  ------------  ------------  ----------------  ----------------
         Net other expense . . . . . . . . . . . .         (8.2)        (16.9)        (14.8)            (45.2)             17.8
                                                    ------------  ------------  ------------  ----------------  ----------------
          Loss before extraordinary item . . . . .         (3.0)        (17.5)        (17.1)            (80.7)              6.0
Extraordinary loss on early extinguishment of debt            -             -          (0.3)              N/A            (100.0)
                                                    ------------  ------------  ------------  ----------------  ----------------
          Net loss . . . . . . . . . . . . . . . .         (3.0)%       (17.5)%       (17.2)%           (80.7)%             4.3%
                                                    ============  ============  ============  ================  ================
</TABLE>



Comparison  of  the  Years  Ended  December  31,  2001  and  2000
-----------------------------------------------------------------

Total  Operating Revenues:  Total operating revenues for the year ended December
31,  2001,  increased by  $15.4 million to $140.6 million from $125.2 million in
2000,  or  12.3%.  Approximately  $4.1  million of the increase reflects revenue
from  four  communities  that  we first leased in late 2000, reduced by revenues
from  leased communities we disposed of in late 2001.  The balance of the change
in  revenue  is primarily the result of increases in the average monthly revenue
per  unit due to our rate enhancement program.  Average monthly revenue per unit
was  $2,405  for 2001 compared to  $2,213 for 2000, an increase of approximately
8.7%.  These  increases  were  partially  offset  by  a  small  decrease  in the
occupancy  rate of 1.7 percentage points to 84.1% for 2001 from 85.8%  for 2000.
An  increase in management fee revenue of $4.2 million contributed significantly
to increased revenue.  Improved performance of managed communities allowed us to
recognize  base  management  fees  and  performance-driven contingent management
fees.  Concurrently,  our  net funding obligation for the Emeritrust communities
was  greatly  reduced  (see  Other,  net  below).

Community  Operations:  Community operating expenses for the year ended December
31,  2001,  increased $4.0 million to $80.8 million from $76.8 million for 2000,
or  5.2%.  Approximately $1.8 million of the increase reflects operating expense
from  four  communities  that we first leased in late 2000, reduced by operating
expense from leased communities we disposed of in late 2001. The balance of this
change  was  due  to increases in personnel costs and above average increases in
utility  costs  and  liability  insurance

                                       25
<PAGE>

premiums.  Community  operating  expenses  as  a  percentage  of total operating
revenue  decreased to 57.5% in 2001 from 61.4% in 2000, primarily as a result of
increased  revenues.

General  and  Administrative:  General and administrative (G&A) expenses for the
year  ended  December  31,  2001, increased $561,000 to $18.0 million from $17.4
million  for  2000,  or 3.2%.  This comparison reflects the effect of abnormally
high  expenses in 2000 for professional consulting fees and for certain employee
benefits.  Excluding these items, we experienced increases of approximately $1.5
million  in personnel costs, liability insurance and utilities.  As a percentage
of  total operating revenues, G&A expenses decreased to 12.8% for 2001, compared
to  13.9% for 2000, primarily as a result of increased revenues. Since more than
half  of  the communities we operate are managed, G&A expense as a percentage of
operating  revenues  for  all communities, including managed communities, may be
more  meaningful for industry wide comparisons.  These percentages were 6.6% and
7.2%  for  2001  and  2000,  respectively.

Depreciation and Amortization:  Depreciation and amortization for the year ended
December  31,  2001  and 2000, were approximately $7.3 million and $7.4 million,
respectively.  In  2001,  this  represents  5.2%  of  total  operating revenues,
compared  to  5.9% for 2000.  The decrease as a percentage of revenues is due to
increased  revenues.

Facility  Lease Expense:  Facility lease expense for the year ended December 31,
2001,  was  $27.1  million compared to $24.3 million for the year ended December
31, 2000, representing an increase of $2.8 million, or 11.5%. Approximately $1.8
million  of  the  increase  reflects  rental from four communities that we first
leased in late 2000, reduced by rental from leased communities we disposed of in
late  2001.  The  balance  of  the  increase is primarily attributable to rental
increases  based  on  community  performance  under certain of our leases and to
higher  rental  on  two  leased  communities  that  were  refinanced  through
sale/leaseback  transactions.  We leased 42 communities as of December 31, 2001,
compared  to 45 communities as of December 31, 2000. Facility lease expense as a
percentage  of  revenues  decreased  to  19.3%  from  19.4%  for the years ended
December  31,  2001  and  2000,  respectively.

Interest  Income:  Interest  income  for  the  year ended December 31, 2001, was
$980,000  versus  $990,000 for the year ended December 31, 2000. The decrease is
primarily  attributable to declining interest rates, offset by higher investment
amounts.

Interest  Expense:  Interest  expense  for the year ended December 31, 2001, was
$13.3  million  compared  to $15.1 million for the year ended December 31, 2000.
This  decrease  of  $1.8  million,  or 11.9%, is primarily attributable to lower
interest  rates  on  our variable rate debt.  As a percentage of total operating
revenues,  interest  expense  decreased  to  9.4%  from 12.0% for the year ended
December  31,  2001  and  2000,  respectively,  reflecting increased revenues in
conjunction  with  lower  interest  rates.

Other, net: Other, net increased by $7.8 million to $707,000 income for the year
ended  December  31, 2001, from $7.1 million expense for the year ended December
31,  2000. The amount for the year 2001 included a deficit-funding obligation of
$335,000  arising  from  our management of the Emeritrust communities, losses of
$313,000  associated with our investment in Senior Healthcare Partners, LLC, and
a  gain  of  $1.2  million  on sale of a community. The amount for the year 2000
includes  a  deficit  funding  obligation  of  $3.7  million  arising  from  our
management of the Emeritrust communities, write-offs of $1.5 million relating to

                                       26
<PAGE>

receivables  and  capitalized  development  transaction  costs  that do not have
future  realizable  value,  losses of $557,000 associated with our investment in
Senior  Healthcare  Partners,  LLC,  and  other  items aggregating $1.3 million.

Preferred  dividends:  For  the  year  ended  December  31,  2001  and 2000, the
preferred  dividends  were  approximately  $6.4  million  and  $5.3  million,
respectively.  For  the  last  six  quarters  we  have not paid dividends on our
preferred  stock  but  have been accruing such accumulated and unpaid dividends.
The  terms  of our preferred stock provide that accumulated and unpaid dividends
accrue  at  a higher rate than dividends that are paid currently.  The amount of
dividends  attributable  to  such  higher rates is $2.1 million and $600,000 for
2001  and  2000,  respectively.  In  addition, because we have failed to pay the
dividends  on  our  Series  A Stock for six quarters, effective January 1, 2002,
such  dividends will be calculated on a compounded cumulative basis, retroactive
to  our  last  payment,  until  they  are  paid current. Had we been required to
compound the dividends for the Series A Stock in prior years, both our preferred
dividends  and net loss to common shareholders would have increased $275,000 and
$20,000  for  2001  and  2000,  respectively.


Comparison  of  the  Years  Ended  December  31,  2000  and  1999
-----------------------------------------------------------------

Total  Operating  Revenues.  Total  operating revenues increased $2.6 million to
$125.2  million  for  2000  from  $122.6  million  in  1999, representing a 2.1%
increase.  Within  total  operating revenues, community revenue (including other
service  fees)  increased  $2.8  million  to  $120.6 million in 2000 from $117.7
million  in  1999.  The  first  quarter of 1999, however, includes approximately
$6.3  million  of community revenue from 21 communities (known as the Emeritrust
II  communities, more fully discussed under Other, net) that were transferred at
the  end  of  the  quarter  to  a  related party investor group under agreements
pursuant to which we continue to manage them.  Accordingly, the first quarter of
2000  includes  only  management  fees  from  these communities and no community
revenue.  Excluding  the  Emeritrust  II  communities,  revenues  increased $9.1
million  or  8%  from  1999  to  2000, primarily as a result of a 4% increase in
revenue per unit (an increase of $79 per unit to $2,213 per unit at December 31,
2000)  and  the addition of six communities during 2000, partially offset by the
disposition  of  a  skilled  nursing  facility.

Management  fee  revenue  decreased  $336,000  to $4.6 million in 2000 from $4.9
million  in  1999.  In  2000, we were not able to recognize fees earned from our
management  of 25 communities (known as the Emeritrust I communities, more fully
discussed  under  Other, net) where the management agreements require us to fund
cash  operating deficits, while in 1999 we recognized $1.4 million in management
fee revenue from these communities.  This was partially offset by an increase of
$500,000 in management fees from the Emeritrust II communities from $1.4 million
to  $1.9  million,  the  addition  of  several new management agreements and the
generally  improving  performance  of  our  portfolio  of  managed  communities.

Community  Operations.  Community  operating  expenses decreased $1.4 million to
$76.8  million  for 2000 from $78.2 for 1999, representing a 1.7% decrease. As a
percentage  of total operating revenues, community operations decreased to 61.4%
for  2000  compared  to  63.8%  for  1999.  The  first quarter of 1999, however,
includes  approximately  $3.9  million  of community operating expenses from the
Emeritrust  II  communities,  with  no  comparable offset in 2000. Excluding the
Emeritrust  II  communities, community operating expenses increased $2.5 million
or  3%  from  1999  to  2000,  primarily  as a result of the addition of six new

                                       27
<PAGE>

buildings  to  our consolidated portfolio, slightly offset by the disposition of
one  skilled  nursing  facility.

General  and  Administrative. General and administrative expenses increased $1.9
million  to  $17.4  million for 2000 from $15.5 million for 1999, representing a
12.3% increase. As a percentage of revenues, general and administrative expenses
increased  to 13.9% for 2000 compared to 12.6% for 1999. The increase of general
and  administrative  costs  as  a  percentage  of  revenues  is due, in part, to
transferring our interest in the Emeritrust II communities. The overall increase
of  $1.9  million is primarily attributable to settlement and legal costs of the
Corio  mediation (See Item 3. Legal Proceedings) and additional costs associated
with  increased  professional  liability  insurance deductibles. Since more than
half  of  the communities we operate are managed, G&A expense as a percentage of
operating  revenues  for  all communities, including managed communities, may be
more  meaningful  for industry wide comparisons. These percentages were 7.2% and
8.2%  for  2000  and  1999,  respectively.

Depreciation  and Amortization.  Depreciation and amortization expense increased
$798,000  to  $7.4  million  for 2000 from $6.6 million for 1999, representing a
12.1%  increase. As a percentage of total revenue, depreciation and amortization
expenses  increased to 5.9% in 2000 from 5.4% in 1999. This marginal increase is
principally  the  result of six community acquisitions in 2000, partially offset
by  the  disposition  of  one  skilled  nursing  facility.

Facility  Lease  Expense:  Facility  lease  expense  decreased $829,000 to $24.3
million  for  2000 from $25.1 million for 1999, representing a decrease of 3.3%.
The  decrease  is  primarily  attributable  to the transfer of the Emeritrust II
communities  that  converted  to  management  agreements  as  discussed in Total
Operating  Revenues above.  These communities accounted for $1.9 million in rent
expense  for  1999,  partially  offset  by  additional  rent generation from six
community  acquisitions  and  normal increases in lease expense obligations from
our  existing  portfolio. Facility Lease Expense as a percentage of revenues was
19.4%  for  2000  compared  to  20.5%  for  1999.

Interest  Income:  Interest  income  for  the  year ended December 31, 2000, was
$990,000  versus  $670,000  for  the  year  ended  December  31, 1999.  This  is
primarily attributable to the increase in cash available for earning interest in
2000  as  compared  to  1999.

Interest  Expense:  Interest  expense  for the year ended December 31, 2000, was
$15.1  million  compared  to $13.8 million for the year ended December 31, 1999.
This  increase  is  primarily  attributable  to  generally  increasing  mortgage
interest expense associated with our variable rate debt, as well as the addition
of  six  consolidated  communities  in  early  2000.  In  addition,  total  debt
increased  approximately  $5  million  to  $175 million as of December 31, 2000,
compared  to  $170  million  as  of December 31, 1999.  As a percentage of total
operating  revenues, interest expense increased to 12.0% from 11.2% for the year
ended  December  31,  2000  and  1999,  respectively.

Impairment  of Investment Securities. During 2000, we did not have an impairment
of  investment securities. In 1999, we wrote down $7.4 million on our investment
in  ARV  Assisted  Living,  Inc., as we concluded the decline in the fair market
value  of  this  investment  was  other  than  temporary.
Other,  Net.  Other,  net  was  $7.1  million (expense) in 2000 and $2.5 million
income  in  1999,  representing  a

                                       28
<PAGE>

net  change  of  $9.6  million.  The amount for the year 2000 includes a deficit
funding  obligation  of  $3.7  million  arising  from our management of both the
Emeritrust  I  and  Emeritrust  II  Development  communities  in  which  we  are
responsible for cash operating deficits for such communities, write-offs of $1.5
million  relating  to  receivables and capitalized development transaction costs
that do not have future realizable value, losses of $557,000 associated with our
investment  in Senior Healthcare Partners, LLC, and other items aggregating $1.3
million. The amount for the year 1999 includes gain of $3.2 million arising from
a  litigation  settlement,  gain  of  $762,000  from  the  sale  of  a  Canadian
subsidiary,  deficit-funding  obligation  of  $1.4  million  arising  from  our
management  of  the  Emeritrust  I  communities described above, and other items
aggregating  $600,000.

Extraordinary Item. We recognized extraordinary losses of approximately $333,000
in  1999  and  none  in  2000.  Our  1999  extraordinary  loss resulted from the
write-off  of  loan  fees  and  other  related  costs  in  conjunction  with the
refinancing  of  several  of  our  mortgage-financed  communities.

Same  Community  Comparison

We  operated  57  communities on a comparable basis during both the three months
ended  December  31, 2001 and 2000.  The following table sets forth a comparison
of  same  community  results of operations, excluding general and administrative
expenses,  for  the  three  months  ended  December  31,  2001  and  2000.
<TABLE>
<CAPTION>

                                         Three Months ended December 31,
                                                (In thousands)
                               -------------------------------------------------
                                                            Dollar   Percentage
                                   2001          2000       Change     Change
                               ------------  ------------  --------  -----------
<S>                            <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . .  $    30,123   $    28,949   $ 1,174          4.1%
Community operating expenses.      (18,430)      (17,466)     (964)         5.5
                               ------------  ------------  --------  -----------
  Community operating income.       11,693        11,483       210          1.8
Depreciation & amortization .       (1,433)       (1,415)      (18)         1.3
Facility lease expense. . . .       (5,975)       (5,778)     (197)         3.4
                               ------------  ------------  --------  -----------
    Operating income. . . . .        4,285         4,290        (5)        (0.1)
Interest expense, net . . . .       (2,125)       (2,913)      788        (27.1)
Other income (expense). . . .          (92)           16      (108)      (675.0)
                               ------------  ------------  --------  -----------
    Net income. . . . . . . .  $     2,068   $     1,393   $   675         48.5%
                               ============  ============  ========  ===========
</TABLE>

The  same communities represented $30.1 million or 84.3% of our total revenue of
$35.7 million for the fourth quarter of 2001.  Same community revenues increased
by  $1.2  million  or  4.1%  for  the  quarter ended December 31, 2001, from the
comparable  period  in  2000.  This  was  primarily due to rate increases, which
increased  revenue  per  unit by 7.8%, partially offset by a decrease in average
occupancy  to  82.6%  in  the  fourth  quarter  of 2001 from 85.4% in the fourth
quarter  of 2000.  For the quarter ended December 31, 2001, we increased our net
income  to  $2.1  million  from  $1.4 million for the comparable period of 2000,
primarily  as  a  result  of  decreased  interest  expense  resulting from lower
interest  rates.

                                       29
<PAGE>

We operated 57 communities on a comparable basis during both 2001 and 2000.  The
following table sets forth a comparison of same community results of operations,
excluding  general  and  administrative  expenses,  for  2001  and  2000.

<TABLE>
<CAPTION>

                                           Year Ended December 31,
                                                (In thousands)
                               -------------------------------------------------
                                                            Dollar   Percentage
                                   2001          2000       Change     Change
                               ------------  ------------  --------  -----------
<S>                            <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . .  $   119,811   $   112,775   $ 7,036          6.2%
Community operating expenses.      (72,705)      (69,912)   (2,793)         4.0
                               ------------  ------------  --------  -----------
  Community operating income.       47,106        42,863     4,243          9.9
Depreciation & amortization .       (5,638)       (5,435)     (203)         3.7
Facility lease expense. . . .      (23,691)      (22,900)     (791)         3.5
                               ------------  ------------  --------  -----------
    Operating income. . . . .       17,777        14,528     3,249         22.4
Interest expense, net . . . .      (10,139)      (11,479)    1,340        (11.7)
Other income (expense). . . .         (397)         (111)     (286)       257.7
                               ------------  ------------  --------  -----------
    Net income. . . . . . . .  $     7,241   $     2,938   $ 4,303        146.5%
                               ============  ============  ========  ===========
</TABLE>

The same communities represented $119.8 million or 85.2% of our total revenue of
$140.6  million  for  the year ended December 31, 2001.  Same community revenues
increased by $7.0 million or 6.2% for the year ended December 31, 2001, from the
year  ended  December  31, 2000.  The increase in revenue is attributable to our
rate  enhancement  program,  which  resulted  in  same community average monthly
revenue  per  unit increasing to $2,411 for 2001, from $2,201 for 2000.  This is
an  increase of $210 or 9.5%.  These results were partially offset by a decrease
in  occupancy  to 83.7% in 2001 from 86.2% in 2000.  For the year ended December
31,  2001,  we  increased  our  net income to $7.2 million from $2.9 million for
2000,  primarily  through  our  rate  enhancement program, controlling community
level  costs  and  the  effects  of  lower  interest  rates.

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the year ended December 31, 2001, net cash provided by operating activities
was  $3.6  million compared to $9.2 million of cash used in operating activities
for the prior year.  The primary component of the operating cash provided in the
year  ended  December  31,  2001,  was  the  decrease of our net loss from $21.9
million  in  the year ended December 31, 2000 to $4.2 million for the year ended
December  31,  2001.

Net  cash provided by investing activities amounted to $2.5 million for the year
ended December 31, 2001, and was comprised primarily of repayment of advances by
third  parties  and  affiliates  and  proceeds  received  from  the  sale of two
communities,  which  was  partially  offset  by  the  acquisition  of  property,
equipment,  and  new  leases.

For  the year ended December 31, 2001, net cash used in financing activities was
$3.8  million  primarily from short-term and long-term debt repayments.  For the
year  ended December 31, 2000, net cash provided by

                                       30
<PAGE>

financing  activities  was  $118,000  primarily  from  proceeds  of  long-term
borrowings,  partially offset by debt repayment and preferred dividend payments.

In  2001,  and  as  described in Note 21, we refinanced substantially all of our
debt  obligations,  extending  such  financings  through 2003 or thereafter.  In
addition,  we  achieved  consecutive positive cash flows from operations for the
last  three  quarters  and  positive  earnings before preferred dividends in the
fourth  quarter  of  2001.  Including required debt service payments and capital
expenditures,  management believes we will be able to sustain positive cash flow
through  at  least  2002.

The we have incurred significant operating losses since our inception and have a
working  capital  deficit  of  $12.1 million, although $7.4 million of preferred
dividends  is  only  due if declared by the our board of directors.  To date, we
have  been dependent upon third party financing or disposition of assets to fund
operations.  While  we  do  not anticipate the need for third party financing or
dispositions  of  assets  to  fund  operations, it cannot be guaranteed that, if
necessary,  third  party  financing  or  disposition of assets will be available
timely  or  at  all.

We  are currently out of compliance with covenants on debt totaling $1.7 million
which  will  be  repaid  in  June 2002 and is not cross-defaulted with any other
debt.  In  addition,  many  of  our  other  debt  instruments and leases contain
"cross-default"  provisions pursuant to which a default under one obligation can
cause  a  default  under  one  or  more  other obligations to the same lender or
lessor.  Such  cross-default  provisions  affect  14  owned  assisted  living
properties  and  36  operated  under  leases.  Accordingly, any event of default
could cause a material adverse effect on our financial condition if such debt or
leases  are  cross-defaulted.


The following table summarizes our contractual obligations at December 31, 2001:

<TABLE>
<CAPTION>

                                     Payments Due by Period (in thousands)
                         --------------------------------------------------------------
                                      Less than 1                              After 5
                                      ------------                             --------
                            Total         year       1 - 3 years  4 - 5 years   years
                         -----------  ------------  ------------  -----------  --------
<S>                      <C>          <C>           <C>           <C>          <C>
Contractual Obligations
Long-Term Debt. . . . .  $   135,593  $      4,523  $    102,672  $     5,841  $ 22,557
Operating Leases. . . .  $   231,363  $     25,409  $     50,772  $    46,539  $108,643
</TABLE>


IMPACT  OF  INFLATION

To  date,  inflation  has  not  had a significant impact on Emeritus.  Inflation
could,  however,  affect  our  future  revenues  and operating income due to our
dependence  on  the  senior resident population, most of whom rely on relatively
fixed  incomes  to pay for our services.  The monthly charges for the resident's
unit  and  assisted  living  services  are  influenced  by  the  location of the
community and local competition.  Our ability to increase revenues in proportion
to  increased  operating expenses may be limited.  We typically do not rely to a
significant  extent  on  governmental  reimbursement  programs.  In  pricing our
services,  we  attempt  to  anticipate  inflation  levels,  but  there can be no
assurance  that  we  will  be  able  to respond to inflationary pressures in the
future.

RISK FACTORS

Our  business, results of operations and financial condition are subject to many
risks,  including,  but  not  limited  to,  those  set  forth  below.

The  following  important  factors,  among  others, could cause actual operating
results  to differ materially from those expressed in forward-looking statements
included  in  this report and presented elsewhere by our

                                       31
<PAGE>

management  from  time  to  time.  Do  not  place  undue  reliance  on  these
forward-looking  statements,  which  speak only as of the date of this report. A
number  of  the  matters  and  subject  areas  discussed in this report refer to
potential future circumstances, operations and prospects, and therefore, are not
historical or current facts. The discussion of such matters and subject areas is
qualified  by  the  inherent  risks  and  uncertainties  surrounding  future
expectations,  and  also may materially differ from our actual future experience
involving any one or more of such matters and subject areas relating to possible
excess  assisted living capacity in our market areas affecting our occupancy and
pricing  levels;  uncertainties  in increasing occupancy and pricing, generally;
effective  management  of  costs  and  the  effects of cost increases beyond our
control,  such  as  utilities  and  insurance;  the  difficulty  in reducing and
eliminating  continuing  operating losses; vulnerability to defaults in our debt
and  lease  financing  as  a result of noncompliance with various covenants; the
effects  of  cross-default  terms;  competition;  and  uncertainties relating to
construction,  licensing,  environmental  and  other  matters  that  affect
acquisition, disposition and development of assisted living communities. We have
attempted  to identify, in context, certain of the factors that may cause actual
future  experience and results to differ from our current expectations regarding
the  relevant  matter  or subject area. We are not obligated to publicly release
the  results  of  any  revisions to these forward-looking statements that may be
made  to  reflect  events  or  circumstances after the date of this report or to
reflect  the  occurrence  of  unanticipated  events. These and other factors are
discussed  in  more  detail  below.

We  have incurred losses since we began doing business and may continue to incur
losses  for  the  foreseeable  future. We organized and began operations in July
1993  and  have operated at a loss since we began doing business. For 2001, 2000
and  1999,  we  recorded  net losses before preferred dividends of $4.2 million,
$21.9 million, and $21.0 million, respectively. We believe that the historically
aggressive  growth  of  our  portfolio through acquisitions and developments and
related  financing activities were among the causes of these losses. To date, we
have  been  generally  unable  to stabilize occupancy and rate structures at our
communities  that  result  in  positive  earnings.  While  we  were  able  to
substantially  reduce  our net losses during 2001, we cannot guarantee that this
improvement  will  continue  in  2002.

If we cannot generate sufficient cash flow to cover required interest, principal
and  lease  payments,  we  risk  defaults  on  our debt agreements and operating
leases.  At  December  31,  2001,  we  had mortgage debt of $133.8 million, with
minimum  principal  payments  of about $4.5 million due in 2002. At December 31,
2001,  we  were  obligated  under  long-term  operating leases requiring minimum
annual lease payments of which $25.4 million is payable in 2002. In addition, we
will  have  approximately $61.9 million and $40.7 million in principal amount of
debt  repayment  obligations  that become due in 2003 and 2004, respectively. We
intend  to continue to finance our communities through a combination of mortgage
financing  and operating leases, including leases arising through sale/leaseback
transactions.

Because  we  are  highly  leveraged,  we  may not be able to respond to changing
business  and  economic  conditions  or continue our development and acquisition
program. Further, a substantial portion of our cash flow will be devoted to debt
service  and  lease  payments.  In  the  past  we  have  been unable to generate
sufficient  cash  flow from operations to cover required interest, principal and
lease  payments  and  we may be unable to do so in the future. If we cannot meet
these  payments  when  due,  we  may  need  to  renegotiate  payments  or obtain
additional equity or debt financing. We may not be successful or timely in doing
so,  and  the  terms  of  any  financing  or  refinancing  may not be favorable.

If  we  fail  to  obtain  alternative financing, a lender could foreclose on our
facilities  secured  by  the  respective  indebtedness  or,  in  the  case of an
operating  lease,  could  terminate  our  lease, resulting in loss of income and

                                       32
<PAGE>

asset  value.  In  some  cases,  our  indebtedness  is  secured  by a particular
community  and  a  pledge of our interests in a subsidiary entity that owns that
community.  In  the event of a default, a lender could avoid judicial procedures
required  to  foreclose  on  real property by foreclosing on our pledge instead,
thus  accelerating  its  acquisition  of that community. Furthermore, because of
cross-default  and cross-collateralization provisions in certain of our mortgage
and  sale/leaseback agreements, if we default on one of our payment obligations,
we  could  adversely  affect  a  significant  number  of  our  communities.

We  may be unable to increase or stabilize our occupancy rates that would result
in  positive  earnings.  In  previous  years  we  had  difficulty increasing our
occupancy  levels. Our historical losses have resulted, in part, from lower than
expected  occupancy  levels  at  our  newly  developed and acquired communities.
Although we have reduced our acquisition and development activity substantially,
we  have  been  unable  to  increase occupancy levels as we had anticipated and,
during  the  last  year, occupancy levels declined slightly. We cannot guarantee
that  our  occupancy  levels  will  increase.

We  will  occasionally  seek  additional  funding  through  public  or  private
financing,  including equity financing. We may not find adequate equity, debt or
sale/leaseback  financing  when  we  need  it or on terms acceptable to us. This
could  affect  our ability to finance our operations or refinance our properties
to  avoid  the  consequences  of  default  and  foreclosure  under  our existing
financing  as  described  above.  In  addition,  if we raise additional funds by
issuing  equity  securities,  our  shareholders may experience dilution of their
investment.

We  may  be  unable  to  obtain  the  additional  capital we will need to retain
important  segments  of our operating communities. We manage 46 of our operating
communities  under  short-term management agreements expiring December 31, 2003,
for  the  five Emeritrust II Development communities, and June 30, 2003, for the
remaining  41 communities, which we have referred to throughout this document as
the  Emeritrust  I and Emeritrust II Operating communities. We also have options
to  purchase  43  communities, and a right of first refusal to purchase three of
these  communities  prior  to  December  31,  2003,  for  the five Emeritrust II
Development  communities,  and  June 30, 2003, for the remaining 41 communities.
Based  on  formulas in the options, the purchase prices of the communities would
be  substantially greater than the original purchase prices paid by the investor
groups  that  currently  own them, depending on when the purchase occurs and the
performance  of  the  communities.  If  we  are unable to obtain the capital and
related  mortgage financing necessary to complete these purchases, we could lose
control  of  these  communities  and the right to operate them, which represents
about  33%  of  our  total  operating  capacity.  The  loss  of  these operating
communities  would have a material adverse effect on our revenues and results of
operations.

If we fail to comply with financial covenants contained in our debt instruments,
our  lenders  may  accelerate  the  related debt. From time to time, we have not
complied  with  certain  covenants in our financing agreements. In the future we
may  not  be  able  to  comply  with  these covenants, which generally relate to
matters  such  as  net  worth, cash flow and debt coverage ratios. If we fail to
comply  with any of these requirements, our lenders could accelerate the related
indebtedness so that it becomes due and payable prior to its stated due date. We
may  be  unable  to  pay  or  refinance  this  debt  if  it  becomes  due.

Our liability insurance may be insufficient to cover the liabilities we face. In
recent  years,  participants  in  the  long-term-care  industry  have  faced  an
increasing  number  of  lawsuits alleging malpractice or related legal theories.
Many  of these suits involve large claims and significant legal costs. We expect
that we occasionally will face such suits because of the nature of our business.
We  currently  maintain  insurance

                                       33
<PAGE>

policies  with  coverage and deductibles we deem appropriate based on the nature
and  risks  of  our  business,  historical experience and industry standards. We
could  incur liability in excess of our insurance coverage or claims not covered
by  our  insurance.  Claims  against  us,  regardless of their merit or eventual
outcome,  may  also  undermine  our  ability  to attract residents or expand our
business and would require management to devote time to matters unrelated to the
operation  of  our  business.  Our  liability insurance policies must be renewed
annually,  and  we may not be able to obtain liability insurance coverage in the
future  or,  if  available,  on acceptable terms. During the past several years,
deductible  amounts and annual premiums have increased significantly, which have
substantially compounded our costs associated with insurance and claims defense.

We  face  risks associated with selective acquisitions. We intend to continue to
seek  selective  acquisition  opportunities.  However,  we  may  not  succeed in
identifying  any  future  acquisition opportunities or completing any identified
acquisitions.  The  acquisition  of  communities  presents  a  number  of risks.
Existing  residences  available  for  acquisition may frequently serve or target
different  market segments than those we presently serve. It may be necessary in
these  cases  to  re-position  and renovate acquired residences or turn over the
existing resident population to achieve a resident care level and income profile
that  is  consistent  with  our  objectives.  In  the past, these obstacles have
delayed  the  achievement of acceptable occupancy levels and increased operating
and capital expenditures. As a consequence, we currently plan to target assisted
living communities with established operations, which could reduce the number of
acquisitions  we  can  complete  and  increase  the expected cost. Even in these
acquisitions,  however,  we  may  need  to  make  staff and operating management
personnel  changes  to  successfully  integrate  acquired  communities  into our
existing operations. We may not succeed in repositioning acquired communities or
in effecting any necessary operational or structural changes and improvements on
a  timely  basis.  We  also  may face unforeseen liabilities attributable to the
prior  operator  of the acquired communities, against whom we may have little or
no  recourse.

We  expect  competition  in  our  industry  to  increase,  which could cause our
occupancy  rates  and  resident  fees to decline. The long-term care industry is
highly  competitive,  and  given  the  relatively  low  barriers  to  entry  and
continuing  health  care cost containment pressures, we expect that our industry
will become increasingly competitive in the future. We believe that the industry
is  experiencing  over-capacity  in several of our markets, thereby intensifying
competition  and  adversely  affecting  occupancy levels and pricing. We compete
with  other  companies  providing  assisted  living services as well as numerous
other  companies  providing  similar service and care alternatives, such as home
healthcare  agencies,  independent living facilities, retirement communities and
skilled  nursing  facilities.  We expect that competition will increase from new
market  entrants,  as  assisted  living  residences  receive  increased  market
awareness  and  more  states decide to include assisted living services in their
Medicaid  programs.  Many  of  these  competitors may have substantially greater
financial  resources  than we do. Increased competition may limit our ability to
attract or retain residents or maintain our existing rate structures. This could
lead  to  lower  occupancy  rates  or  lower rate structures in our communities.

We  also  cannot  predict  the  effect  of  the healthcare industry trend toward
managed  care  on  the assisted living marketplace. Managed care, an arrangement
whereby  service  and care providers agree to sell specifically defined services
to public or private payers in an effort to achieve more efficiency with respect
to  utilization  and cost, is not currently a significant factor in the assisted
living marketplace. However, managed care plans sponsored by insurance companies
or  HMOs  may in the future affect pricing and the range of services provided in
the  assisted  living  marketplace.

                                       34
<PAGE>

If  development  of  new  assisted  living  facilities  outpaces  demand, we may
experience  decreased  occupancy,  depressed  margins  and  diminished operating
results.  We believe that some assisted living markets have become or are on the
verge  of  becoming  overbuilt.  The  barriers  to  entry in the assisted living
industry  are  not  substantial.  Consequently,  the development of new assisted
living  facilities could outpace demand. Overbuilding in the markets in which we
operate  could  thus  cause  us  to experience decreased occupancy and depressed
margins  and  could  otherwise  adversely  affect  our  operating  results.

Market  forces  could  undermine  our efforts to attract seniors with sufficient
resources. We rely on our residents' abilities to pay our fees from their own or
familial  financial  resources.  Generally,  only  seniors with income or assets
meeting  or  exceeding  the  comparable  median in the region where our assisted
living  communities  are  located  can  afford  our  fees.  Inflation  or  other
circumstances  may  undermine the ability of seniors to pay for our services. If
we encounter difficulty in attracting seniors with adequate resources to pay for
our  services,  our  occupancy  rates  may decline and we may suffer losses that
could  cause  the  value  of  your  investment  in  our  stock  to  decline.

Our  labor  costs may increase and may not be matched by corresponding increases
in rates we charge to our residents. We compete with other providers of assisted
living  services  and  long-term  care in attracting and retaining qualified and
skilled  personnel.  We  depend  on our ability to attract and retain management
personnel  responsible  for the day-to-day operations of each of our residences.
If  we are unable to attract or retain qualified residence management personnel,
our  results of operations may suffer. In addition, possible shortages of nurses
or trained personnel may require us to enhance our wage and benefits packages to
compete  in  the  hiring  and  retention  of  personnel.  We  also depend on the
available  labor  pool  of  semi-skilled  and unskilled employees in each of the
markets  in  which we operate. As a result of these and other factors, our labor
costs may increase and may not be matched by corresponding increases in rates we
charge  to  our  residents.

We  face  possible  environmental  liabilities  at each of our properties. Under
various federal, state and local environmental laws, ordinances and regulations,
a  current or previous owner or operator of real property may be held liable for
the  costs  of  removal or remediation of certain hazardous or toxic substances,
including  asbestos-containing  materials, that could be located on, in or under
its  property.  These laws and regulations often impose liability whether or not
the  owner  or  operator  knew  of,  or was responsible for, the presence of the
hazardous  or  toxic substances. We could face substantial costs of any required
remediation  or  removal of these substances, and our liability typically is not
limited  under  applicable  laws and regulations. Our liability could exceed our
properties'  value  or the value of our assets. We may be unable to sell or rent
our  properties,  or  borrow using our properties as collateral, if any of these
substances is present or if we fail to remediate them properly. Under these laws
and regulations, if we arrange for the disposal of hazardous or toxic substances
such  as asbestos-containing materials at a disposal site, we also may be liable
for  the  costs  of  the  removal or of the hazardous or toxic substances at the
disposal  site. In addition to liability for these costs, we could be liable for
governmental  fines  and  injuries  to  persons  or  properties.

Some  of  our facilities generate infectious medical waste due to the illness or
physical  condition  of  the  residents,  including,  for  example, blood-soaked
bandages,  swabs  and  other medical waste products and incontinence products of
those  residents  diagnosed  with  an  infectious  disease.  The  management  of
infectious medical waste, including handling, storage, transportation, treatment
and disposal, is subject to regulation under various laws, including federal and
state  environmental  laws.  These  environmental  laws set

                                       35
<PAGE>

forth the management requirements, as well as permit, record-keeping, notice and
reporting  obligations.  Each  of  our  facilities has an agreement with a waste
management  company for the proper disposal of all infectious medical waste. Any
finding  that  we  are  not  in  compliance  with these environmental laws could
adversely  affect  our  business  and  financial  condition.  Because  these
environmental  laws are amended from time to time, we cannot predict when and to
what  extent  liability may arise. In addition, because these environmental laws
vary  from state to state, expansion of our operations to states where we do not
currently  operate  may  subject  us to additional restrictions on the manner in
which  we  operate  our  facilities.

Our  chief  executive  officer has personal interest that may conflict with ours
due  to  his  interest  in  Holiday  Retirement Corporation. Mr. Baty, our Chief
Executive  Officer,  is  a  principal  shareholder, director and Chairman of the
Board  of  Holiday  Retirement Corporation. Substantially all of the independent
living  facilities  operated  by  Holiday  are  owned  by  partnerships that are
controlled  by  Mr. Baty and Holiday. Mr. Baty's varying financial interests and
responsibilities  include  the  acquisition,  financing  and  refinancing  of
independent  living  facilities  and  the  development  and construction of, and
capital  raising  activities to finance, new facilities. The financial interests
and  management  and  financing  responsibilities  of  Mr.  Baty with respect to
Holiday and its affiliated partnerships could present conflicts of interest with
us,  including  potential  competition  for  residents  in  markets  where  both
companies  operate  and  competing demands for the time and efforts of Mr. Baty.

Because  Mr.  Baty  is  both  our  Chief  Executive Officer as well as Holiday's
Chairman  of  the  Board, circumstances could arise that would distract him from
our  operations.  Our interests and Holiday's interests may on some occasions be
incompatible. We have entered into a noncompetition agreement with Mr. Baty, but
this  noncompetition  agreement  does  not  limit  Mr.  Baty's current role with
Holiday  or  its  related  partnerships,  so  long as assisted living is only an
incidental  component of Holiday's operation or management of independent living
facilities.

We  have  entered  into  agreements  with  several  companies  that are owned or
controlled  by  our  affiliates, whose interests with respect to these companies
occasionally  may conflict with ours. We have entered into agreements, including
most  of  our  management  agreements,  with  several entities that are owned or
controlled  by certain of our officers and directors. Under these agreements, we
provide  management  and  other  services to senior housing communities owned by
those  companies  and we have material agreements relating to the purchase, sale
and financing of a number of our operating communities. There is a risk that our
dealings  with  these companies under these and any future arrangements will not
be  negotiated  at  arm's  length and may be regarded as less advantageous to us
than terms that would be negotiated with unrelated third parties. Because of our
affiliates'  interests  and  responsibilities  with  respect  to  these  other
companies,  these  affiliates  may  occasionally  have  interests  that  are not
compatible  with  ours.

We may be unable to attract and retain key management personnel. We depend upon,
and  will continue to depend upon, the services of Mr. Baty, our Chief Executive
Officer.  The  loss of Mr. Baty's services, in part or in whole, could adversely
affect  our  business  and  our  results  of  operations. Mr. Baty has financial
interests  and  management  responsibilities  with  respect  to  Holiday and its
related  partnerships. As a result, he does not devote his full time and efforts
to  Emeritus.  We  may be unable to attract and retain other qualified executive
personnel  critical  to  the  success  of  our  business.

Our  costs  of compliance with government regulations may significantly increase
in  the  future.  Federal,  state  and  local  authorities  heavily regulate the
healthcare  industry. Regulations change frequently, and sometimes

                                       36
<PAGE>

require  us to make expensive changes in our operations. A number of legislative
and  regulatory  initiatives  relating  to  long-term care are proposed or under
study  at  both  the federal and state levels that, if enacted or adopted, could
adversely  affect  our business and operating results. We cannot predict to what
extent  legislative or regulatory initiatives will be enacted or adopted or what
effect  any initiative would have on our business and operating results. Changes
in  applicable  laws  and new interpretations of existing laws can significantly
affect  our  operations,  as  well  as  our  revenues,  particularly  those from
governmental  sources, and our expenses. Our residential communities are subject
to  varying  degrees  of  regulation and licensing by local and state health and
social  service  agencies  and  other  regulatory  authorities.  While  these
regulations  and  licensing  requirements often vary significantly from state to
state,  they  typically  address:

     * fire safety,
     * sanitation,
     * staff training,
     * staffing levels,
     * living accommodations such as room size, number of bathrooms, and
       ventilation, and
     * health-related services.

We  may  be unable to satisfy all regulations and requirements or to acquire and
maintain  any  required  licenses  on  a  cost-effective  basis.

In addition, with respect to our residents who receive financial assistance from
governmental  sources  for  their  assisted  living  services, we are subject to
federal  and  state  regulations  that  prohibit  certain business practices and
relationships.  Failure  to  comply  with  these  regulations  could  prevent
reimbursement  for  our  healthcare  services  under  Medicaid  or similar state
reimbursement  programs.  Our failure to comply with such regulations also could
result in fines and the suspension or inability to renew our operating licenses.
Federal,  state  and  local  governments  occasionally  conduct  unannounced
investigations, audits and reviews to determine whether violations of applicable
rules  and  regulations  exist.  Devoting  management  and  staff time and legal
resources  to  such investigations, as well as any material violation by us that
is  discovered  in  any  such  investigation,  audit or review, could strain our
resources  and  affect  our  profitability. In addition, regulatory oversight of
construction  efforts  associated  with  refurbishment  could  cause  us to lose
residents  and  disrupt  community  operations.

Our  stock price has been highly volatile, and a number of factors may cause our
common  stock  price  to  decline.  The  market  price  of  our common stock has
fluctuated  and  could  fluctuate  significantly  in  the  future in response to
various  factors  and  events,  including,  but  not  limited  to:

     * the liquidity of the market for our common stock;
     * variations in our operating results;
     * variations from analysts' expectations; and
     * new statutes or regulations, or changes in the interpretation of existing
       statutes or regulations, affecting the healthcare industry generally or
       the assisted living residence business in particular.

                                       37
<PAGE>

In  addition,  the  stock market in recent years has experienced broad price and
volume  fluctuations that often have been unrelated to the operating performance
of  particular  companies.  These  market fluctuations also may cause the market
price  of  our  common  stock  to  decline.

Our  share ownership and certain other factors may impede a proposed takeover of
our  business.  As  of February 28, 2002, Mr. Baty, our Chief Executive Officer,
controls  about 39% of our outstanding common stock. Together, our directors and
executive officers own, directly and indirectly, over 68% of the voting power of
our  outstanding common and preferred stock. Accordingly, Mr. Baty and the other
members  of  our  board and management would have significant influence over the
outcome  of  matters submitted to our shareholders for a vote, including matters
that  would  involve  a  change of control of Emeritus. Further, our Articles of
Incorporation  require  a  two-thirds  supermajority  vote to approve a business
combination  of

Emeritus  with  another  company that is not approved by the board of directors.
Accordingly,  the  current management group and board of directors could prevent
approval  of such a business combination. We currently have a staggered board in
which  only  one-third  of the board stands for election each year. Thus, absent
removals  and  resignations,  a complete change in board membership could not be
accomplished  in  fewer  than  approximately  two  calendar  years.


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  table  below  provides information about our financial instruments that are
sensitive  to  changes  in  interest rates.  For our debt obligations, the table
presents  principal  repayments  in  thousands  of  dollars and current weighted
averages  of  interest  rates on these obligations as of December 31, 2001.  For
our  debt  obligations with variable interest rates, the rates presented reflect
the  current rates in effect at the end of 2001.  These rates are based on LIBOR
plus  a  margin  of  either  3.25%  or  3.5%,  and  the  prime  rate  plus  2%.

<TABLE>
<CAPTION>
                                           Expected maturity date                                Average
                    --------------------------------------------------------            Fair    interest
                     2002     2003     2004     2005     2006    Thereafter    Total    value     rate
                    -------  -------  -------  -------  -------  -----------  -------  -------  ---------
<S>                 <C>      <C>      <C>      <C>      <C>      <C>          <C>      <C>      <C>
Long-term debt:
     Fixed rate. .  $ 2,776  $ 8,857  $13,441  $ 1,876  $ 3,965  $    22,557  $53,471  $48,769      7.84%
     Variable rate  $ 1,747  $53,087  $27,287  $     -  $     -  $         -  $82,121  $82,121      5.58%
</TABLE>

If  market  interest  rates  average  2% more in 2002 than they did in 2001, our
interest  expense and net loss would increase by $1.5 million. These amounts are
determined  by  considering  the  impact  of  hypothetical interest rates on our
outstanding  variable  rate  borrowings  as  of  December  31,  2001, and do not
consider  changes in the actual level of borrowings that may occur subsequent to
December  31,  2001.  This  analysis  also  does not consider the effects of the
reduced  level  of  overall  economic  activity  that  could  exist  in  such an
environment  nor  does  it  consider possible actions that management could take
with  respect  to  our  financial  structure  to mitigate the exposure to such a
change.

                                       38
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial statements and the Independent Auditors report are listed at Item
14  and  are  included  beginning  on  Page  F-1.

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

Not  applicable.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under the caption "Executive Officers of the Registrant" in Part
I  of  this  Form 10-K and under the captions "Election of Directors -- Nominees
for Election" and "Compliance with Section 16(a) of the Exchange Act of 1934" in
the  Company's  Proxy  Statement  relating  to  its  2002  annual  meeting  of
shareholders  (the  "Proxy  Statement")  is  hereby  incorporated  by reference.

ITEM 11.   EXECUTIVE COMPENSATION

The  information  under  the  captions "Executive Compensation" and "Election of
Directors  --  Director Compensation" in the Company's Proxy Statement is hereby
incorporated  by  reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  under  the  caption  "Security Ownership of Certain Beneficial
Owners  and  Management" in the Company's Proxy Statement is hereby incorporated
by  reference.
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Transactions" in the Company's Proxy
Statement is hereby incorporated by reference.


                                       39
<PAGE>
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)     The  following  documents  are  filed  as  a  part  of  the  report:

     (1) FINANCIAL STATEMENTS. The following financial statements of the
         Registrant and the Report of Independent Public Accountants therein are
         filed as part of this Report on Form 10-K:

<TABLE>
<CAPTION>

                                                                Page
                                                                ----
<S>                                                    <C>
          Independent Auditors'  Report . . . . . . . . . . . .  F-2
          Consolidated Balance Sheets . . . . . . . . . . . . .  F-3
          Consolidated Statements of Operations . . . . . . . .  F-4
          Consolidated Statements of Cash Flows . . . . . . . .  F-5
          Consolidated Statements of Shareholders' Deficit. . .  F-6
          Notes to Consolidated Financial Statements. . . . . .  F-7
</TABLE>

     (2) FINANCIAL STATEMENT SCHEDULES. Schedule II Valuation and Qualifying
         Accounts (contained on page S-1) Other financial statement schedules
         have been omitted because the information required to be set forth
         therein is not applicable, is immaterial or is shown in the
         consolidated financial statements or notes thereto.

(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Registrant
    during the quarter ended December 31, 2001.
(c) EXHIBITS: The following exhibits are filed as a part of, or incorporated by
    reference into, this Report on Form 10-K:
<TABLE>
<CAPTION>

                                                                                    Footnote
Number                              Description                                      Number
---------  ---------------------------------------------------------------------    --------
<S>                                                                                      <C>
  3.1      Restated Articles of Incorporation of registrant (Exhibit
           3.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
  3.2      Amended and Restated Bylaws of the registrant (Exhibit
           3.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1)
  4.1      Forms of 6.25% Convertible Subordinated Debenture due 2006
           (Exhibit 4.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
  4.2      Indenture dated February 15, 1996, between the registrant
           and Fleet National Bank ("Trustee") (Exhibit 4.2). . . . . . . . . . . . . .   (2)
  4.3      Preferred Stock Purchase Agreement (including Designation
           of Rights and Preferences of Series A Convertible
           Exchangeable Redeemable Preferred Stock of Emeritus
           Corporation Agreement, Registration of Rights Agreement and
           Shareholders Agreement) dated October 24, 1997, between the
           registrant ("Seller") and Merit Partners, LLC ("Purchaser")
           (Exhibit 4.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (12)
 10.1      Amended and Restated 1995 Stock Incentive Plan (Exhibit
           99.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (14)
 10.2      Stock Option Plan for Nonemployee Directors (Exhibit 10.2).. . . . . . . . .   (2)
 10.3      Form of Indemnification Agreement for officers and
           directors of the registrant (Exhibit 10.3).. . . . . . . . . . . . . . . . .   (1)
 10.4      Noncompetition Agreements entered into between the
           registrant and each of the following individuals:
           10.4.1   Daniel R. Baty (Exhibit 10.4.1), Raymond R.
                    Brandstrom (Exhibit 10.4.2) and Frank A. Ruffo
                    (Exhibit 10.4.3). . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
 10.6      Form of Stock Purchase Agreement dated July 31, 1995,
           entered into between Daniel R. Baty and each of Michelle A.
           Bickford, Jean T. Fukuda, James S. Keller, George T. Lenes
           and Kelly J. Price (Exhibit 10.6). . . . . . . . . . . . . . . . . . . . . .   (1)
 10.8      Scottsdale Royale in Scottsdale, Arizona, and Villa
           Ocotillo in Scottsdale, Arizona. The following agreements
           are representative of those executed in connection with
           these properties:
           10.8.1   Loan Agreement dated December 31, 1996, in the
                    amount of $12,275,000 by the registrant
                    ("Borrower") and Lender (Exhibit 10.9.1). . . . . . . . . . . . . .   (5)
           10.8.2   Promissory Note dated December 31, 1996, in the
                    amount of $5,500,000 between the registrant to
                    Bank United (the "Lender") with respect to
                    Scottsdale Royale and Villa Ocotillo (Exhibit
                    10.9.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (5)
           10.8.3   Deed of Trust, Security Agreement, Assignment of
                    Leases and Rents, and Fixture Filing (Financial
                    Statement) dated as of December 31, 1996, by the
                    registrant, as Trustor and debtor, to Chicago
                    Title Insurance Company, as Trustee, for the
                    benefit of the Lender, Beneficiary and secured
                    party with respect to Scottsdale Royale and Villa
                    Ocotillo (Exhibit 10.9.4).. . . . . . . . . . . . . . . . . . . . .   (5)

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 10.9      Rosewood Court in Fullerton, California, the Arbor at Olive
           Grove in Phoenix, Arizona, Renton Villa in Renton,
           Washington, Seabrook in Everett, Washington, Laurel Lake
           Estates in Vorhees, New Jersey, Green Meadows--Allentown in
           Allentown, Pennsylvania, Green Meadows--Dover in Dover,
           Delaware, Green Meadows--Latrobe in Latrobe, Pennsylvania,
           Green Meadows--Painted Post in Painted Post, New York,
           Heritage Health Center in Hendersonville, North Carolina.
           The following agreements are representative of those
           executed in connection with these properties:
           10.9.1   Lease Agreement dated March 29, 1996, between the
                    registrant ("Lessee") and Health Care Property
                    Investors, Inc. ("Lessor") (Exhibit 10.10.1). . . . . . . . . . . .   (3)
           10.9.2   First Amendment Lease Agreement dated April 25,
                    1996, by and between the registrant ("Lessee")
                    and Health Care Property Investors, Inc.
                    ("Lessor") (Exhibit 10.10.2). . . . . . . . . . . . . . . . . . . .   (3)
 10.11     Summer Wind in Boise, Idaho
           10.11.1  Lease Agreement dated as of August 31, 1995,
                    between AHP of Washington, Inc. and the
                    registrant (Exhibit 10.18.1). . . . . . . . . . . . . . . . . . . .   (1)
           10.11.2  First Amended Lease Agreement dated as of
                    December 31, 1996, by and between the registrant
                    and AHP of Washington, Inc. (Exhibit 10.16.2).. . . . . . . . . . .   (5)
 10.12     Silver Pines (formerly Willowbrook) in Cedar Rapids, Iowa
           10.12.1  Purchase and Sale Agreement (including Real
                    Estate Contract) dated January 4, 1995, between
                    Jabo, Ltd. ("Jabo") and the registrant (Exhibit
                    10.19.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1)
           10.12.2  Assignment and Assumption Agreement with respect
                    to facility leases dated as of January 17, 1995,
                    by and between Jabo, as Assignor, and the
                    registrant, as Assignee (Exhibit 10.19.2).. . . . . . . . . . . . .   (1)
 10.13     The Palisades in El Paso, Texas, Amber Oaks in San Antonio,
           Texas and Redwood Springs in San Marcos, Texas. The
           following agreements are representative of those executed
           in connection with these properties.
           10.13.1  Lease Agreement dated April 1, 1997, between ESC
                    III, L.P. D/B/A Texas-ESC III, L.P. ("Lessee")
                    and Texas HCP Holding , L.P. ("Lessor") (Exhibit
                    10.4.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.13.2  First Amendment to Lease Agreement dated April 1,
                    1997, between Lessee and Texas HCP Holding , L.P.
                    Lessor (Exhibit 10.4.2).. . . . . . . . . . . . . . . . . . . . . .   (6)
           10.13.3  Guaranty dated April 1, 1997, by the registrant
                    ("Guarantor") in favor of Texas HCP Holding ,
                    L.P. (Exhibit 10.4.3) . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.13.4  Assignment Agreement dated April 1, 1997, between
                    the registrant ("Assignor") and Texas HCP Holding
                    , L.P. ("Assignee") (Exhibit 10.4.4). . . . . . . . . . . . . . . .   (6)
 10.14     Carriage Hill Retirement in Bedford, Virginia
           10.14.1  Lease Agreement dated August 31, 1994, between
                    the registrant, as Tenant, and Carriage Hill
                    Retirement of Virginia, Ltd. as Landlord (Exhibit
                    10.23.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1)
           10.14.2  Supplemental Lease Agreement dated September 2,
                    1994 (Exhibit 10.23.2). . . . . . . . . . . . . . . . . . . . . . .   (1)
 10.15     Green Meadows Communities
           10.15.1  Consent to Assignment of and First Amendment to
                    Asset Purchase Agreement dated September 1, 1995,
                    among the registrant, The Standish Care Company
                    and Painted Post Partnership, Allentown Personal
                    Car General Partnership, Unity Partnership,
                    Saulsbury General Partnership and P. Jules Patt
                    (collectively, the "Partnerships"), together with
                    Asset Purchase Agreement dated July 27, 1995,
                    among The Standish Care Company and the
                    Partnerships (Exhibit 10.24.1). . . . . . . . . . . . . . . . . . .   (1)
           10.15.2  Agreement to Provide Administrative Services to
                    an Adult Home dated October 23, 1995, between the
                    registrant and P. Jules Patt and Pamela J. Patt
                    (Exhibit 10.24.6).. . . . . . . . . . . . . . . . . . . . . . . . .   (1)
           10.15.3  Assignment Agreement dated October 19, 1995,
                    between the registrant, HCPI Trust and Health
                    Care Property Investors, Inc. (Exhibit 10.24.8).. . . . . . . . . .   (1)
           10.15.4  Assignment and Assumption Agreement dated August
                    31, 1995, between the registrant and The Standish
                    Care Company (Exhibit 10.24.9). . . . . . . . . . . . . . . . . . .   (1)
           10.15.5  Guaranty dated October 19, 1995, by Daniel R.
                    Baty in favor of Health Care Property Investors,
                    Inc., and HCPI Trust (Exhibit 10.24.10).. . . . . . . . . . . . . .   (1)
           10.15.6  Guaranty dated October 19, 1995, by the
                    registrant in favor of Health Care Property
                    Investors, Inc. (Exhibit 10.24.11). . . . . . . . . . . . . . . . .   (1)
           10.15.7  Second Amendment to Agreement to provide
                    Administrative Services to an Adult Home dated
                    January 1, 1997, between Painted Post Partners
                    and the registrant (Exhibit 10.2).. . . . . . . . . . . . . . . . .  (10)
 10.16     Carolina Communities
           10.16.1  Lease Agreement dated January 26, 1996, between
                    the registrant and HCPI Trust with respect to
                    Countryside Facility (Exhibit 10.23.1). . . . . . . . . . . . . . .   (2)
           10.16.3  Promissory Note dated as of January 26, 1996, in
                    the amount of $3,991,190 from Heritage Hills
                    Retirement, Inc. ("Borrower") to Health Care
                    Property Investors, Inc. ("Lender")
                    (Exhibit 10.23.4).. . . . . . . . . . . . . . . . . . . . . . . . .   (2)
           10.16.4  Loan Agreement dated January 26, 1996, between
                    the Borrower and the Lender (Exhibit 10.23.5).. . . . . . . . . . .   (2)
           10.16.5  Guaranty dated January 26, 1996, by the
                    registrant in favor of the Borrower (Exhibit
                    10.23.6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
           10.16.6  Deed of Trust with Assignment of Rents, Security
                    Agreement and Fixture Filing dated as of January
                    26, 1996, by and among Heritage Hills Retirement,
                    Inc. ("Grantor"), Chicago Title Insurance Company
                    ("Trustee") and Health Care Property Investor,
                    Inc. ("Beneficiary") (Exhibit 10.23.7). . . . . . . . . . . . . . .   (2)
           10.16.7  Lease Agreement dated as of January 26, 1996,
                    between the registrant and Health Care Property
                    Investor, Inc. with respect to Heritage Lodge
                    Facility (Exhibit 10.23.8). . . . . . . . . . . . . . . . . . . . .   (2)
           10.16.8  Lease Agreement dated as of January 26, 1996,
                    between the registrant and Health Care Property
                    Investor, Inc. with respect to Pine Park Facility
                    (Exhibit 10.23.9).. . . . . . . . . . . . . . . . . . . . . . . . .   (2)
           10.16.9  Lease Agreement dated January 26, 1996, between
                    the registrant and HCPI Trust with respect to
                    Skylyn Facility (Exhibit 10.23.10). . . . . . . . . . . . . . . . .   (2)
           10.16.10 Lease Agreement dated January 26, 1996, between
                    the registrant and HCPI Trust with respect to
                    Summit Place Facility (Exhibit 10.23.11). . . . . . . . . . . . . .   (2)

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           10.16.11 Amendment to Deed of Trust dated April 25, 1996,
                    between Heritage Hills Retirement, Inc.
                    ("Grantor"), and Health Care Property Investors,
                    Inc. ("Beneficiary") (Exhibit 10.21.12).. . . . . . . . . . . . . .   (5)
 10.17     Development Property in Fairfield, California
           10.17.1  Loan Agreement in the amount of $12,800,000 dated
                    January 10, 1997, between Fairfield Retirement
                    Center, LLC ("Borrower") and the Finova Capital
                    Corporation ("Lender") (Exhibit 10.31.1). . . . . . . . . . . . . .   (5)
           10.17.2  Promissory Note dated January 10, 1997, in the
                    amount of $12,800,000 between Fairfield
                    Retirement Center, LLC ("Borrower") and Finova
                    Capital Corporation ("Lender") (Exhibit 10.31.2). . . . . . . . . .   (5)
           10.17.3  Deed of Trust, Security Agreement, Assignment
                    of Leases and Rents and Fixture Filing dated
                    January 10, 1997, between Fairfield Retirement
                    Center, LLC ("Trustor"), Chicago Title Company
                    ("Trustee") and Finova Capital Corporation
                    ("Beneficiary") (Exhibit 10.31.3).. . . . . . . . . . . . . . . . .   (5)
           10.17.4  Guaranty Agreement dated January 10, 1997,
                    between the registrant ("Guarantor") and Finova
                    Capital Corporation ("Lender") (Exhibit
                    10.31.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (5)
 10.18     Garrison Creek Lodge in Walla Walla, Washington, Cambria
           in El Paso Texas, and Sherwood Place in Odessa, Texas.
           The following agreements are representative of those
           executed in connection with these properties:
           10.18.1  Lease Agreement dated July, August and
                    September 1996, between the registrant
                    ("Lessee") and American Health Properties, Inc.
                    ("Lessor") (Exhibit 10.3.1).. . . . . . . . . . . . . . . . . . . .   (4)
           10.18.2  First Amendment to Lease Agreement dated
                    December 31, 1996, between the registrant
                    ("Lessee") and AHP of Washington, Inc.,
                    ("Lessor") (Exhibit 10.35.2). . . . . . . . . . . . . . . . . . . .   (5)
 10.19     Cobblestone at Fairmont in Manassas, Virginia
           10.19.1  Loan Agreement effective as of October 26,
                    1995, between the registrant and Health Care
                    REIT, Inc. (Exhibit 10.42.1). . . . . . . . . . . . . . . . . . . .   (1)
           10.19.2  Deed of Trust, Security Agreement, Assignment
                    of Leases and Rents and Fixture Filing dated as
                    of October 26, 1995, by the registrant to
                    Health Care REIT, Inc. (Exhibit 10.42.2). . . . . . . . . . . . . .   (1)
           10.19.3  Note dated October 26, 1995, from the
                    registrant to Health Care REIT, Inc. (Exhibit
                    10.42.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (1)
           10.19.4  Unconditional and Continuing Guaranty dated as
                    of October 26, 1995, by Daniel R. Baty in favor
                    of Health Care REIT, Inc. (Exhibit 10.42.4).. . . . . . . . . . . .   (1)
 10.20     Rosewood Court in Fullerton, California, The Arbor at
           Olive Grove in Phoenix, Arizona, Renton Villa in Renton,
           Washington, Seabrook in Everett, Washington and Laurel
           Lake Estates in Voorhees, New Jersey, Green Meadows--
           Allentown in Allentown, Pennsylvania, Green Meadows--
           Dover in Dover, Delaware, Green Meadows--Latrobe in
           Latrobe, Pennsylvania, Green Meadows--Painted Post in
           Painted Post, New York. The following agreements are
           representative of those executed in connection with these
           properties:
           10.20.1  Second Amended Lease Agreement dated as of
                    December 30, 1996, by and between the
                    registrant and Health Care Property Investors,
                    Inc. (Exhibit 10.37.1). . . . . . . . . . . . . . . . . . . . . . .   (5)
 10.21     Cooper George Partners Limited Partnership
           10.21.1  Deed of Trust, Trust Indenture, Assignment,
                    Assignment of Rents, Security Agreement,
                    Including Fixture Filing and Financing
                    Statement dated June 30, 1998, between Cooper
                    George Partners Limited Partnership
                    ("Grantor"), Chicago Title Insurance Company
                    ("Trustee") and Deutsche Bank AG, New York
                    Branch ("Beneficiary") (Exhibit 10.3.1) . . . . . . . . . . . . . .  (15)
           10.21.2  Partnership Interest Purchase Agreement dated
                    June 4, 1998, between Emeritus Real Estate LLC
                    IV ("Seller") and Columbia Pacific Master Fund
                    98 General Partnership ("Buyer") (Exhibit
                    10.3.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
           10.21.3  Credit Agreement dated June 30, 1998, between
                    Cooper George Partners Limited Partnership
                    ("Borrower") and Deutsche Bank AG, New York
                    Branch ("Lender") (Exhibit 10.3.3). . . . . . . . . . . . . . . . .  (15)
           10.21.4  Amended and Restated Agreement of Limited
                    Partnership of Cooper George Partners Limited
                    Partnership dated June 29, 1998, between
                    Columbia Pacific Master Fund '98 General
                    Partnership, Emeritus Real Estate IV, L.L.C.
                    and Bella Torre De Pisa Limited Partnership
                    (Exhibit 10.3.4). . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
           10.21.5  Guaranty and Limited Indemnity Agreement dated
                    June 30, 1998, between Daniel R. Baty
                    ("Guarantor") and Deutsche Bank AG, New York
                    Branch ("Lender") (Exhibit 10.3.6). . . . . . . . . . . . . . . . .  (15)
           10.21.6  Promissory Note dated June 30, 1998, between
                    Cooper George Limited Partnership ("Borrower")
                    and Deutsche Bank, AG, New York Branch
                    ("Lender") (Exhibit 10.3.7) . . . . . . . . . . . . . . . . . . . .  (15)
 10.22     Registration Rights Agreement dated February 8, 1996,
           with respect to the registrant's 6.25%
           Convertible Subordinated Debentures due 2006 (Exhibit
           10.44).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
 10.23     Registration Rights Agreement dated February 8, 1996,
           with respect to the registrant's 6.25%
           Convertible Subordinated Debentures due 2006 (Exhibit
           10.45).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (2)
 10.24     Office Lease Agreement dated April 29, 1996, between
           Martin Selig ("Lessor") and the registrant ("Lessee")
           (Exhibit 10.8).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (3)
 10.25     Colonie Manor in Latham, New York, Bassett Manor in
           Williamsville, New York, West Side Manor in Liverpool, New
           York, Bellevue Manor in Syracuse, New York, Perinton Park
           Manor in Fairport, New York, Bassett Park Manor in
           Williamsville, New York, Woodland Manor in Vestal, New York,
           East Side Manor in Fayetteville, New York and West Side Manor
           in Rochester, New York. The following agreement is
           representative of those executed in connection with these
           properties:
           10.25.1  Lease Agreement dated September 1, 1996, between
                    Philip Wegman ("Landlord") and Painted Post
                    Partners ("Tenant") (Exhibit 10.4.1). . . . . . . . . . . . . . . .   (4)
           10.25.2  Agreement to Provide Administrative Services to an
                    Adult Home dated September 2, 1996, between the
                    registrant and Painted Post Partners ("Operator")
                    (Exhibit 10.4.2). . . . . . . . . . . . . . . . . . . . . . . . . .   (4)
           10.25.3  First Amendment to Agreement to Provide
                    Administrative Services to an Adult Home dated
                    January 1, 1997, between Painted Post Partners and
                    the registrant (Exhibit 10.1).. . . . . . . . . . . . . . . . . . .  (10)
 10.26     Columbia House Communities.
           10.26.1  Management Services Agreement between the
                    Registrant ("Manager") and Columbia House, LLC
                    ("Lessee") dated November 1, 1996, with respect to
                    Camlu Retirement (Exhibit 10.6.1).. . . . . . . . . . . . . . . . .   (4)


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<PAGE>


           10.26.2  Management Services Agreement dated January 1,
                    1998, between the registrant ("Manager") and
                    Columbia House LLC ("Lessee") with respect to York
                    Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (13)
           10.26.3  Commercial Lease Agreement dated January 13, 1997,
                    between Albert M. Lynch ("Landlord") and Columbia
                    House, LLC ("Tenant") with respect to York Care
                    (Exhibit 10.3.2). . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.26.4  Management Services Agreement dated June 1, 1997,
                    between the registrant ("Manager") and Columbia
                    House LLC ("Owner") with respect to Autumn Ridge
                    (Exhibit 10.3.1). . . . . . . . . . . . . . . . . . . . . . . . . .   (9)
           10.26.5  Agreement to Provide Accounting and Administrative
                    Services dated October 1, 1997, between Acorn
                    Service Corporation ("Administrator") and Vancouver
                    Housing, L.L.C., ("Manager") with respect to Van
                    Vista and Columbia House (Exhibit 10.6.1).. . . . . . . . . . . . .  (12)
           10.26.6  Assignment and First Amendment to Agreement to
                    Provide Management Services dated September 1,
                    1997, between the registrant, Columbia House,
                    L.L.C., Acorn Service Corporation and Camlu Coeur
                    d'Alene, L.L.C. with respect to Camlu.. . . . . . . . . . . . . . .  (13)
           10.26.7  Assignment and First Amendment to Agreement to
                    Provide Management Services dated September 1,
                    1997, between the registrant, Columbia House,
                    L.L.C., Acorn Service Corporation and Autumn Ridge
                    Herculaneum, L.L.C. with respect to Autumn Ridge. . . . . . . . . .  (13)
           10.26.8  Management Services Agreement dated January 1,
                    1998, between the registrant ("Manager") and
                    Columbia House LLC ("Owner") with respect to Park
                    Lane. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (13)
 10.27     Vickery Towers in Dallas, Texas
           10.27.1  Partnership Interest Purchase and Sale Agreement
                    dated June 4, 1998, between ESC GP II, Inc. and
                    Emeritus Properties IV, Inc. (together "Seller")
                    and Columbia Pacific Master Fund 98 General
                    Partnership and Daniel R. Baty (together
                    "Purchaser") (Exhibit 10.4.1).. . . . . . . . . . . . . . . . . . .  (15)
           10.27.2  Amended and Restated Agreement of Limited
                    Partnership of ESC II, LP dated June 30, 1998,
                    between Columbia Pacific Master Fund '98 General
                    Partnership and Daniel R. Baty (Exhibit 10.4.2).. . . . . . . . . .  (15)
           10.27.3  Agreement to Provide Management Services To An
                    Independent and Assisted Living Facility dated June
                    30, 1998, between ESC II, LP ("Owner") and ESC III,
                    LP ("Manager") (Exhibit 10.4.3).. . . . . . . . . . . . . . . . . .  (15)
 10.28     Concorde in Las Vegas, Nevada
           10.28.1  Purchase and Sale Agreement dated July 9, 1996,
                    between the registrant ("Purchaser") and Sunday
                    Estates, Inc. ("Seller") (Exhibit 10.56.1). . . . . . . . . . . . .   (5)
           10.28.2  First Amendment to Purchase and Sale Agreement
                    dated July 11, 1996, between the registrant the
                    Seller (Exhibit 10.56.2). . . . . . . . . . . . . . . . . . . . . .   (5)
 10.29     Development Properties in Auburn, Massachusetts, Louisville,
           Kentucky and Rocky Hill, Connecticut. The following
           agreements are representative of those executed in connection
           with these properties:
           10.29.1  Lease Agreement dated February 1996, between the
                    registrant ("Lessee") and LM Auburn Assisted Living
                    LLC, and LM Louisville Assisted Living LLC,
                    ("Landlords") with respect to the development
                    properties in Auburn and Louisville (Exhibit
                    10.58.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (5)
           10.29.2  Amended and Restated Lease Agreement dated February
                    26, 1996, between the registrant ("Lessee") and LM
                    Rocky Hill Assisted Living Limited Partnership,
                    ("Landlord") with respect to the development
                    property in Rocky Hill (Exhibit 10.58.2). . . . . . . . . . . . . .   (5)
           10.29.3  Lease Agreement dated October 10, 1996, between the
                    registrant ("Lessee") and LM Chelmsford Assisted
                    Living LLC, ("Landlord") with respect to the
                    development property in Chelmsford (Exhibit
                    10.58.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (5)
           10.29.4  Promissory Note in the amount of $1,255,000 dated
                    December 1996, between the registrant ("Lender")
                    and LM Auburn Assisted Living LLC, ("Borrower")
                    with respect to the development property in
                    Auburn (Exhibit 10.58.4). . . . . . . . . . . . . . . . . . . . . .   (5)
           10.29.5  Promissory Note in the amount of $1,450,000 dated
                    January 1997, between the registrant ("Lender")
                    and LM Louisville Assisted Living LLC,
                    ("Borrower") with respect to the development
                    property in Louisville (Exhibit 10.58.5). . . . . . . . . . . . . .   (5)
           10.29.6  Promissory Note in the amount of $1,275,000 dated
                    January 1997, between the registrant ("Lender")
                    and LM Rocky Hill Assisted Living Limited
                    Liability Partnership, ("Borrower") with respect
                    to the development property in Rocky Hill
                    (Exhibit 10.58.6).. . . . . . . . . . . . . . . . . . . . . . . . .   (5)
           10.29.7  Promissory Note in the amount of $300,000 dated
                    January 1997, between the registrant ("Lender")
                    and LM Chelmsford Assisted Living LLC,
                    ("Borrower") with respect to the development
                    property in Chelmsford (Exhibit 10.58.7). . . . . . . . . . . . . .   (5)
 10.30     Development Properties in Cheyenne, Wyoming and Auburn,
           California. The following agreements are representative of
           those executed in connection with these properties.
           10.30.1  Management Agreement dated May 30, 1997, between
                    Willard Holdings, Inc., ("Owner") and the
                    registrant ("Manager") (Exhibit 10.5.1).. . . . . . . . . . . . . .   (9)
           10.30.2  Lease Agreement dated May 30, 1997, between
                    Willard Holdings, Inc., ("Lessor") and the
                    registrant ("Lessee") (Exhibit 10.5.2). . . . . . . . . . . . . . .   (9)
 10.31     Senior Management Employment Agreements and Amendments
           entered into between the registrant and each of the
           following individuals:
           10.31.1  Frank A. Ruffo (Exhibit 10.6.2), Kelly J. Price
                    (Exhibit 10.6.3), Gary D. Witte (Exhibit 10.6.4),
                    Sarah J. Curtis (Exhibit 10.6.4), and Raymond R.
                    Brandstrom (Exhibit 10.6.5).. . . . . . . . . . . . . . . . . . . .   (9)
           10.31.2  Raymond R. Brandstrom (Exhibit 10.11.1), Gary D.
                    Witte ( Exhibit 10.11.2), Frank A. Ruffo (Exhibit
                    10.11.3), Sarah J. Curtis (Exhibit 10.11.4), and
                    Kelly J. Price (Exhibit 10.11.5). . . . . . . . . . . . . . . . . .   (9)
 10.32     La Casa Grande in New Port Richey, Florida, River Oaks in
           Englewood, Florida, and Stanford Centre in Altamonte
           Springs, Florida. The following agreements are
           representative of those executed in connection with these
           properties.
           10.32.1  Stock Purchase Agreement dated September 30,
                    1996, between Wayne Voegele, Jerome Lang, Ronald
                    Carlson, Thomas Stanford, Frank McMillan, Lonnie
                    Carlson, and Carla Holweger ("Seller") and the
                    registrant ("Purchaser") with respect to La Casa
                    Grande (Exhibit 10.1).. . . . . . . . . . . . . . . . . . . . . . .   (7)
           10.32.2  First Amendment to Stock Purchase Agreement dated
                    January 31, 1997, between the Seller and the
                    registrant with respect to La Case Grande
                    (Exhibit 10.2). . . . . . . . . . . . . . . . . . . . . . . . . . .   (7)
           10.32.3  Stock Purchase Agreement dated September 30,
                    1996, between the Seller and the registrant with
                    respect to River Oaks (Exhibit 10.3). . . . . . . . . . . . . . . .   (7)
           10.32.4  First Amendment to Stock Purchase Agreement dated
                    January 31, 1997, between the Seller and the
                    registrant with respect to River Oaks (Exhibit
                    10.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (7)

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                  10.32.5  Stock Purchase Agreement dated September 30,
                    1996, between the Seller and the registrant with
                    respect to Stanford Centre (Exhibit 10.5).. . . . . . . . . . . . .   (7)
           10.32.6  First Amendment to Stock Purchase Agreement dated
                    January 31, 1997, between the Seller and the
                    registrant with respect to Stanford Centre
                    (Exhibit 10.6). . . . . . . . . . . . . . . . . . . . . . . . . . .   (7)
 10.33     Painted Post Partnership
           10.33.1  Painted Post Partners Partnership Agreement dated
                    October 1, 1995 (Exhibit 10.24.7).. . . . . . . . . . . . . . . . .   (1)
           10.33.2  First Amendment to Painted Post Partners
                    Partnership Agreement dated October 22, 1996,
                    between Daniel R. Baty and Raymond R. Brandstrom
                    (Exhibit 10.20.20). . . . . . . . . . . . . . . . . . . . . . . . .   (5)
           10.33.3  Indemnity Agreement dated November 3, 1996,
                    between the registrant and Painted Post Partners
                    (Exhibit 10.3). . . . . . . . . . . . . . . . . . . . . . . . . . .  (10)
           10.33.4  First Amendment to Indemnity Agreement dated
                    January 1, 1997, between the registrant and
                    Painted Post Partners (Exhibit 10.4). . . . . . . . . . . . . . . .  (10)
           10.33.5  Undertaking and Indemnity Agreement dated October
                    23, 1995, between the registrant, P. Jules Patt
                    and Pamela J. Patt and Painted Post Partnership
                    (Exhibit 10.5). . . . . . . . . . . . . . . . . . . . . . . . . . .  (10)
           10.33.6  First Amendment to Undertaking and Indemnity
                    Agreement dated January 1, 1997, between Painted
                    post Partners and the registrant (Exhibit 10.6).. . . . . . . . . .  (10)
           10.33.7  First Amendment to Non-Competition Agreement
                    between the registrant and Daniel R. Baty
                    (Exhibit 10.1.1) and Raymond R. Brandstrom
                    (Exhibit 10.1.2). . . . . . . . . . . . . . . . . . . . . . . . . .  (11)
 10.34     Ridgeland Court in Ridgeland, Mississippi
           10.34.1  Master Agreement and Subordination Agreement
                    dated September 5, 1997, between the
                    registrant, Emeritus Properties I, Inc., and
                    Mississippi Baptist Health Systems, Inc.
                    (Exhibit 10.1.1). . . . . . . . . . . . . . . . . . . . . . . . . .  (12)
           10.34.2  License Agreement dated September 5, 1997,
                    between the registrant and its subsidiary and
                    affiliated corporations and Mississippi Baptist
                    Health Systems, Inc. (Exhibit 10.1.2).. . . . . . . . . . . . . . .  (12)
           10.34.3  Economic Interest Assignment Agreement and
                    Subordination Agreement dated September 5,
                    1997, between the registrant, Emeritus
                    Properties I, Inc., and Mississippi Baptist
                    Health Systems, Inc. (Exhibit 10.1.3).. . . . . . . . . . . . . . .  (12)
           10.34.4  Operating Agreement for Ridgeland Assisted
                    Living, L.L.C. dated December 23, 1998, between
                    the registrant, Emeritust Properties XI, L.L.C.
                    and Mississippi Baptist Medical Enterprises,
                    Inc. (Exhibit 10.46.4). . . . . . . . . . . . . . . . . . . . . . .  (16)
           10.34.5  Purchase and Sale Agreement dated December 23,
                    1998, between the registrant and Meditrust
                    Company LLC. (Exhibit 10.46.5). . . . . . . . . . . . . . . . . . .  (16)
 10.35     Development Property in Urbana, Illinois.
           10.35.1  Lease Agreement dated September 10, 1997,
                    between ALCO IV, L.L.C. ("Lessor") and the
                    registrant ("Lessee") (Exhibit 10.2.1). . . . . . . . . . . . . . .  (12)
           10.35.2  Management Agreement dated September 10, 1997,
                    between the registrant ("Manager" and ALCO IV,
                    L.L.C. ("Owner") (Exhibit 10.2.2).. . . . . . . . . . . . . . . . .  (12)
 10.36     Amendment to Office Lease Agreement dated September 6,
           1996, between Martin Selig ("Lessor") and the registrant.. . . . . . . . . .  (13)
 10.37     Villa Del Rey in Escondido, California
           10.37.1  Purchase and Sale Agreement dated December 19,
                    1996, between the registrant ("Purchaser") and
                    Northwest Retirement ("Seller") (Exhibit
                    10.1.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
 10.38     Development Property in Paso Robles, California
           10.38.1  Agreement of TDC/Emeritus Paso Robles
                    Associates dated June 1, 1995, between the
                    registrant and TDC Convalescent, Inc. (Exhibit
                    10.2.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.38.2  Loan Agreement in the amount of $6,000,000
                    dated February 15, 1997, between Finova Capital
                    Corporation ("Lender") and TDC/Emeritus Paso
                    Robles Associates ("Borrower") (Exhibit
                    10.2.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.38.3  Promissory Note dated February 28, 1997, in the
                    amount of $6,000,000 between Finova Capital
                    Corporation ("Lender") and TDC/Emeritus Paso
                    Robles Associates ("Borrower") (Exhibit
                    10.2.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.38.4  Deed of Trust, Security Agreement, Assignment
                    of Leases and Rents and Fixture Filing dated
                    February 18, 1997, between TDC/Emeritus Paso
                    Robles Associates ("Trustor"), Chicago Title
                    Company ("Trustee") and Finova Capital
                    Corporation ("Beneficiary") (Exhibit 10.2.4). . . . . . . . . . . .   (6)
           10.38.5  Guaranty between TDC Convalescent, Inc.
                    ("Guarantor") and Finova Capital Corporation
                    (Exhibit 10.2.5). . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
           10.38.6  Guaranty between the registrant ("Guarantor")
                    and Finova Capital Corporation (Exhibit
                    10.2.6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (6)
 10.39     Development Property in Staunton, Virginia
           10.39.1  Purchase and Sale Agreement dated February 5,
                    1997, between Greencastle Retirement Partners,
                    L.L.C. ("Purchaser") and Gail G. Brown
                    ("Seller") (Exhibit 10.72.1). . . . . . . . . . . . . . . . . . . .  (13)
           10.39.2  Assignment and Assumption of Purchase and Sale
                    Agreement dated February 12, 1997, between
                    Greencastle Retirement Partners, L.L.C. and the
                    registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (13)
 10.40     Development Property in Jamestown New York
           10.40.1  Purchase Agreement dated December 12, 1996,
                    between June Fagerstrom ("Seller") and Wegman
                    Family LLC ("Buyer") (Exhibit 10.73.1). . . . . . . . . . . . . . .  (13)
           10.40.2  Assignment and Assumption Agreement dated
                    December 30, 1997, between Wegman Family LLC
                    ("Assignor") and Painted Post Partners
                    ("Assignee") (Exhibit 10.73.2). . . . . . . . . . . . . . . . . . .  (13)
 10.41     Development Property in Danville, Illinois
           10.41.1  Purchase and Sale Agreement dated October 14,
                    1997, between South Bay Partners, Inc.
                    ("Purchaser") and Elks Lodge No. 332, BPOE
                    ("Seller") (Exhibit 10.74.1). . . . . . . . . . . . . . . . . . . .  (13)
           10.41.2  Assignment and Assumption of Purchase and Sale
                    Agreement dated October 21, 1997, between South
                    Bay Partners, Inc. and the registrant (Exhibit
                    10.74.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (13)
 10.42     Development Property in Biloxi, Mississippi
           10.42.1  Management Agreement dated December 18, 1997,
                    between the registrant ("Manager") and ALCO
                    VII, L.L.C. ("Owner") (Exhibit 10.75.1).. . . . . . . . . . . . . .  (13)

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           10.42.2  Lease Agreement dated September 29, 2000,
                    between the registrant ("Lessee") and HR
                    Acquisition Corporation ("Lessor") (Exhibit
                    10.75.2).
 10.43     Sanyo Electric Co., Ltd.
           10.43.1  Agreement entered into on May 30, 1996, between
                    the registrant and Sanyo Electric Co., Ltd. for
                    the interest in jointly entering the
                    development, construction and /or operation of
                    the Senior Housing Business in Japan (Exhibit
                    10.76.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (13)
           10.43.2  Joint Venture Agreement entered into on July 9,
                    1997, between the registrant and Sanyo Electric
                    Co., Ltd. (Exhibit 10.76.2).. . . . . . . . . . . . . . . . . . . .  (13)
 10.44     Lakeridge Place in Wichita Falls, Texas, Meadowlands
           Terrace in Waco, Texas, Saddleridge Lodge in Midland,
           Texas and Sherwood Place in Odessa, Texas. The following
           agreements are representative of those executed in
           connection with these properties.
           10.44.1  Management and Consulting Agreement dated
                    February 1, 1998, between ESC I, L.P., and XL
                    Management Company L.L.C. (Exhibit 10.78.1).. . . . . . . . . . . .  (13)
 10.45     1998 Employee Stock Purchase Plan (Exhibit 99.2).. . . . . . . . . . . . . .  (14)
 10.46     River Oaks in Englewood, California, Stanford Center in
           Alamonte Springs, La Casa Grande in New Port Richey,
           Florida, Silver Pines in Cedar Rapids, Iowa, Villa Del
           Rey in Escondido, California, Spring Meadows in Bozeman,
           Montana, Juniper Meadows in Lewiston, Idaho and Fulton
           Villa in Stockton, California.
           10.46.1  Credit Agreement dated April 29, 1998, between
                    Emeritus Properties II, Inc., Emeritus
                    Properties V, Inc., and Emeritus Properties
                    VII, Inc. ("Borrowers") and Deutsche Bank AG,
                    New York Branch ("Lender") (Exhibit 10.2.1).. . . . . . . . . . . .  (15)
           10.46.2  Amended and Restated Guaranty and Limited
                    Indemnity Agreement dated June 30, 1998,
                    between Emeritus Corporation ("Guarantor") and
                    Deutsche Bank AG ("Lender") (Exhibit 10.2.2). . . . . . . . . . . .  (15)
           10.46.3  Amendment to Credit Agreement and Restatement
                    of Article IX dated June 30, 1998, between
                    Emeritus Properties II, Inc., Emeritus
                    Properties III, Inc., Emeritus Properties V and
                    Emeritus Properties VII, Inc. (together
                    "Borrowers") and Deutsche Bank AG ("Lender")
                    (Exhibit 10.2.3). . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
           10.46.4  Guaranty and Limited Indemnity Agreement dated
                    April 29, 1998, between Emeritus Corporation
                    ("Grantor") and Deutsche Bank AG, New York
                    Branch ("Lender") (Exhibit 10.2.4). . . . . . . . . . . . . . . . .  (15)
           10.46.5  Promissory Note dated June 30, 1998, between
                    Emeritus Properties III, Inc. ("Borrower") and
                    Deutsche Bank AG, New York Branch ("Lender")
                    (Exhibit 10.2.5). . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
           10.46.6  Future Advance Promissory Note dated April 29,
                    1998, between Emeritus Properties V, Inc.
                    ("Borrower") and Deutsche Bank AG, New York
                    Branch ("Lender") (Exhibit 10.2.6). . . . . . . . . . . . . . . . .  (15)
           10.46.7  Extension Agreement dated May 31, 2001, between
                    Emeritus Properties II, Inc., Emeritus Properties V, Inc.,
                    Emeritus Properties VII, Inc. ("Original Borrrowers"),
                    Emeritus Properties III, Inc. ("Additional Borrower"),
                   and Deutsche Bank AG, New York Branch ("Lender") (Exhibit 10.1). . .  (22)
           10.46.8  Loan Agreement dated February 8, 2002, between Heller
                   Healthcare Finance, Inc. ("Lender") and ESC - Puyallup, LLC,
                   ESC - Port St. Richie, LLC, and ESC - Bozeman, LLC ("Borrower"). . .  (24)
 10.47     Courtyard at the Willows In Puyallup, Washington
           10.47.1  Deed of Trust, Trust Indenture, Assignment,
                    Assignment of Rents, Security Agreement,
                    Including Fixture Filing and Financing
                    Statement dated June 30, 1998, between Emeritus
                    Properties III, Inc. ("Grantor") and Chicago
                    Title Insurance Company ("Trustee") and
                    Deutsche Bank AG, New York Branch
                    ("Beneficiary") (Exhibit 10.7.1). . . . . . . . . . . . . . . . . .  (15)
           10.47.2  Mortgage, Open-End Mortgage, Advance Money
                    Mortgage, Trust Deed, Deed Of Trust, Trust
                    Indenture, Assignment, Assignment of Rents,
                    Security Agreement, Including Fixture Filing
                    and Financing Statement dated June 30, 1998,
                    between Emeritus Properties III, Inc.
                    ("Grantor, Mortgagor") and Deutsche Bank, AG,
                    New York Branch (Exhibit 10.7.2). . . . . . . . . . . . . . . . . .  (15)
 10.48     Silver Pines in Cedar Rapids, Iowa, Spring Meadows in
           Bozeman, Montana and Juniper Meadows in Lewiston, Idaho.
           10.48.1  Promissory Note dated April 29, 1998, between
                    Emeritus Properties II ("Borrower") and
                    Deutsche Bank AG, New York Branch (Exhibit
                    10.8.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
 10.49     Richland Gardens in Richland, Washington, Charlton Place
           in Tacoma Washington, The Pines of Goldsboro in
           Goldsboro, North Carolina, Silverleaf Manor in Meridian,
           Mississippi and Wilburn Gardens in Fredericksburg,
           Virginia. The following agreement is representative of
           those executed in connection with these properties.
           10.49.1  Agreement To Provide Management Services To An
                    Assisted Living Facility dated February 2,
                    1998, between Richland Assisted, L.L.C.
                    ("Owner") and Acorn Service Corporation
                    ("Manager") (Exhibit 10.9.1). . . . . . . . . . . . . . . . . . . .  (15)
 10.50     Richland Gardens in Richland, Washington, The Pines of
           Goldsboro in Goldsboro, North Carolina, Silverleaf Manor
           in Meridian, Mississippi, Wilburn Gardens in
           Fredericksburg, Virginia and Park Lane in Toledo, Ohio.
           The following agreement is representative of those
           executed in connection with these properties.
           10.50.1  Marketing Agreement dated February 2, 1998,
                    between Acorn Service Corporation ("Acorn") and
                    Richland Assisted, L.L.C. ("RALLC") (Exhibit
                    10.10.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (15)
 10.51     Kirkland Lodge in Kirkland, Washington
           10.51.1  Purchase and Sale Agreement dated December 23,
                    1998, between the registrant and Meditrust
                    Company LLC. (Exhibit 10.46.5). . . . . . . . . . . . . . . . . . .  (16)
           10.51.2  Loan Agreement dated December 28, 1998, between
                    Emeritus Properties X, L.L.C and Guaranty
                    Federal Bank (Exhibit 10.65.2). . . . . . . . . . . . . . . . . . .  (16)
           10.51.3  Promissory Note Agreement dated December 28,
                    1998, between Emeritus Properties X, L.L.C and
                    Guaranty Federal Bank (Exhibit 10.65.3).. . . . . . . . . . . . . .  (16)
           10.51.4  Guaranty Agreement dated December 28, 1998,
                    between the registrant and Guaranty Federal
                    Bank (Exhibit 10.65.3). . . . . . . . . . . . . . . . . . . . . . .  (16)
 10.52     Emeritrust Communities
           10.52.1  Purchase and Sale Agreement dated December 30,
                    1998, between the registrant, Emeritus
                    Properties VI, Inc., ESC I, L.P. and AL
                    Investors LLC. (Exhibit 10.66.1). . . . . . . . . . . . . . . . . .  (16)
           10.52.2  Supplemental Purchase Agreement in Connection
                    with Purchase of Facilities dated December 30,
                    1998, between the registrant, Emeritus
                    Properties I, Inc. Emeritus Properties VI,
                    Inc., ESC I, L.P. and AL Investors LLC.
                    (Exhibit 10.66.2).. . . . . . . . . . . . . . . . . . . . . . . . .  (16)
           10.52.3  Management Agreement with Option to Purchase
                    dated December 30, 1998, between the
                    registrant, Emeritus Management I LP, Emeritus
                    Properties I, Inc, ESC I, L.P., Emeritus
                    Management LLC and AL Investors LLC. (Exhibit
                    10.66.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (16)

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           10.52.4  Guaranty of Management Agreement and Shortfall
                    Funding Agreement dated December 30, 1998,
                    between the registrant and AL Investors LLC.
                    (Exhibit 10.66.4).. . . . . . . . . . . . . . . . . . . . . . . . .  (16)
           10.52.5  Put and Purchase Agreement dated December 30,
                    1998, between Daniel R. Baty and AL Investors
                    LLC. (Exhibit 10.66.5) Second Emeritrust. . . . . . . . . . . . . .  (16)
           10.52.6  First Amendment to Management Agreement with Option
                    to Purchase (AL I - Emeritrust 25 Facilities) dated March 22, 2001,
                    between the registrant, Emeritus Management I LP, and AL
                    Investors LLC. . . . . . . . . . . . . . . . . . . . . . . . . .  .  (24)
           10.52.7  Amendment to Guaranty of Management Agreement and
                    Shortfall Funding Agreement (Emeritrust 25) dated March 22, 2001,
                    between the registrant and AL Investors LLC.. . . . . . . . . . . .  (24)
           10.52.8  Second Amendment to Put and Purchase Agreement (AL I -
                    Emeritrust 25 Facilities) dated March 22, 2001, between Daniel R.
                    Baty and AL Investors LLC. . . . . . . . . . . . . . . . . . . .  .  (24)
           10.52.9  Second Amendment to Management Agreement with Option to
                    Purchase (AL I - Emeritrust 25 Facilities) dated January 1, 2002,
                    between the registrant, Emeritus Management I LP, and AL
                    Investors LLC.. . . . . . . . . . . . . . . . . . . . . . . . . . .  (24)
          10.52.10  Third Amendment to Put and Purchase Agreement (AL I -
                    Emeritrust 25 Facilities) dated January 1, 2002, between
                    Danel R. Baty and AL Investors LLC..  . . . . . . . . . . . . . . .  (24)
 10.53     Emeritrust II Communities
           10.53.1  Supplemental Purchase Agreement in Connection
                    with Purchase of Facilities (AL II--14
                    Operating Facilities) dated March 26,1999,
                    between the registrant, Emeritus Properties I,
                    Inc. ESC G.G. I, Inc., ESC I, L.P. and AL
                    Investors II LLC (Exhibit 10.1.1).. . . . . . . . . . . . . . . . .  (17)
           10.53.2  Management Agreement with Option to Purchase
                    (AL II--14 Operating Facilities) dated March
                    26, 1999, between the registrant, Emeritus
                    Management I LP, Emeritus Properties I, Inc.,
                    ESC G.P. I, Inc., ESC I, L.P., Emeritus
                    Management LLC and AL Investors II LLC (Exhibit
                    10.1.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.3  Guaranty of Management Agreement (AL II--14
                    Operating Facilities) dated March 26, 1999,
                    between the registrant and AL Investors II LLC
                    (Exhibit 10.1.3). . . . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.4  Supplemental Purchase Agreement in Connection
                    with Purchase of Facilities (AL II--5
                    Development Facilities) dated March 26, 1999,
                    between the registrant, Emeritus Properties I,
                    Inc. and AL Investors Development LLC (Exhibit
                    10.1.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.5  Management Agreement with Option to Purchase
                    (AL II--5 Development Facilities) dated
                    March 26, 1999, between the registrant,
                    Emeritus Properties I, Inc., Emeritus
                    Management LLC and AL Investors Development LLC
                    (Exhibit 10.1.5). . . . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.6  Guaranty of Management Agreement and Shortfall
                    Funding Agreement (AL II--5 Development
                    Facilities) dated March 26, 1999, between the
                    registrant and AL Investors Development LLC
                    (Exhibit 10.1.6). . . . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.7  Put and Purchase Agreement (AL II Holdings--14
                    Operating Facilities and 5 Development
                    Facilities) dated March 26, 1999, between
                    Daniel R. Baty and AL II Holdings LLC, AL
                    Investors II LLC and AL Investors Development
                    LLC (Exhibit 10.1.7). . . . . . . . . . . . . . . . . . . . . . . .  (17)
           10.53.8  Second Amendment to Management Agreement (AL II -
                    14 Operating Facilities) (GMAC) dated March 22, 2001, between the
                    registrant, Emeritus Management LLC, Emeritus Management I,
                    and AL Investors II LLC.. . . . . . . . . . . . . . . . . . . . . .  (24)
           10.53.9  Second Amendment to Put and Purchase Agreement (AL
                    II Holdings - 14 Operating Facilities and 5 Development Facilities)
                    dated March 22, 2001, between Daniel R. Baty and AL II Holdings
                    LLC, AL Investors II LLC and AL Investors Development LLC.. . . . .  (24)
           10.53.10  First Amendment to Management Agreement (AL II -
                    5 Development Facilities) dated January 1, 2002, between the
                    registrant, Emeritus Management LLC, and AL Investors
                    Development LLC.. . . . . . . . . . . . . . . . . . . . . . . . . .  (24)
           10.53.11  Third Amendment to Put and Purchase Agreement (AL II
                   Holdings - 14 Operating Facilities and 5 Development Facilities)
                   dated January 1, 2002, between Daniel R. Baty and AL II Holdings
                   LLC, AL Investors II LLC, and AL Investors Development LLC.. . . . .  (24)
           10.53.12  Third Amendment to Management Agreement (AL II -
                   14 Operating Facilities) (GMAC) dated January 1, 2002, between
                   the registrant, Emeritus Management LLC, Emeritus Management I LP,
                   and AL Investors II LLC. . . . . . . . . . . . . . . . . . . . . . .  (24)
 10.54     Meadow Lodge at Drum Lodge Hill in Chelmsford,
           Massachusetts
           10.54.1  Purchase and Sales Agreement dated April 23,
                    1999, between LM Chelmsford Assisted Living,
                    LLC ("Seller") and the registrant ("purchaser")
                    (Exhibit 10.1.1). . . . . . . . . . . . . . . . . . . . . . . . . .  (18)
 10.55     Meadow Lodge at Drum Hill in Chelmsford, Massachusetts,
           Cobblestones at Fairmont in Manassas, Virginia, Kirkland
           Lodge in Kirkland, Washington and Ridgeland Pointe in
           Ridgeland, Mississippi. The following agreements are
           representative of those executed in conjunction with these
           properties.
           10.55.1   Fixed Rate Noted dated September 29, 1999,
                     between Amresco Capital, L.P. ("Payee") and the
                     registrant ("Maker") (Exhibit 10.2.1). . . . . . . . . . . . . . .  (18)
           10.55.2   Mortgage and Security Agreement dated September
                     29, 1999, between Amresco Capital, L.P.
                     (Mortgagee") and the registrant ("mortgagor")
                     (Exhibit 10.2.2).. . . . . . . . . . . . . . . . . . . . . . . . .  (18)
 10.56     Series B Preferred Stock Purchase Agreement dated as of
           December 10, 1999, between Emeritus Corporation and Saratoga
           Partners IV, L.P. (Exhibit 4.1). . . . . . . . . . . . . . . . . . . . . . .  (19)
 10.57     Designation of Rights and Preferences of Series B
           Convertible Preferred Stock as filed with the Secretary of
           State of Washington on December 29, 1999 (Exhibit 4.2).. . . . . . . . . . .  (19)
 10.58     Shareholders Agreement dated as of December 30, 1999, among
           Emeritus Corporation, Daniel R. Baty, B.F., Limited
           Partnership and Saratoga Partners IV, L.P. (Exhibit 4.3).. . . . . . . . . .  (19)
 10.59     Registration Rights Agreement dated as of December 30, 1999,
           between Emeritus Corporation and Saratoga Partners IV, L.P.
           (Exhibit 4.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (19)
 10.60     Investment Agreement dated as of December 30, 1999, among
           Emeritus Corporation, Daniel R. Baty, B.F., Limited
           Partnership and Saratoga Partners IV, L.P., Saratoga
           Partners IV, L.P. and Saratoga Management Company LLC.
           (Exhibit 4.5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (19)
 10.61     Canterbury Ridge in Urbana, Illinois
           10.61.1   Lease agreement dated September 29, 2000, and
                     effective October 1, 2000, between HR
                     Acquisitions I Corporation ("Lessor") and
                     Emeritus Corporation ("Lessee"). . . . . . . . . . . . . . . . . .  (20)
 10.62     Emerald Hills in Auburn

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           10.62.1   Lease agreement dated September 29, 2000, and
                     effective October 1, 2000, between HR
                     Acquisitions I Corporation ("Lessor") and
                     Emeritus Corporation ("Lessee"). . . . . . . . . . . . . . . . . .  (20)
           10.62.2  Lease agreement dated September 5, 2001, between Health
                    Care Property Investors, Inc. ("Lessor"), and Emeritus
                    Corporation ("Lessee"). . . . . . . . . . . . . . . . . . . . . . .  (24)
 10.63     Sierra Hills in Cheyenne, Wyoming
           10.63.1   Lease agreement dated September 29, 2000, and
                     effective October 1, 2000, between HR
                     Acquisitions I Corporation ("Lessor") and
                     Emeritus Corporation ("Lessee"). . . . . . . . . . . . . . . . . .  (20)
           10.63.2   Lease Assignment and Operations Transfer Agreement dated
                     September 30, 2001, between Emeritus Corporation ("Tenant")
                     and Sierra Hills Assisted Living Community, LLC,
                     ("Assignee") and Jon M. and Kristin P. Harder, husband and
                     wife, Darryl E. and Carol L. Fisher, husband and wife, Eric
                     W. and Marti M. Jacobson, husband and wife and Sunwest
                     Management, Inc. ("Guarantor"). . . . . . . . . . .. . . . . . . . .(24)
 10.64     Villa Ocotillo in Scottsdale, Arizona
           10.64.1   Purchase and sale agreement originally dated
                     October 21, 1997, and effective January 2001,
                     between Melchor and Isabel Balazs, as Trustees
                     ("Purchaser") and Emeritus Corporation
                     ("Seller").. . . . . . . . . . . . . . . . . . . . . . . . . . . .  (21)
           10.64.2   Lease agreement dated December 29, 2000 and
                     effective December 29, 2000, between Melchor
                     Balazs and Isabel Balazs ("Lessor") and Emeritus
                     Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . .  (21)
           10.64.3  Transfer of Operations Agreement dated August 14, 2001,
                    between Emeritus Corporation and Melchor Balazs.. . . . . . . . . .  (24)
 10.65     Loyalton of Hattiesburg in Hattiesburg, Mississippi
           10.65.1   Lease agreement dated June 10, 1998, and
                     effective October 1, 2000, between ALCO XII, LLC
                     ("Lessor") and Emeritus Corporation ("Lessee").. . . . . . . . . .  (21)
 10.66     Loyalton of Biloxi in Biloxi, Mississippi
           10.66.1   Lease agreement dated September 29, 2000, and
                     effective October 1, 2000, between HR
                     Acquisitions I Corporation ("Lessor") and
                     Emeritus Corporation ("Lessee"). . . . . . . . . . . . . . . . . .  (21)
           10.66.2  Lease agreement dated September 5, 2001, between Health
                     Care Property Investors, Inc. ("Lessor"), and Emeritus
                     Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . .  (24)
 10.67     Amended 1998 Employee Stock Purchase Plan (as amended and
           restated on May 19, 1999, and August 17, 2001).  (Appendix B).    . .  . . .  (23)
 21.1      Subsidiaries of the registrant.. . . . . . . . . . . . . . . . . . . . . . .  (24)
 23.1      Consent of KPMG LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (24)
</TABLE>


      (1) Incorporated by reference to the indicated exhibit filed with the
          Company's Registration Statement on Form S-1 (File No. 33-97508)
          declared effective on November 21, 1995.
      (2) Incorporated by reference to the indicated exhibit filed with the
          Company's Annual Report on Form 10-K (File No. 1-14012) on March 29,
          1996.
      (3) Incorporated by reference to the indicated exhibit filed with the
          Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
          August 14, 1996.
      (4) Incorporated by reference to the indicated exhibit filed with the
          Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
          November 14, 1996.
      (5) Incorporated by reference to the indicated exhibit filed with the
          Company's Annual Report on Form 10-K (File No. 1-14012) on March 31,
          1997.
      (6) Incorporated by reference to the indicated exhibit filed with the
          Company's First Quarter Report on Form 10-Q (File No. 1-14012) on May
          15, 1997.
      (7) Incorporated by reference to the indicated exhibit filed with the
          Company's Current Report on Form 8-K (File No. 1-14012) on May 16,
          1997.
      (8) Incorporated by reference to the indicated exhibit filed with the
          Company's Current Report on Form 8-K Amendment No. 1 (File No.
          1-14012) on July 14, 1997.
      (9) Incorporated by reference to the indicated exhibit filed with the
          Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
          August 14, 1997.
     (10) Incorporated by reference to the indicated exhibit filed with the
          Company's Registration Statement on Form S-3 Amendment No. 2 (File No.
          333-20805) on August 14, 1997.
     (11) Incorporated by reference to the indicated exhibit filed with the
          Company's Registration Statement on Form S-3 Amendment No. 3 (File No.
          333-20805) on October 29, 1997.
     (12) Incorporated by reference to the indicated exhibit filed with the
          Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
          November 14, 1997.
     (13) Incorporated by reference to the indicated exhibit filed with the
          Company's Annual Report on Form 10-K (File No. 1-14012) on March 30,
          1998.
     (14) Incorporated by reference to the indicated exhibit filed with the
          Company's Registration Statement on Form S-8 (File No. 333-60323) on
          July 31, 1998.
     (15) Incorporated by reference to the indicated exhibit filed with the
          Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
          August 14, 1998
     (16) Incorporated by reference to the indicated exhibit filed with the
          Company's Annual Report on Form 10-K (File No. 1-14012) on March 31,
          1999.
     (17) Incorporated by reference to the indicated exhibit filed with the
          Company's First Quarter Report on Form 10-Q (File No. 1-14012) on May
          10, 1999.
     (18) Incorporated by reference to the indicated exhibit filed with the
          Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
          November 15, 1999.
     (19) Incorporated by reference to the indicated exhibit filed with the
          Company's Form 8-K (File No. 1-14012) on January 14, 2000.
     (20) Incorporated by reference to the indicated exhibit filed with the
          Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
          November 14, 2000.
     (21) Incorporated by reference to the indicated exhibit filed with the
          Company's Annual Report on Form 10-K (File No. 1-14012) on April 2,
          2001.
     (22) Incorporated by reference to the indicated exhibit filed with the
          Company's Current Report on Form 8-K (File No. 1-14012) on July 18,
          2001.
     (23) Incorporated by reference to the indicated exhibit filed with the
          Company's Definitive Proxy Statement on Form DEF 14A on August 17,
          2001.
     (24) Filed herewith.


                                       47
<PAGE>

                                   SIGNATURES

PURSUANT  TO  THE  REQUIREMENTS OF 13 OF 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.


                                           Emeritus Corporation
                                               (Registrant)

Dated: March 29, 2002

<TABLE>
<CAPTION>



<S>                           <C>

                   Signature. . . . . . . . . .  Title
          ----------------------------  ---------------------------


          /s/   Daniel R. Baty . . . .  Chief Executive Officer and
          ----------------------------
          Daniel R. Baty . . . . . . .  Chairman of the Board


          /s/   Raymond R. Brandstrom.  Vice President of Finance,
          ----------------------------
          Raymond R. Brandstrom. .  .   Secretary, Chief Financial
                                        Officer, and Vice Chairman
                                        of the Board


          /s/   Patrick Carter . . . .  Director
          ----------------------------
          Patrick Carter


          /s/   Charles P. Durkin. . .  Director
          ----------------------------
          Charles P. Durkin


          /s/   David Hamamoto . . . .  Director
          ----------------------------
          David Hamamoto


          /s/   David W. Niemiec . . .  Director
          ----------------------------
          David W. Niemiec


          /s/   Motoharu Iue . . . . .  Director
          ----------------------------
          Motoharu Iue

</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>

                                                           Page
                                                           ----
<S>                                                    <C>
     Independent Auditors'  Report . . . . . . . . . . . .  F-2
     Consolidated Balance Sheets . . . . . . . . . . . . .  F-3
     Consolidated Statements of Operations . . . . . . . .  F-4
     Consolidated Statements of Cash Flows . . . . . . . .  F-5
     Consolidated Statements of Shareholders' Deficit. . .  F-6
     Notes to Consolidated Financial Statements. . . . . .  F-7
     Schedule II--Valuation and Qualifying Accounts. . .  ..S-1
</TABLE>




                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Emeritus Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of Emeritus
Corporation  and  subsidiaries ("the Company") as of December 31, 2001 and 2000,
and  the  related  consolidated statements of operations, shareholders' deficit,
and cash flows for each of the years in the three-year period ended December 31,
2001. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedule as listed in the accompanying
index.  These consolidated financial statements and financial statement schedule
are  the  responsibility  of  the Company's management. Our responsibility is to
express  an  opinion  on  these  consolidated financial statements and financial
statement  schedule  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  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 financial position of Emeritus Corporation
and  subsidiaries  as  of  December  31, 2001 and 2000, and the results of their
operations  and  their cash flows for each of the years in the three-year period
ended  December  31,  2001  in  conformity  with accounting principles generally
accepted  in  the  United  States  of America. Also, in our opinion, the related
financial  statement  schedule,  when considered in relation to the consolidated
financial statements taken as a whole, present fairly, in all material respects,
the  information  set  forth  therein.

/s/KPMG  LLP

Seattle,  Washington
March  8,  2002

                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                                                EMERITUS CORPORATION
                                            CONSOLIDATED BALANCE SHEETS
                                          (In thousands except share data)
                                                       ASSETS

                                                                                      December 31,    December 31,
                                                                                          2001            2000
                                                                                     --------------  --------------
<S>                                                                                  <C>             <C>
Current Assets:
 Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       9,811   $       7,496
 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,376             425
 Current portion of restricted deposits . . . . . . . . . . . . . . . . . . . . . .              -             361
 Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . .          1,172           1,817
 Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,859           4,969
 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . .          2,463           3,072
 Property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,242           6,475
                                                                                     --------------  --------------
         Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .         19,923          24,615
                                                                                     --------------  --------------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .        131,200         134,762
Property held for development . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,040             310
Notes receivable from and investments in affiliates . . . . . . . . . . . . . . . .          3,675           4,380
Restricted deposits, less current portion . . . . . . . . . . . . . . . . . . . . .          5,520           5,907
Lease acquisition costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . . .          4,864           5,983
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,206           2,122
                                                                                     --------------  --------------
         Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     168,428   $     178,079
                                                                                     ==============  ==============

                                       LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
 Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $           -   $       1,650
 Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . .          4,523          80,978
 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,105           3,143
 Accrued employee compensation and benefits . . . . . . . . . . . . . . . . . . . .          3,301           2,449
 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,861           2,991
 Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,415           1,806
 Accrued dividends on preferred stock.  . . . . . . . . . . . . . . . . . . . . . .          7,429           2,329
 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          8,690           9,221
 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,699           1,215
                                                                                     --------------  --------------
     Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .         32,023         105,782
                                                                                     --------------  --------------
 Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . .        131,070          60,499
 Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         32,000          32,000
 Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . .         18,671          17,709
 Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,404           2,132
 Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . .            256             256
                                                                                     --------------  --------------
     Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        216,424         218,378
                                                                                     --------------  --------------
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,145             504
Redeemable preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .         25,000          25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding
    30,609 and 30,609 at December 31, 2001, and December 31, 2000, respectively . .              -               -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
    outstanding 10,196,030 and 10,120,045 shares at December 31, 2001, and
    December 31, 2000, respectively . . . . . . . . . . . . . . . . . . . . . . . .              1               1
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . .         67,686          66,373
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . .           (136)         (1,087)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (141,692)       (131,090)
                                                                                     --------------  --------------
     Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . . . . .        (74,141)        (65,803)
                                                                                     --------------  --------------
     Total liabilities and shareholders' deficit. . . . . . . . . . . . . . . . . .  $     168,428   $     178,079
                                                                                     ==============  ==============

                            See accompanying notes to consolidated financial statements.
</TABLE>
                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                          EMERITUS CORPORATION
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands, except per share data)

                                                                 Year Ended December 31,
                                                          2001             2000             1999
                                                     ---------------  ---------------  ---------------
<S>                                                  <C>              <C>              <C>
 Revenues:
   Community revenue. . . . . . . . . . . . . . . .  $      129,887   $      118,948   $      116,063
   Other service fees . . . . . . . . . . . . . . .           1,965            1,684            1,683
   Management fees. . . . . . . . . . . . . . . . .           8,725            4,560            4,896
                                                     ---------------  ---------------  ---------------
           Total operating revenues . . . . . . . .         140,577          125,192          122,642

 Expenses:
   Community operations . . . . . . . . . . . . . .          80,829           76,838           78,193
   General and administrative . . . . . . . . . . .          17,990           17,429           15,468
   Depreciation and amortization. . . . . . . . . .           7,260            7,383            6,585
   Facility lease expense . . . . . . . . . . . . .          27,123           24,255           25,084
                                                     ---------------  ---------------  ---------------
           Total operating expenses . . . . . . . .         133,202          125,905          125,330
                                                     ---------------  ---------------  ---------------
           Income (loss) from operations. . . . . .           7,375             (713)          (2,688)

 Other income (expense):
   Interest income. . . . . . . . . . . . . . . . .             980              990              670
   Interest expense . . . . . . . . . . . . . . . .         (13,296)         (15,066)         (13,751)
   Impairment of investment securities. . . . . . .               -                -           (7,429)
   Other, net . . . . . . . . . . . . . . . . . . .             707           (7,147)           2,494
                                                     ---------------  ---------------  ---------------
           Net other expense. . . . . . . . . . . .         (11,609)         (21,223)         (18,016)
                                                     ---------------  ---------------  ---------------

           Loss before extraordinary item . . . . .          (4,234)         (21,936)         (20,704)
 Extraordinary loss on early extinguishment of debt               -                -             (333)
                                                     ---------------  ---------------  ---------------
           Net loss . . . . . . . . . . . . . . . .          (4,234)         (21,936)         (21,037)

 Preferred stock dividends. . . . . . . . . . . . .           6,368            5,327            2,250
                                                     ---------------  ---------------  ---------------
           Net loss to common shareholders. . . . .  $      (10,602)  $      (27,263)  $      (23,287)
                                                     ===============  ===============  ===============

 Loss per common share - basic and diluted:

     Loss before extraordinary item . . . . . . . .  $        (1.04)  $        (2.69)  $        (2.19)
     Extraordinary loss . . . . . . . . . . . . . .               -                -            (0.03)
                                                     ---------------  ---------------  ---------------

 Loss per common share. . . . . . . . . . . . . . .  $        (1.04)  $        (2.69)  $        (2.22)
                                                     ===============  ===============  ===============

 Weighted average number of common shares
       outstanding - basic and diluted. . . . . . .          10,162           10,117           10,469
                                                     ===============  ===============  ===============

                            See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                                     EMERITUS CORPORATION
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (In thousands)

                                                                                          Year ended December 31,
                                                                                     2001            2000            1999
                                                                                --------------  --------------  --------------
<S>                                                                             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      (4,234)  $     (21,936)  $     (21,037)
   Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
      Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . .          7,260           7,213           6,845
      Amortization of deferred gains and income. . . . . . . . . . . . . . . .           (221)           (190)           (363)
      Gain on sale of properties . . . . . . . . . . . . . . . . . . . . . . .         (1,392)              -               -
      Write down of lease acquisition costs. . . . . . . . . . . . . . . . . .            835               -               -
      Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . .            466             359             693
      Extraordinary loss on early extinguishment of debt . . . . . . . . . . .              -               -             333
      Impairment of investment securities. . . . . . . . . . . . . . . . . . .              -               -           7,429
      Write off of property held for development . . . . . . . . . . . . . . .              -           1,267               -
      Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            894             377            (191)
   Changes in operating assets and liabilities:. . . . . . . . . . . . . . . .              -               -               -
      Trade accounts receivable. . . . . . . . . . . . . . . . . . . . . . . .            179            (281)            (75)
      Prepaid expenses and other current assets. . . . . . . . . . . . . . . .            265             (55)          2,176
      Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . .         (1,038)           (491)         (3,480)
      Accrued employee compensation and benefits . . . . . . . . . . . . . . .            852            (909)            121
      Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (130)            194             477
      Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . .           (391)           (228)           (881)
      Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . .           (531)          4,593            (322)
      Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . .            484             691            (463)
      Security deposits and other long-term liabilities. . . . . . . . . . . .             14             (14)           (435)
      Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            272             245             308
                                                                                --------------  --------------  --------------
            Net cash provided by (used in) operating activities. . . . . . . .          3,584          (9,165)         (8,865)
                                                                                --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Acquisition of property and equipment. . . . . . . . . . . . . . . . . .         (1,429)        (11,441)        (12,875)
      Acquisition of property held for development . . . . . . . . . . . . . .              -               -            (560)
      Proceeds from sale of property and equipment . . . . . . . . . . . . . .          2,350             565           3,705
      Purchase of investment securities. . . . . . . . . . . . . . . . . . . .              -               -             (50)
      Construction advances--leased communities. . . . . . . . . . . . . . . .              -               -          17,295
      Construction expenditures--leased communities . . . . . . . . . . . . .           (694)           (197)        (17,794)
      Change in restricted cash. . . . . . . . . . . . . . . . . . . . . . . .              -          13,500         (13,500)
      Repayments from and (advances to) investments in affiliates, net . . . .          2,699           2,199          (4,679)
      Additions to lease acquisition costs . . . . . . . . . . . . . . . . . .           (416)           (943)              -
      Sale of investments in affiliates. . . . . . . . . . . . . . . . . . . .              -               -           8,177
                                                                                --------------  --------------  --------------
            Net cash provided by (used in) investing activities. . . . . . . .          2,510           3,683         (20,281)
                                                                                --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Decrease (increase) in restricted deposits . . . . . . . . . . . . . . .            748             261             (39)
      Proceeds from (repayment of) short-term borrowings, net. . . . . . . . .         (1,650)            650          (6,324)
      Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . .            145           7,879          27,355
      Repayment of long-term borrowings. . . . . . . . . . . . . . . . . . . .         (3,067)         (2,883)        (17,700)
      Proceeds from sale of preferred stock. . . . . . . . . . . . . . . . . .              -               -          28,981
      Repurchase/retirement of common stock. . . . . . . . . . . . . . . . . .              -          (1,400)         (1,100)
      Payment of preferred stock dividends . . . . . . . . . . . . . . . . . .              -          (4,024)              -
      Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             45            (365)           (629)
                                                                                --------------  --------------  --------------
            Net cash provided by (used in) financing activities. . . . . . . .         (3,779)            118          30,544
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . .              -               -              20
                                                                                --------------  --------------  --------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . .          2,315          (5,364)          1,418
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . .          7,496          12,860          11,442
                                                                                --------------  --------------  --------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . .  $       9,811   $       7,496   $      12,860
                                                                                ==============  ==============  ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
      Cash paid during the year for interest . . . . . . . . . . . . . . . . .  $      13,426   $      13,659   $      13,273
                                                                                ==============  ==============  ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Transfer of property and equipment to property held for sale . . . . . .              -             270           6,307
      Transfer of property held for development from property held for sale. .            730               -               -
      Notes receivable from buyers in sales . . . . . .  . . . . . . . . . . .          1,000               -               -
      Assumption of debt by buyer in sale. . . . . . . . . . . . . . . . . . .          3,162               -               -
      Unrealized holding gains (losses) in investment securities . . . . . . .            951            (708)         (3,409)
      Declared and issued Series B preferred stock in-kind dividends . . . . .              -             609               -
      Accrued but not issued Series B preferred stock in-kind dividends. . . .          1,268             615               -
      Accrued preferred stock cash dividends . . . . . . . . . . . . . . . . .          5,100           2,329           2,250
      Transfer of other assets to property and equipment . . . . . . . . . . .              -           1,002               -

                                   See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                                                       EMERITUS CORPORATION
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                                              (In thousands, except per share data)

                                                                                          Accumulated
                                      Preferred stock       Common stock                     other
                                     ----------------    ------------------    Additional Comprehensive                Total
                                     Number               Number                paid-in      income  Accumulated    shareholders'
                                    of shares  Amount    of shares   Amount     capital      (loss)    deficit        deficit
                                    ---------  -------  -----------  -------  ------------  --------  ----------  ---------------
<S>                                 <C>        <C>      <C>          <C>      <C>           <C>       <C>         <C>
 Balances at December 31, 1998 . .          -  $     -  10,484,050   $     1  $    38,995   $(4,420)  $ (80,540)  $      (45,964)
 Unrealized loss on investment
    securities . . . . . . . . . .          -        -           -         -            -    (3,409)          -           (3,409)
 Write-down for impairment of
    investment securities. . . . .          -        -           -         -            -     7,429           -            7,429
 Foreign currency translation
    adjustment . . . . . . . . . .          -        -           -         -            -        20           -               20
 Repurchase of common stock. . . .          -        -    (163,700)        -       (1,100)        -           -           (1,100)
 Proceeds from issuance of
    preferred stock. . . . . . . .     30,000        -           -         -       28,981         -           -           28,981
 Stock options exercised . . . . .          -        -       3,600         -           40         -           -               40
 Preferred stock dividends . . . .          -        -           -         -            -         -      (2,250)          (2,250)
 Net loss for the year ended
    December  31, 1999 . . . . . .          -        -           -         -            -         -     (21,037)         (21,037)
                                    ---------  -------  -----------  -------  ------------  --------  ----------  ---------------
 Balances at December 31, 1999 . .     30,000  $     -  10,323,950   $     1  $    66,916   $  (380)  $(103,827)  $      (37,290)
 Unrealized loss on investment
    securities . . . . . . . . . .          -        -           -         -            -      (708)          -             (708)
 Additional costs from issuance of
    preferred stock .. . . . . . .          -        -           -         -         (516)        -           -             (516)
 Foreign currency translation
    adjustment . . . . . . . . . .          -        -           -         -            -         1           -                1
 Repurchase of common stock. . . .          -        -    (260,200)        -       (1,400)        -           -           (1,400)
 Issuances of shares under
    Employee Stock Purchase Plan .          -        -      56,295         -          149         -           -              149
 Preferred stock dividends . . . .        609        -           -         -        1,224         -      (5,327)          (4,103)
 Net loss for the year ended
    December  31, 2000 . . . . . .          -        -           -         -            -         -     (21,936)         (21,936)
                                    ---------  -------  -----------  -------  ------------  --------  ----------  ---------------
 Balances at December 31, 2000 . .     30,609  $     -  10,120,045   $     1  $    66,373   $(1,087)  $(131,090)  $      (65,803)
 Unrealized loss on investment
    securities . . . . . . . . . .          -        -           -         -            -       951           -              951
 Issuances of shares under
    Employee Stock Purchase Plan .          -        -      75,985         -           45         -           -               45
 Preferred stock dividends . . . .          -        -           -         -        1,268         -      (6,368)          (5,100)
 Net loss for the year ended
    December  31, 2001 . . . . . .          -        -           -         -            -         -      (4,234)          (4,234)
                                    ---------  -------  -----------  -------  ------------  --------  ----------  ---------------
 Balances at December 31, 2001 . .     30,609  $     -  10,196,030   $     1  $    67,686   $  (136)  $(141,692)  $      (74,141)
                                    =========  =======  ===========  =======  ============  ========  ==========  ===============

                                    See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-6
<PAGE>
                              EMERITUS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Emeritus  Corporation  ("Emeritus"  or the "Company") is a nationally integrated
assisted  living  company  focused  on  operating residential style communities.
These  communities provide a residential housing alternative for senior citizens
that need help with the activities of daily living, with an emphasis on assisted
living and personal care services. The Company also provides management services
to  third  party  and  related-party  owners  of  assisted  living  communities,
including  management  agreements covering 46 communities in connection with the
Emeritrust  transactions,  which  are  referred  to extensively throughout these
financial  statements,  summarized  as  follows (see Note 17):

     * EMERITRUST I: 25 communities that the Company began managing in December
       1998. Until December 31, 2001, the Company received a base management fee
       of 5% of gross revenues, but was entitled to receive up to 7% depending
       on the cash flow performance of the communities managed. As of January 1,
       2002, however, the Company will receive a base management fee of 3% of
       gross revenues, but may receive up to 7% depending on the cash flow
       performance of the communities managed. Additionally, the Company is
       required by its management contracts to fund cash operating deficits.

     * EMERITRUST II: 21 communities that the Company began managing in March
       1999, consisting of:

          * EMERITRUST II OPERATING: 16 communities for which the Company has no
            obligation to fund cash operating deficits. The Company receives a
            base management fee of 5% of gross revenues, but may receive up to
            7% depending on the cash flow performance of the communities
            managed.

          * EMERITRUST II DEVELOPMENT: 5 communities for which the Company is
            required to fund cash operating deficits. The Company receives a
            base management fee of 5% of gross revenues, but may receive up to
            7% depending on the cash flow performance of the communities
            managed.

Critical Accounting Policies and Estimates

The  preparation  of consolidated financial statements requires Emeritus to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,  and  related  disclosure  of  contingent  assets  and
liabilities.  On  an on-going basis, Emeritus evaluates its estimates, including
those  related  to  resident  programs  and  incentives, bad debts, investments,
intangible  assets, income taxes, financing operations, restructuring, long-term
service  contracts, contingencies, and litigation.  Emeritus bases its estimates
on  historical  experience and on various other assumptions that are believed to
be  reasonable  under the circumstances, the results of which form the basis for
making  judgments  about  the

                                      F-7
<PAGE>

carrying  values  of  assets  and liabilities that are not readily apparent from
other  sources.  Actual  results may differ from these estimates under different
assumptions  or  conditions.

Emeritus  believes  the  following  critical  accounting  policies  are  most
significant  to  the  judgments  and  estimates  used  in the preparation of its
consolidated  financial  statements.  Emeritus maintains allowances for doubtful
accounts  for  estimated losses resulting from the inability of its residents to
make  required payments. If the financial condition of Emeritus's residents were
to  deteriorate,  resulting  in an impairment of their ability to make payments,
additional  charges  may  be  required.  Emeritus  holds  shares in ARV Assisted
Living, Inc. amounting to less than 5% of its shares. ARV is publicly traded and
has  a  volatile  share  price. Emeritus records an investment impairment charge
when  it  believes  this  investment  has experienced a decline in value that is
other  than  temporary.  Future  adverse  changes  in  market conditions or poor
operating  results  underlying  this  investment  could  result  in losses or an
inability  to  recover  the  carrying  value  of  the investment that may not be
reflected  in  this  investment's  current  carrying  value,  thereby  possibly
requiring  an  impairment  charge  in  the  future. Emeritus records a valuation
allowance  to  reduce  its deferred tax assets to the amount that is more likely
than not to be realized, which at this time shows a net asset valuation of zero.
While  Emeritus  has  considered  future  taxable income and ongoing prudent and
feasible  tax  planning  strategies  in  assessing  the  need  for the valuation
allowance,  in  the  event  Emeritus  were to determine that it would be able to
realize  its  deferred  tax  assets  in the future in excess of its net recorded
amount,  an  adjustment  to  the deferred tax asset would increase income in the
period  such  determination  was  made.


Basis of Presentation and Principles of Consolidation

The  consolidated  financial  statements include the accounts of the Company and
its  majority-owned subsidiaries. In addition, the accounts of limited liability
companies  and  partnerships  are  consolidated  where  the  Company  maintains
effective  control  over such entities' assets and operations, notwithstanding a
lack of technical majority ownership. All significant inter-company balances and
transactions  are  eliminated  in  consolidation.


Revenue Recognition

Operating  revenue  consists  of  resident  fee  revenue and management services
revenue.  Resident  units  are  rented  on  a  month-to-month  basis and rent is
recognized in the month the unit is occupied. Service fees paid by residents for
assisted living and other related services and management fees are recognized in
the  period  services  are rendered. Management services revenue is comprised of
revenue  from  management  contracts  and  is  recognized  in the month in which
services  are performed in accordance with the terms of the management contract.

                                      F-8
<PAGE>
Cash and Cash Equivalents

Cash  and  cash  equivalents  consist  primarily  of  money  market investments,
commercial paper and certificates of deposit with a maturity date at purchase of
three months or less. Cash equivalents at December 31, 2001, were insignificant.


Property and Equipment

Property  and  equipment  are  stated at cost. Depreciation and amortization are
computed  using  the straight-line method over the estimated useful lives of the
assets  as  follows:  buildings  and  improvements,  25  to 40 years; furniture,
equipment  and  vehicles,  five to seven years; leasehold improvements, over the
lesser  of  the  estimated  useful  life  or  the  lease  term.

For  long-lived  assets, including property and equipment, the Company evaluates
the carrying value of the assets by comparing the estimated future cash flows to
be  generated from the use of the assets and their eventual disposition with the
assets'  reported  net  book values. The carrying values of assets are evaluated
for  impairment when events or changes in circumstances occur which may indicate
the  carrying  amount  of  the assets may not be recoverable. If such assets are
considered  to  be  impaired, the impairment to be recognized is measured by the
amount  by which the carrying amount of the assets exceed discounted future cash
flows  expected  to  be  generated  by such assets. Assets to be disposed of are
reported  at  the lower of their carrying amount or fair market value less costs
to  sell.


Investments

Investment  securities  are classified as available-for-sale and are recorded at
fair  value. Unrealized holding gains and losses, net of any related tax effect,
are excluded from results of operations and are reported as a component of other
comprehensive  income  (loss).

Investments  in  20%  to 50% owned affiliates are accounted for under the equity
method  except where a lack of voting power exists. Investments in less than 20%
owned  entities  are  accounted  for  under  the  cost method unless the Company
exercises  significant  influence  by  means  other  than  ownership.


Intangible Assets

Intangible  assets, which are comprised of deferred financing costs (included in
other  assets)  and  lease acquisition costs, are amortized on the straight-line
method  over  the  term  of  the  related  debt  or  lease  agreement.



                                      F-9
<PAGE>
Income Taxes

Deferred  income taxes are provided based on the estimated future tax effects of
loss  carryforwards  and  temporary  differences  between  financial  statement
carrying  amounts  of  existing  assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
that  are  expected  to  apply  to  taxable  income  in the years in which those
carryforwards and temporary differences are expected to be recovered or settled.
The  effect  on  deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance  is  recorded  for deferred tax assets when it is more likely than not
that  such  deferred  tax  assets  will  not  be  realized.


Deferred Rent

Deferred  rent  primarily  represents  lease  incentives  that  are deferred and
amortized  using  the  straight-line  method  over  the  terms of the associated
leases.


Deferred Gain on Sales of Communities

Deferred  gains  on  sales  of  communities  consist  of  deferred  gains  on
sale/leaseback  transactions  and  deferred gains on sale transactions. Deferred
gains  on  sale/leaseback  transactions  are  amortized  using the straight-line
method  over  the  lives  of  the  associated  leases  where  the Company has no
continued  financial involvement in communities that it has sold and leased back
outside  the  leaseback.  Deferred gains on sale/leaseback and sale transactions
where  the  Company  has  continuing  financial  involvement,  other  than  the
leasebacks,  are  deferred  until  such  involvement  terminates.


Community Operations

Community  operations represent direct costs incurred to operate the communities
and  include  costs  such  as resident activities, marketing, housekeeping, food
service,  payroll  and  benefits,  facility  maintenance,  utilities,  taxes and
licenses.


Stock-Based Compensation

The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees
and related interpretations in measuring compensation costs for its stock option
plans.  The  Company  discloses  pro forma net loss and net loss per share as if
compensation  cost  had  been  determined consistent with Statement of Financial
Accounting  Standards  (SFAS)  No. 123, Accounting for Stock-Based Compensation.

                                      F-10
<PAGE>
Net Loss Per Share

Basic  net  loss  per  share  is  computed  based  on  weighted  average  shares
outstanding  and  excludes any potential dilution. Diluted net loss per share is
computed  on the basis of the weighted average number of shares outstanding plus
dilutive  potential  common shares (if any) using the treasury stock method. The
capital structure of the Company includes convertible debentures, redeemable and
non-redeemable  convertible preferred stock, as well as stock options and common
stock  warrants.  The  assumed  conversion and exercise of these securities have
been  excluded  from  the  calculation  of  diluted net loss per share, as their
effect  is  anti-dilutive.


Comprehensive Income (Loss)

Comprehensive  income  (loss)  consists of net income (loss) and other gains and
losses  affecting  shareholders'  equity,  which  under  accounting  principles
generally  accepted  in  the  United  States,  are  excluded  from  results  of
operations.  For  the  Company,  these consist of unrealized gains and losses on
investment  securities  and foreign currency translation adjustments, net of any
related  tax  effect.


Foreign Currency Translation

Foreign currency amounts attributable to foreign operations have been translated
into  U.S.  dollars  using  year-end  exchange rates for assets and liabilities,
historical rates for equity, and average annual rates for revenues and expenses.
Unrealized  gains  and losses arising from fluctuations in the year-end exchange
rates  are  recorded  as  a  component  of  other  comprehensive  income (loss).


Reclassifications

Certain  reclassifications of 1999 and 2000 amounts have been made to conform to
the  2001  presentation.


(2)     INVESTMENT SECURITIES

In  1999,  the  Company  wrote  down  its  investment in the common stock of ARV
Assisted  Living,  Inc.  ("ARV")  by  $7.4  million  as management concluded the
decline  in  the  fair market value of this investment was other than temporary.
Details  regarding  the  ARV  investment  as  of  December  31,  as  follows:

<TABLE>
<CAPTION>

               Gross          Fair
             Amortized     Unrealized      Market
                Cost         Losses         Value
            ------------  -------------  -----------
                          In thousands
<S>         <C>           <C>            <C>
2001 . . .  $      1,512         ($136)  $     1,376
            ============  =============  ===========
2000 . . .  $      1,512       ($1,087)  $       425
            ============  =============  ===========
1999 . . .  $      1,512         ($378)  $     1,134
            ============  =============  ===========
</TABLE>

                                      F-11
<PAGE>



In  September 1999, the Company prevailed in a claim against ARV and settled for
$5.0  million.  The  settlement  terms  provided  for  $1.5  million  to be paid
immediately  with the remaining balance of $3.5 million to be paid through 2001,
with  a  discount  provision  for  early  payment.  As of December 31, 1999, the
Company collected $4.3 million as full settlement on this claim. The settlement,
net  of  all  related  legal  costs,  is  included  in  other  income.


(3)     OTHER RECEIVABLES

Other  receivables  consisted  of  the  following at December 31:


<TABLE>
<CAPTION>
                                                             2001         2000
                                                          -----------  -----------
                                                               (in thousands)
<S>                                                       <C>          <C>
Working capital advances to third parties and affiliates  $     1,859  $     4,968
Notes receivable from buyer in sale of communities . . .        1,000            1
                                                          -----------  -----------
                                                          $     2,859  $     4,969
                                                          ===========  ===========
</TABLE>


(4)     PROPERTY AND EQUIPMENT

Property  and  equipment  consist  of  the  following  at  December  31:


<TABLE>
<CAPTION>
                                                 2001       2000
                                             ----------  ---------
                                                 (in thousands)
<S>                                             <C>       <C>
Land and improvements. . . . . . . . . . . . .  $ 13,779  $ 13,492
Buildings and improvements . . . . . . . . . .   120,827   118,610
Furniture and equipment. . . . . . . . . . . .    14,764    13,385
Vehicles . . . . . . . . . . . . . . . . . . .     3,461     3,323
Leasehold improvements . . . . . . . . . . . .     5,402     3,635
                                                --------  --------
                                                 158,233   152,445
Less accumulated depreciation and amortization    27,167    20,075
                                                --------  --------
                                                 131,066   132,370
Construction in progress . . . . . . . . . . .       134     2,392
                                                --------  --------
                                                $131,200  $134,762
                                                ========  ========
</TABLE>

                                      F-12
<PAGE>

(5)     NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATED COMPANIES

In  November  1996,  the  Company  agreed  to purchase up to 6,888,466 shares of
convertible  preferred  stock  of  Alert Care Corporation ("Alert"), an Ontario,
Canada-based owner and operator of assisted living communities at prices ranging
from $0.67 to $0.74 per share (Cdn). In addition, the Company acquired an option
to  purchase an additional 4,000,000 shares of convertible preferred stock at an
exercise  price  of $1.00 per share (Cdn), as well as an option to purchase from
Eclipse  Capital  Management ("Eclipse"), the majority shareholder of Alert, and
certain  other shareholders of Alert, 9,050,000 currently issued and outstanding
shares  of  common  stock  of Alert and 950,000 currently issued and outstanding
shares  of  Class A non-voting stock of Alert both at an exercise price of $3.25
per  share  (Cdn).  There  was  no  cost  in  acquiring  the  option to purchase
additional  shares  from  Alert and the Company assigned no value to the option.

In September 1999, the Company sold 38.9% of its holdings in Alert, or 4,235,613
shares,  to an entity in which a principal shareholder and a Board member of the
Company  are investors at a price per share equal to the Company's cost basis of
$0.85  per  share (Cdn) or $0.59 per share (US). Subsequently, in November 1999,
Alert  repurchased  all  of  its  preferred stock for $1.10 per share (Cdn). The
Company  realized  a  gain of $760,000 on this transaction, which is included in
other  income  for  1999.  Prior to its disposition, the investment in Alert was
accounted for under the cost method, as the Company's equity ownership consisted
of  non-voting  preferred  stock.

During  1998,  the Company sold an interest in a community located in Texas to a
partnership  in  which  the  principal  shareholder of the Company is a partner,
retaining  an  approximately  12%  interest.  Pursuant  to the purchase and sale
agreement, the Company advanced funds to the partnership of $800,000, payable on
demand.  The purchase and sale agreement contained additional funding provisions
whereby  the  Company  funds  20% of the losses generated by the community up to
$500,000,  of which $500,000 was outstanding at December 31, 2001.  This balance
bears  interest  at  9%  and  is  due in June 2008. In addition, the Company has
advanced  the  partnership  $450,000 under a repair note, bearing interest at 9%
and  due  June  2008. At December 31, 2001, the Partnership's obligations to the
Company  were  $2.1 million, including accrued interest.  The Company's share of
losses  in  2001,  2000,  and  1999  were  $208,000,  $321,000,  and  $551,000,
respectively,  and  the  investment  balance  at  December 31, 2001 and 2000 was
negative  $1,080,000  and  $872,000,  respectively.

In  January  2000,  the  Company  purchased  a  30%  equity  interest  in Senior
Healthcare Partners, LLC, a pharmaceutical supply limited liability company. The
Company  has  an  obligation  to  contribute up to $1.8 million. At December 31,
2000,  the  Company  had contributed the entire $1.8 million and during 2001 and
2000  recognized  its  share  of  partnership  losses  of $313,000 and $557,000,
respectively,  which  are  included  in  "Other,  net".


                                      F-13
<PAGE>

(6)     RESTRICTED DEPOSITS

Restricted  deposits consist of funds required by various Real Estate Investment
Trusts  ("REITs")  to  be placed on deposit until the Company's communities meet
certain  debt coverage and/or cash flow coverage ratios, at which time the funds
will  be  released  to  the  Company.


(7)     SHORT-TERM BORROWINGS

In  December  2000,  the  Company  entered  into a 9% demand note payable with a
related  party  investor group for $1.65 million. The note was repaid in full on
January  3,  2001.


(8)     LONG-TERM DEBT

Long-term  debt  consists  of  the  following at December 31:

<TABLE>
<CAPTION>
                                                                      2001         2000
                                                                  -------------  --------
                                                                         In thousands
<S>                                                               <C>            <C>
Notes payable, interest only at LIBOR* plus 3.25% (5.4% at . . .  $      46,287  $ 47,687
December 31, 2001) payable monthly, unpaid principal and
interest due December 2001, refinanced with long-term debt
(principal and interest due May 2002, with an option to extend
to extend to May 2003), see note 21

Notes payable, interest only at LIBOR plus 3,25% (5,4% at . . . .         25,548    25,548
December 31, 2001), payable monthly, unpaid principal and
interest due December 2001, refinanced with long-term debt
(principal and interest due February 2003), See note 21

Notes payable, interest only at LIBOR plus 3,25% (5.4% at . . . .          1,747     5,270
December 31, 2001), payable monthly, unpaid principal and
interest due on demand

Note payable, interest at 7.82% payable in monthly installments,         12,130    12,428
unpaid principal and interest due July 2004

Note payable, interest at 8.38% payable in monthly installments,          5,719     5,818
unpaid principal and interest due February 2003

Notes payable, interest only at LIBOR plus 3.5% (5.7% at . . . .          6,800     6,800
December 31, 2001) payable monthly, unpaid principal and
interest due February 2003

Notes payable, interest at 7.43%, payable in monthly . . . . . .         25,075    25,480
installments, unpaid principal and interest due October 2009

Notes payable, interest at rates form 8.0% to 10.5%, payable in.         12,287    12,446
monthly installments, due through July 2009
                                                                  -------------  --------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . .        135,593   141,477
Less current portion . . . . . . . . . . . . . . . . . . . . . .          4,523    80,978
                                                                  -------------  --------
Long-term debt, less current portion . . . . . . . . . . . . . .  $     131,070  $ 60,499
                                                                  =============  ========
</TABLE>

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

*     LIBOR  is  the  London  Interbank  Offering  Rate.

                                      F-14
<PAGE>

Substantially  all  long-term  debt  is  secured  by  the Company's property and
equipment.

During  1999,  the Company refinanced approximately $15.9 million of outstanding
debt and wrote off $333,000 of related deferred costs as extraordinary items. No
additional  refinancing  or write-offs of deferred costs occurred during 2000 or
2001.

Certain  of the Company's indebtedness include restrictive provisions related to
cash  dividends, investments and borrowings, and require maintenance of specific
operating  ratios,  levels of working capital and net worth.  As of December 31,
2001,  the  Company was in compliance with all such covenants with the exception
of  a 62-unit community in Scottsdale, Arizona, with a principal balance of $1.7
million  that  is  due in June 2002 and presented as short-term borrowings.  The
Company  plans  to  cure  this  covenant  violation  by remitting a reduction of
outstanding  principal  in  the  amount  of  $530,000.


Principal  maturities  of  long-term  debt  at December 31, 2001 are as follows:

<TABLE>
<CAPTION>

                 in thousands
                 -------------
<S>              <C>
2002. . . . . .  $       4,523
2003. . . . . .         61,944
2004. . . . . .         40,728
2005. . . . . .          1,876
2006. . . . . .          3,965
Thereafter. . .         22,557
                 -------------
Total . . . . .  $     135,593
                 =============
</TABLE>

(9)     CONVERTIBLE DEBENTURES

The  Company has $32.0 million of 6.25% convertible subordinated debentures (the
"Debentures")  that  are due in 2006. The Debentures are convertible into common
stock  at  the  rate  of  $22  per  share,  which  equates  to  an  aggregate of
approximately  1,454,545  shares of the Company's common stock and bear interest
payable  semiannually  on  January 1 and July 1 of each year. The Debentures are
unsecured  and  subordinated  to  all  other  indebtedness  of  the  Company.

The Debentures are subject to redemption, as a whole or in part, at a redemption
price  of  100%  of  the  principal  amount.


(10)     REDEEMABLE PREFERRED STOCK

The  Company  has  authorized  5,000,000  shares of preferred stock, $0.0001 par
value.  Pursuant  to  such  authority,  in October 1997, the Company sold 25,000
shares  of  Series  A cumulative convertible,

                                      F-15
<PAGE>

exchangeable,  redeemable  preferred  stock  for  $25,000,000.  The  Series  A
redeemable Preferred Stock is entitled to receive quarterly dividends payable in
cash.  The  dividend  rate  is  9% of the stated value of $25,000,000. Dividends
accumulate,  whether  or  not  declared  or paid. If cash dividends are not paid
quarterly,  the  dividend rate will increase to 11% ("arrearage rate") until the
unpaid  cash dividends have been fully paid. The preferred stock has a mandatory
redemption  date of October 24, 2004, at a price equal to $1,000 per share, plus
any  accrued  but  unpaid  dividends.  Each  share  of  preferred  stock  may be
converted,  at  the option of the holder, into 55 shares of common stock, at the
trading  price  at  the  time  of  conversion.  The  preferred  stock  is  also
exchangeable  in  whole only, at the option of the Company, into 9% subordinated
convertible  notes due October 24, 2004. The 9% subordinated notes would contain
the same conversion rights, restrictions and other terms as the preferred stock.
For  the  year  ended  December 31, 2000, the Company paid dividends outstanding
from  1999  of  $2.6  million and two quarterly dividends of $1.1 million at the
normal  dividend  rate of 9% and accumulated two quarterly dividends aggregating
$1.4  million at the arrearage dividend rate of 11%. For the year ended December
31,  2001,  the  Company  accumulated  dividends aggregating $2.7 million at the
arrearage  dividend  rate  of  11%.

At  December  31,  2001, the Company has accrued excess dividends of $750,000 to
our  Series  A preferred shareholders related to non-payment of the cash portion
of their dividends.  Since the Company was unable to pay these dividends for six
consecutive  quarters,  their Series A shareholders became entitled to elect one
additional  director  to  their  board of directors at each annual shareholders'
meeting  until  such  time  the  Company  has  paid  the  accrued dividends.  In
addition, because the Company has been unable to pay dividends to their Series A
shareholders  after  six  consecutive  quarters, beginning in 2002, the Series A
dividends  will  be  calculated on a compounded cumulative basis, retroactively.

The  Company may redeem the preferred stock, in whole or in part, for $1,050 per
share  plus accrued dividends, provided that the market price of common stock is
at  least  130% of the conversion price for the preferred stock. In the event of
liquidation  of  the  Company,  the  holders  of outstanding preferred stock are
entitled  to  receive a distribution of $1,000 per share plus accrued dividends.


(11)     INCOME TAXES

Income taxes reported by the Company differ from the amount computed by applying
the  statutory  rate  primarily  due  to  limitations on utilizing net operating
losses.

                                      F-16
<PAGE>
The  tax  effect  of  temporary  differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities are comprised of the
following at December 31:


<TABLE>
<CAPTION>

                                                               2001       2000
                                                            ---------   ---------
                                                                (in thousands)
<S>                                                            <C>       <C>
Gross deferred tax liabilities-depreciation and amortization   $(1,801)  $(1,919)
Gross deferred tax assets:
     Net operating loss carryforwards . . . . . . . . . . . .   29,914    29,612
     Deferred gains on sale/leaseback . . . . . . . . . . . .    6,086     6,320
     Impairment of investment securities. . . . . . . . . . .    2,411     2,411
     Unearned rental income . . . . . . . . . . . . . . . . .      562       411
     Vacation accrual . . . . . . . . . . . . . . . . . . . .      452       409
     Health insurance accrual . . . . . . . . . . . . . . . .      502       500
     Insurance accrual. . . . . . . . . . . . . . . . . . . .      491        -
     Incentive Compensation accrual . . . . . . . . . . . . .      312        -
     Deferred Lease Payments. . . . . . . . . . . . . . . . .      586        -
     Other .. . . . . . . . . . . . . . . . . . . . . . . . .      656       794
                                                               --------  --------
          Gross deferred tax assets . . . . . . . . . . . . .   41,972    40,457
Less valuation allowance. . . . . . . . . . . . . . . . . . .   40,171    38,538
                                                               --------  --------
Deferred tax assets, net. . . . . . . . . . . . . . . . . . .    1,801     1,919
                                                               --------  --------
          Net deferred tax assets . . . . . . . . . . . . . .  $   -     $   -
                                                               ========  ========
</TABLE>

The  increase  in  the  valuation  allowance  was  $1,633,000,  $4,780,000  and
$7,122,000  for  2001, 2000 and 1999, respectively. The increases were primarily
due  to  the impairment of investment securities and the amount of net operating
loss carryforwards, for which management does not believe that it is more likely
than  not  that  realization  is  assured.

For  federal  income  tax  purposes,  the  Company  has  net  operating  loss
carryforwards  at  December 31, 2001, available to offset future federal taxable
income,  if  any,  of  approximately  $87,983,000  expiring  beginning  in 2012.


 (12)      SHAREHOLDERS' DEFICIT

In  January  1998  and  subsequently  in  August  1999,  the  Company's board of
directors  authorized  a  stock  repurchase  program  to acquire up to aggregate
1,000,000  shares  of  the  Company's  common  stock.  In  March 2000, the stock
repurchase plan was discontinued. At December 31, 2000, the Company had acquired
and  retired  a total of 941,100 shares of its common stock at a cumulative cost
of  $8.3  million.  No  stock  repurchases  were  made  in  2001.


                                      F-17
<PAGE>
Preferred Stock

In  December 1999, the Company entered an agreement to sell 40,000 shares of its
Series  B preferred stock to Saratoga Partners IV, L.P. ("Saratoga") and certain
investors  related  to  Saratoga  for  a  purchase price of $1,000 per share. On
December  30,  1999, the Company completed the sale of 30,000 shares of Series B
Stock, and agreed to complete the sale of the remaining 10,000 shares during the
first  half  of  2000. Each share of Series B Stock has voting authority, and is
convertible  into the number of shares of common stock equal to the stated value
of  $1,000  divided  by an initial conversion price of $7.22, to be adjusted for
any  anti-dilutive  transactions. The net proceeds to be received by the Company
from  the  sale  of  all  40,000  shares  of  the  Series  B  Stock  were  to be
approximately  $38.6  million,  after  fees  and  expenses  of  the  transaction
estimated at $1.4 million. The purchase agreement and related documents provided
that  the  Company's use of the proceeds would be subject to Saratoga's approval
after  June  2000 if a substantial portion had not been used for the acquisition
of  specified  properties.  Under  a  letter  agreement  dated May 15, 2000, the
agreements  with  Saratoga were modified to (i) cancel the sale of the remaining
10,000  shares  of Series B Stock, (ii) remove all restrictions and requirements
relating  to  the  use of proceeds received from the sale of the original 30,000
shares  and  (iii) provide that the Company would issue to Saratoga a seven-year
warrant  ("the  Warrant")  to  purchase one million shares of Common Stock at an
exercise  price of $4.30 per share or, in the alternative, make a specified cash
payment  to  Saratoga.  On  August 31, 2000, the Warrant was issued to Saratoga.

The  Series  B  Stock  is  entitled  to receive quarterly dividends payable in a
combination  of  cash  and additional shares of Series B Stock. From issuance to
January  1, 2004, the dividend rate will be 6% of the stated value of $1,000, of
which  2%  is payable in cash and 4% is payable in Series B Stock at the rate of
one share of Series B Stock for every $1,000 of dividend. After January 1, 2004,
the  dividend  rate will be 7%, of which 3% is payable in cash and 4% is payable
in  Series B Stock. Dividends accumulate, whether or not declared or paid. Prior
to  January  1,  2007, however, if the cash portion of the dividend is not paid,
the  cash dividend rate will increase to 7% ("arrearage rate"), until the unpaid
cash  dividends  have  been fully paid or until January 1, 2007, whichever first
occurs.  Beginning  January 10, 2003, the Company can redeem all of the Series B
Stock  at  $1,000  per share plus unpaid dividends, if the closing price for the
common  stock  on  the  American  Stock  Exchange  is  at least 175% of the then
conversion  price  for 30 consecutive trading days. In 2000, the Company accrued
$1.3  million  in  cash dividends, including one quarter at the higher arrearage
rate,  and  $1.2 million equivalent to 1,224 shares of Series B Stock as in-kind
dividends,  of  which  $302,000 were paid and 609 shares were issued in 2000. In
2001, the Company accrued $2.4 million in cash dividends at the higher arrearage
rate,  and  $1.3 million equivalent to 1,268 shares of Series B Stock as in-kind
dividends,  none  of which were paid or issued in 2001. Accordingly, the Company
had  a  cumulative  commitment to issue 615 shares of Series B Stock at December
31,  2000,  and  1,883 shares of Series B Stock   at  December  31,  2001.

At  December  31,  2001,  the  Company  had accrued additional dividends of $2.0
million  as  a  result  of the arrearage rate, which is included in the total of
$5.1 million of dividends on Series B Stock that the Company has accrued.  Since
the  Company has failed to pay these dividends for six consecutive quarters, the
Series  B  shareholders are entitled to elect one additional director to at each
annual  shareholders'  meeting  until such time the Company has paid the accrued
dividends.

                                      F-18
<PAGE>



1995 Stock Incentive Plan

The  Company  has  a  1995 stock incentive plan ("1995 Plan") which combines the
features of an incentive and non-qualified stock option plan, stock appreciation
rights  and  a stock award plan (including restricted stock). The 1995 Plan is a
long-term  incentive  compensation plan and is designed to provide a competitive
and  balanced  incentive  and  reward  program  for  participants.

The  Company  has authorized 2,500,000 shares of common stock to be reserved for
grants  under  the  1995  Plan  of which 1,201,098 remained available for future
awards  at  December  31,  2001.  Options  generally  vest between three-year to
five-year  periods, at the discretion of the Compensation Committee of the Board
of  Directors, in cumulative increments beginning one year after the date of the
grant  and  expire  not later than ten years from the date of grant. The options
are  granted  at  an exercise price equal to the fair market value of the common
stock  on  the  date  of  the  grant.

In  May  2001, the Company announced an offer to exchange options under the 1995
Plan held by current employees, including executive officers, for new options to
be  granted  under  the  1995  Plan and new option letter agreements.  Under the
offer,  employees  were  required  to  tender  all  or  none of their options in
exchange for new options subject to the same number of shares of common stock as
the  options  tendered  for  exchange.  Approximately 99% of outstanding options
were  exchanged.  The  new  options were granted on December 10, 2001, which was
the  first  business day that was at least six months and one day after the date
tendered  options  were  accepted for exchange. The new options have an exercise
price of $2.11 and will fully vest 2 1/2 years from the date the new options are
granted under the following schedule:  33 1/3 percent will vest six months after
the  date  of grant; 33 1/3 percent will vest 18 months after the date of grant;
and  33  1/3  percent will vest 30 months after the date of grant.  In all other
respects,  the terms of the new options are the same as the terms of the options
tendered  for  exchange.

Had  compensation  cost  for  the  Company's  stock  option plan been determined
pursuant  to  SFAS  123, the Company's pro forma net loss and pro forma net loss
per  share would have been as follows for the years ended December 31:


<TABLE>
<CAPTION>

                                                     2001          2000          1999
                                                 ------------  ------------  ------------
                                                 (in thousands, except per share data)

<S>                                              <C>           <C>           <C>
Net loss to common shareholders:
As reported . . . . . . . . . . . . . . . . . .  $   (10,602)  $   (27,263)  $   (23,287)
Pro forma . . . . . . . . . . . . . . . . . . .      (11,047)      (29,043)      (25,055)
Net loss per common share -- basic and diluted:
As reported . . . . . . . . . . . . . . . . . .  $     (1.04)  $     (2.69)  $     (2.22)
Pro forma . . . . . . . . . . . . . . . . . . .        (1.09)        (2.87)        (2.39)
</TABLE>

The  fair  value  of  each  option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for  grants  in  1999,  2000  and  2001: dividend yield of 0.0% for all periods;
expected  volatility  of  50.2%  for 1999, 48.0% to 49.6% for 2000, and 80.7% to
82.1%

                                      F-19
<PAGE>

for  2001;  risk-free  interest rates of 6.47% to 6.63% for 1999, 6.06% to 6.69%
for  2000,  and  4.12% to 4.39% for 2001; and an expected option term of 4 years
for  2001,  2000,  and  1999.


A  summary  of  the  activity  in  the  Company's  stock  option  plans follows:
<TABLE>
<CAPTION>

                                                    2001                     2000                      1999
                                         ------------------------   ------------------------  ------------------------
                                                         Weighted-                Weighted-                 Weighted-
                                                          Average                  Average                   Average
                                                         Exercise                 Exercise                  Exercise
                                           Shares          Price     Shares         Price       Shares        Price
                                        ------------  -----------  ------------  -----------  -----------  -----------
<S>                                     <C>           <C>          <C>           <C>          <C>          <C>
Outstanding at beginning of year . . .    1,344,790   $      9.14    1,785,083   $      9.23   1,443,366   $      9.84
Granted. . . . . . . . . . . . . . . .    1,144,083   $      2.11       17,000   $      2.73     459,750   $      7.45
Exercised. . . . . . . . . . . . . . .            -             -            -             -      (3,600)  $      9.81
Canceled . . . . . . . . . . . . . . .   (1,271,738)  $      9.14     (457,293)  $      9.27    (114,433)  $      9.75
                                        ------------  -----------  ------------  -----------  -----------  -----------
Outstanding at end of year . . . . . .    1,217,135   $      2.52    1,344,790   $      9.14   1,785,083   $      9.23
Options exercisable at year-end. . . .      185,589   $      4.09      785,605   $      9.42     616,644   $      9.97
Weighted-average fair value of options
granted during the year. . . . . . . .                $      1.31                $      1.24               $      3.44
</TABLE>


The  following  is  a summary of stock options outstanding at December 31, 2001:


<TABLE>
<CAPTION>

                         Options Outstanding               Options Exercisable
                  -------------------------------------   --------------------
                                 Weighted-
                                  Average      Weighted-              Weighted-
                                 Remaining      Average                 Average
   Range of          Number     Contractual    Exercise   Number      Exercise
 Exercise Prices   Outstanding     Life         Price   Exercisable     Price
 ---------------   -----------  ----------  ----------  ----------- -----------
<S>    <C><C>      <C>          <C>           <C>         <C>        <C>
$  1.60.-  2.11    1,144,083          9.94  $     2.11    136,463  $     2.11
$  2.56.-  4.06       16,000          9.55  $     2.73     10,000  $     2.56
$  6.50.-  7.81        6,086          8.96  $     6.63      2,008  $     6.63
$  9.63.-  9.81       25,466          7.86  $     9.76     16,977  $     9.76
$ 10.25 - 15.25       25,500          6.95  $    12.89     20,140  $    13.26
                  -----------   ----------- ----------  ----------  ------------
                   1,217,135.         9.82  $     2.52    185,589  $     4.09
                  ==========    ==========  ==========  ==========  ============
</TABLE>

                                      F-20
<PAGE>

Employee Stock Purchase Plan

In  July 1998, the Company adopted an Employee Stock Purchase Plan (the Plan) to
provide  substantially all employees who have completed six months of service an
opportunity  to  purchase shares of its common stock through payroll deductions,
at  a price equal to 85% of the fair market value. A total of 200,000 shares are
available  for  purchase under the Plan. Quarterly, participant account balances
are  used  to  purchase  shares of stock on the open market at the lesser of the
fair  market  value  of  shares  on  the  first or last day of the participation
period.  Employees may not exceed $25,000 in annual purchases or 15% of eligible
compensation.  The Employee Stock Purchase Plan expires in May 2008. In 2001 and
2000,  employees  purchased  an  aggregate  of  75,985 and 56,295 common shares,
respectively,  through  the  Employee  Stock  Purchase  Plan.


(13) COMPREHENSIVE LOSS

Comprehensive  loss  consists  of the following for the years ended December 31,
2001,  2000,  and  1999,  respectively:

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                                             2001            2000            1999
                                                        --------------  --------------  --------------
<S>                                                     <C>             <C>             <C>
  Net loss . . . . . . . . . . . . . . . . . . . . . .  $     (10,602)  $     (27,263)  $     (23,287)
  Other comprehensive income (loss):
     Foreign currency translation adjustments. . . . .             -                1              20
     Unrealized holding gains (losses) on investment
         securities. . . . . . . . . . . . . . . . . .            951            (708)         (3,409)
     Reclassification for losses included in net loss.             -               -            7,429
                                                         --------------  --------------  --------------
            Total other comprehensive income (loss). .            951            (707)          4,040
                                                        --------------  --------------  --------------

  Comprehensive loss . . . . . . . . . . . . . . . . .  $      (9,651)  $     (27,970)  $     (19,247)
                                                        ==============  ==============  ==============
</TABLE>


(14)      FINANCIAL INSTRUMENTS

The  Company  has  financial  instruments  other  than  investment  securities
consisting  of  cash  and  cash  equivalents,  trade  accounts receivable, other
receivables,  notes  receivable from affiliates, short-term borrowings, accounts
payable,  convertible debentures, redeemable preferred stock and long-term debt.
The  fair value of the Company's financial instruments based on their short-term
nature  or  current  market  indicators  such  as  prevailing  interest  rates
approximates their carrying value with the exception of the following: long-term
debt  had  an estimated fair value, based on the Company's incremental borrowing
rate,  of  $130.9  million  versus  a  carrying  value  of  $135.6  million; the
convertible  debentures  had  an  estimated  fair  value, based on the Company's
incremental  borrowing  rate and the conversion price, of $28.6 million versus a
book value of $32.0 million; and the redeemable preferred stock had an estimated
fair value, based on the Company's incremental borrowing rate and the conversion
price,  of  $24.9  million  versus a book value of $25.0 million at December 31,
2001.

                                      F-21
<PAGE>

(15)      RELATED-PARTY MANAGEMENT AGREEMENTS

During  1995,  the  Company's  two  most  senior  executive  officers, its Chief
Executive  Officer  and then former President, and now current Vice President of
Finance,  Chief  Financial  Officer,  and  Secretary,  formed a New York general
partnership  (the  "Partnership") to facilitate the operation of assisted living
communities  in  the  state  of  New York, which generally requires that natural
persons  be designated as the licensed operators of assisted living communities.
The  Partnership  operates  ten  leased communities in New York. The Company has
agreements  with  the  Partnership  and  the  partners  under  which  all of the
Partnership's  profits  have  been  assigned  to the Company and the Company has
indemnified  the  partners  against  losses.  As  the Company has unilateral and
perpetual  control  over the Partnership's assets and operations, the results of
operations  of  the  Partnership  are  consolidated  with  those of the Company.

A  number of limited partnerships which are partly owned indirectly by Mr. Baty,
the  Company's  Chairman  and  Chief  Executive  Officer, develop, own and lease
senior housing projects, some of which cater to low income seniors.  The Company
has  agreements  with  these  partnerships  to  provide  certain administrative,
financial  and  management  services  with  respect  to  these communities.  The
agreements have terms ranging from two to four years, with options to renew, and
provide  for  management  fees ranging from 4% to 7% of gross operating revenues
and  fixed  administrative  fees.  Management  fee  revenue  earned  under these
agreements  was  approximately  $2,417,000,  $1,731,000,  and $774,000, in 2001,
2000,  and  1999,  respectively.

In  1998,  the  Company  and XL Management Company L.L.C., ("XL Management"), an
affiliate  of  Holiday  Retirement  Corp.,  an owner and operator of independent
living  communities,  entered  into  four  management  agreements  whereby  XL
Management  was  to provide management services relating to four newly developed
assisted  living  communities located in Texas. The agreements had initial terms
of  two  years  six  months with management fees based upon 6% of gross revenues
payable monthly. XL Management ceased management of these buildings during 2000.
Total  fees  in  2000  amounted to $150,000 as compared to $316,000 in 1999. The
Company's  Chairman  and  Chief  Executive  Officer  and  a former member of the
Company's board of directors are principal shareholders and officers of Holiday.


(16)     LEASES

At  December  31,  2001,  the Company leases office space and 46 assisted living
communities. The office lease expires in 2006 and contains two five-year renewal
options.  The  community  leases expire from 2004 to 2017 and contain two to six
extension  options,  ranging  from  five  to  ten  years.


                                      F-22
<PAGE>

Minimum lease payments under noncancelable operating leases at December 31, 2001
are as follows:

<TABLE>
<CAPTION>



              In Thousands
              -------------
<S>           <C>
2002 . . . .  $      25,409
2003 . . . .         25,476
2004 . . . .         25,296
2005 . . . .         23,620
2006 . . . .         22,919
Thereafter .        108,643
              -------------
              $     231,363
              =============
</TABLE>

Facility  lease  expense  under noncancelable operating leases was approximately
$26,796,000,  $24,240,000,  and  $25,135,000  for  2001,  2000,  and  1999,
respectively. A number of operating leases provide for additional lease payments
after 24 months computed at 5% of additional revenues of the community. In 2001,
additional  facility  lease  expense  under  this provision was not significant.


(17)     SALES AND ACQUISITIONS

In two separate transactions during the fall of 1998 and the spring of 1999, the
Company  arranged  for two investor groups to purchase an aggregate of 41 of its
operating  communities  and  five  communities  under  development  for  a total
purchase  price of approximately $292.2 million. Of the 46 communities involved,
43  had been, or were proposed to be, leased to the Company by Meditrust Company
LLC under sale/leaseback financing arrangements, and three had been owned by the
Company.  The  first  purchase, consisting of 25 communities, which we will call
the  Emeritrust  I  communities,  was  completed in December 1998 and the second
purchase,  consisting of 21 communities, 16 of which we will call the Emeritrust
II Operating communities and five of which we call the Emeritrust II Development
communities,  was  completed  in  March  1999.

Of  the  $168.0  million purchase price for the Emeritrust I communities, $138.0
million  was  financed  through  a  three-year  first  mortgage  loan  with  an
independent third party and $30.0 million was financed through subordinated debt
and  equity  investments from the investor group, which includes Daniel R. Baty,
the  Company's  Chief  Executive Officer, who is also a director and a principal
shareholder.  Of  the  $124.2  million  purchase  price  for  the  Emeritrust II
Operating  communities  and Emeritrust II Development communities, approximately
$99.6  million  was  financed  through  three-year  first  mortgage  loans  with
independent  third  parties  and $24.6 million was financed through subordinated
debt  and  equity  investments from the investor group, which includes Mr. Baty.

The  investor  groups  retained  the  Company  to  manage all of the communities
through  December  31,  2001,  and  granted  the Company options to purchase the
communities  during  this  period.  During  2000,  the  Emeritrust I communities
failed to comply with covenants under the $138 million mortgage loan and in 2001
it  became  clear that the Company would not be able to purchase the communities
under  the  options.  As  a result, the mortgage loans were restructured and the
management agreements and options to purchase

                                      F-23
<PAGE>

were  extended  to  June  30, 2003 (to December 31, 2003 in the case of the five
Emeritrust  II Development communities). The discussion below reflects the terms
of  these  arrangements  as  modified.

From  January  1,  2002, through June 30, 2003, the Company will receive for the
Emeritrust I communities a base management fee of 3% of gross revenues generated
by the communities and an additional management fee of 4%, payable out of 50% of
cash  flow.  The  availability of cash flow to pay management fees is subject to
prior  payment of expenses and fees related to the restructuring of the mortgage
loan in 2001.  For the Emeritrust II Operating communities and the Emeritrust II
Development  communities,  the  Company  has received and continues to receive a
base  management fee of 5% of gross revenues and an additional management fee of
2%, payable to the extent that the communities meet certain cash flow standards.
Prior  to  January 1, 2001, the management fees for the Emeritrust I communities
were  also  computed  in  this  fashion.

Under  the  management  agreements,  the  Company  is obligated to reimburse the
investor  groups  for cumulative cash operating losses greater than $4.5 million
in  the case of the Emeritrust I communities and $500,000 in the case of each of
the five Emeritrust II Development communities. Since these thresholds have been
exceeded,  the  Company  is currently responsible for most cash operating losses
generated  by  these  communities  if  they  occur.  There  is  no  such funding
arrangement  with  respect  to  the  Emeritrust  II  Operating communities.  The
Company's  funding  obligations  for the Emeritrust I communities have been $1.3
million,  $4.9  million  and $1.9 million for 2001, 2000 and 1999, respectively.
The  Company's funding obligations for the Emeritrust II Development communities
have  been  $310,000  and  $1.6  million  in  2001  and  2000,  respectively.

Although the amounts of our funding obligation each year include management fees
earned  by  us  under  the  management  agreements,  we  do  not recognize these
management fees as revenue in our financial statements to the extent that we are
funding  the  cash  operating  losses  that  include  them.  Correspondingly, we
recognize  the  funding  obligation  under  the  agreement,  less the applicable
management  fees,  as  an expense in our financial statements under the category
"Other,  net."  Conversely, if the applicable management fees exceed our funding
obligation,  we  recognize  the  management  fees less the funding obligation as
management  fee  revenue  in  our consolidated financial statements.  Management
fees  earned  for  the  Emeritrust  I  communities  have been $4.0 million, $2.1
million  and  $1.9  million  in 2001, 2000 and 1999, respectively, of which $2.8
million have been recognized in 2001.  Management fees earned for the Emeritrust
II  Development  communities  have been $766,000 and $360,000, of which $673,000
and  $174,000  have  been recognized in 2001 and 2000, respectively.  Management
fees  earned  for the Emeritrust II Operating communities have been $1.9 million
earned  and  recognized  in  both 2001  and  2000.

The  Company has an option to purchase 43 of the 46 Emeritrust communities and a
right  of first refusal with respect to the remaining three communities, both of
which expire June 30, 2003 (December 31, 2003 in the case of the five Emeritrust
II  Development  communities).  The option must be exercised with respect to all
communities or may not be exercised at all.  If investor groups require Mr. Baty
to purchase certain of the communities, upon the conditions described below, the
Company  has the right to exercise its option within 60 days of receiving notice
of  this  action. The option price for the 43 Emeritrust communities is equal to
the  original  cost  of  the  communities of approximately $292 million, plus an
amount  that  would

                                      F-24
<PAGE>

provide  the investor groups with an 18% rate of return, compounded annually, on
their  original  investment  of  $54.6  million  (less  any  cash  distributions
received).  In  connection  with the exercise of the option, the Company is also
obligated  to  pay  certain  costs  and  fees.

The  management  agreements,  including  the  options  to  purchase  the related
communities,  are  subject  to  various  termination  provisions,  including
cross-default  provisions among all three groups of communities.  The management
agreement  for  the  Emeritrust  I  communities  may  be  terminated  if  cash
distributions  to  the  investor  group  do  not  meet  certain levels or if the
communities  fail to meet certain coverage requirements under the mortgage loan.
In  addition,  certain of the communities have been refinanced and, accordingly,
the  Company's ability to exercise the option will depend on whether the Company
can  assume  or refinance the debt secured by these communities.  Termination of
the management agreements or failure to exercise the options could result in the
loss  of  management  fees  and  the  substantial  decrease  in  the  number  of
communities  the  Company  operates.

Under  related  agreements, the investor groups may require Mr. Baty to purchase
between  ten  and  twelve  of  the  Emeritrust  communities,  depending  on  the
occurrence  of  any  one  of  the  following  events:  (a)  the Company does not
exercise  its  option to purchase the communities before the option expires, (b)
the  Company  defaults under the management agreements, (c) Mr. Baty's net worth
falls below a certain threshold, (d) the Company experiences a change of control
or  (e) Mr. Baty ceases to be the Company's chief executive officer. If Mr. Baty
is required to purchase some of the communities, he will also have the option to
purchase  all  of  the  Emeritrust communities on the same terms under which the
Company  is  entitled  purchase  the communities, subject to the Company's prior
right  to  do  so  within  a  specified  time  period.

In  September  1999,  the Company acquired a community that it previously leased
for  a  purchase  price  of  $8.0 million. This acquisition was financed through
borrowings.

In  January  2001, the Company sold one of its communities to a new operator and
various  third  parties.  The  sale  included terms for the Company to lease and
continue  to  operate the facility for an interim period, which concluded in the
third quarter of 2001. The Company recognized a gain on the sale of the facility
of  $1.3  million.

In April 1998, the Company assigned its economic interest in a 172-unit assisted
living  community  located in Fairfield, California, to a related party investor
group  for  $2.8  million  in cash. Its economic interest consisted of a 66 2/3%
interest  in  the  profits,  losses,  and  distributions of an operating limited
liability  company  that  owns  and operates the community, the right to receive
payments  of  principal  and  interest  under  a  $2.4  million  promissory note
evidencing a loan by the Company to the operating company, and the obligation to
make  additional  capital  contributions  under  the  agreement establishing the
operating  company.  The  Company  continues  to  manage  the  operations of the
community  pursuant  to  a management agreement and to manage the affairs of the
operating  limited  liability  company. In January 2000, the Company repurchased
25%  of its original interest in the community (16 2/3% of the operating limited
liability  company)  for a total of $791,000. During the quarter ended September
30,  2001, the Company entered into an agreement with the related party investor
to  offset  against interest payable any amounts that the Company had previously
funded  or  will  fund  the  assisted  living  community  on  their behalf. This
agreement

                                      F-25
<PAGE>

allows  for  collection  of  a  note  receivable  in  the  amount  of
approximately  $477,000 that had previously been fully reserved.  Therefore, the
Company  recorded  a  recovery  of  approximately  $428,000  in  Other,  net and
approximately  $49,000 as a decrease in interest expense.  In December 2001, the
Company  acquired  an  additional 16 2/3% interest in the community from a third
party  minority  owner  for a purchase price of $250,000.  The purchase was paid
with  cash  and  notes payable due in certain terms ranging from 30 days through
January  31,  2005.  As  of  December 31, 2001, the Company's effective economic
interest  in the community is 33 1/3% in the profits, losses, and distributions.

(18)     COMMITMENTS AND CONTINGENCIES

The  Company  is involved in legal proceedings, claims and litigation arising in
the  ordinary  course  of business. In the opinion of management, the outcome of
these  matters  will  not  have  a  material  effect on the Company's results of
operations  or  financial  position.


The  Company is self-insured for certain employee health benefits. The Company's
policy is to accrue amounts equal to the actuarial liabilities that are based on
historical  information  along  with  certain  assumptions  about future events.
Changes  in  assumptions  for  such  matters  as  health  care  costs and actual
experience  could  cause  these  estimates  to  change.

The following table summarizes the Company's contractual obligations at December
31,  2001:

<TABLE>
<CAPTION>

                                     Payments Due by Period (in thousands)
                         --------------------------------------------------------------
                                      Less than 1                              After 5
                            Total         year       1 - 3 years  4 - 5 years   years
                         -----------  ------------  ------------  -----------  --------
<S>                      <C>          <C>           <C>           <C>          <C>
Contractual Obligations
Long-Term Debt. . . . .  $   135,593  $      4,523  $    102,672  $     5,841  $ 22,557
Operating Leases. . . .  $   231,363  $     25,409  $     50,772  $    46,539  $108,643
</TABLE>

(19)     LIQUIDITY

In  2001,  and as described in Note 21, the Company refinanced substantially all
of  its  debt obligations, extending such financings through 2003 or thereafter.
In  addition,  the  Company  achieved  consecutive  positive  cash  flows  from
operations  for  the  last three quarters and positive earnings before preferred
dividends  in  the  fourth  quarter  of  2001.  Including  required debt service
payments  and capital expenditures, management believes the Company will be able
to  sustain  positive  cash  flow  through  at  least  2002.

The  Company  has  incurred significant operating losses since its inception and
has  a  working  capital  deficit  of  $12.1  million,  although $7.4 million of
preferred dividends is only due if declared by the Company's board of directors.
To  date,  the  Company  has  been  dependent  upon  third  party  financing  or
disposition of assets to fund operations.  While the Company does not anticipate
the need for third party financing or dispositions of assets to fund operations,
it cannot be guaranteed that, if necessary, third party financing or disposition
of  assets  will  be  available  timely  or  at  all.

                                      F-26
<PAGE>

The  Company is currently out of compliance with covenants on debt totaling $1.7
million  which  will  be repaid in June 2002 and is not cross-defaulted with any
other debt. In addition, many of the Company's other debt instruments and leases
contain  "cross-default"  provisions  pursuant  to  which  a  default  under one
obligation  can  cause a default under one or more other obligations to the same
lender  or lessor. Such cross-default provisions affect 14 owned assisted living
properties and 36 operated under leases. Accordingly, any event of default could
cause  a  material  adverse  effect on the Company's financial condition if such
debt  or  leases  are  cross-defaulted.


(20)     QUARTERLY RESULTS (UNAUDITED)


<TABLE>
<CAPTION>

Quarterly Results (Unaudited)
                                               Q1        Q2        Q3        Q4
                                            --------  --------  --------  --------
<S>                                         <C>       <C>       <C>       <C>
2001

Total Operating revenue. . . . . . . . . .  $34,781   $35,177   $34,964   $35,655
Income (loss) from operations. . . . . . .    1,317     1,905       953     3,200
Other income and expense . . . . . . . . .   (3,434)   (3,327)   (1,799)   (3,049)
Net loss . . . . . . . . . . . . . . . . .   (2,117)   (1,422)     (846)      151
Preferred dividends. . . . . . . . . . . .    1,611     1,620     1,565     1,572
Net loss to common shareholders. . . . . .  $(3,728)  $(3,042)  $(2,411)  $(1,421)
Loss per common share -- basic and diluted  $ (0.37)  $ (0.30)  $ (0.24)  $ (0.14)


2000                                           Q1        Q2        Q3        Q4
                                            --------  --------  --------  --------
Total Operating revenue. . . . . . . . . .  $30,566   $30,350   $30,822   $33,454
Income (loss) from operations. . . . . . .     (811)      579       490      (971)
Net loss . . . . . . . . . . . . . . . . .   (5,298)   (3,582)   (4,941)   (8,115)
Net loss to common shareholders. . . . . .  $(6,373)  $(4,671)  $(6,503)  $(9,716)
Loss per common share -- basic and diluted  $ (0.63)  $ (0.46)  $ (0.64)  $ (0.96)
</TABLE>


The sum of quarterly per share data may not equal the per share total reported
for the year.

(21)     SUBSEQUENT EVENTS

In  February  2002,  the  Company  reached  an  agreement with Heller Healthcare
Finance to refinance three of the properties in our $71.8 million portfolio that
previously  was financed by Deutsche Bank AG and matured December 14, 2001.  The
new  loan  of  $25.5  million  matures  February  2004  and provides for monthly
principal  payments  of  approximately  $40,000 in addition to interest at LIBOR
plus  four  percent.  This refinancing in turn satisfied our extension agreement
dated  May  31,  2001,  with Deutsche Bank AG to extend the maturity date of the
remaining  debt  of  $46.3  million  secured by seven properties in the original
portfolio  to  May  31, 2003, provided that the Company pays to the lender a fee
equal  to  1% of the outstanding portfolio balance at May 31, 2002.  As a result
of  this  refinancing,  the  Company  has  reclassified the entire $71.8 million
principal  balance  on this portfolio to long-term debt from current debt in its
December  31,  2001,  financial  statements.

                                      F-27
<PAGE>

<TABLE>
<CAPTION>

                                        Emeritus Corporation
                                  Valuation and Qualifying Accounts
                            Years Ended December 31, 2001, 2000, and 1999
                                           (in thousands)


Column A                                        Column B     Column C        Column D      Column E
---------------------------------------------  ----------  -------------  ---------------  ---------
                                                Balance       Charged
                                                   at           to                          Balance
                                               Beginning    Other Costs                     at End
                                                of Year    and Expenses   Deductions (1)    of Year
                                               ----------  -------------  ---------------  ---------
<S>                                            <C>         <C>            <C>              <C>
Description
-----------
Year ended December 31, 2001:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      594  $         466  $           662  $     398
                                               ==========  =============  ===============  =========




Year ended December 31, 2000:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      583  $         359  $           348  $     594
                                               ==========  =============  ===============  =========



Year ended December 31, 1999:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      538  $         693  $           648  $     583
                                               ==========  =============  ===============  =========

_____________
(1) Represents amounts written off
</TABLE>

                                      S-1
<PAGE>