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

                                    FORM 10-K

(MARK  ONE)
[X]  ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT  1934
     FOR  THE  FISCAL  YEAR  ENDED  DECEMBER  31,  2003.

                                       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, 2003

                            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 [X]  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.[ ]

     Indicate  by  check mark whether the Registrant is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act).
                                 Yes  [ ]        No [X]
     Aggregate market value of common voting stock held by non-affiliates of the
registrant  as  of  June  30,  2003,  was  $24,497,029.
     Aggregate market value of common voting stock held by non-affiliates of the
registrant  as  of  February  29,  2004,  was  $51,252,977.
     As of February 29, 2004, 10,303,035 shares of the Registrant's Common Stock
were  outstanding.
                      DOCUMENTS INCORPORATED BY REFERENCE:
     The  information  required  by  Part  III  of  Form  10-K  (items 10-14) is
incorporated  herein by reference to the Registrant's definitive Proxy Statement
to  be  filed  on  or  before  April  29,  2004.

<PAGE>
<TABLE>
<CAPTION>




                              EMERITUS CORPORATION

                                      INDEX

                                      PART I
                                                                   PAGE NO.
                                                                  --------

<S>       <C>                                                      <C>
ITEM 1..  DESCRIPTION OF BUSINESS                                       1

ITEM 2..  DESCRIPTION OF PROPERTY                                       7

ITEM 3..  LEGAL PROCEEDINGS                                            14

ITEM 4..  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS          15
 . . . .  EXECUTIVE OFFICERS OF EMERITUS                               15

                                     PART II

ITEM 5..  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
 . . . .  STOCKHOLDER MATTERS                                          17

ITEM 6..  SELECTED CONSOLIDATED FINANCIAL DATA                         18

ITEM 7..  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 . . . .  AND RESULTS OF OPERATIONS                                    19

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   41

ITEM 8..  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                  42

ITEM 9..  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
 . . . .  ACCOUNTING AND FINANCIAL DISCLOSURE                          42

ITEM 9A.  CONTROLS AND PROCEDURES                                      42

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT           43

ITEM 11.  EXECUTIVE COMPENSATION                                       43

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
 . . . .  MANAGEMENT                                                   43

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS               44

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                       44

                               PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
 . . . .  FORM 8-K                                                     45
</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,  2003, we operated, or had an interest in, 175 assisted living
communities, consisting of approximately 14,845 units with a capacity for 18,208
residents,  located in 33 states.  These include 19 communities that we own, 109
communities  that  we lease, and 47 communities that we manage, including one in
which  we  hold  a  joint  venture  interest.

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 independently, 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,  while  also  providing peace of mind knowing that
staff  is  available  should  the  need arise.  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.

Emeritus's  annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports  on  Form  8-K,  and  amendments  thereto, filed with the Securities and
Exchange  Commission  (SEC) pursuant to Section 13(a) of the Securities Exchange
Act  of  1934,  as  amended,  and  the rules and regulations thereunder are made
available  free  of  charge on Emeritus's web site (www.emeritus.com) as soon as
reasonably  practicable  after Emeritus electronically files such material with,
or  furnishes  it to, the SEC.  The information contained on Emeritus's web site
is  not  being  incorporated  herein.


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,  based  in  part  on  local  regulations.

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.

     *  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
        is  about  $80,000  per  year  in  the  top  ten most costly markets. In
        contrast,  assisted  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. According to the GE
        Long  Term  Care  Insurance  Nursing  Home  Survey in 2002, the national
        annual  average cost of a year in a nursing home was $54,900. The survey
        evaluated  the  cost of assistance in a nursing home with the activities
        of  daily  living  for  a  person  suffering from a debilitation such as
        Parkinson's  disease.  It  did  not  include  costs  for  therapy,
        rehabilitation,  or  medications.

                                        1
<PAGE>

     *  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 5.5% from
        approximately  17.6 million in 2003 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 18.5% from approximately 4.9
        million in 2003 to 5.8 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 in the August 2003
        issue  of the Archives of Neurology, an AMA publication, this population
        will  increase  13.3% from the current 4.5 million to 5.1 million people
        by  the  year  2013.  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. According to the 2000
        census  data,  more  than  54% of the population over the age of 75 have
        incomes  over  $20,000  per  year and slightly more than 44% 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  increased during the
        1990's  and  the  geographical  separation of senior family members from
        their adult children correlates 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. The number of two-income households stopped
        growing  during the recession starting in March 2001, but is expected to
        start  increasing  again  in 2004, although at a slower pace than during
        the  1990's.

     *  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 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.

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 175 communities, 57 communities have
        been  built  and  opened  since  January  1,  1996. 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, 2003, the average cost per
        unit  of  our owned and leased communities was approximately $68,200. 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.

                                        2
<PAGE>

     * Geographic Diversification and Regional Focus. We operate our communities
        in  33  states across 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
        Chairman of the Board and Chief Executive Officer ("Mr. Baty"), has more
        than 31 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,
        and  Columbia-Pacific  Group,  Inc.,  an  operator of independent living
        facilities  and  assisted living communities. In addition, our operating
        vice  presidents  have  an  average of 17 years of experience with major
        companies  in  the  long-term care industry. We believe that this strong
        senior  leadership, with proven 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
        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.

     *  Supplement  Business  through  Management  Agreements. From 1999 through
        2002, we managed a significant number of communities, ranging from 68 in
        1999  to  95  in  2002.  With  changes  in  the  capital  markets  and
        opportunities  to  own  or  lease  communities,  the  number  of managed
        communities  has  declined  to  47  in 2003 (most of those making up the
        decline  became leased communities in our consolidated portfolio) and we
        expect  it to decline further in 2004. Nevertheless, we will continue to
        review  management  opportunities that fit into our existing operational
        strategy as a supplement to our core business. We generally 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  purchase  or  lease 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 with a favorable current operating structure, and communities
        that  provide  immediate  positive  cash flow opportunities with minimal
        impact  to  existing  operations. In 2002 and 2003, as the opportunities
        arose,  we acquired additional communities that satisfy our criteria. We
        intend  to  continue  to  be  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.

                                        3
<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' 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 nutritious meals per day,
                   Alzheimer's and related         *  social and recreational activities,
                   dementia                        *  weekly housekeeping and linen service,
                                                   *  building maintenance, individual apartment maintenance,
                                                      and grounds keeping,
                                                   *  24-hour emergency response and security,
                                                   *  licensed nurses on staff to monitor and coordinate care
                                                      needs, and organize wellness activities, and
                                                   *  transportation to appointments, excursions, etc.
----------------------------------------------------------------------------------------------------------------------
Assisted living    Assisted living residents       Our assisted living services provided for each resident depend on
Services                                           the recommended level of care or assistance required by the individual.
                                                   A thorough assessment of the individual's needs along with consultation
                                                   with the resident, the resident's physician, and the resident's family,
                                                   determine the level of care.  The level of care is based on
                                                   the degree of assistance he/she requires in 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 care and assistance,
                                                   *  psycho-social support,
                                                   *  dining assistance, and
                                                   *  miscellaneous services (including diabetic management,
                                                      prescription medication reviews, transfers, and simple treatments).
----------------------------------------------------------------------------------------------------------------------
Special Care       Residents with Alzheimer's      We have designed our Special Care program to meet the health,
Program            and related dementia            psychological, and social needs of our residents diagnosed with
(Alzheimer's &                                     Alzheimer's or related dementia. In a manner consistent with our
related dementia)                                  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:
                                                   *  personalized environment
                                                   *  activities planned to support meaningful interaction,
                                                   *  specialized dining and hydration programs,
                                                   *  partnerships with families and significant others through
                                                      support groups, one-on-one meetings, and educational forums,
                                                   *  behavior as communication

----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                        4
<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 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.

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,  2003,  we  managed and provided administrative services to 47
assisted  living  communities under management agreements that typically provide
for  management  fees  ranging  from 3% to 7% of gross revenues.  Our management
agreements  generally  have  terms  ranging  from  two to five years, and may be
renewed  or  renegotiated  at  the expiration of the term.  Management fees were
approximately  $10.2  million  for  2003,  although  we  expect  that  to  be
substantially  less  in  2004 because (i) we have acquired or leased a number of
communities  that we formerly managed in 2003, (ii) we expect to acquire more of
the  managed  communities in 2004 and, (iii) in July 2003, we ceased managing 12
communities  for  a  third  party.  We  have  various  categories  of management
agreements,  including:

     *  a  management  agreement  covering  23  communities that is a continuing
        component  of  the  Emeritrust  I  transaction  referred  to in "Item 7.
        Management's  Discussion  and  Analysis,  Significant 2003 Transactions,
        Emeritrust  Transactions,  Emeritrust  I  Communities  Management". This
        management agreement, which may be terminated by either party on 90 days
        notice,  provides  for  a  base  fee  of  3%  of  gross  revenues and an
        additional fee of 4% of gross revenues to the extent of 50% of cash flow
        from  the  communities.  In  March  2004,  this management agreement was
        amended  to  provide  for  a  management  fee  of  5% of gross revenues.

     *  management  agreements  covering  19  communities  owned  by  entities
        controlled  by Mr. Baty. We generally receive fees ranging from 4% to 6%
        of  the  gross  revenues generated by the communities. We have announced
        that  we  have  agreed to acquire up to 13 of these communities and will
        lease  and operate them following acquisition, which is scheduled for as
        early  as  March  31, 2004, and as late as the end of the second quarter
        2004.

     * a management agreement covering one community owned by a joint venture in
        which  we have a financial interest. We receive management fees of 6% of
        gross  revenues.

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

     *  a  management  agreement  covering one community owned by an independent
        third  party.  We receive a management fees of the greater of $7,000 per
        month  or 6% of gross revenue with opportunities to earn additional fees
        based  on  operating  cash  flow.

Upon  completion  of  the  transaction  to  acquire  up to 13 previously managed
communities  from  Mr. Baty, we will continue to manage 34 communities, of which
23  are  the  Emeritrust  I Communities under a management agreement that may be
terminated  by  either  party  on  90 days notice. If either party exercises its
option  to  terminate  this management agreement, or if the management agreement
expires  on  September 30, 2005, and is 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


                                        5
<PAGE>

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, Great Lakes, and Western Operations.  An
operational  vice  president heads each group.  Each group may consist of one or
more divisions.  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 executive
director  supervises  day-to-day  community  operations,  and  in  certain
jurisdictions,  must  satisfy  various  licensing  requirements.  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  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.

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 2004.  We use
high quality hardware and operating systems from current and proven technologies
to  support  our  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  may have significantly greater resources, experience, and name
recognition  within  the  healthcare  community  than  we  do.

Employees

At  December  31,  2003,  we  had approximately 7,500 employees, including 5,521
full-time  employees,  of  which  approximately  119  were  employed  at  our
headquarters.  Of  this  total, approximately 2,156 were employed in our managed
communities, including 1,594 full-time employees. Although none of our employees
are  currently  represented by a union, there was an election held in one of our
facilities  in  Florida  during October. The union is challenging the results of
the election and the election results are currently under review by the National
Labor  Relations  Board.  If  the  union  were  successful  in  its  challenge,

                                        6
<PAGE>

the  Board  would  certify  a  bargaining unit of approximately 35 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, particularly
in  nursing,  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.


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.  Seventeen  of  our
operating  communities  offer  some  independent  living  services and three are
operated  as skilled nursing facilities.  The table below summarizes information
regarding  our  current  operating  communities  as  of  December  31,  2003.

<TABLE>
<CAPTION>


                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------
<S>                                        <C>                 <C>        <C>   <C>      <C>
 Alabama
 Galleria Oaks *                           Birmingham          Oct-2002     71      107  Lease

 Arizona
 Arbor at Olive Grove *                    Phoenix             Jun-1994     98      111  Lease
 La Villita *                              Phoenix             Jun-1994     92       92  Option/Manage
 Loyalton of Flagstaff                     Flagstaff           Jun-1999     61       67  Lease
 Loyalton of Phoenix                       Phoenix             Jan-1999    101      111  Lease
 Scottsdale Royale ~                       Scottsdale          Aug-1994     63       63  Own
 Village Oaks at Chandler  *               Chandler            Oct-2002     66      105  Lease
 Village Oaks at Glendale  *               Glendale            Oct-2002     66      105  Lease
 Village Oaks at Mesa  *                   Mesa                Oct-2002     66      105  Lease

 California
 Creston Village *                         Paso Robles         Feb-1998    100      110  Lease
 Emerald Hills                             Auburn              Jun-1998     89       98  Lease
 Fulton Villa                              Stockton            Mar-1995     80       80  Own (2)
 Loyalton of Folsom  *                     Folsom              Jan-2002     98      113  Manage
 Loyalton of Rancho Solano *               Fairfield           Mar-1998    172      189  Lease
 The Palms at Loma Linda                   Loma Linda          Dec-2003    140      220  Own (4)
 The Springs at Oceanside *                Oceanside           Dec-2003    113      236  Own (4)
 The Terrace *                             Grand Terrace       Mar-1996     87       87  Option/Manage
 Villa Del Rey                             Escondido           Mar-1997     84       84  Own (2)

 Colorado
 Loyalton of Broadmoor                     Colorado Springs    Dec-2003     37       45  Own (4)

 Connecticut
 Cold Spring Commons  *                    Rocky Hill          Apr-1997     80       88  Lease


                                        7
<PAGE>


                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------

 Delaware
 Gardens at Whitechapel                    Newark              Oct-1995    100      110  Option/Manage
 Green Meadows at Dover  *                 Dover               Jul-1998     52       63  Lease

 Florida
 Barrington Place *                        Lecanto             May-1996     79      120  Option/Manage
 Beneva Park Club                          Sarasota            Jul-1995     96      102  Option/Manage
 College Park Club *                       Bradenton           Jul-1995     85       93  Option/Manage
 La Casa Grande  *                         New Port Richey     May-1997    200      235  Own (2)
 Madison Glen                              Clearwater          May-1996    135      154  Option/Manage
 Park Club of Brandon                      Brandon             Jul-1995     88       88  Lease
 Park Club of Fort Myers  *                Ft. Myers           Jul-1995     77       82  Lease
 Park Club of Oakbridge *                  Lakeland            Jul-1995     88       88  Lease
 River Oaks  *                             Englewood           May-1997    155      200  Own (2)
 Springtree *                              Sunrise             May-1996    179      246  Option/Manage
 Stanford Centre  *                        Altamonte Springs   May-1997    118      180  Own (2)
 The Colonial Park Club  *                 Sarasota            Aug-1996     88       90  Lease
 The Lakes  *                              Ft. Myers           Jun-2000    154      190  Manage
 The Lodge at Mainlands  *                 Pinellas Park       Aug-1996    154      162  Option/Manage
 The Pavillion at Crossing Pointe ~ *      Orlando             Jul-1995    174      190  Option/Manage
 Village Oaks at Conway  *                 Orlando             Oct-2002     66      103  Lease
 Village Oaks at Melbourne                 Melbourne           Oct-2002     66      103  Lease
 Village Oaks at Orange Park               Orange Park         Oct-2002     66      103  Lease
 Village Oaks at Southpoint  *             Jacksonville        Oct-2002     66      103  Lease
 Village Oaks at Tuskawilla                Winter Springs      Oct-2002     66      105  Lease

 Idaho
 Highland Hills                            Pocatello           Oct-1996     49       55  Lease
 Juniper Meadows                           Lewiston            Nov-1997     82       90  Own (2)
 Loyalton of Coeur d'Alene  ~              Coeur d' Alene      Mar-1996    108      114  Lease
 Ridge Wind                                Chubbuck            Aug-1996     80      106  Lease
 Summer Wind                               Boise               Sep-1995     49       53  Lease

 Illinois
 Canterbury Ridge  *                       Urbana              Nov-1998    101      111  Lease
 Loyalton of Rockford  *                   Rockford            Jun-2000    100      110  Manage

 Indiana
 Meridian Oaks  *                          Indianapolis        Oct-2002     77      111  Lease
 Village Oaks at Fort Wayne  *             Fort Wayne          Oct-2002     66      105  Lease
 Village Oaks at Greenwood  *              Indianapolis        Oct-2002     66      105  Lease

 Iowa
 Silver Pines  *                           Cedar Rapids        Jan-1995     80       80  Own (2)

 Kansas
 Elm Grove Estates *                       Hutchinson          Apr-1997    121      133  Option/Manage

                                        8
<PAGE>

                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------

 Liberal Springs                           Liberal             Dec-2003     44       56  Own (4)
 The Fairways of Augusta                   Augusta             Dec-2003     21       27  Own (4)

 Kentucky
 Stonecreek Lodge                          Louisville          Apr-1997     80       88  Lease

 Louisiana
 Kingsley Place at Alexandria  *           Alexandria          May-2002     80       96  Lease
 Kingsley Place at Lafayette  *            Lafayette           May-2002     80       96  Lease
 Kingsley Place at Lake Charles  *         Lake Charles        May-2002     80       96  Lease
 Kingsley Place at Shreveport  *           Shreveport          May-2002     80       80  Lease

 Maryland
 Emerald Estates  *                        Baltimore           Oct-1999    120      134  Manage
 Loyalton of Hagerstown                    Hagerstown          Jul-1999    100      110  Lease

 Massachusetts
 Canterbury Woods  *                       Attleboro           Jun-2000    130      130  Manage
 Meadow Lodge at Drum Hill                 Chelmsford          Aug-1997     80       88  Lease (3)
 The Lodge at Eddy Pond                    Auburn              Jan-2000    108      110  Own (2)
 The Pines at Tewksbury *                  Tewksbury           Jan-1996     49       65  Lease
 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  Lease (3)
 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 (2)

 Nevada
 Concorde                                  Las Vegas           Nov-1996    116      128  Own (2)
 Village Oaks at Las Vegas                 Las Vegas           Oct-2002     66      105  Lease
The Seasons *                              Reno                Feb-2002     94      109  Manage

 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

                                        9
<PAGE>

                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------

 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
 Loyalton of Lakewood                      Lakewood            Jul-1999     83       91  Lease
 Perinton Park Manor (1)                   Fairport            Nov-1996     78       86  Lease
 The Landing at Brockport  *               Brockport           Jul-1999     84       92  Manage
 The Landing at Queensbury  *              Queensbury          Nov-1999     84       92  Manage
 West Side Manor - Liverpool (1)           Liverpool           Nov-1996     78       80  Lease
 West Side Manor - Rochester (1)           Rochester           Nov-1996     72       72  Lease
 Woodland Manor (1)                        Vestal              Nov-1996     60      116  Lease

 North Carolina
 Heritage Hills Retirement                 Hendersonville      Feb-1996     99       99  Own
 Heritage Lodge Assisted Living            Hendersonville      Feb-1996     20       24  Lease
 Loyalton of Greensboro                    Greensboro          May-2003     50       70  Lease
 Pine Park Retirement ~                    Hendersonville      Feb-1996    110      110  Lease
 The Pines of Goldsboro                    Goldsboro           Sep-1998    101      111  Manage

 Ohio
 Brookside Estates  *                      Middleberg Heights  Sep-1998     99      101  Option/Manage
 Loyalton of Ravenna                       Ravenna             May-2003     55       60  Lease
 Park Lane ~                               Toledo              Jan-1998     92      101  Manage
 The Landing at Canton  *                  Canton              Aug-2000     84       92  Manage

 Oregon
 Meadowbrook                               Ontario             Jun-1995     53       55  Lease

 Pennsylvania
 Green Meadows at Allentown  *             Allentown           Oct-1995     76       97  Lease
 Green Meadows at Latrobe  *               Latrobe             Oct-1995     84      125  Lease
 Loyalton of Bloomsburg                    Bloomsburg          May-2003     46       67  Lease
 Loyalton of Creekview *                   Mechanicsburg       May-2003    101      120  Lease
 Loyalton of Harrisburg                    Harrisburg          May-2003     47       65  Lease

 South Carolina
 Anderson Place - Cottages                 Anderson            Oct-1996     75       75  Lease
 Anderson Place - Nursing Home             Anderson            Oct-1996     22       44  Lease
 Anderson Place - Summer House #           Anderson            Oct-1996     30       40  Lease
 Bellaire Place                            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 Center # *     Easley              Feb-1996     24       44  Lease
 Countryside Village Retirement            Easley              Feb-1996     72       75  Lease
 Skylyn Health Center # *                  Spartanburg         Feb-1996     26       48  Lease
 Skylyn Personal Care                      Spartanburg         Feb-1996    115      131  Lease

                                       10
<PAGE>

                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------

 Skylyn Retirement                         Spartanburg         Feb-1996    120      120  Lease
 The Willows at York  *                    York                Sep-1999     82      164  Manage

 Tennessee
 Walking Horse Meadows  *                  Clarkesville        Jun-1997     50       55  Option/Manage

 Texas
 Amber Oaks                                San Antonio         Apr-1997    163      275  Lease
 Beckett Meadows  *                        Austin              Oct-2002     72       72  Manage
 Cambria Lodge   *                         El Paso             Sep-1996     79       87  Lease
 Champion Oaks                             Houston             Oct-2002     48       84  Lease
 Collin Oaks  *                            Plano               Oct-2002     78      112  Lease
 Dowlen Oaks                               Beaumont            Dec-1996     79       87  Option/Manage
 Eastman Estates                           Longview            Jun-1997     70       77  Option/Manage
 Elmbrook Estates                          Lubbock             Dec-1996     79       87  Lease
 Hamilton House  *                         San Antonio         Sep-2002    111      123  Lease
 Kingsley Place at Henderson  *            Henderson           May-2002     57      101  Lease
 Kingsley Place at Oakwell Farms  *        San Antonio         May-2002     80      160  Lease
 Kingsley Place at Stonebridge Ranch  *    McKinney            May-2002     80      166  Lease
 Kingsley Place at the Medical Center  *   San Antonio         May-2002     80      160  Lease
 Lakeridge Place  *                        Wichita Falls       Jun-1997     79       87  Option/Manage
 Loyalton of Austin  *                     Austin              Oct-2002     76      111  Lease
 Loyalton of Lake Highlands  *             Dallas              Oct-2002     78      112  Lease
 Meadowlands Terrace                       Waco                Jun-1997     71       78  Option/Manage
 Memorial Oaks  *                          Houston             Oct-2002     68      105  Lease
 Myrtlewood Estates  *                     San Angelo          May-1997     79       87  Option/Manage
 Redwood Springs                           San Marcos          Apr-1997     90       90  Lease
 Saddleridge Lodge                         Midland             Dec-1996     79       87  Option/Manage
 Seville Estates *                         Amarillo            Mar-1997     50       55  Option/Manage
 Sherwood Place                            Odessa              Sep-1996     79       87  Lease
 Sugar Land Oaks  *                        Sugar Land          Oct-2002     75      110  Lease
 Tanglewood Oaks  *                        Fort Worth          Oct-2002     78      112  Lease
 The Palisades                             El Paso             Apr-1997    158      215  Lease
 Vickery Towers at Belmont ~               Dallas              Apr-1995    301      331  Manage
 Village Oaks at Cielo Vista               El Paso             Oct-2002     66      105  Lease
 Village Oaks at Farmers Branch  *         Farmers Branch      Oct-2002     66      105  Lease
 Village Oaks at Hollywood Park  *         San Antonio         Oct-2002     66      105  Lease
 Woodbridge Estates                        San Antonio         Oct-2002     78      112  Lease

 Utah
 Emeritus Estates  *                       Ogden               Feb-1998     83       91  Option/Manage

 Virginia
 Cobblestones at Fairmont                  Manassas            Sep-1996     75       82  Lease (3)
 Loyalton of Danville                      Danville            May-2003     68      120  Lease
 Loyalton of Harrisonburg                  Harrisonburg        May-2003     57      114  Lease
 Loyalton of Roanoke                       Roanoke             May-2003     65      118  Lease

                                       11
<PAGE>

                                                               Emeritus
                                                              Operations  Units  Beds
Community                                       Location       Commenced  (a)     (b)       Interest
-----------------------------------------  ------------------  ---------  ----  -------  --------------

 Loyalton of Staunton                      Staunton            Jul-1999    101      111  Lease
 Wilburn Gardens  *                        Fredericksburg      Jan-1999    101      111  Manage

 Washington
 Arbor Place at Silverlake                 Everett             Jun-1999    101      111  Manage
 Cooper George ~                           Spokane             Jun-1996    140      158  Partnership
 Emeritus Oaks of Silverdale *             Silverdale          Nov-2003     46       52  Lease
 Evergreen Lodge                           Federal Way         Apr-1996     98      124  Lease
 Fairhaven Estates                         Bellingham          Oct-1996     50       55  Lease
 Garrison Creek Lodge                      Walla Walla         Jun-1996     80       88  Lease
 Harbour Pointe Shores                     Ocean Shores        Feb-1997     50       55  Option/Manage
 Hearthside of Issaquah  *                 Issaquah            Feb-2000     98       98  Own
 Kirkland Lodge at Lakeside                Kirkland            Mar-1996     74       84  Lease (3)
 Regent Court at Kent  *                   Kent                Jan-2002     24       48  Manage
 Renton Villa                              Renton              Sep-1993     79       97  Lease
 Richland Gardens                          Richland            May-1998    100      110  Manage
 Seabrook                                  Everett             Jun-1994     60       62  Lease
 The Courtyard at the Willows              Puyallup            Sep-1997    101      111  Own (2)
 The Hearthstone                           Moses Lake          Nov-1996     84       92  Lease

 West Virginia
 Charleston Gardens  *                     Charleston          Aug-2001    100      132  Manage
                                           ---------                   -------   ------
 Total Operating Communities                    175                     14,845   18,208
                                           =========                   =======   ======
</TABLE>

     ~     Currently  offers  independent  living  services.
     #     Currently  operates  as  a  skilled  nursing  facility.
     *     Currently  offers memory loss (Alzheimer's or related dementia) care.
     (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 party.
     (2)  As part of a refinancing agreement, we transferred all long-term
          assets  and  liabilities  related  to  these  properties  to  Emeritus
          Realty  Corporation,  a  wholly  owned  subsidiary  of  Emeritus
          included  in  the  consolidated  financial statements. Notwithstanding
          consolidation  for  financial  statement  purposes, it is management's
          intention  that Emeritus Realty Corporation be a separate legal entity
          wherein  the  assets  and  liabilities  are not available to pay other
          debts  or obligations of the consolidated Company and the consolidated
          Company  is  not  liable  for  the  liabilities  of  Emeritus  Realty
          Corporation,  except  as  otherwise  provided  in  connection with the
          financing  agreement.
     (3)  Due  to  financing  requirements,  these assets continue to be held by
          certain of our wholly owned subsidiaries. It is management's intention
          that  the assets and liabilities of the subsidiaries are not available
          to  pay other debts or obligations of the consolidated Company and the
          consolidated  Company  is  not  liable  for  the  liabilities  of  the
          subsidiaries  except  as  otherwise  provided in connection with these
          financing  requirements.

                                       12
<PAGE>
     (4)  Due to financing requirements, these assets continue to be held by one
          of  our  wholly  owned subsidiaries. It is management's intention that
          the  assets and liabilities of the subsidiary are not available to pay
          other  debts  or  obligations  of  the  consolidated  Company  and the
          consolidated  Company  is  not  liable  for  the  liabilities  of  the
          subsidiary  except  as  otherwise  provided  in  connection with these
          financing  requirements.

Executive  Offices

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

                                       13
<PAGE>

ITEM  3.  LEGAL  PROCEEDINGS

From  time  to  time, we are subject to lawsuits and other matters in the normal
course  of  business,  including  claims  related  to  general  and professional
liability.  Reserves  for  these  claims  have been accrued based upon actuarial
and/or  estimated  exposure,  taking  into  account  self-insured  retention  or
deductibles, as applicable.  While we cannot predict the results with certainty,
we  do  not  believe  that any liability from any such lawsuits or other matters
will have a material effect on our financial position, results of operations, or
liquidity.


In  February  2004, the California Public Interest Research Group announced that
it  intended to bring an action against operators of assisted living communities
(including  us) and other senior housing facilities. The announced action seeks,
on  behalf  of  residents  of these facilities located in California, to recover
move-in  or  preadmission  fees that have been paid over the past three years as
well  as  certain  penalties.  While  we  have not yet been served, we intend to
defend  the  action  vigorously  and have entered into a joint defense agreement
with  other  operators  in  California.





                                       14
<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,  2003.


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 . . . .   60  Chairman of the Board and Chief Executive Officer
Raymond R. Brandstrom.   51  Vice President of Finance, Secretary,
                             and Chief Financial Officer
Gary S. Becker . . . .   56  Senior Vice President of Operations
Martin D. Roffe. . . .   56  Vice President, Financial Planning
Suzette McCanless. . .   55  Vice President, Operations -- Eastern Division
Russell G. Kubik . . .   50  Vice President, Operations -- Central Division
P. Kacy Kang . . . . .   36  Vice President, Operations -- Western Division
Christopher M. Belford   42  Vice President, Operations -- Great Lakes Division
Susan A. Scherr. . . .   55  Vice President of Signature Services
</TABLE>

Daniel  R.  Baty,  one of Emeritus's 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's founders, has served as a director
since  its  inception  in 1993 and as Vice Chairman of the Board from March 1999
until  March  2000.  From  1993  to  March  1999,  Mr. Brandstrom also served as
Emeritus's 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  30  years  of  health  care  management  experience.  From  October 1993 to
December  1996  he  was Vice President of Operations for the Western Division of
SunBridge  Healthcare  Corporation,  the nursing home division of Sun Healthcare
Group,  Inc.  Sun  Healthcare  Group,  Inc.  is  one of the largest providers of
long-term,  subacute,  and  related specialty health care services in the United
States.

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  31  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,  where  he  also  held  the  previous  positions of Sr. Application
Analyst  and  Director  of  Financial  Planning.  Hillhaven Corporation operated
nursing  centers,  pharmacies,  and  retirement  housing  communities.

                                       15
<PAGE>


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.  Mrs.  McCanless  has  23  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., where she also held the
previous  positions  of  Administrator and Regional Director of Operations.  The
business  of  Beverly  Enterprises,  Inc.  consists  principally  of  providing
healthcare  services,  including  the  operation of nursing facilities, assisted
living  centers,  hospice  and home care centers, outpatient therapy clinics and
rehabilitation  therapy  services.

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 19 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, Inc. in the Seattle/Puget Sound
area.  Mr.  Kubik  also  worked  as  Regional Director of Operations for Beverly
Enterprises,  Inc.  in  Washington  and  Idaho.

P. 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, Inc.  from 1991 to 1994
and  for  Sun  Healthcare  Group,  Inc.  from  1994  through  1997.

Christopher  M.  Belford  joined Emeritus as Regional Director of Operations for
California in January 2001 and was promoted to Divisional Director of Operations
for  the  Southwest Division in May 2001.  Mr. Belford was then promoted to Vice
President  of  Operations  -  Great  Lakes  Division  in October 2003.  Prior to
joining  Emeritus, Mr. Belford served as Vice President of Operations for Regent
Assisted  Living, Inc. from 1996 to 2000 in the Southwest Division.  Mr. Belford
operated  nursing,  assisted,  and independent living facilities for ERA Care in
the  Seattle/Puget  Sound  area  from  1991  to  1996.

Susan A. Scherr joined Emeritus as a Regional Support Specialist in October 1997
and  was promoted to Director of Signature Services and a member of the Emeritus
Senior  Management  team  in  December  1999.  In  April  2001,  she 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.  Ms. Scherr brings to Emeritus more than 19
years'  experience  in  the  assisted  living,  acute  and  skilled  care,  and
hospice/home  health  care  industries.  Prior to her association with Emeritus,
she  worked  with SunBridge Healthcare Corporation, the nursing home division of
Sun  Healthcare  Group,  Inc.  and  Jerry Erwin & Associates, an assisted living
company.


                                       16
<PAGE>
                                     PART II

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>
2003
First Quarter . . . .  $   5.78    $   3.60
Second Quarter. . . .  $   4.49    $   3.44
Third Quarter . . . .  $   8.09    $   3.85
Fourth Quarter. . . .  $   8.50    $   5.90

2002
First Quarter . . . .  $   5.22    $   2.05
Second Quarter. . . .  $   5.00    $   3.80
Third Quarter . . . .  $   4.50    $   1.70
Fourth Quarter. . . .  $   5.68    $   1.70
</TABLE>



As  of  February  29,  2004,  we  had 131 holders of record of our Common Stock.

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.

                                       17
<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, 2003, are
derived from the consolidated financial statements of Emeritus Corporation.  The
consolidated financial statements as of December 31, 2003 and 2002, and for each
of  the  years  in  the  three-year period ended December 31, 2003, are included
elsewhere  in  this  document.


<TABLE>
<CAPTION>


                                                                      Year  Ended  December  31,
                                                        -----------------------------------------------------

                                                          2003       2002       2001       2000       1999
                                                        ---------  ---------  ---------  ---------  ---------
                                                                (In thousands, except per share data)
<S>                                                     <C>        <C>        <C>        <C>        <C>
Consolidated Statements of Operations Data:
Total operating revenues . . . . . . . . . . . . . . .  $206,657   $153,129   $140,577   $125,192   $122,642
Total operating expenses . . . . . . . . . . . . . . .   199,710    152,132    133,076    125,905    125,330
                                                        ---------  ---------  ---------  ---------  ---------
Income (loss) from operations. . . . . . . . . . . . .     6,947        997      7,501       (713)    (2,688)
Net other expense. . . . . . . . . . . . . . . . . . .   (10,354)    (7,220)   (11,735)   (21,223)   (18,349)
                                                        ---------  ---------  ---------  ---------  ---------
Loss before income taxes. . . .  . . . . . . . . . . .    (3,407)    (6,223)    (4,234)   (21,936)   (21,037)
Provision for income taxes . . . . . . . . . . . . . .      (418)         -          -          -          -
                                                        ---------  ---------  ---------  ---------  ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . .    (3,825)    (6,223)    (4,234)   (21,936)   (21,037)
Preferred stock dividends. . . . . . . . . . . . . . .    (6,238)    (7,343)    (6,368)    (5,327)    (2,250)
Gain on repurchase of Series A preferred stock . . . .    14,523          -          -          -          -
                                                        ---------  ---------  ---------  ---------  ---------
Net income (loss) to common shareholders . . . . . . .  $  4,460   $(13,566)  $(10,602)  $(27,263)  $(23,287)
                                                        =========  =========  =========  =========  =========

Net income (loss) per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . .  $   0.43   $  (1.33)  $  (1.04)  $  (2.69)  $  (2.22)
                                                        =========  =========  =========  =========  =========
Diluted. . . . . . . . . . . . . . . . . . . . . . . .  $   0.39   $  (1.33)  $  (1.04)  $  (2.69)  $  (2.22)
                                                        =========  =========  =========  =========  =========

Weighted average number of common shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . . .    10,255     10,207     10,162     10,117     10,469
                                                        =========  =========  =========  =========  =========
Diluted. . . . . . . . . . . . . . . . . . . . . . . .    11,521     10,207     10,162     10,117     10,469
                                                        =========  =========  =========  =========  =========

Consolidated Operating Data:
Communities in which we have an interest . . . . . . .       175        180        133        135        129
Number of units. . . . . . . . . . . . . . . . . . . .    14,845     15,762     12,248     12,412     11,726

                                                                             December 31,
                                                       ------------------------------------------------------
                                                            2003       2002       2001       2000       1999
                                                        ---------  ---------  ---------  ---------  ---------
                                                                            (In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents. . . . . . . . . . . . . . .  $  6,368   $  7,301   $ 10,194   $  7,496   $ 12,860
Working capital (deficit). . . . . . . . . . . . . . .   (33,361)   (26,485)   (12,100)   (81,167)     6,828
Total assets . . . . . . . . . . . . . . . . . . . . .   178,587    163,159    168,811    178,079    198,370
Long-term debt, less current portion . . . . . . . . .   136,388    119,887    131,070     60,499    128,319
Convertible debentures . . . . . . . . . . . . . . . .    32,000     32,000     32,000     32,000     32,000
Redeemable preferred stock . . . . . . . . . . . . . .         -     25,000     25,000     25,000     25,000
Shareholders' deficit. . . . . . . . . . . . . . . . .   (79,094)   (85,066)   (74,141)   (65,803)   (37,290)
</TABLE>



                                       18
<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.

From  1995  through  1999,  we expanded rapidly through acquisition and internal
development  and  by December 31, 1999, operated 129 assisted living communities
with  11,726  units.  We  believe,  however,  that  during  this  expansion, the
assisted  living  industry  became  significantly  over-built,  creating  an
environment characterized by sluggish or falling occupancy and market resistance
to  rate  increases.  As a result of these difficult operating circumstances, we
limited  further  growth  and in 2000 began an increasing focus first on raising
our  occupancy  and later on operating efficiencies and cost controls as well as
implementing  a  systematic  rate  enhancement  program.

We believe that the health of the assisted living industry is improving and that
there  are  developing  opportunities  to improve occupancy and adjust rates, as
well  as  greater  access  to  capital.  In  light of these perceptions, we have
completed  several  acquisitions  in  the  last  two  years  and  have,  and are
continuing,  to  convert managed communities to owned or lease communities where
opportunities  are  available.  In  2000  and  2001,  we  continued  to  operate
approximately  130  communities,  but in 2002 and 2003, we increased that to 180
and 175 communities, respectively, primarily through the lease of 24 communities
formerly operated by Marriott and through other selected acquisitions.  From the
end  of  2000 to the end of 2003, the communities we manage decreased from 69 to
47  and  the  owned  and leased communities increased from 61 to 128, reflecting
both  our  increasing  confidence  in  the  assisted  living  industry  and  the
availability  of  capital.

In 2004 we expect to continue reviewing acquisition opportunities and seeking to
take  ownership  or lease positions in communities that we manage.  To this end,
we  have  announced a proposed lease acquisition of up to 13 communities that we
formerly managed, a second lease acquisition of nine memory loss facilities, and
two  other  communities.

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


<TABLE>
<CAPTION>


                                                             As  of  December  31,
                                     ----------------------------------------------------------------------
                                              2003                    2002                    2001
                                     ----------------------  ----------------------  ----------------------
                                      Buildings     Units     Buildings     Units     Buildings     Units
                                     ----------  ----------  ----------  ----------  ----------  ----------
<S>                                  <C>         <C>         <C>         <C>         <C>         <C>
Owned (1) . . . . . . . . . . . . .          19       1,813         17       1,687           16       1,579
Leased (1) (2). . . . . . . . . . .         109       8,303         67       5,279           42       3,444
Managed/Admin Services (3)(4) . . .          46       4,589         94       8,577           70       6,620
Joint Venture/Partnership (5) . . .           1         140          2         219            5         605
                                     ----------  ----------  ----------  ----------  ----------  ----------
     Operated Portfolio . . . . . .         175      14,845        180      15,762          133      12,248

     Percentage increase (decrease)      (2.8%)      (5.8%)       35.3%       28.7%      (1.5%)      (1.3%)
</TABLE>
--------
     (1)  Included  in  our  consolidated  portfolio  of  communities.
     (2)  The leased communities are all operating leases, in which the revenues
          and  expenses  from these communities are included in the Consolidated
          Statement  of  Operations,  but  the  assets  and  liabilities are not
          included  in  the  Consolidated  Balance  Sheets.
     (3)  Buildings  managed  decreased  in 2003 due to termination of 13 Regent
          management  contracts,  the  21  Emeritrust II communities, which were
          leased  as  of  September 30, 2003, and the 8 Horizon Bay communities,
          which  were  leased  as  of  December  31,  2003.
     (4)  One  managed  building has been shut down and was sold March 12, 2004.
     (5)  In  2003, 2002, and 2001, we managed 1, 1, and 2 of these communities,
          respectively.

Two  of  the  important factors affecting our financial results are the rates we
charge  our residents and the occupancy levels we achieve in our communities. 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

                                       19
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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. In this context, we must be sensitive to
our residents' financial circumstances and remain aware that rates and occupancy
are  interrelated.

In  evaluating  the  rate  component,  we  generally rely on the average monthly
revenue per unit, computed by dividing the total revenue for a particular period
by  the  average  number of occupied units determined on a monthly basis for the
same period.  In evaluating the occupancy component, we generally rely on the an
average  occupancy  rate,  computed  by  dividing  the  average units available,
determined  on a monthly basis, during a particular period by the average number
of units occupied, determined on a monthly basis, during the period.  In October
2002,  we  acquired  24 buildings through lease (with approximately 1,650 units)
and in March 2003, we acquired eight buildings through lease (with approximately
489  units).  At  the  time  of  acquisition,  these  groups  of communities had
different  rate  and occupancy characteristics and, therefore, have a distorting
effect  on  the  rate  and  occupancy  comparisons  between 2002 and 2003.  As a
consequence,  the  comparison  including  and  excluding  these  communities  is
presented  below.  We  evaluate  these  and  other  operating components for our
consolidated portfolio, which included the communities we own and lease, and our
operating portfolio, which also includes the communities we manage as if we were
the  owner  or  lessor.

In  our  consolidated  portfolio, our average monthly revenue per unit increased
from  $2,405  in  2001  to  $2,577 in 2002 and to $2,767 in 2003.  These changes
represented increases of 7.2% and 7.4% for each of the two years.  Excluding the
acquisition  communities  referred to above, the corresponding changes were 6.3%
for  2002  and  5.6%  for  2003.  We  believe  that  these  improvements  were a
consequence  of  a  carefully  designed  rate  enhancement program that we began
implementing  in  2000.

In  our  consolidated  portfolio,  our average occupancy rate was 84.1% in 2001,
decreasing  to 80.9% in 2002 and further decreasing to 77.4% in 2003.  Excluding
the  acquisition  communities  referred to above, our average occupancy rate was
81.8%  in 2002 compared to 81.6% in 2003.  We believe that these occupancy rates
reflect industry-wide factors, such as the supply of available units, which have
tended  to  keep  pressure  on occupancy levels, as well as, our own actions and
policies.  At  the  time  the  acquisition  communities  were  added  to  our
consolidated  portfolio, their occupancy rates were lower (average rate for 2003
was  65.4%)  and  their average revenue per occupied unit was higher ($3,012 for
2003)  than  the  balance  of  our  portfolio.  We  also  believe  that our rate
enhancement  program  has  affected occupancy growth and we continue to evaluate
the  factors  of  rate  and  occupancy  to  find  the  optimum  balance.

Since  our  inception  in  1993,  we  have  incurred  operating losses and as of
December  31,  2003,  we  had  an  accumulated  deficit  of approximately $150.8
million.  We  believe that these losses have resulted from our early emphasis on
expansion,  financing  costs  arising  from  multiple  financing and refinancing
transactions  related  to  this expansion, administrative and corporate expenses
that  we  incurred in anticipation of further expansion that did not materialize
and  occupancy  rates  that  have declined and remained lower for longer periods
than  we  anticipated.


SIGNIFICANT  2003  TRANSACTIONS

In  2003  we substantially increased the number of communities we lease, reduced
the number of communities we manage, repurchased all of our outstanding Series A
Preferred  Stock  and,  in  connection  with  these  changes,  increased  and
restructured  portions of our long-term financing obligations.  The transactions
associated  with  these  developments  are  summarized  below.

     Emeritrust  Transactions

Since  1999,  we  have  managed  46  communities under arrangements with several
related investor groups that involved (i) payment of management fees to us, (ii)
options  for  us to purchase the communities at a price determined by a formula,
and  (iii)  obligations  to  fund  operating  losses  of  certain  communities.

Emeritrust I Communities Management.  During 2003, 2002 and 2001, we managed the
Emeritrust  I  communities,  which  included  25  of the 46 communities, under a
management  agreement providing for a base fee of 3% of gross revenues generated
by  the  communities  and  an additional management fee of 4% of gross revenues,
payable  to the extent of 50% of cash flow from the communities.  The management
agreement also required us to fund cash operating losses of the communities.  In
each  of

                                       20
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

April and August 2003, the Emeritrust I owners disposed of a community, reducing
the  number  of  managed  communities to 23. Under this arrangement, we received
management  fees (net of our funding obligations) of approximately $2.7 million,
$1.8  million,  and  $2.8  million  in  2003,  2002 and 2001, respectively. This
management  agreement, as extended several times, expired at the end of 2003. On
January 2, 2004, we and the Emeritrust I investors entered into a new management
agreement  providing  for  management  fees  computed  on the same basis and (i)
terminating  all  options  to  purchase  the  communities,  (ii) terminating any
further  funding  obligation,  and (iii) providing for a term expiring September
30,  2005,  provided  that  either  party may terminate the agreement on 90 days
notice.  In  March  2004, this management agreement was amended to provide for a
management  fee  of  5%  of gross revenues. In 2004, we do not expect to receive
management  fees for the Emeritrust I communities at the same level as we did in
2003.  The  interest  rate  on  the  mortgage  financing  of the communities was
increased  effective  June 30, 2003, and may be increased further in 2004, which
will  have  the  effect  of  reducing  cash  flow  from  the  communities  and,
correspondingly,  reducing  our additional management fee that is payable to the
extent  of 50% of cash flow. We also expect that additional communities could be
sold,  thereby  reducing  the  number  of  communities subject to the management
agreement.  Because  this management agreement can be terminated by either party
on  short  notice, there can be no guaranty that the management arrangement will
continue  for  its  full  term.

Emeritrust II Communities Management.  During 2003 (through September 30), 2002,
and  2001, we managed the Emeritrust II communities, which included 21 of the 46
communities,  under management agreements providing for a base management fee of
5%  of  gross  revenue generated by the communities and an additional management
fee  of  2%,  payable  if  we  met  certain cash flow standards.  The management
agreement  for  five  of the communities also required us to fund cash operating
losses  of  those  communities.  Under  this arrangement, we received management
fees  (net  of  our  funding  obligations) of approximately $2.0 million in 2003
(through September 30), and approximately $2.6 million in each of the years 2002
and  2001.

Emeritrust  II  Communities  Lease.  On  September  30, 2003, we acquired the 21
Emeritrust  II communities for a cash purchase price of $118.6 million, financed
through  a  combination of lease and mortgage financing with an independent real
estate  investment  trust  in  the aggregate amount of $121.5 million.  A master
operating  lease covers the Emeritrust II communities and four other communities
originally  leased  from  the  real  estate investment trust in March 2002.  The
lease  is for an initial 15-year period, with one 15-year renewal, and grants us
a right of first opportunity to purchase any of the Emeritrust II communities if
the  trust  decides to sell.  The lease is a net lease, with annual base rent of
$14.7  million  (of  which  $10.5  million  is attributable to the Emeritrust II
communities),  and  periodic  escalators.  The real estate investment trust also
provided  $11.5  million of debt financing secured by our leasehold interests in
the  Emeritrust II communities.  This debt was consolidated with other debt held
by  the  real  estate  investment  trust  as  described  below  under  "Debt
Consolidation."  As  part  of the purchase price, we also agreed to issue to the
Emeritrust II investors warrants to purchase 500,000 shares of our common stock,
of  which  400,000  shares  have been issued.  The warrants expire September 30,
2008, and have an exercise price of $7.60 (subject to certain adjustments).  The
holders  have  limited registration rights.  We included the fair value of these
warrants,  totaling  approximately $1.4 million, as lease acquisition costs that
we  will  amortize  over  the  life  of  the  lease.

Additional  Information.  The  history  and  additional  detail  relating  to
transactions  involving  the Emeritrust communities is contained in our Form 8-K
filed  with  the  Securities  and  Exchange Commission on October 14, 2003.  Mr.
Baty,  our  chief  executive officer, held financial interests in the Emeritrust
investor  groups  and  had  certain  obligations  under the Emeritrust financing
arrangements  and  in  the  transactions  completed  in  2003.  These  are  also
described  in  detail  in  this  Form  8-K.

     Repurchase  of  Series  A  Preferred  Stock

In a two-part transaction that was completed August 28, 2003, we repurchased all
the outstanding shares of our Series A Preferred Stock for an aggregate purchase
price of $20.5 million.  The Series A Preferred Stock had been issued originally
in  October  1997 for $25.0 million.  As a part of the repurchase, the holder of
the  Series  A Preferred Stock waived approximately $10.1 million in accrued and
unpaid  dividends.  As  a  result  of  the  transaction, we recognized a gain of
approximately  $14.5  million.  Just  prior  to  the  repurchase,  the  Series A
Preferred  Stock  was accruing compounded, cumulative dividends of approximately
$3.7  million  annually, with mandatory redemption in October 2004 at a price of
$25 million plus accrued and unpaid dividends.  In completing the repurchase, we
avoided  these  future  obligations.  We  obtained  the  funds  to  complete the
repurchase  through  three  related  financing  transactions.


                                       21
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

The first financing transaction involved three communities that we leased. Prior
to  this  financing  transaction, we also held notes receivable in the aggregate
amount of $4.4 million that were secured by the same three communities and under
which  we  received  interest  of  approximately  $144,000  annually.  In  the
refinancing, the communities were transferred to a real estate investment trust,
which  became  the  new  owner and lessor, and we received net proceeds of $10.2
million  in  repayment  of  the  notes  we  held and in exchange for our related
security  and  other  property interests in the communities. The transfer of the
communities  was  subject  to  our  leases,  the  terms of which did not change.
Because  we  disposed  of  our  notes, we will no longer receive the interest we
formerly did. We recognized a deferred gain of approximately $8.5 million, which
we  will  amortize  over  the  remaining  life  of  the  leases.

The  second  financing  transaction, with the same real estate investment trust,
involved the sale/leaseback of four communities, three of which we owned and one
of which we held a 50% joint venture interest, resulting in net proceeds of $6.6
million.  The  lease is for a 15-year term with a 15-year extension and provides
for  a base annual rent of approximately $3.5 million, with periodic escalators.
Prior  to  this refinancing, the communities secured mortgage financing of $24.6
million,  with  annual  interest  payments  of  approximately  $2.4 million.  We
recognized a deferred gain of $9.9 million, which we will amortize over the term
of  the  lease.

The  third  financing,  again  with the same real estate investment trust, was a
mortgage  loan for $7.5 million secured by the seven communities involved in the
first  two financing transactions.  The debt matured in August 2006 and required
monthly  interest-only  payments  at  an  initial  rate  of  12% per annum, with
periodic increases.  This mortgage debt was subsequently consolidated with other
debt  held  by  the real estate investment trust, as discussed below under "Debt
Consolidation".

     Lease  of  Eight  Communities  in  May

In  May  2003,  we  entered  into  a  lease  with a real estate investment trust
covering  eight  assisted  living  communities  in  four  states  containing  an
aggregate  of  489  units. The lease is for an initial 10-year period with three
5-year  extensions  and includes an option to acquire the communities during the
second  year  for a price of $42.2 million and during the third year at the same
price plus a 3% premium. We believe this option exercise price is currently well
above fair value based on current operations. Under the lease we have a right of
first  opportunity  to  purchase  any  of the properties if the owner decides to
sell.  The  lease  is a net lease, with annual base rental of $3.45 million, and
rent  adjustments  at  the  end  of  the first and second lease years based on a
percentage of any increase in operating revenues, with an aggregate annual limit
of  $275,000,  and  adjustments  each  year thereafter based on increases in the
consumer  price index. The real estate investment trust has agreed to fund up to
$500,000  for  capital  expenditures,  with  amounts added to the lease base and
option  price,  and has provided us a 10-year working capital loan for $600,000,
with  interest  at  10%  per  annum  payable  monthly.

     Lease  of  Eight  Communities  from  Baty

On  September  30, 2003, we entered into an agreement to lease eight communities
that  we  were then managing for entities owned or controlled by Mr. Baty, which
we  have  formerly  referred  to  as  the  Horizon  Bay  communities.  Under the
agreement,  the  Baty  entities  assigned,  and  we assumed, the existing leases
relating  to  seven  of  the  facilities.  In  lieu  of  acquiring the remaining
community,  which  was  owned by a Baty entity subject to mortgage financing, we
leased the community for a term of 10 years, with rent equal to the debt service
on the mortgage indebtedness (including interest and principal) plus 25% of cash
flow  (after  accounting  for assumed management fees and capital expenditures).
The  debt  that  is secured by this community may be cross-collateralized by Mr.
Baty  with  an  Emeritrust  I  community that he may acquire and lease to us, as
described  below.  Annual rent relating to the eight communities is estimated at
$4.6  million,  with annual adjustments based upon changes in the consumer price
level  index.  We  will  pay  the  Baty  Entities  approximately  $70,000, which
represents  their cash investment plus 9% per annum, as provided in the original
agreement  related  to  the  management  of  these  communities between the Baty
Entities  and  us.  Although  this  transaction  closed  December  31, 2003, the
economic  and  financial  terms  were  effective  June  30,  2003.

     Debt  Consolidation

The  real  estate  investment  trust that financed the Emeritrust II transaction
already  held  $6.8 million of our leasehold mortgage debt that matured in March
2005  and  bore  interest  at 12% per annum, commencing March 2002 with periodic
increases  up to 13% per annum.  This real estate investment trust also provided
$7.5  million  in  leasehold mortgage financing incurred to support

                                       22
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

the  Series  A Preferred Stock repurchase in August 2003. On September 30, 2003,
these  two  financings,  together  with  the  $11.5  million  leasehold mortgage
financing  related  to  the  Emeritrust II communities, were consolidated into a
single $25.8 million leasehold mortgage financing, secured by the 32 communities
and  maturing  on  June  30, 2007. The debt bears interest at an initial rate of
12.13%  per  annum  with  periodic  increases  up  to 13%. The consolidated loan
requires  monthly  payments  of  interest the first year and monthly payments of
principal  and interest, based on a 10-year amortization, thereafter. Additional
principal  reductions  may  occur,  at  our  option, through the increase in the
amount  of the lease financing based on the portfolio achieving certain coverage
ratios.

     Alterra  Transactions

In  December  2003,  we  invested  $7.3  million  (representing an 11% ownership
interest),  net  of  transaction costs, in a limited liability corporation (LLC)
that acquired Alterra Healthcare Corporation, a national assisted living company
headquartered  in  Milwaukee,  Wisconsin  that  was  the  subject of a voluntary
Chapter  11  bankruptcy.  Alterra operated 304 assisted living communities in 22
states.  The  purchase  price  for  Alterra  was $76 million and the transaction
closed  on  December  4,  2003, following approval by the Bankruptcy Court.  The
members  of  the  LLC  consists of an affiliate of Fortress Investment Group LLC
(Fortress),  a New York based private equity fund, which is the managing member,
an  entity  controlled  by  Mr.  Baty,  and  us.  Under  the  LLC  agreement,
distributions  are  first  allocated  to Fortress until it receives its original
investment  of  $49  million  together with a 15% preferred return, and then are
allocated to the three investors in proportion to their percentage interests, as
defined  in  the  agreement,  which  are  a  50% interest for Fortress and a 25%
interest  for  each  of  us  and  the  entity  controlled  by  Mr.  Baty.

On  December  31, 2003, independent of the LLC, we acquired five assisted living
communities,  containing  an  aggregate  of  355  units,  from  Alterra  for the
assumption  of $22.6 million of mortgage debt, which bears interest at 6.98% per
annum,  provides  for  monthly  payments  of  $178,000,  including principal and
interest,  and  matures  August  2008.

The  following  table  summarizes  the  transactions  described  above:
<TABLE>
<CAPTION>



                                              Owned   Leased  Managed
                                              ------  ------  --------
<S>                                           <C>     <C>     <C>       <C>
December 31, 2002. . . . . . . . . . . . . .     18       67       95

Emeritrust I Communities Management. . . . .      -        -       (2)

Sale-leaseback in connection with
  repurchase of the Series A Preferred Stock     (4)       4        -

Emeritrust II Communities Lease. . . . . . .      -       21      (21)

Lease of Eight Communities in May. . . . . .      -        8        -

Lease of Eight Communities from Baty . . . .      -        8       (8)

Five Community Mortgage Assumption . . . . .      5        -        -

Other Transactions . . . . . . . . . . . . .      -        1      (17)  *
                                              -----  --------  --------
December 31, 2003. . . . . . . . . . . . . .     19      109       47
                                              ======  =======  ========
</TABLE>
*  includes two communities not elsewhere discussed




                                       23
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

RESULTS  OF  OPERATIONS

Summary  of  Significant  Accounting  Policies  and  Use  of  Estimates

Our discussion and analysis of our financial condition and results of operations
are  based  upon our 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 us 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  ongoing  basis, we evaluate our estimates, including those
related  to  resident  programs  and incentives such as move-in fees, bad debts,
investments,  intangible  assets, impairment of long-lived assets, income taxes,
restructuring,  long-term  service  contracts,  contingencies,  self-insured
retention,  health  insurance,  and  litigation.  We  base  our  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.

We  believe  the  following  accounting  policies  are  most  significant to the
judgments  and  estimates  used in the preparation of our 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.

     * For commercial general liability and professional liability insurance, we
        use  a  captive insurance structure essentially to self-fund our primary
        layer  of  insurance. This policy is claims-made based and covers losses
        and  liabilities associated with general and professional liability. The
        primary  layer  has  per  occurrence  and  aggregate limits. Within that
        primary  layer  is  a  self-insured  retention,  which  also  has  a per
        occurrence  and  aggregate  limit.  We also have an excess policy, which
        applies  to  claims  in  excess of the primary layer on a per occurrence
        basis.  Losses  within the primary layer, which include the self-insured
        retention,  are  accrued based upon actuarial estimates of the aggregate
        liability  for  claims  incurred, which will vary based on actual versus
        expected  experience.

     *  For  health  insurance,  we  self-insure  up to a certain level for each
        occurrence  above  which  a  catastrophic  insurance  policy  covers any
        additional  costs.  Health  insurance  expense  is  accrued  based  upon
        historical experience of the aggregate liability for claims incurred. If
        these  estimates  are  insufficient, additional charges may be required.

     *  For  workers' compensation insurance for insured states (excluding Texas
        and  compulsory  State Funds), we are on an incurred loss, retrospective
        insurance policy, retroactively adjusted, upward or downward, based upon
        total  incurred  loss  experience.  The premium charged by the insurance
        underwriter  is based upon a standard rate determined by the underwriter
        to  cover, amongst other things, estimated losses and other fixed costs.
        The  difference  between  the  premium  charged  and the actuarial based
        estimate  of  costs, which is expensed on a monthly basis, is carried as
        an  asset  on  the  balance sheet. After the end of the policy year, the
        insurance  company conducts an audit and adjusts the total premium based
        upon  the  actual  payroll and actual incurred loss for the policy year.
        Any  premium adjustment for the differences between estimated and actual
        payroll  and  estimated  and  actual losses will first be applied to the
        accrued asset and then as an adjustment to workers' compensation expense
        at  the  time  such  adjustment  is  determined.  There  is a reasonable
        expectation  that  the  incurred  loss  adjustment  will  be  downward,
        resulting  in  a premium refund. The incurred loss adjustment is limited
        to  50%  of  the standard premium with the initial adjustment six months
        after  policy  expiration on December 31, 2003, and annually thereafter.
        For  work-related  injuries  in  Texas, we are a non-subscriber, meaning
        that  work-related  losses  are  covered under a defined benefit program
        outside  of  the  Texas Workers' Compensation system. Losses are paid as
        incurred  and  estimated  losses  are  accrued  on  a  monthly  basis.

     *  We  account  for  stock  option  awards to employees under the intrinsic
        value-based  method  of accounting prescribed by APB No. 25, "Accounting
        for  Stock  Issued  to  Employees".  Under  this method, no compensation
        expense  is  recorded provided the exercise price is equal to or greater
        than the quoted market price of the stock at the grant date. We make pro
        forma  disclosures  of  net income and earnings per share as if the fair
        value-based  method  of accounting (the alternative method of accounting
        for  stock-based  compensation)  had been applied as required by FAS No.
        123,  "Accounting  for  Stock-Based  Compensation". The fair value-based
        method  requires  us to make assumptions to determine expected risk-free
        interest  rates,  stock  price  volatility,  dividend  yield  and
        weighted-average  option  life.  To

                                       24
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

        the  extent,  such things as actual volatility or life of the options is
        different  from  estimated,  amounts  expensed will be more or less than
        would  have  been  recorded  otherwise.

     *  We  maintain  allowances  for  doubtful  accounts  for  estimated losses
        resulting from the inability of our residents to make required payments.
        If  the  financial  condition  of  our  residents  were  to deteriorate,
        resulting in an impairment of their ability to make payments, additional
        allowances  may  be  required.

     *  We record a valuation allowance to reduce our 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. We have considered future taxable
        income  and  ongoing  prudent  and  feasible  tax planning strategies in
        assessing the need for the valuation allowance. However, in the event we
        were  to  determine  that  we  would be able to realize our deferred tax
        assets in the future in excess of our net recorded amount, an adjustment
        to  the  deferred  tax  asset  would  increase income in the period such
        determination  was  made.


COMMON-SIZE  INCOME  STATEMENTS  AND  PERIOD-TO-PERIOD  PERCENTAGE  CHANGE

The  following  table  sets forth, for the periods indicated, certain items from
our  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)
                                         ---------------------------------------  ------------------------------------
                                             2003          2002          2001         2003-2002         2002-2001
                                         ------------  ------------  ------------  ----------------  ----------------
<S>                                      <C>           <C>           <C>           <C>               <C>
Revenues: . . . . . . . . . . . . . . .        100.0%        100.0%        100.0%             35.0%              8.9%
Expenses:
     Community operations . . . . . . .         61.6          61.3          57.5              35.7              16.1
     General and administrative . . . .         11.6          13.8          12.7              13.9              18.2
     Depreciation and amortization. . .          3.5           4.7           5.2               1.6              (0.5)
     Facility lease expense . . . . . .         19.9          19.6          19.3              36.9              10.5
                                         ------------  ------------  ------------  ----------------  ----------------
         Total operating expenses . . .         96.6          99.4          94.7              31.3              14.3
                                         ------------  ------------  ------------  ----------------  ----------------
Income from operations. . . . . . . . .          3.4           0.6           5.3             596.8             (86.7)
Other income (expense)
     Interest income. . . . . . . . . .          0.3           0.3           0.7              65.3             (58.9)
     Interest expense . . . . . . . . .         (6.3)         (7.7)         (9.4)             12.1             (11.8)
     Other, net . . . . . . . . . . . .          1.0           2.7           0.4             (48.3)            606.5
                                         ------------  ------------  ------------  ----------------  ----------------
          Net other expense . . . . . .         (5.0)         (4.7)         (8.3)             43.4             (38.5)
                                         ------------  ------------  ------------  ----------------  ----------------

          Loss before income taxes.....         (1.6)         (4.1)         (3.0)            (45.3)             47.0
          Provision for income taxes. .         (0.2)            -             -               N/A               N/A
                                         ------------  ------------  ------------  ----------------  ----------------
          Net loss. . . . . . . . . . .        (1.8%)        (4.1%)        (3.0%)           (38.5%)             47.0%
                                         ============  ============  ============  ================  ================
</TABLE>


                                       25
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Comparison  of  the  Years  Ended  December  31,  2003  and  2002
-----------------------------------------------------------------

Total  Operating Revenues:  Total operating revenues for the year ended December
31,  2003,  increased  by $53.6 million to $206.7 million from $153.1 million in
2002,  or  35.0%.  Approximately  $36.3 million of the increase reflects revenue
from  24  communities that we began leasing in late 2002 and an 8 building lease
acquisition in the second quarter of 2003.  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 (excluding
the acquisition impact, which was favorable by $68) was $2,699 for 2003 compared
to  $2,577  for  2002,  an increase of approximately 5.6%.  These increases were
partially offset by a decrease in the occupancy rate of 3.5 percentage points to
77.4%  for  2003 from 80.9% for 2002.  However, the occupancy rate excluding the
acquisition  impact,  which  was unfavorable by 4.2 percentage points, decreased
0.2  percentage  points  from  the  prior  year.  Management  fees  decreased by
$649,000  in  the  year  ended  December  31,  2003,  compared to 2002.  This is
primarily  due  to  the  termination, expiration, or sale of various communities
under  management contracts during 2003.  As of December 31, 2003, we managed 47
communities  compared  to  95  as  of December 31, 2002, a decline of 48 managed
communities.  Of  the 48 previously managed communities, 29 are currently leased
and  included  in  our  consolidated  portfolio  at  December  31,  2003.

Community  Operations:  Community operating expenses for the year ended December
31, 2003, increased $33.5 million to $127.3 million from $93.8 million for 2002,
or  35.7%.  Approximately  $28.0  million  of  the  increase  reflects operating
expense  from  24  communities  that  we  began leasing in October 2002 and an 8
building  lease  acquisition in the second quarter of 2003.  The balance of this
change  was due to increases in personnel costs and increases in utilities, food
services,  health,  and  workers'  compensation  insurance  premiums.  Community
operating expenses as a percentage of total operating revenue increased to 61.6%
in  2003  from 61.3% in 2002, primarily as a result of these increased expenses.

General  and  Administrative:  General and administrative (G&A) expenses for the
year ended December 31, 2003, increased $2.9 million to $24.0 million from $21.1
million  for  2002,  or  13.9%.  We  experienced increases of approximately $2.7
million  in  personnel  costs  related  to  acquisitions and health and workers'
compensation  insurance.  As  a  percentage  of  total  operating  revenues, G&A
expenses decreased to 11.6% for 2003, compared to 13.8% for 2002, primarily as a
result  of  increased  revenue due to additional communities in our consolidated
portfolio.  Since  approximately  25%  of the communities we operate are managed
rather  than  owned or leased, G&A expense as a percentage of operating revenues
for  all  communities,  including  managed  communities  for which the operating
revenue  is  not  included in our consolidated financial statements, may be more
meaningful  for industry-wide comparisons.  These percentages were 6.3% and 6.0%
for  2003  and  2002,  respectively.

Depreciation and Amortization:  Depreciation and amortization for the year ended
December  31,  2003, and 2002, were approximately $7.3 million and $7.2 million,
respectively.  In  2003,  this  represents  3.5%  of  total  operating  revenues
compared  to  4.7% for 2002.  The decrease as a percentage of revenues is due to
increased  revenues  from  our  consolidated  portfolio  of  communities.

Facility  Lease Expense:  Facility lease expense for the year ended December 31,
2003,  was  $41.0  million compared to $30.0 million for the year ended December
31,  2002,  representing  an increase of $11.0 million, or 36.9%.  Approximately
$6.7 million of the increase reflects rental expense from 24 communities that we
began  leasing in October 2002 and an 8 building lease acquisition in the second
quarter of 2003.  Approximately $2.6 million of the increase was the result of a
lease  acquisition  of  the Emeritrust II communities as discussed previously in
"Significant  2003  Transactions  -  Emeritrust  Transactions".  Approximately
$733,000  of  the  increase  was the result of the sale-leaseback transaction in
connection with the repurchase of the Series A Preferred Stock also discussed in
"Significant  2003  Transactions - Repurchase of Series A Preferred Stock".  The
balance  of  the increase is primarily attributable to rental increases based on
community  performance  under  certain  of  our  leases  in 2003.  We leased 109
communities  as  of December 31, 2003, compared to 67 communities as of December
31, 2002.  Facility lease expense as a percentage of revenues increased to 19.9%
from  19.6%  for  the  years  ended  December  31, 2003, and 2002, respectively.

Interest  Income:  Interest  income  for  the  year ended December 31, 2003, was
$666,000  versus  $403,000  for  the  year  ended  December  31,  2002.  This is
primarily attributable to a higher return on certain restricted deposits related
to  a  sale-leaseback  transaction  in  the  fourth  quarter  of  2002.

                                       26
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Interest  Expense:  Interest  expense  for the year ended December 31, 2003, was
$13.1  million  compared  to $11.7 million for the year ended December 31, 2002.
This  increase  of  $1.4  million, or 12.1%, is primarily attributable to higher
amounts  of  outstanding  debt  in  2003 compared to 2002, as a result of a debt
consolidation  in  connection  with  the  Emeritrust  II  transaction  and  the
repurchase of the Series A Preferred Stock all as discussed in "Significant 2003
Transactions."  As  a  percentage  of total operating revenues, interest expense
decreased  to  6.3%  from  7.7%  for  the year ended December 31, 2003 and 2002,
respectively,  reflecting  increased revenues in conjunction with lower interest
rates.

Other,  net:  Other, net decreased by $2.0 million to $2.1 million in income for
the year ended December 31, 2003, from $4.1 million in income for the year ended
December  31,  2002.  The amount for 2003 includes a gain of $1.4 million on the
sale  of  our  investment  in  ARV  Assisted  Living common stock in April 2003,
amortization  of  deferred  gains related to the transactions in connection with
the  repurchase  of  the Series A Preferred Stock of approximately $440,000, and
the  Emeritrust  II  leasehold  acquisition  of  approximately  $278,000  all as
discussed  in  "Significant  2003  Transactions".  The  amount for the year 2002
includes a $5.1 million gain related to discounts we received upon the payoff of
existing  financing, net of certain costs related to the transaction.  This gain
was  offset  by  approximately  $1.2 million in write-offs of existing loan fees
related  to  a  sales/leaseback  transaction  and  a  refinancing  transaction.

Income taxes.  Income taxes are due primarily because of gains on sale-leaseback
transactions  involving  several communities in the third quarter of 2003, which
have been deferred for accounting purposes.  We believe that we will be required
to  pay  an  alternative  minimum  income tax for 2003 on our federal income tax
return  and,  in  certain  states  that  have  alternative  minimum  income  tax
provisions,  we  will  pay  income  or  franchise  tax.

Preferred  dividends:  For  the  year  ended  December  31,  2003  and 2002, the
preferred  dividends  were  approximately  $6.2  million  and  $7.3  million,
respectively.  This  decrease  of $1.1 million is primarily due to a decrease of
$1.4  million in dividends for the Series A preferred stock, partially offset by
an  increase  of  $256,000  in  dividends for the Series B preferred stock.  The
Series  A preferred stock was repurchased in July and August 2003.  For the last
fourteen  quarters,  we  have not declared cash 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 $1.7 million and $2.1 million for 2003 and
2002,  respectively.

                                       27
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Comparison  of  the  Years  Ended  December  31,  2002  and  2001
-----------------------------------------------------------------

Total  Operating Revenues:  Total operating revenues for the year ended December
31,  2002,  increased  by $12.5 million to $153.1 million from $140.6 million in
2001, or 8.9%.  Approximately $9.7 million of the increase reflects revenue from
24 communities that we began leasing in late 2002.  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 and additional managed communities
throughout  2002  compared to 2001.  Average monthly revenue per unit was $2,577
for  2002  compared  to  $2,405  for  2001,  an  increase of approximately 7.2%.
Management  fees  increased by $2.2 million in the year ended December 31, 2002,
compared  to  2001.  This  is  primarily  due  to  the  addition  of  24 managed
communities  in  2002  compared  to  2001,  as  well as, increases in contingent
management fees from certain existing managed communities.  These increases were
partially offset by a decrease in the occupancy rate of 3.2 percentage points to
80.9%  for  2002  from  84.1%  for  2001.  Exclusive  of  the  24  communities
acquisition,  occupancy  decreased  to  81.1%  in  2002.

Community  Operations:  Community operating expenses for the year ended December
31,  2002, increased $13.0 million to $93.8 million from $80.8 million for 2001,
or 16.1%.  Approximately $9.7 million of the increase reflects operating expense
from  24 communities that we began leasing in October 2002.  The balance of this
change  was  due  to increases in personnel costs and above average increases in
liability,  health,  and  workers'  compensation  insurance premiums.  Community
operating expenses as a percentage of total operating revenue increased to 61.3%
in  2002  from 57.5% in 2001, primarily as a result of these increased expenses.

General  and  Administrative:  General and administrative (G&A) expenses for the
year ended December 31, 2002, increased $3.2 million to $21.1 million from $17.9
million  for  2001,  or  18.2%.  We  experienced increases of approximately $2.7
million  in  personnel  costs  related  to  acquisitions,  health  and  workers'
compensation insurance, and other acquisition related expenses.  As a percentage
of  total operating revenues, G&A expenses increased to 13.8% for 2002, compared
to  12.7%  for  2001, primarily as a result of higher expenses due to additional
communities  in  our  consolidated  portfolio.  Since  more  than  half  of  the
communities we operated were managed rather than owned or leased, G&A expense as
a  percentage  of  operating  revenues  for  all  communities, including managed
communities  for which the operating revenue is not included in our consolidated
financial  statements,  may  be  more  meaningful for industry-wide comparisons.
These  percentages  were  6.0%  and  6.6%  for  2002  and  2001,  respectively.

Depreciation and Amortization:  Depreciation and amortization for the year ended
December  31,  2002, and 2001, were approximately $7.2 million and $7.3 million,
respectively.  In  2002,  this  represents  4.7%  of  total  operating  revenues
compared  to  5.2% for 2001.  The decrease as a percentage of revenues is due to
increased  revenues  from  leased  communities.

Facility  Lease Expense:  Facility lease expense for the year ended December 31,
2002,  was  $30.0  million compared to $27.1 million for the year ended December
31,  2001,  representing  an  increase of $2.9 million, or 10.5%.  Approximately
$1.5 million of the increase reflects rental expense from 24 communities that we
began  leasing  in October 2002.  Approximately $848,000 of the increase was the
result  of  a  sale-leaseback transaction related to four communities, offset by
the  disposition  of  one  leased  community  and  the  repurchase  of  a leased
community.  The  balance  of  the  increase  is primarily attributable to rental
increases  based  on  community performance under certain of our leases in 2002.
We  leased 67 communities as of December 31, 2002, compared to 42 communities as
of  December  31,  2001.  Facility  lease  expense  as  a percentage of revenues
increased  to  19.6% from 19.3% for the years ended December 31, 2002, and 2001,
respectively.

Interest  Income:  Interest  income  for  the  year ended December 31, 2002, was
$403,000  versus  $980,000  for  the  year  ended  December  31, 2001.  This was
primarily  attributable  to  declining  interest  rates.

Interest  Expense:  Interest  expense  for the year ended December 31, 2002, was
$11.7  million  compared  to $13.3 million for the year ended December 31, 2001.
This  decrease  of  $1.6 million, or 11.8%, is primarily attributable to reduced
amount  of  outstanding  debt  in  2002  compared  to  2001,  as  a  result  of
sales-leaseback  and  refinancing  transactions  and lower interest rates on our
variable  rate  debt.  As  a  percentage  of  total operating revenues, interest
expense  decreased  to  7.7%  from 9.5% for the year ended December 31, 2002 and
2001,  respectively,  reflecting  increased  revenues  in conjunction with lower
interest  rates.

                                       28
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Other,  net:  Other, net increased by $3.5 million to $4.1 million in income for
the  year  ended  December  31,  2002,  from  $581,000 income for the year ended
December  31,  2001.  The  amount for the year 2002 includes a $5.1 million gain
related  to  discounts we received upon the payoff of existing financing, offset
by  certain  costs  related  to  the  transaction.  This  gain  was  offset  by
approximately  $1.2  million  in  write-offs  of existing loan fees related to a
sales-leaseback  transaction  and a refinancing transaction.  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 net gain of $1.1 million on
sale  of  two  communities.

Preferred  dividends:  For  the  year  ended  December  31,  2002  and 2001, the
preferred  dividends  were  approximately  $7.3  million  and  $6.4  million,
respectively.  As  of  December  31, 2002, for the previous ten quarters, we had
not  declared  cash  dividends on our preferred stock but had 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  for  both  2002  and  2001.  In  addition,  because  the board of
directors  did  not  declare  dividends on our Series A preferred stock for more
than  six quarters, effective January 1, 2002, such dividends were calculated on
a  compounded  cumulative basis, retroactive to our last payment, until they are
paid  current.  Had  we  been  required  to pay the higher rate for the Series A
preferred  stock,  both  our  preferred  dividends  and  net  loss  to  common
shareholders  would  have  increased  $275,000  and  $19,000  for 2001 and 2000,
respectively.  This  combined  amount of $294,000 was recognized in 2002 as well
as  an  additional  cumulative  compounded  dividend  of  $622,000  for  2002.


                                       29
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Same  Community  Comparison

Three  months  ended  December  31,  2003,  and  2002:
------------------------------------------------------

We operated 59 owned or leased communities on a comparable basis during both the
three months ended December 31, 2003 and 2002.  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, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    Three Months
                                                 Ended December 31,
                                             --------------------------
                                                                          Dollar     % Change
                                                 2003          2002       Change   Fav / (Unfav)
                                             ------------  ------------  --------  -------------
                                                               (In thousands)

<S>                                          <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . . . . . . . . .  $    34,494   $    33,516   $   978            2.9%
Community operating expenses. . . . . . . .      (20,442)      (21,674)    1,232            5.7
                                             ------------  ------------  --------  -------------
    Community operating income. . . . . . .       14,052        11,842     2,210           18.7
Depreciation & amortization . . . . . . . .       (1,347)       (1,572)      225           14.3
Facility lease expense. . . . . . . . . . .       (7,956)       (6,806)   (1,150)         (16.9)
                                             ------------  ------------  --------  -------------
    Operating income. . . . . . . . . . . .        4,749         3,464     1,285           37.1
Interest expense, net . . . . . . . . . . .       (2,209)       (2,363)      154            6.5
                                             ------------  ------------  --------  -------------
    Operating income after interest expense  $     2,540   $     1,101   $ 1,439          130.7%
                                             ============  ============  ========  =============
</TABLE>

The  same communities represented $34.5 million or 57.6% of our total revenue of
$59.9 million for the fourth quarter of 2003.  Same community revenues increased
by $978,000 or 2.9% for the quarter ended December 31, 2003, from the comparable
period  in  2002.  This  was  primarily  due  to rate increases, which increased
revenue per unit by 4.4%, partially offset by a decrease in average occupancy to
81.6%  in  the  fourth quarter of 2003 from 82.3% in the fourth quarter of 2002.
Facility lease expense for the fourth quarter of 2003 increased primarily due to
various  rent  escalators related to certain leased facilities.  For the quarter
ended  December  31, 2003, our operating income after interest expense increased
to  $2.5  million from $1.1 million for the comparable period of 2002, primarily
as  a  result  of  a  combination  of  increased  rates  and decreased community
operating  expenses  mainly  due to improvements in personnel and related costs;
taxes,  licenses,  and  fees;  insurance;  and  other operating expenses in 2003
compared  to  2002.

                                       30
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Year  ended  December  31,  2003,  and  2002:
---------------------------------------------
We operated 59 owned or leased communities on a comparable basis during both the
twelve  months ended December 31, 2003 and 2002.  The following table sets forth
a  comparison  of  same  community  results of operations, excluding general and
administrative  expenses,  for  2003  and  2002.


<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                             --------------------------
                                                                          Dollar     % Change
                                                 2003          2002       Change   Fav / (Unfav)
                                             ------------  ------------  --------  -------------
                                                              (In  thousands)
<S>                                          <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . . . . . . . . .  $   136,213   $   130,956   $ 5,257            4.0%
Community operating expenses. . . . . . . .      (82,133)      (83,394)    1,261            1.5
                                             ------------  ------------  --------  -------------
    Community operating income. . . . . . .       54,080        47,562     6,518           13.7
Depreciation & amortization . . . . . . . .       (5,943)       (6,098)      155            2.5
Facility lease expense. . . . . . . . . . .      (28,844)      (27,405)   (1,439)          (5.3)
                                             ------------  ------------  --------  -------------
    Operating income. . . . . . . . . . . .       19,293        14,059     5,234           37.2
Interest expense, net . . . . . . . . . . .       (9,755)       (9,108)     (647)          (7.1)
                                             ------------  ------------  --------  -------------
    Operating income after interest expense  $     9,538   $     4,951   $ 4,587           92.6%
                                             ============  ============  ========  =============
</TABLE>


The same communities represented $136.2 million or 65.9% of our total revenue of
$206.7  million  for  the year ended December 31, 2003.  Same community revenues
increased by $5.3 million or 4.0% for the year ended December 31, 2003, from the
year  ended  December  31, 2002.  The increase in revenue is attributable to our
rate  enhancement  program,  which  resulted  in  an  increase in same community
average monthly revenue per unit to $2,715 for 2003, from $2,585 for 2002.  This
is  an  increase  of  $130  or  5.0%.  These  results were partially offset by a
decrease  in  occupancy  to  81.8%  in  2003 from 81.9% in 2002.  Facility lease
expense  for  the  year  ended  December  31,  2003,  increased primarily due to
variable  rent  escalators  related to certain leased communities.  For the year
ended  December  31, 2003, our operating income after interest expense increased
to  $9.5  million  from  $5.0  million  for  2002,  primarily  as  a result of a
combination of increased rates and decreased community operating expenses mainly
due to improvements in taxes, licenses, and fees; insurance; and other operating
expenses  in  2003  compared  to  2002.



                                       31
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the year ended December 31, 2003, net cash provided by operating activities
was  $6.4  million compared to $3.8 million for the prior year.  The decrease in
net  loss  of  $2.4 million between 2002 and 2003 was a major contributor to our
increased  operating  cash flow.  Increases in current liabilities provided cash
of  approximately  $4.1 million primarily due to an increase in accounts payable
of  $2.9  million and an increase in deferred revenue of $3.1 million, partially
offset by decreases in other current liabilities of $1.9 million.  Net cash used
by  increases  in  current  assets  were  approximately $900,000, primarily from
increases  in  prepaid  expenses.

Net cash provided by investing activities amounted to $23.0 million for the year
ended  December  31,  2003, and was comprised primarily of proceeds from sale of
property  and  equipment  of  $44.8  million,  proceeds  from sale of investment
securities of $2.9 million, repayment of advances to affiliates of $1.5 million,
which  was  partially  offset by management and lease acquisition costs of $12.6
million, a $7.7 million investment in Alterra, which includes transaction costs,
acquisition  of  property  and  equipment of $2.7 million, and the purchase of a
minority  partner's  interest  of  $2.5 million.  Net cash provided by investing
activities  amounted  to  $3.2 million for the year ended December 31, 2002, and
was  comprised primarily of proceeds from sale of property and equipment related
to  refinancing  of  four communities through sale/leaseback transactions, which
was  partially offset by the acquisition of property, equipment, new leases, and
lease  improvements.

For  the year ended December 31, 2003, net cash used in financing activities was
$30.3  million  primarily  from  the  repurchase of Series A Preferred Stock for
$20.5  million,  long-term  debt  repayments  of  $24.4 million, short-term debt
repayments  of  $2.8  million,  and  an  increase in restricted deposits of $1.6
million,  partially  offset  by  proceeds  from  long-term  borrowings  of $19.6
million.  For  the  year  ended  December  31,  2002, net cash used in financing
activities  was  $9.9  million  primarily  from  short-term  and  long-term debt
repayments,  and  financing  and  debt  issuance  costs.

We  have  incurred  significant  operating losses since our inception and have a
working  capital  deficit  of  $33.4  million,  although $6.1 million represents
deferred revenue and $8.2 million of preferred dividends is due only if declared
by  our  board  of directors.  In 2003, 2002, and 2001, we reported positive net
cash from operating activities in our consolidated statements of cash flows.  At
times in the past, however, we have been dependent upon third party financing or
disposition  of  assets  to  fund  operations  and  we cannot guarantee that, if
necessary  in  the future, such transactions will be available timely or at all,
or  on  terms  attractive  to  us.

In  2002, we refinanced substantially all of our debt obligations, extending the
maturities  of  such financings to dates in 2005 or thereafter, at which time we
will  need  to refinance or otherwise repay the obligations. As a consequence of
our  property acquisitions in 2003, our long-term debt has increased from $123.5
million  at  December  31, 2002, to $141.1 million at December 31, 2003, and our
obligations  under operating leases have increased from $289.7 million to $605.0
million  during  the  same  period.  In particular, the number of communities we
lease  increased  from  67  at December 31, 2002 to 109 at December 31, 2003. We
believe  that,  on the basis of the operating results of these communities (many
of which we managed) prior to the commencement of the leases, the cash flow from
such  communities  will  be adequate to support the increased lease obligations.
Many  of  our  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  17  owned  assisted living properties and 104 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. We expect
to  be  in  compliance  at  least  through  2004 and for the foreseeable future.

Management believes that we will be able to sustain positive operating cash flow
at least through 2004 and for the foreseeable future and will have adequate cash
from  operations  for all necessary investing and financing activities including
required  debt  service  and  capital  expenditures.


                                       32
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

The  following table summarizes our contractual obligations at December 31, 2003
(In  thousands):

<TABLE>
<CAPTION>

                                                                Payments Due by Period
                                            ---------------------------------------------------------------
                                                           Less than                                After 5
                                               Total        1 year     1 - 3 years   4 - 5 years     years
                                            ------------  -----------  -----------  -------------  ---------
<S>                                         <C>          <C>           <C>           <C>          <C>
Contractual Obligations
 Long-Term Debt, including current portion  $   141,138  $      4,750  $     75,274  $    60,508  $    606
 Operating Leases. . . . . . . . . . . . .  $   604,953  $     56,262  $    113,211  $   107,855  $327,625
 Convertible Debentures. . . . . . . . . .  $    32,000  $          -  $     32,000  $         -  $      -
</TABLE>



                                       33
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June  2001,  FASB  issued  SFAS  No.  143,  Accounting  for Asset Retirement
Obligations.  SFAS  No.  143  requires  us  to record the fair value of an asset
retirement  obligation  as  a liability in the period in which it incurs a legal
obligation  associated  with  the  retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal use of the
assets.  We  also record a corresponding asset that is depreciated over the life
of  the  asset.  Subsequent  to  the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to reflect
the  passage  of  time and changes in the estimated future cash flows underlying
the  obligation.  We adopted SFAS No. 143 on January 1, 2003.  However, adoption
of SFAS No. 143 did not have an impact on our financial condition and results of
operations.

In  April  2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4,  44  and  64,  Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS  No.  145  amends  existing  guidance  on reporting gains and losses on the
extinguishment  of  debt  to  prohibit the classification of the gain or loss as
extraordinary,  as  the use of such extinguishments have become part of the risk
management  strategy of many companies.  SFAS No. 145 also amends SFAS No. 13 to
require  sale-leaseback  accounting  for  certain  lease modifications that have
economic  effects similar to sale-leaseback transactions.  The provisions of the
Statement  related  to  the  rescission of Statement No. 4 are applied in fiscal
years  beginning after May 15, 2002.  The provisions of the Statement related to
Statement  No.  13 were effective for transactions occurring after May 15, 2002,
with  early  application encouraged.  The adoption of SFAS No. 145 in the fourth
quarter  of  2002  had  no  effect  on  our  consolidated  financial statements.

In  November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and  Disclosure  Requirements  for  Guarantees, Including Indirect Guarantees of
Indebtedness  to Others, an interpretation of FASB Statements No. 5, 57, and 107
and  a rescission of FASB Interpretation No. 34.  This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements  about  its  obligations under guarantees issued.  The Interpretation
also  clarifies  that  a  guarantor  is required to recognize, at inception of a
guarantee,  a  liability  for  the fair value of the obligation undertaken.  The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable  to  guarantees  issued  or  modified  after  December 31, 2002.  The
disclosure  requirements  are  effective  for financial statements of interim or
annual  periods  ending after December 15, 2002.  Adoption of Interpretation No.
45  did not have an impact on our financial condition and results of operations.

In  January  2003,  the  FASB  issued  Interpretation  No.  46  (FIN  No.  46),
"Consolidation  of Variable Interest Entities."  This Interpretation was revised
in December 2003 and addresses consolidation by business enterprises of variable
interest  entities (VIE's).  A VIE is subject to the consolidation provisions of
FIN  No.  46  if  it  cannot support its financial activities without additional
subordinated  financial  support from third parties or its equity investors lack
any  one  of the following characteristics:  the ability to make decisions about
its  activities  through  voting  rights, the obligation to absorb losses of the
entity  if they occur, or the right to receive residual returns of the entity if
they  occur.  FIN  No.  46  requires  a  VIE  to  be consolidated by its primary
beneficiary.  The  primary  beneficiary  is  the  party  that holds the variable
interests  that  expose  it to a majority of the entity's expected losses and/or
residual  returns.  For  purposes  of  determining  a  primary  beneficiary, all
related  party  interests must be combined with our actual interests in the VIE.
The application of this Interpretation is immediate for VIE's created or altered
after January 31, 2003, and is effective at the end of the first quarter of 2004
for  variable  interest  entities  that  existed  prior  to  February  1,  2003.

We  have  evaluated  the  impact  of FIN No. 46 on all its current related party
management  agreements  including  those  more  fully  discussed  under  Item 13
"CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS,"  under sections denoted as
"Emeritrust  Transactions"  and  "Baty Transactions" as well as other management
agreements  and  other arrangements with potential VIE's.  We doe not believe we
have  any  VIE's  that  will  require  consolidation.

In  May  2003,  the  FASB  issued SFAS No. 150, Accounting for Certain Financial
Instruments  with  Characteristics  of  both Liabilities and Equity.  For public
enterprises,  like  us,  this  statement  is effective for financial instruments
entered  into  or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.  Management
has  determined  that  none  of our current financial instruments are covered by
this  pronouncement.


                                       34
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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 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, which may materially
differ  from  our  actual  future  experience  involving any one or more of such
matters  and  subject  areas as a result of various factors, including: 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 release
publicly  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 2003, 2002,
and  2001,  we  recorded  net losses before preferred dividends of $3.8 million,
$6.2  million, and $4.2 million, respectively.  We believe that the historically
aggressive  growth  of  our  portfolio through acquisitions and developments and
related  financing  activities, as well as our inability (along with much of the
assisted  living  industry) to increase occupancy rates at our communities, were
among  the causes of these losses.  To date, at many of our communities, we have
been  generally  able  to stabilize occupancy and rate structures to levels that
have resulted in positive cash flow but not earnings for the company as a whole.
Our  operations  may not become profitable in line with our current expectations
or  may  not  become  profitable  at  all.

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, 2003, we had total debt of $141.1 million, with minimum
principal  payments of about $4.8 million due in 2004.  At December 31, 2003, we
were  obligated  under long-term operating leases requiring minimum annual lease
payments  of  which $56.3 million is payable in 2004.  In addition, we will have
approximately  $6.4  million  and  $68.9  million  in  principal  amount of debt
repayment obligations that become due in 2005 and 2006, respectively.  If we are
unable  to  generate  sufficient cash flow to make such payments as required and
are  unable  to  renegotiate  payments  or  obtain  additional  equity  or  debt
financing, a lender could foreclose on our communities secured by the respective
indebtedness  or,  in the case of an operating lease, could terminate our lease,
resulting in loss of income and 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.

                                       35
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

Because  we  are  highly  leveraged,  we  may not be able to respond to changing
business  and  economic  conditions  or  continue with selected acquisitions.  A
substantial  portion of our future cash flow will be devoted to debt service and
lease  payments.  In  the past, we have frequently been dependent on third party
financing and disposition of assets to fund these obligations in full and we may
be  required  to do so in the future.  In addition, we are periodically required
to refinance these obligations as they mature.  As a consequence of acquisitions
of  communities,  we  have  substantially  increased  our leverage in 2003.  Our
long-term debt has increased from $123.5 million at December 31, 2002, to $141.1
million  at  December  31,  2003 and our obligations under operating leases have
increased  from  $289.7 million to $605.0 million during the same period.  These
circumstances  reduce  our  flexibility  and  ability to respond to our business
needs,  including  changing business and financial conditions such as increasing
interest  rates  and  opportunities  to  expand  our  business  through selected
acquisitions.

We  may be unable to increase or stabilize our occupancy rates that would result
in  positive  earnings.  In  previous years, we have been unable to increase our
occupancy  to  levels  that would result in net income on a sustained basis. Our
historical  losses have resulted, in part, from occupancy levels that were lower
than  anticipated when we acquired or developed our communities. During the last
three  years, occupancy levels declined, although last year occupancy was nearly
flat,  excluding  the  effects of acquired communities. 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.

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 failed to
comply  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 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 negligence, malpractice, or other 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 policies with coverage
and  self-insured retention (with respect to general and professional liability)
and  deductibles  (with respect to auto liability and property damage claims) we
deem  appropriate  based  on  the  nature  and risks of our business, historical
experience,  industry  standards,  and  the availability of insurance.  We could
incur  liability  in  excess  of our insurance coverage or experience claims not
covered  by  our  insurance,  including  punitive  damages.  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,  retained  losses  relating  to  high
self-insured  retention  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  reposition  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

                                       36
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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.

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

                                       37
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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 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 and Columbia-Pacific
Group,  Inc.  Mr. Baty, our Chief Executive Officer, is a principal shareholder,
director,  and  Chairman  of the Board of Holiday Retirement Corporation, and is
the  principal  owner  of Columbia-Pacific Group, Inc.  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.  Columbia-Pacific and
affiliated  partnerships  operate  assisted  living  communities and independent
living  facilities, many of which we manage under various management agreements.
The  financial  interests  and  management and financing responsibilities of Mr.
Baty  with  respect  to  Holiday  and  Columbia-Pacific  and  their  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  and  is  the  principal  owner  of  Columbia-Pacific,
circumstances  could  arise  that  would  distract him from our operations.  Our
interests  and  those  of  Holiday  and  Columbia-Pacific 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 a number of entities that are owned or
controlled  by  Mr.  Baty,  whose  interests  with  respect  to  these companies
occasionally may conflict with ours.  We have entered into agreements, including
most  of  our management agreements, with a number of entities that are owned or
controlled by Mr. Baty.  Under these agreements, we provide management and other
services  to  senior  housing  and  assisted  living  communities owned by these
entities  and  we  have  material agreements with these entities relating to the
purchase,  sale,  and financing of a number of our operating communities.  There
is  a risk that the administration of these and any future arrangements could be
adversely  affected  by  these continuing relationships because our interest and
those  of  Mr.  Baty  may  not  be  consistent  at  all  times.

Some  of  our recent transactions and the operations of certain communities that
we  manage  are  supported  financially  by Mr. Baty with limited guarantees and
through  his  direct  and  indirect  ownership  of such communities; we would be
unable  to  benefit from these transactions and managed communities without this
support.  Our  recent transactions to lease an additional 24 communities and our
agreements  to  manage 24 communities involve limited guarantees by Mr. Baty and
rely  on  his  direct  and  indirect  ownership of the communities involved.  We
believe  that  we  would  be  unable to take advantage of these transactions and
management  opportunities  without  Mr. Baty's individual and financial support.
The  ongoing  administration  of these transactions, however, could be adversely
affected  by  these  continuing relationships because our interests and those of
Mr.  Baty  may not be consistent at all times.  In addition, we cannot guarantee
that  such  support  will  be  available  in  the  future.

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.

                                       38
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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 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  patterns,
     *  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.

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 29, 2004, 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 61% of the voting power of
our  outstanding  common  and  preferred  stock.  Accordingly,

                                       39
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

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.

                                       40
<PAGE>

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  table  below  provides  information about our financial instruments entered
into  for  purposes other than trading 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, 2003.  For our debt obligations with variable
interest  rates,  the rates presented reflect the current rates in effect at the
end  of 2003.  These rates are based on LIBOR plus margins ranging from 4.15% to
7.75%.

<TABLE>
<CAPTION>

                             Expected maturity date (In thousands)
                    --------------------------------------------------------
                                                                                                Average
                                                                                        Fair    interest
                     2004     2005     2006     2007     2008    Thereafter    Total    value     rate
                    -------  -------  -------  -------  -------  -----------  -------  -------  ---------
<S>                 <C>      <C>      <C>      <C>      <C>      <C>          <C>      <C>      <C>
Long-term debt:
     Fixed rate. .  $ 2,867  $ 4,611  $ 7,554  $40,412  $20,096  $       606  $76,146  $72,248      9.90%
     Variable rate  $ 1,883  $ 1,806  $61,303  $     -  $     -  $         -  $64,992  $64,992      6.27%
</TABLE>


Our  earnings  are  affected  by  changes  in  interest rates as a result of our
short-term and long-term borrowings. We manage this risk by obtaining fixed rate
borrowings  when  possible.  At  December 31, 2003, our variable rate borrowings
totaled approximately $65.0 million. Currently, all our variable rate borrowings
are  based upon LIBOR, subject to a LIBOR floor ranging from 2.0% to 2.5%. As of
December 31, 2003, the LIBOR rates were below the floor. If LIBOR interest rates
were to average 2% more, our annual interest expense and net loss would increase
approximately $483,000 with respect to our variable rate borrowings. This amount
is  determined  by  considering the impact of hypothetical interest rates on our
outstanding  variable  rate  borrowings  as  of  December 31, 2003, and does not
consider  changes in the actual level of borrowings that may occur subsequent to
December  31,  2003.  If LIBOR rates should increase above the floor, we will be
exposed  to  higher interest expense costs. 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 actions that management might be
able to take with respect to our financial structure to mitigate the exposure to
such  a  change.


                                       41
<PAGE>
ITEM  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

The  financial  statements and the Independent Auditors' report are listed after
Item  15  and  are  included  beginning  on  Page  F-1.

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

None.

ITEM  9A.  CONTROLS  AND  PROCEDURES

Evaluation  of  disclosure  controls  and  procedure
The  Company  maintains a set of disclosure controls and procedures and internal
controls  designed  to  ensure  that information required to be disclosed in its
filings  under  the  Securities  Exchange  Act  of  1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.  Based  on  their evaluation for the fourth quarter of 2003 and as of the
end  of  the  period  covered  by this Annual Report on Form 10-K, the Company's
Chief  Executive  Officer  and  Chief  Financial Officer have concluded that the
Company's  disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e)  under  the  Securities  Exchange  Act  of 1934 (the Exchange Act) are
effective  to ensure that information required to be disclosed by the Company in
reports  that it files or submits under the Exchange Act is recorded, processed,
summarized,  and  reported  within  the  time periods specified in SEC rules and
forms.

Changes  in  internal  controls
There  were  no  changes  during  the  fourth  quarter in the Company's internal
control  over  financial  reporting  in connection with this evaluation that has
materially  affected, or is reasonably likely to materially affect, our internal
control  over  financial  reporting.



                                       42
<PAGE>

                                    PART III

ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

The  information  required  by  this Item is incorporated herein by reference to
"Executive  Officers  of  the Registrant" in Part I of this Form 10-K and in our
definitive  Proxy  Statement relating to our 2004 annual meeting of shareholders
(the  "Proxy  Statement")  to  be filed with the SEC pursuant to Regulation 14A.


ITEM  11.  EXECUTIVE  COMPENSATION

The information required by this Item is incorporated herein by reference to our
Proxy  Statement  to  be  filed  with  the  SEC  pursuant  to  Regulation  14A.


ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           EQUITY  COMPENSATION  PLAN  INFORMATION

The information required by this Item is incorporated herein by reference to our
Proxy  Statement  to  be  filed  with  the  SEC  pursuant  to  Regulation  14A.

EQUITY  COMPENSATION  PLAN  INFORMATION


The  following  table  provides  information  about our common stock that may be
issued upon the exercise of options under our existing equity compensation plans
and  arrangements  as  of  December 31, 2003, including the 1995 Stock Incentive
Plan  and the Employee Stock Purchase Plan.  The material terms of each of these
plans  and  arrangements  are  described  in  note  12 to the December 31, 2003,
consolidated  financial  statements.

<TABLE>
<CAPTION>




                                                                                       Number of shares remaining    Total of
                           Number of shares to be                                     available for future issuance   shares
                          issued upon exercise of      Weighted-average exercise        under equity compensation   reflected in
                            outstanding options,     price of outstanding options,       plans(excluding shares     columns (a)
                            warrants and rights           warrants and rights           reflected in column (a)(1)     and (c)
                            ----------------------  -------------------------------  ----------------------------  --------------
Plan Category                       (a)                           (b)                              (c)                   (d)
<S>                       <C>                       <C>                              <C>                           <C>
Equity compensation plans
approved by shareholders . .             2,151,443  $                          2.89                       410,008      2,561,451

Equity compensation plans
not approved by shareholders                     -                                -                             -               -
                            ----------------------  -------------------------------  ----------------------------  --------------

Total. . . . . . . . . . . .             2,151,443  $                          2.89                       410,008      2,561,451
                            ======================  ===============================  ============================  ==============
</TABLE>
__________________
(1)  Represents  224,025  shares available for purchase under the Employee Stock
Purchase  Plan  and  185,983  shares  available  for  grant under the 1995 Stock
Incentive  Plan,  which  includes  director  stock  options.

                                       43
<PAGE>

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

The information required by this Item is incorporated herein by reference to our
Proxy  Statement  to  be  filed  with  the  SEC  pursuant  to  Regulation  14A.


ITEM  14.  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

The information required by this Item is incorporated herein by reference to our
Proxy  Statement  to  be  filed  with  the  SEC  pursuant  to  Regulation  14A.

                                       44
<PAGE>

ITEM  15.  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:

                                                                        PAGE
                                                                        ----
     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
      and  Comprehensive Operations                                      F-7
     Notes to Consolidated Financial Statements                          F-8

(2)     FINANCIAL  STATEMENT  SCHEDULES.
     Independent  Auditors'  Report on Financial Statement Schedule      S-1
     Schedule  II  Valuation  and  Qualifying  Accounts                  S-2

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.
     1.  A  report  on  Form  8-K  (Item 2) dated October 13, 2003, was filed on
        October  14,  2003,  related  to  the  acquisition  of  21  communities.
     2. A report on Form 8-K (Item 5 and 7) dated October 15, 2003, was filed on
        October  16,  2003,  related  to  a press release about an update to the
        Alterra  transaction.
     3. A report on Form 8-K (Item 12) dated November 7, 2003, was furnished on
        November  7,  2003, related to a press release announcing the results of
        operations  for  the  third  quarter  of  2003.

(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>                                                                                                              <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, L.L.C. ("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)

    10.9      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 Voorhees, New Jersey,
              Green Meadows--Allentown in Allentown, Pennsylvania, Green Meadows--Dover in Dover, Delaware,
              Green Meadows--Latrobe in
                                       45
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number


              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)
  10.9.3      Amended and Restated Master Lease Agreement dated September 18, 2002, between Health Care
              Property Investors, Inc., HCPI Trust, Texas HCP Holding, L.P. ("Lessor")
              and Emeritus Corporation, ESC III, L.P. ("Lessee").                                                             (27)
  10.9.4      Promissory Note between Emeritus Corporation ("Maker") Health Care Property Investors, Inc. ("Lender"),
              dated September 18, 2002.                                                                                       (27)

   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)

   10.13      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)

   10.15      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)

                                       46
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 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)
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)

   10.18      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)

   10.20      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
 10.21.2      Partnership Interest Purchase Agreement dated June 4, 1998, between Emeritus Real Estate L.L.C. IV ("Seller")
              and Columbia Pacific Master Fund 98 General Partnership ("Buyer") (Exhibit 10.3.2).                             (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)

   10.22      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, L.L.C. ("Lessee")
              dated November 1, 1996, with respect to Camlu Retirement (Exhibit 10.6.1).                                       (4)
                                       47
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 10.26.2      Management Services Agreement dated January 1, 1998, between the registrant ("Manager") and
              Columbia House L.L.C. ("Lessee") with respect to York.                                                          (13)
 10.26.4      Management Services Agreement dated June 1, 1997, between the registrant ("Manager") and
              Columbia House L.L.C. ("Owner") with respect to Autumn Ridge (Exhibit 10.3.1).                                   (9)
 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 L.L.C. ("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 (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)

   10.29      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 L.L.C.,
              and LM Louisville Assisted Living L.L.C., ("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 L.L.C., ("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 L.L.C., ("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 L.L.C., ("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 L.L.C., ("Borrower") with respect to the development property in
              Chelmsford (Exhibit 10.58.7).                                                                                    (5)
 10.29.8      Real Estate Purchase and Sale Agreement under the purchase option on the lease dated January 1, 2000,
              between Auburn  Land L.L.C. ("Seller") and Emeritus Properties XIV, L.L.C. ("Buyer")  dated August 26, 2002.    (27)
 10.29.9      Sublease Termination and Release Agreement between Sage Assisted Living L.L.C. ("Landlord") and
              Emeritus Properties XIV, L.L.C. ("Tenant") dated August 26, 2002.                                               (27)
10.29.10      Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and
              Fixture Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc("Mortgagee")
              with respect to the Auburn, Massachusetts, Facility dated August 28, 2003.                                      (32)
10.29.11      Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and
              Fixture Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc("Mortgagee")
              with respect to the Louisville, Kentucky, Facility dated August 28, 2003.                                       (32)
10.29.12      Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and
              Fixture Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc("Mortgagee")
              with respect to the Rocky Hill, Connecticut, Facility dated August 28, 2003.                                    (32)
                                       48
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

10.29.13      Second Amendment to Lease Agreement between HCRI Eddy Pond Properties Trust ("Landlord")
              and the Registrant ("Tenant") with respect to the Auburn, Massachusetts, Facility dated June 30, 2003.          (32)
10.29.14      Second Amendment to Lease Agreement between HCRI Stone Creek Properties, LLC ("Landlord")
              and the Registrant ("Tenant") with respect to the Louisville, Kentucky, Facility dated June 30, 2003.           (32)
10.29.15      Second Amendment to Lease Agreement between HCRI Cold Spring Properties, LLC ("Landlord")
              and the Registrant ("Tenant") with respect to the Rocky Hill, Connecticut, Facility dated June 30, 2003.        (32)
10.29.16      Promissory Note in the amount of $3,100,000 dated August 28, 2003, between the registrant ("Borrower")          (32)
              and Health Care REIT, Inc("Lender") secured by the mortgage on the Ridgeland, Mississippi property.

   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) and Raymond R. Brandstrom (Exhibit 10.6.5).                                      (9)
 10.31.2      Raymond R. Brandstrom (Exhibit 10.11.1) and Frank A. Ruffo (Exhibit 10.11.3)                                     (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 La Casa Grande (Exhibit 10.2).                                                    (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)
 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,
              Emeritrust 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 L.L.C.
              (Exhibit 10.46.5).                                                                                              (16)
 10.34.6      Purchase and Sale Agreement by and between Mississippi Baptist Medical Enterprises, Inc. ("Seller"),
              ESC-RIDGELAND, LLC ("Purchaser"), Emeritus Properties XI, LLC ("Emeritus XI"),
              and Ridgeland Assisted Living LLC ("Company") dated September 29, 2003.                                         (32)

                                       49
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 10.34.7      Lease Agreement between HCRI Ridgeland Pointe Properties, LLC ("Landlord") and Ridgeland Assisted
              Living, LLC ("Tenant") dated September 29, 2003.                                                                (32)

   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)
 10.38.7      Purchase and Sale Agreement between TDC Convalescent, Inc.  ("Seller") and
              the registrant ("Purchaser") dated March 26, 2002.                                                              (25)

   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)
   10.45      1998 Employee Stock Purchase Plan (Exhibit 99.2).                                                               (14)

   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. ("RA L.L.C.") (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 L.L.C(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 L.L.C. (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 L.L.C. (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 L.L.C.
              and AL Investors L.L.C. (Exhibit 10.66.3).                                                                      (16)
 10.52.4      Guaranty of Management Agreement and Shortfall Funding Agreement dated December 30, 1998,
              between the registrant and AL Investors L.L.C. (Exhibit 10.66.4).                                               (16)
 10.52.5      Put and Purchase Agreement dated December 30, 1998, between Daniel R. Baty and
              AL Investors L.L.C. (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 L.L.C.                 (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 L.L.C.                                            (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 L.L.C.                                                                  (24)

                                       50
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 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 L.L.C.                (24)
10.52.10      Third Amendment to Put and Purchase Agreement (AL I - Emeritrust 25 Facilities) dated January 1, 2002,
              between Daniel R. Baty and AL Investors L.L.C.                                                                  (24)
10.52.11      Waiver, Consent, and Amendment to Management Agreement dated May 1, 2002, (AL I-Laurel Place)
              between Emeritus Management, L.L.C.,  the registrant, and AL I Investors, L.L.C.                                (25)
10.52.12      Third Amendment to Management Agreement with Option to Purchase by and among Emeritus Management
              LLC ("Emeritus Management"), Emeritus Management I LP ("Texas Management"), Emeritus Corporation
              ("Emeritus"), and AL Investors LLC ("AL Investors"), effective June 30, 2003.                                   (31)
10.52.13      Fourth Amendment to Management Agreement with Option to Purchase by and among Emeritus Management
              LLC ("Emeritus Management"), Emeritus Management I LP ("Texas Management"), Emeritus Corporation
              ("Emeritus"), and AL Investors LLC ("AL Investors"), dated September 30, 2003,  effective January 2, 2004.      (31)

10.52.14      Side Letter to Management Agreement with Option to Purchase by and among Emeritus Management LLC
              ("Emeritus Management"), Emeritus Management I LP ("Texas Manager"), Emeritus Corporation
              ("Emeritus"), and AL Investors LLC ("AL Investors"), effective June 30, 2003.                                   (31)

   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.
              and AL Investors II LLC (Exhibit 10.1.3).                                                                       (17)
 10.53.3      Guaranty of Management Agreement (AL II-14 Operating Facilities) dated March 26, 1999, between
              the registrant and AL Investors II L.L.C. (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 L.L.C., AL Investors II L.L.C.
              and AL Investors Development L.L.C. (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 L.L.C., Emeritus Management I, and AL Investors II L.L.C.           (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 L.L.C.,
              AL Investors II L.L.C. and AL Investors Development L.L.C.                                                      (24)
10.53.10      First Amendment to Management Agreement (AL II - 5 Development Facilities) dated January 1, 2002,
              between the registrant, Emeritus Management L.L.C., and AL Investors Development L.L.C.                         (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 L.L.C.,
              AL Investors II L.L.C., and AL Investors Development L.L.C.                                                     (24)
10.53.12      Third Amendment to Management Agreement (AL II - 14 Operating Facilities) (GMAC) dated January 1, 2002,
              between the registrant, Emeritus Management L.L.C., Emeritus Management I LP, and AL Investors II L.L.C.        (24)
10.53.13      Fourth Amendment to Management Agreement (AL II - 14 Operating Facilities) (GMAC) dated June 30, 2003,
              between the registrant, Emeritus Management L.L.C., Emeritus Management I LP, and AL Investors II L.L.C.        (31)

10.53.14      Amended and Restated Loan Agreement between Health Care REIT, Inc. ("Lender") and the registrant
              ("Borrower") dated September 30, 2003.                                                                          (31)
10.53.15      Amended and Restated Note for $25.8 million between Health Care REIT, Inc. ("Lender") and the registrant
              ("Borrower") dated September 30, 2003.                                                                          (31)

                                       51
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

10.53.16      Amended and Restated Leasehold Mortgage/Deed of Trust, Security Agreement, Assignment of Leases and Rents,
              Financing Statement and Fixture Filing by the registrant ("Trustor") and Commonwealth Land Title Insurance
              Company, Mid South Title Co., Lawyers Title of Arizona, Inc., Transnation Title & Escrow, Inc., Carson Mills,
              AmeriTitle, William Fairbanks, Lawyers Title Realty Services, Inc., Transnation Title Insurance Company
              (collectively "Trustee") in favor of Health Care REIT, Inc. ("Beneficiary") dated September 30, 2003.           (31)

10.53.17      Warrant for the Purchase of Shares of Common Stock by Emeritus Corporation ("Issuer"), for Senior Housing
              Partners I, LP ("Holder") for an aggregate of 400,000 shares, dated September 30, 2003.                         (31)
10.53.18      Master Agreement between Owners and Emeritus Corporation Regarding Sale of AL II Assisted Living
              Portfolio, dated September 30, 2003.                                                                            (31)

   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, L.L.C. ("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)
 10.55.3      Unsecured Promissory Note in the amount of $4,400,000 dated August 28, 2003, between the registrant
              ("Borrower") and Health Care REIT, Inc("Lender"). . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  (32)
 10.55.4      Lease Agreement between HCRI Drum Hill Properties, LLC ("Landlord") and Emeritus Properties IX, LLC
              ("Tenant") dated September 29, 2003.                                                                            (32)
 10.55.5      Lease Agreement between HCRI Fairmont Properties, LLC ("Landlord") and Emeritus Properties XII, LLC
              ("Tenant") dated September 29, 2003.                                                                            (32)
 10.55.6      Lease Agreement between HCRI Kirkland Properties, LLC ("Landlord") and Emeritus Properties X, LLC
              ("Tenant") dated September 29, 2003.                                                                            (32)

   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 L.L.C. (Exhibit 4.5).                                                                                   (19)

   10.62      Emerald Hills in Auburn
 10.62.2      Lease agreement dated September 5, 2001, between Health Care Property Investors, Inc. ("Lessor"),
              and Emeritus Corporation ("Lessee").                                                                            (24)

   10.65      Loyalton of Hattiesburg in Hattiesburg, Mississippi
 10.65.2      Purchase agreement for Hattiesburg between ALCO XII L.L.C. ("Seller") and the registrant ("Purchaser")
              dated March  27, 2002.                                                                                          (25)

   10.66      Loyalton of Biloxi in Biloxi, Mississippi
 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)

   10.68      Kingsley Place at Alexandria, Louisiana; Kingsley Place at Lake Charles,  Louisiana; Kingsley Place at
              Lafayette, Louisiana; Kingsley Place of Shreveport, Louisiana; Kingsley Place of Henderson, Texas;
              Kingsley Place at Oakwell Farms, Texas; Kingsley Place at the Medical Center, Texas; Kingsley Place at
              Stonebridge, Texas. The following agreements are representative of those executed in connection
              with these properties:
 10.68.1      Horizon Bay Lease Facilities Purchase Agreement between Integrated Living Communities of Alexandria, L.L.C.,
              Integrated Living Communities of Lake Charles, L.L.C., Integrated Living Communities of Lafayette, L.L.C.,
              Integrated Living Communities of Henderson, L.P., Integrated Living Communities of Oakwell, L.P.,
              Integrated Living Communities of San Antonio, L.P., and Integrated Living Communities of McKinney, L.P.,
              (collectively, the  "Seller") and the registrant ("Purchaser") dated April 4, 2002.                             (25)

                                       52
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 10.68.2      Horizon Bay Purchase Agreement between the registrant ("Purchaser") and Senior Lifestyle Shreveport, L.L.C.
              ("Seller"), dated April 17, 2002.                                                                               (25)
 10.68.3      First Amendment to the Horizon Bay Lease Facilities Purchase Agreement between the registrant ("Purchaser")
              and Integrated Living Communities of Alexandria, L.L.C.,  Integrated Living Communities of Lake Charles,
              L.L.C., Integrated Living Communities of Lafayette, L.L.C., Integrated Living Communities of Henderson, L.P.,
              Integrated Living Communities of Oakwell, L.P., Integrated Living Communities of San Antonio, L.P.,
              and Integrated Living Communities of McKinney, L.P., (collectively, the  "Seller") dated May 1, 2002.           (25)
 10.68.4      First Amendment to the Horizon Bay Purchase Agreement between the registrant ("Purchaser")
              and Senior Lifestyle Shreveport, L.L.C. ("Seller"), dated May 1, 2002.                                          (25)
 10.68.5      Amended and restated funding agreement between the registrant and HB-ESC I, L.L.C., HB-ESC II, L.L.C.,
              and HB-ESC V, L.P., dated May 1, 2002.                                                                          (25)
 10.68.6      Agreement to provide management services to assisted living facilities (Lafayette) between HB-ESC II, L.P.,
              and the registrant dated May 1, 2002.                                                                           (25)
 10.68.7      Agreement to provide management services to assisted living facilities (Lake Charles) between HB-ESC II, L.P.,
              and the registrant dated May 1, 2002.                                                                           (25)
 10.68.8      Agreement to provide management services to assisted living facilities (Alexandria) between HB-ESC II, L.P.,
              and the registrant dated May 1, 2002.                                                                           (25)
 10.68.9      Agreement to provide management services to assisted living facilities (Shreveport) between HB-ESC I, L.P.,
              and the registrant dated May 1, 2002.                                                                           (25)
10.68.10      Agreement to provide management services to assisted living facilities (Henderson) between HB-ESC V, L.P.,
              and the registrant dated May 9, 2002.                                                                           (25)
10.68.11      Agreement to provide management services to assisted living facilities (Medical Center) between
              HB-ESC V, L.P., and the registrant dated May 9, 2002.                                                           (25)
10.68.12      Agreement to provide management services to assisted living facilities (Oakwell Farms) between
              HB-ESC V, L.P., and the registrant dated May 9, 2002.                                                           (25)
10.68.13      Agreement to provide management services to assisted living facilities (Stonebridge) between
              HB-ESC V, L.P., and the registrant dated May 9, 2002.                                                           (25)
10.68.14      Second Amendment to the Horizon Bay Purchase Agreement between the registrant ("Purchaser")
              and Senior Lifestyle Shreveport, L.L.C. ("Seller"), dated May 31, 2002.                                         (25)
10.68.15      Third Amendment to the Horizon Bay Purchase Agreement between the registrant ("Purchaser")
              and Senior Lifestyle Shreveport, L.L.C. ("Seller"), dated June 14, 2002.                                        (25)
10.68.16      Fourth Amendment to the Horizon Bay Purchase Agreement between the registrant ("Purchaser")
              and Senior Lifestyle Shreveport, L.L.C. ("Seller"), dated June 28, 2002.                                        (25)
10.68.17      Termination of Amended and Restated Funding Agreement by and between Emeritus Corporation ("Emeritus")
              and HB-ESC I, LLC, HB-ESC II, LLC, and HB-ESC V, LP (collectively "HB Entities") effective June 30, 2003.       (31)

10.68.18      Global Amendment to Management Agreements by and between Emeritus Corporation ("Emeritus") and
              HB-ESC I, LLC, HB-ESC II, LLC, HB-ESC IV, LP, and HB-ESC V, LP (collectively "HB Licenses")
              effective June 30, 2003.                                                                                        (31)
10.68.19      Assignment and assumption of leases by and among HB-ESCII, LLC ("Assignor"), Emeritus Corporation,
              ("Assignee"), and Daniel R. Baty, ("Guarantor"), dated December 31, 2003.                                       (33)
10.68.20      Assignment and assumption of lease agreement (KP Stonebridge) by and among HB-ESC V, L.P., ("Assignor"),
              ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION,
              ("Emeritus"), DANIEL R.  BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
              formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
              dated December 31, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  (33)
10.68.21      Assignment and assumption of lease agreement (KP Henderson) by and among HB-ESC V, L.P., ("Assignor"),
              ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION,
              ("Emeritus"), DANIEL R.  BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
              formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
              dated December 31, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .  (33)
10.68.22      Assignment and assumption of lease agreement (KP Medical) by and among HB-ESC V, L.P., ("Assignor"),
              ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION,
              ("Emeritus"), DANIEL R.  BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
              formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
              dated December 31, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..  (33)

                                       53
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

10.68.23      Assignment and assumption of lease agreement (KP Oakwell) by and among HB-ESC V, L.P., ("Assignor"),
              ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION,
              ("Emeritus"), DANIEL R.  BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
              formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
              dated December 31, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .  (33)
10.68.24      Master Lease Agreement between HB-ESC I, LLC ("Landlord"), and Emeritus Corporation ("Tenant")
              dated December 31, 2003.. . .  . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . (36)

   10.71      Lodge at Eddy Pond, Massachusetts.  The following agreements are representative of those executed
              in connection with the property:
 10.71.1      Loan Agreement between Heller Healthcare Finance, Inc. ("Lender") and Emeritus Properties XIV, L.L.C.
              ("Borrower") dated August 26, 2002.                                                                             (27)
 10.71.2      Promissory Note A between Heller Healthcare Finance, Inc. ("Holder") and Emeritus Properties XIV, L.L.C.
              ("Maker") dated August 26, 2002.                                                                                (27)
 10.71.3      Subordinate Promissory Note B between Heller Healthcare Finance, Inc. ("Holder") and Emeritus Properties
              XIV, L.L.C. ("Maker") dated August 26, 2002.                                                                    (27)
 10.71.4      Real Property Mortgage with Power of Sale and Security Agreement (Massachusetts) dated August 21, 2002.         (27)
 10.71.5      Collateral Assignment of Management Agreement and Waiver of Property Management and
              Broker Liens dated August 26, 2002.                                                                             (27)
 10.71.6      Guaranty by registrant ("Guarantor") to Heller Healthcare Finance, Inc. ("Lender") dated August 26, 2002.       (27)
 10.71.7      Lease and Rent Assignment Agreement between Emeritus Properties XIV, L.L.C. ("Assignor")
              to Heller Healthcare Finance, Inc. ("Assignee") dated August 21, 2002.                                          (27)
 10.71.8      Side Letter regarding Deutsche Bank Refinancing and the registrants intent on refinancing with
              Heller Healthcare Finance, Inc. ("Lender") dated August 26, 2002.                                               (27)
 10.71.9      Senior Housing Rider between Emeritus Properties XIV, L.L.C. ("Borrower"), Emeritus Corporation
              ("Manager") and Heller Healthcare Finance, Inc. ("Lender") dated August 26, 2002.                               (27)
10.71.10      Hazardous Materials Indemnity Agreement between Emeritus Properties XIV, L.L.C. ("Borrower"),
              Emeritus Corporation ("Guarantor") and Heller Healthcare Finance, Inc. ("Lender") dated August 26, 2002.        (27)

   10.72      Champion Oaks, Texas, Collin Oaks, Texas, Galleria Oaks, Alabama, Loyalton of Austin, Texas,
              Loyalton of Lake Highlands, Texas, Memorial Oaks, Texas, Meridian Oaks, Indiana, Sugar Land Oaks, Texas,
              Tanglewood Oaks, Texas, Woodbridge Estates, Texas, Village Oaks at  Chandler, Arizona,  Cielo Vista, Texas,
              Conway, Florida,  Farmers Branch, Texas,  Fort Wayne, Indiana,  Glendale, Arizona,  Greenwood, Indiana,
              Hollywood Park, Texas,  Las Vegas, Nevada,  Melbourne, Florida,  Mesa, Arizona,  Orange Park, Florida,
              Southpoint, Florida,  Tuskawilla, Florida.  The following agreements are representative of those executed
              in connection with the properties:
 10.72.1      Master Lease Agreement between various subsidiaries and affiliates of Fretus Investors L.L.C. ("Landlord")
              and Emeritus Properties-NGH, L.L.C. and ESC-NGH, L.P. ("Tenant") dated October 1, 2002.                         (26)

   10.73      Concorde, Nevada, Courtyard at the Willows, Washington, Fulton Villa, California, Juniper Meadows, Idaho,
              La Casa Grande, Florida , Lodge at Eddy Pond, Massachusetts, River Oaks, Florida, Silver Pines, Iowa ,
              Springmeadows, Montana, Stanford Centre, Florida, Villa del Rey, California.  The following agreements
              are representative of those executed in connection with these properties:
 10.73.1      Master Lease by Emeritus Realty II, LLC, Emeritus Realty III, LLC, Emeritus  Realty V, LLC,
              Emeritus Realty VII, LLC, Emeritus Realty XIV, LLC, Emeritus  Realty Puyallup, LLC,
              Emeritus Realty Bozeman, LLC, ESC-Port St. Richie,  LLC, (collectively "Lessor") and Emeritus Corporation,
              Emeritus Properties II, Inc., Emeritus Properties III, Inc., Emeritus Properties V, Inc., Emeritus Properties
              XIV, LLC, ESC-New Port Richey, LLC, ESC-Bozeman, LLC, dated  December 6, 2002.                                  (28)
 10.73.2      Loan Agreement by and between General Electric Capital Corporation, a  Delaware corporation, and
              Emeritus Realty II, LLC, Emeritus Realty III, LLC,  Emeritus Realty V, LLC, Emeritus Realty VII, LLC,
              Emeritus Realty XIV, LLC,  Emeritus Realty Bozeman, LLC, Emeritus Realty Puyallup, LLC,
              ESC-Port St.  Richie. LLC, dated December 6, 2002.                                                              (28)
 10.73.3      Promissory Note A by Emeritus Realty II, LLC, Emeritus Realty III, LLC,  Emeritus Realty V, LLC,
              Emeritus Realty VII, LLC, Emeritus Realty XIV, LLC,  Emeritus Realty Bozeman, LLC, Emeritus Realty
              Puyallup, LLC, ESC-Port St.  Richie. LLC, to General Electric Capital Corporation, a Delaware corporation,
              dated December 6, 2002.                                                                                         (28)
 10.73.4      Subordinated Promissory Note B by ESC-Port St. Richie, LLC, a Washington  limited liability company,
              to General Electric Capital Corporation, dated  December 6, 2002.                                               (28)

                                       54
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 10.73.5      Loan Agreement by and between Emeritus Realty Corporation, a Nevada  corporation and
              Health Care Property Investors, Inc., a Maryland corporation, dated December 6, 2002.                           (28)
 10.73.6      Promissory Note by Emeritus Realty Corporation, a Nevada corporation, to Health Care Property investors,
              Inc., a Maryland corporation, dated December 6, 2002.                                                           (28)

   10.74      Hearthside Issaquah, Washington.  The following agreements are representative of those executed
              in connection with these properties:
 10.74.1      Second Amendment to Loan Agreement by and between Emeritus Properties XIII, LLC ("Borrower") and
              GMAC Commercial Mortgage Corporation, ("Lender") dated January 29, 2003.                                        (28)
 10.74.2      Restatement, Amendment, and Bifurcation of Promissory Note A between Emeritus Properties XIII, LLC
              ("Borrower"), and GMAC Commercial Mortgage Corporation  ("Lender") dated January 29, 2003.                      (28)
 10.74.3      Restatement, Amendment, and Bifurcation of Promissory Note B between Emeritus Properties XIII, LLC
              ("Borrower"), and GMAC Commercial Mortgage Corporation  ("Lender") dated January 29, 2003.                      (28)
 10.74.4      Amendment to Promissory Note between M&M Properties ("Holder") and Emeritus Corporation and
              Emeritus Properties XIII, LLC  ("Maker") dated January 29, 2003.                                                (28)

   10.75      Loyalton of Bloomsburg, Pennsylvania; Loyalton of Creekview, Pennsylvania; Loyalton of Harrisburg,
              Pennsylvania;  Loyalton of Danville, Virginia; Loyalton of Harrisonburg, Virginia; Loyalton of Roanoke,
              Virginia; Loyalton of Greensboro, North Carolina; Loyalton of Ravenna, Ohio.  The following agreements
              are representative of those executed in connection with these properties:
 10.75.1      Lease Agreement by HR Acquisition I Corporation ("Tenant"), Capstone Capital of Pennsylvania, Inc.,
              and HRT Holdings, Inc. (collectively the "Lessor") and  Emeritus Corporation ("Lessee") dated May 1, 2003.      (29)
 10.75.2      Promissory Note by Emeritus Corporation ("Maker"), for HR ACQUISITION I CORPORATION ("Payee")
              for principal amount of $600,000.00 dated May 1, 2003.                                                          (29)
 10.75.3      Bill of Sale, Blanket Conveyance and Assignment by BCC at Bloomsburg, Inc. ("Tenant") and
              BCC Development and Management Co. ("Manager") to and for the benefit of Capstone Capital of
              Pennsylvania, Inc. ("HCRT Assignee") and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.          (29)
 10.75.4      Bill of Sale, Blanket Conveyance and Assignment by ALCO VI, LLC ("Tenant") and Balance Care at
              Mechanicsburg, Inc. ("Manager") to and for the benefit of Capstone Capital of Pennsylvania, Inc.
              ("HCRT Assignee") and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.                             (29)
 10.75.5      Bill of Sale, Blanket Conveyance and Assignment by Extended Care Operators of Harrisburg, LLC ("Tenant")
              and BCC at Harrisburg, Inc. ("Manager") to and for the benefit of Capstone Capital of Pennsylvania, Inc.
              ("HCRT Assignee") and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.                             (29)
 10.75.6      Bill of Sale, Blanket Conveyance and Assignment by ALCO XI, LLC ("Tenant") and BCC at Danville, Inc.
              ("Manager") to and for the benefit of HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
              ("Emeritus Assignee") dated May 1, 2003.                                                                        (29)
 10.75.7      Bill of Sale, Blanket Conveyance and Assignment by ALCO IX, LLC ("Tenant") and BCC at Harrisonburg, Inc.
              ("Manager") to and for the benefit of HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
              ("Emeritus Assignee") dated May 1, 2003.                                                                        (29)
 10.75.8      Bill of Sale, Blanket Conveyance and Assignment by ALCO X, LLC ("Tenant") and BCC at Roanoke, Inc.
              ("Manager") to and for the benefit of HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
              ("Emeritus Assignee") dated May 1, 2003.                                                                        (29)
 10.75.9      Bill of Sale, Blanket Conveyance and Assignment by Extended Care Operators of Greensboro, LLC ("Tenant")
              and BCC at Greensboro, Inc. ("Manager") to and for the benefit of HR Acquisition I Corporation
              ("HCRT Assignee") and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.                             (29)
10.75.10      Bill of Sale, Blanket Conveyance and Assignment by Extended Care Operators of Ravenna, LLC ("Tenant")
              and BCC at Ravenna, Inc. ("Manager") to and for the benefit of HR Acquisition I Corporation
              ("HCRT Assignee") and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.                             (29)
10.75.11      Operations and Transfer Agreement by and among BCC at Bloomsburg, Inc. ("Tenant"), BCC Development
              and Management Co. ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation
              ("New Operator") and Capstone Capital of Pennsylvania, Inc. ("Owner") dated April 30, 2003. . . . . .. . . . .  (29)
10.75.12    Operations and Transfer Agreement by and among ALCO VI, LLC ("Tenant"), Balanced Care at
              Mechanicsburg, Inc. ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation
              ("New Operator") and Capstone Capital of Pennsylvania, Inc. ("Owner") dated April 30, 2003. . . .  . . . . . .  (29)
10.75.13    Operations and Transfer Agreement by and among Extended Care Operators of Harrisburg, LLC ("Tenant"),
              BCC at Harrisburg, Inc. ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation
              ("New Operator") and HR Acquisition I Corporation ("Owner") dated April 30, 2003. . . .. . . . . . . . . . . .  (29)

                                       55
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

10.75.14    Operations and Transfer Agreement by and among ALCO XI, LLC ("Tenant"), BCC at Danville, Inc.
              ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation ("New Operator") and
              HRT Holdings, Inc. ("Owner") dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  (29)
10.75.15    Operations and Transfer Agreement by and among ALCO IX, LLC ("Tenant"), BCC at Harrisonburg, Inc.
              ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation ("New Operator") and
              HRT Holdings, Inc. ("Owner") dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (29)
10.75.16    Operations and Transfer Agreement by and among ALCO X, LLC ("Tenant"), BCC at Roanoke, Inc.
              ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation ("New Operator") and
              HRT Holdings, Inc. ("Owner") dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (29)
10.75.17    Operations and Transfer Agreement by and among Extended Care Operators of Greensboro, LLC ("Tenant"),
              BCC at Greensboro, Inc. ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation
              ("New Operator") and HR Acquisition I Corporation ("Owner") dated April 30, 2003. . . . . . . . . . . .  . . .  (29)
10.75.18    Operations and Transfer Agreement by and among Extended Care Operators of Ravenna, LLC ("Tenant"),
              BCC at Ravenna, Inc. ("Manager") and Balanced Care Corporation ("Parent") and Emeritus Corporation
              ("New Operator") and HR Acquisition I Corporation ("Owner") dated April 30, 2003. . . . . . . . . . . .  . . .  (29)
10.75.19      Assignment and Assumption Agreement by and among BCC at Bloomsburg, Inc. (the "Tenant"),
              BCC Development and Management Co. ("Manager") and Emeritus Corporation (the "Assignee")
              dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .  (29)
10.75.20      Assignment and Assumption Agreement by and among ALCO VI, LLC (the "Tenant"), Balanced Care at
              Mechanicsburg, Inc. ("Manager") and Emeritus Corporation (the "Assignee") dated April 30, 2003. . . . .. . . .  (29)
10.75.21      Assignment and Assumption Agreement by and among Extended Care Operators of Harrisburg, LLC
              (the "Tenant"), BCC at Harrisburg, Inc. ("Manager") and Emeritus Corporation (the "Assignee")
              dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .  (29)
10.75.22      Assignment and Assumption Agreement by and among ALCO XI, LLC (the "Tenant"), BCC at Danville, Inc.
              ("Manager") and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . . . . . . . .  (29)
10.75.23      Assignment and Assumption Agreement by and among ALCO IX, LLC (the "Tenant"), BCC at
              Harrisonburg, Inc. ("Manager") and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . .  . . .  (29)
10.75.24      Assignment and Assumption Agreement by and among ALCO X, LLC (the "Tenant"), BCC at Roanoke, Inc.
              ("Manager") and Emeritus Corporation (the "Assignee") dated April 30, 2003. . . . . . . . . . . . . . .  . . .  (29)
10.75.25      Assignment and Assumption Agreement by and among Extended Care Operators of Greensboro, LLC
              (the "Tenant"), BCC at Greensboro, Inc. ("Manager") and Emeritus Corporation (the "Assignee")
              dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .  (29)
10.75.26      Assignment and Assumption Agreement by and among Extended Care Operators of Ravenna, LLC
              (the "Tenant"), BCC at Ravenna, Inc. ("Manager") and Emeritus Corporation (the "Assignee")
              dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . .  (29)
10.75.27      Leasehold Mortgage with Security Agreement and Assignment of Rents for location: Bloomsburg,
              Pennsylvania, by Emeritus Corporation ("Mortgagor"), for the benefit of Capstone Capital of
              Pennsylvania, Inc.("Mortgagee"), dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . .  . . . . .  (29)
10.75.28      Leasehold Mortgage with Security Agreement and Assignment of Rents for location: Mechanicsburg,
              Pennsylvania, by Emeritus Corporation ("Mortgagor"), for the benefit of Capstone Capital of
              Pennsylvania, Inc.("Mortgagee"), dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . .  . . . . .  (29)
10.75.29      Leasehold Mortgage with Security Agreement and Assignment of Rents for location: Harrisburg, Pennsylvania,
              by Emeritus Corporation ("Mortgagor"), for the benefit of Capstone Capital of Pennsylvania, Inc.
              ("Mortgagee"), dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  (29)
10.75.30      Leasehold Deed of Trust with Security Agreement and Assignment of Rents for location: Danville, Virginia, by
              Emeritus Corporation ("Grantor"), for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003. . .  (29)

10.75.31      Leasehold Deed of Trust with Security Agreement and Assignment of Rents for location: Harrisonburg, Virginia,
              by Emeritus Corporation ("Grantor"), for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003 .  (29)

10.75.32      Leasehold Deed of Trust with Security Agreement and Assignment of Rents for location: Roanoke, Virginia,
              by Emeritus Corporation ("Grantor"), for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003 .  (29)

10.75.33      Leasehold Deed of Trust with Security Agreement and Assignment of Rents for location: Greensboro,
              North Carolina, by Emeritus Corporation ("Grantor"), for the benefit of HR Acquisition I Corporation
              ("Beneficiary"), dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .  (29)
10.75.34      Leasehold Deed of Trust with Security Agreement and Assignment of Rents for location: Ravenna, Ohio,
              by Emeritus Corporation ("Grantor"), for the benefit of HR Acquisition I Corporation ("Beneficiary"),
              dated May 1, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .  (29)

 10.76        Emeritus Oaks of Silverdale, Washington.  The following agreements are representative of those executed
              in connection with this property:
 10.76.1      Lease Agreement by WASHINGTON LESSOR SILVERDALE, INC., ("Lessor"), and ESC-Silverdale, LLC,
              ("Lessee") dated August 15, 2003, effective November 1, 2003.                                                   (36)
 10.76.2      Guaranty given by Emeritus Corporation ("Guarantor"), in favor of WASHINGTON LESSOR - SILVERDALE,
              INC., ("Lessor") dated August 15, 2003.                                                                         (36)


                                      56
<PAGE>

                                                                                                                           Footnote
Number                                      Description                                                                     Number

 10.77        The Palms at Loma Linda, California, The Springs at Oceanside, California, The Fairways of Augusta, Kansas,
              Liberal Springs, Kansas, Loyalton of Broadmoor, Colorado.  The following agreements are representative
              of those executed in connection with this property:
 10.77.1      Loan Assumption Agreement by and between LaSalle Bank National Association, formerly known as
              LaSalle National Bank as Trustee for GMAC commercial Mortgage Pass-through certificates, series 1998-C2.
              ("Lendor"), ALS Financing Inc. ("Borrower"), Emeritus Properties XVI, Inc. ("Purchaser"), Alterra
              Healthcare Corporation ("Alterra"), and Emeritus Corporation ("New Indemnitor"),
              dated December 31, 2003, effective January 1, 2004.                                                             (34)
 10.77.2      Assumption by Emeritus Properties XVI, Inc., ("New Borrower"), of $25,000,000 Loan (the "Loan")
              originally made by GMAC Commercial Mortgage Corporation, ("Original Lender"), to ALS Financing, Inc.,
              a Kansas corporation ("Existing Borrower"), pursuant to that certain Loan Agreement, dated as of
              June 30, 1998, by and between Original Lender and Existing Borrower (the "Loan Agreement"), which Loan
              is evidenced by that certain Promissory Note, dated July 30, 1998, and made by Existing Borrower payable to
              the order of Original Lender in the stated principal amount of $25,000,000 (the "Note"),  is secured by
              certain security instruments (collectively, the "Security Instruments"; and the Loan Agreement, the Note, and
              the Security Instruments, together with any and all other instruments and documents evidencing, securing, or
              otherwise pertaining to the Loan are hereinafter referred to collectively as the "Loan Documents")
              encumbering five assisted living facilities located in Kansas, Colorado, and California
              (collectively, the "Projects"),  and is now owned and held by LaSalle Bank National Association,
              formerly known as LaSalle National Bank, as Trustee for GMAC Commercial Mortgage Securities, Inc.,
              Commercial Mortgage Pass-Through  Certificates, Series 1998-C2 ("Lender"), dated December 31, 2003. . . . . ..  (35)
 10.77.3      Assignment, Amendment and Restatement of Lease Agreement by and between ALS FINANCING, INC.,
              ("ALS"), EMERITUS PROPERTIES XVI, INC. ("Emeritus XVI") and ALTERRA HEALTHCARE
              CORPORATION ("Alterra") dated December 31, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  (35)
 10.77.4      CONVEYANCE AND OPERATIONS TRANSFER AGREEMENT (the "Agreement") by and among
              ALS FINANCING, INC., (the "Seller"), ALTERRA HEALTHCARE CORPORATION, ("Alterra"), and
              EMERITUS PROPERTIES XVI, INC., (the "Purchaser") is made and entered into as of the 31st day of
               December, 2003 (the "Execution Date"). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . .  (35)
 10.77.5      UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (this "Guaranty"), by
              EMERITUS CORPORATION, a Washington corporation ("Guarantor"), in favor of LASALLE BANK
              NATIONAL ASSOCIATION, FORMERLY KNOWN AS LASALLE NATIONAL BANK, AS TRUSTEE FOR
              GMAC COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2 ("Lender")
              is made as of the 31st day of December, 2003, and is effective as of January 1, 2004. . . . . . . .  . . . . .  (35)

   10.78      Royalton Court Kent, Washington.  The following agreements are representative of those executed in
              connection with this property:
 10.78.1      Agreement to provide management services to assisted living facility by and between Royalton/Kent, LLC,
              ("Licensee") and Emeritus Corporation, ("Manager") dated February 16, 2003. . . . . . . . . . . . .  . . . . .  (36)

    21.1      Subsidiaries of the registrant.                                                                                 (36)
    23.1      Consent of KPMG LLP.                                                                                            (36)
    31.1      Certification of Periodic Reports
  31.1.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002 for Daniel R. Baty dated March 29, 2004.                                                            (36)
  31.1.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002 for Raymond R. Brandstrom dated March 29, 2004.                                                     (36)
    32.1      Certification of Periodic Reports
  32.1.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
              Act of 2002 for Daniel R. Baty dated March 29, 2004.                                                            (36)
  32.1.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
              Act of 2002 for Raymond R. Brandstrom dated March 29, 2004.                                                     (36)
    99.1      Press Releases
  99.1.1      Press Release dated March 4, 2004, reports on fourth quarter and year 2003 results.                             (35)
</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.

                                       57
<PAGE>

(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) 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,  2002.
(25) 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, 2002.
(26) Incorporated by reference to the indicated exhibit filed with the Company's
     Form  8-K  (File  No.  1-14012)  on  October  15,  2002.
(27) 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 8, 2002.
(28) Incorporated by reference to the indicated exhibit filed with the Company's
     Annual  Report  on  Form  10-K  (File  No.  1-14012)  on  March  27,  2003.
(29) 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 9, 2003.
(30) 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 8, 2003.
(31) Incorporated by reference to the indicated exhibit filed with the Company's
     Form  8-K  (File  No.  1-14012)  on  October  14,  2003.
(32) 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 7, 2003.
(33) Incorporated by reference to the indicated exhibit filed with the Company's
     Form  8-K  (File  No.  1-14012)  on  January  14,  2004.
(34) Incorporated by reference to the indicated exhibit filed with the Company's
     Form  8-K  (File  No.  1-14012)  on  January  14,  2004.
(35) Incorporated by reference to the indicated exhibit filed with the Company's
     Form  8-K  (File  No. 1-14012) dated March 4, 2004, filed on March 5, 2004.
(36) Filed  herewith.

                                       58
<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.


Dated:  March  29,  2004

                                                      Emeritus  Corporation
                                                          (REGISTRANT)

                                              BY:  /S/  RAYMOND  R.  BRANDSTROM
                                              ---------------------------------

                                              NAME:  RAYMOND  R.  BRANDSTROM
                                                 ------------------------------
                                              TITLE: VICE  PRESIDENT OF FINANCE,
                                              SECRETARY, AND  CHIEF  FINANCIAL
                                              OFFICER

<TABLE>
<CAPTION>




                   Signature. . . . . . . . . .  Title                     Date
          ----------------------------  ---------------------------  ---------------------
<S>       <C>                           <C>                          <C>


          /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, and Chief Financial
                                        Officer


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


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


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

</TABLE>




                                       59
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       PAGE NO.
                                                                       --------
     Independent Auditors' Report                                           F-2

     Consolidated Balance Sheets as of December 31, 2003 and 2002           F-3

     Consolidated Statements of Operations for the years ended
     December 31, 2003, 2002, and 2001                                      F-4

     Consolidated  Statements of Cash Flows for the years ended
     December 31, 2003, 2002, and 2001                                      F-5

     Consolidated Statements of Shareholders' Deficit and
     Comprehensive Operations for the years ended
     December 31, 2003, 2002, and 2001                                      F-7

     Notes to Consolidated Financial Statements                             F-8

     Independent Auditors' Report on Financial Statement Schedule           S-1

     Schedule II--Valuation and Qualifying Accounts                         S-2


                                      F-1

<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The  Board  of  Directors  and  Shareholders
Emeritus  Corporation

We  have  audited  the  consolidated  balance sheets of Emeritus Corporation and
subsidiaries  ("the  Company") as of December 31, 2003 and 2002, and the related
consolidated  statements  of operations, shareholders' deficit and comprehensive
operations,  and cash flows for each of the years in the three-year period ended
December  31,  2003.  These  consolidated  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  consolidated  financial  statements  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, 2003 and 2002, and the results of their
operations  and  their cash flows for each of the years in the three-year period
ended  December  31,  2003,  in  conformity with accounting principles generally
accepted  in  the  United  States  of  America.

/s/KPMG  LLP
Seattle,  Washington
March  5,  2004
                                      F-2
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                                 December 31,    December 31,
                                                                                                     2003            2002
                                                                                                --------------  --------------
<S>                                                                                             <C>             <C>
Current Assets:
 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       6,368   $       7,301
 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -           2,759
 Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,769           1,647
 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,961           3,645
 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .          6,663           5,217
                                                                                                --------------  --------------
 Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         17,761          20,569
                                                                                                --------------  --------------
Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          7,678               -
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        117,546         119,583
Property held for development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,254           1,254
Notes receivable from and investments in affiliates. . . . . . . . . . . . . . . . . . . . . .          2,409           6,358
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          7,306           5,555
Lease acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         19,052           6,081
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          5,581           3,759
                                                                                                --------------  --------------
 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     178,587   $     163,159
                                                                                                ==============  ==============

                                            LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       4,750   $       3,604
 Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          6,774           3,108
 Accrued employee compensation and benefits. . . . . . . . . . . . . . . . . . . . . . . . . .          5,885           5,355
 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,888           1,737
 Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,702           2,463
 Accrued dividends on preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          8,228          13,457
 Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          7,941           9,080
 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          6,075           2,884
 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          6,879           5,366
                                                                                                --------------  --------------
 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         51,122          47,054
                                                                                                --------------  --------------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        136,388         119,887
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         32,000          32,000
Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         37,389          20,324
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            263           2,508
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            519             894
                                                                                                --------------  --------------
 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        257,681         222,667
                                                                                                --------------  --------------
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -             558
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -          25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 5,000,000 shares.
    Series B, Authorized 70,000 shares; issued and outstanding 34,830 and 33,473 at
    December 31, 2003, and December 31, 2002, respectively . . . . . . . . . . . . . . . . . .              -               -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and outstanding
    10,297,449 and 10,247,226 shares at December 31, 2003, and December 31, 2002, respectively              1               1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         71,703          68,944
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -           1,247
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (150,798)       (155,258)
                                                                                                --------------  --------------
 Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (79,094)        (85,066)
                                                                                                --------------  --------------
 Total liabilities and shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . .  $     178,587   $     163,159
                                                                                                ==============  ==============
</TABLE>


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

<TABLE>
<CAPTION>

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


                                                                  Year Ended December 31,
                                                     -------------------------------------------------
                                                            2003             2002             2001
                                                     ---------------  ---------------  ---------------
<S>                                                  <C>              <C>              <C>
 Revenues:
   Community revenue. . . . . . . . . . . . . . . .  $      191,979   $      137,662   $      129,561
   Other service fees . . . . . . . . . . . . . . .           4,435            4,575            2,291
   Management fees. . . . . . . . . . . . . . . . .          10,243           10,892            8,725
                                                     ---------------  ---------------  ---------------
           Total operating revenues . . . . . . . .         206,657          153,129          140,577
                                                     ---------------  ---------------  ---------------

 Expenses:
   Community operations . . . . . . . . . . . . . .         127,290           93,822           80,829
   General and administrative . . . . . . . . . . .          24,041           21,112           17,864
   Depreciation and amortization. . . . . . . . . .           7,336            7,223            7,260
   Facility lease expense . . . . . . . . . . . . .          41,043           29,975           27,123
                                                     ---------------  ---------------  ---------------
           Total operating expenses . . . . . . . .         199,710          152,132          133,076
                                                     ---------------  ---------------  ---------------
           Income from operations . . . . . . . . .           6,947              997            7,501

 Other income (expense):
   Interest income. . . . . . . . . . . . . . . . .             666              403              980
   Interest expense . . . . . . . . . . . . . . . .         (13,144)         (11,728)         (13,296)
   Other, net . . . . . . . . . . . . . . . . . . .           2,124            4,105              581
                                                     ---------------  ---------------  ---------------
           Net other expense. . . . . . . . . . . .         (10,354)          (7,220)         (11,735)
                                                     ---------------  ---------------  ---------------

           Loss before income taxes . . . . . . . .          (3,407)          (6,223)          (4,234)
           Provision for income taxes . . . . . . .            (418)               -                -
                                                     ---------------  ---------------  ---------------
           Net loss . . . . . . . . . . . . . . . .          (3,825)          (6,223)          (4,234)
 Preferred stock dividends. . . . . . . . . . . . .          (6,238)          (7,343)          (6,368)
 Gain on repurchase of Series A preferred stock . .          14,523                -                -
                                                     ---------------  ---------------  ---------------
           Net income (loss) to common shareholders  $        4,460   $      (13,566)  $      (10,602)
                                                     ===============  ===============  ===============

 Income (loss) per common share:
     Basic. . . . . . . . . . . . . . . . . . . . .  $         0.43   $        (1.33)  $        (1.04)
                                                     ===============  ===============  ===============

     Diluted. . . . . . . . . . . . . . . . . . . .  $         0.39   $        (1.33)  $        (1.04)
                                                     ===============  ===============  ===============

 Weighted average common shares outstanding:
     Basic. . . . . . . . . . . . . . . . . . . . .          10,255           10,207           10,162
                                                     ===============  ===============  ===============

     Diluted. . . . . . . . . . . . . . . . . . . .          11,521           10,207           10,162
                                                     ===============  ===============  ===============
</TABLE>


          See accompanying notes to consolidated financial statements.
                                       F-4
<PAGE>
<TABLE>
<CAPTION>

                                             EMERITUS CORPORATION
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (In thousands)

                                                                             Year Ended December 31,
                                                                ----------------------------------------------
                                                                     2003            2002            2001
                                                                --------------  --------------  --------------
<S>                                                             <C>             <C>             <C>
Cash flows from operating activities:
          Net loss . . . . . . . . . . . . . . . . . . . . . .  $      (3,825)  $      (6,223)  $      (4,234)
Adjustments to reconcile net loss to
          net cash provided by operating activities:
    Depreciation and amortization. . . . . . . . . . . . . . .          7,336           7,223           7,260
    Amortization of deferred gain. . . . . . . . . . . . . . .         (1,073)           (320)           (221)
    Gain on refinancings and sale of properties, net . . . . .              -          (4,544)         (1,392)
    Impairment of long-lived asset . . . . . . . . . . . . . .            950               -               -
    Gain on sale of investment securities. . . . . . . . . . .         (1,437)              -               -
    Write down of lease acquisition costs. . . . . . . . . . .             25             262             835
    Write down of loan fees and amortization . . . . . . . . .            896             381               -
    Write off of deferred gain . . . . . . . . . . . . . . . .              -             265               -
    Provision for doubtful accounts. . . . . . . . . . . . . .            (30)            (71)            466
    Other. . . . . . . . . . . . . . . . . . . . . . . . . . .            345             364             894
Changes in operating assets and liabilities, net of acquisitions:
    Trade accounts receivable. . . . . . . . . . . . . . . . .           (456)           (404)            179
    Other receivables. . . . . . . . . . . . . . . . . . . . .            559            (404)              -
    Prepaid expenses and other current assets. . . . . . . . .         (1,055)         (2,545)            265
    Trade accounts payable . . . . . . . . . . . . . . . . . .          2,890           1,003          (1,038)
    Accrued employee compensation and benefits . . . . . . . .           (772)          2,054             852
    Accrued interest . . . . . . . . . . . . . . . . . . . . .            173          (1,259)           (130)
    Accrued real estate taxes. . . . . . . . . . . . . . . . .           (866)          1,048            (391)
    Other accrued expenses . . . . . . . . . . . . . . . . . .            928             (33)           (531)
    Deferred revenue . . . . . . . . . . . . . . . . . . . . .          3,171           2,884               -
    Other current liabilities. . . . . . . . . . . . . . . . .           (808)          3,428             867
    Security deposits and other long-term liabilities. . . . .           (553)            627              14
    Deferred rent. . . . . . . . . . . . . . . . . . . . . . .            (26)            104             272
                                                                --------------  --------------  --------------
          Net cash provided by operating activities. . . . . .          6,372           3,840           3,967
                                                                --------------  --------------  --------------

Cash flows from investing activities:
  Acquisition of property and equipment. . . . . . . . . . . .         (2,738)        (11,698)         (1,429)
  Purchase of minority partner interest. . . . . . . . . . . .         (2,500)         (3,070)              -
  Sale of property and equipment . . . . . . . . . . . . . . .         44,800          25,010           2,350
  Construction expenditures - leased properties. . . . . . . .           (382)         (1,154)           (694)
  Proceeds from sale of investment securities. . . . . . . . .          2,949               -               -
  Management and lease acquisition costs . . . . . . . . . . .        (12,587)         (2,229)           (416)
  Advances to affiliates and other managed communities . . . .          1,469            (941)          2,699
  Proceeds from sales of interest in affiliates. . . . . . . .              -             750               -
  Investment in Alterra. . . . . . . . . . . . . . . . . . . .         (7,678)              -               -
  Investment in affiliates . . . . . . . . . . . . . . . . . .            (79)         (2,971)              -
  Distributions to minority partners . . . . . . . . . . . . .           (250)           (500)              -
                                                                --------------  --------------  --------------
          Net cash provided by investing activities. . . . . .         23,004           3,197           2,510
                                                                --------------  --------------  --------------

Cash flows from financing activities:
  Decrease (increase) in restricted deposits . . . . . . . . .         (1,636)            (35)            748
  Repayment of short-term borrowings . . . . . . . . . . . . .         (2,791)         (2,210)         (1,650)
  Debt issue and other financing costs . . . . . . . . . . . .           (578)         (3,374)              -
  Repurchase of Series A preferred stock . . . . . . . . . . .        (20,524)              -               -
  Proceeds from long-term borrowings . . . . . . . . . . . . .         19,600         120,838             145
  Repayment of long-term borrowings. . . . . . . . . . . . . .        (24,350)       (125,092)         (3,067)
  Other. . . . . . . . . . . . . . . . . . . . . . . . . . . .            (30)            (57)             45
                                                                --------------  --------------  --------------
          Net cash used in financing activities. . . . . . . .        (30,309)         (9,930)         (3,779)
                                                                --------------  --------------  --------------
          Net increase (decrease) in cash and cash equivalents           (933)         (2,893)          2,698
Cash and cash equivalents at the beginning of the period . . .          7,301          10,194           7,496
                                                                --------------  --------------  --------------
Cash and cash equivalents at the end of the period . . . . . .  $       6,368   $       7,301   $      10,194
                                                                ==============  ==============  ==============
</TABLE>


           See accompanying notes to consolidated financial statements.
                                       F-5

<PAGE>
<TABLE>
<CAPTION>

                                                EMERITUS CORPORATION
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (In thousands)

                                                                                    Year Ended December 31,
                                                                         -------------------------------------------
                                                                              2003           2002           2001
                                                                         -------------  -------------  -------------
<S>                                                                      <C>            <C>            <C>
Supplemental disclosure of cash flow information -
    cash paid during the period for interest. . . . . . . . . . . . . .  $      12,992  $      12,852  $      13,426

Noncash investing and financing activities:
  Transfer of property held for sale to property and equipment. . . . .  $           -  $       2,028  $           -
  Transfer of property and equipment from property held for development  $           -  $         214  $         730
  Notes receivable from buyer in sales. . . . . . . . . . . . . . . . .  $           -  $           -  $       1,000
  Assumption of debt by buyer in sale . . . . . . . . . . . . . . . . .  $           -  $           -  $       3,162
  Unrealized holding gains in investment securities . . . . . . . . . .  $         144  $       1,383  $         951
  Accrued and in-kind preferred stock dividends . . . . . . . . . . . .  $       6,238  $       7,343  $       6,368
  Gain on repurchase of Series A preferred stock. . . . . . . . . . . .  $      14,523  $           -  $           -
  Common stock warrants issued. . . . . . . . . . . . . . . . . . . . .  $       1,358  $           -  $           -
  Note from affiliates. . . . . . . . . . . . . . . . . . . . . . . . .  $       1,359  $           -  $           -
  Debt assumed for acquisition of property and equipment. . . . . . . .  $      22,639  $           -  $           -
</TABLE>


           See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>

<TABLE>
<CAPTION>

                                                  EMERITUS CORPORATION
                     CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE OPERATIONS
                                           (In thousands, except 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, 2000. . . .     30,609  $    -  10,120,045  $    1  $   66,373  $(1,087)  $(131,090)  $    (65,803)
 Unrealized gain 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)
 Unrealized gain on investment
    securities. . . . . . . . . . . .          -       -           -       -           -    1,383          -           1,383
 Issuances of shares under
  Employee Stock Purchase Plan,
       net of repurchases . . . . . .          -       -      43,695       -         (73)       -          -             (73)
 Options exercised. . . . . . . . . .          -       -       7,501       -          16        -          -              16
 Preferred stock dividends. . . . . .      2,864       -           -       -       1,315        -     (7,343)         (6,028)
 Net loss for the year ended
   December 31, 2002. . . . . . . . .          -       -           -       -           -        -     (6,223)         (6,223)
                                       ---------  ------  ----------  ------  -----------  -------  ---------  --------------
 Balances at December 31, 2002. . . .     33,473       -  10,247,226       1      68,944    1,247   (155,258)        (85,066)
 Unrealized gain on investment
    securities. . . . . . . . . . . .          -       -           -       -           -      144          -             144
 Realized gain on investment
    securities. . . . . . . . . . . .          -       -           -       -           -   (1,391)         -          (1,391)
 Issuances of shares under
  Employee Stock Purchase Plan,
       net of repurchases . . . . . .          -       -           -       -         (92)       -          -             (92)
 Options exercised. . . . . . . . . .          -       -      50,223       -         122        -          -             122
 Warrants issued in lease acquisition          -       -           -       -       1,358        -          -           1,358
 Preferred stock dividends. . . . . .      1,357       -           -       -       1,371        -     (6,238)         (4,867)
 Gain on repurchase of
     Series A preferred stock . . . .          -       -           -       -           -        -     14,523          14,523
 Net loss for the year ended
 December 31, 2003. . . . . . . . . .          -       -           -       -           -        -     (3,825)         (3,825)
                                       ---------  ------  ----------  ------  -----------  -------  ---------  --------------
 Balances at December 31, 2003. . . .     34,830  $    -  10,297,449  $    1  $   71,703  $     -  $(150,798)  $     (79,094)
                                       =========  ======  ==========  ======  ===========  =======  =========  ==============
</TABLE>


           See accompanying notes to consolidated financial statements.
                                       F-7

<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
who  need help with the activities of daily living, with an emphasis on assisted
living  and  personal care services.  The Company owns 19 communities and leases
109 communities.  These 128 communities comprise the communities included in the
consolidated  financial  statements.

In  addition,  the  Company also provides management services to independent and
related-party  owners  of  assisted  living  communities  for  an  additional 47
communities,  for  which only management fees are recognized in the consolidated
financial  statements.

The management agreements included management agreements covering 46 communities
in  connection  with  the  Emeritrust  transactions,  which  are  referred  to
extensively  throughout  these financial statements, through September 30, 2003,
which  were  subsequently  reduced to 23 Emeritrust I communities as of December
31,  2003,  detailed  as  follows:

     *  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,  for  these communities, 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 received
       a base management fee of 3% of gross revenues, but could have received up
       to  7% depending on the cash flow performance of the communities managed.
       Additionally,  the  Company  was  required by its management contracts to
       fund  cash  operating  deficits. In May 2002, the Company entered into an
       agreement  for  a third party to operate one of these communities located
       in  San  Bernardino,  California. The new operator had responsibility for
       all  economic  benefits and detriments and had an option to purchase this
       community  from  the  owner  of  the community. In April of 2003, the new
       operator  exercised  their option to purchase this community reducing the
       number  of  communities  managed  from  25  to 24. In August of 2003, the
       owners  sold  another  building  in Casper, Wyoming, further reducing the
       number  of  communities  managed  from  24  to  23.  In  March 2004, this
       management agreement was amended to provide for a management fee of 5% of
       gross  revenues.  In  the  third  quarter of 2003, the Company executed a
       short-term  extension  of  the  management agreement for the 23 remaining
       communities  from  June  30,  2003,  to  January  2, 2004. This extension
       removed  the purchase option in the original agreement. Additionally, the
       Company  was  indemnified against any funding obligations it may have had
       under  the  extended  management agreement by certain of the Emeritrust I
       investors,  including Daniel R. Baty ("Mr. Baty"), the Company's Chairman
       and  Chief  Executive  Officer  and  one  of  its principal shareholders.
       Subsequently,  the  Company executed a longer term extension from January
       2, 2004, to September 30, 2005, which extension also excludes any funding
       obligation  or  purchase  option,  but  which may be terminated by either
       party  with  90  days  notice.

      *  EMERITRUST  II:  21  communities that the Company began managing in the
        time period from March 1999 to September 2003. Mr. Baty held an indirect
        non-controlling  interest  in the entities that owned these communities.
        As  of  September  30, 2003, the owners of the Emeritrust II communities
        sold  them  to  a  real  estate  investment  trust,  which  leased these
        communities  back to the Company in a master operating lease and are now
        included  in  the  Company's  consolidated  results.  The  Emeritrust II
        communities  consisted  of:

       *  EMERITRUST  II  OPERATING: 16 communities for which the Company had no
         obligation to fund cash operating deficits. The Company received a base
         management  fee of 5% of gross revenues, but may have received up to 7%
         depending  on  the cash flow performance of the communities managed. As
         of September 30, 2003, these communities were included in the Company's
         consolidated  results.

       *  EMERITRUST  II  DEVELOPMENT:  5  communities for which the Company was
         required  to  fund cash operating deficits. The Company received a base
         management  fee of 5% of gross revenues, but may have received up to 7%
         depending  on  the cash flow performance of the communities managed. As
         of September 30, 2003, these communities were included in the Company's
         consolidated  results.

Other  management  agreements are as follows:

     *  management  agreements  covering  19  communities  owned  by  entities
       controlled  by Mr. Baty. The Company generally receives fees ranging from
       4%  to  6%  of  the  gross  revenues  generated  by  these  communities.

                                      F-8
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     * a management agreement covering one community owned by a joint venture in
       which  the  Company  has  a  financial  interest.  The  Company  receives
       management  fees  of  6%  of  gross  revenues  for  this  community.

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

     *  a  management  agreement  covering one community owned by an independent
       third  party.  The  Company  receives  management  fees of the greater of
       $7,000  per  month  or  6%  of  gross  revenue  from this community, with
       opportunities  to  earn  additional  fees  based  on operating cash flow.


Summary  of  Significant  Accounting  Policies  and  Use  of  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  ongoing basis, Emeritus evaluates its estimates, including
those  related  to  resident  programs  and incentives such as move in fees, bad
debts,  investments,  intangible assets, impairment of long-lived assets, income
taxes,  restructuring,  long-term service contracts, contingencies, self-insured
retention,  insurance  deductibles,  health insurance, 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  most
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.

     *  For  commercial  general liability and professional liability insurance,
       Emeritus  uses a captive insurance structure essentially to self-fund its
       primary  layer  of insurance. This policy is claims-made based and covers
       losses  and  liabilities  associated  with  general  and  professional
       liability.  The  primary  layer  has per occurrence and aggregate limits.
       Within  that  primary layer is a self-insured retention, which also has a
       per  occurrence  and  aggregate  limit.  The  Company  also has an excess
       policy,  which  applies to claims in excess of the primary layer on a per
       occurrence  basis.  Losses  within  the  primary layer, which include the
       self-insured retention, are accrued based upon actuarial estimates of the
       aggregate  liability for claims incurred, which will vary based on actual
       versus  expected  experience.

     *  For  health  insurance,  Emeritus self-insures up to a certain level for
       each  occurrence  above  which a catastrophic insurance policy covers any
       additional  costs.  Health  insurance  expense  is  accrued  based  upon
       historical  experience of the aggregate liability for claims incurred. If
       these  estimates  are  insufficient,  additional charges may be required.

     *  For  workers' compensation insurance for insured states (excluding Texas
       and  compulsory  State  Funds),  the  Company  is  on  an  incurred loss,
       retrospective  insurance  policy,  retroactively  adjusted,  upward  or
       downward,  based upon total incurred loss experience. The premium charged
       by  the insurance underwriter is based upon a standard rate determined by
       the  underwriter  to  cover,  amongst  other things, estimated losses and
       other  fixed  costs.  The  difference between the premium charged and the
       actuarial  based estimate of costs, which is expensed on a monthly basis,
       is  carried as an asset on the balance sheet. After the end of the policy
       year,  the  insurance  company  conducts  an  audit and adjusts the total
       premium  based  upon  the actual payroll and actual incurred loss for the
       policy year. Any premium adjustment for the differences between estimated
       and  actual payroll and estimated and actual losses will first be applied
       to  the  accrued asset and then as an adjustment to workers' compensation
       expense  at the time such adjustment is determined. There is a reasonable
       expectation that the incurred loss adjustment will be downward, resulting
       in  a  premium  refund. The incurred loss adjustment is limited to 50% of
       the  standard premium with the initial adjustment six months after policy
       expiration  on  December  31,  2003,  and  annually  thereafter.  For
       work-related  injuries in Texas, the Company is a non-subscriber, meaning
       that  work-related  losses  are  covered  under a defined benefit program
       outside  of  the  Texas  Workers' Compensation system. Losses are paid as
       incurred  and  estimated  losses  are  accrued  on  a  monthly  basis.

     *  Emeritus  accounts  for  stock  option  awards  to  employees  under the
       intrinsic  value-based  method  of  accounting  prescribed by APB No. 25,
       "Accounting  for  Stock  Issued  to  Employees".  Under  this  method, no
       compensation  expense is recorded provided the exercise price is equal to
       or  greater  than the quoted market price of the stock at the grant date.
       The  Company  makes  pro forma disclosures of net income and earnings per
       share  as  if  the fair value-based method of accounting (the alternative
       method  of  accounting  for stock-based compensation) had been applied as
       required  by  FAS No. 123, "Accounting for Stock-Based Compensation". The
       fair  value-based  method  requires  the  Company  to make assumptions to
       determine  expected  risk-free  interest  rates,  stock price volatility,
       dividend

                                      F-9
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       yield  and  weighted-average  option  life. To the extent, such things as
       actual  volatility  or  life  of the options is different from estimated,
       amounts  expensed  will  be  more  or  less than would have been recorded
       otherwise.

     *  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 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. Emeritus has considered future
       taxable  income  and ongoing prudent and feasible tax planning strategies
       in  assessing the need for the valuation allowance. However, 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.  The Company's management contracts do not
result  in  control  and  those  entities are not consolidated.  All significant
inter-company  balances  and  transactions  are  eliminated  in  consolidation.

Revenue  Recognition

Operating  revenue  consists  of  resident fee revenue, community revenue, other
service  fees,  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
are  recognized  in  the  period  services  are  rendered.  Management  fees are
comprised  of  revenue from management contracts and are recognized in the month
in  which  services are performed in accordance with the terms of the management
contract.

In  2001  and  prior years, the Company recognized nonrefundable move-in fees at
the time the resident occupied the unit and the related services were performed.
This  treatment  was not materially different from recognition of such fees over
the  average  period of occupancy.  However, in 2002, the Company began charging
significantly higher fees for move-ins than were previously charged.  Therefore,
the  Company  has  instituted  a  policy  consistent  with  SEC Staff Accounting
Bulletin  101  "Revenue Recognition", to defer such fees and recognize them over
the  average  period of occupancy, approximately 16 months.  The Company has not
deferred  any  of  the  costs  related  to  move-ins.

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, 2003, and 2002, were
not  material.

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
lease  term.

The  Company  accounts  for  impairment  of  long-lived  assets, which primarily
include  property and equipment, investments, and amortizable intangible assets,
in  accordance with the provisions of SFAS No. 144 Accounting for the Impairment
or  Disposal  of Long-Lived Assets or SFAS No. 142 Goodwill and Other Intangible
Assets,  as  applicable.  An impairment review is performed whenever a change in
condition  occurs which indicates that the carrying amounts of assets may not be
recoverable.  Such  changes include changes in the Company's business strategies
and  plans,  changes  in  the quality or structure of its relationships with its

                                      F-10
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

partners, and deteriorating operating performance of individual communities. The
Company  uses  a  variety  of  factors  to assess the realizable value of assets
depending on their nature and use. Such assessments are primarily based upon the
sum  of expected future undiscounted net cash flows over the expected period the
asset will be utilized, as well as market values and conditions. The computation
of  expected  future  undiscounted  net cash flows can be complex and involves a
number  of  subjective  assumptions. Any changes in these factors or assumptions
could  impact  the assessed value of an asset and result in an impairment charge
equal  to the amount by which its carrying value exceeds its actual or estimated
fair  value.

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.

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  terms  of  the  associated  leases  where  the Company has no
continued financial involvement in communities that it has sold and leased back.
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  expenses  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.

                                      F-11
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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.

Had  compensation  costs  for  the  Company's  stock option plan been determined
pursuant  to  SFAS  123, the Company's pro forma net income (loss) and pro forma
net  income  (loss)  per share would have been as follows  (in thousands, except
per  share  amounts):

<TABLE>
<CAPTION>

                                                                     Year ended December 31,
                                                            ----------------------------------------
                                                                2003          2002          2001
                                                            ------------  ------------  ------------

<S>                                                         <C>           <C>           <C>
Net income (loss) to common shareholders:
As reported. . . . . . . . . . . . . . . . . . . . . . . .  $     4,460   $   (13,566)  $   (10,602)
Add:  Stock-based employee compensation expense
  included in reported net income (loss) . . . . . . . . .            -             -             -
Deduct:  Stock-based employee compensation
  determined under fair value based method for all awards.       (1,156)         (773)       (1,074)
                                                            ------------  ------------  ------------
Pro forma. . . . . . . . . . . . . . . . . . . . . . . . .  $     3,304   $   (14,339)  $   (11,676)
                                                            ============  ============  ============

Net income (loss) per common share:

As reported - Basic. . . . . . . . . . . . . . . . . . . .  $      0.43   $     (1.33)  $     (1.04)
                                                            ============  ============  ============

Pro forma - Basic. . . . . . . . . . . . . . . . . . . . .  $      0.32   $     (1.40)  $     (1.15)
                                                            ============  ============  ============

As reported - Diluted. . . . . . . . . . . . . . . . . . .  $      0.39   $     (1.33)  $     (1.04)
                                                            ============  ============  ============

Pro forma - Diluted. . . . . . . . . . . . . . . . . . . .  $      0.29   $     (1.40)  $     (1.15)
                                                            ============  ============  ============
</TABLE>


The  Company  estimates  the  fair  value of its options using the Black-Scholes
option value model, which is one of several methods that can be used to estimate
option  values.  The  Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable.  Option valuation models require the input of highly
subjective  assumptions,  including  the  expected  stock price volatility.  The
Company's  options  have  characteristics  significantly different from those of
traded  options,  and changes in the subjective input assumptions can materially
affect the fair value estimates.  The fair value of options granted and employee
purchase  plan  shares  were  estimated at the date of grant using the following
weighted  average  assumptions:

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                         -------------------------------------------
                                              2003           2002           2001
                                         --------------  ------------  --------------
<S>                                      <C>             <C>           <C>
Expected life from vest date (in years)              4             4               4
Risk-free interest rate . . . . . . . .    1.96% - 2.6%   2.9% - 4.3%   4.12% - 4.39%
Volatility. . . . . . . . . . . . . . .   89.3% - 90.0%   90.4%-93.3%   80.7% - 82.1%
Dividend yield. . . . . . . . . . . . .              -             -               -
Weighted average fair value (per share)  $        2.55   $      1.99   $        1.31
</TABLE>

                                      F-12
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Income  (Loss)  Per  Share

The  capital  structure  of  Emeritus  includes  convertible  debentures,  and
redeemable  and  non-redeemable  convertible  preferred  stock,  common  stock
warrants,  and  stock  options.  Basic  net  income (loss) per share is computed
based  on  weighted  average  shares  outstanding  and  excludes  any  potential
dilution.  Diluted net income (loss) per share is computed based on the weighted
average  number  of  shares  outstanding  plus dilutive potential common shares.
Options  and  warrants  are  included  under  the "treasury stock method" to the
extent  they  are  dilutive.  Certain shares issuable upon the exercise of stock
options  and  warrants  and  conversion  of convertible debentures and preferred
stock  have  been  excluded  from  the  computation  because the effect of their
inclusion would be anti-dilutive.  The following table summarizes those that are
excluded  in  each  period  because  they  are  anti-dilutive  (in  thousands):

<TABLE>
<CAPTION>

                                            Year ended December 31,
                                            ----------------------
                                             2003    2002   2001
                                             -----  ------  -----
<S>                                          <C>    <C>     <C>
Convertible Debentures. . . . . . . . . . .  1,455   1,455  1,455
Options . . . . . . . . . . . . . . . . . .     30   1,714  1,193
Warrants - Senior Housing Partners I, L.P..    400       -      -
Warrants - Saratoga Partners. . . . . . . .      -   1,000  1,000
Series A Preferred (1). . . . . . . . . . .      -   1,374  1,374
Series B Preferred. . . . . . . . . . . . .  4,824   4,636  4,239
                                             -----  ------  -----
                                             6,709  10,179  9,261
                                             =====  ======  =====

(1) Repurchased in July and August 2003.
</TABLE>

Dilutive  potential common shares and adjustments to net income (loss) to common
shareholders  arising  under  the  assumed  conversion  into common stock of the
convertible  debentures, Series A redeemable convertible preferred, and Series B
convertible  preferred  stock  are  included  under  the  "if-converted method".

The  following  table summarizes the computation of basic and diluted net income
(loss)  per  common  share  amounts  presented  in the accompanying consolidated
statements  of  operations  (in  thousands,  except  per  share  data):

<TABLE>
<CAPTION>

                                                             Year ended December 31,
                                                         ------------------------------
                                                           2003      2002       2001
                                                          -------  ---------  ---------
<S>                                                       <C>      <C>        <C>
Basic:
Numerator for basic net income (loss) per share:
    Net income (loss) to common shareholders . . . . . .  $ 4,460  $(13,566)  $(10,602)
                                                          =======  =========  =========
Denominator for basic net income (loss) per share:
   Weighted average number of common shares outstanding.   10,255    10,207     10,162
                                                          =======  =========  =========

Basic net income (loss) per share. . . . . . . . . . . .  $  0.43  $  (1.33)  $  (1.04)
                                                          =======  =========  =========


Diluted:
Numerator for diluted net income (loss) per share:
    Net income (loss) to common shareholders . . . . . .  $ 4,460  $(13,566)  $(10,602)
                                                          =======  =========  =========

Denominator for diluted net income (loss) per share:
    Weighted average number of common shares outstanding   10,255    10,207     10,162
    Assumed exercise of options and warrants . . . . . .    1,265         -          -
                                                          -------  ---------  ---------
                                                           11,521    10,207     10,162
                                                          =======  =========  =========

Diluted net income (loss) per share. . . . . . . . . . .  $  0.39  $  (1.33)  $  (1.04)
                                                          =======  =========  =========
</TABLE>
                                      F-13
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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,  net  of  any  related  tax  effect.

Recent  Accounting  Pronouncements

In  June  2001,  FASB  issued  SFAS  No.  143,  Accounting  for Asset Retirement
Obligations.  SFAS  No.  143 requires the Company to record the fair value of an
asset  retirement  obligation  as a liability in the period in which it incurs a
legal  obligation  associated  with the retirement of tangible long-lived assets
that  result  from the acquisition, construction, development, and/or normal use
of  the  assets.  The  Company  also  records  a  corresponding  asset  that  is
depreciated  over  the life of the asset.  Subsequent to the initial measurement
of  the  asset retirement obligation, the obligation will be adjusted at the end
of  each  period  to  reflect  the  passage of time and changes in the estimated
future  cash  flows underlying the obligation.  The Company adopted SFAS No. 143
on  January 1, 2003.  Adoption did not have an impact on the Company's financial
condition  and  results  of  operations.

In  April  2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4,  44  and  64,  Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS  No.  145  amends  existing  guidance  on reporting gains and losses on the
extinguishment  of  debt  to  prohibit the classification of the gain or loss as
extraordinary,  as  the use of such extinguishments have become part of the risk
management  strategy of many companies.  SFAS No. 145 also amends SFAS No. 13 to
require  sale-leaseback  accounting  for  certain  lease modifications that have
economic  effects similar to sale-leaseback transactions.  The provisions of the
Statement  related  to  the  rescission of Statement No. 4 are applied in fiscal
years  beginning after May 15, 2002.  The provisions of the Statement related to
Statement  No.  13 were effective for transactions occurring after May 15, 2002,
with  early  application encouraged.  The adoption of SFAS No. 145 in the fourth
quarter  of  2002  had  no  effect  on  the  Company's  consolidated  financial
statements.

In  November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and  Disclosure  Requirements  for  Guarantees, Including Indirect Guarantees of
Indebtedness  to Others, an interpretation of FASB Statements No. 5, 57, and 107
and  a rescission of FASB Interpretation No. 34.  This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements  about  its  obligations under guarantees issued.  The Interpretation
also  clarifies  that  a  guarantor  is required to recognize, at inception of a
guarantee,  a  liability  for  the fair value of the obligation undertaken.  The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable  to  guarantees  issued  or  modified  after  December 31, 2002.  The
disclosure  requirements  are  effective  for financial statements of interim or
annual  periods ending after December 15, 2002.  Adoption did not have an impact
on  the  Company's  financial  condition  and  results  of  operations.

In  January  2003,  the  FASB  issued  Interpretation  No.  46  (FIN  No.  46),
"Consolidation  of Variable Interest Entities."  This Interpretation was revised
on December 2003 and addresses consolidation by business enterprises of variable
interest  entities (VIE's).  A VIE is subject to the consolidation provisions of
FIN  No.  46  if  it  cannot support its financial activities without additional
subordinated  financial  support from third parties or its equity investors lack
any  one  of the following characteristics:  the ability to make decisions about
its  activities  through  voting  rights, the obligation to absorb losses of the
entity  if they occur, or the right to receive residual returns of the entity if
they  occur.  FIN  No.  46  requires  a  VIE  to  be consolidated by its primary
beneficiary.  The  primary  beneficiary  is  the  party  that holds the variable
interests  that  expose  it to a majority of the entity's expected losses and/or
residual  returns.  For  purposes  of  determining  a  primary  beneficiary, all
related  party  interests  must  be  combined  with  the actual interests of the
Company  in  the  VIE.  The  application of this Interpretation is immediate for
VIE's  created or altered after January 31, 2003, and is effective at the end of
the  first quarter of 2004, for variable interest entities that existed prior to
February  1,  2003.

The  Company  has  evaluated the impact of FIN No. 46 on all its current related
party  management  agreements including those more fully discussed under Item 13
"CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS,"  under sections denoted as
"Emeritrust  Transactions"  and  "Baty Transactions" as well as other management
agreements  and  other  arrangements with potential VIE's.  The Company does not
believe  it  has  any  VIE's  that  will  require  consolidation.

                                      F-14
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In  May  2003,  the  FASB  issued SFAS No. 150, Accounting for Certain Financial
Instruments  with  Characteristics  of  both Liabilities and Equity.  For public
enterprises,  such  as  the  Company,  this statement is effective for financial
instruments  entered  into  or  modified  after  May  31, 2003, and otherwise is
effective  at the beginning of the first interim period beginning after June 15,
2003.  Management  has  determined  that no current financial instruments of the
Company  are  covered  by  this  pronouncement.


(2)     SHORT-TERM  INVESTMENTS

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, which is designated as available for sale,
as  of  December  31,  as  follows  (In  thousands):

<TABLE>
<CAPTION>




                           Gross
                         Unrealized    Fair
            Amortized      Gains      Market
               Cost       (losses)     Value
            ----------  ------------  -------
<S>         <C>         <C>           <C>
2003.. . .  $        -  $         -   $     -
            ==========  ============  =======
2002.. . .  $    1,512  $     1,247   $ 2,759
            ==========  ============  =======
2001.. . .  $    1,512  $      (136)  $ 1,376
            ==========  ============  =======
</TABLE>

On  April  23, 2003, ARV announced that, at a special meeting held on that date,
its  shareholders voted to approve the Agreement and Plan of Merger, dated as of
January  3, 2003, between ARV and Prometheus Assisted Living LLC ("Prometheus").
ARV  further announced that the merger transaction closed and trading of the ARV
stock  on the American Stock Exchange ceased on April 23, 2003.  Under the terms
of  the merger, shares of ARV's stock held by shareholders other than Prometheus
and its affiliates were converted into the right to receive merger consideration
of  $3.90  per share, without interest.  On April 25, 2003, the Company received
approximately  $2.9  million  in  exchange  for its 755,884 shares of ARV common
stock  in  which  it  had  a  carrying value of approximately $1.5 million, thus
recognizing  a  gain of approximately $1.4 million, which is included in "Other,
net"  in  the Company's Consolidated Statements of Operations and a reduction in
"Accumulated  other  comprehensive  gain"  in the Company's Consolidated Balance
Sheets.


(3)     LONG-TERM  INVESTMENTS

In  December  2003,  the  Company  invested  $7.3  million  (representing an 11%
ownership  interest),  net  of  transaction  costs,  in  a  limited  liability
corporation  (LLC)  that  acquired  Alterra  Healthcare  Corporation, a national
assisted  living  company  headquartered  in  Milwaukee,  Wisconsin that was the
subject  of  a  voluntary  Chapter 11 bankruptcy.  Alterra operated 304 assisted
living communities in 22 states.  The purchase price for Alterra was $76 million
and  the  transaction  closed  on  December  4,  2003, following approval by the
Bankruptcy  Court.  The  members of the LLC consists of an affiliate of Fortress
Investment  Group LLC (Fortress), a New York based private equity fund, which is
the  managing member, an entity controlled by Mr. Baty, and Emeritus.  Under the
LLC  agreement,  distributions are first allocated to Fortress until it receives
its original investment of $49 million together with a 15% preferred return, and
then  are  allocated  to  the  three investors in proportion to their percentage
interests,  as  defined  in the agreement, which are a 50% interest for Fortress
and  a  25%  interest  for  the  entity  controlled  by  Mr.  Baty and Emeritus,
respectively.



                                      F-15
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


(4)     OTHER  RECEIVABLES

Other  receivables  consisted  of  the  following at December 31 (In thousands):

<TABLE>
<CAPTION>
                                                            2003    2002
                                                           ------  ------
<S>                                                        <C>     <C>
Working capital advances to third parties and affiliates   $  152  $1,264
Interest receivable . . . . . . . . . . . . . . . . . . .     470     772
Other receivables.. . . . . . . . . . . . . . . . . . . .   1,339   1,609
                                                           ------  ------
                                                           $1,961  $3,645
                                                           ======  ======
</TABLE>


(5)     PROPERTY  AND  EQUIPMENT

Property  and  equipment consist of the following at December 31 (In thousands):

<TABLE>
<CAPTION>

                                                    2003      2002
                                                ---------  ---------
<S>                                              <C>       <C>
 Land and improvements. . . . . . . . . . . . .  $ 13,824  $ 12,378
 Buildings and improvements . . . . . . . . . .   106,629   112,085
 Furniture and equipment. . . . . . . . . . . .    14,730    14,298
 Vehicles . . . . . . . . . . . . . . . . . . .     5,413     4,247
 Leasehold improvements . . . . . . . . . . . .     8,282     6,529
                                                 --------  --------
                                                  148,878   149,537
 Less accumulated depreciation and amortization    32,202    30,335
                                                 --------  --------
                                                  116,676   119,202
 Construction in progress . . . . . . . . . . .       870       381
                                                 --------  --------
                                                 $117,546  $119,583
                                                 ========  ========
</TABLE>


(6)     NOTES  RECEIVABLE  FROM  AND  INVESTMENTS  IN  AFFILIATED  COMPANIES

In  January  2000,  the  Company  purchased  a  30%  equity  interest  in Senior
Healthcare  Partners,  LLC,  a  pharmaceutical supply limited liability company.
The  Company has cash funding obligations of up to $1.8 million.  As of December
31,  2001,  the  Company  had  funded  the  entire  $1.8  million.  The  Company
recognized  its  share  of  partnership gain of $175,000 and $98,000 in 2003 and
2002,  respectively,  and  its  share of partnership losses of $313,000 in 2001,
which  is  included  in  "Other,  net".


(7)     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.


                                      F-16
<PAGE>

                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(8)     LONG-TERM  DEBT

Long-term  debt  consists  of  the  following  at  December  31  (In thousands):

<TABLE>
<CAPTION>
                                                                          2003               2002
                                                                    -----------------  -----------------
<S>                                                                 <C>                <C>
Notes payable, principal and interest at LIBOR* plus 4.15%
with a floor of 6.5% (6.5% at December 31, 2003) payable
monthly, unpaid principal and interest due December 2006,
with an option to extend to September 2007). . . . . . . . . . . .  $          57,042  $          58,000

Notes payable,  interest only at 12% payable monthly, plus
capitalized interest of 1.75% (13.75% at December 31, 2003),
unpaid principal and interest due December 2007. . . . . . . . . .             16,298             16,020

Note payable, interest only at 12.13% (12.13% at December 31,
2003) payable monthly with a 50 basis point increase each
anniversary capped at 13%, principal and interest starting the
second year, and unpaid principal and interest due June 2007 . . .             25,800              6,800

Notes payable, principal & interest at LIBOR* plus 4.5% and
LIBOR plus 7.75% (7% and 9.75% at December 31, 2003)
payable monthly, unpaid principal and interest due March 2006. . .              6,647              6,800

Notes payable, interest at 7.43%, payable in monthly
installments, unpaid principal and interest due October 2009,
refinanced with long-term debt . . . . . . . . . . . . . . . . . .                  -             24,640

Notes payable, interest at rates from 8% to 12%, payable in
monthly installments, due through March 2013 . . . . . . . . . . .             11,412             11,231

Notes payable, principal and interest at 6.98%, payable in
monthly installments, due August 2008. . . . . . . . . . . . . . .             22,639                  -

Notes payable, principal and interest at prime, payable in
monthly installments, due September 2005 . . . . . . . . . . . . .              1,300                  -

                                                                    -----------------  -----------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            141,138            123,491
Less current portion . . . . . . . . . . . . . . . . . . . . . . .              4,750              3,604
                                                                    -----------------  -----------------
Long-term debt, less current portion . . . . . . . . . . . . . . .  $         136,388  $         119,887
                                                                    =================  =================
</TABLE>


*  LIBOR is the London Interbank Offering Rate.

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

In January 2003, the Company reached an agreement with General Motors Acceptance
Corporation  ("GMAC")  to  extend  a $6.8 million note set to mature February 1,
2003.  The  original  $6.8  million note has been bifurcated into a $6.2 million
Note  A  and a $560,000 Note B.  The new notes of $6.8 million matures March, 1,
2006,  and  provides  for monthly principal payments of approximately $22,000 in
addition  to  interest  at  LIBOR  plus 4.5% and LIBOR plus 7.75%, respectively.

Additionally,  related  to  the  GMAC extension, the original Seller note for $1
million  was  also extended.  The original seller note principal balance for the
year  ended  December  31,  2003, was $921,000 with a maturity of March 1, 2003.
This  amendment  extends  the  principal maturity to March 1, 2006, and requires
$12,500  monthly principal and interest payments, with interest accruing at 12%.
The  Company  made  a $200,000 principal paydown in February 2003.  This note is
included  in  the  $11.4  million  in  the  table  above.

                                      F-17
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


In  May  2003,  in  connection  with  the  Lease  of  Eight  Communities  in May
transaction  discussed  in  Note  17, "Sales and Acquisitions, including Certain
Related-Party  Transactions",  a real estate investment trust loaned $600,000 to
the  Company  for  general  working  capital  purposes and for capital and other
improvements  (included in the note for $11.4 million in the table above).  This
loan  has  a  10-year  term with no extensions, bearing interest at 10% annually
with  monthly interest-only payments.  In addition, if the Company exercises its
purchase  option  at  any  time  on  any  of the eight communities, the pro rata
principal  portion  of  the  loan will become due at the time the closing of the
sale  of  such  facility  occurs.

Debt  Consolidation.  The  real  estate  investment  trust  that  financed  the
Emeritrust  II transaction held $6.8 million of the Company's leasehold mortgage
debt  that  matured in March 2005 and bore interest at 12% per annum, commencing
March  2002  with  periodic  increases  up  to  13% per annum.  This real estate
investment  trust  also  provided  $7.5  million in leasehold mortgage financing
incurred  to  support the Series A Preferred Stock repurchase in August 2003 and
$11.5  million  in  leasehold  mortgage financing to support the purchase of the
Emeritrust  II  communities.  On September 30, 2003, these three financings were
consolidated  into  a single $25.8 million leasehold mortgage financing, secured
by the 32 communities and maturing on June 30, 2007.  The debt bears interest at
an  initial  rate  of  12.13%  per annum with periodic increases up to 13%.  The
consolidated  loan  requires  monthly  payments  of  interest the first year and
monthly  payments  of  principal  and interest, based on a 10-year amortization,
thereafter.  Additional principal reductions may occur, at the Company's option,
through the increase in the amount of the lease financing based on the portfolio
achieving  certain  coverage  ratios.

Certain  of  the  Company's  wholly  owned subsidiaries, established pursuant to
financing  requirements,  continue  to  hold  assets,  which  include  certain
properties operated by the Company and which also may include cash that has been
swept  into  the  Company's deposit accounts.  Notwithstanding consolidation for
financial  statement  purposes, it is management's intention that the assets and
liabilities  of  the  subsidiaries  are  not  available  to  pay  other debts or
obligations  of  the  consolidated  Company  and the consolidated Company is not
liable  for the liabilities of the subsidiaries, except as otherwise provided in
connection  with  these  financing  requirements.

Certain  of the Company's indebtedness include restrictive provisions related to
cash  dividends, investments, and borrowings and require maintenance of specific
operating  ratios,  and  levels of working capital. As of December 31, 2003, the
Company  was in compliance with all such covenants. Many of our debt instruments
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.  Such  cross-default  provisions  affect  17  owned  assisted  living
properties.  Accordingly,  any  event  of default could cause a material adverse
effect on our financial condition if such debts are cross-defaulted. The Company
expects  to  be  in  compliance  at  least  through 2004 and for the foreseeable
future.

Principal  maturities of long-term debt at December 31, 2003, are as follows (In
thousands):
<TABLE>
<CAPTION>



<S>         <C>
2004.. . .  $  4,750
2005.. . .     6,417
2006.. . .    68,857
2007.. . .    40,412
2008.. . .    20,096
Thereafter       606
            --------
Total. . .  $141,138
            ========
</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.  Interest on the
debenture  is  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.

                                      F-18
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


(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, exchangeable, redeemable preferred
stock  for  $25,000,000.  The  holder of the Series A redeemable Preferred Stock
was  entitled to receive quarterly dividends payable in cash.  The dividend rate
was 9% of the stated value of $25,000,000.  Dividends accumulate, whether or not
declared  or paid.  If cash dividends were not paid quarterly, the dividend rate
increased  to  11%  ("arrearage  rate") until the unpaid cash dividends had been
fully  paid.  The preferred stock had 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 could 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  was  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  have  contained  the same conversion
rights,  restrictions  and  other terms as the preferred stock.  For each of the
years ended December 31, 2003, 2002, and 2001, the Company accumulated dividends
aggregating $1.7 million, $2.75 million, and $2.75 million, respectively, at the
arrearage  dividend  rate  of  11%,  for  a  total  of  $7.2  million.

Since  the  Company  was  unable  to pay dividends for more than six consecutive
quarters,  the  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 had paid the accrued dividends.  The Series A shareholders
opted not to elect an additional director.  In addition, because the Company was
unable  to  pay  dividends  to  their  Series  A  shareholders for more than six
consecutive  quarters, beginning in 2002, the Series A dividends were calculated
on  a compounded cumulative basis, retroactively.  The retroactive adjustment of
Series  A  dividends  for 2000 and 2001 were $19,000 and $275,000, respectively,
which were recognized in 2002.  The cumulative compounding for 2003 and 2002 was
an  additional  $586,000  and  $622,000,  respectively.

Repurchase  of  Series  A  Preferred  Stock.  In a two-part transaction that was
completed August 28, 2003, the Company repurchased all the outstanding shares of
its  Series  A Preferred Stock for an aggregate purchase price of $20.5 million.
The  Series  A  Preferred  Stock  had been issued originally in October 1997 for
$25.0  million.  As  a  part  of  the  repurchase,  the  holder  of the Series A
Preferred  Stock  waived  approximately  $10.1  million  in  accrued  and unpaid
dividends.  As  a  result  of  the transaction, the Company recognized a gain of
approximately  $14.5  million.  Just  prior  to  the  repurchase,  the  Series A
Preferred  Stock  was accruing compounded, cumulative dividends of approximately
$3.7  million  annually  with mandatory redemption in October 2004 at a price of
$25  million  plus  accrued and unpaid dividends.  In completing the repurchase,
the Company avoided these future obligations.  The Company obtained the funds to
complete  the  repurchase  through  three  related  financing  transactions.

The first financing transaction involved three communities that Emeritus leased.
Prior  to  this financing transaction, the Company also held notes receivable in
the  aggregate  amount  of  $4.4  million  that  were  secured by the same three
communities  and  under  which  it  received  interest of approximately $144,000
annually.  In the refinancing, the communities were transferred to a real estate
investment  trust,  which  became  the  new  owner  and  lessor, and the Company
received  net proceeds of $10.2 million in repayment of the notes we held and in
exchange  for  its  related  security  and  other  property  interests  in  the
communities.  The  transfer  of  the  communities  was  subject to the Company's
leases,  the  terms  of  which did not change.  Because Emeritus disposed of its
notes,  the  Company  will  no longer receive the interest it formerly did.  The
Company  recognized a deferred gain of approximately $8.5 million, which will be
amortized  over  the  remaining  life  of  the  leases.

The  second  financing  transaction, with the same real estate investment trust,
involved  the  sale/leaseback of four communities, three of which Emeritus owned
and  one of which it held a 50% joint venture interest, resulting in proceeds of
$6.6  million,  net  of  repayment of $24.6 million of debt.  The lease is for a
15-year  term  with  a  15-year extension and provides for a base annual rent of
approximately  $3.5  million,  with  periodic  escalators.  Prior  to  this
refinancing,  the  communities secured mortgage financing of $24.6 million, with
annual  interest payments of approximately $2.4 million.  The Company recognized
a  deferred  gain  of $9.9 million, which will be amortized over the term of the
lease.

The  third  financing,  again  with the same real estate investment trust, was a
mortgage  loan for $7.5 million secured by the seven communities involved in the
first  two  financing  transactions discussed above.  The debt matured in August
2006  and  requires monthly interest-only payments at an initial rate of 12% per
annum,  with  periodic  increases.  This  mortgage  debt  was  subsequently
consolidated  with  other  debt  held  by  the  real estate investment trust, as
discussed  in  Note  8,  "Long-term  Debt".

                                      F-19

<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(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.

Income  taxes  of  $418,000  in  2003  are  due  primarily  because  of gains on
sale-leaseback  transactions  involving  several communities in 2003, which have
been  deferred  for  accounting  purposes.  The Company believes that it will be
required to pay an alternative minimum income tax for 2003 on its federal income
tax  return  and  in  certain  states,  it  will  pay  income  or franchise tax.
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,  (In  thousands):

<TABLE>
<CAPTION>

                                                                          2003       2002
                                                                       ---------   ---------


<S>                                                                       <C>       <C>
Gross deferred tax liabilities-Insurance, depreciation and amortization.  $(2,701)  $(1,880)
Gross deferred tax assets:
     Net operating loss carryforwards                                      25,303    29,433
     Deferred gains on sale/leaseback                                      13,811     7,621
     Impairment of investment securities                                        -     2,411
     Unearned rental income and deferred move-in fees                       4,012     1,066
     Vacation accrual                                                         740       481
     Health insurance accrual                                                 928       723
     Insurance accrual                                                          -       746
     Incentive compensation accrual                                           485       270
     Deferred lease payments                                                   86       665
     Federal AMT credit                                                       142         -
     Other                                                                     88        55
                                                                          --------  --------
          Gross deferred tax assets                                        45,595    43,471
Less valuation allowance                                                   42,894    41,591
                                                                          --------  --------
Deferred tax assets, net                                                    2,701     1,880
                                                                          --------  --------
          Net deferred tax assets                                         $     -   $     -
                                                                          ========  ========
</TABLE>

The increase in the valuation allowance was $1.3 million, $1.4 million, and $1.6
million  for  2003,  2002, and 2001, respectively.  The increases were primarily
due  to  the  amount of net operating loss carryforwards and deferred gains, 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, 2003, available to offset future federal taxable
income,  if  any,  of  approximately  $74.4  million expiring beginning in 2005.


(12)      SHAREHOLDERS'  DEFICIT

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
Preferred  Stock, and agreed to complete the sale of the remaining 10,000 shares
during the first half of 2000. Each share of Series B Preferred 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

                                      F-20
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

the  Series B Preferred 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 Preferred 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 Preferred Stock is entitled to receive quarterly dividends payable
in  a  combination  of  cash  and additional shares of Series B Preferred 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
Preferred  Stock  at the rate of one share of Series B Preferred 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 Preferred 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
Preferred  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 Preferred 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  1,266  shares  of Series B
Preferred Stock as in-kind dividends, none of which were paid or issued in 2001.
In  2002,  the  Company  accrued  $2.4  million  in cash dividends at the higher
arrearage  rate,  and  $1.3  million  equivalent  to  1,317  shares  of Series B
Preferred Stock as in-kind dividends.  In the third quarter of 2002, the Company
issued  2,533  shares  of  Series  B  Preferred  Stock for the in-kind dividends
accrued  from  2000,  2001,  and  the first two quarters of 2002.  In the fourth
quarter  of 2002, another 331 shares of Series B Preferred Stock were issued for
the third quarter accrual.  During 2003, additional shares of Series B Preferred
Stock were issued on a quarterly basis on the first day following the quarter to
which  they  were related.  Thus, an additional 1,357 shares, equivalent to $1.4
million,  of  Series  B  Preferred  Stock  were issued as paid-in-kind dividends
during  2003.  Accordingly, the Company had a cumulative commitment to issue 348
shares, 334 shares, and 1,881 shares of Series B Preferred Stock at December 31,
2003,  2002,  and  2001,  respectively.

As  of  December  31,  2003,  the Company has accrued its obligation to pay cash
dividends  to  the  Series  B  preferred  shareholders,  which  amounted  to
approximately  $8.2 million, including all penalties for non-payment.  Since the
Company  had  not  paid  these dividends for more than six consecutive quarters,
under  the Designation of Rights and Preferences of the Series B preferred stock
in  the Company's Articles of Incorporation, the Series B preferred shareholders
may  designate  one  director  in  addition to the other directors that they are
entitled to designate under the shareholders' agreement.  As of January 1, 2002,
the  Series  B preferred shareholders became entitled to designate an additional
director  under  the  Articles,  but  thus  far  have  chosen  not  to  do  so.

Series  B preferred dividends are to be paid in cash and in additional shares of
Series  B preferred shares.  As of December 31, 2003, an additional 4,830 Series
B  preferred  shares  had  been issued as paid-in-kind dividends for all periods
through  the  third  quarter  of 2003.  As of January 1, 2004, an additional 348
shares of Series B preferred stock were issued as paid-in-kind dividends for the
fourth  quarter  of  2003.

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 2,400,000 shares of common stock to be reserved for
grants  under the 1995 Plan of which 185,983 were available for future awards at
December  31,  2003.  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

                                      F-21
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 were the same as the terms of the options
tendered  for  exchange.

A  summary  of  the  activity  in  the  Company's  stock  option  plans follows:

<TABLE>
<CAPTION>

                                                    2003                     2002                      2001
                                         ------------------------  ------------------------  ------------------------
                                                        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 . . .   1,714,333   $      2.56   1,192,552   $      2.39   1,321,707   $      9.13
 Granted. . . . . . . . . . . . . . . .     536,500   $      3.94     601,000   $      2.94   1,144,083   $      2.11
 Exercised. . . . . . . . . . . . . . .     (50,223)  $      2.44      (7,501)  $      2.11           -   $         -
 Canceled . . . . . . . . . . . . . . .     (49,167)  $      3.03     (71,718)  $      2.96  (1,273,238)  $      9.13
                                         -----------  -----------  -----------  -----------  -----------  -----------
 Outstanding at end of year . . . . . .   2,151,443   $      2.89   1,714,333   $      2.56   1,192,552   $      2.39
 Options exercisable at year-end. . . .     916,941   $      2.57     420,110   $      2.82      49,869   $      9.21
</TABLE>

The  following  is  a summary of stock options outstanding at December 31, 2003:
<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>
 $1.60  - $ 2.11    1,076,030         7.95    $     2.11  714,963    $     2.10
 $2.56  - $ 4.06    1,045,663         8.64    $     3.45  172,228    $     2.95
 $6.50  - $ 7.25        5,750         5.98    $     6.60    5,750    $     6.60
 $9.63  - $ 9.81          500         4.88    $     9.63      500    $     9.63
 $10.25 - $15.25       23,500         3.87    $    13.01   23,500    $    13.01
                  ----------- -------------  ----------- -----------  ---------
                    2,151,443         8.23    $     2.89  916,941    $     2.57
                  =========== =============  =========== ===========  =========
</TABLE>

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
400,000  shares  are  available  for  purchase  under  the  Plan.  Periodically,
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 Plan expires in May 2008.  In
2003, 2002, and 2001, employees purchased, net of open market

                                      F-22
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

repurchases;  zero;  43,695; and 75,985 common shares, respectively, through the
Plan,  for  an  aggregate  total  of  175,975  since  inception  of  the  Plan.


(13)  COMPREHENSIVE  INCOME  (LOSS)

Comprehensive  income  (loss)  consists  of  the  following  for the years ended
December  31,  2003,  2002,  and  2001,  respectively  (In  thousands):

<TABLE>
<CAPTION>
                                                   2003            2002            2000
                                              --------------  --------------  --------------
<S>                                           <C>             <C>             <C>
Net income (loss) to common shareholders. . .  $       4,460   $     (13,566)  $     (10,602)
Other comprehensive income (loss):
     Unrealized holding gains
          on investment securities. . . . . .            144           1,383             951
     Realized gains on investment securities.         (1,391)              -               -
                                               --------------  --------------  --------------
Comprehensive income (loss) . . . . . . . . .  $       3,213   $     (12,183)  $      (9,651)
                                               ==============  ==============  ==============
</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  $137.2  million  versus  a  carrying value of $141.1 million; and the
convertible  debentures  have  an  estimated  fair value, based on the Company's
incremental  borrowing  rate,  of  $31.9  million  versus  a book value of $32.0
million  at  December  31,  2003.


(15)      RELATED-PARTY  MANAGEMENT  AGREEMENTS

During  1995,  the  Company's  two  most  senior  executive  officers, its Chief
Executive  Officer,  and  its  then  President,  who  is now its Chief Financial
Officer, 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.

The  Company  has  management  agreements  with  a  number  of entities owned or
controlled  by  Baty  relating  to  20  communities  at  December 31, 2003.  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.
Management  fee  revenue  earned  under  these  and  previous  agreements  was
approximately  $4.4  million,  $4.3 million, and $2.4 million in 2003, 2002, and
2001,  respectively.

Mr.  Baty,  the  Company's  Chief Executive Officer, is a principal shareholder,
director,  and  Chairman  of the Board of Holiday Retirement Corporation, and is
the  principal  owner  of  Columbia-Pacific Group, Inc. 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. Columbia-Pacific and
affiliated  partnerships  operate  assisted  living  communities and independent
living  facilities,  many  of which the Company manages under various management
agreements.  The  financial  interests  and  management  and  financing
responsibilities  of  Mr.  Baty  with  respect

                                      F-23
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

to  Holiday and Columbia-Pacific and their affiliated partnerships could present
conflicts  of  interest  with  the  Company, including potential competition for
residents  in markets where both companies operate and competing demands for the
time  and  efforts  of  Mr.  Baty.

(16)     LEASES

At  December  31,  2003, the Company leased office space and 109 assisted living
communities.  The  office  lease  expires  in  2006  and  contains two five-year
renewal  options.  The  community  leases  expire  from 2004 to 2018 and contain
various  extension  options,  ranging  from  five  to  fifteen  years.

Minimum  lease  payments  under  noncancelable  operating leases at December 31,
2003,  are  as  follows  (In  thousands):

<TABLE>
<CAPTION>



<S>           <C>
2004 . . . .  $ 56,262
2005 . . . .    56,572
2006 . . . .    56,639
2007 . . . .    55,222
2008 . . . .    52,633
Thereafter .   327,625
              --------
Total. . . .  $604,953
              ========
</TABLE>


Facility  lease  expense  under noncancelable operating leases was approximately
$41.0  million,  $29.9  million,  and  $27.1  million  for 2003, 2002, and 2001,
respectively.  A  number  of  operating  leases  provide  for  additional  lease
payments after 24 months computed at 5% of additional revenues of the community.
In  2003,  additional  facility  lease  expense  under  these  provisions  was
approximately  $2.1  million.  Additional lease payment after 13 months computed
at  rates  ranging  from  7%  to 8.5% of gross revenues in excess of a specified
threshold  are  related  to  a  24  community  lease acquisition from the fourth
quarter  of  2002.

Many  of  the  Company's  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  lessor.  Such  cross-default  provisions  affect 104
assisted  living  properties  operated  under  leases. Accordingly, any event of
default  could  cause  a  material  adverse  effect  on  the Company's financial
condition  if  such  leases  are  cross-defaulted.  The Company expects to be in
compliance  at  least  through  2004  and  for  the  foreseeable  future.


(17)     SALES  AND  ACQUISITIONS,  INCLUDING CERTAIN RELATED-PARTY TRANSACTIONS

Since  1999,  the Company managed 46 communities under arrangements with several
related  investor  groups  that  involved  (i) payment of management fees to the
Company  (ii)  options  for  Emeritus  to  purchase  the  communities at a price
determined  by  a  formula,  and  (iii)  obligations to fund operating losses of
certain  communities.

Emeritrust  I  Communities  Management. During 2003, 2002, and 2001, the Company
managed  the  Emeritrust I communities, which included 25 of the 46 communities,
under  a  management  agreement providing for a base fee of 3% of gross revenues
generated  by  the  communities  and an additional management fee of 4% of gross
revenues,  payable  to  the extent of 50% of cash flow from the communities. The
management  agreement also required the Company to fund cash operating losses of
the  communities.  In  each  of  April  and August 2003, the Emeritrust I owners
disposed of a community, reducing the number of managed communities to 23. Under
this  arrangement,  the  Company  received  management  fees (net of its funding
obligations)  of  approximately  $2.7 million, $1.8 million, and $2.8 million in
2003,  2002,  and  2001,  respectively.  This  management agreement, as extended
several  times,  expired at the end of 2003. On January 2, 2004, the Company and
the Emeritrust I investors entered into a new management agreement providing for
management  fees  computed  on the same basis and (i) terminating all options to
purchase  the  communities, (ii) terminating any further funding obligation, and
(iii)  providing  for  a  term expiring September 30, 2005, provided that either
party  may  terminate  the  agreement  on  90  days  notice. In March 2004, this
management  agreement  was

                                      F-24
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

amended  to  provide  for a management fee of 5% of gross revenues. In 2004, the
Company  does  not  expect  to  receive  management  fees  for  the Emeritrust I
communities  at  the  same  level  as  it  did in 2003. The interest rate on the
mortgage financing of the communities was increased effective June 30, 2003, and
may  be  increased  further in 2004, which will have the effect of reducing cash
flow  from  the  communities  and,  correspondingly,  reducing  the  additional
management  fee  that  is payable to the extent of 50% of cash flow. The Company
also  expects  that  additional  communities could be sold, thereby reducing the
number  of  communities  subject  to  the  management  agreement.  Because  this
management  agreement  can  be terminated by either party on short notice, there
can  be  no  guaranty that the management arrangement will continue for its full
term.

Emeritrust  II Communities Management.  During 2003 (through September 30), 2002
and  2001 , the Company managed the Emeritrust II communities, which included 21
of  the  46  communities,  under  management  agreements  providing  for  a base
management  fee  of  5%  of  gross  revenue  generated by the communities and an
additional  management  fee  of 2%, payable if the Company met certain cash flow
standards.  The  management  agreement  for  the  five  of  the communities also
required  the Company to fund cash operating losses of those communities.  Under
this  arrangement,  Emeritus  received  management  fees  (net  of  its  funding
obligations)  of  approximately $2.0 million in 2003 (through September 30), and
approximately  $2.6  million  in  each  of  the  years  2002  and  2001.

Emeritrust  II  Communities  Lease.  On September 30, 2003, the Company acquired
the  21  Emeritrust  II communities for a cash purchase price of $118.6 million,
financed  through  a  combination  of  lease  and  mortgage  financing  with  an
independent  real  estate  investment  trust  in  the aggregate amount of $121.5
million.  A master operating lease covers the Emeritrust II communities and four
other  communities  originally  leased  from the real estate investment trust in
March  2002.  The  lease  is  for  an  initial  15-year period, with one 15-year
renewal,  and grants the Company a right of first opportunity to purchase any of
the  Emeritrust II communities if the trust decides to sell.  The lease is a net
lease,  with  annual  base  rent  of  $14.7  million  (of which $10.5 million is
attributable  to  the  Emeritrust II communities), and periodic escalators.  The
real  estate  investment  trust  also  provided  $11.5 million of debt financing
secured  by  the Company's leasehold interests in the Emeritrust II communities.
This  debt  was  consolidated with other debt held by the real estate investment
trust  as described in Note 8, "Long-Term Debt."  As part of the purchase price,
the  Company  also  agreed  to  issue to the Emeritrust II investors warrants to
purchase  500,000  shares of its common stock, of which 400,000 shares have been
issued.  The  warrants  expire September 30, 2008, and have an exercise price of
$7.60  (subject  to certain adjustments).  The holders have limited registration
rights.  The  Company  included  the  fair  value  of  these  warrants, totaling
approximately  $1.4  million,  as lease acquisition costs and will amortize them
over  the  life  of  the  lease.

Lease of Eight Communities in May. In May 2003, the Company entered into a lease
with  a  real estate investment trust covering eight assisted living communities
in four states containing an aggregate of 489 units. The lease is for an initial
10-year  period  with  three 5-year extensions and includes an option to acquire
the  communities  during the second year for a price of $42.2 million and during
the  third  year  at the same price plus a 3% premium. The Company believes this
option  exercise  price  is  currently  well  above  fair value based on current
operations.  Under  the  lease  Emeritus  have  a  right of first opportunity to
purchase  any of the properties if the owner decides to sell. The lease is a net
lease, with annual base rental of $3.45 million, and rent adjustments at the end
of  the  first  and  second lease years based on a percentage of any increase in
operating  revenues, with an aggregate annual limit of $275,000, and adjustments
each  year  thereafter  based on increases in the consumer price index. The real
estate  investment  trust  has  agreed  to  fund  up  to  $500,000  for  capital
expenditures,  with  amounts  added  to the lease base and option price, and has
provided  the  Company  with  a  10-year working capital loan for $600,000, with
interest  at  10%  per  annum  payable  monthly.

Transactions  in Connection with the Repurchase of the Series A Preferred Stock.
In  July  2003,  the  Company entered into a transaction involving three leased,
purpose-built  assisted  living  communities  located  in  Louisville, Kentucky;
Auburn,  Massachusetts;  and  Rocky  Hill, Connecticut, wherein the three leases
with  the  Company  were  transferred  to  a  new  lessor.  This  lease transfer
facilitated  the first tranche of the repurchase of the Series A preferred stock
discussed  below.  The  Company  received  approximately  $10.2  million in cash
proceeds  and  recognized  a  gain  of approximately $8.5 million, of which $2.2
million  of  deferred  rent was reclassified as deferred gains, all of which was
deferred  and  will be amortized over the remaining life of the leases.  As part
of  the transaction, approximately $4.4 million in notes and interest receivable
related  to  the  three  facilities  was  retired.

On  September  30,  2003,  the  Company's wholly owned subsidiaries, which owned
three  buildings  and  jointly  owned  one  building,  pursuant  to  financing
requirements,  participated  with  a  real  estate  investment  trust  in  the
sale-leasebacks  of  four  buildings.  The

                                      F-25
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

leasehold assets continue to be owned by the subsidiaries and are designed to be
not  available  to  satisfy  debts  or  obligations of the consolidated Company,
except  as  otherwise  provided  in  connection  with  the  financing.  The four
buildings  are  purpose-built  assisted  living communities located in Manassas,
Virginia;  Kirkland,  Washington;  Chelmsford,  Massachusetts;  and  Ridgeland,
Mississippi.  The  jointly  owned  building  was  50%  owned  by  the  Company's
subsidiary  and 50% owned by an unrelated third party. The Company purchased the
unrelated  third  party  interest  for  $2.5  million. The consideration for the
transaction  was  paid  by  the  real  estate  investment  trust by assuming the
underlying  debt on the facilities and paying cash consideration to the Company.
The  Company  received  approximately  $6.6  million  in  cash  proceeds  net of
retirement of $24.6 million of associated debt. As a result of this transaction,
the  Company  recognized a gain of $9.9 million, which will be deferred over the
term  of  the  new  operating  leases.

Lease  of  Eight  Communities from Baty. On September 30, 2003, Emeritus entered
into  an  agreement  to  lease  eight  communities that it was then managing for
entities  owned  or  controlled  by  Mr.  Baty,  which  the Company has formerly
referred  to  as  the  Horizon  Bay  communities.  Under the agreement, the Baty
entities  assigned,  and  the  Company  assumed, the existing leases relating to
seven of the facilities. In lieu of acquiring the remaining community, which was
owned  by  a  Baty  entity subject to mortgage financing, the Company leased the
community  for  a  term  of 10 years, with rent equal to the debt service on the
mortgage  indebtedness  (including interest and principal) plus 25% of cash flow
(after  accounting  for  assumed  management fees and capital expenditures). The
debt  that  is secured by this community may be cross-collateralized by Mr. Baty
with  an Emeritrust I community that he may acquire and lease to the Company, as
described  below.  Annual rent relating to the eight communities is estimated at
$4.6  million,  with annual adjustments based upon changes in the consumer price
level index. The Company will pay the Baty Entities approximately $70,000, which
represents  their cash investment plus 9% per annum, as provided in the original
agreement  related  to  the  management  of  these  communities between the Baty
Entities  and  the  Company. Although this transaction closed December 31, 2003,
the  economic  and  financial  terms  were  effective  June  30,  2003.

Other  Transactions.  Effective  July  1,  2003,  the Company ceased managing 12
Regent  Assisted  Living  communities.  On  August  1,  2003, the Company ceased
managing  an  additional Regent Assisted Living community.  Effective October 1,
2003, the Company ceased managing two communities located in Tacoma, Washington,
and  Coeur  d'Alene,  Idaho.

On  November  1,  2003,  the  Company  entered  into  a  lease  agreement for an
Alzheimer's community located in Silverdale, Washington, containing an aggregate
of  46  units.  The  lease  is  for  an  initial 10-year period with two 10-year
extension  options.  The  lease  is  a net lease, with base rental approximating
$235,000  annually  with  fixed  escalators  after  the second year and variable
escalators at the end of the sixth lease year based on a percentage of increases
in  the  consumer  price  index.  This lease, after the end of third lease year,
also  includes  an  option  to terminate.  The property in this acquisition is a
purpose-built  Alzheimer's  community in which the Company plans to offer memory
loss  services.

Five  Community  Mortgage  Assumption.  On December 31, 2003, independent of the
LLC  transaction  in  Note 3, "Long-term Investments", the Company acquired five
assisted  living communities (the "Five Properties"), containing an aggregate of
355  units,  from  Alterra for the assumption of $22.6 million of mortgage debt,
which  bears  interest  at  6.98%  per  annum,  provides for monthly payments of
$178,000,  including  principal and interest, and matures August 2008.  The Five
Properties  in this acquisition are purpose-built assisted living communities in
which  the  Company  plans  to  offer  both assisted and memory loss services to
select  communities.

The  initial allocations of purchase cost at fair value are based upon available
information  for  the  acquired businesses and are finalized when any contingent
purchase  price  amounts  are  resolved.  The  final  allocations did not differ
materially  from  the  initial allocations.  Aggregate purchase cost allocations
were  as  follows  (In  thousands):

<TABLE>
<CAPTION>

                           December 31,
                         ----------------
                          2003     2002
                         -------  -------
<S>                      <C>      <C>
Tangible assets . . . .  $23,055  $22,162
Liabilities assumed . .   22,639   23,678
                         -------  -------
Aggregate purchase cost  $45,694  $45,840
                         =======  =======
</TABLE>

                                      F-26
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


The  following  summary,  prepared on a pro forma basis, combines the results of
operations  as if the above acquisitions (Emeritrust II Communities Lease, Lease
of  Eight Communities in May, Lease of Eight Communities from Baty, and the Five
Community  Mortgage  Assumption)  and  a  24  community lease acquisition in the
fourth  quarter of 2002, had been consummated as of the beginning of both of the
periods  presented,  after  including  the impact of certain adjustments such as
amortization  of  acquisition costs, elimination of management fees, lease costs
and  income  tax  effects  (In  thousands,  except  per  share  data).

<TABLE>
<CAPTION>


                                                   Year ended December 31,
                                                      2003       2002
                                                    --------- ----------
                                                         (unaudited)
<S>                                                  <C>        <C>
Net revenues . . . . . . . . . . . . . . . . . . .  $261,915   $254,942

Net loss . . . . . . . . . . . . . . . . . . . . .    (8,560)    (8,670)
Preferred dividends. . . . . . . . . . . . . . . .    (6,238)    (7,343)
Gain on repurchase of Series A preferred stock . .    14,523          -
                                                    ---------  ---------
          Net income (loss) to common shareholders  $   (275)  $(16,013)
                                                    =========  =========

Income (loss) per common share:
    Basic and diluted. . . . . . . . . . . . . . .  $  (0.03)  $  (1.57)
                                                    =========  =========

Weighted average common shares outstanding:
    Basic and diluted. . . . . . . . . . . . . . .    10,255     10,207
                                                    =========  =========
</TABLE>


These  unaudited  pro  forma  results  are  not  necessarily  indicative of what
actually  would  have  occurred if the acquisitions had been completed as of the
beginning  of both of the periods presented.  In addition, they are not intended
to  be  a  projection of future results and do not reflect all of the synergies,
additional  revenue-generating  services  or  reductions  in  direct  community
operating  expenses  that  might  be  achieved  from  combined  operations.


                                      F-27
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(18)     COMMITMENTS  AND  CONTINGENCIES

In  February  2004, the California Public Interest Research Group announced that
it  intended to bring an action against operators of assisted living communities
(including  us) and other senior housing facilities. The announced action seeks,
on  behalf  of  residents  of these facilities located in California, to recover
move-in  or  preadmission  fees that have been paid over the past three years as
well  as  certain  penalties.   While  the  Company has not yet been served, it
intends to defend  the  action  vigorously  and has entered into a joint defense
agreement with other operators in California.

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.


(19)     LIQUIDITY

The  Company  has  incurred significant operating losses since its inception and
has a working capital deficit of $33.4 million, although $6.1 million represents
deferred revenue and $8.2 million of preferred dividends is due only if declared
by  the  Company's  board  of  directors.  In  2003, 2002, and 2001, the Company
reported  positive  net  cash  from  operating  activities  in  its consolidated
statements  of  cash flows.  At times in the past, however, the Company has been
dependent upon third party financing or disposition of assets to fund operations
and  the  Company  cannot  guarantee  that,  if  necessary  in  the future, such
transactions  will  be available timely or at all, or on terms attractive to the
Company.

In  2002,  the  Company  refinanced  substantially  all of its debt obligations,
extending  the  maturities of such financings to dates in 2005 or thereafter, at
which  time  the  Company  will  need  to  refinance  or  otherwise  repay  the
obligations.  Many  of  the  Company's  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 17 owned assisted living properties
and  104  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.  Management  believes  the  Company  will  be  in
compliance  at  least  through  2004  and  for  the  foreseeable  future.

Management  believes that the Company will be able to sustain positive operating
cash  flow  at  least  through 2004 and for the foreseeable future and will have
adequate  cash  from  operations  for  all  necessary  investing  and  financing
activities  including  required  debt  service  and  capital  expenditures.


                                      F-28
<PAGE>
                              EMERITUS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(20)     QUARTERLY  RESULTS  (UNAUDITED)
<TABLE>
<CAPTION>


                                                  (In thousands, except per share data)

                                                    Q1        Q2        Q3        Q4
                                                 --------  --------  --------  --------
<S>                                              <C>       <C>       <C>       <C>
2003
Total operating revenue . . . . . . . . . . . .  $47,177   $49,398   $50,209   $59,873
Income from operations. . . . . . . . . . . . .    2,677     2,637       436     1,197
Other income and (expense). . . . . . . . . . .   (3,070)   (1,664)   (3,042)   (2,578)
Income (loss) before income taxes . . . . . . .     (393)      973    (2,606)   (1,381)
Provision for income taxes. (a) . . . . . . . .        -         -      (576)      158
Net income (loss) . . . . . . . . . . . . . . .     (393)      973    (3,182)   (1,223)
Preferred dividends . . . . . . . . . . . . . .   (1,870)   (1,905)   (1,464)     (999)
Gain on repurchase of Series A preferred stock.        -         -    14,465        58
Net income (loss) to common shareholders. . . .   (2,263)     (932)    9,819    (2,164)
Income (loss) per common share:
  Basic . . . . . . . . . . . . . . . . . . . .  $ (0.22)  $ (0.09)  $  0.96   $ (0.21)
  Diluted . . . . . . . . . . . . . . . . . . .  $ (0.22)  $ (0.09)  $  0.63   $ (0.21)


2002                                                 Q1        Q2        Q3        Q4
                                                 --------  --------  --------  --------
Total operating revenue . . . . . . . . . . . .  $36,146   $34,015   $36,037   $46,931
Income (loss) from operations . . . . . . . . .    2,082    (1,021)      243      (307)
Other income and (expense). . . . . . . . . . .   (3,384)   (2,913)   (2,945)    2,022  (b)
Net income (loss) . . . . . .       . . . . . .   (1,302)   (3,934)   (2,702)    1,715
Preferred dividends . . . . . . . . . . . . . .   (1,997)   (1,732)   (1,777)   (1,837)
Net loss to common shareholders . . . . . . . .  $(3,299)  $(5,666)  $(4,479)  $  (122)
Loss per common share -- basic and diluted. . .  $ (0.32)  $ (0.56)  $ (0.44)  $ (0.01)
</TABLE>


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

(a)  Tax provision relates to alternative minimum tax liability from
     sale-leaseback transactions.
(b)  Other  income  in  Q4  includes a gain of $5.1 million related to discounts
     received  upon  the  payoff  of  existing  financing,  partially  offset by
     interest  expense  of  $3.1  million.


(21)     SUBSEQUENT  EVENTS (Unaudited)

Since January 2004, the Company has been reviewing acquisition opportunities and
seeking  to  take  ownership  or lease positions in communities that the Company
manages.  To  this  end,  the  Company  intends  to  pursue  an  operating lease
acquisition  with  a  real estate investment trust for up to 13 communities that
the  Company formerly managed, nine communities with memory loss facilities, and
two  other  communities,  for  a  total  of  24 communities. These purpose-built
assisted  living  and memory loss communities are located in 13 states, and have
an  aggregate  capacity of approximately 1,740 units. Mr. Baty holds an interest
in  the  entities  that  will  be the sellers of the properties in this proposed
transaction.

The  preliminary master operating lease agreement has a 15-year lease term, with
three  5-year  extension  options.  The  lease  is a net lease, with base rental
approximating $16.8 million annually with variable lease escalators based on the
lesser of four times CPI or 3%.  Management believes that the Company will close
this  transaction  as  early  as  March  31, 2004, and as late as the end of the
second  quarter  of  2004.

                                      F-29

<PAGE>

                         INDEPENDENT AUDITORS' REPORT ON
                          FINANCIAL STATEMENT SCHEDULE

The  Board  of  Directors  and  Shareholders
Emeritus  Corporation:

     Under date of March 5, 2004, we reported on the consolidated balance sheets
of  Emeritus  Corporation and subsidiaries as of December 31, 2003 and 2002, and
the  related  consolidated  statements  of operations, shareholders' deficit and
comprehensive operations, and cash flows for each of the years in the three-year
period  ended  December  31,  2003,  which  are  included  in the Form 10-K.  In
connection  with  our  audits  of  the  aforementioned  consolidated  financial
statements,  we  also  audited  the  related  consolidated  financial  statement
schedule  for each of the years in the three-year period ended December 31, 2003
in the Form 10-K.  The financial statement schedule is the responsibility of the
Company's  management.  Our  responsibility  is  to  express  an  opinion on the
financial  statement  schedule  based  on  our  audits.

     In  our  opinion,  such  financial  statement  schedule, when considered in
relation  to  the  basic  consolidated  financial  statements  taken as a whole,
presents  fairly,  in  all material respects, the information set forth therein.

/s/    KPMG  LLP

Seattle,  Washington
March  5,  2004
                                      S-1
<PAGE>
<TABLE>
<CAPTION>

                                             Schedule II
                                        Emeritus Corporation
                                  Valuation and Qualifying Accounts
                            Years Ended December 31, 2003, 2002, and 2001
                                           (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, 2003:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      327  $         234  $         (203)  $     358
                                               ==========  =============  ===============  =========


Year ended December 31, 2002:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      398  $         346  $         (417)  $     327
                                               ==========  =============  ===============  =========


Year ended December 31, 2001:
     Valuation accounts deducted from assets:
          Allowance for doubtful receivables.  $      594  $         466  $         (662)  $     398
                                               ==========  =============  ===============  =========
</TABLE>


(1)  Represents  amounts  written  off
                                       S-2
<PAGE>