UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ______________________

                                    FORM 10-Q

(Mark  One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT  1934

                  For the quarterly period ended June 30, 2003.

[  ]  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)

           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)
                          ____________________________

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),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.  [X]  Yes   [  ]  No

Indicate  by  check  mark  whether  the  Registrant  is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act).  [  ]  Yes   [X]  No

As  of  July  31,  2003, there were 10,251,307 shares of the Registrant's Common
Stock,  par  value  $.0001,  outstanding.

<PAGE>

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<CAPTION>

                                      EMERITUS CORPORATION

                                              INDEX


                                 Part I.  Financial Information


<S>                                                                                     <C>

                                                                                        Page No.
                                                                                        --------
Item 1.  Financial Statements: . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1

         Condensed Consolidated Balance Sheets as of June 30, 2003, and
         December 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .         2

         Condensed Consolidated Statements of Operations for the Three
         Months and Six Months ended June 30, 2003 and 2002 . . . .. .. . .  . . . . .         3

         Condensed Consolidated Statements of Cash Flows for the Six
         Months ended June 30, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . .         4

         Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . .        5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations . . . .. . . . . . . . . . . . .. . . . .. .  . . . . . . . .  .       14


Item 3.  Quantitative  and  Qualitative  Disclosures  About  Market  Risk . . . .  . . .      27


Item 4.  Controls  and  Procedures  . . . . . . . . . . . .. . . . .. .  . . . . . . . .      27



                                 Part II.  Other Information

Note:     Items 1 through 3 and Item 5 of Part II are omitted because they are not
          applicable.

Item  4.  Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . .  28


Item  6.  Exhibits  and  Reports  on  Form  8-K  . . . . . .  . . . .  . . . .  . . . .  . .  29


          Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30

</TABLE>


                          PART I. FINANCIAL INFORMATION

ITEM  1.  FINANCIAL  STATEMENTS

               [The rest of this page is intentionally left blank]



                                        1
<PAGE>


<TABLE>
<CAPTION>

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

                                                                                               June 30,      December 31,
                                                                                                 2003            2002
                                                                                            --------------  --------------
<S>                                                                                         <C>             <C>
Current Assets:
 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       8,626   $       6,960
 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -           2,759
 Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,631           1,662
 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          3,819           3,645
 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .          5,744           5,217
                                                                                            --------------  --------------
 Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         19,820          20,243
                                                                                            --------------  --------------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        118,203         119,583
Property held for development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,254           1,254
Notes receivable from and investments in affiliates. . . . . . . . . . . . . . . . . . . .          6,553           6,358
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          5,577           5,555
Lease acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          6,467           6,081
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          4,957           3,759
                                                                                            --------------  --------------
 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     162,831   $     162,833
                                                                                            ==============  ==============

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       3,498   $       3,604
 Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,926           3,108
 Accrued employee compensation and benefits. . . . . . . . . . . . . . . . . . . . . . . .          6,163           5,355
 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,843           1,737
 Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,309           2,463
 Accrued dividends on preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . .         16,554          13,457
 Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          8,172           9,080
 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          4,856           2,884
 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          4,941           5,040
                                                                                            --------------  --------------
 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         51,262          46,728
                                                                                            --------------  --------------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . .        120,033         119,887
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         32,000          32,000
Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . . . . . .         20,143          20,324
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,519           2,508
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            250             894
                                                                                            --------------  --------------
 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        226,207         222,341
                                                                                            --------------  --------------
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            411             558
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         25,000          25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding
    34,145 and 33,473 at June 30, 2003, and December 31, 2002, respectively. . . . . . . .              -               -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and outstanding
    10,251,307 and 10,247,226 shares at June 30, 2003, and December 31, 2002, respectively              1               1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         69,666          68,944
Accumulated other comprehensive gain . . . . . .  . . . . . .. . . . . . . . . . . . . . .              -           1,247
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (158,454)       (155,258)
                                                                                            --------------  --------------
 Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (88,787)        (85,066)
                                                                                            --------------  --------------
 Total liabilities and shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . .  $     162,831   $     162,833
                                                                                            ==============  ==============
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations

                                        2
<PAGE>

<TABLE>
<CAPTION>

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

                                            Three Months ended June 30,    Six Months ended June 30,
                                           ----------------------------  ----------------------------
                                               2003           2002           2003           2002
                                           -------------  -------------  -------------  -------------
<S>                                         <C>            <C>            <C>            <C>
Revenues:
  Community revenue. . . . . . . . . . . .  $     45,160   $     30,294   $     88,246   $     62,414
  Other service fees . . . . . . . . . . .         1,041          1,095          2,035          2,095
  Management fees. . . . . . . . . . . . .         3,197          2,626          6,294          5,651
                                            -------------  -------------  -------------  -------------
          Total operating revenues . . . .        49,398         34,015         96,575         70,160
                                            -------------  -------------  -------------  -------------

Expenses:
  Community operations . . . . . . . . . .        29,785         21,084         58,430         41,646
  General and administrative . . . . . . .         5,811          4,867         11,215          9,790
  Depreciation and amortization. . . . . .         1,840          1,675          3,687          3,526
  Facility lease expense . . . . . . . . .         9,325          7,410         17,929         14,138
                                            -------------  -------------  -------------  -------------
          Total operating expenses . . . .        46,761         35,036         91,261         69,100
                                            -------------  -------------  -------------  -------------
          Income (loss) from operations. .         2,637         (1,021)         5,314          1,060

Other income (expense):
  Interest income. . . . . . . . . . . . .           173            113            328            222
  Interest expense . . . . . . . . . . . .        (3,229)        (2,852)        (6,502)        (5,778)
  Other, net . . . . . . . . . . . . . . .         1,392           (174)         1,440           (741)
                                            -------------  -------------  -------------  -------------
          Net other expense. . . . . . . .        (1,664)        (2,913)        (4,734)        (6,297)
                                            -------------  -------------  -------------  -------------

          Net income (loss). . . . . . . .           973         (3,934)           580         (5,237)

Preferred stock dividends. . . . . . . . .         1,905          1,732          3,776          3,729
                                            -------------  -------------  -------------  -------------
          Net loss to common shareholders.  $       (932)  $     (5,666)  $     (3,196)  $     (8,966)
                                            =============  =============  =============  =============


Loss per common share - basic and diluted.  $      (0.09)  $      (0.56)  $      (0.31)  $      (0.88)
                                            =============  =============  =============  =============

Weighted average number of common shares
    outstanding - basic and diluted. . . .        10,249         10,200         10,248         10,198
                                            =============  =============  =============  =============
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations

                                        3
<PAGE>

<TABLE>
<CAPTION>

                                                      EMERITUS CORPORATION
                                        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                          (unaudited)
                                                         (In thousands)

                                                                                              Six  Months  Ended  June  30,
                                                                                           ------------------------------------
                                                                                                 2003               2002
                                                                                           -----------------  -----------------
<S>                                                                                        <C>                <C>
Cash flows from operating activities:
  Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $            580   $         (5,237)
Adjustments to reconcile net income (loss) to
        net cash provided by (used in) operating activities:
    Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               101                115
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .             3,687              3,526
    Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .              (185)              (149)
    Loss on sale of properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 -                515
    Gain on sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . .            (1,437)                 -
    Write off of deferred gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 -                (12)
    Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . .              (874)              (477)
                                                                                           -----------------  -----------------
          Net cash provided by (used in) operating activities . . . . . . . . . . . . . .             1,872             (1,719)
                                                                                           -----------------  -----------------

Cash flows from investing activities:
  Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .            (1,174)              (808)
  Purchase of minority partner interest . . . . . . . . . . . . . . . . . . . . . . . . .                 -             (3,070)
  Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . . . . . . .                 -             25,010
  Proceeds from sale of investment securities . . . . . . . . . . . . . . . . . . . . . .             2,949                  -
  Management and lease acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . .              (625)            (1,242)
  Advances to affiliates and other managed communities. . . . . . . . . . . . . . . . . .                (5)              (501)
  Proceeds from sales of interest in affiliates . . . . . . . . . . . . . . . . . . . . .                 -                750
  Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              (127)              (107)
  Distributions to minority partners. . . . . . . . . . . . . . . . . . . . . . . . . . .              (250)              (250)
                                                                                           -----------------  -----------------
          Net cash provided by investing activities . . . . . . . . . . . . . . . . . . .               768             19,782
                                                                                           -----------------  -----------------

Cash flows from financing activities:
  Proceeds from sale of stock under employee stock purchase plan. . . . . . . . . . . . .                43                 57
  (Increase) decrease in restricted deposits. . . . . . . . . . . . . . . . . . . . . . .               (22)               668
  Repayment of short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . .            (1,367)            (1,733)
  Debt issue and other financing costs. . . . . . . . . . . . . . . . . . . . . . . . . .              (169)            (1,516)
  Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . .               600             37,341
  Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .               (59)           (51,732)
                                                                                           -----------------  -----------------
          Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . .              (974)           (16,915)
                                                                                           -----------------  -----------------

          Net increase in cash and cash equivalents. . . . . . . .. . . . . . .  . .  . .             1,666              1,148

Cash and cash equivalents at the beginning of the period. . . . . . . . . . . . . . . . .             6,960              9,811
                                                                                           -----------------  -----------------

Cash and cash equivalents at the end of the period. . . . . . . . . . . . . . . . . . . .  $          8,626   $         10,959
                                                                                           =================  =================

Supplemental disclosure of cash flow information - cash paid during the period
    for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $          6,397   $          6,926

Noncash investing and financing activities:
  Unrealized holding gains in investment securities . . . . . . . . . . . . . . . . . . .  $         (1,247)  $            249
  Accrued and in-kind preferred stock dividends . . . . . . . . . . . . . . . . . . . . .  $          3,776   $          3,729
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations

                                        4
<PAGE>

                              EMERITUS CORPORATION
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

The preparation of condensed 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,  bad  debts,
investments,  intangible  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
condensed  consolidated  financial  statements.  Revisions in such estimates are
charged  to  income  in  the  period  in  which  the facts that give rise to the
revision  become  known.

*    Emeritus  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 claim 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.

*    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  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.

                                        5
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


*    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.

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  Company  adopted SFAS No. 145 in the
fourth quarter of 2002. Adoption did not have a material impact on the Company's
financial  condition  and  results  of  operations in the quarter ended June 30,
2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit  or  Disposal  Activities.  SFAS No. 146 addresses financial accounting and
reporting  for  costs  associated with exit or disposal activities and nullifies
Emerging  Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee  Termination  Benefits  and  Other  Costs  to  Exit  an  Activity.  The
provisions  of this Statement are effective for exit or disposal activities that
are  initiated  after  December  31,  2002,  with  early application encouraged.
Management  cannot  determine  the  impact  of  SFAS  No.  146  on the Company's
financial  statements  as  it  will  be  applied  prospectively.

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  December  2002,  the  FASB  issued  SFAS No. 148, Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure, an amendment of FASB Statement No.
123.  This  Statement  amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,  to  provide  alternative  methods  of  transition for a voluntary
change  to  the  fair  value  method  of  accounting  for  stock-based  employee
compensation.  In

                                        6
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


addition, this Statement amends the disclosure requirements of Statement No. 123
to  require  prominent  disclosures  in  both  annual  and  interim  financial
statements.  Certain  of  the  disclosure  modifications are required for fiscal
years  ending  after  December  15, 2002, and are included in the notes to these
condensed  consolidated  financial  statements.

In  January  2003,  the  FASB  issued  Interpretation  No.  46  (FIN  No.  46),
"Consolidation  of  Variable  Interest Entities."  This Interpretation 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 July 1, 2003, for variable interest entities that
existed  prior  to  February  1,  2003.

The  Company is currently evaluating the impact of FIN No. 46 on all its current
related  party management agreements including those more fully discussed in the
Company's  December 31, 2002, Annual Report on Form 10-K, 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.  Implementation of FIN No. 46 will more
likely  than not result in consolidation of both the Emeritrust I and Emeritrust
II  Development communities and possibly some of the other entities discussed in
the  referenced  sections.  Variable  interest  entities  required  to  be
consolidated,  will  be  measured  at  fair  value  in  accordance  with  the
Interpretation  and  any  difference between the net amount added to the balance
sheet  and  any  previously  recognized  interest  shall  be  recognized  as the
cumulative  effect  of  an  accounting  change  in  the  Company's  Condensed
Consolidated  Statements  of  Operations  as  of  September  30,  2003.

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 financial instruments of the Company
are  covered  by  this  pronouncement.

BASIS  OF  PRESENTATION

The  unaudited interim financial information furnished herein, in the opinion of
the  Company's management, reflects all adjustments, consisting of only normally
recurring  adjustments,  which  are  necessary  to  state  fairly  the condensed
consolidated  financial  position,  results  of  operations,  and  cash flows of
Emeritus  as  of  June 30, 2003, and for the three and six months ended June 30,
2003  and  2002.  The  results of operations for the period ended June 30, 2003,
are  not necessarily indicative of the operating results for the full year.  The
Company presumes that those reading this interim financial information have read
or  have  access  to  its  2002  audited  consolidated  financial statements and
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations  that  are  contained  in  the  2002  Form 10-K filed March 28, 2003.
Therefore, the Company has omitted footnotes and other disclosures herein, which
are  disclosed  in  the  Form  10-K.

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.

                                        7
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


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

<TABLE>
<CAPTION>


                                                                  Three Months ended               Six Months ended
                                                                       June 30,                         June 30,
                                                           --------------------------------  --------------------------------
                                                                 2003            2002              2003            2002
                                                          ---------------  ---------------  ---------------  ---------------
                                                                       (In thousands, except per share data)
<S>                                                        <C>              <C>              <C>              <C>
Net loss to common shareholders:
As reported . . . . . . . . . . . . . . . . . . . . . . .  $         (932)  $       (5,666)  $       (3,196)  $       (8,966)
Add:  Stock-based employee compensation expense
  included in reported net loss . . . . . . . . . . . . .               -                -                -                -
Deduct:  Stock-based employee compensation
  determined under fair value based method for all awards            (179)            (261)            (465)            (460)
                                                           ---------------  ---------------  ---------------  ---------------
Pro forma . . . . . . . . . . . . . . . . . . . . . . . .  $       (1,111)  $       (5,927)  $       (3,661)  $       (9,426)
                                                           ===============  ===============  ===============  ===============
Net loss per common share -- basic and diluted:
As reported . . . . . . . . . . . . . . . . . . . . . . .  $        (0.09)  $        (0.56)  $        (0.31)  $        (0.88)
                                                           ===============  ===============  ===============  ===============

Pro forma . . . . . . . . . . . . . . . . . . . . . . . .  $        (0.11)  $        (0.58)  $        (0.36)  $        (0.92)
                                                           ===============  ===============  ===============  ===============
</TABLE>

We  estimate  the fair value of our 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. Our
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>
                                              Three Months             Six Months
                                                 Ended                   Ended
                                                June 30,                June 30,
                                         --------------------  ------------------------
                                           2003       2002         2003         2002
                                         ---------  ---------  -------------  ---------
<S>                                      <C>        <C>        <C>            <C>
Expected life from vest date (in years)         4          4              4          4
Risk-free interest rate . . . . . . . .      1.96%       4.3%  1.96% - 2.57%       4.3%
Volatility. . . . . . . . . . . . . . .      90.0%      92.8%  90.0% - 90.4%      93.3%
Dividend yield. . . . . . . . . . . . .         -          -              -          -
Weighted average fair value . . . . . .      2.58       2.00           2.57       2.00
</TABLE>



EMERITRUST  TRANSACTIONS

The  Company  holds  interest  in  45  communities referred to as the Emeritrust
communities,  including  24 Emeritrust I communities, 16 Emeritrust II Operating
communities,  and  five  Emeritrust II Development communities, under management
agreements  described  in  the Company's Annual Report on Form 10-K for the year
ended December 31, 2002. In May 2002, the Company entered into an agreement with
a third party operator where it would assume full control of a single Emeritrust
I  facility  located  in  San


                                        8
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


Bernardino,  California  for  a set lease payment. As of April 1, 2003, this new
operator  exercised  its  option  to  purchase  the community, thus reducing the
number  of Emeritrust I communities under management to 24. The Company does not
recognize  management  fees  on  the  Emeritrust  communities  as revenue in its
condensed consolidated financial statements to the extent that it is funding the
cash  operating  losses  that  include them, although the amounts of the funding
obligation  each  year  include  management  fees  earned  by Emeritus under the
management  agreements.  Correspondingly,  the  Company  recognizes  the funding
obligation  under  the  agreement,  less  the  applicable management fees, as an
expense  in  its  condensed consolidated financial statements under the category
"Other,  net".  Conversely, if the applicable management fees exceed the funding
obligation,  the  Company  recognizes  the  management  fees  less  the  funding
obligation  as  management  fee  revenue in its condensed consolidated financial
statements.

For  the  three  months  and  six months ended June 30, 2003 and 2002, the total
gross  management  fees  earned,  management  fees  recognized,  and  funding
obligations accrued for all Emeritrust communities are shown in the tables below
(In  thousands):

<TABLE>
<CAPTION>
Management  Fees  Earned:

                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         989  $         402  $         587   $       1,836  $       1,100  $         736
Emeritrust II Operating .            493            479             14             987            965             22
Emeritrust II Development            179            229            (50)            364            397            (33)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,661  $       1,110  $         551   $       3,187  $       2,462  $         725
                           =============  =============  ==============  =============  =============  ==============
</TABLE>


<TABLE>
<CAPTION>
Management  Fees  Recognized:

                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         989  $         402  $         587   $       1,826  $       1,100  $         726
Emeritrust II Operating .            493            479             14             987            965             22
Emeritrust II Development            172            203            (31)            354            358             (4)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,654  $       1,084  $         570   $       3,167  $       2,423  $         744
                           =============  =============  ==============  =============  =============  ==============
</TABLE>


<TABLE>
<CAPTION>

Funding  Obligation  Accrued:
                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase      ----------------------------      Increase
Communities                    2003           2002         (Decrease)         2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  --------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>             <C>            <C>
Emeritrust I. . . . . . .  $           -  $           -  $           -   $          11   $           -  $          11
Emeritrust II Development              8             85            (77)            (20)            121           (141)
                           -------------  -------------  --------------  --------------  -------------  --------------
Total . . . . . . . . . .  $           8  $          85  $         (77)  $          (9)  $         121  $        (130)
                           =============  =============  ==============  ==============  =============  ==============
</TABLE>



The  management  agreements  and  related  options to purchase these communities
expired  June  30,  2003 (except that management agreements with respect to five
communities  continue until December 31, 2003). Because the Company was not in a
position to exercise the options to acquire the communities prior to expiration,
it  is  currently  in  discussions  with the owners of the communities and their
lenders  to  extend  the  management agreements and related purchase options. On
July  2, 2003, the Company executed an initial extension of management agreement
with  respect  to  the  Emeritrust  II  communities.  The  management  and

                                        9
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)

purchase  option  agreement related to the Emeritrust II communities was amended
to expire October 1, 2003, which will allow the owners of the communities, their
lenders,  and  the  Company  to  consider  a  longer-term agreement. The Company
continues  to operate under the existing operating structure of the Emeritrust I
communities  on a day-to-day basis pending resolution of the terms of financing,
management,  and  purchase  option  agreements.  While the Company believes that
these  arrangements will be extended, it cannot guarantee that these discussions
will be successful or, if the arrangements are extended, what the terms will be.
If  the  Company  is unsuccessful, it could lose the management fee revenue from
these  communities  and  future  rights  with  respect  to  them.

EIGHT  BUILDING  LEASE  ACQUISITION

On  May  1,  2003,  the  Company  entered  into  a  lease agreement with certain
affiliates  of  Healthcare Realty Trust ("HRT"), a real estate investment trust,
for  eight  assisted  living  communities  (the  "Properties")  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 opportunity for the Company to acquire the Properties anytime during
the  second  year for $42.2 million and a purchase option in the third year at a
3%  premium  over  the  original  purchase option price.  In addition, the lease
gives  the  Company the right of first refusal to purchase any of the properties
if  the  owner  decides  to  sell.  The  lease  is  a  net lease, with base rent
approximating  $3.45 million annually with certain lease escalators.  At the end
of  the  first  and  second  lease  years,  the  lease  escalator  is based on a
percentage  of  increased  operating  revenues,  with an aggregate annual cap of
$275,000.  The  lease  escalators each year thereafter are based on increases in
the consumer price index not to exceed 3.5% of the prior year's amount.  HRT has
agreed to fund up to $500,000 for capital expenditure requirements.  The capital
expenditures funded by HRT will increase the basis and purchase option and carry
a  10%  lease  rate.

HRT  also  agreed  to  extend a $600,000 loan to the Company for working capital
purposes  and  for  capital and other improvements to the facilities.  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 facility, the pro rata principal portion of
the  loan  will  become  due  at  the  closing  of  such  purchase.

The Properties in this acquisition are purpose-built assisted living communities
in  which  the  Company  plans  to offer both assisted and memory loss services.

ACCRUED  DIVIDENDS  ON  PREFERRED  STOCK

Since  the  third quarter of 2000, the Company has accrued its obligation to pay
cash  dividends  to both the Series A and Series B preferred shareholders, which
amounted  to  approximately  $16.6  million  at  June  30,  2003,  including all
penalties for non-payment.  Since dividends on the Series A shares were not paid
for  six  consecutive  quarters,  the  Series  A  dividends were calculated on a
compounded  basis  retroactively,  and  the  cumulative  effect of approximately
$294,000  was  reflected  in  the first quarter of 2002.  In addition, since the
Company  had  not  paid  these dividends for more than six consecutive quarters,
under  the  Designation  of  Rights and Preferences of the Series A and Series B
stock  in  the  Company's  Articles  of  Incorporation,  the  Series  A  and  B
shareholders,  as the case may be, may designate one director in addition to the
other  directors  that  they  are  entitled to designate under the shareholders'
agreement.  Under  the  Series  A shareholders' agreement, however, the Series A
shareholder's  right to designate this additional director under the Articles is
limited to circumstances in which they would not otherwise be entitled to name a
director.  Currently,  the  Series  A  shareholder  does  not  have the right to
designate  an  additional  director.  As  of  January  1,  2002,  the  Series  B
shareholders  became  entitled  to  designate  an  additional director under the
Articles,  but  thus  far  have  chosen  not  to  do  so.

On June 10, 2003, Emeritus announced in a press release that it had entered into
an  agreement  to  repurchase  its  Series  A  preferred  stock  from  the  sole
shareholder  for  a  total  price  of  $20.0  million.

                                       10
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


The  Series  A  Stock  has a face value of $25.0 million with a $18.20 per share
conversion  price  and a mandatory redemption date of October 2004.  At June 30,
2003,  the Series A Stock had accrued and unpaid dividends of approximately $9.6
million,  which  are  included  in  the  repurchase  price and will therefore be
extinguished  as  a  part  of  the  transaction.

On  July  31,  2003, the Company repurchased Series A stock with a face value of
$12.5 million for $10 million.  As part of the purchase agreement, the holder of
the  Series  A Preferred Stock has agreed to forego accrued and unpaid dividends
of  approximately  $5.0  million.  The  Company anticipates recording a one-time
gain of approximately $7.5 million, exclusive of transaction costs, in the third
quarter.  The  purchase  was  financed  through  the  previously announced lease
transaction  involving  three  communities  in  which  the  Company raised $10.2
million,  further  discussed below in "Other Transactions".  The outside date of
the  original  agreement  has been extended to August 31, 2003, and continues to
apply  to  the  remainder  of  the  Series  A  stock.

Series  B  dividends are to be paid in cash and in additional shares of Series B
preferred  shares.  As  of June 30, 2003, an additional 4,145 Series B preferred
shares  had  been  issued as paid-in-kind dividends for all periods prior to the
second  quarter  of  2003.  As  of  July  1,  2003,  an  additional 341 Series B
preferred shares were issued as paid-in-kind dividends for the second quarter of
2003.

OTHER  TRANSACTIONS

In  July  2003,  the  Company  entered into a transaction involving three leased
communities  wherein  the  three  leases  were  transferred to a new lessor. The
Company  received  approximately  $10.2 million in cash proceeds and anticipates
recognizing  a  gain of approximately $6.3 million, which 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 were
retired.  The  three  facilities  are  purpose-built assisted living communities
located  in  Auburn,  Massachusetts;  Louisville,  Kentucky;  and  Rocky  Hill,
Connecticut.

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.

LOSS  PER  SHARE

Basic  net  loss  per  share  is  computed  based  on  weighted  average  shares
outstanding  and  excludes any potential dilution. Diluted net loss per share is
computed  based  on  the  weighted  average  number  of  shares outstanding plus
dilutive  potential  common  shares using the treasury stock method. The capital
structure  of  Emeritus  includes  convertible  debentures,  redeemable  and
non-redeemable  convertible  preferred  stock,  common stock warrants, and stock
options.  The  assumed  conversion  and  exercise  of these securities have been
excluded  from  the calculation of diluted net loss per share since their effect
is  anti-dilutive.  The loss per common share was calculated on a dilutive basis
without  consideration  of  10,588,066 and 10,193,900 potential common shares at
June  30, 2003 and 2002, respectively, related to outstanding options, warrants,
convertible  debentures,  and  convertible  preferred  stock.

GAINS  ON  INVESTMENT  SECURITIES

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  cost  basis  of  approximately  $1.5 million, thus
recognizing  a  gain of approximately $1.4 million, which is included in "Other,
net"  in  the  Company's  Condensed  Consolidated Statements of Operations and a
reduction  in  "Accumulated other comprehensive gain" in the Company's Condensed
Consolidated  Balance  Sheets.

                                       11
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


OTHER  COMPREHENSIVE  LOSS

Other comprehensive loss includes the following transactions for the three-month
and  six-month  periods  ended  June  30,  2003  and  2002,  respectively:


<TABLE>
<CAPTION>

                                       Three Months ended June 30,       Six Months ended June 30,
                                     -------------------------------  --------------------------------
                                                              (In  thousands)
                                         2003             2002             2003             2002
                                    ---------------  ---------------  ---------------  ---------------
<S>                                 <C>              <C>              <C>              <C>
Net loss to common shareholders. .  $         (932)  $       (5,666)  $       (3,196)  $       (8,966)
Other comprehensive income:
     Unrealized holding gains
          on investment securities               -              121                -              249
                                    ---------------  ---------------  ---------------  ---------------
Comprehensive loss . . . . . . . .  $         (932)  $       (5,545)  $       (3,196)  $       (8,717)
                                    ===============  ===============  ===============  ===============
</TABLE>


LIQUIDITY

The  Company  has  incurred significant operating losses since its inception and
has a working capital deficit of $31.4 million, although $4.9 million represents
deferred  revenue  and  $16.6  million  of  preferred  dividends  is due only if
declared by the Company's board of directors.  At times in the past, the Company
has  been  dependent upon third party financing or disposition of assets to fund
operations.  If  such  transactions are necessary in the future, Emeritus cannot
guarantee  that they will be available on a timely basis, on terms attractive to
the  Company,  or  at  all.

Throughout  2002  and  continuing  in  the  first  quarter  of 2003, 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 16 owned assisted living properties and 72 properties 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.  At  June  30,  2003,  the  Company  complied  with  all  such
covenants, except in respect to one leased building.  The Company has obtained a
waiver from the lessor and is considered to be in full compliance as of June 30,
2003.

Management  believes that the Company will be able to sustain positive operating
cash  flow  at  least through June 30, 2004, and will have adequate cash for all
necessary investing and financing activities including required debt service and
capital  expenditures.

OTHER  EVENTS

Alterra  Healthcare  Corporation ("Alterra"), a national assisted living company
headquartered  in Milwaukee, filed a voluntary Chapter 11 bankruptcy petition on
January  22,  2003.  On  April  10,  2003, the Bankruptcy Court approved bidding
procedures  establishing  a process for Alterra to seek and select a transaction
to  address  its  capital  and liquidity needs upon completion of its bankruptcy
reorganization  by  selling  its  capital  stock  or  assets.

On  July  23,  2003,  the  United  States  Bankruptcy  Court for the District of
Delaware approved a Merger Agreement which provides that an entity controlled by
Emeritus  Corporation,  with  capital  from  an affiliate of Fortress Investment
Group  LLC,  will  acquire  Alterra  upon  the closing of the merger.  The total

                                       12
<PAGE>

                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)


consideration  provided  under  the  Merger  Agreement,  subject  to  certain
adjustments,  is  $76  million.  Emeritus  has  guaranteed  $6.9 million of such
closing  consideration.  The  transaction is conditioned on, among other things,
confirmation  of  Alterra's  Chapter  11  Plan of Reorganization, the consent of
certain  lenders  and  lessors,  and  the  receipt  of regulatory approvals. The
transaction  is  expected  to  close  in  the  fourth  quarter  of  this  year.

Upon  emerging  from  its  Chapter  11 reorganization, Alterra is expected to be
comprised  of  approximately  310 communities with bed capacity of 13,000.  Upon
completing  the acquisition, Emeritus will operate approximately 475 communities
comprising  27,500  units  in  38  states.



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                                       13
<PAGE>


ITEM  2.         MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
OVERVIEW

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

Through  1998,  we  focused  on  rapidly  expanding  our  operations in order to
assemble  a  portfolio  of  assisted  living communities with a critical mass of
capacity.  We  pursued an aggressive acquisition and development strategy during
that  time,  acquiring 35 and developing 10 communities in 1996, acquiring seven
and  developing 20 communities in 1997, and developing five communities in 1998.
During  1999  and  continuing through 2001, we substantially reduced our pace of
acquisition  and  development activities to concentrate our efforts on improving
the  performance  of our existing facilities.  During 2002 and the first half of
2003,  we  have resumed pursuing, on a selective basis, management contracts and
acquisition  opportunities,  which  we  believe  will  be  beneficial  to  us.

In our consolidated portfolio, we had an increase in average monthly revenue per
occupied  unit  to $2,757 for the first two quarters of 2003 from $2,525 for the
first  two  quarters  of  2002,  primarily brought about by our rate enhancement
program.  This  represents  an  average  revenue  increase of $232 per month per
occupied  unit,  or 9.2%.  The average occupancy rate decreased to 77.0% for the
first  two  quarters  of  2003  from  81.5%  for the first two quarters of 2002.
However, the year-to-year comparison of these results is skewed by the impact of
the  24  building  lease  acquisition  in the fourth quarter of 2002.  The table
below  shows  the  results  exclusive  of  this  acquisition:

<TABLE>
<CAPTION>
                                             Six months ended June 30,
                          -------------------------------------------------------------
                                             2003                             2002
                          ---------------------------------------------  --------------
                                 A             B              C                 D              E
                          -------------  --------------- --------------  --------------  --------------
                                           24 Building    (A  w/o  B)                        (C-D)
                           Consolidated      Lease                        Consolidated      Increase
                            Portfolio      Acquisition                     Portfolio       (Decrease)
                          -------------  --------------- --------------  --------------  --------------
<S>                       <C>             <C>             <C>             <C>             <C>
  Average monthly revenue
   per occupied unit . .  $       2,757   $       3,009   $       2,698   $       2,525   $          173
                          ==============  ==============  ==============  ==============  ==============

 Average occupancy rate.           77.0%           64.3%           80.9%           81.5%          (0.6%)
                          ==============  ==============  ==============  ==============  ==============
</TABLE>

In  our  total operated portfolio, which includes managed communities, we had an
increase  in  average  monthly revenue per occupied unit to $2,693 for the first
two  quarters  of 2003 from $2,513 for the first two quarters of 2002, primarily
brought  about  by  our  rate  enhancement  program.  This represents an average
revenue  increase  of  $180  per  month per occupied unit, or 7.2%.  The average
occupancy  rate  decreased to 78.6% for the first quarter of 2003 from 80.8% for
the  first  quarter  of  2002.  However,  the  year-to-year  comparison of these
results  is  skewed  by  the  impact of the 24 building lease acquisition in the
fourth  quarter  of  2002.  The  table below shows the results exclusive of this
acquisition:

<TABLE>
<CAPTION>
                                             Six months ended June 30,
                          -------------------------------------------------------------
                                             2003                             2002
                          ---------------------------------------------  --------------
                                 A             B              C                 D              E
                          -------------  --------------- --------------  --------------  --------------
                              Total       24 Building     (A  w/o  B)         Total          (C-D)
                             Operated        Lease                           Operated       Increase
                             Portfolio     Acquisition                       Portfolio     (Decrease)
                          -------------  --------------- --------------  --------------  --------------
<S>                       <C>             <C>             <C>             <C>             <C>
 Average monthly revenue
   per occupied unit . .  $       2,693   $       3,009   $       2,663   $       2,513   $          150
                          ==============  ==============  ==============  ==============  ==============

 Average occupancy rate.           78.6%           64.3%           80.3%           80.8%          (0.5%)
                          ==============  ==============  ==============  ==============  ==============
</TABLE>


                                       14
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

While  our  focus during the upcoming year will be shifted toward integration of
existing  and  pending  acquisitions,  we intend to continue evaluation of other
acquisition opportunities.  We are interested in opportunities that have neutral
capitalization  requirements,  enhance  or  expand existing offerings, and offer
upside  potential,  such  as the eight community acquisition in May 2003.  We do
not  believe our efforts to integrate Alterra Healthcare into our structure will
preclude  us  from  participating  in  these  types  of  transactions.

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

<TABLE>
<CAPTION>

                                  As of June 30,        As of December 31,       As of June 30,
                                      2003                      2002                  2002
                              ----------------------  ----------------------  --------------------
                              Buildings     Units     Buildings     Units     Buildings     Units
                              ----------  ----------  ----------  ----------  ----------  ----------
<S>                           <C>         <C>         <C>         <C>         <C>         <C>
Owned (1). . . . . . . . . .         17       1,687          17       1,687          16       1,579
Leased (1) . . . . . . . . .         75       5,768          67       5,279          44       3,716
Managed/Admin Services . . .         91       8,267          94       8,577          95       8,763
Joint Venture/Partnership. .          2         219           2         219           3         333
                              ----------  ----------  ----------  ----------  ----------  ----------
     Operated Portfolio. . .        185      15,941         180      15,762         158      14,391
                              ==========  ==========  ==========  ==========  ==========  ==========

     Percentage increase (2)        2.8%        1.1%       35.3%       28.7%       18.8%       17.5%
</TABLE>

--------
(1)  Included  in  our  consolidated  portfolio  of  communities.
(2)  The  percentage  increase  indicates the change from the prior year, or, in
the  case  of  June  30,  2003  and  2002,  from  the  end  of  the  prior year.

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

We have incurred net losses since our inception, and as of June 30, 2003, we had
an  accumulated  deficit of approximately $158.5 million.  These losses resulted
from  a  number  of  factors,  including:

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

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

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

During  1998,  we  decided  to reduce acquisition and development activities and
dispose  of  select  communities  that had been operating at a loss.  We believe
that  slowing  our  acquisition and development activities enabled us to use our
resources  more  efficiently  and  increase  our  focus  on  enhancing community
operations.  In  2002 and through the second quarter of 2003, along with a focus
on operations, we selectively acquired additional communities and new management
contracts.

                                       15
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


EMERITRUST  TRANSACTIONS

We  hold  interests in 45 communities referred to as the Emeritrust communities,
including  24  Emeritrust  I communities, 16 Emeritrust II Operating communities
and  five  Emeritrust  II  Development  communities, under management agreements
described  in  our  Annual  Report  on Form 10-K for the year ended December 31,
2002.  In  May  2002,  we  entered into an agreement with a third party operator
where  they  would assume full control of a single Emeritrust I facility located
in  San  Bernardino,  California  for a set lease payment.  As of April 1, 2003,
this  new operator exercised its option to purchase the community, thus reducing
the  number  of  Emeritrust  I  communities  under  management to 24.  We do not
recognize  management  fees  on  the  Emeritrust  communities  as revenue in our
condensed  consolidated  financial  statements to the extent that we are funding
the cash operating losses that include them, although the amounts of the funding
obligation  each  year include management fees earned by us under the management
agreements.  Correspondingly,  we  recognize  the  funding  obligation under the
agreement,  less  the applicable management fees, as an expense in our condensed
consolidated  financial statements under the category "Other, net".  Conversely,
if  the  applicable  management fees exceed the funding obligation, we recognize
the management fees less the funding obligation as management fee revenue in our
condensed  consolidated  financial  statements.

For  the  three  months  and  six months ended June 30, 2003 and 2002, the total
gross  management  fees  earned,  management  fees  recognized,  and  funding
obligations accrued for all Emeritrust communities are shown in the tables below
(In  thousands):

<TABLE>
<CAPTION>
Management  Fees  Earned:

                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         989  $         402  $         587   $       1,836  $       1,100  $         736
Emeritrust II Operating .            493            479             14             987            965             22
Emeritrust II Development            179            229            (50)            364            397            (33)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,661  $       1,110  $         551   $       3,187  $       2,462  $         725
                           =============  =============  ==============  =============  =============  ==============
</TABLE>


<TABLE>
<CAPTION>
Management  Fees  Recognized:

                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         989  $         402  $         587   $       1,826  $       1,100  $         726
Emeritrust II Operating .            493            479             14             987            965             22
Emeritrust II Development            172            203            (31)            354            358             (4)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,654  $       1,084  $         570   $       3,167  $       2,423  $         744
                           =============  =============  ==============  =============  =============  ==============
</TABLE>


<TABLE>
<CAPTION>

Funding  Obligation  Accrued:

                            Three Months Ended June 30,                    Six Months Ended June 30,
                           ----------------------------     Increase      ----------------------------      Increase
Communities                    2003           2002         (Decrease)         2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  --------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>             <C>            <C>
Emeritrust I. . . . . . .  $           -  $           -  $           -   $          11   $           -  $          11
Emeritrust II Development              8             85            (77)            (20)            121           (141)
                           -------------  -------------  --------------  --------------  -------------  --------------
Total . . . . . . . . . .  $           8  $          85  $         (77)  $          (9)  $         121  $        (130)
                           =============  =============  ==============  ==============  =============  ==============
</TABLE>

                                       16
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

The  management  agreements  and  related  options to purchase these communities
expired  June  30,  2003 (except that management agreements with respect to five
communities continue until December 31, 2003). Because we were not in a position
to  exercise  the options to acquire the communities prior to expiration, we are
currently in discussions with the owners of the communities and their lenders to
extend  the management agreements and related purchase options. On July 2, 2003,
we  executed  an  initial  extension of management agreement with respect to the
Emeritrust  II  communities.  The  management  and the purchase option agreement
related  to the Emeritrust II communities was amended to expire October 1, 2003,
which  will  allow  us,  the  owners  of  the  communities, and their lenders to
consider  a  longer-term  agreement.  We  continue to operate under the existing
operating  structure  of  the  Emeritrust  I  communities  on a day-to-day basis
pending  resolution  of  the terms of financing, management, and purchase option
agreements. While we believe that these arrangements will be extended, we cannot
guarantee  that these discussions will be successful or, if the arrangements are
extended,  what  the  terms  will  be. If we are unsuccessful, we could lose the
management  fee revenue from these communities and future rights with respect to
them.

SERIES  A  PREFERRED  STOCK

On  June  10,  2003, we announced in a press release that we had entered into an
agreement  to  repurchase our Series A preferred stock from the sole shareholder
for a total price of $20.0 million. The Series A Stock has a face value of $25.0
million with a $18.20 per share conversion price and a mandatory redemption date
of  October  2004.  At  June 30, 2003, the Series A Stock had accrued and unpaid
dividends  of  approximately  $9.6 million, which are included in the repurchase
price  and  will  therefore  be  extinguished  as  a  part  of  the transaction.

On  July  31,  2003,  we  repurchased  Series A stock with a face value of $12.5
million  for  $10 million.  As part of the purchase agreement, the holder of the
Series  A  Preferred  Stock has agreed to forego accrued and unpaid dividends of
approximately  $5.0  million.  We  anticipate  recording  a  one-time  gain  of
approximately  $7.5  million,  exclusive  of  transaction  costs,  in  the third
quarter.  The  purchase  was  financed  through  the  previously announced lease
transaction  involving  three  communities  in  which  we  raised $10.2 million,
further  discussed  below  in  "Other  Transactions".  The  outside  date of the
original  agreement has been extended to August 31, 2003, and continues to apply
to  the  remainder  of  the  Series  A  stock.

OTHER  TRANSACTIONS

In  July  2003, we entered into a transaction involving three leased communities
wherein  the  three  leases  were  transferred  to  a  new  lessor.  We received
approximately  $10.2  million in cash proceeds and anticipate recognizing a gain
of  approximately  $6.3 million, which 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 were retired.  The three
facilities  are  purpose-built  assisted  living  communities located in Auburn,
Massachusetts;  Louisville,  Kentucky;  and  Rocky  Hill,  Connecticut.

Effective  July  1,  2003,  we  ceased  managing  12  Regent  Assisted  Living
communities.  On  August  1,  2003,  we  ceased  managing  an  additional Regent
Assisted  Living  community.

EIGHT  BUILDING  LEASE  ACQUISITION

On  May  1,  2003,  we entered into a lease agreement with certain affiliates of
Healthcare  Realty  Trust  ("HRT"),  a  real  estate investment trust, for eight
assisted  living  communities  (the  "Properties")  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  opportunity  for  us  to acquire the Properties anytime during the
second  year  for  $42.2 million and a purchase option in the third year at a 3%
premium  over  the original purchase option price.  In addition, the lease gives
us  the  right  of  first refusal to purchase any of the properties if the owner
decides  to  sell.  The lease is a net lease, with base rent approximating $3.45
million  annually  with  certain  lease escalators.  At the end of the first and
second  lease  years,  the lease escalator is based on a percentage of increased
operating  revenues,  with  an  aggregate  annual  cap  of  $275,000.  The lease
escalators  each  year  thereafter  are based on increases in the consumer

                                       17
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


price  index  not  to  exceed 3.5% of the prior year's amount. HRT has agreed to
fund  up  to  $500,000  for  capital  expenditure  requirements.  The  capital
expenditures funded by HRT will increase the basis and purchase option and carry
a  10%  lease  rate.

HRT also agreed to extend a $600,000 loan to us for working capital purposes and
for  capital  and other improvements to the facilities.  This loan has a 10-year
term  with  no  extensions,  bearing  interest  at  10%  annually  with  monthly
interest-only  payments.  In addition, if we exercise our purchase option at any
time on any facility, the pro rata principal portion of the loan will become due
at  the  closing  of  such  purchase.

The Properties in this acquisition are purpose-built assisted living communities
in  which  we  plan  to  offer  both assisted and memory loss services to select
communities.

GAINS ON INVESTMENT  SECURITIES

On  April  23,  2003,  ARV  Assisted  Living,  Inc. ("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, we received approximately $2.9 million in
exchange for our 755,884 shares of ARV common stock in which we had a cost basis
of  approximately  $1.5  million,  thus recognizing a gain of approximately $1.4
million,  which  is  included  in  "Other,  net"  in  our Condensed Consolidated
Statements  of  Operations  and  a reduction in "Accumulated other comprehensive
gain"  in  our  Condensed  Consolidated  Balance  Sheets.

OTHER  EVENTS

Alterra  Healthcare  Corporation ("Alterra"), a national assisted living company
headquartered  in Milwaukee, filed a voluntary Chapter 11 bankruptcy petition on
January  22,  2003.  On  April  10,  2003, the Bankruptcy Court approved bidding
procedures  establishing  a process for Alterra to seek and select a transaction
to  address  its  capital  and liquidity needs upon completion of its bankruptcy
reorganization  by  selling  its  capital  stock  or  assets.

On  July  23,  2003,  the  United  States  Bankruptcy  Court for the District of
Delaware approved a Merger Agreement which provides that an entity controlled by
us,  with  capital  from  an  affiliate  of  Fortress Investment Group LLC, will
acquire  Alterra  upon  the  closing  of  the  merger.  The  total consideration
provided  under  the  Merger  Agreement,  subject to certain adjustments, is $76
million.  We  have  guaranteed  $6.9 million of such closing consideration.  The
transaction  is  conditioned  on,  among other things, confirmation of Alterra's
Chapter  11  Plan of Reorganization, the consent of certain lenders and lessors,
and  the  receipt of regulatory approvals.  The transaction is expected to close
in  the  fourth  quarter  of  this  year.

Upon  emerging  from  its  Chapter  11 reorganization, Alterra is expected to be
comprised  of  approximately  310 communities with bed capacity of 13,000.  Upon
completing  the  acquisition,  we  will  operate  approximately  475 communities
comprising  27,500  units  in  38  states.

RESULTS  OF  OPERATIONS

Critical  Accounting  Policies  and  Estimates.

Management's  discussion  and analysis of our financial condition and results of
operations are based upon our condensed 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, bad debts, investments,
intangible

                                       18
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


assets, income taxes, restructuring, long-term service contracts, contingencies,
self-insured retention, insurance deductibles, health insurance, and litigation.
We  base our estimates on historical experience and on various other assumptions
that  we  believe 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 critical accounting policies are most significant to
the  judgments  and  estimates  used  in  the  preparation  of  our  condensed
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.

*    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 claim 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.

*    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 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 a 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 we made such
     determination.

                                       19
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


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

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

<TABLE>
<CAPTION>

                                                                                                      Period-to-Period
                                                                                                        Percentage
                                                                                                          Increase
                                                                                                         (Decrease)
                                                       Percentage  of  Revenues                 ----------------------------
                                     ----------------------------------------------------------   Three Months    Six Months
                                           Three Months ended             Six Months Ended           ended          ended
                                              June  30,                      June  30,              June  30,      June  30,
                                     ----------------------------  ----------------------------  -------------  -------------
                                         2003           2002           2003           2002         2003-2002      2003-2002
                                     -------------  -------------  -------------  -------------  -------------  -------------
<S>                                  <C>            <C>            <C>            <C>            <C>            <C>

Revenues. . . . . . . . . . . . . .         100.0%         100.0%         100.0%         100.0%          45.2%          37.6%
Expenses:
     Community operations . . . . .          60.3           62.0           60.5           59.3           41.3           40.3
     General and administrative . .          11.8           14.3           11.6           14.0           19.4           14.6
     Depreciation and amortization.           3.7            4.9            3.8            5.0            9.9            4.6
     Facility lease expense . . . .          18.9           21.8           18.6           20.2           25.8           26.8
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Total operating expenses .          94.7          103.0           94.5           98.5           33.5           32.1
                                     -------------  -------------  -------------  -------------  -------------  -------------
Income (loss) from operations. . .            5.3           (3.0)           5.5            1.5            N/A          401.3
Other income (expense)
     Interest income. . . . . . . .           0.4            0.3            0.3            0.3           53.1           47.7
     Interest expense . . . . . . .          (6.5)          (8.4)          (6.7)          (8.2)          13.2           12.5
     Other, net . . . . . . . . . .           2.8           (0.5)           1.5           (1.1)           N/A            N/A
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Net other expense. . . . .          (3.3)          (8.6)          (4.9)          (9.0)         (42.9)         (24.8)
                                     -------------  -------------  -------------  -------------  -------------  -------------

         Net income (loss) . . . . .          2.0%        (11.6%)           0.6%         (7.5%)           N/A            N/A
                                     =============  =============  =============  =============  =============  =============
</TABLE>


Comparison  of  the  three  months  ended  June  30,  2003  and  2002
---------------------------------------------------------------------

Total  Operating  Revenues:  Total operating revenues for the three months ended
June  30,  2003,  increased by $15.4 million to $49.4 million from $34.0 million
for  the  comparable  period  in  2002,  or  45.2%.

Community  revenue  increased by approximately $14.9 million in the three months
ended  June  30,  2003,  compared to the three months ended June 30, 2002.  This
increase  is  primarily due to additional revenue related to a 24 building lease
acquisition in the fourth quarter of 2002 and an 8 building lease acquisition in
the second quarter of 2003.  These acquired communities, which represent revenue
of  approximately  $11.4 million, were included in our consolidated portfolio in
the  second  quarter of 2003, but were not included in the comparable quarter of
2002.  The  remaining  increase in revenue is attributed to the net effect of an
increase  in  average  monthly  revenue per unit and a decrease in the occupancy
rate.  Average  monthly revenue per unit (excluding the 24 community acquisition
impact  which  was  favorable  by $64) was $2,694 for the second quarter of 2003
compared  to  $2,533  for  the  comparable  quarter  of  2002,  an  increase  of
approximately  6.4%.  The  occupancy  rate  for  the  second  quarter  of  2003
(excluding  the  24  community  acquisition  impact which was unfavorable by 3.9
percentage points) decreased 0.2  percentage points from the prior year quarter.

Community  Operations:  Community  operating expenses for the three months ended
June  30, 2003, increased by $8.7 million to $29.8 million from $21.1 million in
the  second  quarter  of  2003,  or 41.3%.  The


                                       20
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


change  was  primarily  due  to  a  24  building lease acquisition in the fourth
quarter  of  2002  and  an 8 building lease acquisition in the second quarter of
2003. These acquired communities, which approximates $9.7 million, were included
in  our  consolidated  portfolio  in  the  second  quarter of 2003, but were not
included  in  the  comparable quarter of 2002. The increases attributable to the
two  lease  acquisitions  are  partially offset by improvements in insurance bad
debt, and other operating expenses. Our insurance expense improved mainly due to
a change in our professional and general liability insurance structure, which is
essentially  a  self-insured  policy that reduces our insurance premiums in 2003
compared  to  2002.  Community  operating  expenses  as  a  percentage  of total
operating revenue decreased to 60.3% in the second quarter of 2003 from 62.0% in
the  second  quarter  of  2002.

General  and  Administrative:  General and administrative (G&A) expenses for the
three  months  ended June 30, 2003, increased $944,000 to $5.8 million from $4.9
million  for  the comparable period in 2002, or 19.4%.  As a percentage of total
operating  revenues,  G&A expenses decreased to 11.8% for the three months ended
June  30, 2003, compared to 14.3% for the three months ended June 30, 2002.  G&A
expenses  increased  primarily  due  to increases in the number of employees and
normal  increases  in  employee  salaries.  Recent  growth  in total communities
managed  through  additional  contracts  has  led  to some added operational and
administrative  employees.  Since  approximately  half  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, may be
more meaningful for industry-wide comparisons.  G&A as a percentage of operating
revenues  for  all  communities increased to 5.9% from 5.7% for the three months
ended  June  30,  2003  and  2002,  respectively.

Depreciation  and  Amortization:  Depreciation  and  amortization  for the three
months  ended  June  30, 2003, was $1.8 million compared to $1.7 million for the
comparable  period  in  2002.  In 2003, depreciation and amortization represents
3.7%  of total operating revenues, compared to 4.9% for the comparable period in
2002.  This  decrease  as  a percentage of revenue is primarily due to increased
revenue.

Facility  Lease Expense:  Facility lease expense for the three months ended June
30, 2003, was $9.3 million compared to $7.4 million for the comparable period of
2002,  representing  an  increase  of  $1.9 million, or 25.8%.  This increase is
primarily due to the 24 building lease acquisition in the fourth quarter of 2002
and an 8 building lease acquisition in the second quarter of 2003.  We leased 75
communities  as  of  June 30, 2003, compared to 44 leased communities as of June
30,  2002.  The  additional  facility  lease  expense  related  to  the acquired
communities approximates $2.0 million.    Facility lease expense as a percentage
of  revenues  was  18.9% for the three months ended June 30, 2003, and 21.8% for
the  three  months  ended  June  30,  2002.

Interest  Income:  Interest income for the three months ended June 30, 2003, was
$173,000  versus  $113,000  for the comparable period of 2002.  This increase is
primarily attributable to a higher return on certain restricted deposits related
to  a  sale-leaseback  transaction  in  the  fourth  quarter  of  2002.

Interest  Expense:  Interest  expense  for the three months ended June 30, 2003,
was  $3.2  million  compared  to $2.9 million for the comparable period of 2002.
This increase of $377,000, or 13.2%, is primarily attributable to the repurchase
of  a  previously  leased community in the third quarter of 2002 and a refinance
transaction  related  to 11 communities in December of 2002.  As a percentage of
total  operating  revenues, interest expense decreased to 6.5% from 8.4% for the
three  months  ended  June  30,  2003  and  2002,  respectively.

Other,  net:  Other, net (expense) for the three months ended June 30, 2003, was
income of $1.4 million compared to expense of $174,000 for the comparable period
in  2002. The net change of $1.6 million is primarily comprised of recognizing a
gain  on  the  sale  of  our  investment  in ARV Assisted Living common stock of
approximately  $1.4  million,  which  is  further  discussed  above in "Gains on
Investment  Securities".

Preferred  dividends:  For  the  three  months ended June 30, 2003 and 2002, the
preferred  dividends  were  approximately  $1.9  million  and  $1.7  million,
respectively.  Since  dividends  on  the  Series  A shares were not paid for six
consecutive  quarters,  the  Series  A dividends were calculated on a compounded
cumulative  basis,  retroactively,  and  the  cumulative effect of approximately
$294,000  was  reflected  in  the  first  quarter

                                       21
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

of 2002. In addition, since we have not paid these dividends for six consecutive
quarters,  under  the  Designation of Rights and Preferences of the Series A and
Series  B  stock  in  the  our  Articles  of  Incorporation,  the Series A and B
shareholders,  as the case may be, may designate one director in addition to the
other  directors  that  they  are  entitled to designate under the shareholders'
agreement.  Under  the  Series  A shareholders' agreement, however, the Series A
shareholder's  right to designate this additional director under the Articles is
limited to circumstances in which they would not otherwise be entitled to name a
director.  Currently,  the  Series  A  shareholder  does  not  have the right to
designate  an  additional  director.  As  of  January  1,  2002,  the  Series  B
shareholders  became  entitled  to  designate  an  additional director under the
Articles,  but  thus  far  have  chosen  not  to  do  so.

Comparison  of  the  six  months  ended  June  30,  2003  and  2002
-------------------------------------------------------------------

Total  Operating  Revenues:  Total  operating  revenues for the six months ended
June  30,  2003,  increased by $26.4 million to $96.6 million from $70.2 million
for  the  comparable  period  in  2002,  or  37.6%.

Community  revenue  increased  by  approximately $25.8 million in the six months
ended  June  30,  2003,  compared  to  the six months ended June 30, 2002.  This
increase  is  primarily due to additional revenue related to a 24 building lease
acquisition in the fourth quarter of 2002 and an 8 building lease acquisition in
the second quarter of 2003.  These acquired communities, which represent revenue
of  approximately  $20.9 million, were included in our consolidated portfolio in
the first two quarters of 2003, but were not included in the comparable quarters
of  2002.  The  remaining increase in revenue is attributed to the net effect of
an  increase in average monthly revenue per unit and a decrease in the occupancy
rate.  Average  monthly revenue per unit (excluding the 24 community acquisition
impact which was favorable by $60) was $2,698 for the first two quarters of 2003
compared  to  $2,525  for  the  comparable  quarters  of  2002,  an  increase of
approximately  6.9%.  The  occupancy  rate  for  the  first two quarters of 2003
(excluding  the  24  community  acquisition  impact which was unfavorable by 3.9
percentage  points)  decreased 0.6 percentage points from the first two quarters
of  the  prior  year.

Community Operations: Community operating expenses for the six months ended June
30,  2003, increased by $16.8 million to $58.4 million from $41.6 million in the
first  two  quarters  of  2003,  or 40.3%.  The change was primarily due to a 24
building lease acquisition in the fourth quarter of 2002 and an 8 building lease
acquisition  in  the  second quarter of 2003.  These acquired communities, which
approximates  $17.9  million, were included in our consolidated portfolio in the
first  two  quarter of 2003, but were not included in the comparable quarters of
2002.  The  increases  attributable  to the two lease acquisitions are partially
offset  by  improvements  in  insurance, bad debt, and other operating expenses.
Our  insurance  expense  improved mainly due to a change in our professional and
general  liability  insurance  structure,  which  is  essentially a self-insured
policy  that reduces our insurance premiums in 2003 compared to 2002.  Community
operating expenses as a percentage of total operating revenue increased to 60.5%
in  the first two quarters of 2003 from 59.3% in the first two quarters of 2002.

General  and  Administrative:  General and administrative (G&A) expenses for the
six  months  ended  June  30, 2003, increased $1.4 million to $11.2 million from
$9.8  million  for  the comparable period in 2002, or 14.6%.  As a percentage of
total  operating  revenues,  G&A  expenses decreased to 11.6% for the six months
ended  June  30, 2003, compared to 14.0% for the six months ended June 30, 2002.
G&A expenses increased primarily due to increases in the number of employees and
normal  increases  in  employee  salaries,  as well as, insurance costs.  Recent
growth in total communities managed through additional contracts has led to some
added operational and administrative employees.  Since approximately half 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,  may  be  more  meaningful for industry-wide comparisons.  G&A as a
percentage of operating revenues for all communities decreased to 5.7% from 5.8%
for  the  six  months  ended  June  30,  2003  and  2002,  respectively.

Depreciation and Amortization:  Depreciation and amortization for the six months
ended  June  30,  2003,  was  $3.7  million  compared  to  $3.5  million for the
comparable  period  in  2002.  In 2003, depreciation and amortization represents
3.8%  of total operating revenues, compared to 5.0% for the comparable period in
2002.  This  decrease  as  a percentage of revenue is primarily due to increased
revenue.

                                       22
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Facility  Lease  Expense:  Facility  lease expense for the six months ended June
30,  2003, was $17.9 million compared to $14.1 million for the comparable period
of  2002,  representing an increase of $3.8 million, or 26.8%.  This increase is
primarily due to the 24 building lease acquisition in the fourth quarter of 2002
and  the  8 building lease acquisition in the second quarter of 2003.  We leased
75 communities as of June 30, 2003, compared to 44 leased communities as of June
30,  2002.  The  additional  facility  lease  expense  related  to  the acquired
communities  approximates  $3.5 million for the first two quarters of 2003.  The
balance  of the increase was attributable to variable rent escalation provisions
in  existing  leases.  Facility  lease  expense  as a percentage of revenues was
18.6% for the six months ended June 30, 2003, and 20.2% for the six months ended
June  30,  2002.

Interest  Income:  Interest  income  for the six months ended June 30, 2003, was
$328,000  versus  $222,000  for the comparable period of 2002.  This increase is
primarily attributable to a higher return on certain restricted deposits related
to  a  sale-leaseback  transaction  in  the  fourth  quarter  of  2002.

Interest  Expense:  Interest expense for the six months ended June 30, 2003, was
$6.5  million  compared  to $5.8 million for the comparable period of 2002. This
increase of $724,000, or 12.5%, is primarily attributable to the repurchase of a
previously  leased  community  in  the  third  quarter  of  2002,  a  refinance
transaction  related  to  11  communities  in  December  2002,  and  a refinance
transaction in January of 2003 which has a slightly higher interest rate, all of
which  constitute  an  increase  of  approximately  $987,000.  This  increase is
partially  offset by a sale-leaseback transaction in the second quarter of 2002,
which replaced interest expense with lease expense of approximately $206,000. As
a  percentage  of  total  operating revenues, interest expense decreased to 6.7%
from  8.2%  for  the  six  months  ended  June  30, 2003 and 2002, respectively.

Other,  net:  Other,  net  (expense) for the six months ended June 30, 2003, was
income of $1.4 million compared to expense of $741,000 for the comparable period
in 2002.  The net change of $2.2 million is primarily comprised of the following
items:  In April 2003, we recognized a gain on the sale of our investment in ARV
Assisted  Living  common  stock of approximately $1.4 million.  During the first
two  quarters  of  2002, we repurchased a related party's economic interest in a
172-unit community resulting in an expense of $158,000 and the sale-leaseback of
two  communities  and  re-lease  of  two  additional communities resulting in an
expense  of  $372,000,  for  a  combined  impact  of  $530,000.  The  remaining
difference  is  primarily attributable to amortization of deferred gains related
to  three  communities  of  approximately  $148,000.

Preferred  dividends:  For  the  six  months  ended  June 30, 2003 and 2002, the
preferred  dividends  were  approximately  $3.8  million  and  $3.7  million,
respectively.  Since  dividends  on  the  Series  A shares were not paid for six
consecutive  quarters,  the  Series  A dividends were calculated on a compounded
cumulative  basis,  retroactively,  and  the  cumulative effect of approximately
$294,000 was reflected in the first quarter of 2002.  In addition, since we have
not  paid these dividends for six consecutive quarters, under the Designation of
Rights  and  Preferences  of  the Series A and Series B stock in our Articles of
Incorporation,  the  Series  A  and  B  shareholders,  as  the  case may be, may
designate one director in addition to the other directors that they are entitled
to  designate  under  the  shareholders'  agreement.  Under  the  Series  A
shareholders'  agreement, however, the Series A shareholder's right to designate
this additional director under the Articles is limited to circumstances in which
they  would not otherwise be entitled to name a director.  Currently, the Series
A  shareholder  does not have the right to designate an additional director.  As
of  January  1,  2002, the Series B shareholders became entitled to designate an
additional  director  under the Articles, but thus far have chosen not to do so.


               [The rest of this page is intentionally left blank]


                                       23
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED


Same  Community  Comparison

We  operated  59  communities on a comparable basis during both the three months
ended  June  30,  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  June  30,  2003  and  2002.

<TABLE>
<CAPTION>

                                                          Three Months ended March 31,
                                                                (In thousands)
                                             ----------------------------------------------------
                                                                          Dollar     % Change
                                                 2003          2002       Change   Fav / (Unfav)
                                             ------------  ------------  --------  -------------
<S>                                          <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . . . . . . . . .  $    33,734   $    32,204   $ 1,530            4.8%
Community operating expenses. . . . . . . .      (20,416)      (20,518)      102            0.5
                                             ------------  ------------  --------  -------------
    Community operating income. . . . . . .       13,318        11,686     1,632           14.0
Depreciation & amortization . . . . . . . .       (1,521)       (1,465)      (56)          (3.8)
Facility lease expense. . . . . . . . . . .       (6,979)       (7,125)      146            2.0
                                             ------------  ------------  --------  -------------
    Operating income. . . . . . . . . . . .        4,818         3,096     1,722           55.6
Interest expense, net . . . . . . . . . . .       (2,476)       (2,172)     (304)         (14.0)
                                             ------------  ------------  --------  -------------
    Operating income after interest expense  $     2,342   $       924   $ 1,418          153.5%
                                             ============  ============  ========  =============
</TABLE>


The  same communities represented $33.7 million or 68.3% of our total revenue of
$49.4 million for the second quarter of 2003.  Same community revenues increased
by $1.5 million or 4.8% for the quarter ended June 30, 2003, from the comparable
period  in 2002.  This increase is due to higher average revenue per unit and an
increase  in occupancy.  Average revenue per occupied unit increased by $138 per
month  or  5.4%.  Average  occupancy increased to 81.7% in the second quarter of
2003  from  81.0%  in  the  second  quarter  of  2002.

Community  operating  expenses  increased  approximately  $102,000  due  to  a
combination  of factors: the increase in operating expenses was primarily due to
added  personnel  expenses  associated  with our increasing emphasis on dementia
care  (Alzheimer's),  normal  salary  increases,  and  other  employee  costs of
$302,000,  as  well  as  decreases  in  other  operating  expense  categories of
$381,000. Occupancy expenses, consisting of facility lease expense, depreciation
and  amortization,  and  interest  expense  combined,  increased  approximately
$214,000  as  a result of the net effect of a refinancing transaction related to
11  buildings in December of 2002, and variable rent escalation related to other
communities,  partially  offset  by  lower interest rates. For the quarter ended
June 30, 2003, operating income after interest expense increased to $2.3 million
from  $924,000  for  the  comparable  period  of  2002.

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the  six  months  ended  June  30,  2003,  net  cash  provided by operating
activities  was  $1.9  million  compared  to  $1.7  million  used  in  operating
activities  for the comparable period in the prior year.  The primary components
of  operating  cash  provided  were  the  depreciation  and amortization of $3.7
million and net income of $580,000 partially offset by the net increase in other
operating  assets  and  liabilities  of  $874,000.  The  primary  components  of
operating cash used for the six months ended June 30, 2002, were the net loss of
$5.2 million, partially offset by depreciation and amortization of $3.5 million.

Net  cash  provided  by  investing  activities  amounted to $768,000 for the six
months  ended  June 30, 2003, and was comprised primarily of funds from the sale
of  investment  securities of approximately $2.9 million, offset by purchases of
approximately  $1.2  million  of  various  property and equipment, approximately
$625,000  in  management  and  lease  acquisition  cost, and $250,000 of partner
distributions.  Net  cash  provided  by  investing  activities amounted to $19.8
million  for  the six months ended June 30, 2002, and was comprised primarily of
funds of approximately $25.0 million related to the sale of two buildings offset
by  the  purchase  of  minority interest in two buildings for approximately $3.1
million,  repayment  of advances by third parties and affiliates of $501,000 and
additional  lease  acquisition  costs  of  $1.2  million.

                                       24
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

For  the  six  months ended June 30, 2003, net cash used in financing activities
was  $974,000  primarily  from short-term debt repayments of $1.4 million, which
include  debt  repayments  related  to  the January 2003 refinancing transaction
discussed  above  in  "Other  Transactions".  Also  related  to that refinancing
transaction, approximately $169,000 relates to debt issuance and other financing
costs.  These  uses of cash were offset by proceeds from long-term borrowings of
approximately  $600,000.  For  the six months ended June 30, 2002, net cash used
in  financing  activities  was  $16.9  million  primarily  from the repayment of
long-term  borrowings related to the sale, minority interest purchase, and lease
transactions.

We  have  incurred  significant  operating losses since our inception and have a
working  capital  deficit  of  $31.4  million,  although $4.9 million represents
deferred  revenues  and $16.6 million of preferred cash dividends is only due if
declared  by  our  board  of  directors.  At  times  in  the  past, we have been
dependent  upon  third  party  financing  or  disposition  of  assets  to  fund
operations.  If  such  transactions  are  necessary  in  the  future,  we cannot
guarantee  that they will be available on a timely basis, on terms attractive to
us,  or  at  all.

Throughout  2002  and  continuing  in  the  first quarter of 2003, 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.  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 16 owned assisted living
properties  and  72  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.  At  June  30,  2003,  we  complied  with all such
covenants,  except in respect to one leased building.  We have obtained a waiver
from the lessor and are considered to be in full compliance as of June 30, 2003.

Management believes that we will be able to sustain positive operating cash flow
at  least  through  June 30, 2004, and will have adequate cash for all necessary
investing  and  financing activities including required debt service and capital
expenditures.

IMPACT  OF  INFLATION

To  date,  inflation  has  not  had  a significant impact on Emeritus.  However,
inflation  could  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 a 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.

FORWARD-LOOKING  STATEMENTS

"Safe  Harbor"  Statement  under the Private Securities Litigation Reform Act of
1995:  A  number  of the matters and subject areas discussed in this report that
are  not  historical  or current facts deal with potential future circumstances,
operations,  and  prospects. The discussion of such matters and subject areas is
qualified  by  the  inherent  risks  and  uncertainties  surrounding  future
expectations  generally,  and  also may materially differ from our actual future
experience  as  a  result  of  such  factors  as: the effects of competition and
economic  conditions  on  the  occupancy  levels in our communities; our ability
under current market conditions to maintain and increase our resident charges in
accordance  with rate enhancement programs without adversely affecting occupancy
levels;  increases  in  interest  rates that would increase costs as a result of
variable  rate  debt;  our  ability  to  control  community  operation expenses,
including  insurance and utility costs, without adversely affecting the level of
occupancy  and  the level of resident charges; our ability to generate cash flow
sufficient to service our debt and other fixed payment requirements; our ability
to  find sources of financing and capital on satisfactory terms to meet our cash
requirements  to  the  extent  that  they  are not met by operations; and making
satisfactory  arrangements  for  the  continued  operation  of  the

                                       25
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Emeritrust  communities beyond June 30, 2003, when our management agreements for
those  communities  expire. On July 2, 2003, we executed an initial extension of
management  agreement  with  respect  to  the  Emeritrust  II  communities.  The
management  and  the  purchase  option  agreement  related  to the Emeritrust II
communities  was  amended  to  expire  October 1, 2003, which will allow us, the
owners  of  the  communities,  and  their  lenders  to  consider  a  longer-term
agreement.  We continue to operate under the existing operating structure of the
Emeritrust  I  communities on a day-to-day basis pending resolution of the terms
of  financing, management, and purchase option agreements. While we believe that
these  arrangements will be extended, we cannot guarantee that these discussions
will be successful or, if the arrangements are extended, what the terms will be.
If  we  are  unsuccessful,  we  could lose the management fee revenue from these
communities  and  future  rights  with  respect  to  them.  We have attempted to
identify, in context, certain of the factors that we currently believe may cause
actual  future  experience  and  results to differ from our current expectations
regarding  the  relevant  matter  or  subject  area.  These  and other risks and
uncertainties are detailed in our reports filed with the Securities and Exchange
Commission  (SEC),  including  our  Annual  Reports  on  Form 10-K and Quarterly
Reports  on  Form  10-Q.



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                                       26
<PAGE>

ITEM  3.   QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

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 June 30, 2003, our variable rate borrowings
totaled  approximately  $64.3  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  June  30,  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  $488,000  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 June 30, 2003,
and  does  not consider changes in the actual level of borrowings that may occur
subsequent to June 30, 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, or our current funding requirements for the
Emeritrust  communities,  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.

ITEM  4.  CONTROLS  AND  PROCEDURES

We  maintain  a  set of disclosure controls and procedures and internal controls
designed  to  ensure  that  information  required to be disclosed in our filings
under  the  Securities  Exchange Act of 1934 is recorded, processed, summarized,
and  reported  within  the time periods specified in the Securities and Exchange
Commission's  rules  and  forms.  Our principal executive and financial officers
have  evaluated  our  disclosure controls and procedures (as defined in Exchange
Act  Rules  13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Quarterly  Report on Form 10-Q and have determined that such disclosure controls
and  procedures  are  effective.

No  change  was made to our internal control over financial reporting during the
quarter  that  has  materially  affected,  or is reasonably likely to materially
affect,  our  internal  control  over  financial  reporting.



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                                       27
<PAGE>

                           PART II. OTHER INFORMATION


ITEMS  1  THROUGH  3  AND  ITEM  5  ARE  NOT  APPLICABLE.

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

(a)  The Annual Meeting of Shareholders was held on June 11, 2003.

(b)  All director nominees listed in the proxy statement were elected at the
     meeting.

NOMINEES  FOR  ELECTION
CLASS  I  DIRECTORS  (TERMS  TO  EXPIRE  IN  2006)

Patrick  Carter
David  W.  Niemiec

CONTINUING  DIRECTORS
CLASS  II  DIRECTORS  (TERMS  TO  EXPIRE  2004)

Raymond  R.  Brandstrom
David  T.  Hamamoto

CLASS  III  DIRECTORS  (TERMS  TO  EXPIRE  IN  2005)

Daniel  R.  Baty
Charles  P.  Durkin,  Jr.

(c)  The following matters voted upon at the meeting received the number of
     votes set forth below:

<TABLE>
<CAPTION>


Election of Directors:
----------------------


                                         Abstain or
Name                 For      Against  Broker Non-vote
----------------  ----------  -------  ---------------
<S>               <C>         <C>      <C>
Patrick Carter .  14,242,734        -           38,445
David W. Niemiec  14,242,734        -           38,445
</TABLE>


<TABLE>
<CAPTION>

Ratification of Independent Public Accountants:
-----------------------------------------------


For         Against  Abstain  Other Non-vote
----------  -------  -------  --------------
<S>         <C>      <C>      <C>
14,258,584   20,650    1,945               -
</TABLE>


(d)     Not  applicable.


                                       28
<PAGE>


ITEM  6     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(A)  EXHIBITS

<TABLE>
<CAPTION>

                                                                                                Footnote
  Number                              Description                                                Number
--------------------------------------------------------------------------------------------------------


<S>                                                                                             <C>
 10.53      Emeritrust II Communities
           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. .      (1)
 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
                     August 8, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (1)
           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 August 8, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . .      (1)
 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
                     August 8, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  (2) (3)
           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 August 8, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . .  (2) (3)
 99.1      Press Releases
           99.1.1  Press Release dated June 10, 2003, Emeritus Announces Intent to Retire
                     Preferred Stock and Termination of Regent Management Agreement. . . . . .      (1)
           99.1.2  Press Release dated July 2, 2003, Emeritus Announces Finance Transaction
                     for Three Communities.. . . . . . . . . . . . . . . . . . . . . . . . . .      (1)
           99.1.3  Press Release dated July 18, 2003, Emeritus is the Winning Bidder in
                     the Auction to Acquire Alterra Healthcare.. . . . . . . . . . . . . . . .      (1)
           99.1.4  Press Release dated July 24, 2003, US Bankruptcy Court Approves
                     Emeritus Bid to Acquire Alterra.. . . . . . . . . . . . . . . . . . . . .      (1)
           99.1.5  Press Release dated July 31, 2003, Emeritus Announces Repurchase of Half
                      its Series A Preferred Stock.. . . . . . . . . . . . . . . . . . . . . .      (1)
           99.1.6  Press Release dated August 7, 2003, reports on second quarter 2003 results.  (1) (4)
</TABLE>
---------
(1)  Filed herewith
(2)  Furnished herewith
(3)  A signed original of this written statement required by Section 906 has
     been provided to Emeritus Corporation and will be retained by Emeritus
     Corporation and furnished to the Securities and Exchange Commission or its
     staff upon request.
(4)  Filed as an exhibit to a Form 8-K dated August 7, 2003, filed on August 8,
     2003, and incorporated herein by reference.

(B)  REPORTS  ON  FORM  8-K.

1.   A report on Form 8-K dated May 8, 2003, was filed on May 12, 2003, related
     to a press release dated May 8, 2003, announcing the results of operations
     for the first quarter of 2003.

2.   A report on Form 8-K dated May 1, 2003, was filed on July 15, 2003, related
     to the acquisition of 8 communities. This filing includes items 2 and 7
     (Financial Statements of Business Acquired, Unaudited Pro Forma Financial
     Information, and Exhibits).

3.   A  report  on  Form  8-K dated August 7, 2003, was filed on August 8, 2003,
     related  to  a  press  release  of  that  date  announcing  the  results of
     operations  for  the  second  quarter  of  2003.



                                       29
<PAGE>

                                    SIGNATURE

Pursuant  to  the  requirements  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:  August  8,  2003

                                    EMERITUS  CORPORATION
                                    (Registrant)


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

                                       30
<PAGE>