<PAGE>

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

                                    FORM 10-K
                                   (Mark One)
           [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                      for the year ended December 31, 2002

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                       for the transition period from ____ to ____

                          Commission File No. 001-13807

                                   ElderTrust
             (Exact name of registrant as specified in its charter)

                 Maryland                               23-2932973
          (State or other jurisdiction of     (I.R.S. Employer Identification
           incorporation or organization)                Number)


             2711 Centerville Road, Suite 108, Wilmington, DE 19808
            (Address of principal executive offices)      (Zip Code)


                                 (302) 993-1022
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:


                                                       Name of each exchange
          Title of Each Class                           on which registered
       ------------------------                       -----------------------
 Common shares of beneficial interest                 New York Stock Exchange
         $.01 par value per share

           Securities registered pursuant to Section 12(g) of the Act:
                                      None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
                           Yes [X]    No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K.     [   ]

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

Aggregate market value of common shares held by non-affiliates computed by
reference to the price at which the common shares were last sold as of June 28,
2002 (the last business day of the registrant's most recently completed second
fiscal quarter): $42,687,508

As of February 28, 2003, there were 7,592,477 total common shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement for the annual
shareholders' meeting to be held on May 23, 2003 are incorporated by reference
into Part III of this Form 10-K.




<PAGE>

                                   ELDERTRUST
                          2002 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                                                                         <C>
                                                                           Page
                                                                           ----
Cautionary Statements Regarding Forward-Looking Statements                   1

                                     PART I

Item  1.   Business                                                          1
Item  2.   Properties                                                       36
Item  3.   Legal Proceedings                                                39
Item  4.   Submission of Matters to a Vote of Security Holders              39

                                     PART II

Item  5.   Market for the Registrant's Common Equity and
                 Related Stockholder Matters                                39
Item  6.   Selected Financial Data                                          39
Item  7.   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                        43
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk       57
Item  8.   Financial Statements and Supplementary Data                      59
Item  9.   Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                        85

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                86
Item 11.  Executive Compensation                                            86
Item 12.  Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholders Matters             86
Item 13.  Certain Relationships and Related Transactions                    86
Item 14.  Controls and Procedures                                           86
                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and
                Reports on Form 8-K                                         87


SIGNATURES                                                                  88
CERTIFICATION                                                               89
EXHIBIT INDEX                                                               90

</TABLE>
                                       i

<PAGE>

           Cautionary Statements Regarding Forward-Looking Statements

          This Form 10-K contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934 with respect to results of
operations and businesses of ElderTrust and its consolidated subsidiaries
(collectively, "ElderTrust" or the "Company"). All statements, other than
statements of historical facts, included in this Form 10-K, are forward-looking
statements within the meaning of the Securities Act and the Exchange Act. In
general, these statements are identified by the use of forward-looking words or
phrases, including "intended," "will," "should," "could," "may," "continues,"
"continued," "estimate," "estimated," "expects," "expected," "believes,"
"anticipates," and "anticipated" or the negative or variations thereof or
similar terminology. Because forward-looking statements involve risks and
uncertainties, the Company's actual results could differ materially from those
expressed or implied by these forward-looking statements.

          The statements set forth under the caption "Business - Risk Factors"
and elsewhere in this Form 10-K, including statements contained in "Business"
concerning the ability of subsidiaries of Genesis Health Ventures, Inc.
("Genesis"), the Company's principal tenant, and entities in which it has made
equity investments ("Genesis Equity Investees") to continue to make lease
payments to the Company, the Company's ability to extend or restructure a
mortgage loan totaling $14.9 million, the maturity date of which has been
extended until April 10, 2003, government regulation and the impact of Medicare
and Medicaid reimbursement programs on the Company's lessees, certain statements
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" concerning the Company's ability to meet its liquidity
needs and other statements contained herein regarding matters that are not
historical facts identify important factors with respect to these
forward-looking statements that could cause actual results to differ materially
from those in these forward-looking statements. These forward-looking statements
represent the Company's judgment as of the date of this Form 10-K. Although the
Company believes that the expectations reflected in these forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to be correct. All subsequent written and oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
cautionary statements. The Company disclaims, however, any intent or obligation
to update its forward-looking statements.

                                     PART I
ITEM 1.     BUSINESS

General

          The Company is a self-managed and self-administered real estate
investment trust ("REIT") that invests principally in senior housing and other
healthcare facilities, primarily skilled nursing facilities, assisted and
independent living facilities (or "senior living centers") and medical office
and other buildings. The Company is the general partner of, and conducts all of
its operations through, ElderTrust Operating Limited Partnership (the "Operating
Partnership"). At December 31, 2002, the Company owned a 96.2% interest in the
Operating Partnership.


                                       1
<PAGE>


          The Company's consolidated assets consist primarily of the assets of
the Operating Partnership and its consolidated subsidiaries. At December 31,
2002, the Company's consolidated assets primarily consisted of a diversified
portfolio of 32 healthcare properties with an aggregate value of $283.0 million.
The portfolio consists of eleven assisted living facilities, fifteen skilled
nursing facilities, seven of which are leased by the Company, two independent
living facilities and four medical office and other buildings. Skilled nursing
facilities and senior living centers comprised approximately 93% of the
Company's consolidated assets at December 31, 2002.

          Approximately 86% of the Company's consolidated assets at December 31,
2002 consisted of properties leased to or managed by subsidiaries of Genesis or
Genesis Equity Investees. Revenues recorded by the Company in connection with
these leases aggregated $18.3 million in 2002. As a result of these
relationships with Genesis, the Company's revenues and ability to meet its
obligations depend, in significant part, upon the ability of Genesis and Genesis
Equity Investees to meet their lease obligations. Genesis emerged from
bankruptcy in October 2001. Any failure of these entities to continue their
operations and/or to continue to make lease payments to the Company could have a
significant adverse impact on the Company's operations and cash flows due to the
significant portion of our properties leased to such entities.

2002 Developments

         Developments in 2002 include the following:

         Guidance Line

         On August 30, 2002, the Company entered into a new 18-month credit
agreement with Wachovia Bank ("Guidance Line"). Funds provided under the
Guidance Line of approximately $3.1 million were used to pay off ElderTrust's
prior Bank Credit Facility provided by German American Capital Corporation, an
affiliate of Deutsche Bank, and to pay certain transaction and other costs. The
amounts outstanding under the Guidance Line bear interest at a floating rate of
3.25% over LIBOR, or 4.67% at December 31, 2002. On January 27, 2003, the
Company paid approximately $3.1 million to Wachovia Bank to pay-off the
outstanding balance under the Guidance Line. The Company currently has borrowing
capacity of up to $7.5 million under the Guidance Line, subject to lender
approval and borrowing base limitations. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations," for additional
information.



                                       2
<PAGE>


         Consolidation of Significant Off-Balance Sheet Investments

         During September 2002, the Company acquired, or obtained options to
acquire, from D. Lee McCreary, Jr., ElderTrust's President and Chief Executive
Officer, the controlling 1% ownership interests in three entities that hold
leasehold and purchase option rights to seven skilled nursing facilities and
that own one assisted living facility and one independent living facility. The
Company had owned a non-controlling 99% interest in these entities since 1998.
The Company previously accounted for its investment in these entities under the
equity method. As of September 30, 2002, the Company consolidated the respective
balance sheets of ET Sub-Meridian Limited Partnership, L.L.P. ("Meridian"), ET
Sub-Cabot Park, L.L.C. ("Cabot") and ET Sub-Cleveland Circle, L.L.C.
("Cleveland"), with the Company's other operations. The results of operations of
these entities are consolidated into the Company's statement of operations
beginning October 1, 2002. As a result of this transaction, the Company's total
assets, debt, investments in unconsolidated entities, rental revenue, interest,
depreciation expense and equity in losses of unconsolidated entities changed
significantly, however, net income was not materially changed. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," for additional information.

         New Dividend Policy

         In December 2002, the Company stated that it intends to resume
regularly quarterly distributions to holders of its common shares and that the
initial distribution is expected to be declared in mid-April, 2003. The Company
estimated that, based upon its current estimate of operations and cash
requirements, the annual per share distribution will be $0.64 per share, or
$0.16 per quarter.

Recent Developments

         Mortgage Loan Maturities

         The Company had three non-recourse mortgage loans secured by four
properties with an aggregate principal balance of $30.0 million that matured in
December 2002. The Company announced in November 2002 that the maturity date of
one loan, secured by the Lopatcong property, had been extended until December 1,
2004. In February 2003, the lender also extended a $4.6 million mortgage loan
secured by the Wayne property to December 1, 2004. In connection with the
extension, the Company made a $1.1 million payment and reduced the balance
outstanding from $4.6 million to $3.5 million. The lender has extended the
maturity date of the remaining mortgage loan of $14.9 million, which is secured
by the Harston Hall and Pennsburg properties, until April 10, 2003 to allow the
time for the lender and the Company to negotiate a resolution of this loan.
Based upon conversations with the lender, several alternatives are available to
satisfy the Company's obligation under this loan which may include, among other
alternatives, a further extension as a cash flow mortgage, sale or a title
transfer via a "deed in lieu of foreclosure" transaction. See "Item 7.
Management's Discussion and Analysis of Results of Operations--Liquidity and
Capital Resources," for additional information.


                                       3
<PAGE>


         Possible Spin-Off by Genesis of its Eldercare Business

         In February 2003, Genesis announced that its Board of Directors had
approved the spin-off of its ElderCare business. This business includes our
tenants that are currently owned, in whole or in part, by Genesis, as well as
Genesis' other senior housing asset-based businesses. Under our lease terms, any
assignment of the leases to a party in which Genesis has no ownership interest
would require our consent, which may not be unreasonably withheld. If the leases
are assigned with our consent, the Genesis guarantee would be eliminated.
However, we would be entitled to obtain guarantees from other parties in control
of the tenant. Conversely, if the leases are assigned without our consent, the
Genesis guarantee would remain in effect. We believe that the transaction
proposed by Genesis may constitute an assignment of the leases. As a result, the
transaction may require our consent should Genesis desire to eliminate its
obligations under its guarantees. In determining whether to provide our consent,
we intend to evaluate the current and expected operating performance of the
leased properties and determine the need for, and availability of, substitute
credit enhancements. The spin-off is expected to be completed during the latter
part of 2003. To date, Genesis has not provided us with any financial
information regarding the proposed spin-off nor has Genesis requested to be
released from its guarantees, although we expect that they will do so.

Investments

         Investment Policies

         At December 31, 2002, the Company's investments consisted primarily of
senior housing and other healthcare facilities leased to operators under
long-term operating leases.

         Operating leases are normally secured by the underlying real estate,
guarantees and/or cash deposits. As of December 31, 2002, cash deposits
aggregating approximately $5.4 million were held by the Company as security for
operating leases. In addition, the leases are generally cross-defaulted with any
other leases or other agreements between the operator or any affiliate of the
operator and the Company, which were entered into at the time the leases were
executed. The Company's operating leases include fixed and minimum rent leases,
which normally include annual rate increases, and, in the case of one of our
assisted and independent living facilities, percentage rent leases. Percentage
rent leases generally require rents based upon a fixed percentage of facility
revenues throughout the lease term. See "Business - Investments - Properties -
Operating Leases."

                                       4
<PAGE>


         There are no limitations on the amount or percentage of the Company's
total assets that may be invested in any one property. Additionally, no limits
have been set on the concentration of investments in any one location, operator
or facility type.

         The Board of Trustees may change the investment policies and activities
of the Company at any time without a vote of shareholders. There can be no
assurance that the Company's investment objectives will be realized. See
"Business - Risk Factors."

         Investment Portfolio

         The Company's consolidated investments in real estate properties at
December 31, 2002 are reflected in the following table:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                  Percentage     Number      Number     Investment                      Number
                                   Investments        of           of          of          per          Number of         of
        Type of Facility               (1)        Portfolio    Facilities   Beds (2)     Bed (3)      Operators (4)   States (5)
---------------------------------------------------------------------------------------------------------------------------------
                                                       (dollars in thousands)
<S>                                     <C>         <C>             <C>         <C>          <C>            <C>            <C>

 Assisted Living Facilities         $ 111,121       32.6%            11         999        $ 111              2             2
 Independent Living Facilities         22,732        6.7              2         172          132              2             2
 Skilled Nursing Facilities           191,604       56.3             15       2,393           80              3             3
 Medical Office and Other
   Buildings                           14,910        4.4              4           -            -              3             3
                                    -----------------------------------------------
 Total Properties                   $ 340,367      100.0%            32       3,564
                                    ===============================================
</TABLE>

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

     (1) Includes investments in real estate properties aggregating $328.1
     million, before reductions for accumulated depreciation of $44.9 million
     and credit enhancements on several owned properties which aggregated $12.3
     million. Credit enhancements consisted of $6.3 million in bond and
     operating reserve funds required in connection with outstanding debt issues
     on five facilities, security deposits of $5.4 million on various facilities
     and mortgage escrow accounts of $0.6 million. The Company owns leasehold
     interests in seven skilled nursing facilities. The remaining interests are
     fee interests.

     (2) Based upon the number of private and semi-private beds/units currently
     in service.

     (3) Investment per Bed was computed by using the respective facility
     investment amount divided by number of beds/units currently in service for
     each respective facility.

     (4) Genesis or Genesis Equity Investees manages 28 of the properties under
     management agreements with the tenants. See "Dependence on Genesis" and
     "Item 2 - Properties."

                                       5
<PAGE>

     (5) The Company has investments in properties located in five states,
     occupied by six different tenants not including the medical office building
     tenants.


         Properties

              Assisted Living Facilities

         Assisted living facilities provide services to aid in activities of
daily living, such as bathing, meals, security, transportation, recreation,
medication supervision and limited therapeutic programs. More intensive medical
needs of the resident are often met within assisted living facilities by home
health providers, close coordination with the resident's physician and skilled
nursing facilities.

              Independent Living Facilities

         Independent living facilities offer specially designed residential
units for active and ambulatory elderly residents and provide various ancillary
services. These facilities offer residents an opportunity for an independent
lifestyle with a range of social and health services.

              Skilled Nursing Facilities

         Skilled nursing facilities provide inpatient skilled nursing and
custodial services as well as rehabilitative, restorative and transitional
medical services. In some instances, nursing facilities supplement hospital care
by providing specialized care for medically complex patients whose conditions
require intense medical and therapeutic services, but who are medically stable
enough to have these services provided in facilities that are less expensive
than acute care hospitals.

              Medical Office and Other Buildings

         The medical office and other buildings provide office space primarily
to practicing physicians and other healthcare professionals, principally in
connection with services rendered by these physicians at an adjacent acute care
or long-term facility.

              Operating Leases

         Each of the Company's skilled nursing and senior housing facilities,
which includes the land (if owned), buildings, improvements and related rights,
is leased to an operator pursuant to a long-term lease. These leases (or
subleases in the case of seven skilled nursing facilities in which the Company
has leasehold interests) generally have remaining terms of 5 to 9 years and
contain one or more five to ten-year renewal options. Two of these leases
provide for rents based on a specified percentage of facility operating revenues
with no required minimum rent ("percentage rent leases"). Other leases provide
for base rent, increasing each year by the lesser of 5% of the increase in
facility revenues for the immediately preceding year or one-half of the
percentage increase in the Consumer Price Index for the immediately preceding
year ("minimum rent leases"). Both types of leases are triple net leases that
require the lessees to pay all operating expenses, taxes, insurance, maintenance
and other costs, including a portion of capitalized expenditures. The base rents
for the renewal periods are generally fixed rents set at a spread above the
Treasury yield for the corresponding period. The remaining leases ("fixed rent
leases") are with tenants in the medical office and other buildings and provide
for specified annual rents, subject to annual increases in some of the leases.
Generally, these leases are for a five-year period.


                                       6
<PAGE>


Dependence on Genesis

         At December 31, 2002, the Company had the following investments in real
estate properties managed by Genesis or Genesis Equity Investees:

<TABLE>
<CAPTION>
                                        Genesis (1)                    Genesis Equity Investees (2)
                               Number of            Investment         Number of        Investment
                               Properties           Amount             Properties       Amount
                               ----------           ----------         ----------       ----------
                                                       (dollars in thousands)
<S>                              <C>                    <C>                <C>             <C>
ElderTrust                         20                $174,108                  8         $88,315

</TABLE>
(1)  Represents Genesis and its consolidated subsidiaries.
(2)  Represents entities in which Genesis accounts for its investment using the
     equity method of accounting.

         At December 31, 2002, the Company leased or subleased nineteen
properties to subsidiaries of Genesis under percentage and minimum rent leases,
each for an initial ten-year period with two five-year renewals. The Company
received lease payments totaling $10.2 million in 2002 on properties leased to
or managed by subsidiaries of Genesis. The initial terms of these leases expire
as follows: five leases with aggregate 2002 rent of $ 4.1 million expire in
January 2008, one lease with 2002 rent of $0.6 million expires in March 2008,
seven leases with aggregate 2002 rent of $2.6 million expire in September 2008,
one lease with 2002 rent of $0.4 million expires in January 2010, one lease with
aggregate 2002 rent of $0.8 million expires in June 2008, three leases with
aggregate 2002 rent of $0.8 million expire in January 2011 and one lease with
2002 rent of $0.8 million expires in January 2018. Genesis has guaranteed the
lease payments on substantially all of these leases. Genesis also leased space
under a fixed rent lease in one medical office building with aggregate 2002 rent
of $ 0.1 million. This lease terminated on January 31, 2003. Additionally,
Genesis managed one property leased by the Company to an unrelated third party.

         At December 31, 2002 the Company also leased or subleased eight
properties under minimum rent leases to Genesis Equity Investees. The Company
received lease payments totaling $8.1 million in 2002 from these Genesis Equity
Investees. The initial terms of these leases expire as follows: three leases
with aggregate 2002 rent of $2.6 million expire in November 2008, one lease with
2002 rent of $1.2 expires in March 2009 and four leases with aggregate 2002 rent
of $4.3 million expire in January 2010. Genesis has guaranteed the lease
payments on the leases that expire in November 2008 and November 2009.


                                       7
<PAGE>


Reimbursement

         Health Care Reform

         The healthcare industry is subject to extensive federal, state and
local regulation. The Company is affected by government regulation of the
healthcare industry in that the Company receives rent from lessees and the
Company's additional rents are generally based on its lessees' gross revenue
from operations. The underlying value of certain of the Company's facilities
depends on the revenue that a facility is able to generate. Aggressive efforts
by health insurers and governmental agencies to limit the cost of healthcare
services and to reduce utilization of hospital and other healthcare facilities
may further reduce revenues or slow revenue growth from these healthcare
facilities and shift or reduce utilization.

         In recent years, a number of laws have been enacted that have effected
major changes in the healthcare system, both nationally and at the state level.
The Balanced Budget Act of 1997 (the "Balanced Budget Act"), signed into law on
August 5, 1997, sought to achieve a balanced federal budget by, among other
things, significantly reducing federal spending on the Medicare and Medicaid
programs. The Medicare Balanced Budget Refinement Act (the "Refinement Act"),
signed into law in November 1999, made certain amendments to the Medicare
reimbursement reductions resulting from the Balanced Budget Act. The Medicare,
Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 ("BIPA"),
signed into law on December 21, 2000, made additional amendments to the Medicare
reimbursement reductions from the Balanced Budget Act. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative healthcare delivery and payment systems and will continue to propose
and adopt legislation effecting fundamental changes in these systems. Changes in
the applicable laws or new interpretations of existing laws may have a dramatic
effect on the definition of permissible or impermissible activities, the
relative cost of doing business, and the methods and amounts of payments for
medical care by both governmental and other payers.

         Medicare and Medicaid Reimbursement

         The Company's lessees who operate skilled nursing facilities are
reimbursed by the Medicare and Medicaid programs for their products and
services. As a whole, the legislative changes since 1997 have reduced
reimbursement payments under these programs, which have resulted in lower lease
coverage ratios on the skilled nursing facilities leased by the Company to its
tenants. Also, the Company's lessees may experience increases in time periods
between submission of Medicare and Medicaid program claims and receipt of
payments due to increased regulatory action and governmental budgetary
constraints. Since Medicaid programs are funded by both the states and the
federal government, the amount of payments can be affected by changes at either
the state or federal level. There is no assurance that payments under these
programs will remain at levels comparable to present levels or be sufficient to
cover costs allocable to these patients. Both Medicare and Medicaid payments are
generally below retail rates for lessee-operated facilities. Increasingly,
states have introduced managed care contracting techniques in the administration
of Medicaid programs. Medicare has also increased its utilization of managed
care contracting for providing services to Medicare beneficiaries. Such
mechanisms could have the impact of reducing utilization of and reimbursement to
the Company's lessees.

                                       8
<PAGE>


         Impact of Balanced Budget Act and Medicare Balanced Budget Refinement
         Act, and Medicare Benefits Improvement and Protection Act

         The Balanced Budget Act mandated establishment of the Prospective
Payment System ("PPS") for Medicare skilled nursing facilities under which such
facilities are paid a federal per diem rate for most covered nursing facility
services. Under PPS, operators of skilled nursing facilities are no longer
assured of receiving reimbursement adequate to cover the costs of operating the
facilities. Pursuant to the Balanced Budget Act, PPS began to be phased in for
skilled nursing facilities commencing with cost reporting periods beginning on
or after July 1, 1998. Under PPS, reimbursement rates were initially based on a
blend of a facility's historic reimbursement rate and a newly prescribed federal
per diem rate, which resulted in significantly reduced reimbursement rates for
many operators of skilled nursing facilities, including Genesis. In subsequent
periods, and for facilities first receiving payments for Medicare services on or
after October 1, 1995, the federal per diem rate is used without regard to
historic reimbursement levels. The Federal per diem rate is increased each year
by a skilled nursing facility market basket percentage change. By statue, the
increase is equal to the pertinent percentage change minus 0.5 percentage points
in 2003 and equal to the pertinent percentage change in subsequent years.

         The Refinement Act addresses certain reductions in Medicare
reimbursement resulting from the Balanced Budget Act. Under the Refinement Act,
the federal per diem rate established under PPS was increased by 20% for 15
categories of Medicare patients in skilled nursing facilities starting April 1,
2000 and continuing until the later of October 1, 2000 or changes to PPS are
made to better account for patients in such categories which has yet to occur
(although this provision has been superseded by a subsequent law described
below). The statute requires that federal rates for all categories be increased
by 4% in fiscal years 2001 and 2002 only. For cost reporting periods beginning
on or after January 1, 2000, skilled nursing facilities may elect to receive
Medicare payments based 100% on the federal per diem rate rather than partially
on a federal per diem rate and partially on a pre-PPS facility specific rate.
Certain services (such as prostheses and chemotherapy drugs) for skilled nursing
facility patients are being paid by Medicare in addition to the PPS per diem
amounts which began April 1, 2000. The caps on rehabilitation therapy services
required by the Balanced Budget Act have been suspended for 2000 and 2001.


                                       9
<PAGE>


         At the state level, the Balanced Budget Act also repealed rules which
required Medicaid payments to nursing facilities to be "reasonable and adequate"
to cover the costs of efficiently and economically operated facilities. Under
the Balanced Budget Act, states must now use a public notice and comment process
for determining Medicaid rates, rate methodology and justifications.

         On December 21, 2000, BIPA ("Benefits Improvement and Protection Act")
was signed into law. This legislation required Medicare to increase the nursing
component of the rates by approximately 16.7% for the period from April 1, 2001
through September 30, 2002. In addition, BIPA eliminated a 1% reduction in the
update formula for payment rates for federal fiscal year 2001. The legislation
also changed the 20% add-on to 3 of the 15 rehabilitation Resource Utilization
Groups (RUG) categories to a 6.7% add-on to all 14 rehabilitation RUG categories
effective for services furnished from April 1, 2001, until the date that certain
RUG refinements are made. These refinements have not been made. In addition,
BIPA revised the consolidated billing requirements to the Balanced Budget Act to
limit these requirements to skilled nursing facility residents in a Medicare
Part A stay and to therapy services provided in a Part A or Part B stay. The
moratorium on the $1,500 therapy caps was extended through calendar year 2002.

         Under authority of the Health Insurance Portability and Accountability
Act (HIPAA) of 1996, the U.S. Department of Health and Human Services has
promulgated regulations establishing standards for protection of personally
identifiable health information, and certain related rules on standard
transaction data sets and data security. The compliance date for the privacy
regulations is April 14, 2002. Like other healthcare operators, the Company's
lessees will be required to incur significant expense in coming into compliance
with the various HIPAA regulations, and will be subject to criminal fines and
penalties if they violate the rules. Any failure by the Company's lessees to
comply with such requirements could have a material adverse effect on the
Company.

         The Pennsylvania Medicaid programs impose limitations on the amount of
reimbursement available for capital-related costs, such as depreciation,
interest and rental expenses, following a change of ownership, including a sale
and leaseback transaction. The Pennsylvania Medicaid program bases
capital-related costs for new owners (including rent paid by lessees) on the
appraised depreciated replacement cost of the facility to the prior owner as
determined by the Pennsylvania Department of Public Welfare. Other states may
have similar restrictions on capital related cost reimbursement. There can be no
assurance that reimbursement of the costs of the Company's skilled nursing
facilities under current or future reimbursement methodologies will be adequate
to cover the rental payments owed to the Company by the lessees of these
properties.


                                       10
<PAGE>

         The Company does not employ Medicaid and Medicare reimbursement
specialists and must rely on its lessees to monitor and comply with all
reporting requirements and to ensure appropriate payments are being received.

         PPS has negatively impacted many operators in the skilled nursing
industry, including Genesis. There can be no assurances that the Company's
lessees will not be further negatively impacted by the provisions or
interpretations of the Balanced Budget Act, including PPS, the Refinement Act,
BIPA, or by future changes in regulations or interpretations of such
regulations. See "Business - Government Regulation" and "Business - Risk
Factors."

Government Regulation

         The long-term care segment of the healthcare industry is highly
regulated. Operators of skilled nursing facilities are subject to federal, state
and local laws relating to the delivery and adequacy of medical care,
distribution of pharmaceuticals, equipment, personnel, operating policies, fire
prevention, rate-setting, compliance with building and safety codes and
environmental laws. Operators of skilled nursing facilities also are subject to
periodic inspections by governmental and other authorities to assure continued
compliance with various standards, the continued licensing of the facility under
state law, certification under the Medicare and Medicaid programs and the
ability to participate in other third party payment programs. Many states have
adopted Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of skilled nursing
facilities and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
an operator from offering services or adversely affect its ability to receive
reimbursement for services and could result in the denial of reimbursement,
temporary suspension of admission of new patients, suspension or decertification
from the Medicaid or Medicare program, restrictions on the ability to acquire
new facilities or expand existing facilities and, in extreme cases, revocation
of the facility's license or closure of a facility.

         Federal laws also impose civil and criminal penalties for the
submission of false or fraudulent claims, including nursing home bills and cost
reports, to Medicare or Medicaid. There can be no assurance that lessees of the
Company's skilled nursing facilities or the provision of services and supplies
by such lessees will meet or continue to meet the requirements for participation
in the Medicaid or Medicare programs or state regulatory authorities or that
regulatory authorities will not adopt changes or new interpretations of existing
regulations that would adversely affect the ability of lessees to make rental
payments to the Company.

         Although not currently regulated at the federal level (except under
laws of general applicability to businesses, such as work place safety and
income tax requirements), assisted living facilities are increasingly becoming
subject to more stringent regulation and licensing by state and local health and
social service agencies and other regulatory authorities. In general, these
assisted living requirements address, among other things: personnel education,
training and records, facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services,
monitoring of wellness, physical plant inspections, furnishing of resident
units, food and housekeeping services, emergency evacuation plans, and resident
rights and responsibilities, including in certain states the right to receive
certain healthcare services from providers of a resident's choice. In several
states, assisted living facilities also require a certificate of need before the
facility can be opened or expanded or before it can reduce its resident capacity
or make other significant capital expenditures. Some of the Company's properties
are licensed to provide independent living services, which generally involve
lower levels of resident assistance. Like skilled nursing facilities and other
healthcare facilities, assisted living facilities are subject to periodic
inspection by government authorities.


                                       11
<PAGE>

         In most states, assisted living facilities, as well as skilled nursing
and other healthcare facilities, are subject to state or local building code,
fire code and food service licensure or certification requirements. Any failure
by the Company's lessees to meet applicable regulatory requirements may result
in the imposition of fines, imposition of a provisional or conditional license
or suspension or revocation of a license or other sanctions or adverse
consequences, including delays in opening or expanding a facility. Any failure
by the Company's lessees to comply with such requirements could have a material
adverse effect on the Company.

         Healthcare operators also are subject to federal and state
anti-remuneration laws and regulations, such as the Federal Health Care
Programs' anti-kickback law, which govern certain financial arrangements among
healthcare providers and others who may be in a position to refer or recommend
patients to such providers. These laws prohibit, among other things, the offer,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Federal Health Care Program patients (including Medicare and
Medicaid) or the purchasing, leasing, ordering (or arranging for or recommending
the purchase, lease or order) of any goods, facilities, services or items for
which payment can be made under a Federal Health Care Program. A violation of
the Federal anti-kickback law or any other anti-remuneration law could result in
the loss of eligibility to participate in Medicare or Medicaid, or in civil or
criminal penalties. The potential for issues to arise under this law may be
increased under a provision of the Balanced Budget Act which, as currently
implemented, requires skilled nursing facilities to purchase and bill for
services of ancillary care providers treating some of their Medicare residents.

         The federal government, private insurers and various state enforcement
agencies have increased their scrutiny of providers, business practices and
claims in an effort to identify and prosecute fraudulent and abusive practices.
In addition, an increasing number of enforcement cases against health care
providers, including cases alleging deficiencies in the quality of care, are
being brought by private individual "whistleblowers" under the "qui tam"
provisions of the Federal Civil False Claims Act. Competitors, employees of
healthcare providers and others are incentivized to bring such claims because
they share in any monetary recovery. The federal government has also issued
fraud alerts concerning nursing services, double billings, home health services
and the provision of medical supplies to nursing facilities, and a model
compliance plan referencing numerous areas of business operation that it
recommends be made the subject of specific policies and procedures that nursing
homes implement and enforce. Accordingly, these areas may come under closer
scrutiny by the government or by "qui tam" plaintiffs. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of licensure
or eligibility to participate in reimbursement programs and civil and criminal
penalties. State laws vary from state to state, are often vague and have seldom
been interpreted by the courts or regulatory agencies. There can be no assurance
that these federal and state laws will ultimately be interpreted in a manner
consistent with the practices of the Company's lessees. The costs of complying
with these laws, and/or defending against any allegations of non-compliance that
might be brought, could be significant, and could negatively impact the ability
of the Company's lessees to meet their financial obligations to the Company.


                                       12
<PAGE>

Taxation

         General

         A corporation, trust or association meeting certain requirements may
elect to be treated as a REIT for federal income tax purposes. The Company
believes that, commencing with its taxable period ended December 31, 1998, it
has been organized and operated in a manner so as to qualify for taxation as a
REIT under Sections 856 to 860, inclusive, of the Internal Revenue Code of 1986,
as amended. To qualify as a REIT, the Company must satisfy a variety of complex
organizational and operating requirements each year, including share ownership
tests and percentage tests relating to the sources of its gross income, the
nature of its assets and the distribution of its income. The Company intends to
operate in such a manner as to continue qualifying as a REIT for federal income
tax purposes in future periods, but no assurance can be given that the Company
has operated or will continue to operate in such a manner so as to qualify or
remain qualified as a REIT.

         Generally, for each taxable year during which the Company qualifies as
a REIT, it will not be taxed on the portion of its taxable income (including
capital gains) that is distributed to shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a regular corporation. However, the Company
will be subject to federal income tax under certain circumstances as discussed
below.

         To qualify as a REIT, the Company is required to distribute to its
shareholders each year at least 90% of its REIT taxable income, computed without
regard to the dividends paid deduction and any net capital gain. REIT taxable
income is the otherwise taxable income of the REIT subject to adjustments,
including a deduction for dividends paid.


                                       13
<PAGE>


         During 2000, the Company recorded significant bad debt expenses due to
the Genesis bankruptcy filing related to loans and properties under lease and,
as a result, recognized a net loss for financial reporting purposes. For federal
income tax purposes, these losses were recognized in 2001 as required under
applicable income tax rules. Based on the amount of these losses, the Company
does not believe it would have to make any distributions to its shareholders
until at least mid-2003 for REIT qualification purposes. When recognized for
federal income tax purposes, these losses will reduce the amount otherwise
required by the Company to be distributed to meet REIT requirements. Should
these losses when recognized exceed REIT taxable income computed without regard
to these losses, any excess loss ("NOL") amount may be carried forward for
deduction in the succeeding year. A NOL of a REIT in any given year may be
carried forward until utilized but over no more than 20 years. REIT taxable loss
before reduction for the dividends paid deduction reported for 2001, the last
year for which an income tax return has been prepared, was $10.6 million.

         NOL deductions may be subject to various limitations. The general
limitation is that the deduction is limited to the current year's regular
taxable income computed without regard to the loss deduction. For alternative
minimum tax purposes, the general limitation is equal to 90% of the current
year's alternative minimum taxable income computed without regard to the loss
deduction. The applicable REIT distribution percentage requirement is applied
against the greater of regular or alternative minimum taxable income. Other
limitations include, but are not limited to, those imposed for a greater than
50% ownership change among the Company's 5% and greater owners during a test
period, which is generally a three year period ending on each date there is a
change in the ownership of Company stock held by a 5% or greater owner.

         The Company will be taxed at regular ordinary and capital gain
corporate rates on any undistributed REIT taxable income. The Company may elect
to treat any undistributed net capital gains as having been distributed to the
shareholders. These "designated" undistributed net capital gains will be
included by the Company's shareholders in income as long-term capital gain. The
tax paid by the Company on those gains will be allocated among the shareholders
and may be claimed as a credit on their tax returns. The shareholders will
receive an increase in the basis of their shares in the Company equal to the
difference between the capital gain income and the tax credit allocated to them.
Under certain circumstances, the Company may be subject to the "alternative
minimum tax" on its items of tax preference. The highest corporate tax rate is
currently 39%. Subject to certain limitations, the Company will also be subject
to an additional tax equal to 100% of the net income, if any, derived from
prohibited transactions. A prohibited transaction is defined as a sale or
disposition of inventory-type property or property held by the Company primarily
for sale to customers in the ordinary course of its trade or business, which is
not property acquired on foreclosure.


                                       14
<PAGE>

         The Company will be subject to tax at the highest corporate rate on its
net income from "foreclosure property", regardless of the amount of its
distributions, but the income would qualify under the REIT gross income tests.
The highest corporate tax rate is currently 39%. The Company may elect to treat
any real property it acquires by foreclosure after a default on a lease of, or
on a loan secured by, the real property as foreclosure property if certain
conditions are satisfied. With a valid election, the Company is permitted to
derive revenues directly from the ownership of such property (rather than
deriving rental revenues pursuant to the lease of such property) until the end
of the third taxable year after the year of acquisition (subject to an extension
of up to a total of six years at the IRS' discretion) so long as an independent
contractor (which might but not necessarily in all circumstances include Genesis
or its affiliates) operates the property within 90 days after the property is
acquired. A tenant of the Company may qualify as an independent contractor for
purposes of the foreclosure property rules if the property that is leased to the
independent contractor is a "qualified health care property" and was under lease
to the independent contractor or a third party at the time that the Company
acquired the foreclosure property. If the property had been under lease to a
third party, then the tenant could qualify as an independent contractor only if
under the subsequent lease of the property to the tenant, the Company receives a
substantially similar or lesser benefit in comparison to the prior lease.
Similar rules would apply to treat as foreclosure property "qualified health
care property" acquired by the Company as the result of the termination of a
lease of such property except that such property would constitute foreclosure
property until the close of the second taxable year following the year in which
it was acquired, or for up to a total of four years if an extension is granted
by the IRS.

         If the Company should fail to distribute during each calendar year at
least the sum of (a) 85% of its REIT ordinary income for such year, (b) 90% of
its REIT capital gain net income for such year and (c) any undistributed taxable
income from prior periods, the Company would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
If the Company should fail to satisfy the 75% gross income test or the 90% gross
income test that apply to REITs, but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to the greater of either (a)
the amount by which 75% of the Company's gross income exceeds the amount
qualifying under the 75% test for the taxable year, or (b) the amount by which
90% of the Company's gross income exceeds the amount of the Company's gross
income qualifying for the 90% test, multiplied in either case by a fraction
intended to reflect the Company's profitability.

         In addition, if a taxable REIT subsidiary ("TRS") pays interest or
another amount to the Company that exceeds the amount that would generally be
paid to an unrelated party in an arm's length transaction, the Company generally
will be subject to an excise tax equal to 100% of such excess. Generally, a TRS
is an entity taxable as a corporation in which a REIT owns an equity interest
that, together with the REIT, elects treatment as a TRS and that does not
operate either a healthcare or lodging facility or provide rights to any brand
name under which a healthcare or lodging facility is operated. A TRS is not
subject to the general asset tests applicable to the ownership of securities by
a REIT (although not more than 20% of the value of the REIT's assets may be
represented by securities of one or more TRS's). The Company's subsidiaries, ET
Capital Corp. and ET Capital Corp. II, Inc., elected, together with the Company,
to be treated as a TRS of the Company effective January 1, 2001.

                                       15
<PAGE>


         Finally, notwithstanding the Company's status as a REIT, the Company
may have to pay certain state or local income taxes because not all states and
localities treat REITs the same as they are treated for federal income tax
purposes, and will be subject to other state and local taxes resulting from the
Operating Partnership's operations and asset ownership. ET Capital is subject to
federal, state and local income taxes at regular corporate rates and,
accordingly, will have less cash available to distribute to its shareholders,
including the Company.

         Failure To Qualify as a REIT

         While the Company intends to operate so as to qualify as a real estate
investment trust under the Tax Code, if in any taxable year the Company fails to
qualify, and certain relief provisions do not apply, its taxable income would be
subject to tax (including any alternative minimum tax) at regular corporate
rates. If that occurred, the Company might have to dispose of a significant
amount of its assets or incur a significant amount of debt in order to pay the
resulting federal income tax. Further distributions to its shareholders would
not be deductible by the Company nor would they be required to be made.

         Distributions out of the Company's current or accumulated earnings and
profits would be taxable to the Company's shareholders as dividends but, subject
to certain limitations, could be eligible for the dividends received deduction
for corporations. No portion of any distribution would be eligible for
designation as a capital gain dividend. Further, the Company would no longer be
deemed to pass through its "designated" undistributed capital gains and the
related tax paid by the Company.

         Unless entitled to relief under specific statutory provisions, the
Company also would be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost.

         The foregoing is only a summary of some of the significant federal
income tax considerations affecting the Company and is qualified in its entirety
by reference to the applicable provisions of the Internal Revenue Code, the
rules and regulations promulgated thereunder, and the administrative and
judicial interpretations thereof. Shareholders of the Company are urged to
consult their own tax advisors as to the effects of these rules and regulations
on them. In particular, foreign shareholders should consult with their tax
advisors concerning the tax consequences of ownership of shares in the Company,
including the possibility that distributions with respect to the shares will be
subject to federal income tax withholding.


                                       16
<PAGE>


         For additional information on taxes, see the Company's Form 8-K filed
on March 28, 2003.

Competition

         The Company competes with other healthcare REITs, real estate
partnerships, healthcare providers and other investors, including but not
limited to banks and insurance companies, in the acquisition, leasing and
financing of healthcare facilities. Many of these investors may have greater
resources than the Company. Genesis and other lessees operate properties that
the Company competes, on a local and regional basis, with operators of other
facilities that provide comparable services. Operators compete for residents
based on quality of care, reputation, physical appearance of facilities,
services offered, family preferences, physicians, staff and price. In general,
regulatory and other barriers to competitive entry in the assisted living
industry are not substantial. The development of new assisted living facilities
has outpaced the demand for these facilities in certain of the Company's
markets. This oversupply of facilities has caused operators of some of our
facilities to experience decreased occupancy, depressed margins and lower
operating results, which has adversely affected their ability to make lease
payments to the Company.

Employees

            As of December 31, 2002, the Company employed six full-time
employees.

Internet Website

         ElderTrust's internet website can be found at www.eldertrust.com.
ElderTrust makes available, free of charge, on our website, access to the
Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after such material is filed, or furnished, to the Securities and Exchange
Commission.

                                  RISK FACTORS

         Set forth below are the risks that we believe are material to investors
who purchase or own our common shares of beneficial interest or units of limited
partnership interest in the Operating Partnership, which are redeemable by the
holder on a one-for-one basis for common shares or their cash equivalent, at our
election. As used herein, all references to "we," "us" or "our" mean ElderTrust
and its consolidated subsidiaries unless the context otherwise requires.

         We rely to a substantial degree upon contractual obligations in the
         form of leases with subsidiaries of Genesis and other entities in which
         Genesis has an equity ownership interest the primary source of our
         revenues and for our ability to meet our corporate obligations


                                       17
<PAGE>


         Approximately 86% of our consolidated assets at December 31, 2002
consisted of real estate properties leased to or managed by subsidiaries of
Genesis or Genesis Equity Investees, under agreements as manager or tenant. We
recorded revenues in connection with these leases aggregating $18.3 million
during 2002. As a result of these relationships, the Company's revenues and
ability to meet its obligations depend, in significant part, upon the ability of
subsidiaries of Genesis and Genesis Equity Investees to meet their lease
obligations. Genesis emerged from bankruptcy in October 2001. Any failure of
subsidiaries of Genesis or Genesis Equity Investees to continue their operations
and/or to continue to make lease payments to the Company could have a
significant adverse impact on our operations and cash flows due to the
significant portion of our properties leased to Genesis and the Genesis Equity
Investees.

         The proposed spin-off by Genesis of its Eldercare business may increase
         the credit risk of substantially all of our leased properties.

         The Company currently leases 27 properties to Genesis subsidiaries that
are guaranteed, in whole or in part, by Genesis. In February 2003, Genesis
announced that its Board of Directors had approved the spin-off of its ElderCare
business. This business includes our tenants that are currently owned, in whole
or in part, by Genesis, as well as Genesis' other senior housing asset-based
businesses. The operating performance of the Company's skilled nursing and
assisted living assets affected by the proposed transaction have, on an overall
basis, declined over the past several years due to various factors. These
factors include, among others, net reductions in Medicare reimbursement,
increased operating costs and competition. Under our lease terms, any assignment
of the leases to a party in which Genesis has no ownership interest would
require our consent. Such consent may not be unreasonably withheld. If the
leases are assigned with our consent, the Genesis guarantee would be eliminated.
However, we would be entitled to obtain guarantees from other parties in control
of the tenant. Conversely, if the leases are assigned without our consent, the
Genesis guarantee would remain in effect. We believe that the transaction
proposed by Genesis may constitute an assignment of the leases. As a result, the
transaction may require our consent should Genesis desire to eliminate its
obligations under its guarantees. In determining whether to provide our consent,
we intend to evaluate the current and expected operating performance of the
leased properties and determine the need for, and availability of, substitute
credit enhancements. The spin-off is expected to be completed during the latter
part of 2003. To date, Genesis has not provided us with any financial
information regarding the proposed spin-off nor has Genesis requested to be
released from its guarantees although we expect that it will do so. No assurance
can be given that the credit risk inherent in the current lease and guarantee
agreements will not increase as a result of the proposed spin-off.


                                       18
<PAGE>


         Rising interest rates could adversely affect our cash flow because of
         variable rate debt

         At December 31, 2002, the Company had $3.1 million of variable rate
indebtedness outstanding under the Guidance Line. The Company's Guidance Line
bears interest at a floating rate 3.25% over LIBOR (4.67% at December 31, 2002),
any future borrowings would be subject to risk related to increases in interest
rates. On January 27, 2003, the Company paid $3.1 million to Wachovia Bank to
pay off the balance due under the Guidance Line. As of January 31, 2003, the
Company has $7.5 million available for future borrowings under the Guidance
Line, subject to lender approval and borrowing base limitations. In addition, we
have variable rate mortgages of $30.0 million at December 31, 2002, with an
interest rate of one-month LIBOR plus 300 basis points (4.44% at December 31,
2002). Assuming the variable rate mortgage balances outstanding at December 31,
2002 of $30.0 million remains constant, each one percentage point increase in
interest rates from 4.44% at December 31, 2002 would result in an increase in
interest expense of approximately $300,000. Also, we may borrow additional money
with variable interest rates in the future. Any increase in interest rates will
adversely affect our cash flow and our ability to make distributions to our
shareholders.

         Our degree of leverage could limit our ability to obtain additional
         financing and adversely affect our cash flow

         As of December 31, 2002, our debt to book capitalization ratio, which
we calculate as total debt as a percentage of total debt plus the book equity
attributed to our outstanding common shares and outstanding partnership units,
was approximately 71.2%. We do not have a stated policy limiting the amount of
debt that we may incur. If we increase our leverage it could pose risks to our
shareholders, including that:

           o  our debt service costs or requirements may increase, which could
              adversely affect our cash flow and, consequently, the amount
              available for distribution to our shareholders;

           o  the risk that we will default on our indebtedness may increase;

           o  we may be unable to obtain additional financing in the future to
              fund working capital, capital expenditures, acquisitions or other
              general corporate expenses, or our ability to obtain such
              financing on satisfactory terms may be impaired; and

           o  we may be more vulnerable to a downturn in our business or the
              economy generally.


         We depend upon external sources of capital

         To qualify as a REIT, we must distribute to our shareholders each year
at least 90% of our net taxable income, excluding any net capital gain. Because
of these distribution requirements, it is not likely that we will be able to
fund future capital needs, including those for acquisitions, from income from
operations. We, therefore, rely on third party sources of capital which may or
may not be available on favorable terms or at all. Our access to third party
sources of capital depends on a number of things, including the market's
perception of our growth potential and our current and potential future
earnings. Moreover, additional equity offerings may result in substantial
dilution of security holders' interests, and additional debt financing may
substantially increase our leverage.


                                       19
<PAGE>


         Our ability to grow will be significantly limited until the capital and
         credit markets improve

         The current economic recession, combined with the net reduction in
Medicare reimbursement levels during and after 1998, which resulted in a
significant curtailment of the willingness of banks to extend loans secured by
healthcare-related real estate, has adversely impacted the debt and equity
markets for healthcare-related companies. The Company depends on these markets
to fund its long-term liquidity needs. The Company's ability to access the
capital and credit markets will likely be significantly limited until such time
as these markets improve. The Company does not have sufficient cash flow to
repay indebtedness if its creditors require immediate repayment of these amounts
or if the collateral underlying these amounts is insufficient to cover the
outstanding balances.

         Operators of our skilled nursing facilities rely on government and
         other third party reimbursement to make lease payments to us

         A significant portion of the revenues derived from the fifteen skilled
nursing facilities owned by us or in which we have leasehold interests is
attributable to government reimbursement under Medicare and Medicaid to
operators of these facilities. The changes in these programs have had a material
adverse effect on the revenues derived by the operators of the skilled nursing
facilities leased from us. Healthcare facilities also have experienced
increasing pressures from private payers attempting to control healthcare costs
that in some instances have reduced reimbursement to levels approaching that of
government payers. We can make no assurance that future actions by governmental
or other third party payers will not result in further reductions in
reimbursement levels, or that future reimbursements from any payer will be
sufficient to cover the costs of the facilities' operations. If reimbursement
levels do not cover lease payments, the possibility exists that one or more of
our lessees could default on their leases to us.

         The Company may be unable to find other lessees upon the expiration of
         its leases

         There can be no assurance that the Company will be able to locate
suitable lessees for its properties upon the expiration of its leases or, if the
Company is successful in locating such operators, that the rental payments from
the new operators would not be significantly less than the existing rental
payments.


                                       20
<PAGE>

         We experience ongoing competition from and conflicts with Genesis

         Our facilities, whether or not operated by Genesis, compete with
facilities owned and operated by Genesis in some markets. As a result, Genesis
has a conflict of interest due to its ownership of competing facilities and its
operation and management of a substantial portion of the facilities we own.
Because the percentage rent leases with Genesis provide for lower operating
margins for Genesis than minimum rent leases with Genesis, Genesis may also have
a conflict of interest to the extent that it is involved in the placement of
private pay residents with acuity levels equally suited to an assisted living
facility or a skilled nursing facility.

         Holders of units of limited partnership interest in the Operating
         Partnership have different interests than shareholders and may exercise
         their voting rights in the Operating Partnership in a manner that
         conflicts with the interests of shareholders

         As the sole general partner of the Operating Partnership, we have
fiduciary obligations to the other limited partners in the Operating
Partnership, the discharge of which may conflict with the interests of our
shareholders. In addition, those persons holding beneficial interests in units
of limited partnership interest in the Operating Partnership, including Michael
Walker, have the right, as limited partners, to vote on amendments to the
partnership agreement of the Operating Partnership, most of which require
approval by a majority in interest of the limited partners, including
ElderTrust, and such individuals may exercise their voting rights in a manner
that conflicts with the interests of our shareholders.

         Additionally, if we prepay or refinance debt securing some of our
properties or sell properties, Mr. Walker and other holders of units of limited
partnership interest in the Operating Partnership may incur adverse tax
consequences which are different from the tax consequences to us and our
shareholders. Consequently, persons holding directly or indirectly units of
limited partnership interest, including Mr. Walker, may have different
objectives regarding the appropriate timing of such actions. While we have the
exclusive authority as general partner under the partnership agreement to
determine whether, when and on what terms to prepay or refinance debt or to sell
a property, any of these actions would require the approval of our Board of
Trustees. As Chairman of the Board of ElderTrust, Mr. Walker has substantial
influence with respect to any of these actions, and could exercise his influence
in a manner inconsistent with the interests of some, or a majority, of
ElderTrust's shareholders.

         Healthcare industry regulation may adversely affect the operations of
         our lessees and their ability to make lease payments to us


                                       21
<PAGE>


         Any failure by our lessees to comply with applicable government
regulations could adversely affect their ability to make lease payments to us.
The long-term care segment of the healthcare industry is highly regulated.
Operators of skilled nursing facilities are subject to regulation under various
federal, state and local laws, including those relating to:

     o   delivery and adequacy of medical care;

     o   distribution of pharmaceuticals;

     o   equipment utilized in their facilities;

     o   personnel;

     o   operating policies;

     o   fire prevention;

     o   rate-setting;

     o   compliance with building and safety codes;

     o   compliance with environmental laws;

     o   periodic inspection by governmental and other authorities to ensure
         compliance with various standards;

     o   licensing of facilities under state law;

     o   protecting the privacy and security of personally identifiable health
         information;

     o   certification for participation under the Federal Health Care Program,
         including Medicare and Medicaid; and

     o   ability to participate in other third party payment programs.


         In addition, many states have adopted certificate of need or similar
laws which generally require that the appropriate state agency approve
acquisitions of skilled nursing facilities and determine that a need exists for
certain bed additions, new services, capital expenditures or other changes.

         The failure to obtain or maintain any required regulatory approvals or
licenses could prevent an operator of one or more of our facilities from
offering services or adversely affect its ability to receive reimbursement for
services. It also could result in the denial of reimbursement, temporary
suspension of admission of new patients, suspension or decertification from a
Federal Health Care Program, restrictions on the ability to expand existing
facilities and, in extreme cases, revocation of the facility's license or
closure of a facility. Federal law also imposes civil and criminal penalties for
submission of false or fraudulent claims, including nursing home bills and cost
reports, to Medicare or Medicaid. There can be no assurance that our lessees
will meet or continue to meet the requirements for participation in the Medicaid
or Medicare programs or of state licensing authorities. Nor can there be any
assurance that regulatory authorities will not adopt changes or new
interpretations of existing regulations that would adversely affect the ability
of our lessees to make their lease payments to us.


                                       22
<PAGE>


         Although not currently regulated at the federal level, except under
laws generally applicable to businesses, assisted living facilities are
increasingly becoming subject to more stringent regulation and licensing by
state and local health and social service agencies and other regulatory
authorities. In general, these assisted living requirements address:

     o   personnel education;

     o   training and records;

     o   facility services, including administration of medication, assistance
         with self-administration of medication and the provision of limited
         nursing services;

     o   monitoring of wellness;

     o   physical plant inspections;

     o   furnishing of resident units;

     o   food and housekeeping services;

     o   emergency evacuation plans; and

     o   resident rights and responsibilities, including in certain states
         the right to receive certain healthcare services from providers of a
         resident's choice.

         In several states, assisted living facilities also require a
certificate of need before the facility can be opened, expand or reduce its
resident capacity or make significant capital expenditures. Several of our
properties are licensed to provide independent living services, which generally
involve lower levels of resident assistance. Like skilled nursing facilities and
other healthcare facilities, assisted living facilities are subject to periodic
inspections by government authorities. In most states, assisted living
facilities, as well as skilled nursing and other healthcare facilities, also are
subject to state or local building code, fire code and food service licensure or
certification requirements. Any failure by our lessees to meet applicable
regulatory requirements may result in the imposition of fines, imposition of a
provisional or conditional license or suspension or revocation of a license or
other sanctions or adverse consequences, including delays in opening or
expanding a facility. Any failure by our lessees to comply with these
requirements could have a material adverse effect on their ability to make lease
payments to us.


                                       23
<PAGE>



         Operators of our facilities also must comply with federal and state
         fraud and abuse laws

         Healthcare operators also are subject to federal and state
anti-remuneration laws and regulations, such as the Federal Health Care Program
anti-kickback law. These laws govern financial arrangements among healthcare
providers and others that may be in a position to refer or recommend patients to
providers. These laws prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Federal Health Care Program patients or for purchasing, leasing, ordering (or
arranging for or recommending the purchase, lease or order) of any goods,
facilities, services or items for which payment can be made under a Federal
Health Care Program. A violation of the federal anti-kickback law could result
in the loss of eligibility to participate in Medicare or Medicaid or in civil or
criminal penalties. The federal government, private insurers and various state
enforcement agencies have increased their scrutiny of providers, business
practices and claims in an effort to identify and prosecute fraudulent and
abusive practices. Operators of skilled nursing facilities are also subject to
state and federal laws prohibiting the submission of "false" or "fraudulent"
claims. One of these laws, the Federal False Claims Act, can be enforced by a
private individual "whistleblowers" in a "qui tam" case, and an increasing
number of such cases, including cases alleging deficiencies in the quality of
care, are being brought in the health care field. In addition, the federal
government has issued fraud alerts concerning nursing services, double billing,
home health services and the provision of medical supplies to nursing
facilities, and a model compliance plan referencing numerous areas of business
operation that it recommends be made the subject of specific policies and
procedures that nursing homes implement and enforce. Accordingly, these areas
have come under closer scrutiny by the government. Further, some states restrict
certain business corporations from providing, or holding themselves out as a
provider of, medical care. Sanctions for violation of any of these laws can
include loss of licensure or eligibility to participate in reimbursement
programs and civil and criminal penalties. State laws vary from state to state,
are often vague and have seldom been interpreted by the courts or regulatory
agencies. There can be no assurance that these federal and state laws will
ultimately be interpreted in a manner consistent with the practices of our
lessees. The costs of complying with these laws, and/or defending against any
allegations of non-compliance that might be brought, could be significant, and
could negatively impact the ability of our lessees to meet their financial
obligations to us.

         We may encounter delays in substituting lessees or operators because
         the facility licenses are held by our lessees and not by us

         A loss of license or Medicare/Medicaid certification or default by one
or more of our lessees could result in us having to obtain another lessee or
substitute operator for the affected facility or facilities. Because the
facility licenses for our properties are held by our lessees and not by us and
because under the REIT tax rules we would have to find a new "unrelated" lessee
to operate the properties following a default, we may encounter delays in
exercising our remedies under the leases made by us or substituting a new lessee
or operator in the event of any loss of licensure or Medical/Medicaid
certification by a prior lessee or operator or a default by the operator of one
or more of our facilities.


                                       24
<PAGE>



         Transfers of healthcare facilities require regulatory approvals and
         alternative uses of healthcare facilities are limited

         Because transfers of operations of healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and other types of real estate, there may be delays in transferring
operations of our facilities to successor lessees or we may be prohibited from
transferring operations to a successor lessee. In addition, substantially all of
our properties are special purpose facilities that may not be easily adapted to
non-healthcare related uses.

         Proximity to hospitals and other healthcare facilities may affect our
         ability to renew leases and attract new lessees in the event of
         relocation or closure of a hospital or other healthcare facility

         Many of our assisted living facilities, skilled nursing facilities and
medical office buildings are in close proximity to one or more hospitals. The
relocation or closure of a hospital could make our assisted living facilities,
skilled nursing facilities or medical office buildings in the affected area less
desirable and affect our ability to renew leases and attract new tenants.

         Because real estate investments are illiquid, we may not be able to
         sell properties when appropriate

         Real estate investments generally cannot be sold quickly. We may not be
able to vary our portfolio promptly in response to economic or other conditions.
This inability to respond to changes in the performance of our investments could
adversely affect our ability to service debt and make distributions to our
shareholders. In addition, there are limitations under the federal income tax
laws applicable to REITs that may limit our ability to recognize the full
economic benefit from a sale of our assets.

         Lack of industry diversification subjects us to the risks associated
         with investments in a single industry

         While we are authorized to invest in various types of income-producing
real estate, our current strategy is to acquire and hold, as long-term
investments, only healthcare-related properties. Consequently, we currently do
not have any significant non-healthcare related real estate assets, and,
therefore, are subject to the risks associated with investments in a single
industry.



                                       25
<PAGE>

         Competition in the marketplace could adversely affect the ability of
         our lessees to make lease payments to us

         Lessees operating our owned properties compete on a local and regional
basis with operators of other facilities that provide comparable services.
Operators compete for residents based on a number of factors, including but not
limited to quality of care, reputation, range and type of services offered,
staffing and price.

         There can be no assurance that operators of our facilities will be able
to compete effectively. If they are unable to do so, their ability to make lease
payments to us could be adversely affected.

         Overbuilding in the assisted living industry has resulted in decreased
         occupancy, depressed margins and lower operating results for operators
         of some of our assisted living facilities

         In general, regulatory and other barriers to competitive entry in the
assisted living industry are not substantial. In certain of our markets, the
development of new assisted living facilities has outpaced the demand for these
facilities. This oversupply of facilities has caused operators of some of our
facilities to experience decreased occupancy, depressed margins and lower
operating results, which has adversely affected their ability to make lease
payments to the Company and could do so in the future.

         Assisted living revenues are derived from private pay sources

         Assisted living services currently are not generally reimbursable under
government reimbursement programs, such as Medicare and Medicaid. Accordingly,
substantially all of the revenues derived by operators of the assisted living
facilities owned by us come from private pay sources consisting of income or
assets of residents or their family members. In general, because of the cost
associated with building new facilities and the staffing and other costs of
providing the assisted living services at those facilities, only seniors with
income or assets meeting or exceeding the comparable median in the region where
the facilities are located can afford to pay the daily resident fees.

         An unexpectedly high resident turnover rate could adversely affect the
         revenues derived by operators of our assisted living facilities, which
         could adversely affect their ability to make lease payments to us

         State regulations governing assisted living facilities require written
resident agreements with each resident. These regulations also require that each
resident have the right to terminate the resident agreement for any reason on
reasonable notice. Consistent with these regulations, the resident agreements
entered into with operators of our assisted living facilities allow residents to
terminate the agreement on 30 days' notice. Thus, operators of our assisted
living facilities cannot contract with residents to stay for longer periods of
time, unlike typical apartment leasing arrangements that involve lease
agreements with specified leasing periods of up to one year or longer. If a
large number of residents elected to terminate their resident agreements at or
around the same time, then the revenues derived by the operator of the facility
could be adversely affected, which, in turn, would adversely affect the ability
of the operator to make lease payments to us. In addition, the advanced age of
assisted living residents means that resident turnover in assisted living
facilities may be less predictable.


                                       26
<PAGE>


         New acquisitions may fail to perform as expected

         Assuming we are able to obtain capital on commercially reasonable
terms, we intend to continue to acquire assisted and independent living
facilities, skilled nursing facilities and medical office and other buildings.
Newly acquired properties may fail to perform as expected, which could adversely
affect our earnings and distributions to our shareholders.

         Some potential losses may not be covered by insurance

         We require our lessees to secure and maintain, comprehensive liability
and property insurance that covers the Company, as well as the lessees on all of
our properties. Some types of losses, however, either may be uninsurable or too
expensive to insure against. Should an uninsured loss or a loss in excess of
insured limits occur, we could lose all or a portion of the capital we have
invested in a property, as well as the anticipated future revenue from the
property. In such an event, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the property. We cannot
assure shareholders that material losses in excess of insurance proceeds will
not occur in the future.


         Our failure to comply with tax-exempt bond requirements for our
         Highgate and Woodbridge facilities could result in termination of the
         tax-exempt status or acceleration of the bonds

         Our indebtedness at December 31, 2002 includes approximately $19.3
million of tax-exempt bonds used to finance our Highgate and Woodbridge assisted
living facilities. The bonds are subject to various requirements under the
Internal Revenue Code. In addition, the bonds impose requirements on the
operation of the facilities, including a requirement that at least 20% of the
rental units in the facilities are occupied by tenants whose adjusted gross
family income does not exceed 50% of the median gross income for the relevant
geographic area. If our lessees do not comply with these requirements, the
tax-exempt status of the bonds could be terminated or the bonds could be
accelerated. In the event of such a termination or acceleration, our interest in
the relevant property would be subordinate to the interests of the bondholder.

         Provisions of our declaration of trust and bylaws and Maryland law
         could inhibit changes in control


                                       27
<PAGE>


         Various provisions of our declaration of trust and bylaws and Maryland
law may delay or prevent a change in control or other transactions that could
provide our shareholders with a premium over the then-prevailing market price of
their shares or which might otherwise be in the best interest of our
shareholders. These provisions of our declaration of trust and bylaws include:

     o   a classified Board of Trustees with the trustees divided into three
         classes with terms of three years each;

     o   that the number of trustees may not be less than three nor more
         than nine, with the number of trustees fixed within this range by
         action of the Board of Trustees;

     o   the authority of the Board of Trustees to fill vacancies for the
         remainder of the term of the class in which the vacancy occurred;

     o   that trustees may be removed only for cause upon the affirmative
         vote of shareholders holding at least a majority of the shares
         entitled to be cast in an election of trustees;

     o   the authority of the Board of Trustees to issue preferred shares
         of beneficial interest in one or more series without shareholder
         approval;

     o   the exclusive authority of the Board of Trustees to amend the bylaws;

     o   an advance notice bylaw requiring advance notice of shareholder
         nominations for trustee or new business proposals;

     o   that special meetings of shareholders may be called only by the
         chairman, the president or at least one-third of the Board of Trustees;

     o   a requirement of a vote of shareholders of not less than two-thirds
         of all the votes entitled to be cast on the matter to approve
         amendments to provisions of the declaration of trust that have an
         anti-takeover effect; and

     o   the ownership limit described below which is primarily intended to
         satisfy requirements under the Internal Revenue Code for qualification
         as a REIT.

         Maryland law also provides protection for Maryland real estate
investment trusts against unsolicited takeovers by protecting the Board of
Trustees with regard to actions taken in a takeover context. Maryland law
provides that the duties of trustees will not require them to (a) accept,
recommend, or respond to any proposal by a person seeking to acquire control,
(b) authorize the real estate investment trust to redeem any rights under,
modify, or render inapplicable a shareholder rights plan, (c) make a
determination under the Maryland Business Combination Statute or the Maryland
Control Share Acquisition Statute, or (d) act or fail to act solely because of
the effect the act or failure to act may have on an acquisition or potential
acquisition of control or the amount or type of consideration that may be
offered or paid to shareholders in an acquisition. Maryland law also establishes
a presumption that an act of a trustee satisfies the required standard of care.
In addition, an act of a trustee relating to or affecting an acquisition or a
potential acquisition of control is not subject under Maryland law to a higher
duty or greater scrutiny than is applied to any other act of a trustee. Maryland
law also provides that the duty of a trustee is only enforceable by the trust or
in the right of the trust. A shareholder suit to enforce the duty of a trustee,
therefore, can only be brought derivatively.


                                       28
<PAGE>


         Maryland law also expressly codifies the authority of a Maryland real
estate investment trust to include in its charter a provision that allows the
Board of Trustees to consider the effect of a potential acquisition of control
on shareholders, employees, suppliers, customers, creditors and communities in
which offices or other establishments of the trust are located. Our declaration
of trust does not include a provision of this type. Maryland law also provides,
however, that the inclusion or omission of this type of provision in the
declaration of trust of a Maryland real estate investment trust does not create
an inference concerning factors that may be considered by the Board of Trustees
regarding a potential acquisition of control. This law may allow the Board of
Trustees to reject an acquisition proposal even though the proposal was in the
best interests of our shareholders.

         We also are subject to Maryland Business Combination Statute

         Provisions of Maryland law prohibit specified "business combinations"
between a Maryland real estate investment trust and any person or entity who
beneficially owns ten percent or more of the voting power of its outstanding
shares, or any affiliate of the ten percent owner, for five years. Thereafter,
the business combination must be approved by (a) 80% of the outstanding voting
shares and (b) two-thirds of the outstanding voting shares, other than shares
held by the ten percent owner, unless specified statutory conditions are met. A
business combination that is approved any time before the ten- percent owner
acquires his or her shares is not subject to these special voting requirements.
We have not "opted out" of these provisions and, accordingly, we are subject to
them.

         Our Board of Trustees has adopted a shareholder rights plan that could
         discourage a third party from making a proposal to acquire us

         In 1999, our Board of Trustees adopted a shareholder rights plan, which
may discourage a third party from making a proposal to acquire us. Under the
shareholder rights plan, preferred share purchase rights, which are attached to
our common shares, generally will be triggered and become exercisable upon the
acquisition of 15% or more of our outstanding common shares, or the commencement
of a tender offer seeking at least that amount, unless our Board of Trustees
amends the plan or redeems the rights. If triggered, these rights would entitle
our common shareholders other than the acquirer whose rights would be voided to
purchase our common shares, and possibly the common stock of the acquirer, at a
price equal to one-half of the market value of our common shares.


                                       29
<PAGE>


         We have a share ownership limit primarily for REIT tax purposes

         To qualify and maintain qualification as a REIT for federal income tax
purposes, not more than 50% in value of our outstanding common shares of
beneficial interest may be owned, directly or indirectly, by five or fewer
individuals, as defined in the Internal Revenue Code to include certain
entities. In addition, in order for rent paid by the Company's tenants to
qualify for purposes of the gross income tests applicable to REITs, no tenant
(including Genesis) nor any person who constructively owns 10% or more of the
outstanding shares of Genesis or any other tenant may own actually or
constructively 10% or more, in value or voting rights, of our outstanding shares
of beneficial interest. Primarily to facilitate compliance with these
requirements, our declaration of trust prohibits ownership, directly or by
virtue of the attribution provisions of the Tax Code, by any single shareholder
of more than 8.6% of the issued and outstanding common shares and generally
prohibits the ownership, directly or by virtue of these attribution rules, by
any single shareholder of more than 9.9% of any class or series of preferred
shares of beneficial interest. We refer to this as the "ownership limit." The
federal tax laws include complex share ownership rules that apply in determining
whether a shareholder exceeds the ownership limit. These rules may cause a
shareholder to be treated as owning the shares of a number of related
shareholders. Absent any such exemption or waiver by the Board of Trustees,
shares acquired or held in violation of the ownership limit will be transferred
to a trust for the exclusive benefit of a designated charitable beneficiary, and
the shareholder's rights to distributions and to vote would terminate. Also, the
ownership limit could delay or prevent a change in control and, therefore, could
adversely affect our shareholders' ability to realize a premium over the
then-prevailing market price for their shares.

         Our failure to qualify as a REIT would cause us to be taxed as a
         corporation

         We believe that we were organized and operated in a manner so as to
qualify as a REIT under the Internal Revenue Code, commencing with our taxable
year ended December 31, 1998. While the Company intends to operate so as to
qualify as a real estate investment trust under the Internal Revenue Code, we
can give no assurance, however, that we currently qualify or will maintain our
qualification as a REIT.

         Qualification as a REIT involves the satisfaction of numerous
requirements, some on an annual and some on a quarterly basis, established under
highly technical and complex Internal Revenue Code provisions for which there
are only limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
our control. The complexity of these provisions and of the applicable U.S.
Treasury regulations is greater in the case of a REIT that holds its assets in
partnership form. We can make no assurances that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to our qualification as a REIT or the federal income
tax consequences of our qualification as a REIT.


                                       30
<PAGE>


         If we fail to qualify as a REIT, we will be subject to federal and
state income tax, including any alternative qualification as a REIT, on our
taxable income at regular corporate rates. If that occurred, the Company might
have to dispose of a significant amount of its assets or incur a significant
amount of debt in order to pay the resulting federal income tax. Further
distributions to its shareholders would not be deductible by the Company nor
would they be required to be made.

         Moreover, unless entitled to statutory relief, we will be disqualified
from treatment as a REIT for the four taxable years following the year in which
REIT qualification is lost. If we failed to qualify as a REIT, our net income
available for investment or distribution to our shareholders would be
significantly reduced because of the additional tax liability to us for the
years involved. We might have to dispose of a significant amount of our assets
or incur a significant amount of debt in order to pay the resulting federal or
state income tax. In addition, distributions to our shareholders would no longer
be required to be made by us. Our failure to qualify as a REIT could reduce
materially the value of our common stock and would cause any distributions to
shareholders that otherwise would have been subject to tax as capital gain
dividends to be taxable as ordinary income to the extent of our current and
accumulated earnings and profits. However, subject to limitations under the
Internal Revenue Code, corporate distributions may be eligible for the dividends
received deduction with respect to our distributions. Our failure to qualify as
a REIT also would cause an event of default under our Credit Facility and other
indebtedness.

         To qualify as a REIT, we currently are required to distribute to our
shareholders with respect to each year at least 90% of our taxable income,
excluding net capital gain. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which distributions made by
us with respect to the calendar year are less than the sum of 85% of our
ordinary income and 95% of our capital gain net income for that year and any
undistributed taxable income from prior periods. We intend to make distributions
to our shareholders to the extent necessary to comply with the distribution
requirement and to avoid the nondeductible excise tax and will rely for this
purpose on distributions from the Operating Partnership.

         Special considerations apply to us because of the nature of our assets

         The manner in which we derive income from the assisted and independent
living facilities and skilled nursing facilities we own is governed by special
considerations in satisfying the requirements for REIT qualification. Because we
would not qualify as a REIT if we directly operated an assisted or independent
living facility or a skilled nursing facility, we lease such facilities to a
healthcare provider, such as a subsidiary of Genesis, which operates the
facilities. To qualify as a REIT, we must satisfy two gross income tests, under
which specified percentages of our gross income must be passive income, like
rent. For the rent paid pursuant to the leases, which constitutes substantially
all of our gross income, to qualify for purposes of the gross income tests, the
leases must be respected as true leases for federal income tax purposes and not
be treated as service contracts, joint ventures or some other type of
arrangement. In addition, our lessees, including the subsidiaries of Genesis
that lease some of our properties, must not be regarded as "related party
tenants," as defined in the Internal Revenue Code. We believe that the leases
will be respected as true leases for federal income tax purposes. There can be
no assurance, however, that the IRS will agree with this view. We also believe
that our lessees are not "related party tenants." If the leases were not
respected as true leases for federal income tax purposes or if our lessees were
regarded as "related party tenants," we would not be able to satisfy either of
the two gross income tests applicable to REITs and we would lose our REIT
status. See "Risk Factors--Our failure to qualify as a REIT would cause us to be
taxed as a corporation" above.


                                       31
<PAGE>

         In the event the leases expire and are not renewed, we will have to
find a new lessee that is not related to us to lease and operate the properties
in order to continue to qualify as a REIT. We are able to elect to treat
property acquired as a result of an expired lease as foreclosure property if
certain conditions are satisfied. With a valid election, we would be permitted
to derive revenues directly from the ownership of such property rather than
deriving rental revenues attributable to the lease of such property until the
end of the second taxable year following the year of the lease termination
(subject to an extension of up to an additional four years, if granted by the
IRS) but only if an independent contractor begins to operate the property within
90 days after the lease is terminated. The net income from the foreclosure
property would be subject to tax at the maximum corporate rate, but the income
would qualify under the REIT gross income tests.

         In the event of a default on a lease of an assisted or independent
living facility or skilled nursing facility, to maintain our REIT qualification,
we would either have to immediately lease the property to a lessee that is not
related to us, or make a foreclosure election and engage a new healthcare
provider. Although with a valid election, we would be permitted to operate the
facility for 90 days after taking possession of the facility pursuant to
applicable U.S. Treasury regulations without jeopardizing our REIT status, the
fact that the facility licenses are held by our lessees may preclude us from
doing so under applicable healthcare regulatory requirements. The REIT
requirements and applicable healthcare regulatory requirements could deter us
from exercising our remedies in the event of a default even though such exercise
otherwise would be in our best interests.

         As a REIT, we are subject to limitations on our ownership of debt and
         equity securities

         Subject to certain exceptions, including the one discussed in this
paragraph, a REIT is generally prohibited from owning securities in any one
issuer if the value of those securities exceeds 5% of the value of the REIT's
total assets or the securities owned by the REIT represent more than 10% of the
issuer's outstanding voting securities or more than 10% of the value of the
issuer's outstanding securities. A REIT is permitted to own securities of a
subsidiary in an amount that exceeds the 5% value test and the 10% vote or value
test if the subsidiary elects to be a "taxable REIT subsidiary", which is
taxable as a corporation. However, a REIT may not own securities of taxable REIT
subsidiaries that represent in the aggregate more than 20% of the value of the
REIT's total assets. While we believe that we have satisfied these limitations
on the ownership of securities during each of the taxable years that each such
limitation applied to us, given the highly complex nature of the rules governing
REIT's (which complexity is exacerbated when a REIT owns its properties through
partnerships, as we do) and the ongoing importance of actual determinations, we
cannot provide any assurance that the Internal Revenue Service would not
disagree with our determinations.


                                       32
<PAGE>

         We pay some taxes

         Even if we qualify as a REIT, we are required to pay certain federal,
state and local taxes on our income and property. ET Capital Corp., in which we
have a 95% nonvoting equity interest, also is subject to federal, state and
local taxes on its net income. In addition, as a taxable REIT subsidiary, ET
Capital Corp. is subject to special rules that may result in increased taxes.
Several Internal Revenue Code provisions ensure that a taxable REIT subsidiary
is subject to an appropriate level of federal income taxation. For example, a
taxable REIT subsidiary is limited in its ability to deduct interest payments
made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax
on some payments that it receives if the economic arrangements between the REIT
and the taxable REIT subsidiary are not comparable to similar arrangements
between unrelated parties.

         Various factors have affected and are likely to continue to affect our
         common share price

         Various factors have affected and are likely to continue to affect our
common share price, including:

     o   our financial performance and our dependence on Genesis as the
         primary operator of our facilities;

     o   the financial performance of Genesis and other lessees of our
         facilities;

     o   the market prices of other healthcare REITs and the attractiveness
         of their equity securities in comparison to other equity
         securities, including securities issued by other real estate-based
         companies; and

     o   general stock and bond market conditions.

         Our common share price is affected by changes in our earnings and cash
         distributions


                                       33
<PAGE>


         We believe that the market value of a REIT's equity securities is based
primarily upon the market's perception of the REIT's growth potential and its
current and potential future cash distributions, and is secondarily based upon
the real estate market value of the underlying assets. For that reason, our
shares may trade at prices that are higher or lower than the net asset value per
share. To the extent we retain operating cash flow for investment purposes,
working capital reserves or other purposes, these retained funds, while
increasing the value of our underlying assets, may not correspondingly increase
the market price of our shares. Our failure to meet the market's expectations
with regard to future earnings and cash distributions also would likely
adversely affect the market price of our common shares.

         Legislative or regulatory tax changes may adversely affect our share
         price

         The federal income tax laws governing REIT's and other corporations or
the administrative interpretations of those laws may be amended at any time. Any
new laws or interpretations may take effect retroactively and could adversely
affect our stock price. On January 7, 2003, the Bush Administration released a
proposal intended to eliminate one level of the "double taxation" that is
currently imposed on corporate income for regular C corporations by excluding
corporate dividends from an individual's taxable income to the extent that
corporate income tax has been paid on the earnings from which the dividends are
paid. REIT's currently are tax-advantaged relative to regular C corporations
because they are not subject to corporate-level federal income tax on income
that they distribute to shareholders, but shareholders do include REIT dividends
in taxable income. The tax treatment of REIT's generally would not be affected
by the Bush Administration's proposal in its current form, except that a REIT
that receives dividends from a C corporation that have been subject to corporate
income tax could distribute or retain those amounts without a second tax being
imposed on the REIT or its shareholders. The Bush Administration's proposal, if
enacted, could cause individual investors to view stocks of regular C
corporations as more attractive relative to stocks of REITs than is the case
currently because part or all of the dividends on the stocks of the regular C
corporation would be exempt from tax for the individual. It is not possible to
predict whether in fact this change in relative perceived value will occur or
whether, if it occurs, what the impact will be on the value of our stock. In any
event, there can be no assurance regarding whether the Bush Administration's
proposal ultimately will be enacted or the form in which it might in fact be
enacted.

         Shares available for future sale could adversely affect the market
         price of our common shares

         At December 31, 2002, 295,560 units of limited partnership interest in
the Operating Partnership are owned by minority interests. These units are
redeemable by the holder for cash or, at our election, common shares, subject to
certain limitations. In addition, we have reserved a total of 779,340 common
shares for issuance pursuant to our 1998 share option and incentive plan, of
which 595,814 are exercisable share options as of December 31, 2002. The Company
also has reserved a total of 350,000 common shares for issuance pursuant to our
1999 share option and incentive plan, of which 56,388 are exercisable share
options as of December 31, 2002. We cannot predict the effect that future sales
of any of these common shares, or the perception that such sales could occur,
will have on the market prices of our outstanding common shares.


                                       34
<PAGE>


         Environmental problems are possible and can be costly

         Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at the property. If unidentified
environmental problems arise, we may have to make substantial payments, which
could adversely affect our cash flow and our ability to make distributions to
our shareholders because:

     o   we or the operator may have to pay a governmental entity or third
         parties for property damage and for investigation and clean-up
         costs incurred by them in connection with the contamination;

     o   environmental laws typically impose clean-up responsibility and
         liability without regard to whether the owner or operator knew or
         caused the presence of the contaminants;

     o   even if more than one person may have been responsible for the
         contamination, each person covered by the environmental laws may
         be held responsible for all of the clean-up costs incurred; and

     o   third parties may sue the owner or operator of a site for damages
         and costs resulting from environmental contamination emanating
         from that site.


         Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require (1) that owners or operators of buildings
containing asbestos properly manage and maintain the asbestos, (2) that they
notify and train those who may come into contact with asbestos and (3) that they
undertake special precautions, including removal or other abatement, if asbestos
would be disturbed during renovation or demolition of a building. These laws may
impose fines and penalties on building owners or operators who fail to comply
with these requirements and may allow third parties to seek recovery from owners
or operators for personal injury associated with exposure to asbestos fibers.

         Independent environmental consultants have conducted or updated
environmental assessments at the properties in which we have an interest. These
assessments included a visual inspection of the properties and the surrounding
areas, an examination of current and historical uses of the properties and the
surrounding areas and a review of relevant state, federal and historical
documents. Where appropriate, on a property by property basis, these consultants
conducted additional testing, including sampling for: asbestos, lead in drinking
water, soil contamination where underground storage tanks are or were located or
where other past site usage creates a potential for site impact and for
contamination in groundwater.


                                       35
<PAGE>

         These environmental assessments have not revealed any environmental
liabilities at the properties that we believe would have a material adverse
effect on our business, financial condition, revenues or earnings. Asbestos is
present at some of our buildings. The environmental consultants have not
recommended removal or encapsulation of the asbestos, except in connection with
the construction, remodeling, renovation or demolition of a building. For some
of our properties, the environmental assessments also note potential offsite
sources of contamination such as underground storage tanks. Additionally, for
some of our properties, the environmental assessments note previous uses, such
as the former presence of underground storage tanks, and in these cases,
documented underground storage tanks subject to regulatory requirements were
either removed, replaced or otherwise brought into compliance.

         Failure of operators to comply with environmental laws regarding the
         use and disposal of hazardous substances and infectious medical wastes
         could adversely affect their ability to make lease payments to us

         The operation of healthcare facilities also involves the handling, use,
storage, transportation, disposal and/or discharge of hazardous, infectious,
toxic, radioactive, flammable and other hazardous materials, wastes, pollutants
or contaminants. These activities may result in:

     o   damage to individuals, property or the environment;

     o   interruption of operations and increases in costs;

     o   legal liability, damages, injunctions or fines;

     o   investigations, administrative proceedings, penalties or other
         governmental agency actions; and

     o   costs that are not covered by insurance.

         We can make no assurance that our lessees will not incur liability in
connection with the use and disposal of hazardous substances and infectious
medical waste, which could have a material adverse effect on their ability to
make lease payments to us.



ITEM 2.     PROPERTIES

         The following table sets forth certain information comprising the
Company's investments in owned real estate property as of December 31, 2002. At
December 31, 2002, the Company's properties were encumbered by mortgage loans,
bonds and capital lease obligations aggregating $194.4 million and bearing
interest at a weighted average rate of 6.75%. These mortgage loans mature from
April 2003 through September 2025. See Note 8 to the Company's Consolidated
Financial Statements included in this Form 10-K for additional information.




                                       36
<PAGE>

<TABLE>
<CAPTION>



                                                       Number of                           Annualized
          Property                        State        Beds (3)       Investment (4)       Rental Income (5)
----------------------------------      --------     ------------    ----------------     -------------------
                                                                        (dollar amounts in thousands)
<S>                                <C>    <C>             <C>               <C>                 <C>
Assisted Living Facilities:
    Heritage Woods *               (1)     MA             126            $12,667              $1,084
    Berkshire *                    (1)     PA              75              4,791                 278
    Lehigh *                       (1)     PA              75              4,265                 201
    Sanatoga *                     (1)     PA              85              3,707                 327
    Willowbrook *                  (1)     PA              56              6,584                 300
    Riverview Ridge                (1)     PA             105              6,700                 625
    Woodbridge                             PA              90             11,964                 984
    Highgate at Paoli Pointe       (1)     PA              85             13,793               1,253
    Heritage at North Andover      (1)     MA              97             12,141               1,201
    Heritage at Vernon Court       (1)     MA             115             19,126               1,780
    Heritage at Cleveland Circle   (1)     MA              90             15,383               1,517
                                                      -------           --------             -------
       Total Assisted Living                              999            111,121               9,550
                                                      -------           --------             -------

Independent Living Facilities:
     Cabot Park                    (1)     MA             100             18,558               1,717
     Pleasant View                 (1)     NH              72              4,174                 385
                                                      -------           --------             -------
       Total Independent Living                           172             22,732               2,102
                                                      -------           --------             -------

Skilled Nursing Facilities:
    Rittenhouse CC *               (1)     PA             183             10,089                 831
    Lopatcong CC                   (1)     NJ             153             15,141               1,310
    Wayne NRC                      (2)     PA             118              8,470                 836
    Belvedere NRC                  (1)     PA             147             12,538                 640
    Phillipsburg CC *              (1)     NJ              60              2,637                 181
    Chapel NRC                     (1)     PA             240             12,305               1,729
    Harston Hall NCH               (1)     PA             196              5,716                 853
    Pennsburg Manor NRC            (1)     PA             120             11,571               1,164
    La Plata                       (1)     MD             149             13,328               1,198
    Voorhees                       (1)     NJ             190             17,725               1,600
    Corsica Hills                  (1)     MD             162             14,507               1,306
    Heritage Center                (1)     MD             181             19,441               1,757
    Multi Med                      (1)     MD             120              5,714                 501
    Severna Park                   (1)     MD             141             18,691               1,689
    Westfield Center               (1)     NJ             233             23,731               2,150
                                                      -------           --------             -------
       Total Skilled Nursing                            2,393            191,604              17,745
                                                      -------           --------             -------

Medical Office and Other Buildings:
    Professional Office Building I         PA                              4,708                 797
    DCMH Medical Office Building           PA                              8,445               1,672
    Salisbury Medical Office Bldg. (1)     MD                              1,132                  16
    Lacey Branch Office Building           NJ                                625                  65
                                                      -------           --------             -------
       Total Medical Office and
            Other                                                         14,910               2,550
                                                      -------           --------             -------
Total Properties:                                       3,564           $340,367             $31,947
                                                      -------           --------             -------
</TABLE>


                                       37
<PAGE>


             *   Represent properties included in the Company's borrowing base
                 for the Guidance Line and pledged as collateral.

             (1) Represent properties that are leased to and/or managed by
                 Genesis or Genesis Equity Investees. Genesis has guaranteed
                 these leases. See "Dependence on Genesis." Heritage at North
                 Andover has a one year rent guarantee, Heritage at Vernon
                 Court, Heritage at Cleveland Circle and Cabot Park each have a
                 2 year rent guarantee.

             (2) Represents property managed by Genesis but leased by an
                 unrelated third party. See "Dependence on Genesis."

             (3) Based upon the number of private and semi-private beds in
                 service at December 31, 2002.

             (4) Includes investments in real estate properties aggregating
                 $328.1 million, before reductions for accumulated depreciation
                 of $44.9 includes credit enhancements on several properties
                 aggregating $12.3 million. Credit enhancements include bond and
                 operating reserve funds aggregating $6.3 million, security
                 deposits of $5.4 million and mortgage escrow accounts of $0.6
                 million.

             (5) Reflects contract rate of annual base rent under fixed and
                 minimum rent leases and estimated rent under percentage rent
                 leases assuming rental income for these properties consistent
                 with 2002.

        The Company holds a fee interest in each of its properties except for
leasehold interests in the Professional Office Building I, La Plata, Vorhees,
Corsica Hills, Heritage Center, Multi Med, Severna Park, Westfield Center and
DCMH Medical Office Building in which the Company owns a condominium unit.

         Each of the Company's skilled nursing and senior housing facilities,
which includes the land (if owned), buildings, improvements and related rights,
are leased principally to healthcare providers pursuant to long-term triple net
leases. The leases generally have remaining terms of 5 to 9 years and contain
multiple five to ten-year renewal options. These properties are leased
principally under percentage and minimum rent leases. These lessees are required
to insure, repair, rebuild and maintain the leased properties. The leases with
tenants in the medical office and other buildings are generally fixed rent
leases, which provide for specified annual rents, subject to annual increases in
some of the leases. Generally, these leases are for a five-year period. Some of
the lessees are required to insure, repair, rebuild and maintain the leased
properties. The Company believes that its leased properties are adequately
insured under insurance policies maintained by the lessees. See "Business -
Investments - Owned Property - Operating Leases."


                                       38
<PAGE>


ITEM 3.     LEGAL PROCEEDINGS

         None

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

         None

                                     PART II

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

         The following table sets forth the high and low sales prices of the
Company's common stock on the New York Stock Exchange for the periods indicated.
There were no distributions made during these periods. At March 21, 2003, there
were approximately 69 holders on record of the Company's common shares.

<TABLE>
<CAPTION>

                   Quarter Ended        High        Low
                 -----------------    -------      ------
                      <S>                <C>         <C>
                 December 31, 2002      $7.90       $6.06
                 September 30, 2002      8.00        6.16
                 June 30, 2002           8.46        7.75
                 March 31, 2002          8.49        7.55

                 December 31, 2001      $8.85       $6.83
                 September 30, 2001      7.50        5.00
                 June 30, 2001           5.19        3.45
                 March 31, 2001          3.75        2.38
</TABLE>


         On December 4, 2002, the Company issued a press release addressing its
dividend distribution policy. The Company stated that it intends to resume
regular quarterly distributions to the holders of its common shares and that the
initial distribution is expected to be declared in mid-April, 2003. The Company
estimates that, based upon its current estimate of operations and cash
requirements, the per share distribution will be $0.64 per year, or $0.16 per
quarter. To qualify as a REIT, the Company must distribute with respect to each
year at least 90% of its taxable income, excluding any net capital gain, to its
shareholders.

ITEM 6.     SELECTED FINANCIAL DATA

         The following selected consolidated financial data is derived from the
consolidated financial statements of the Company. The 2002 data include the
consolidation of three entities that hold leasehold and purchase option rights
to seven skilled nursing facilities and that own one assisted living facility
and one independent living facility. The Company previously accounted for its
investment in these properties under the equity method. As a result of the
consolidation of these entities, the Company's total assets, debt, investments
in unconsolidated entities, rental revenue, interest, depreciation expense and
equity in losses of unconsolidated entities as of and for the year ended
December 31, 2002 changed significantly. The following data should be read
together with the Company's consolidated financial statements and related notes,
and the other financial information included in this Form 10-K, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

                                       39
<PAGE>

<TABLE>
<CAPTION>
                                                            2002           2001         2000         1999         1998
                                                           -------------------------------------------------------------
                                                                    (in thousands, except per share data)
<S>                                                          <C>           <C>           <C>          <C>          <C>
Operating Data:
    Revenues                                               $25,329       $25,416      $ 26,368     $ 27,950      $21,033
    Expenses:
       Property expenses                                     1,289         1,181         1,063        1,076          940
       Interest expense                                     10,167        11,634        13,911       13,106        6,256
       Depreciation and amortization                         7,117         5,634         5,806        5,745        4,421
       General and administrative, separation
         agreement and start-up expenses                     2,452         3,220         3,592        5,404        4,648
       Loss on impairment of long-lived assets               2,119           450         5,306            -            -
       Bad debt expense                                          -           116         9,522            -            -
                                                           -------------------------------------------------------------
             Total expenses                                 23,144        22,235        39,200       25,331       16,265
                                                           -------------------------------------------------------------
    Equity in losses of unconsolidated entities, net       (1,364)       (2,590)       (10,010)      (2,482)        (648)
    Minority interest                                         (53)          (42)         1,530          (15)        (265)
                                                           -------------------------------------------------------------
    Net income (loss) from continuing operations
       before extraordinary item                               768           549       (21,312)         122        3,855
    Income (loss) from discontinued operations                (262)          (25)          (18)          58          118
                                                           -------------------------------------------------------------
    Net income (loss) before extraordinary item                506           524       (21,330)         180        3,973
    Extraordinary item, net of minority interest                 -             -             -       (1,210)           -
                                                           -------------------------------------------------------------
    Net income (loss)                                      $   506       $   524      ($21,330)    ($ 1,030)     $ 3,973
                                                           =============================================================

Per share information:
    Basic net income (loss) per share:
--------------------------------------
    Weighted average common shares outstanding               7,401         7,184         7,119        7,198        7,369
                                                           -------------------------------------------------------------
    Net income (loss) per share from continuing
         operations                                          $0.10         $0.07        ($3.00)       $0.02        $0.52
    Net income (loss) per share on discontinued
         operations                                         ($0.03)            -             -        $0.01        $0.02
    Net loss per share on extraordinary item                     -             -             -       ($0.17)           -
    Net income (loss) per share                              $0.07         $0.07        ($3.00)      ($0.14)       $0.54

    Diluted net income (loss) per share:
-----------------------------------------
    Weighted average common shares outstanding               7,708         7,442         7,119        7,198        7,369
                                                           -------------------------------------------------------------

    Net income (loss) per share from continuing
         operations                                        $  0.10       $  0.07        ($3.00)    $   0.02      $  0.52
    Net income (loss) per share on discontinued
         operations                                          (0.03)            -             -     $   0.01      $  0.02
    Net loss per share on extraordinary item                     -             -             -       ($0.17)           -
    Net income (loss) per share                            $  0.07       $  0.07        ($3.00)      ($0.14)     $  0.54
                                                           -------------------------------------------------------------
    Distributions per share                                $  0.00       $  0.00      $   0.60     $   1.46      $  0.97
                                                           =============================================================

</TABLE>

                                       40
<PAGE>

<TABLE>
<CAPTION>

                                                 December 31,    December 31,   December 31,    December 31,   December 31,
                                                    2002            2001           2000            1999            1998
                                               -----------------------------------------------------------------------------
                                                                      (in thousands)
<S>                                                   <C>            <C>            <C>             <C>             <C>
Balance Sheet Data:
    Real estate properties, net                    $282,983       $166,660       $149,804         $171,681       $176,129
    Real estate loans receivable, net                     -              -         41,559           48,646         47,899
    Guidance Line/Bank Credit
            Facility                                  3,067          7,174         38,720           39,670         90,204
    Mortgages, bonds, lease and notes
           payable                                  209,740        107,715        108,947          110,084         53,728
    Total liabilities                               220,562        119,916        152,931          155,053        149,162
    Total shareholders' equity                       82,744         80,998         80,099          103,440        113,296

Other Data:
    Cash flow provided by operating
          activities                                 10,671         11,101          7,430           16,727         13,742
    Cash flow provided by (used in)
          investing activities                          761         20,887           (256)          (4,855)      (205,402)
    Cash flow provided by (used in)
          financing activities                       (6,710)       (32,417)        (7,674)         (10,539)       193,932

</TABLE>

       The following is a summary of capital expenditures for the periods
presented:
<TABLE>
<CAPTION>

                                                      -------------------------------------------------------------------
                                                          2002          2001          2000         1999         1998
                                                      -------------------------------------------------------------------
                                                                                 (in thousands)
<S>                                                     <C>            <C>           <C>             <C>             <C>
Recurring capital expenditures:
     Corporate / Administrative                       $ 205          $   -          $   8          $    36          $   5

     Capital improvements                                28             30              -                5            238
                                                      -------------------------------------------------------------------
                                                        233             30              8               41            243
                                                      -------------------------------------------------------------------
     Major renovations                                  300            111            126            1,289              -
                                                      -------------------------------------------------------------------
Total capital expenditures                            $ 533          $ 141          $ 134          $ 1,330          $ 243
                                                      ===================================================================
</TABLE>

         Recurring capital expenditures include those expenditures made in the
normal course of operations for corporate/administrative items and for routine
improvements to the Company's existing properties.


                                       41
<PAGE>

         Major renovations include those expenditures which are larger in scope
than recurring capital expenditures both in dollar value and time to complete
and generally enhance the marketability and revenue producing capacity of the
property.

         The following table presents the Company's Funds from Operations for
the periods presented:
<TABLE>
<CAPTION>

                                                           2002         2001           2000             1999 (1)     1998 (1)
                                                         ------------------------------------------------------------------
                                                                                  (in thousands)
<S>                                                        <C>          <C>             <C>             <C>           <C>
Funds from Operations:
    Net income (loss)                                    $   506      $   524        ($21,330)        ($1,030)       $3,973
    Minority interest                                         53           42          (1,530)            (67)          273
    Minority interest from discontinued operations           (12)          (1)             (1)              -             -
                                                         ------------------------------------------------------------------
    Net income (loss) before minority interest               547          565         (22,861)         (1,097)        4,246
    Adjustments to derive funds from operations:
      Add:  Depreciation and amortization:
                Consolidated entities                      7,119        5,660            5,976          5,963         4,664
                Unconsolidated entities                    3,367        4,488            4,489          4,492         1,243
           Impairment charges on real
               estate properties                           2,434          450           5,306               -             -
           Extraordinary loss on debt extinguishment           -            -                -          1,296             -
                                                         ------------------------------------------------------------------
    Funds from Operations before allocation to
        minority interest                                 13,467       11,163          (7,090)         10,654        10,153
     Funds from Operations allocable to
        minority interest                                   (602)        (584)            470            (715)         (635)

                                                         ------------------------------------------------------------------
    Funds from Operations attributable to the
        common shareholders                              $12,865      $10,579         ($6,620)        $ 9,939        $9,518
                                                         ------------------------------------------------------------------
</TABLE>


  (1) The White Paper on Funds from Operations approved by the Board of
  Governors of NAREIT in October, 1999 defines Funds from Operations as net
  income (loss), computed in accordance with generally accepted accounting
  principles, excluding gains (or losses) from sales of property, plus
  depreciation and amortization, and after adjustments for unconsolidated
  partnerships and joint ventures. Adjustments for unconsolidated partnerships
  and joint ventures will be calculated to reflect funds from operations on the
  same basis. The Company believes that Funds from Operations is helpful to
  investors as a measure of the performance of an equity REIT because, along
  with cash flow from operating activities, financing activities and investing
  activities, it provides investors with an indication of the ability of the
  Company to incur and service debt, to make capital expenditures and to fund
  other cash needs. The Company computes Funds from Operations using standards
  established by NAREIT which may not be comparable to Funds from Operations
  reported by other REITs that do not define the term using the current NAREIT
  definition or that interpret the current NAREIT definition differently than
  the Company. Funds from Operations does not represent cash generated from
  operating activities using generally accepted accounting principles and should
  not be considered as an alternative to net income as an indication of the
  Company's financial performance, or to cash flow from operating activities as
  a measure of the Company's liquidity, nor is it indicative of funds available
  to fund the Company's cash needs, including its ability to make cash
  distributions. Effective January 1, 2000, Funds from Operations includes both
  recurring and non-recurring results of operations, except those results
  defined as "extraordinary items" under generally accepted accounting
  principles and gains and losses from sales of depreciable operating property.
  For comparative purposes, Funds from Operations for periods prior to 2000 have
  been restated to conform to the new definition of Funds from Operations.


                                       42
<PAGE>


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

General

         The Company is a self-managed and self-administered real estate
investment trust ("REIT") that invests principally in senior housing and other
healthcare facilities, primarily skilled nursing facilities, assisted and
independent living facilities (or "senior living centers") and medical office
and other buildings. The Company is the general partner of, and conducts all of
its operations through, ElderTrust Operating Limited Partnership (the "Operating
Partnership"). At December 31, 2002, the Company owned a 96.2% interest in the
Operating Partnership.

         The Company's consolidated assets consist primarily of the assets of
the Operating Partnership and its consolidated subsidiaries. At December 31,
2002, the Company's consolidated assets primarily consisted of a diversified
portfolio of 32 healthcare properties with a net book value of $283.0 million.
The portfolio consists of eleven assisted living facilities, fifteen skilled
nursing facilities (seven of which are leased by the Company), two independent
living facility and four medical office and other buildings. Senior living
centers comprised approximately 96% of the Company's consolidated assets at
December 31, 2002.

         Approximately 86% of the Company's consolidated assets at December 31,
2002 consisted of real estate properties leased to or managed by subsidiaries of
Genesis or entities in which it has made equity investments ("Genesis Equity
Investees"), which are leased or subleased to the prior owners or third parties.
Revenues recorded by the Company in connection with these leases aggregated
$18.3 million in 2002. As a result of these relationships with Genesis, the
Company's revenues and ability to meet its obligations depend, in significant
part, upon the ability of Genesis and Genesis Equity Investees to meet their
lease obligations. Genesis emerged from bankruptcy in October 2001. Any failure
of these entities to continue their operations and/or to continue to make lease
payments to the Company could have a significant adverse impact on the Company's
operations and cash flows due to the significant portion of our properties
leased to such entities.

Possible Spin-Off by Genesis of its Eldercare Business

         In February 2003, Genesis announced that its Board of Directors had
approved the spin-off of its ElderCare business. This business includes our
tenants that are currently owned, in whole or in part, by Genesis, as well as
Genesis' other senior housing asset-based businesses. Under our lease terms, any
assignment of the leases to a party in which Genesis has no ownership interest
would require our consent. Such consent may not be unreasonably withheld. If the
leases are assigned with our consent, the Genesis guarantee would be eliminated.
However, we would be entitled to obtain guarantees from other parties in control
of the tenant. Conversely, if the leases are assigned without our consent, the
Genesis guarantee would remain in effect. We believe that the transaction
proposed by Genesis may constitute an assignment of the leases. As a result, the
transaction may require our consent should Genesis desire to eliminate its
obligations under its guarantees. In determining whether to provide our consent,
we intend to evaluate the current and expected operating performance of the
leased properties and determine the need for, and availability of, substitute
credit enhancements. The spin-off is expected to be completed during the latter
part of 2003. To date, Genesis has not provided us with any financial
information regarding the proposed spin-off nor has Genesis requested to be
released from its guarantees although we expect that it will do so.

                                       43
<PAGE>

Critical Accounting Policies

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.

         The Company's critical accounting policies are as follows:

         Impairment of Long-Lived Assets

         The Company reviews its long-lived assets for impairment under criteria
set forth under accounting principles generally accepted in the United States of
America. These criteria require that a review be performed whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Once circumstances require a review the asset is tested to
determine if it is impaired. An asset is impaired if the carrying amount of an
asset is greater than the future net cash flows, measured on an absolute basis,
expected to be generated by the asset. If the asset is impaired, the Company
records an impairment charge equal to the asset's carrying amount over its
estimated fair value.

         Discontinued Operations

         When management intends to dispose of a property and meets other
criteria set forth under accounting principles generally accepted in the United
States of America, the Company classifies the operating results of properties it
intends to dispose of as discontinued operations. At that time, the Company
performs an analysis of the property's cash flows and records any adjustment
necessary to reduce the carrying value to the properties fair value less cost to
sell.

         Revenue Recognition

         The Company's real estate assets are leased to operators primarily
through long-term triple-net leases. These leases generally take the form of
percentage, minimum or fixed rents. Lease payments are recognized as revenue
when earned, based on the provisions of the underlying leases. The Company
reports base rental revenue on these leases using the straight-line method over
the terms of the respective leases. The Company records an unbilled rent
receivable or payable representing the amount that the straight-line rental
revenue exceeds or reduces the rent currently collectible under the lease
agreements.

         Investments in Unconsolidated Entities

         The Company has several investments in entities in which the
controlling voting interests were owned by Mr. D. Lee McCreary, Jr., the
Company's President, Chief Executive Officer and Chief Financial Officer. The
Company uses the equity method to account for investments in subsidaries in
which it does not have a controlling interest. The Company determines its
ability to control these entities based upon its percentage of the voting
interest. The Company evaluates its ability to control periodically and upon
changes in ownership of the subsidiaries. During 2002 the Company acquired a
controlling interest in three of these investments.


                                       44
<PAGE>

Results of Operations

         Year ended December 31, 2002 compared to the year ended December 31,
2001

         General

         During September 2002, the Company acquired, or obtained options to
acquire, from the Company's President and Chief Executive Officer the
controlling 1% ownership interests in three entities, ET Sub Meridian Limited
Partnership, LLP, ("Meridian"), ET Sub-Cabot Park, LLC, ("Cabot") and ET
Sub-Cleveland Circle, LLC, ("Cleveland"), that hold leasehold and purchase
option rights to seven skilled nursing facilities and that own one assisted
living facility and one independent living facility. During the option period,
Mr. McCreary has surrendered operational control to the Company. The Company
owned a 99% non-controlling interest in these entities since 1998. The Company
previously accounted for its investment in these entities under the equity
method. As of September 30, 2002, the Company consolidated the respective
balance sheets of Meridian, Cabot and Cleveland with the Company's other
operations. The results of operations of these entities are consolidated into
the Company's consolidated statement of operations beginning October 1, 2002. As
a result of this transaction, the Company's total assets, debt, investments in
unconsolidated entities, rental revenue, interest, depreciation expense and
equity in losses of unconsolidated entities changed significantly, however, net
income was not materially changed. See Note 6 to the Company's Consolidated
Financial Statements for supplemental pro forma results of operations as if the
consolidation had been completed as of the beginning of the periods presented.


                                       45
<PAGE>

              Revenues

         Rental revenues were $21.9 million for 2002 as compared to $18.6
million for 2001. Rental revenues attributable to Genesis and Genesis Equity
Investees totaled $18.3 million, or 72% of total rental revenues, for 2002
compared to $14.8 million, or 79% of total revenues for 2001. The increase in
rental revenues in 2002 is primarily due to the consolidation of Meridian, Cabot
and Cleveland beginning in the fourth quarter of 2002.

         Interest income was $0.3 million for 2002 as compared to $2.7 million
for 2001. This decrease was a result of repayments of real estate loan
receivables made to the Company during 2001.

         Interest from investments in unconsolidated equity investees was $2.9
million for 2002 as compared to $3.9 million for 2001. This decrease is
primarily due to the consolidation of Meridian, Cabot and Cleveland beginning in
the fourth quarter of 2002. Approximately $2.4 million of interest income was
recorded on loans made to Meridian, Cabot and Cleveland during 2002. These
amounts will no longer be recognized in subsequent periods due to the
elimination of these receivables following the consolidation of Meridian, Cabot
and Cleveland as of September 30, 2002.

              Expenses

         Property operating expenses principally relate to medical office
buildings, which are subject to leases that do not require the lessees to pay
all property operating expenses. Property operating expenses for these
properties were $1.3 million for 2002 compared to $1.2 million for 2001.
Property operating expenses as a percentage of medical office building rental
revenues decreased to 39.6% for 2002 from 41.4% for 2001.

         Interest expense, which includes amortization of deferred financing
costs of $0.5 million, was $10.2 million for 2002 as compared to $11.6 million,
including amortization of deferred financing costs of $0.7 million for 2001. The
decrease of $1.4 million is due to lower LIBOR rates during 2002. The weighted
average interest rate on outstanding third party debt decreased from 7.1% at
December 31, 2001 to 6.8% at December 31, 2002. The Company's interest rate on
the Guidance Line was 4.67% at December 31, 2002 compared to the rate on its
Bank Credit Facility of 5.44% at December 31, 2001 on the Bank Credit Facility.
Total debt increased from $114.9 million at December 31, 2001 to $212.8 million
at December 31, 2002. This increase in debt is primarily the result of the
consolidation of Meridian, Cabot and Cleveland beginning September 30, 2002.

                                       46
<PAGE>

         Depreciation and amortization was approximately $7.1 million for 2002
compared to $5.6 million for 2001. This increase is primarily due to the
consolidation of Meridian, Cabot and Cleveland beginning in the fourth quarter
of 2002.

         General and administrative expense was approximately $2.5 million for
2002 compared to $3.2 million for 2001. This reduction is primarily due to a
decrease in legal fees of approximately $0.9 million due to completion of the
Genesis lease and loan restructuring transactions in January 2001 and the
execution of the amended lease agreements.

         Loss on impairment of long-lived assets was $2.1 million for 2002 and
$0.5 million for 2001. This increase is due principally to the $2.1 million
asset impairment charge recorded by the Company on its Harston Hall property
that, along with the Pennsbury property, secure a $14.9 million mortgage loan
that matures on April 10, 2003. The impairment charge was recorded due to
changes in the expected holding period of the property.

              Equity in Losses of Unconsolidated Subsidiaries

         Equity in losses of unconsolidated subsidiaries decreased principally
due to the consolidation of Meridian, Cabot and Cleveland beginning in the
fourth quarter of 2002.

              Loss from Discontinued Operations

         The Salisbury Medical Office Building, located in Salisbury, Maryland,
was classified as held for sale in June 2002. After adjusting for an impairment
charge of $315,000, the property has a net carrying value of $926,000 as of
December 31, 2002. The loss from discontinued operations for 2002 was $262,000
as compared to a net loss of $25,000 for the corresponding period in 2001. The
increase is due to the recording of the impairment charge in 2002. The Company
sold the Salisbury Medical Office Building at a purchase price of approximately
$1.0 million, the proceeds were used to payoff the $1.0 million in debt secured
by the property.

         Year ended December 31, 2001 compared to the year ended December 31,
            2000

              Revenues

         Rental revenues were $18.6 million for 2001 as compared to $18.4
million for 2000. Rental revenues attributable to Genesis and Genesis Equity
Investees totaled $14.8 million, or 79% of total rental revenues, for 2001
compared to $14.8 million, or 80% of total revenues for 2000.

         Interest income was $2.7 million for 2001 as compared to $4.5 million,
net of amortization of deferred loan costs of $145,000 for 2000, a 40.2%
decrease. This decrease is due to the repayment of the underlying loans by the
borrowers during 2001.


                                       47
<PAGE>


         Interest income from investments in unconsolidated equity investees was
$3.9 million for 2001 as compared to $3.3 million for 2000. This represents a
20.5% increase over the prior year which is primarily due to the interest
payments received by the Company related to a $8.5 million note receivable from
Meridian, an unconsolidated subsidiary of the Company. This note receivable was
transferred to the Company in January 2001 as part of the Genesis restructuring.

              Expenses

         Property operating expenses principally relate to medical office
buildings, which are subject to leases that do not require the lessees to pay
all property operating expenses. Property operating expenses for these
properties were $1.2 million for 2001 compared to $1.1 million for 2000.
Property operating expenses as a percentage of medical office building rental
revenues increased to 43.5% for 2001 from 38.2% for 2000.

         Interest expense, which includes amortization of deferred financing
costs of $0.7 million, was $11.6 million for 2001 as compared to $13.9 million,
including amortization of deferred financing costs of $0.6 million for 2000. The
decrease of $2.3 million is due to lower LIBOR rates and lower third party debt
balances outstanding. The weighted average interest rate on outstanding third
party debt decreased from 8.5% at December 31, 2000 to 7.1% at December 31,
2001. The Company's interest rate on the Bank Credit Facility was 5.44% at
December 31, 2001 compared to 9.63% at December 31, 2000.


         Depreciation and amortization was approximately $5.6 million for 2001
compared to $5.8 million for 2000. This decrease is primarily due to the
Woodbridge property being held for sale during 2001. During the held for sale
period the property was not depreciated, as required under SFAS No.
121,"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of".

         General and administrative expense was approximately $3.2 million for
2001 compared to $3.6 million for 2000. This decrease is primarily due to
decreased compensation for officers of approximately $0.2 million, a decrease of
$0.7 million in connection with expenses related to property due diligence
transactions offset, in part, by an increase in legal expenses of approximately
$0.6 million relating to the Genesis and Multicare lease and loan restructuring
transactions that took place in January 2001 following Genesis' June 2000
chapter 11 bankruptcy filing and the resolution of the Woodbridge property new
lease agreement.

         Bad debt expense was $0.1 million for 2001 and $9.5 million for 2000.
The bad debt expense recorded in 2000 resulted from impairment charges recorded
on real estate loans receivable of $7.1 million, investments in and advances to
unconsolidated entities of $1.4 million and a note receivable from a former
officer of the Company of $990,000.

         Loss on impairment of long-lived assets was $0.5 million for 2001 and
$5.3 million for 2000. The loss on impairment of long-lived assets recorded in
2000 resulted primarily from fair market value adjustments on real estate
properties held for sale at December 31, 2000.



                                       48
<PAGE>

              Equity in Losses of Unconsolidated Subsidiaries

         The net losses recorded by the Company for its investment in
unconsolidated subsidiaries were $2.6 million for 2001 and $10.0 million for
2000. The net decrease in net equity in losses of unconsolidated subsidiaries is
primarily due to the Company recording its share of a bad debt expense of $7.8
million recorded by ET Capital during 2000. See Note 6 to the Company's
Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

         During August 2002, the Company entered into a new, 18-month credit
agreement with Wachovia Bank.

         The more significant terms of the new Guidance Line are:

         * 18-month term;
         * recourse loan secured by all properties not otherwise securing other
           loans;
         * borrowings up to $7.5 million in the aggregate upon lender approval,
           subject to
           borrowing base limits;
         * quarterly principal payments of $500,000;
         * interest calculated at 325 basis points over LIBOR, which was
           elected by the Company, or an alternate rate of Wachovia Bank prime
           plus 0.5%, at borrower's election; and
         * distributions to shareholders limited to 90% of funds from
           operations.

        The amounts outstanding under the Guidance Line bear interest at a
floating rate of 3.25% over LIBOR, or 4.67% at December 31, 2002. As noted
previously, on January 27, 2003, the Company paid approximately $3.1 million to
Wachovia Bank to pay-off the outstanding balance under the Guidance Line.

         Cash provided by operating activities was $10.7 million for 2002 as
compared to $11.1 million for 2001. Net cash provided by operating activities
for 2002 is comprised of net income adjusted for non cash items of $12.0 million
offset by changes in assets and liabilities of $1.3 million.

         Net cash provided by operating activities was $11.1 million for 2001 as
compared to $7.5 million for 2000. This increase in cash of $3.6 million is
comprised of the following (a) an increase in net income of $21.8 million
offset, in part, by (b), the net decrease in bad debt of $9.4 million, (c) the
net decrease in loss on impairment of long-lived assets of $4.9 million, (d) the
net decrease in minority interest and equity in losses from unconsolidated
entities of $5.8 million, (e) the net decrease in depreciation and amortization
of $0.2 million and (f) increased by the net change in operating assets and
liabilities of $2.1 million.

         Net cash provided by investing activities was $0.8 million for 2002
compared to $20.9 million for 2001. Net cash provided by investing activities
for the year ended December 31, 2001 included $21.7 million received in
principal payments on loans receivable offset, in part, by a $0.8 million net
increase in deposits and restricted cash and $0.1 million in capital
expenditures.


                                       49
<PAGE>


         Net cash provided by investing activities was $20.9 million for 2001
compared to net cash used in investing activities of $0.3 million for 2000. Net
cash provided by investing activities for the year ended December 31, 2001
included (a) $21.7 million received in principal payments on loans receivable,
(b) $0.2 million in proceeds from affiliates offset by (c) $0.8 million net
increase in deposits and restricted cash.

         Net cash used in financing activities was $6.7 million for 2002
compared to $32.4 million for 2001. The decrease in net cash used was due to a
net decrease of $27.0 million related to payments on the Company's Bank Credit
Facility and the Company's Guidance Line offset, in part, by the increase in
payments on mortgages payable of $0.6 million.

         Net cash used in financing activities was $32.4 million for 2001
compared to $7.7 million for 2000. The net cash used in financing activities for
2001 principally included $31.4 million in payments on the Credit Facility and
$1.2 million in payments on mortgages. Net cash used in financing activities for
2000 included (a) $0.8 million in payments of deferred financing fees, (b) $1.0
million in payments on the Credit Facility, (c) $1.1 million in payments on
mortgages payable, (d) $4.6 million in distributions to shareholders and
minority interests and (e) $0.2 million related to the purchase of partnership
units.

         The Company's working capital deficit was $14.3 million and $49.6
million at December 31, 2002 and 2001, respectively. The decrease in the working
capital deficit at December 31, 2002 compared to 2001 was primarily due to the
inclusion in current liabilities, at December 31, 2001, of three mortgages with
unpaid principal balances totaling $14.8 million which were in default based on
technical requirements in the leases and two mortgages secured by three
properties with unpaid principal balances totaling $25.1 million that matured
originally in December 2002. The Company has not received notice of default or
acceleration on these loans. Therefore the Company does not consider them to be
a current liability. See Note 8 of the Company's Consolidated Financial
Statements for additional information.

         The 2002 working capital deficit also includes the $2.0 million current
portion of the $3.1 million outstanding balance with the Guidance Line at
December 31, 2002, which was required to be repaid by August 31, 2003. As
discussed above, on January 27, 2003, the Company paid $3.1 million to Wachovia
Bank to pay off the balance due under the Guidance Line. As of January 31, 2003,
the Company has, $7.5 million available for future borrowings under the Guidance
Line, subject to lender approval and borrowing limitations.

         Cash and cash equivalents were $7.4 million and $2.7 million at
December 31, 2002 and December 31, 2001, respectively. The Company's management
believes that available cash and cash equivalents should be sufficient to
satisfy the Company's short-term working capital needs. Of the $7.4 million in
cash at December 31, 2002, $3.1 million was used to pay off the Guidance Line on
January 27, 2003.

         The Company had three non-recourse mortgage loans secured by four
properties with an aggregate principal balance of $30 million that matured in
December 2002. The Company announced in November 2002 that the maturity date of
one loan, secured by the Lopatcong property, had been extended until December 1,
2004. In February 2003, the lender also extended a $4.6 million mortgage loan
secured by the Wayne property to December 1, 2004. In connection with the
extension, the Company made a $1.1 million payment and reduced the balance
outstanding from $4.6 million to $3.5 million. The lender has extended the
maturity date of the remaining mortgage loan of $14.9 million, which is secured
by the Harston Hall and Pennsburg properties, until April 10, 2003 to allow time
for the lender and the Company to negotiate a resolution of this loan. If the
maturity date of this mortgage is not extended by the lender and the lender
foreclosed on these properties securing the mortgages, the Company would lose
the properties and the revenues it derives from the properties. Based upon
conversations with the lender, several alternatives appear to be available to
satisfy the Company's obligation under the loan, which may include, among other
alternatives, a further extension as a cash flow mortgage, sale or a title
transfer via a "deed in lieu of foreclosure" transaction. At December 31, 2002,
the Harston Hall and Pennsburg properties had a net book value of $13.8 million.
During 2002, the Company derived $2.0 million of revenue and net income of $0.5
million from the properties.


                                       50
<PAGE>

         As of December 31, 2002, the Company had shareholders' equity of $82.7
million and Guidance Line borrowings, capital lease obligations and mortgages,
bonds and notes payable, aggregating $212.8 million, which represents a debt to
equity ratio of 2.57 to 1. This is an increase from 1.42 to 1 at December 31,
2001. This increase is primarily due to a net increase in mortgages payable and
capital lease obligations of $99.1 million resulting from the consolidation of
Meridian, Cabot and Cleveland.

         On December 4, 2002, the Company issued a press release addressing the
dividend distribution policy. The Company stated that it intends to resume
regular quarterly distributions to the holders of its common shares and that the
initial distribution is expected to be declared in mid-April, 2003. The Company
estimates that, based upon its current estimate of operations and cash
requirements, the per share distribution will be $0.64 per year, or $0.16 per
quarter. Distributions by the Company are at the discretion of its Board of
Trustees.

         At December 31, 2002, the Company's third party indebtedness of $209.0
million consisted of $33.1 million in variable rate debt and $175.9 million in
fixed rate debt. The weighted average annual interest rate on this debt was
6.82% at December 31, 2002. Based on interest rates at December 31, 2002, annual
debt service requirements related to this debt approximate $14.5 million.

         Future increases in interest rates, as well as any defaults by tenants
on their leases, could adversely affect the Company's cash flow and its ability
to pay its obligations.

         Facilities owned by the Company and leased to tenants under percentage
and minimum rent triple net leases require the lessee to pay substantially all
expenses associated with the operation of such facilities. Facilities owned by
the Company and subject to percentage and minimum rent leases represent
approximately 87% of the Company's revenues at December 31, 2002. As a result of
these arrangements, the Company does not believe it will be responsible for
significant expenses in connection with the facilities during the terms of the
leases. However, there can be no assurance the Company will not be responsible
for significant expenses of its leased properties in the event one or more of
its lessees default on their leases with the Company.

         During 2000, the Company recorded significant bad debt expenses due to
the Genesis bankruptcy filing related to loans and properties under lease and,
as a result, recognized a net loss for financial reporting purposes. For federal
income tax purposes, these losses totaling approximately $13.5 million were
recorded in 2001 as required under applicable income tax rules. These losses
will reduce the amount otherwise required by the Company to be distributed to
meet REIT requirements.


                                       51
<PAGE>
Contractual Obligations and Commercial Commitments

         The following table represents the Company's contractual obligations as
of December 31, 2002 (amounts in thousands):
<TABLE>
<CAPTION>
                                                            Payments due by period:
                                            --------------------------------------------------------------
                                                          Less than      1 to 2      3 to 4      5 years
      Contractual Obligations:               Total         1 year         years       years     and after
----------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>         <C>           <C>         <C>
Long-term debt                             $209,740        $18,671      $23,570       $9,439    $ 158,060
Guidance Line (1)                             3,067          2,000        1,067
Operating leases                                817            163          168          173          313
                                           --------------------------------------------------------------
Total contractual obligations              $213,624        $20,834      $24,805      $ 9,612    $ 158,373
                                           ==============================================================
</TABLE>

         (1) On January 27, 2003, the Company paid approximately $3.1 million to
Wachovia Bank to pay off the Guidance Line.

         See Item 7A. "Qualitative and Qualitative Disclosures About Market
Risk", and Note 8 of the Company's Consolidated Financial Statements for
additional information.

         As of December 31, 2002 the Company's commercial commitments consisted
of the following:

         The Company provided two letters of credit aggregating $1.0 million in
connection with the Woodbridge and Highgate bond documents.

         At December 31, 2002, the Company's total assets increased to $306.8
million from $205.6 million at December 31, 2001. This increase is primarily due
to the consolidation of Meridian, Cabot and Cleveland as of September 30, 2002.
The Company owns the leasehold and purchase option rights to seven skilled
nursing facilities located in Maryland and New Jersey. The seven skilled nursing
facilities are subleased to subsidiaries of Genesis. Genesis has guaranteed the
subleases. The purchase options are exercisable in September 2008 for a cash
exercise price of $66.5 million. In connection with its acquisition of a 99%
interest in Meridian in 1998, the Company agreed to indemnify the property
owners for any loss of deferral of tax benefits prior to August 31, 2008 due to
a default under a sublease or if a cure of a default by the Genesis subsidiary
leasing the facilities resulted in a taxable event to the owners. The Company
also agreed to indemnify Genesis for any amounts expended by Genesis under the
back-up indemnity provided by Genesis to the current owners for the same loss.
The Company's maximum remaining exposure under these indemnity agreements is
$9.1 million.

         Additionally, the Company entered into an agreement in 1998 with
respect to Cabot, Cleveland, Vernon Court and Heritage Andover (collectively,
the "NDNE properties") that allow all deductions for depreciation and low income
housing tax credits ("LIHTC") on the NDNE properties to be allocated to the
holders of the class C (LIHTC) units of limited partnership interest of the
Operating Partnership through 2012. The agreement further states that, in the
event that prior to December 31, 2012, the Operating Partnership either disposes
of all or any portion of its interests in the NDNE properties or takes any other
action with respect to the NDNE properties that causes the qualified basis to be
less than the amount thereof on the date of purchase and solely by reason of
such disposition or other action all or any part of the LIHTC's actually allowed
to the holders of the class C (LIHTC) units are subject to recapture pursuant to
Section 42(j) of the Internal Revenue Code, the Operating Partnership shall pay
to such holders of the class C (LIHTC) units cash in an amount equal to the
"credit recapture amount", if any, payable by the holders of the class C (LIHTC)
units solely as the result of such disposition or other action. The Operating
Partnership also covenants that in the event that prior to December 31, 2013,
the Operating Partnership either disposes of all or any portion of the Operating
Partnership's interest in the NDNE properties or takes any other action with
respect to the NDNE properties that causes the holders of the class C (LIHTC)
units to have to recognize a "recapture" of all or any portion of the
Depreciation deductions that have been specially allocated to them, the
Operating Partnership will pay to the holders of the class C (LIHTC) units cash
in an amount equal to the excess of (a) 38% of such depreciation deductions that
are required to be recaptured solely as the result of such disposition or other
action over (b) the discounted present value of such amount, discounted from
December 31, 2013 to the last day of the calendar year in which depreciation
deductions are recaptured.

                                       52
<PAGE>
Financial Covenants

         The Guidance Line contains various financial and other covenants,
including, but not limited to, minimum fixed charge ratio, minimum tangible net
worth, a total leverage ratio and minimum interest coverage ratio. Certain of
the Company's other indebtedness also contains various financial and other
covenants. At December 31, 2002, the Company was in compliance with these
requirements.

         The following table sets forth the material financial covenants to
which we are subject under the Guidance Line and our other indebtedness, and the
degree to which we complied with those covenants as of December 31, 2002:
<TABLE>
<CAPTION>

              Financial Covenant                    Required Ratio/Test          Actual Ratio/Test
---------------------------------------------------------------------------------------------------
<S>                                                   <C>                              <C>
Minimum tangible net worth                       $75.0 million                    $86.2 million
Total leverage ratio                             Less than 65%                        54.8%
Minimum interest coverage  ratio                 Greater than 1.75                    2.20
Minimum fixed charge ratio                       Greater than 1.50                    1.58
EBITDA to interest expense (1)                   Greater than 1.60                    1.98

</TABLE>


(1) This EBITDA interest coverage ratio increases to 1.80:1 for 2003 and to
    1.90:1 after June 30, 2004.


                                       53
<PAGE>

Funds from Operations

       The following table presents the Company's Funds from Operations for the
years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                     2002              2001           2000
                                                                   ----------------------------------------
                                                                                  (in thousands)
<S>                                                                  <C>                <C>          <C>
Funds from Operations (1):
    Net income (loss)                                               $   506           $   524      ($21,330)
    Minority interest                                                    53                42        (1,530)
    Minority interest from discontinued operations                      (12)               (1)           (1)
                                                                   ----------------------------------------

    Net income (loss) before minority interest                          547               565       (22,861)


    Adjustments to derive Funds from Operations:
      Add:
        Depreciation and amortization:
                Consolidated entities                                 7,119             5,660         5,976
                Unconsolidated entities                               3,367             4,488         4,489
        Impairment charges on real estate
                     properties                                       2,434               450         5,306
                                                                   ----------------------------------------
     Funds from Operations before allocation to
        minority interest                                            13,467            11,163        (7,090)
      Funds from Operations allocable to
        minority interest                                              (602)             (584)          470
                                                                   ----------------------------------------
     Funds from Operations attributable to the common
        shareholders                                                $12,865           $10,579       ($6,620)
                                                                   ----------------------------------------

   Other Data:
     Cash flow provided by operating activities                     $10,671           $11,101        $7,430
                                                                   ----------------------------------------
     Cash flow provided by (used in)  investing
        activities                                                  $   761           $20,887        $ (256)
                                                                   ----------------------------------------
     Cash flow used in financing activities                        ($6,710)          ($32,417)      ($7,674)
                                                                   ----------------------------------------
</TABLE>

(1) For information on the definition of Funds from Operations, see footnote 1
    to the Funds from Operations table under "Selected Financial Data."

                                       54
<PAGE>

Impact of Inflation

         Earnings of the Company are primarily from long-term investments with
fixed interest rates and fixed and percentage rental streams. These investments
are mainly financed with a combination of equity, long-term mortgages and
borrowings under the revolving lines of credit. During inflationary periods,
which generally are accompanied by rising interest rates, the Company's ability
to grow may be adversely affected because the yield on new investments may
increase at a slower rate than new borrowing costs.

Recent Accounting Pronouncements

         See the Company's Consolidated Financial Statements and related notes
for information relating to the impact on the Company of new accounting
pronouncements.

Summary Condensed Consolidated Financial Data of Genesis

         As leases with Genesis represent a significant portion of the Company's
consolidated assets and revenues, the Company has included certain summary
condensed consolidated financial data of Genesis for the periods discussed
below. The summary condensed consolidated financial data of Genesis was taken
from Genesis' annual report on Form 10-K for the year ended September 30, 2002
and from Genesis' quarterly report on Form 10-Q for the quarter ended December
31, 2002 as filed with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").

         Genesis is subject to the information filing requirements of the
Exchange Act, and in accordance therewith, is obligated to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. Such reports, proxy
statements and other information may be inspected at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be
available at the following Regional Offices of the Commission: 7 World Trade
Center, New York, N.Y. 10048, and 500 West Madison Street, Suite 1400, Chicago,
IL 60661. The SEC also maintains an Internet web site that contains reports,
proxy statements and other information regarding issuers, like Genesis, that
file electronically with the SEC. The address of that site is
http://www.sec.gov.



                                       55
<PAGE>

         The following table sets forth certain summary condensed consolidated
financial data for Genesis as of and for the quarter ended December 31, 2002 and
the years ended September 30, 2002 and 2001.

<TABLE>
<CAPTION>

                                                                      For the
                                                                   quarter ended     For the years ended
                                                                    December 31,        September 30,
                                                                   ---------------------------------------
                                                                       2002         2002         2001
                                                                   ---------------------------------------
                                                                    (in thousands except per share data)
                                                                   ---------------------------------------
                                                                    Successor    Successor     Successor
                                                                   ---------------------------------------

<S>                                                                   <C>           <C>           <C>
Net revenues                                                       $669,511     $2,623,679     $2,452,171
Operating income before debt restructuring,
    reorganization costs and capital and other costs (1)             63,346        253,166        126,460
Debt restructuring and reorganization costs                               -          4,270      1,083,407
Loss on sale of assets                                                    -              -            540
Depreciation and amortization                                        16,671         63,102        104,394
Lease expense                                                         7,162         27,716         35,011
Interest expense, net                                                11,405         47,963        118,552
                                                                   --------------------------------------
Income (loss) before income taxes, equity in net income
    (loss) of unconsolidated affiliates, minority
    interest, extraordinary items and discontinued                   28,108        110,115     (1,215,444)
    operations
Income tax expense                                                   10,961         32,463              -
                                                                   --------------------------------------
Income (loss) before equity in net income (loss) of
    unconsolidated affiliates, minority interest and
    extraordinary items                                              17,147         77,652     (1,215,444)
Minority interest                                                    (1,115)        (2,838)        23,456
Equity in income (loss) of unconsolidated affiliates                    147          1,579        (10,213)
Preferred stock dividends                                              (683)        (2,599)       (45,623)
Loss from discontinued operations, net of taxes                      (3,559)        (3,627)       (15,085)
Extraordinary items, net of tax                                           -              -      1,509,918
                                                                   --------------------------------------
Net income applicable to common shareholders                       $ 11,937     $   70,167     $  247,009
                                                                   ======================================
</TABLE>


                                       56
<PAGE>
<TABLE>
<CAPTION>
                                                                      For the
                                                                   quarter ended     For the years ended
                                                                    December 31,        September 30,
                                                                   ---------------------------------------
                                                                       2002         2002         2001
                                                                   ---------------------------------------
                                                                    (in thousands except per share data)
                                                                   ---------------------------------------
                                                                    Successor    Successor     Successor
                                                                   ---------------------------------------
<S>                                                                   <C>            <C>           <C>
Per common share data:
  Basic:
    Income (loss) from continuing operations                         $ 0.37         $ 1.79        ($25.65)
    Net (loss) from discontinued operations                           (0.09)         (0.09)         (0.31)
    Extraordinary item                                                    -              -          31.04
    Net income                                                       $ 0.29         $ 1.70          $5.08
    Weighted average shares of common stock and
      equivalents                                                    41,458         41,226         48,641
  Diluted:
    Income (loss) from continuing operations                         $ 0.37         $ 1.76        ($25.65)
    Net (loss) from discontinued operations                           (0.08)         (0.08)         (0.31)
    Extraordinary item                                                    -              -          31.04
    Net income                                                       $ 0.29        $  1.68          $5.08
    Weighted average shares of common stock and
      equivalents                                                    43,712         43,351         48,641
</TABLE>

         (1) Capital costs include depreciation, amortization, lease expense and
interest expense.
<TABLE>
<CAPTION>
                                                       December 31,      September 30,     September 30,
                                                          2002               2002              2001
                                                      -------------   -------------------  -------------
                                                                     (dollars in thousands)
                                                        Successor          Successor       Predecessor
<S>                                                        <C>                <C>              <C>
Balance Sheet Data
   Working capital                                      $416,223          $ 449,006         $ 282,016
   Total assets                                        1,961,961          1,989,495         1,839,220
   Long-term debt                                        613,377            648,939           603,268
   Shareholders' equity                                  927,530            914,123           834,858

</TABLE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's bonds payable and most of the Company's mortgages payable
bear interest at fixed rates. The Company is exposed to market risks related to
fluctuations in interest rates on its guidance line and variable rate mortgages.
The Company utilizes interest rate cap provisions within its debt agreements to
limit the impact that interest rate fluctuations have on its variable rate
mortgages. The Company does not utilize interest rate swaps, forward or option
contracts on foreign currencies or commodities, or any other type of derivative
financial instruments.

         For fixed rate debt, changes in interest rates generally affect the
fair market value of the underlying indebtedness, but not earnings or cash
flows. The Company generally cannot prepay fixed rate debt prior to maturity
without premium. Therefore, interest rate risk and changes in fair market value
should not have a significant impact on the fixed rate debt until the Company
would be required to refinance such debt. The maturity schedule for the
Company's fixed rate mortgages, note and bonds payable is as follows (in
thousands):


                                       57
<PAGE>
<TABLE>
<CAPTION>
<S>                            <C>                          <C>

                              2003                       $ 3,458
                              2004                         3,706
                              2005                         3,986
                              2006                         4,284
                              2007                         4,119
                              Thereafter                  91,048
                                                         -------
                                                        $110,601
                                                        ========

</TABLE>

         At December 31, 2002, the fair value of the Company's fixed rate
mortgages and bonds payable is approximately $116.0 million.

         For variable rate debt, changes in interest rates generally do not
impact fair market value, but do affect future earnings and cash flows. At
December 31, 2002, the fair value of the Company's variable rate debt
approximates its carrying value of $33.1 million. The weighted average interest
rate on borrowings outstanding under the Guidance Line and variable rate
mortgages was 4.44% at December 31, 2002. Assuming the variable rate mortgage
balances outstanding at December 31, 2002 of $30.0 million remains constant,
each one percentage point increase in interest rates from 4.44% at December 31,
2002 would result in an increase in interest expense for the coming year of
approximately $300,000. Amounts outstanding under the Guidance Line bear
interest at a rate of 3.25% over LIBOR. Variable-rate mortgages bear interest at
3.00% over one-month LIBOR.

         The Company may borrow additional money with variable interest rates in
the future. Increases in interest rates, therefore, would result in increases in
interest expenses, which could adversely affect the Company's cash flow and its
ability to pay its obligations and make distributions to shareholders at current
levels. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."



                                       58
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          Independent Auditors' Report

The Board of Trustees and Shareholders
ElderTrust:

We have audited the accompanying consolidated balance sheets of ElderTrust and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 2002. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement Schedule III as listed in the index as Item 15(a)(ii). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ElderTrust and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

As discussed in Note 2, the Company adopted Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets in 2002.


                                                                /s/ KPMG LLP

McLean, Virginia
January 27, 2003, except as to Note 8,
which is as of March 13, 2003


                                       59
<PAGE>

                                   ELDERTRUST
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2002 and 2001
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                                                    2002              2001
                                                                                   -------------------------
                                 ASSETS
<S>                                                                                   <C>              <C>
Assets:
     Real estate properties, at cost                                               $306,553         $169,078
     Less - accumulated depreciation                                                (44,921)         (19,745)
     Land                                                                            20,425           17,327
                                                                                   -------------------------
            Net real estate properties                                              282,057          166,660
     Property held for sale                                                             926                -
     Cash and cash equivalents                                                        7,398            2,676
     Restricted cash                                                                 11,259            9,245
     Accounts receivable, net of allowance of $16 and $340, respectively                119              386
     Accounts receivable from unconsolidated entities                                    65            1,552
     Prepaid expenses                                                                   613              403
     Investment in and advances to unconsolidated entities, net of
         allowance of $1,292 and $1,405, respectively                                 3,187           24,033
     Other assets, net of accumulated amortization and depreciation of
         $1,128 and $2,817, respectively                                              1,151              600
                                                                                   -------------------------
                Total assets                                                       $306,775         $205,555
                                                                                   =========================

         LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
     Guidance line / Bank credit facility                                            $3,067           $7,174
     Accounts payable and accrued expenses                                            1,441            1,024
     Accounts payable to unconsolidated entities                                         47               11
     Mortgages, note and bonds payable, including a mortgage on a property
         held for sale of $1,022, and capital lease obligations                     205,896          106,773
     Notes payable to unconsolidated entities                                         3,844              942
     Other liabilities                                                                6,267            3,992
                                                                                   -------------------------
                Total liabilities                                                   220,562          119,916
                                                                                   -------------------------
Minority interest                                                                     3,469            4,641

Shareholders' equity:
     Preferred shares, $.01 par value; 20,000,000 shares authorized;
         none outstanding                                                                 -                -
     Common shares, $.01 par value; 100,000,000 shares authorized;
         7,540,142 and 7,336,331 issued and outstanding, respectively                    75               73
     Capital in excess of par value                                                 121,988          120,750
     Deficit                                                                        (39,319)         (39,825)
                                                                                   -------------------------
           Total shareholders' equity                                                82,744           80,998
                                                                                   -------------------------
                Total liabilities and shareholders' equity                         $306,775         $205,555
                                                                                   =========================
</TABLE>

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


                                       60
<PAGE>
                                   ELDERTRUST
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended December 31, 2002, 2001 and 2000
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                            2002            2001            2000
                                                                          -------         -------          -------
<S>                                                                      <C>             <C>              <C>
Revenues:
     Rental revenues                                                      $21,906         $18,593          $18,437
     Interest, net of amortization of deferred loan origination
        costs                                                                 290           2,715            4,542
     Interest from unconsolidated equity investees                          2,888           3,920            3,252
     Other income                                                             245             188              137
                                                                          -------         -------          -------
        Total revenues                                                     25,329          25,416           26,368
                                                                          -------         -------          -------

Expenses:
     Property operating expenses                                            1,289           1,181            1,063
     Interest expense, including amortization of deferred
        finance costs                                                      10,167          11,634           13,911
     Depreciation and amortization                                          7,117           5,634            5,806
     General and administrative                                             2,452           3,220            3,592
     Bad debt expense                                                           -             116            9,522
     Loss on impairment of long-lived assets                                2,119             450            5,306
                                                                          -------         -------          -------
        Total expenses                                                     23,144          22,235           39,200
                                                                          -------         -------          -------

Net income (loss) before equity in losses of unconsolidated
     entities, minority interest and discontinued operations                2,185           3,181          (12,832)

Equity in losses of unconsolidated entities, net                           (1,364)         (2,590)         (10,010)
Minority interest                                                             (53)            (42)           1,530
                                                                          -------         -------          -------

Net income (loss) from continuing operations                                  768             549          (21,312)

Loss from discontinued operations                                            (262)            (25)             (18)
                                                                          -------         -------          -------
Net income (loss)                                                            $506            $524         ($21,330)
                                                                          =======         =======          =======

Basic weighted average number of common shares outstanding                  7,401           7,184            7,119
                                                                          -------         -------          -------

Net income (loss) per share from continuing operations - basic              $0.10           $0.07           ($3.00)

Net loss on discontinued operations                                        ($0.03)              -                -
Net income (loss) per share - basic                                         $0.07           $0.07           ($3.00)

Diluted weighted average number of common shares
     Outstanding                                                            7,708           7,442            7,119
                                                                          -------         -------          -------

Net income (loss) per share from continuing operations- diluted                             $0.07           ($3.00)
                                                                            $0.10
Net loss on discontinued operations                                        ($0.03)              -                -
Net income (loss) per share - diluted                                       $0.07           $0.07           ($3.00)
</TABLE>
  The accompanying notes to consolidated financial statements are an integral
                           part of these statements.

                                       61
<PAGE>
                                   ELDERTRUST
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years ended December 31, 2002, 2001, and 2000
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                Note
                                                               Capital In                    Receivable          Total
                                       Shares       Common      Excess of                   From Former       Shareholders'
                                     Outstanding    Shares      Par Value       Deficit       Officer            Equity
                                    -------------------------------------------------------------------------------------
<S>                                <C>            <C>        <C>           <C>               <C>             <C>
Balances at December 31, 1999            7,119         71        119,106       (14,747)           (990)           103,440
  Purchase of partnership units              -          -          1,271             -               -              1,271
  Net loss                                   -          -              -       (21,330)              -            (21,330)
  Distributions                              -          -              -        (4,272)              -             (4,272)
  Bad debt allowance on loan from
     former officer                          -          -              -             -             990                990
                                    -------------------------------------------------------------------------------------
Balances at December 31, 2000            7,119         71        120,377       (40,349)              -             80,099
  Purchase of partnership units              -          -             38             -               -                 38
  Net income                                 -          -              -           524               -                524
  Share options exercised                  217          2            170             -               -                172
  Share warrants issued                      -          -            165             -               -                165
                                    -------------------------------------------------------------------------------------
Balances at December 31, 2001            7,336         73        120,750       (39,825)              -             80,998
  Redeemed partnership units                95          1          1,193             -               -              1,194
  Net income                                 -          -              -           506               -                506
  Share options exercised                   18          -             45             -               -                 45
  Share warrants exercised                  91          1              -             -               -                  1
                                    -------------------------------------------------------------------------------------
Balances at December 31, 2002            7,540       $ 75       $121,988      ($39,319)           $  -            $82,744
                                    =====================================================================================
</TABLE>

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


                                       62
<PAGE>
                                   ELDERTRUST
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2002, 2001 and 2000
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                2002          2001          2000
                                                                                               -------      --------       -------
<S>                                                                                           <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss) from continuing operations                                              $   768      $    549      ($21,312)
     Adjustments to reconcile to net cash provided by operating activities:
         Depreciation and amortization                                                           7,684         6,360         6,569
         Bad debt expense                                                                            -           116         9,522
         Loss on impairment of long-lived assets                                                 2,434           450         5,306
         Minority interest and equity in losses from unconsolidated entities                     1,405         2,642         8,480
         Deferred lease costs                                                                     (154)            -             -
         Discontinued operations                                                                  (254)           (9)            8
         Net changes in assets and liabilities:
         Accounts receivable and prepaid expenses                                                 (677)        1,206        (1,244)
         Accounts payable and accrued expenses                                                     406          (589)           77
         Other                                                                                    (946)          376            24
                                                                                               -------      --------       -------
                 Net cash provided by operating activities                                      10,666        11,101         7,430
                                                                                               -------      --------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of controlling partnership interest                                               410             -             -
     Capital expenditures                                                                         (533)         (141)         (134)
     Proceeds from collection on advances to unconsolidated entities                               705           195         1,536
     Payments received on real estate loans receivable                                               -        21,697             -
     Net increase in reserve funds and deposits - restricted cash                                  179          (834)       (1,658)
     Other                                                                                           -           (30)            -
                                                                                               -------      --------       -------
                 Net cash provided by (used in) investing activities                               761        20,887          (256)
                                                                                               -------      --------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Deferred finance costs                                                                       (525)            -          (797)
     Borrowings under guidance line                                                              3,067             -             -
     Payments under credit facility                                                             (7,370)      (31,352)         (950)
     Payments on mortgages payable                                                              (1,784)       (1,146)       (1,061)
     Purchase of partnership units                                                                   -           (18)         (203)
     Distributions to shareholders                                                                   -             -        (4,272)
     Distributions to minority interests                                                            (3)            -          (327)
     Stock options exercised                                                                        45           172             -
     Other                                                                                        (135)          (73)          (64)
                                                                                               -------      --------       -------
                   Net cash used in financing activities                                        (6,705)      (32,417)       (7,674)
                                                                                               -------      --------       -------

Net increase (decrease) in cash and cash equivalents                                             4,722          (429)         (500)
Cash and cash equivalents, beginning of year                                                     2,676         3,105         3,605
                                                                                               -------      --------       -------
Cash and cash equivalents, end of year                                                         $ 7,398      $  2,676       $ 3,105
                                                                                               =======      ========       =======
</TABLE>

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


                                       63
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000


1.  Organization and Operations

         ElderTrust was formed in the State of Maryland in 1997 and began
operations upon the completion of its initial public offering in January 1998.
ElderTrust elected to be taxed as a real estate investment trust beginning for
its year ended December 31, 1998.

         At December 31, 2002 and 2001, ElderTrust's total assets consisted
primarily of a 96.2% and 94.9% interest in ElderTrust Operating Limited
Partnership (the "Operating Partnership"), and its wholly-owned subsidiaries and
controlled partnerships (collectively, "ElderTrust", "We" or the "Company"),
respectively. At December 31, 2002 and 2001, the Company's consolidated assets
primarily consisted of a diversified portfolio of 32 and 23 healthcare
properties, respectively, consisting primarily of assisted living and skilled
nursing facilities which are leased back to the prior owners or other third
parties. At December 31, 2001, the Company's consolidated assets also included
(a) a 99% non-voting limited partnership interest in an unconsolidated entity
(ET Sub Meridian Limited Partnership, LLP, "Meridian") which holds leasehold and
purchase option rights for seven skilled nursing facilities and (b) a 99%
non-voting limited member interest in two other unconsolidated entities (ET
Sub-Cabot Park, LLC, "Cabot") which owns an independent living facility and (ET
Sub-Cleveland Circle, LLC, "Cleveland") which owns an assisted living facility.
Since September 30, 2002, the Company has consolidated the respective balance
sheets of Meridian, Cabot and Cleveland and their results of operations. See
Note 6 of the Company's consolidated financial statements for additional
information.

         Approximately 86% and 71% of the Company's consolidated assets at
December 31, 2002 and 2001, respectively, consisted of real estate properties
leased to or managed by Genesis Health Ventures, Inc. or its consolidated
subsidiaries (unless the context otherwise requires, collectively, "Genesis") or
entities in which Genesis accounts for its investment using the equity method of
accounting ("Genesis Equity Investees"). As such, the Company's consolidated
revenues and ability to make expected distributions to shareholders depends, in
significant part, upon the revenues derived from Genesis. See Note 5 for
additional information. Michael Walker, ElderTrust's Chairman of the Board of
Trustees, served as Chief Executive Officer of Genesis from 1985 until May 2002
and as Chairman of the Board of Genesis from 1985 until October 2002.

Basis of Presentation

         The consolidated financial statements of ElderTrust include all the
accounts of ElderTrust, the Operating Partnership, and the Operating
Partnership's wholly owned and controlled subsidiaries. Intercompany balances
and transactions have been eliminated. Meridian, Cabot and Cleveland's results
of operations have been consolidated beginning October 1, 2002. Certain other
amounts included in the consolidated financial statements for prior periods have
been reclassified for comparative purposes to conform to the presentation for
2002.


                                       64
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)


2.  Summary of Significant Accounting Policies

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.

Cash and Cash Equivalents

         The Company considers all short-term, highly liquid investments that
are readily convertible to cash and have an original maturity of three months or
less at the time of purchase to be cash equivalents.

Restricted Cash

         Restricted cash represents bond and operating reserve funds required in
connection with outstanding debt issues, security deposits, letters of credit
and mortgage escrow accounts.

Real Estate Properties

         Real estate properties are recorded at cost. Acquisition costs and
transaction fees, including legal fees, title insurance, transfer taxes,
external due diligence costs and market interest rate adjustments on assumed
debt directly related to each property are capitalized as a cost of the
respective property. The cost of real estate properties acquired is allocated
between land and buildings and improvements based upon estimated market values
at the time of acquisition. Depreciation is provided for on a straight-line
basis over an estimated composite useful life of twenty-eight and one-half years
for buildings and improvements.

         We classify the properties we are actively marketing as held for sale
once all of the following conditions are met:

         o    our board has approved the sale, and
         o    we have a fully executed agreement with a qualified buyer which
              provides for no significant outstanding or continuing obligations
              with the property after sale.

         We carry properties held for sale at the lower of their carrying values
or estimated fair values less costs to sell. We cease depreciation at the time
the asset is classified as held for sale. We segregate the held for sale
properties on our consolidated balance sheet.

Accounting Pronouncements

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amended SFAS No.
123 "Accounting for Stock-Based Compensation." The new standard provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Additionally, the
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in the annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. This statement is effective for financial
statements for fiscal years ending after December 15, 2002. In compliance with
SFAS No. 123, ElderTrust has elected to continue to follow the intrinsic value
method in accounting for stock-based employee compensation arrangement as
defined by Accounting Principles Board Opinion ("APB") No. 25, Accounting for
Stock Issued to Employees, and has made the applicable disclosures in Note 10 to
the consolidated financial statements required by SFAS No. 148.

                                       65
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements". FIN 46 explains
how to identify variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to consolidate that
entity. The interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved. FIN No. 46 is effective
immediately for variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an interest after
that date. The Interpretation applies in the first fiscal year or interim period
beginning after June 15, 2003 to variable interest entities in which an
enterprise holds a variable interest that is acquired before February 1, 2003.
ElderTrust does not anticipate that the adoption of FIN No. 46 will have a
material effect on its financial position or results of operations.

Impairment of Long-Lived Assets

         The Company reviews its long-lived assets, which includes real estate
properties, and certain identifiable intangibles for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the estimated fair value of the assets.

         We adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," on January 1, 2002. SFAS No. 144 requires the current and
prior period operating results of any asset that has been classified as held for
sale or has been disposed of on or after January 1, 2002, including any gain or
loss recognized, to be recorded as discontinued operations.

Deferred Financing Costs

         Deferred financing costs are incurred in the process of acquiring
financing for the Company. The Company amortizes these costs over the term of
the respective loan using a method that approximates the interest method.

Income Taxes

         The Company has been organized and operated in a manner so as to
qualify for taxation as a real estate investment trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended. As a result,
the Company generally will not be subject to income tax on its taxable income at
corporate rates to the extent it distributes with respect to each year 90% of
its taxable income, excluding net capital gain, to its shareholders and complies
with certain other requirements (although the Company will pay tax to the extend
of any taxable income that it retains even if it qualifies as a REIT). The
Company intends to continue to qualify as a REIT, and, in light of the Company's
net operating losses described below, no provision has been made for federal
income taxes for the Company in the accompanying financial statements.

                                       66
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

Leases and Rental Income

         Real estate properties are leased to operators primarily on a long-term
triple net-lease basis. Two of these leases provide for rents based on a
specific percentage of facility operating revenues with no required minimum rent
("percentage rent leases"). Other leases provide for base rent, increasing each
year by the lesser of 5% of the increase in facility revenues for the
immediately preceding year or one-half of the percentage increase in the
Consumer Price Index for the immediately preceding year ("minimum rent leases").
Both types of leases are triple net-leases that require the lessees to pay all
operating expenses, taxes, insurance, maintenance and other costs, including a
portion of capitalized expenditures. The remaining leases ("fixed rent leases")
are with tenants in the medical office and other buildings and provide for
specific annual rents, subject to annual increases in some of the leases.

         Generally, lease payments are recognized as revenue in accordance with
lease terms. Certain of the leases provide for scheduled annual rent increases.
The Company reports base rental revenue on these leases using the straight-line
method over the terms of the respective leases. The Company records an unbilled
rent receivable or payable representing the amount that the straight-line rental
revenue exceeds or reduces the rent currently collectible under the lease
agreements.

Share Option Plans

         The Company applies the intrinsic value-based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, in accounting for its
fixed plan share options. As such, compensation expense would be recorded only
if the current market price of the underlying shares on the date of grant
exceeded the exercise price.

         No compensation expense has been recognized for options granted under
the 1998 and 1999 Share Option and Incentive Plans as the Company adopted the
disclosure-only provisions of SFAS No. 123, "Stock Based Compensation." Under
SFAS No. 123, compensation expense of $108,000, $88,000 and $114,000 would have
been recorded in 2002, 2001 and 2000, respectively, for the 1998 and 1999 Plans
based upon the fair value of the option awards.

                                       67
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         Pro forma net income (loss) and net income (loss) per share would have
been as follows:

                                                    2002      2001       2000
                                                   -----------------------------
Net income (loss), as reported                     $  506    $  524   ($ 21,330)
Deduct: total stock-based employee
   compensation expense determined under fair
   value based method for all awards, net of
   related tax effects                                108        88         114
Proforma net income (loss)                            398       436     (21,444)
Net income (loss) per share, as reported - basic
   and diluted                                     $ 0.07    $ 0.07      ($3.00)
Pro forma net income(loss) per share - basic
   and diluted                                     $ 0.05    $ 0.06      ($3.01)

Investments in Unconsolidated Entities

         The Company has an investment in ET Capital Corp., an entity in which
the controlling voting interest is owned by Mr. D. Lee McCreary, Jr., the
Company's President, Chief Executive Officer and Chief Financial Officer. As a
result, the Company accounts for this investment using the equity method of
accounting.


                                       68
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         Net Income/(Loss) per Share

         Basic net income/(loss) per share is calculated by dividing net income
by the weighted average number of common shares outstanding. Diluted net
income/(loss) per share is calculated by dividing net income/(loss) by the
addition of weighted average common shares outstanding and common share
equivalents, if dilutive.

Segment Reporting

         The Company is a real estate investment trust whose primary objective
is to invest in healthcare facilities. The Company has one reportable segment,
investments in healthcare facilities.

3.  Discontinued Operations

         Under Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", the Company is required to
reclassify from continuing operations to discontinued operations, the results of
operations from any property that is disposed of or is classified as held for
sale and where the company will not have significant continuing involvement.

         The following represents the Summary of results of operations of the
Salisbury Medical Office Building which has been classified as held for sale at
December 31, 2002 and the classification of the results as to discontinued
operations.
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                               2002                2001                2000
                                             ----------------------------------------------
                                                          (amounts in thousands)
<S>                                            <C>                 <C>                <C>
   Rental revenue                              $ 182               $ 168              $ 164
   Other income                                   62                  46                 53
                                             ----------------------------------------------
Total revenue                                    244                 214                217


   Interest expense                               93                  93                 96
   Depreciation and amortization                  19                  45                 44
   Property operating expense                     56                  69                 65
   General and administrative                     34                  33                 31
   Loss on impairment of asset                   315                   -                  -
                                             ----------------------------------------------
Total expenses                                   517                 240                236
                                             ----------------------------------------------

Loss before minority interest                   (273)                (26)               (19)

Minority interest                                 11                   1                  1
                                             ----------------------------------------------
Loss from discontinued operations              ($262)               ($25)              ($18)
                                             ==============================================
</TABLE>

                                       69
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         On March 7, 2003, the Company sold the Salisbury Medical Office
Building to an unrelated third party and received approximately $1.0 million.
The funds were used to repay the mortgage securing the property.

4. Real Estate Investments

         As of December 31, 2002, the Company had investments in 32 real estate
properties located in five states. The properties include eleven assisted living
facilities, and two independent living facilities with a total of 1,171 beds,
fifteen skilled nursing facilities with a total of 2,393 beds, and four medical
office and other buildings. The Company leases its assisted living, independent
living and skilled nursing properties to operators pursuant to long-term triple
net leases.

  At December 31, 2002, future minimum lease payments receivable are as follows
                             (dollars in thousands):


                       2003                     $31,947
                       2004                      32,138
                       2005                      31,040
                       2006                      30,617
                       2007                      30,011
                       Thereafter                43,229
                                               --------
                                               $198,982
                                               ========

5.  Concentration of Risk

         Revenues recorded by the Company under leases with and loans to Genesis
or Genesis Equity Investees were approximately $18.3 million, $16.1 million and
$17.9 million in 2002, 2001 and 2000, respectively. All loans were repaid in
2001. The Company's equity in net losses of unconsolidated entities (see Note 6)
derived from arrangements with Genesis or Genesis Equity Investees totaled
approximately $1.5 million, $2.3 million and $2.8 million in 2002, 2001 and
2000, respectively. The Company did not have any equity in net losses of
unconsolidated entities derived from arrangements with Genesis or Genesis Equity
Investees subsequent to October 1, 2002. The Company's consolidated revenues
depends in significant part, upon the revenues derived from Genesis.

6.  Investments in Unconsolidated Entities

         During September 2002, the Company acquired, or obtained options to
acquire (collectively, the "Acquisition"), from D. Lee McCreary, Jr.,
ElderTrust's President and Chief Executive Officer, the controlling 1% ownership
interests in entities that hold leasehold and purchase option rights to seven
skilled nursing and that own one assisted living facility and one independent
living facility. The Company has owned a non-controlling 99% interest in these
entities since 1998. The seven skilled nursing facilities are subleased to an
affiliate of Genesis, the Company's principal tenant, for an initial ten-year
period with a ten-year renewal exercisable by the tenant. Genesis has guaranteed
the subleases. Purchase options totaling $66.5 million are exercisable in
September 2008. The independent and assisted living facilities are also leased
to an affiliate of Genesis and Genesis has guaranteed the lease payments.

                                       70
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         Under the terms of the Acquisition, the Company acquired Mr. McCreary's
interest in the general partnership of Meridian, which holds leasehold and
purchase option rights to seven skilled nursing facilities, and options to
acquire his managing member interests in Cabot, and Cleveland for approximately
$85,000. Cabot and Cleveland own a single independent living and assisted living
facility, respectively. The options, which the Company intends to exercise upon
receipt of lender approval, are exercisable for a combined additional price of
approximately $17,000. Mr. McCreary has agreed to transfer operational and
managerial control of Cabot and Cleveland to the Company during the option
period. The purchase prices for Mr. McCreary's interests in the skilled nursing,
independent and assisted living facilities were determined based upon the
estimated fair market value of the interests acquired.

         Prior to the Acquisition, the Company accounted for its investment in
these properties under the equity method. As of December 31, 2002, the Company
has consolidated the balance sheets of Meridian, Cabot and Cleveland with the
Company's other operations. The results of operations of Meridian, Cabot and
Cleveland are consolidated in the Company's consolidated statement of income
beginning October 1, 2002.

         Supplemental unaudited pro forma results of operations for 2002 and
2001 as if the acquisition had been completed at the beginning of the years
presented is as follows:

                                               2002                2001
                                             -----------------------------
     Revenues                                $  32,897         $   35,437
     Expenses                                   32,216             34,542
     Income from continuing operations             753                526
     Loss from discontinued operations            (262)               (25)
     Net income                                    491                501

     Earnings per share - basic                  $0.07              $0.07
     Earnings per share - diluted                $0.06              $0.07

                                       71
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)


         The following is a summary of the Company's investment in and advances
to unconsolidated entities accounted for by the equity method of accounting. As
of December 31, (dollars in thousands):

                                                 2002                  2001
                                                -----------------------------

            ET Capital Corp.                    $ 3,187              $  3,162
            ET Sub-Meridian, LLP                      -                18,564
            ET Sub-Cabot Park, LLC                    -                 1,305
            ET Sub-Cleveland Circle, LLC              -                 1,002
                                                -----------------------------
                                                $ 3,187              $ 24,033
                                                =============================

         After giving effect to the Acquisition, the Company has one remaining
unconsolidated investment, ET Capital Corp. The Company has a nonvoting 95%
equity interest in ET Capital Corp. Mr. McCreary owns the voting 5% equity
interest.

         Summary unaudited financial information as of and for the year ended
December 31, 2002 for ET Capital Corp. is as follows (dollars in thousands):


                 Balance Sheet
                 -------------
                 Current assets                                     $  290
                 Notes receivable(1)                                 3,845
                 Total assets                                        4,135
                 Current liabilities                                   290
                 Long-term debt(1)                                   8,772
                 Total liabilities                                   9,062
                 Deficit                                            (4,927)

                 (1) Represents amounts due to/from ElderTrust.


                 Income Statement
                 ----------------
                 Interest income                                     1,874
                 Interest expense                                      488
                 Bad debt expense                                    1,308
                 Net income                                            131
                 Percent ownership                                     95%

                                       72
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         In May 2001, ET Capital was named as a third party defendant in a
complaint filed against Genesis. This lawsuit was settled on December 31, 2002.
Under the settlement terms, ET Capital received $250,000 and was released from
any claims under the lawsuit in exchange for forgiving notes totaling $7.8
million plus accrued interest. ET Capital Corp. fully reserved against these
loans in 2000.

         Summary unaudited financial information for 2001 and 2000 for
unconsolidated entities accounted for by the equity method during those years
is as follows (dollars in thousands):

                 As of and for the year ended December 31, 2001
<TABLE>
<CAPTION>
                                       ET                          ET Sub-            ET
                                  Sub-Meridian,    ET Capital       Cabot       Sub-Cleveland
                                       LLP           Corp.        Park, LLC      Circle, LLC       Total
                                 --------------    ----------     ---------     -------------    ---------
<S>                                  <C>            <C>             <C>             <C>           <C>
Current assets                       $ 984          $ 171           $  147          $  223        $ 1,525
Real estate properties (1)          99,522              -           15,996          13,205        128,723
Notes receivable                         -          4,116                -               -          4,116
Other assets                             -              -              542             513          1,055
Total assets                       100,506          4,287           16,685          13,941        135,419
Current liabilities                  2,181            325              601             661          3,768
Long-term debt (2)                 104,186          9,019           16,492          13,211        142,908
Total liabilities                  108,094          9,344           17,362          14,098        148,898
Total deficit                       (7,588)        (5,058)            (677)           (157)       (13,480)
Rental revenue                       9,883              -            1,669           1,477         13,029
Interest income                         67          2,152               23              22          2,264
Interest expense                     8,331            768            1,349           1,028         11,476
Bad debt expense                        47          1,552                -               -          1,599
Depreciation/amortization            3,512              -              560             462          4,534
Net loss                            (2,013)          (343)            (251)            (24)        (2,631)
Change in long-term debt            (1,195)          (228)            (225)           (302)        (1,950)
Percent ownership                      99%            95%              99%             99%
</TABLE>


                                       73
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

                 As of and for the year ended December 31, 2000
<TABLE>
<CAPTION>
                                       ET                          ET Sub-            ET
                                  Sub-Meridian,    ET Capital       Cabot       Sub-Cleveland
                                       LLP           Corp.        Park, LLC      Circle, LLC       Total
                                 --------------    ----------     ---------     -------------     --------
<S>                                 <C>              <C>            <C>             <C>           <C>
Current assets                      $ 1,598          $ 131          $  54           $  77         $ 1,860
Real estate properties (1)          103,034              -         16,555          13,667         133,256
Notes receivable                          -          4,354              -               -           4,354
Other assets                              -            270            535             505           1,310
Total assets                        104,632          4,755         17,144          14,249         140,780
Current liabilities                   3,118            223            585             643           4,569
Long-term debt (2)                  105,381          9,247         16,717          13,513         144,858
Total liabilities                   110,207          9,469         17,571          14,381         151,628
Total deficit                        (5,575)        (4,715)          (426)           (132)        (10,848)
Rental revenue                        9,800              -          1,644           1,453          12,897
Interest income                          28            890             38              36             992
Interest expense                      8,736            726          1,377           1,056          11,895
Bad debt expense                          -          7,800              -               -           7,800
Depreciation/amortization             3,513            118            560             462           4,653
Net loss                             (2,485)        (7,587)          (285)            (60)        (10,417)
Change in long-term debt             (1,538)          (177)          (203)           (278)         (2,196)
Percent ownership                       99%            95%            99%             99%
</TABLE>
(1) Includes properties under capital lease.
(2) Includes capital lease obligations.

         In connection with ET Sub-Meridian's acquisition of seven skilled
nursing facilities from Genesis, the Company agreed to indemnify the property
owners for any loss of deferral of tax benefits prior to August 31, 2008 due to
a default under a sublease or if a cure of a default by the Genesis subsidiary
leasing the facilities resulted in a taxable event to the owners. The Company
also agreed to indemnify Genesis for any amounts expended by Genesis under the
back-up indemnity provided by Genesis to the current owners for the same loss.

                                       74
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

7.  Guidance Line / Bank Credit Facility

         On August 30, 2002, ElderTrust entered into the Guidance Line. Funds
provided under this agreement to the borrower, ElderTrust Operating Limited
Partnership (the "Operating Partnership"), of approximately $3.1 million were
used to pay off the existing credit facility, and to pay certain transaction and
other costs. ElderTrust has guaranteed the Guidance Line. The previous Bank
Credit Facility had an outstanding balance of $7.2 million at December 31, 2001
and a floating interest rate of 3.25% over one-month LIBOR, or 5.125% at August
29, 2002.

        The amounts outstanding under the Guidance Line bear interest at a
floating rate of 3.25% over LIBOR, or 4.67% at December 31, 2002.

         At December 31, 2002, the properties securing the Guidance Line had an
aggregate net book value of $38.6 million. During the quarter and twelve months
ended December 31, 2002, the Company derived $0.8 million and $3.2 million,
respectively, of revenues from these properties.

         On January 27, 2003 the Company paid $3.1 million to Wachovia Bank to
pay off the balance due under the Guidance Line. As of January 27, 2003, the
Company has $7.5 million available to borrow, subject to lender approval and
borrowing base limitations.

8.  Mortgages, Bonds, Note Payable and Capital Lease Obligations

         The following is a summary of mortgages, bonds payable and capital
lease obligations at December 31, 2002 and 2001 (dollars in thousands):
<TABLE>
<CAPTION>
                                             Effective                      Balance at      Balance at
                                             Interest      Maturity        December 31,    December 31,
Property                                       Rate          Date              2002            2001
-----------------------------------------   ------------  ------------    --------------------------------
<S>                                         <C>          <C>               <C>             <C>
DCMH Medical Office Building (a)                8.35%       11/2009            $5,638          $5,717
Cabot Park (b)                                  5.80%        1/2037            12,630               -
Cleveland Circle (b)                            5.80%       10/2025            10,926               -
Professional Office Building I (a)              8.35%       11/2009             2,485           2,520
Meridian capital lease (b)                      7.06%        9/2008  ***       65,295               -
Meridian note payable (b)                       7.06%        9/2008            11,524               -
Pleasant View (a)                               8.26%       10/2009             3,743           3,796
Salisbury Medical Office Building (a)           8.16%       10/2009             1,007           1,022
Heritage at North Andover (a)                   8.26%       10/2009             8,417           8,537
The Woodbridge
   Bonds due 2005                               7.81% *      9/2005               472             610
   Bonds due 2025                               7.81% *      9/2025             9,411           9,440
Belvedere NRC/ Chapel NRC (a)                   8.46%       10/2009            18,238          18,490
Highgate at Paoli Pointe Series A Bonds         7.81% *      1/2024             9,424           9,589
Riverview Ridge (a)                             7.81% *      1/2020             2,673           2,742
Vernon Court (a)                                5.80% *      5/2025            13,540          13,828
Lacey Branch Office Building                    7.81% *     10/2022               473             482
                                                LIBOR
Wayne NRC (a)                                  +3.00%       12/2004  **         4,600           4,600
Pennsburg  Manor NRC/  Harston  Hall            LIBOR
   NCH (a)                                     +3.00%        4/2003  **        14,900          14,900
                                                LIBOR
Lopatcong Care Center (a)                      +3.00%       12/2004  **        10,500          10,500
                                                                             ------------------------
     Total                                                                   $205,896        $106,773
                                                                             ========================
</TABLE>

                                       75
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         (a) The repayment of principal and interest on these loans is
non-recourse to ElderTrust.

         (b) Meridian, Cabot and Cleveland were not consolidated as December 31,
2001.

         * The stated interest rates on these mortgages are higher than the
effective interest rates because they were adjusted to market rates when the
loans were acquired by the Company.

         ** The Company had three non-recourse mortgage loans secured by four
properties with an aggregate principal balance of $30 million that matured in
December 2002. The Company announced in November 2002 that the maturity date of
one loan, secured by the Lapatcong property, had been extended until December 1,
2004. In February 2003, the lender also extended a $4.6 million mortgage loan
secured by the Wayne property to December 1, 2004. In connection with the
extension, the Company made a $1.1 million payment on March 31, 2003 and reduced
the balance outstanding from $4.6 million to $3.5 million. The lender has
extended the maturity date of the remaining mortgage loan of $14.9 million,
which is secured by the Harston Hall and Pennsburg properties, until April 10,
2003 to allow time for the lender and the Company to negotiate a resolution of
this loan. If the maturity date of this mortgage is not extended by the lender
and the lender foreclosed on these properties securing the mortgages, the
Company would lose the properties and the revenues it derives from the
properties. Based upon conversations with the lender, several alternatives are
available to satisfy the Company's obligation under the loan which may include,
among other alternatives, a further extension as a cash flow mortgage, sale or a
title transfer via a "deed in lieu of foreclosure" transaction. At December 31,
2002, the Harston Hall and Pennsburg properties had a net book value of $13.8
million. During 2002, the Company derived $2.0 million of revenue and net income
of $0.5 million from the properties. The repayment of principal and interest on
these mortgage loans is non-recourse to ElderTrust.

         *** The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of the minimum
lease payments as of December 31, 2002 (dollars in thousands):

         2003                                                       $  4,245
         2004                                                          4,245
         2005                                                          4,245
         2006                                                          4,245
         2007                                                          4,245
         Thereafter                                                   70,447
                                                                   ---------
         Total minimum lease payments                                 91,672
         Less: amount representing interest at 7.06% per annum        26,377
                                                                   ---------
         Present value of future minimum lease payments             $ 65,295
                                                                   =========

         The Company's weighted average effective interest rate on mortgages and
bonds payable was 6.75% and 8.09% at December 31, 2002 and 2001, respectively.

Scheduled principal payments and bond sinking fund requirements are as follows:
                             (dollars in thousands)

                        2003                       $ 18,358
                        2004                         18,806
                        2005                          3,986
                        2006                          4,285
                        2007                          4,119
                        Thereafter                   91,047
                                                  ---------
                                                  $ 140,601
                                                  =========



                                       76
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

9.  Operating Lease

         The Company leases its corporate office space from a third party under
an operating lease, which expires on September 30, 2007. Under the lease
agreement, the Company pays base rent plus its portion of real estate taxes,
common area maintenance and operation for the building based upon the ratio of
square footage of the leased premises to the square footage of the building.
Future minimum rental payments are as follows (dollars in thousands):

                         2003                      $ 163
                         2004                        168
                         2005                        173
                         2006                        178
                         2007                        136
                                                   -----
                             Total                 $ 818
                                                   =====

10.  Share Option and Incentive Plans and Other Retirement Arrangements

         The Company established the 1998 share option and incentive plan (the
"1998 Plan") for the purpose of attracting and retaining key executive officers
and employees, as well as non-employee trustees. A total of 779,340 common
shares were reserved for and have been issued under the 1998 Plan as of December
31, 2002. At the time of the Company's initial public offering in January 1998,
the Company granted options with respect to 504,000 common shares to officers,
employees and trustees. The exercise price for such options is the Offering
price of $18.00. The term of such options is ten years from the date of grant.
Of these options, 150,000 vested immediately, 322,500 vest ratably over three
years from the date of grant and 31,500 vest ratably over five years from date
of grant. Additional options with respect to 7,500 and 25,000 common shares were
granted to a trustee and officer of the Company, respectively, during 1998 at an
exercise price of $17.75 and $15.125 per share, respectively. These options vest
ratably over three and five years respectively, and terminate ten years from the
date of grant. Additional options of 231,500 were granted during 1999 to a key
executive officer and employees of the Company at exercise prices ranging from
$5.31 to $6.69 per share. These options vest over three to four years and
terminate ten years from the date of grant or three month's after termination of
employment. During 1999, options of 307,500 were cancelled upon the resignations
of a former executive officer and a trustee. Additional options of 323,840 were
granted under the 1998 plan during 2000 to a key executive officer and employees
of the Company at exercise prices ranging from $0.75 to $2.75 per share. Of
these options, 108,612 vested immediately, 215,228 vest over two years from the
date of grant and terminate ten years from the date of grant or three month's
after termination of employment. Additionally, during 2000, 15,000 options were
cancelled upon the resignations of two former trustees. During 2002, options of
6,667 were cancelled upon the resignation of a former executive officer. No
common shares are available for future grant or award under the 1998 plan.

                                       77
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         During 1999, the Company established the 1999 share option and
incentive plan (the "1999 Plan") for the purpose of encouraging and enabling the
officers, employees, non-employee trustees and other key persons of the Company
to acquire a proprietary interest in the Company. A total of 350,000 common
shares were reserved for issuance under the 1999 Plan. Options of 43,000 were
granted during 2001 from the 1999 Plan to the executive officers and trustees of
the Company at exercise prices ranging from $3.50 to $4.18 per share. Of these
options, 8,000 vested immediately and the remaining 35,000 vest ratably on each
of the annual anniversaries for the next three years and terminate ten years
from the date of grant or three month's after termination of employment. Options
of 85,500 were granted during 2002 from the 1999 Plan to the executive officers,
trustees and employees of the Company at an exercise price of $7.90 per share.
Of these options 8,000 vested immediately and the remaining 77,500 vest ratably
on each of the annual anniversaries for the next three years and terminate ten
years from the date of grant or three month's after termination of employment.
At December 31, 2002, 129,340 common shares are available for award.

         The following summarizes the activity in the 1998 and 1999 Plans for
the years ended December 31, 2002, 2001 and 2000:
<TABLE>
<CAPTION>
                                                         2002                      2001                       2000
                                               ----------------------------------------------------------------------------
                                                             Weighted                   Weighted                   Weighted
                                                             Average                     Average                    Average
                                                             Exercise                   Exercise                   Exercise
1998 Plan and 1999 Plan                         Shares        Price        Shares         Price        Shares        Price
----------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>         <C>           <C>          <C>           <C>
Options outstanding, beginning of year          697,169        $ 7.85      871,500       $  6.47      460,500       $ 12.06
    Options granted                              85,500          7.90       43,000          4.08      426,000          0.82
    Options exercised                           (18,333)         2.46     (217,331)         0.79            -             -
    Options forfeited                            (6,667)         4.18            -             -      (15,000)        18.00
                                               ----------------------------------------------------------------------------
Options outstanding, end of year                757,669        $ 8.24      697,169       $  7.85      871,500       $  6.47
                                               ============================================================================
Options exercisable, end of year                652,202        $ 8.23      424,934       $ 10.64      355,833       $  8.24
                                               ============================================================================

Weighted   average  fair  value  of  options
    granted  during the year  (calculated as
    of the grant date):                                        $ 6.60                    $  2.17                    $  0.28
</TABLE>

         Information regarding stock options outstanding and exercisable under
the 1998 and 1999 Plans as of December 31, 2002 is as follows:
<TABLE>
<CAPTION>
                                                                                Exercise Price Range
                                                         $0.75-$2.75        $3.50-$5.31      $6.69-$7.90       $15.13-$18.00
                                                      ----------------------------------------------------------------------
<S>                                                    <C>                  <C>              <C>               <C>
Options outstanding at December 31, 2002:
     Shares                                                  195,669             62,500          285,500             214,000
     Weighted average exercise price                           $0.79              $4.70            $7.05              $17.66
     Weighted average remaining contractual life           7.7 years          5.0 years        7.6 years           5.1 years

Options exercisable at December 31, 2002:
     Shares                                                  195,669             45,833          208,000             202,700
     Weighted average exercise price                           $0.79              $4.89            $6.73              $17.72
</TABLE>

                                       78
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         The fair value determination was calculated using the Black-Scholes
option-pricing model to value all stock options granted in 2002, 2001 and 2000
using the following assumptions:
<TABLE>
<CAPTION>
                                                          2002            2001            2000
                                                      -------------------------------------------
<S>                                                   <C>              <C>             <C>
    Weighted average risk free interest rate                5.58%            5.4%            6.1%
    Expected volatility                                    81.27%           85.7%           75.7%
    Expected dividend yield                                 7.34%           7.34%           7.71%
    Weighted average expected life of options          2.80 years      3.50 years      3.55 years
</TABLE>

         The Company has established a defined contribution retirement plan
covering all eligible employees. Under this plan, eligible employees may make
contributions up to the Internal Revenue Service maximum, and the Company is
required to make certain minimum contributions. Company contributions to this
Plan were $24,000 in 2002, $24,000 in 2001 and $16,000 in 2000.

11. Shareholder's Rights Plan

         On October 13, 1999, the Company adopted a Shareholder Rights Plan (the
"Rights Plan"). The Rights Plan is designed to deter coercive and unfair hostile
takeover tactics. Under the Rights Plan, the Company authorized and declared a
distribution of one right for each of its outstanding common shares held on the
record date of October 29, 1999. Each right upon the occurrence of certain
events (a "triggering event") entitles the holder to purchase from the Company
one one-thousandth of a Series A Junior Participating Preferred Share, $.01 par
value per share, of the Company (which is intended to be the economic equivalent
of one common share) at an initial purchase price of $35.

         The rights are neither exercisable nor traded separately from the
common shares unless a triggering event occurs and will expire on October 13,
2009, unless exchanged or redeemed earlier. The rights will be exercisable only
if a person or group in the future becomes the beneficial owner of 15% or more
of the common shares of the Company, or announces a tender or exchange offer
which, if consummated, would result in that person or group owning at least 15%
of the common shares, subject to certain exceptions. The Company generally may
redeem the rights for $0.0005 per right at any time until ten days following the
public disclosure that the 15% position has been met. A total of 16,000
preferred shares are reserved for issuance under the rights.

12. Taxes

         The Company believes that, commencing with its taxable period ended
December 31, 1998, it has been organized and operated in a manner so as to
qualify for taxation as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended. As a result, the Company generally will not be
subject to income tax on its taxable income at corporate rates to the extent it
distributes annually at least 90% of its taxable income, excluding net capital
gain, to its shareholders and complies with certain other requirements (although
the Company will pay tax to the extent of any taxable income that it retains,
even if it qualifies as a REIT). The Company intends to continue to qualify as a
REIT and, in light of the Company's net operating losses described below, no
provision has been made for income taxes in the accompanying consolidated
financial statements.

                                       79
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         The following table reconciles net income under accounting principles
generally accepted in the United States of America ("GAAP"), to taxable income
for the years ended December 31, (dollars in thousands):
<TABLE>
<CAPTION>
                                                                    Estimated
                                                                      2002             2001          2000
                                                                     --------------------------------------
<S>                                                                  <C>              <C>          <C>
     GAAP net income (loss)                                          $  506           $   524      ($21,330)
       Less:  GAAP net income of taxable REIT
        subsidiaries included above                                     125              (326)       (6,838)
                                                                     --------------------------------------
     GAAP net income for REIT operations (1)                            381               850       (14,492)
      Add:  book depreciation and amortization                        6,755             5,293         5,550
      Less:  tax depreciation and amortization                       (6,697)           (5,831)       (7,222)
                bad debt expense - tax                                   28           (15,438)        9,972
                impairment losses - tax                               2,341               423         4,639
                other book/tax differences, net                       2,615             4,091         4,608
                net operating loss utilized                          (5,423)                -             -
                                                                     --------------------------------------
     Adjusted taxable income subject to 90%
          dividend requirement                                       $    -          ($10,612)      $ 3,055
                                                                     ======================================
</TABLE>

(1) All adjustments to GAAP net income from REIT operations are net of amounts
attributable to minority interest and taxable REIT subsidiaries.

         During 2000, the Company recorded significant bad debt expenses due to
the Genesis bankruptcy filing related to loans and properties under lease and,
as a result, recognized a net loss for financial reporting purposes. For federal
income tax purposes, these losses were recorded in 2001 as required under
applicable income tax rules. When recognized for federal income tax purposes,
these losses reduce the amount otherwise required by the Company to be
distributed to meet REIT requirements. Should these losses, when recognized
exceed REIT taxable income computed without regard to these losses, any excess
loss ("NOL") amount may be carried forward for deduction in the succeeding year.
The estimated NOL carry forward at December 31, 2002 is approximately $7.1
million.

                                       80
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         The following is a reconciliation of the Company's dividends paid
deduction for the years ended December 31 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                 2002             2001            2000
                                                            -----------------------------------------------
<S>                                                         <C>              <C>              <C>
     Cash dividends paid                                    $            -   $            -   $       4,272
       Less:  portion designated capital gains                           -                -               -
                                                            -----------------------------------------------
     Dividends paid deduction                               $            -   $            -   $       4,272
                                                            ===============================================
</TABLE>

13.  Distributions

         The Company must distribute at least 90% of its taxable income,
excluding net capital gain, in order to continue to qualify as a REIT.
Distributions in a given year may exceed the Company's earnings and profits due
to non-cash expenses such as depreciation and amortization. Per share
distributions on the Company's common shares include the following categories
for income tax purposes:

                                 2002              2001             2000
                           -----------------------------------------------
Ordinary income            $           -       $       -          $ 0.5508
Capital gains                          -               -                 -
Return of capital                      -               -            0.0492
                           -----------------------------------------------
                           $           -       $       -          $ 0.6000
                           ===============================================

         Effective for the quarter ended September 30, 2000, the Company
suspended the payment of cash distributions to its shareholders. No
distributions were made for the years ended December 31, 2002 and 2001.

         On December 4, 2002, the Company issued a press release addressing the
dividend distribution policy. The Company stated that it intends to resume
regular quarterly distributions to the holders of its common shares and that the
initial distribution is expected to be declared in mid-April, 2003. The Company
estimates that, based upon its current estimate of operations and cash
requirements, the per share distribution will be $0.64 per year, or $0.16 per
quarter. Distributions by the Company are at the discretion of its Board of
Trustees.

                                       81
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

14.  Earnings (Loss) Per Share

         The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Income (loss) per share - basic:                                 2002           2001          2000
---------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>        <C>
Net income (loss)                                                 $506          $524       ($21,330)

Weighted average common shares outstanding                       7,401         7,184          7,119
                                                            =======================================

Net income (loss) per share from continuing operations           $0.10         $0.07         ($3.00)
Net loss on discontinued operations                             ($0.03)            -              -
Basic net income (loss) per share                                $0.07         $0.07         ($3.00)

Income (loss) per share - diluted:
--------------------------------------------------------
 Net income (loss)                                                $506          $524       ($21,330)

Weighted average common shares outstanding                       7,401         7,184          7,119

Dilutive common stock equivalents - stock
     options and warrants                                          307           258              -
                                                            ---------------------------------------

Total weighted average number of diluted
     shares                                                      7,708         7,442          7,119
                                                            =======================================

Net income (loss) per share from continuing operations           $0.10         $0.07         ($3.00)
Net loss on discontinued operations                             ($0.03)            -              -
Diluted net income (loss) per share                              $0.07         $0.07         ($3.00)
</TABLE>

         Units of ElderTrust Operating Limited Partnership are not included in
the determination of weighted average common shares outstanding for purposes of
computing diluted income per share since they are antidilutive.

15.  Disclosure About Fair Value of Financial Instruments

         The carrying amount of cash and cash equivalents, restricted cash and
accounts receivable approximates fair value based on the short-term nature of
these investments.

         The carrying amounts of the Company's Guidance Line and variable rate
mortgages payable at December 31, 2002 and 2001 approximate fair value because
the borrowings are at variable interest rates. The fair value of the Company's
fixed rate notes payable, mortgages and bonds payable at December 31, 2002 and
2001 is estimated using discounted cash flow analysis and the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the Company's fixed rate mortgages, bonds and note payable at
December 31, 2002 is approximatly $116.0 million.

                                       82
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

16. Quarterly Financial Information (Unaudited)

         The following quarterly financial data summarize the unaudited
quarterly results from continuing operations for the years ended December 31,
2002 and 2001 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
                                                                                Quarter ended
                                                   -------------------------------------------------------------------
                                                   December 31, (1)   September 30,       June 30,       March 31,
                                                   -------------------------------------------------------------------
<S>                                                <C>                <C>                 <C>            <C>
                   2002
--------------------------------------------
Revenues from continuing operations                   $ 8,199             $ 5,661         $ 5,635          $ 5,834
Income (loss) from continuing operations               (1,084)                671             576              605
Net income (loss)                                      (1,131)                685             342              610
Net income (loss) per share from
   continuing operations - basic                        (0.15)               0.09            0.08             0.08
Net income (loss) per share from
   continuing operations - diluted                      (0.15)               0.09            0.08             0.08

   (1)  Includes impairment charge of $0.3 million.

                                                                                Quarter ended
                                                   -------------------------------------------------------------------
                                                   December 31,       September 30,       June 30,       March 31, (1)
                                                   -------------------------------------------------------------------
                  2001
--------------------------------------------
Revenues from continuing operations                   $ 6,336             $ 6,326         $ 6,366          $ 6,388
Net income (loss) from continuing operations              719                 424             331             (925)
Net income (loss)                                         717                 418             320             (931)
Net income (loss) per share from
   continuing operations - basic                         0.09                0.06            0.05            (0.13)
Net income (loss) per share from
   continuing operations - diluted                       0.09                0.06            0.04            (0.13)

   (1)  Includes impairment charge of $0.5 million.

</TABLE>

                                       83
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         The following table reconciles previously issued quarterly information
to the quarterly information presented above as a result of discontinued
operations for the quarter ended March 31, (in thousands):

                                                           2002         2001
                                                      ------------------------

       Previously stated revenues                         $ 5,899      $ 6,441
       Revenue from discontinued operations                    65           53
                                                      ------------------------
       Revenue                                              5,834        6,388
       Net income (loss) from continuing operations           610         (931)
                                                      ------------------------
       Income (loss) from discontinued operations              (5)           6
       Net income (loss)                                  $   605       ($ 925)
                                                      ========================

The quarters ended June 30, September 30, and December 31, 2002 were stated
showing discontinued operations. Therefore, no reconciliation is needed.

17.  Related Party Transactions

         During September, 2002, the Company acquired, or obtained options to
acquire, from D. Lee McCreary, Jr., ElderTrust's President and Chief Executive
Officer, the controlling 1% ownership interests in three entities that hold
leasehold and purchase option rights to seven skilled nursing and that own one
independent living and one assisted living facility. Under the terms of the
acquisition, the Company acquired Mr. McCreary's interests for approximately
$85,000. The options, which the Company intends to exercise upon receipt of
lender approval, are exercisable for a combined additional price of
approximately $17,000. The purchase prices for Mr. McCreary's interests in the
skilled nursing facilities, independent and assisted living facilities were
determined based upon the estimated fair market value of the interests acquired.
See note 6 for additional information.

         Michael Walker, ElderTrust's Chairman of the Board of Trustees, served
as Chief Executive Officer of Genesis from 1985 until May 2002 and as Chairman
of the Board of Genesis from 1985 until October 2002. At December 31, 2002, Mr.
Walker beneficially owned approximately 8.1% of the common shares of ElderTrust.

18.  Minority Interest

         The Company owned approximately 96.2% and 94.9% of the Operating
Partnership, at December 31, 2002 and 2001, respectively. The ownership interest
is represented by 7,540,142 and 7,242,265 units owned as of December 31, 2002
and 2001, respectively. The remaining ownership interests include interests
owned directly or indirectly by trustees and officers of the Company and Genesis
totaling 295,560 units.

                                       84
<PAGE>
                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Continued)

         Subject to certain limitations in the Operating Partnership Agreement
the limited partners that hold units in the Operating Partnership have the right
to require the redemption of their units at any time ("Unit Redemption Rights").
The Operating Partnership's obligation with respect to the Unit Redemption
Rights is that the limited partner will receive cash from the Operating
Partnership in an amount equal to the market value of the units to be redeemed.
However, in lieu of the Operating Partnership acquiring the units for cash, the
Company has the right to elect to acquire the units directly from the limited
partner, either for cash or common shares of ElderTrust at the Company's
discretion.

19.   Supplemental Cash Flow Information:

         Supplemental cash flow information for the years ended December 31,
2002, 2001 and 2000 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                                    2002         2001          2000
                                                                 -----------------------------------
<S>                                                              <C>           <C>          <C>
Non-cash investing and financing activities;
  Assets and liabilities consolidated as a result of
    the acquisition of controlling interests in Meridian,
    Cabot and Cleveland:
  Real estate assets                                             $125,498      $       -     $     -
  Restricted cash                                                   2,193              -           -
  Investments                                                     (18,973)             -           -
  Other assets                                                     (1,676)             -           -
  Real estate mortgage debt and debt                             (103,945)             -           -
  Other liabilities                                                (3,114)             -           -
  Minority interest                                                    17              -           -

Conversion of operating partnership units to
  common stock                                                   $  1,195              -           -

Acquisition of real estate properties at fair value
  in exchange for notes receivable                                      -       $ 12,650           -

Cash paid for interest                                           $  9,734       $ 11,353     $13,324
</TABLE>

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

         None.

                                       85
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is incorporated herein by
reference to the information under the heading "Election of Trustees" in the
Company's proxy statement to be filed with respect to the 2003 annual meeting of
shareholders (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated herein by
reference to the information under the heading "Executive Compensation and Other
Information" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         The information required by this Item is incorporated herein by
reference to the information under the heading "Securities Owned by Management
and Principal Shareholders" and "Equity Compensation Plan Information" in the
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated herein by
reference to the information under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES.

         Our principal executive officer and principal financial officer, D. Lee
McCreary, Jr., evaluated, within 90 days prior to the filing of this Form 10-K,
the effectiveness of the design and operations of our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As a result of this evaluation, Mr.
McCreary concluded that, as of such date, the design and operation of our
disclosure controls and procedures were effective.

         Since the date of evaluation of our disclosure controls and procedures
by Mr. McCreary described above, there have been no significant changes in our
internal control or in other factors that could significantly affect our
disclosure controls and procedures.

                                       86
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) The following documents are included in Part II, Item 8 of this report:

    (1) Financial Statements:                                            Page Number
                                                                         -----------
<S>                                                                      <C>
        Independent Auditors' Report                                          59
        Consolidated Balance Sheets as of December 31, 2002 and 2001          60
        Consolidated Statements of Operations for the years ended
            December 31, 2002, 2001 and 2000                                  61
        Consolidated Statements of Shareholders' Equity for the years ended
           December 31, 2002, 2001 and 2000                                   62
        Consolidated Statements of Cash Flows for the years ended December
           31, 2002, 2001 and 2000                                            63
        Notes to Consolidated Financial Statements                            64

    (2) The following Financial Statement Schedule is included in Item 15 (d):

        Schedule III - Real Estate and Accumulated Depreciation
        All other schedules for which provision is made in the applicable
        accounting regulation of the Securities and Exchange Commission are not
        required under the related instructions or are inapplicable and
        therefore have been omitted.

    (3) Exhibits:

          The exhibits filed with this report are listed in the exhibit index on
        page 90.

(b) Current Reports on Form 8-K:

          During the fourth quarter ended December 31, 2002, the Company filed
        two Form 8-K's as follows:

        Date of Event             Items Reported/Financial Statements Filed
        -------------             -----------------------------------------

        September 25, 2002        Item 2. Acquisition or Disposition of Assets
                                  Item 7. Financial Statements and Exhibits
                                          (furnishing required historical
                                          financial statements for ET
                                          Sub-Meridian Limited Partnership,
                                          L.L.P., ET Sub-Cabot Park, L.L.C. and
                                          ET Sub-Cleveland Circle, L.L.C. and
                                          pro forma financial information)

        December 4, 2002          Item 9. Regulation FD Disclosure

(c) Exhibits:

          The exhibits listed in Item 15(a)(3) above are filed with this Form
        10-K.

(d) Financial Statement Schedules:

          Financial statement schedules are included on pages S-1 through S-3.
</TABLE>


                                       87
<PAGE>
                                   SIGNATURES

              Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
28, 2003.

                                  ElderTrust
                        --------------------------------
                                  Registrant

                    By: /s/ D. Lee McCreary, Jr.
                        --------------------------------------------
                        President, Chief Executive Officer and Chief
                        Financial Officer

              Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 28, 2003.

                    By: /s/ D. Lee McCreary, Jr.
                        -------------------------------------------------------
                        D. Lee McCreary, Jr.
                        President, Chief Executive Officer, Chief Financial
                        Officer and Trustee
                        (Principal Executive, Financial and Accounting Officer)

                    By: /s/ Michael R. Walker
                        -------------------------------------------------------
                        Michael R. Walker
                        Chairman of the Board

                    By: /s/ Rodman W. Moorhead, III
                        -------------------------------------------------------
                        Rodman W. Moorhead, III
                        Trustee


                    By: /s/ John G. Foos
                        -------------------------------------------------------
                        John G. Foos
                        Trustee


                    By: /s/ Harold L. Zuber, Jr.
                        -------------------------------------------------------
                        Harold L. Zuber, Jr.
                        Trustee


                                       88
<PAGE>

                                  CERTIFICATION

I, D. Lee McCreary, Jr., certify that:

1.    I have reviewed this annual report on Form 10-K of ElderTrust;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary
      to make the statements made, in light of the circumstances under which
      such statements were made, not misleading with respect to the period
      covered by this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for the periods presented in this annual report;

4.    I am responsible for establishing and maintaining the disclosure controls
      and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
      the registrant and have:

         a)  designed such disclosure controls and procedures to ensure that
             material information relating to the registrant, including its
             consolidated subsidiaries, is made known to me by others within
             those entities, particularly during the period in which this annual
             report is being prepared;

         b)  evaluated the effectiveness of the registrant's disclosure controls
             and procedures as of a date within 90 days prior to the filing date
             of this annual report (the "Evaluation Date"); and

         c)  presented in this annual report my conclusions about the
             effectiveness of the disclosure control and procedures based on my
             evaluation as of the Evaluation Date;

5.    I have disclosed, based on my most recent evaluation, to the registrant's
      auditors and the audit committee of the registrant's board of directors
      (or persons performing the equivalent functions):

         a)  all significant deficiencies in the design or operations of
             internal controls which could adversely affect the registrant's
             ability to record, process, summarize and report financial data and
             have identified for the registrant's auditors any material weakness
             in internal controls; and

         b)  any fraud, whether or not material, that involves management or
             other employees who have a significant role in the registrant's
             internal control; and

6.    I have indicated in this annual report whether there were significant
      changes in internal controls or in other factors that could significantly
      affect internal controls subsequent to the date of my most recent
      evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.

March 28, 2003

                                     /s/ D. Lee McCreary, Jr.
                                     -----------------------------------------
                                     D. Lee McCreary, Jr.
                                     President, Chief Executive Officer and
                                     Chief Financial Officer
                                     Principal Executive Officer and Principal
                                     Financial Officer)

                                       89
<PAGE>
                                  EXHIBIT INDEX

Exhibit No.       Description

(a)      2.1      Assignment of Partnership Interest and Second Amendment to
                  Agreement of Limited Partnership of ET Sub-Meridian Limited
                  Partnership, L.L.P. dated September 25, 2002, by and among
                  Toughkenamon, LLC, ElderTrust Operating Limited Partnership
                  and ET Meridian General Partner, L.L.C.

(a)      2.2      Option Agreement, dated as of September 25, 2002, by and
                  between D. Lee McCreary, Jr. and ElderTrust Operating Limited
                  Partnership relating to interest in and to Cabot ALF, L.L.C.

(a)      2.3      Option Agreement, dated as of September 25, 2002, by and
                  between D. Lee McCreary, Jr. and ElderTrust Operating Limited
                  Partnership relating to interest in and to Cleveland ALF,
                  L.L.C.

(b)      3.1      Amended and Restated Declaration of Trust of the Company

         3.2      Articles Supplementary of the Company

(b)      3.3      Amended and Restated Bylaws of the Company

(c)      4.1      Form of Rights Agreement between ElderTrust and First Union
                  National Bank, as Rights Agent

(d)      4.2      Articles Supplementary for Classifying and Designating Series
                  A Junior Participating Preferred Shares

(b)      10.1.1   Second Amended and Restated Agreement of Limited Partnership
                  of ElderTrust Operating Limited Partnership

(e)      10.1.2   Certificate of Designation for Class C (LIHTC) Units of
                  ElderTrust Operating Limited Partnership

(d)      10.1.3   Second Amendment to Second Amended and Restated Agreement of
                  Limited Partnership of ElderTrust Operating Limited
                  Partnership

(b)      10.2     Registration Rights Agreement between the Company and the
                  persons named therein

(b)      10.3     1998 Share Option and Incentive Plan *

(d)      10.4     1999 Share Option and Incentive Plan *

(b)      10.5     Non-Competition Agreement between the Company and Michael R.
                  Walker*

(f)      10.6     Form of Minimum Rent Lease between the Operating Partnership
                  and Genesis

(f)      10.7     Form of Percentage Rent Lease between the Operating
                  Partnership and Genesis

(g)      10.8     Master Agreement with Genesis

(g)      10.9     Master Agreement with The Multicare Companies, Inc.

(h)      10.10    Bank Credit Facility dated August 30, 2002 by and among
                  ElderTrust, ElderTrust Operating Limited Partnership and
                  Wachovia Bank National Association

(a)      10.11    Lease Agreement, dated as of November 30, 1993, by and between
                  Heritage Associates Limited Partnership and MHC Acquisition
                  Corporation

(a)      10.12    Amendment No. 1 to Lease Agreement, dated as of August 1,
                  1994, by and between Heritage Associates Limited Partnership
                  and Meridian Healthcare, Inc.

(a)      10.13    Amendment No. 2 to Lease Agreement, dated as of August 1,
                  1994, by and between Heritage Associates Limited Partnership
                  and Meridian Healthcare, Inc.

(a)      10.14    Amendment No. 3 to Lease Agreement, dated as of September 3,
                  1998, by and between Heritage Associates Limited Partnership
                  and ET Sub-Meridian Limited Partnership, L.L.P.

                                       90
<PAGE>
(a)      10.15    Assignment of Lease Agreement, dated as of September 3, 1998,
                  by and between Heritage Associates Limited Partnership and ET
                  Sub-Meridian Limited Partnership, L.L.P.

(a)      10.16    Schedule of Omitted Meridian Lease Agreements

(a)      10.17    Purchase Option, dated as of November 30, 1993, by and among
                  the sellers identified therein, Heritage Associates Limited
                  Partnership and MHC Acquisition Corporation

(a)      10.18    First Amendment to Option Agreement, dated September 3, 1998,
                  by and among the sellers identified therein, Heritage Meridian
                  Limited Partnership and MHC Acquisition Corporation

(a)      10.19    Assignment of Option Agreement, dated September 3, 1998,
                  between Meridian Healthcare, Inc. and ET Sub-Meridian Limited
                  Partnership, L.L.P.

(a)      10.20    Schedule of Omitted Meridian Purchase Options

(a)      10.21    Sublease Agreement, dated September 3, 1998, by and between ET
                  Sub-Meridian Limited Partnership, L.L.P., as Landlord, and
                  Meridian Healthcare, Inc., as Tenant

(a)      10.22    Schedule of Omitted Meridian Sublease Agreements

(i)      10.23    Indemnification Agreement dated September 3, 1998 in favor of
                  the persons and entities listed on Exhibit B thereto

(i)      10.24    Indemnification Consent and Acknowledgment Agreement dated
                  September 3, 1998 between the Operating Partnership and
                  Genesis

(i)      10.25    Guarantee Agreement dated September 3, 1998 between the
                  Operating Partnership and ET Sub-Meridian

(d)      10.26    Option Agreement by and between D. Lee McCreary, Jr. and the
                  Operating Partnership to purchase Mr. McCreary's controlling
                  ownership interest in ET-Sub Vernon Court, L.L.C.

(d)      10.27    Employment Agreement between the Company and D. Lee McCreary,
                  Jr. dated as of October 13, 1999*

(j)      10.28    Separation Agreement and Release entered into as of June 7,
                  2002 by and between ElderTrust and John H. Haas*

         11.1     Computation of basic and diluted earnings per share

         21.1     Subsidiaries of the Registrant

         23.1     Consent of Independent Auditors

-------------
*        Represents management contract or compensatory plan.

(a)      Incorporated herein by reference to the Company's Form 8-K filed on
         October 10, 2002.
(b)      Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 1997.
(c)      Incorporated by reference to the Company's Form 8-K filed on October
         20, 1999.
(d)      Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 1999.
(e)      Incorporated by reference to the Company's Form 10-Q for the quarter
         ended March 31, 1999.
(f)      Incorporated by reference to the Company's Form S-11 Registration
         Statement (No. 333-37451).
(g)      Incorporated by reference to the Company's Form 8-K filed on December
         11, 2000.
(h)      Incorporated by reference to the Company's Form 8-K filed on August 30,
         2002.
(i)      Incorporated by reference to the Company's Form 8-K filed on September
         18, 1998.
(j)      Incorporate by reference to the Company's Form 10-Q for the quarter
         ended June 30, 2002.

                                       91
<PAGE>

                                   ELDERTRUST
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2002
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                        Initial Cost to
                                            Company              Cost       Gross Amount Carried at Close of Period
                                     ----------------------- Capitalized  ------------------------------------------
                                                Buildings    Subsequent
                                                   and           to             Buildings and              Accum.
     Description       Encumbrances    Land    Improvements Acquisition   Land   Improvements   Total(1)  Deprec.(2)
---------------------------------------------------------------------------------------------------------------------
<S>                   <C>             <C>     <C>          <C>         <C>     <C>             <C>        <C>
Assisted Living Facilities:
   Agawam, MA              $    - (3)   $1,249   $11,243      $    -    $1,249    $11,243       $12,492      $1,940
   Clark's Summit, PA           - (3)      645     5,802          18       645      5,820         6,465       1,004
   Wilkes-Barre, PA         2,742          662     5,932           -       654      5,932         6,586         989
   Paoli, PA                9,589        1,128    10,079         208     1,152     10,287        11,439       1,775
   Macungie, PA                 - (3)      420     3,780           -       420      3,780         4,200         254
   Reading, PA                  - (3)      470     4,230           -       470      4,230         4,700         284
   Pottstown, PA                - (3)      360     3,240           -       360      3,240         3,600         218
   Kimberton, PA           10,050 (6)    1,239    10,834          10       970      8,763         9,733         412
   North Andover, MA        8,537        1,194    10,729           3     1,194     10,732        11,926       1,538
   Newton, MA              13,829        1,793    16,091           5     1,793     16,096        17,889       2,307
   Brookline, MA           10,926        1,468    13,217           -     1,469     13,161        14,630       1,886
                      ------------   -------------------------------   -------------------------------- -----------
     Subtotal              55,673       10,628    95,177         244    10,376     93,284       103,660      12,607
                      ------------   -------------------------------   -------------------------------- -----------

Independent Living Facility:
   Newton, MA              12,630        1,772    15,945           -     1,772     15,950        17,722       2,286
   Concord, NH              3,796          407     3,667           -       407      3,667         4,074         633
                      ------------   -------------------------------   -------------------------------- -----------
     Subtotal              16,426        2,179    19,612           -     2,179     19,617        21,796       2,919
                      ------------   -------------------------------   -------------------------------- -----------

Skilled Nursing Facilities:
   Philadelphia, PA             - (3)      985     8,821           1     1,135      8,821         9,956       1,522
   Lopatcong, NJ           10,500        1,490    13,406           -     1,490     13,406        14,896       2,313
   Phillipsburg, NJ             - (3)      679     6,110          10       230      2,312         2,542         170
   Wayne, PA                4,600          662     5,921       1,761       662      7,682         8,344       1,217
   Chester, PA             18,489 (4)    1,187    10,670           -     1,187     10,670        11,857       1,841
   Philadelphia, PA             - (4)    1,230    11,074           1     1,230     11,075        12,305       1,910
   Flourtown, PA           14,900 (5)      784     7,052           -       784      4,933         5,717       1,216
   Pennsburg, PA                - (5)    1,091     9,813          51     1,091      9,864        10,955       1,701
   La Plata, MD             9,208        1,306    11,751           4     1,306     11,778        13,084       1,788
   Voorhees, NJ            12,173        1,745    15,669           6     1,745     15,736        17,481       2,388
   Centerville, MD         10,033        1,424    12,809           5     1,424     12,840        14,264       1,949
   Dundalk, MD             13,484        1,916    17,241           6     1,916     17,281        19,197       2,622
   Towson, MD               3,883          546     4,912           2       546      4,924         5,470         748
   Severna Park, MD        12,958        1,841    16,567           6     1,841     16,606        18,447       2,520
   Westfield, NJ           16,484        2,345    21,092           8     2,345     21,142        23,487       3,209
                      ------------   -------------------------------   -------------------------------- -----------
   Subtotal               126,712       19,231   172,908       1,861    18,932    169,070       188,002      27,114
                      ------------   -------------------------------   -------------------------------- -----------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                          Orig.
                                      Construct./       Date
     Description                    Renovation Date   Acquired
---------------------------------------------------------------
<S>                                 <C>              <C>
Assisted Living Facilities:
   Agawam, MA                                1997       Jan-98
   Clark's Summit, PA                        1996       Jan-98
   Wilkes-Barre, PA                          1993       Mar-98
   Paoli, PA                                 1995       Jan-98
   Macungie, PA                              1997       Jan-01
   Reading, PA                               1997       Jan-01
   Pottstown, PA                             1998       Jan-01
   Kimberton, PA                             1996       Jan-98
   North Andover, MA                         1995       Dec-98
   Newton, MA                           1905/1995       Dec-98
   Brookline, MA                             1995       Dec-98

     Subtotal


Independent Living Facility:
     Newton, MA                              1996       Dec-98
   Concord, NH                               1926       Jan-98

     Subtotal


Skilled Nursing Facilities:
   Philadelphia, PA                1930/1993/2000       Jan-98
   Lopatcong, NJ                        1984/1992       Jan-98
   Phillipsburg, NJ                     1930/1993       Jan-98
   Wayne, PA                            1920/1999       Jan-98
   Chester, PA                          1960/1983       Jan-98
   Philadelphia, PA                          1973       Jan-98
   Flourtown, PA                        1977/1991       Jan-98
   Pennsburg, PA                             1982       Jan-98
   La Plata, MD                              1983      Sept-98
   Voorhees, NJ                         1986/1988      Sept-98
   Centerville, MD                 1977/1983/1991      Sept-98
   Dundalk, MD                               1981      Sept-98
   Towson, MD                           1972-1973      Sept-98
   Severna Park, MD                          1982      Sept-98
   Westfield, NJ                   1970/1980/1994      Sept-98

     Subtotal
</TABLE>
                                       S-1
<PAGE>
                                   ELDERTRUST
                            SCHEDULE III (continued)
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2002
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                        Initial Cost to
                                            Company              Cost       Gross Amount Carried at Close of Period
                                     ----------------------- Capitalized  ------------------------------------------
                                                Buildings    Subsequent
                                                   and           to             Buildings and              Accum.
     Description       Encumbrances    Land    Improvements Acquisition   Land   Improvements   Total(1)  Deprec.(2)
---------------------------------------------------------------------------------------------------------------------
<S>                   <C>             <C>     <C>          <C>         <C>     <C>             <C>        <C>
Medical Office and Other Buildings:
   Upland, PA               2,520            -     4,383         129           -    4,610         4,610         771
   Drexel Hill, PA          5,717            -     8,132          86           -    8,285         8,285       1,413
   Forked River, NJ           482           62       563           -          62      563           625          97
                      ------------   -------------------------------   -------------------------------- -----------
     Subtotal               8,719           62    13,078         215          62   13,458        13,520       2,281
                      ------------   -------------------------------   -------------------------------- -----------

                      ------------   -------------------------------   -------------------------------- -----------
Total Operating          $207,530      $32,100  $300,775      $2,320     $31,549 $295,429      $326,978     $44,921
                      ============   ===============================   ================================ ===========

                                          Orig.
                                      Construct./       Date
     Description                    Renovation Date   Acquired
---------------------------------------------------------------
Medical Office and Other Buildings:
   Upland, PA                             1977       Jan-98
   Drexel Hill, PA                   1984/1997       Feb-98
   Forked River, NJ                       1996       Jan-98

     Subtotal



Total Operating
</TABLE>

(1)      The aggregate cost for Federal income tax purposes is $216,699.
(2)      Depreciation expense is calculated using a 28.5 year composite life for
         both building and equipment.
(3)      Encumbered by the Guidance Line in the aggregate amount of $3.1
         million.
(4)&(5)  This is a single note which covers both properties.
(6)      This property was classified as held for sale prior to November 1,
         2001. The asset value and accumulated depreciation have been adjusted
         according to SFAS 144. See "Item 2 - Properties"

                 Properties Held for Sale at December 31, 2002:
<TABLE>
<CAPTION>
                                        Initial Cost to
                                            Company              Cost       Gross Amount Carried at Close of Period
                                     ----------------------- Capitalized  ------------------------------------------
                                                Buildings    Subsequent
                                                   and           to             Buildings and              Accum.
     Description       Encumbrances    Land    Improvements Acquisition   Land   Improvements   Total(1)  Deprec.(2)
---------------------------------------------------------------------------------------------------------------------
<S>                   <C>             <C>     <C>          <C>         <C>     <C>             <C>        <C>
Medical Office Building:
   Salisbury, MD          $ 1,022         $135    $1,212      $   75        $142     $973        $1,115        $189
                      -----------   --------------------------------   -------------------------------- -----------

    Asset Held for Sale   $ 1,022         $135    $1,212      $   75        $142     $973        $1,115        $189
                      ===========   ================================   ================================ ===========

                                          Orig.
                                      Construct./       Date
     Description                    Renovation Date   Acquired
---------------------------------------------------------------
Medical Office Building:
   Salisbury, MD                          1984         Jan-98


    Asset Held for Sale
</TABLE>
                                       S-2
<PAGE>
The following represents a roll forward of the balance of real estate properties
and related accumulated depreciation from January 1, 1999 to December 31, 2002:
<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                            Cost Basis             Depreciation
                                                           ------------           --------------
<S>                                                       <C>                      <C>
Balance at December 31, 1999                                $ 181,861                 $ 10,180

Additions/(reductions) during period:
     Assets held for sale written down to fair value           (5,932)                    (626)
     Assets held for sale reclassed on balance sheet          (12,666)                  (1,301)
     Improvements                                                 626                       66

Real estate properties depreciation for the period                  -                    5,766
                                                            ---------                 --------

Balance at December 31, 2000 (1)                            $ 163,889                 $ 14,085

Additions during period:
     Acquisitions (2)                                          12,650                      362
     Asset previously held for sale (3)                         9,695                       59
     Improvements                                                 171                       75

Real estate properties depreciation for the period                  -                    5,164
                                                            ---------                 --------

Balance at December 31, 2001                                $ 186,405                 $ 19,745

Additions during period:
      Assets written down to fair value                        (2,119)                       -
      Assets held for sale reclassed on balance sheet          (1,115)                    (189)
      Assets held for sale written down to fair value            (315)                       -

      Acquisition of property through the consolidation
         of Meridian, Cabot and Cleveland                     143,782                   18,260
      Improvements                                                340                       81

Real estate properties depreciation for the period                  -                    7,024
                                                            ---------                 --------

Balance at December 31, 2002                                $ 326,978                 $ 44,921
                                                            =========                 ========
</TABLE>

(1) Balance does not reflect assets held for sale. Assets held for sale are
disclosed separately on the Balance Sheet.
(2) Represents three assisted living properties and land on one additional
property acquired through the debt restructuring with Genesis on January 31,
2001.
(3) Represents the Woodbridge property located in Kimberton, PA. This asset was
reclassified from held for sale on November 1, 2001.

                                      S-3