<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, 2000

          [ ] 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)


               101 East State Street, Suite 100, Kennett Square PA     19348
                    (Address of principal executive offices)         (Zip Code)


                                 (610) 925-4200
              (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. [ ]

The aggregate market value of voting shares held by non-affiliates of the
Registrant on February 28, 2001 was $22,282,063 based on the reported closing
sales price of such shares on the New York Stock Exchange for that date. As of
February 28, 2001, there were 7,119,000 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 22, 2001 are incorporated by reference
into Part III of this Form 10-K.




<PAGE>



                                   ELDERTRUST
                          2000 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

Cautionary Statements Regarding Forward-Looking Statements                   1

                                     PART I

Item  1.   Business                                                          1
Item  2.   Properties                                                       51
Item  3.   Legal Proceedings                                                55
Item  4.   Submission of Matters to a Vote of Security Holders              55

                                     PART II

Item  5.   Market for the Registrant's Common Equity and
                Related Stockholder Matters                                 55
Item  6.   Selected Financial Data                                          57
Item  7.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         58
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk       79
Item  8.   Financial Statements and Supplementary Data                      81
Item  9.   Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                        108

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant               109
Item 11.  Executive Compensation                                           109
Item 12.  Security Ownership of Certain Beneficial Owners
                and Management                                             109
Item 13.  Certain Relationships and Related Transactions                   109

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and
                Reports on Form 8-K                                        109




                                        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 and Exchange Acts. 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 Company's Credit Facility, investments and business strategies,
the Company's transactions with Genesis Health Ventures, Inc. and its
subsidiaries, the ability of Genesis Health Ventures, Inc. and The Multicare
Companies, Inc. to restructure their operations and continue to make lease and
loan payments to the Company, government regulation and the impact of Medicare
and Medicaid Prospective Payment programs on the Company's lessees and
borrowers, 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




                                        1
<PAGE>

and other buildings. ElderTrust was formed in the State of Maryland on September
23, 1997 and began operations upon the completion of its initial public offering
on January 30, 1998 (the "Offering"), pursuant to which it issued 6,957,500
common shares. Net proceeds to ElderTrust of approximately $114.2 million from
the Offering were contributed to a 94% owned subsidiary, ElderTrust Operating
Limited Partnership (the "Operating Partnership"), which principally used the
proceeds to fund the initial property acquisitions and other investments.
ElderTrust is the sole general partner of the Operating Partnership and conducts
all of its operations through the Operating Partnership.

         The Company had no real estate investments prior to January 30, 1998.
The Company's consolidated assets consist primarily of the assets of the
Operating Partnership and its consolidated subsidiaries. As of December 31,
2000, skilled nursing facilities and senior living centers comprised
approximately 91% of the Company's consolidated investments in real estate
properties and loans. At December 31, 2000, the Company's consolidated assets
primarily consisted of:

         o    a diversified portfolio of 22 healthcare properties aggregating
              $161.2 million in assets, consisting of seven assisted living
              facilities, eight skilled nursing facilities, one independent
              living facility and six medical office and other buildings, which
              are leased back to the prior owners or other third parties;

         o    term loans totaling $23.4 million collateralized by five assisted
              living facilities on which construction had been completed in
              prior years but which were still in transition to stabilized
              occupancy levels; and

         o    construction loans totaling $18.1 million collateralized by three
              assisted living facilities.

         Additionally, at December 31, 2000 the Company's investments in
unconsolidated entities for which it accounts using the equity method of
accounting (the Company's "Equity Investees") consisted of:

         o    a 95% nonvoting equity interest in an entity which owns a $7.8
              million second mortgage note and other notes aggregating $4.4
              million due from the Company and its Equity Investees;

         o    a 99% limited partnership interest in an entity which holds
              leasehold and purchase option rights for seven skilled nursing
              facilities; and

         o    a 99% limited member interest in two entities which each hold an
              assisted living facility.

         See "Business - Investments."




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<PAGE>

         Genesis Health Ventures, Inc. was a co-registrant in the Company's
Offering. Approximately 72% of the Company's consolidated assets at December 31,
2000 consisted of real estate properties leased to or managed by and loans on
real estate properties made to 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"), under agreements as manager, tenant or
borrower. Revenues recorded by the Company in connection with these leases and
borrowings aggregated $17.9 million in 2000. In addition, the Company's Equity
Investees have also leased properties to Genesis or Genesis Equity Investees. As
a result of these relationships, the Company's revenues and ability to meet its
obligations depends, in significant part, upon the:

         o    the ability of Genesis and Genesis Equity Investees to meet their
              lease and loan obligations; and

         o    the revenues derived from, and the successful operation of, the
              facilities leased to or managed by Genesis or Genesis Equity
              Investees.

Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and Loan
Restructuring

         On June 22, 2000, Genesis and Multicare filed for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During
the year, the Company, Genesis and Multicare and Genesis and Multicare's major
creditors negotiated agreements to restructure their debt and lease obligations
with the Company. The agreements were approved by the U.S. Bankruptcy Court on
January 4, 2001 and were consummated on January 31, 2001.

         Under the more significant terms of the agreement with Genesis:

1)       Twenty-one of the existing twenty-three lease agreements between
         Genesis subsidiaries and ElderTrust continued in effect in accordance
         with their terms, except as provided below:

         o    Two leases were modified to reduce combined rents for the
              properties by $745,000 per year;

         o    One lease was modified to create an early termination right
              commencing on December 31, 2002; and

         o    One lease was modified to permit ElderTrust to terminate the lease
              during 2001 without penalty if the current tenant is unable to
              achieve occupancy targets specified by loan documents secured by
              property.

2)       Two leases (Windsor Office Building and Windsor Clinic/Training
         facility) were terminated when the two properties subject to the leases
         were sold to Genesis for $1.25 million, such amount being paid via an
         increase in the notes receivable described in 4) below;





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<PAGE>

3)       An $8.5 million loan previously guaranteed by ElderTrust and owed to
         Genesis by ET Sub-Meridian (ET Sub-Meridian), an unconsolidated
         subsidiary of ElderTrust, was conveyed to ElderTrust in a manner to
         effect an $8.5 million reduction in amounts owed to ElderTrust by
         Genesis;

4)       The maturity date for three loans (Oaks, Coquina and Mifflin) by
         ElderTrust to Genesis and affiliated entities with unpaid principal
         balances totaling approximately $7.5 million at June 30, 2000 (after
         taking into account the aforementioned $1.25 million increase and $8.5
         million reduction) were extended to June 30, 2002 at the rates in
         effect prior to the Genesis bankruptcy filing; and

5)       The maturity date and interest rate for one loan (Harbor Place) with a
         principal balance of approximately $4.8 million made by ElderTrust to
         an entity in which Genesis owns a 100% limited partner interest was
         extended to May 31, 2002 at a 10% interest rate, an increase of 0.5%.

         Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans (Lehigh, Berkshire and Sanatoga) with
outstanding principal amounts totaling approximately $19.5 million, and having a
net book value of $12.5 million, at December 31, 2000, in exchange for the
outstanding indebtedness. These properties were then leased back to Multicare
under long-term operating lease agreements. ElderTrust has no other transactions
with this entity.

         Genesis and Multicare are expected to file plans of reorganization with
the U.S. Bankruptcy Court addressing their other creditors' claims. Both
companies are currently operating as debtors-in-possession subject to the
jurisdiction of the U.S. Bankruptcy Court. Approval of the reorganization plans
by the U.S. Bankruptcy Court will be necessary for Genesis and Multicare to be
able to emerge from bankruptcy. The independent auditors' report on Genesis'
2000 financial statements, included in Genesis' Form 10-K as of September 30,
2000, indicated that there is substantial doubt regarding the ability of Genesis
and Multicare to continue as going concerns. Each company's ability to continue
as a going concern will be dependent upon, among other things, approval of their
respective plan of reorganization, future profitable operations, the ability to
comply with the terms of their debtor-in-possession financing arrangements and
the ability to generate sufficient cash from operations and financing agreements
to meet their obligations. Although we are hopeful Genesis and Multicare will
emerge from bankruptcy and continue to make lease and loan payments to us, there
can be no assurance that this will occur. Any failure of Genesis and Multicare
to continue their operations and/or to continue to make lease and loan payments
to us could have a significant adverse impact on our operations and cash flows
due to the significant portion of our properties leased to and loans made to
Genesis and Multicare.

         If Genesis and Multicare were to cease making lease and loan payments
to the Company, we may be required to terminate the underlying leases and
foreclose on the outstanding loans, in which event we would likely be required
to find new operators to operate the properties underlying the leases and loans
and/or sell or close one or more properties. Management has contacted several




                                        4
<PAGE>

alternative operators and, based on these preliminary discussions, believes that
an adequate market currently exists in which the Company could arrange for
property management, leasing or sale of these assets, and that the properties
could be successfully transitioned to new operators. Based on the discussions
with these operators, the Company's management believes that a property could be
transitioned to a new operator without undue delay and that, due to the elderly
resident population and care requirements this population requires, such
transition would be completed in an orderly fashion and with the cooperation of
the operators and the appropriate regulatory authorities, if any. Some of the
operators contacted by the Company have indicated that they have experience in
transitioning skilled nursing facilities to new management and that they have
the staffing needed to transition such facilities. The Company would expect to
rely upon that experience to effect an orderly transition should Genesis and/or
Multicare fail to emerge from bankruptcy and/or cease making lease or loan
payments to us.

         As a result of the relatively short estimated time period required to
transition a property to a new operator, the Company's management believes that,
even if Genesis or Multicare were to cease making lease and loan payments to us
either because Genesis and Multicare did not emerge from bankruptcy or
otherwise, the Company would still be able to satisfy its operating and debt
service requirements during the next 12 months. Management fee arrangements
currently charged in the market place typically range from 4% to 6% of property
gross revenues. Actual fees incurred would depend upon property type and
location as well as other property and operator specific factors. Management
estimates that, if all of the properties subject to leases and loans with
Genesis and Multicare were returned to the Company and were subjected to
management agreements with new operators, the Company's annual cash flows could
be reduced by approximately $1.6 million. This estimate is based upon expected
property operations and assumptions made by management as to management fees,
capital expenditures and possible property closures.

         The Company has multiple debt agreements and is subject to debt
covenants that, among other things, require minimum principal payments and
contain various financial covenants. Although the Company's management believes,
based upon the above noted estimated cash flow reduction, that the Company would
be able to meet its operating and debt service obligations during the next 12
months if it were required to obtain new managers for the properties now
operated by Genesis and Multicare, a termination of leases and loans with
Genesis and Multicare may impair the Company's ability to meet one or more of
the financial covenants contained in its debt agreements. Should this occur, the
Company's management believes that alternative arrangements could be reached
with its various lenders to restructure its loan agreements, if necessary, so as
to reflect any adverse change in economic condition. This belief is based, in
part, upon the Company's past history in negotiating mutually acceptable
agreements with these lenders. Depending on the magnitude of the reduction in
the Company's operating cash flow, the Company would seek to offset the effect
of such reduction in operating cash flow on the Company's ability to meet its
debt service requirements through asset sales or through other available means.
The Company believes that it has the ability to, and, if necessary, intends to,
take these actions available to it and, as a result, believes it will be able to
continue to satisfy its debt and operating obligations as they come due during
the next twelve months.





                                        5
<PAGE>

         As indicated above, based upon management's assessment of the long-term
care economic environment, its discussions with alternative operators and the
Company's past history with its lenders, the Company believes that, if the loans
and leases with Genesis and Multicare were terminated, the assets could be
redeployed as needed. Were this to occur, management believes that new operators
would be available to operate the properties, that any cash flow interruption
resulting from such redeployment is unlikely or would be minimal and that,
although cash flows may be reduced, the Company would be able to meet its
operating and debt service requirements under its existing debt agreements
during the next 12 months and negotiate amendments, if necessary, with respect
to any failure to meet financial covenants in those debt instruments.

         During the year, and as a defensive step in addressing the Genesis and
Multicare bankruptcy filings, the Company suspended its distribution policy.
Subsequent to this event, and as a function of the continued extension of its
Bank Credit Facility, distributions are now limited to 110% of that amount
required to maintain REIT status. The Company does not currently anticipate
resuming distributions to shareholders until at least 2002.

Credit Facility; Mortgage Defaults

Credit Facility

         On January 3, 2000, the term of the Company's bank Credit Facility (the
"Credit Facility") with Deutsche Bank Securities ("Deutsche Bank") was extended
from January 1, 2000 to June 30, 2001 through an amendment ("Third Amendment").
This amendment also reduced borrowings available under the Credit Facility to
$45.4 million. During 2000 the Company failed to meet certain financial
covenants required by its Credit Facility. On December 28, 2000, and effective
January 31, 2001, the Credit Facility was further extended to August 31, 2002
("Fourth Amendment") and the covenants amended to, in part, cure the existing
covenant violations.

         The Credit Facility contains various financial and other covenants,
including, but not limited to, minimum net asset value, minimum tangible net
worth, a total leverage ratio and minimum interest coverage ratio. The Company's
owned properties and properties underlying loans receivable with an aggregate
cost of $79.2 million are included in the Credit Facility borrowing base and
pledged as collateral at December 31, 2000.





                                        6
<PAGE>

Credit Facility Terms Effective through January 30, 2001
Under the Third Amendment

         Under the Third Amendment, the Credit Facility terms required the
Company to make monthly principal payments equal to 0.22% of the outstanding
balance on the first day of the prior calendar month. In addition, the Company
was required to pay a monthly facility fee in an amount equal to 0.0625% of the
outstanding balance. Re-borrowings were not permitted after repayment, except
for the $5.75 million revolving credit portion of the Credit Facility. Dividend
distributions over the term of the loan were limited to $3.0 million plus 95% of
the Company's Funds from Operations, as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") prior to January 1, 2000. At December
31, 2000, the Company had $38.7 million outstanding under the Credit Facility.

         In 2000 the Company paid financing fees and other related costs of
approximately $0.5 million primarily associated with the Third Amendment to the
Credit Facility. Of the $0.5 million, $0.3 million was expensed and included as
a component of interest expense.

         Amounts outstanding under the Credit Facility bore interest at floating
rates ranging from 2.75% to 3.25% over one-month LIBOR as determined by the
percentage of the Credit Facility outstanding as compared to the borrowing base.
The effective interest rate on borrowings outstanding under the Credit Facility
at December 31, 2000 was 10.38%, 2.75% over one-month LIBOR including the
facility fee.

Credit Facility Terms Effective after January 30, 2001
Under the Fourth Amendment

         On December 28, 2000, and effective January 31, 2001, the Credit
Facility was further extended to August 31, 2002. As a result of this further
extension the Company is (i) prohibited from further borrowings under the
facility, (ii) required to make monthly principal payments equal to the cash
flow generated by the Company for the month and, (iii) is prevented from paying
distributions in excess of 110% of that amount required to maintain REIT status.

         In December 2000, the Company paid a non-refundable loan maturity
extension fee of $0.3 million in connection with the Fourth Amendment to the
Credit Facility. In addition, and with respect to the Fourth Amendment, the
Company issued to the lender warrants on January 31, 2001, to purchase 118,750
common shares of stock at $1.70 per share.

         The amounts outstanding under the Credit Facility bear interest at a
floating rate equal to 3.25% over one-month LIBOR and the monthly facility fee
has been eliminated. If this agreement were in effect on December 31, 2000, the
effective interest rate on borrowings outstanding under the Credit Facility
would have been 10.13%.





                                        7
<PAGE>


Other

         Giving effect to the lease and loan restructurings with Genesis and
Multicare, the Company currently expects net cash provided by operations to be
sufficient to enable it to meet its short-term cash flow requirements through
December 31, 2001. See "Genesis and Multicare Chapter 11 Bankruptcy Filings;
Lease and Loan Restructuring."

         The Credit Facility currently matures on August 31, 2002. If the
Company is unable to pay-off or obtain replacement financing by August 31, 2002,
or is unable to negotiate a further extension of the current Credit Facility at
that time, or for any other reason the Company were to be in default under the
Credit Facility prior to its maturity, Deutsche Bank could exercise its right to
foreclose on the collateral securing the Credit Facility, which would have a
significant adverse affect on the Company's ability to continue its operations
and meet its obligations.

         The terms of the Credit Facility extension reduced the Company's cash
flows and impose limits on its ability to make distributions to its
shareholders. Future increases in interest rates, as well as any defaults by
tenants or borrowers on their leases or loans, also could adversely affect the
Company's cash flow and its ability to pay its obligations.

         To qualify as a REIT, the Company must distribute to its shareholders
each year at least 95% (90% for taxable years beginning after December 31, 2000)
of its net taxable income, excluding any net capital gain. If the Company is
unable to make any required shareholder distributions, then the Company may be
unable to qualify as a REIT and be subject to federal income taxes.

Mortgage Defaults

         During 2000 the Company was in default on two mortgage bonds totaling
approximately $20.0 million which are guaranteed by ElderTrust as the Company
failed to meet certain financial covenants specified under the Guaranty
Agreement. Under an amendment to the guaranty agreement executed on January 31,
2001, the Company is no longer in default of these covenants. In addition, the
Company is in default on mortgages totaling $25.8 million for failure to meet
technical requirements including property information reporting requirements and
the tenant filing for bankruptcy. There can be no assurance that the Company
will be able to cure these defaults. Based, in part, on the Company's favorable
payment history, the Company believes that the lender will take no action in
regard to these technical defaults.

New York Stock Exchange Listing

         On August 8, 2000, the Company was notified by the New York Stock
Exchange ("NYSE") that it had fallen below the continued listing criteria
relating to total market capitalization and minimum share value. Under the
market capitalization requirement, the Company's market capitalization must, on




                                        8
<PAGE>

average over the preceding thirty-trading day period, equal or exceed $15
million. Under the minimum share value requirement, the Company's shares must
trade at a value exceeding $1 for thirty consecutive trading days. Under the
NYSE rules, the Company submitted a plan demonstrating that these criteria could
be attained within 18 months.

         On January 12, 2001, the NYSE notified the Company that, based upon
plan accomplishments to date and short-term stock price and market
capitalization improvement through January 11, 2001, the Company met the
continued listing criteria and that the NYSE was prepared to continue the
Company's listing subject to review and continued compliance with the continued
listing criteria and plan performance over an eighteen-month period ending
February 10, 2002.

         There can be no assurance that the Company will be able to continue to
meet the continued listing criteria and thus that its NYSE listing will be
retained.

Investments

         Investment Policies

         The Company's investments primarily have taken the form of senior
housing and other healthcare facilities leased to operators under long-term
operating leases, term loans and construction financing.

         Term loans and operating leases are normally secured by the underlying
real estate, guarantees and/or cash deposits. As of December 31, 2000, cash
deposits aggregating approximately $3.2 million were held by the Company as
security for operating leases, term loans and construction loan obligations. 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 simultaneously. Economic terms of the Company's
operating leases include fixed and minimum rent leases, which normally include
annual rate increases, and percentage rent leases. Percentage rent leases
require rents based upon a fixed percentage of facility revenues throughout the
lease term. See "Business - Investments - Owned Properties - Operating Leases."

         The Company monitors its investments through a variety of methods. The
monitoring process includes a review and analysis of the facility, borrower or
lessee, and guarantor financial statements; periodic site visits; property
reviews; and meetings with operators. Such reviews of operators and facilities
generally encompass licensure and regulatory compliance materials and reports,
contemplated building improvements and other material developments. The
Company's lessees and borrowers are subject to various regulations. See
"Business - Government Regulation" and "Business - Risk Factors."





                                        9
<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 Company may sell some or all of its investments in the future.
Under lease agreements with Genesis or Genesis Equity Investees, these entities
have the right of first refusal on offers the Company receives to purchase or
lease any of its properties it desires to sell. See "Business - Risk Factors."
The Company may consider offering purchase money financing in connection with
the sale of properties where the provision of such financing will increase the
value received by the Company for the property sold.

         The Company may, but does not presently intend to make investments
other than as described above. The Company will have the authority and may
determine it necessary to offer its common shares or other equity or debt
securities in exchange for property and to repurchase or otherwise reacquire its
common shares or any other securities and may engage in such activities in the
future. Similarly, the Company may offer additional units of the Operating
Partnership or other equity interests in the Operating Partnership that are
exchangeable into common or preferred shares of ElderTrust in exchange for
property. The Company also may make loans to joint ventures in which it may
participate in the future. The Company will not engage in trading, underwriting
or the agency distribution or sale of securities of other issuers. At all times,
the Company intends to make investments in such a manner as to be consistent
with the requirements of the Tax Code to qualify as a REIT unless, because of
circumstances or changes in the Tax Code (or the regulations promulgated
thereunder), the board of trustees determines that it is no longer in the best
interests of the Company to qualify as a REIT.

         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 is a self-managed and self-administered real estate
investment trust that invests principally in senior housing and other healthcare
facilities. As such, the Company has one reportable business segment. All of the
Company's facilities and business activities are contained within the United
States. The Company has significant transactions with Genesis and Genesis Equity
Investees. See "Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and
Loan Restructuring" and "Transactions with Genesis."






                                       10
<PAGE>



         The Company's consolidated investments in real estate properties and
loans at December 31, 2000 are reflected in the following table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                              Percentage  Number      Number    Investment   Number of    Number
                                Investments       of        of          of          per      Operators      of
      Type of Facility              (1)       Portfolio   Facilities Beds (2)     Bed (3)       (4)      States (5)
------------------------------ -------------- ----------- ---------- ---------- ------------ ----------- ----------
                                                 (dollars in thousands)
<S>                            <C>            <C>         <C>      <C>        <C>          <C>         <C>
Owned Properties:
   Assisted Living
     Facilities  (6)                $ 84,237      37.2%         7        665        $ 127           2          2
   Independent Living
     Facilities                        4,178       1.8          1         72           58           1          1
   Skilled Nursing Facilities         80,172      35.4          8      1,259           64           3          2
   Medical Office and Other
     Buildings  (6)                   16,377       7.2          6          -            -           3          4
                               -------------- ----------- -------- ----------
   Total Owned Properties            184,964      81.6         22      1,996
                               -------------- ----------- -------- ----------

Term and Construction Loans:
   Assisted Living Facilities         41,559      18.4          8        562           74           3          3
                               -------------- ----------- -------- ----------
   Total Term and
     Construction Loans               41,559      18.4          8        562
                               -------------- ----------- -------- ----------

                               -------------- ----------- -------- ----------
       Totals                      $ 226,523     100.0%        30      2,558
                               ============== =========== ======== ==========
</TABLE>
-----------
1.       Includes investments in real estate properties and loans on real estate
         properties aggregating $218.1 million, before reductions for
         accumulated depreciation, and credit enhancements on several owned
         properties which aggregated $8.4 million.

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 managed 18 of the owned properties
         and 7 of the properties underlying the term and construction loans,
         under management agreements with the tenants. See "Transactions with
         Genesis" and "Item 2 - Properties."

5.       The Company has investments in properties located in eight states,
         occupied by nine different tenants or borrowers.

6.       Includes properties which are held for sale. These properties are
         classified separately on the balance sheet as properties held for sale.

         Owned 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.



                                       11
<PAGE>


              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 pursuant to a long-term lease. These leases generally have a fixed
term of 5 to 12 years and contain multiple five to ten-year renewal options.
Some 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. Some of the lessees subject to fixed rent leases are required to repair,
rebuild and maintain the leased properties.

         The net consolidated carrying value of the Company's leased properties
aggregated $161.2 million at December 31, 2000, excluding credit enhancements
aggregating $8.4 million on various properties. Credit enhancements consisted of




                                       12
<PAGE>

$4.3 million in bond and operating reserve funds required in connection with
outstanding debt issues on three facilities, security deposits of $2.3 million
on various facilities, letters of credit aggregating $1.0 million on two
facilities and mortgage escrow accounts of $0.8 million.

         Upon the closing of the lease and loan restructurings with Genesis and
Multicare on January 31, 2001, lease payments for two properties have been
reduced and two properties have been sold. See "Genesis and Multicare Chapter 11
Bankruptcy Filings; Lease and Loan Restructuring" for additional information.

         Term and Construction Loans

              Term Loans

         At December 31, 2000, the Company had investments in five term loans.
All of the $23.4 million of term loans net of allowance for credit losses as of
December 31, 2000 were first mortgage loans. The borrower under each of these
loans is Genesis or Genesis Equity Investees. At that date the interest rate on
the Company's investments in term loans for operating facilities ranged from
9.5% to 10.5% per annum on the outstanding balances. The yield to the Company on
term loans depends upon a number of factors, including the stated interest rate,
average principal amount outstanding during the term of the loan, the amount of
the commitment fee charged at the inception of the loan, and any interest rate
adjustments.

         At December 31, 2000, each of these loans was in default due to the
bankruptcy filing and failure to make required payments by the respective
borrower. The loan terms with respect to each of these loans have been amended
pursuant to the Agreements. See "Loan Restructurings and Related Matters" below
for additional information.

              Construction Loans

         At December 31, 2000, the Company had made three loans totaling $18.1
million, net of allowance for credit losses, secured by three healthcare
facilities developed by the borrower. The borrower under two of the loans is
Genesis. The Company had the option to purchase and leaseback the facility
underlying the remaining loan from an unaffiliated company for $13.0 million
upon maturity of the loan. At December 31, 2000 the interest rate on the
Company's investments in construction loans ranged from 9% to 10.5% per annum on
the outstanding balances. The rates on the outstanding balances of the Company's
construction financings generally range from 350 to 400 basis points over the
three-year Treasury rates in effect at the time the loan is executed.

         The construction financing period on each of the outstanding investment
loans commenced upon the initial funding and terminates upon the earlier of the
term of the construction loan, generally two to three years, or achievement of
average monthly occupancy of at least 90% for three consecutive months following




                                       13
<PAGE>

completion of the construction. During the term of the construction financing,
funds are advanced pursuant to draw requests made by the operator in accordance
with the terms and conditions of the applicable financing agreement. Monthly
interest payments are made on the total amount of the proceeds advanced during
the development period. During the construction financing period, the Company
generally requires additional security and collateral in the form of either
payment and performance bonds and/or completion guarantees by either one or a
combination of the operator's general contractor or parent entity, other
affiliates of the operator, or one or more of the individual principals of the
operator.

         At December 31, 2000, each of these loans was in default. The two loans
to Genesis were in default due to its Chapter 11 bankruptcy filing and failure
to make required payments by the borrower. The purchase option agreements and
loan terms with respect to the loans to Genesis have been amended pursuant to
the lease and loan restructurings with Genesis and Multicare. See "Loan
Restructurings and Related Matters" below for additional information.

         The third loan to the unaffiliated borrower, secured by the Montchanin
facility, with an unpaid principal balance at December 31, 2000 of $9.5 million,
is in default. The Company has charged the borrower the default interest rate of
3% above the stated interest rate of 10.5%, as stated in the original loan
documentation. The borrower has failed to pay at least the stated interest
payment, which is due monthly, thus the Company has begun collection
proceedings. The Woodbridge facility is also leased to an affiliate of the
borrower. During December 2000, and at the borrower's request, the Company
entered into discussions to sell the Woodbridge facility. The sale is expected
to close during the second quarter of 2001. This asset has been identified as
held for sale and is disclosed separately on the Company's consolidated balance
sheet.

         At December 31, 2000, each facility was operational and the Company had
no obligation to provide additional construction funding under the master
agreement with Genesis.

         Loan Restructurings and Related Matters

         Under the loan and lease restructuring with Genesis and Multicare
completed on January 31, 2001, the provisions of the Term and Construction loans
have been amended. Under the more significant provisions as amended:

     o   The Company is no longer obligated to purchase and leaseback the
         Mifflin, Coquina Place, Oaks and Harbor Place properties;

     o   The maturity date for the Harbor Place loan was extended to May 31,
         2002 and the maturity dates for the Mifflin, Coquina Place and Oaks
         loans was extended to June 30, 2002;

     o   Commencing January 31, 2001 the interest rate for Harbor Place,
         Mifflin, Coquina Place and Oaks will be 10%, 9.5%, 9.5% and 9% per
         annum, respectively. The Mifflin, Coquina Place and Oaks will be
         interest only to be payable monthly until maturity. With respect to the
         Harbor Place loan, principal payments will be made monthly to the
         extent of one half of excess cash, if any, after payment of operating
         expenses, management fee, interest and an amount to be agreed upon by
         the parties for capital expenditures;




                                       14
<PAGE>

     o   The aggregate loan balances for these loans were reduced by $8.5
         million to $6.3 million to reflect the conveyance of an $8.5 million
         note receivable by Genesis to the Company; and

     o   The Company acquired the Lehigh, Berkshire and Sanatoga facilities in
         exchange for the release of the Company's loans to the subsidiaries of
         Multicare. The Company leased these properties to subsidiaries of
         Multicare for an initial lease term of 10 years, with two five-year
         renewal options.

         Investments in the Company's Equity Investees

         The Company's Equity Investees represent entities in which the
controlling interest is owned by Mr. D. Lee McCreary, the Company's President,
Chief Executive Officer and Chief Financial Officer. As a result, the Company
records its investments in, and results of operations from, these entities using
the equity method of accounting in its consolidated financial statements
included in this Form 10-K.

         ET Capital Corp.

         The Company has a nonvoting 95% equity interest in, and has $3.5
million in loans to, ET Capital Corp. ("ET Capital"). The remaining voting 5%
equity interest in ET Capital is owned by Mr. McCreary.

         As of December 31, 2000, ET Capital owned a $7.8 million second trust
mortgage note executed by AGE Institute of Florida, which it acquired from
Genesis during 1998. This note is secured by a second lien on 11 Florida skilled
nursing facilities owned by AGE Institute of Florida and a second lien on
accounts receivable and other working capital assets. The $40.0 million first
mortgage loan that is partially guaranteed by Genesis is held by a third party.
The facilities were managed by subsidiaries of Genesis through September 30,
2000. The AGE Institute of Florida's second mortgage note to ET Capital matures
on September 30, 2008 with payments of interest only, at a fixed annual rate of
13% due quarterly until the note is paid in full. The borrower ceased making
interest payments to ET Capital during the quarter ended June 30, 2000. ET
Capital was notified, during the later part of 1999, that the borrower was in
default under the $40.0 million first mortgage loan. Each of the parties
involved have signed an intercreditor agreement. ET Capital recorded a provision
for bad debts of $8.8 million as of December 31, 2000 for interest and principal
due on the $7.8 million second trust mortgage note through December 31, 2000.

         The Company recorded $0.7 million in interest income for the year ended
December 31, 2000 on the notes payable from ET Capital. The Company also
recorded a loss of $7.2 million related to the portion of its equity interest in




                                       15
<PAGE>

ET Capital's results of operations for the year ended December 31, 2000. In
addition, the Company recorded an impairment loss of $1.4 million on the
remaining balance of the notes receivable from ET Capital issued in connection
with the AGE second mortgage transaction. See Note 7 of the Company's
consolidated financial statements included in this Form 10-K.

         In addition to the AGE Institute of Florida second trust mortgage note,
ET Capital has notes receivable aggregating $4.4 million at December 31, 2000
from two of the Company's Equity Investees and one of the Company's consolidated
subsidiaries. These loans mature at various dates from April 2008 to December
2011 and bear interest at 14% per annum with interest and principal payable
monthly. ET Capital's long-term debt includes two demand promissory notes
payable to the Company aggregating $5.9 million at December 31, 2000 in
connection with the above second mortgage note transaction. These notes bear
interest at a weighted average rate of 12.1% per annum with interest only
payable quarterly. ET Capital ceased making interest payments, on these notes to
the Company during the quarter ended June 30, 2000. Management of the company
has determined that these notes are fully impaired at December 31, 2000.

         In addition, ET Capital has loans payable to the Company aggregating
$3.3 million, bearing interest at 15% and maturing at various dates from April
2008 to December 2011. Payments on these notes were current at December 31,
2000.

         ET Sub-Meridian Limited Partnership, L.L.P.

         The Company has a 99% limited partnership interest in ET Sub-Meridian
Limited Partnership, L.L.P. ("ET Sub-Meridian"). The 1% general partner interest
is owned by a limited liability company of which Mr. McCreary is the sole
member. ET Sub-Meridian owns the leasehold and purchase option rights to seven
skilled nursing facilities located in Maryland and New Jersey, which it
purchased from a Genesis affiliate for $35.5 million in cash and issuance of
$8.5 million in term loans during September 1998. The purchase options are
exercisable by ET Sub-Meridian in September 2008 for a cash exercise price of
$66.5 million. ET Sub-Meridian subleased the facilities to a Genesis affiliate
for an initial ten-year period with a ten-year renewal option. Genesis has
guaranteed the subleases.

         As part of the transaction, 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 recorded a loss of $2.5 million related to the portion of
its equity interest in ET Sub-Meridian's results of operations for the year
ended December 31, 2000. ET Sub-Meridian has real estate investments and
long-term debt of $103.0 million and $105.4 million, respectively, at December




                                       16
<PAGE>

31, 2000. See Note 7 of the Company's consolidated financial statements included
in this Form 10-K. At December 31, 2000, ET Sub-Meridian had a $17.6 million
subordinated demand loan bearing interest at 12% per annum payable to the
Company in connection with the above transaction. The Company recorded $2.1
million in interest income on this loan for the year ended December 31, 2000.

              ET Sub-Heritage Andover, LLC
              ET Sub-Vernon Court, LLC
              ET Sub-Cabot Park, LLC
              ET Sub-Cleveland Circle, LLC

         The Company, through four limited liability companies (ET Sub-Heritage
Andover, LLC, ET Sub-Vernon Court, LLC, ET Sub-Cabot Park, LLC, and ET
Sub-Cleveland Circle, LLC), has member interests in three assisted living
facilities and one independent living facility, which it acquired during
December 1998 from an unrelated third party. A Genesis Equity Investee leases
each of the facilities.

         The Company is the sole member of ET Sub-Heritage Andover, LLC, which
is included in the Company's consolidated financial statements at December 31,
2000. In each of the remaining three limited liability companies, the Company
has a 99% member interest. The 1% managing member interest in these three
companies is owned by a limited liability company of which Mr. McCreary is the
sole member. The Company currently has the option to acquire the 1% managing
member interest in ET Sub-Vernon Court, LLC from Mr. McCreary. The option
exercise price is $3,200. As the Company has the ability to acquire the 1%
managing member interest in ET Sub-Vernon Court, LLC for a nominal amount, this
company is consolidated into the Company's consolidated financial statements at
December 31, 2000.

         The two unconsolidated limited liability companies have subordinated
demand loans in the aggregate amount of $3.1 million payable to the Company at
December 31, 2000, bearing interest at 12% per annum. The Company recorded
$382,000 and $381,000 in interest income for the year ended December 31, 2000
and 1999, respectively, in connection with these demand loans.

         In addition, three of the limited liability companies have loans
payable to ET Capital aggregating $4.4 million at December 31, 2000, maturing at
various dates from April 2008 to December 2011 and bearing interest at 14% per
annum with interest and principal payable monthly.

         The Company recorded an aggregate loss of $342,000 related to the
portion of its equity interest in ET Sub-Cabot Park, LLC's and ET Sub-Cleveland
Circle, LLC's results of operations for the year ended December 31, 2000. These
two entities have real estate investments and aggregate long-term debt of $30.2
million and $30.2 million, respectively, at December 31, 2000. See Note 7 of the
Company's consolidated financial statements included in this Form 10-K.





                                       17


<PAGE>

Transactions with Genesis

         At December 31, 2000, the Company and its Equity Investees had the
following investments in real estate properties and loans leased to, managed by
or made to Genesis or Genesis Equity Investees:
<TABLE>
<CAPTION>
                                                Genesis (1)                 Genesis Equity Investees (2)
                                       Number of          Investment        Number of          Investment
                                    Properties (3)        Amount (3)      Properties (3)       Amount (3)
                                    ----------------    ---------------- -----------------    --------------
                                                            (dollars in thousands)
<S>                                 <C>                 <C>              <C>                  <C>
ElderTrust                                       18            $106,189                 7           $77,593

ElderTrust Equity Investees (4)                   7             103,034                 2            30,222
</TABLE>
----------
(1)  Represents Genesis and its consolidated subsidiaries.
(2)  Represents entities in which Genesis accounts for its investment using the
     equity method of accounting.
(3)  Represents investments in or loans on real estate properties owned by the
     Company or entities in which it accounts for its investment using the
     equity method of accounting.
(4)  Represents entities in which the Company accounts for its investment using
     the equity method of accounting.

         Below is a description of the loan and lease transactions which
comprised the information in the above table.

         Transactions between the Company and Genesis

         At December 31, 2000, the Company leased eight properties to Genesis
under percentage and minimum rent leases, each for an initial ten-year period
with two five-year renewals. Genesis also leased space under fixed rent leases
in three medical office and other buildings. The terms of these leases are for
up to five years, subject to renewal. Additionally, Genesis managed one property
leased by the Company to an unrelated third party. The Company received lease
payments of $7.8 million in 2000 on properties leased to or managed by Genesis.

         Genesis has guaranteed the leases for eight properties that are leased
by wholly-owned subsidiaries of Genesis. In the event Genesis assigns one or
more of the leases to a non-wholly-owned subsidiary or a third party, Genesis
will no longer guarantee the applicable lease. Any such assignment would require
the consent of the Company which may not be unreasonably withheld. See "Business
- Risk Factors."

         At December 31, 2000, the Company had four term loans and two
construction loans with Genesis. The term and construction loans had original
maturities of between two and three years, subject to extension by the borrower
for one to four one-year periods, with a weighted average interest rate of 9.8%.
The Company recorded interest income on these loans of $3.1 million in 2000. See
"Business - Investments - Loan Restructurings and Related Matters."


                                       18
<PAGE>

         The Company entered into a right of first refusal agreement with
Genesis, whereby the Company was granted a right of first refusal to purchase
and leaseback to Genesis any assisted living, independent living or skilled
nursing facility which Genesis determines to sell and leaseback. This agreement
was terminated effective January 31, 2001.

         On June 22, 2000, Genesis and Multicare filed for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During
the year, the Company, Genesis and Multicare and Genesis and Multicare's major
creditors negotiated agreements to restructure their debt and lease obligations
with the Company. The agreements were approved by the U.S. Bankruptcy Court on
January 4, 2001 and were consummated on January 31, 2001.

         Under the more significant terms of the agreement with Genesis:

1)   Twenty-one of the existing twenty-three lease agreements between Genesis
     subsidiaries and ElderTrust continued in effect in accordance with their
     terms, except as provided below:

         o Two leases were modified to reduce combined rents for the properties
           by $745,000 per year;

         o One lease was modified to create an early
           termination right commencing on December 31, 2002; and

         o One lease was modified to permit ElderTrust to terminate the lease
           during 2001 without penalty if the current tenant is unable to
           achieve occupancy targets specified by loan documents secured by
           property.

2)   Two leases (Windsor Office Building and Windsor Clinic/Training facility)
     were terminated when the two properties subject to the leases were sold to
     Genesis for $1.25 million, such amount being paid via an increase in the
     notes receivable described in 4) below;

3)   An $8.5 million loan previously guaranteed by ElderTrust and owed to
     Genesis by ET Sub-Meridian, an unconsolidated subsidiary of ElderTrust, was
     conveyed to ElderTrust in a manner to effect an $8.5 million reduction in
     amounts owed to ElderTrust by Genesis;

4)   The maturity date for three loans (Oaks, Coquina and Mifflin) by ElderTrust
     to Genesis and affiliated entities with unpaid principal balances totaling
     approximately $7.5 million at June 30, 2000 (after taking into account the
     aforementioned $1.25 million increase and $8.5 million reduction) were
     extended to June 30, 2002 at the rates in effect prior to the Genesis
     bankruptcy filing; and

5)   The maturity date and interest rate for one loan (Harbor Place) with a
     principal balance of approximately $4.8 million made by ElderTrust to an
     entity in which Genesis owns a 100% limited partner interest was extended
     to May 31, 2002 at a 10% interest rate, an increase of 0.5%.





                                       19
<PAGE>

         Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans (Lehigh, Berkshire and Sanatoga) with
outstanding principal amounts totaling approximately $19.5 million, and having a
net book value of $12.5 million, at December 31, 2000, in exchange for the
outstanding indebtedness. These properties were then leased back to Multicare
under long-term operating lease agreements. ElderTrust has no other transactions
with this entity.

         Transactions between the Company and Genesis Equity Investees

         At December 31, the Company leased six properties under minimum rent
leases to entities in which Genesis accounts for its investment using the equity
method of accounting. The Company received lease payments of $7.0 million in
2000 from Genesis Equity Investees.

         At December 31, 2000, the Company had one term loan totaling $4.8
million with a Genesis Equity Investee. The term loan had an original maturity
of two years, subject to extension by the borrower for one one-year term, with
an interest rate of 9.5%. The Company recorded interest income on this loan of
$0.5 million in 2000. In January 2001, Genesis acquired the remaining ownership
interest in the borrower and, pursuant to the Agreements, the loan maturity date
has been extended to May 2002 and the applicable interest rate during the
remaining term adjusted to 10.0%. See "Business - Investments - Loan
Restructurings and Related Matters."

         Transactions between the Company's Equity Investees and Genesis

         At December 31, 2000, ET Sub-Meridian, an Equity Investee of the
Company, subleased seven properties to Genesis under minimum rent leases, each
for an initial ten-year period with a ten-year renewal option. ET Sub-Meridian
received sublease payments of $9.8 million in 2000 from Genesis. See "Business -
Investments - Investments in the Company's Equity Investees."

         Transactions between the Company's Equity Investees and Genesis Equity
Investees

         At December 31, 2000, ET Sub-Cabot Park, LLC and ET Sub-Cleveland
Circle, LLC, Equity Investees of the Company, each leased one property to a
Genesis Equity Investee under a minimum rent lease, with an initial term of ten
years and a ten-year renewal option. ET Sub-Cabot Park, LLC and ET Sub-Cleveland
Circle, LLC received aggregate lease payments of $3.0 million in 2000 from
Genesis Equity Investees. See "Business - Investments - Investments in the
Company's Equity Investees."



                                       20
<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 and debt payments from
lessees and borrowers 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 and profit 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 and borrowers 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 has resulted in lower
lease coverage ratios on the skilled nursing facilities leased by the Company to
its tenants. Also, the Company's lessees and borrowers 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




                                       21
<PAGE>

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 or borrowers. See
"Business - Risk Factors."

         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, and must depend on private pay revenues to make up any shortfall.
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 and Multicare. 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 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.
The federal rates for all categories will be increased by 4% in fiscal years
2001 and 2002. 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.

         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.




                                       22
<PAGE>

         On December 21, 2000, BIPA ("Benefits Improvement and Protection Act")
was signed into law. This legislation component of Federal PPS, is estimated to
increase rates by approximately 16.7% for the period from April 1, 2001 through
September 30, 2002. 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 changes to the PPS rates mandated by the
Refinement Act are 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.

         The Company does not employ Medicaid and Medicare reimbursement
specialists and must rely on its lessees and borrowers 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 and Multicare. There can be no assurances that the
Company's lessees or borrowers 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 - Genesis and Multicare Chapter 11 Bankruptcy
Filings; Lease and Loan Restructuring", "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 inspection 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.





                                       23
<PAGE>

         Federal laws also impose 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 lessees or borrowers 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 or borrowers to
make rental or loan payments to the Company.

         Both Medicare and 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. Under currently applicable Medicare
reimbursement policies, the amount of Medicare reimbursement available to a
skilled nursing facility for rental expenses following a sale and leaseback
transaction may not exceed the amount that would have been reimbursed as capital
costs had the provider retained legal title to the facility. Thus, if rental
expenses are greater than the allowable capital cost reimbursement a skilled
nursing facility would have received had the sale and leaseback transaction not
occurred and the provider retained legal title, the amount of Medicare
reimbursement received by the provider will be limited. Medicare began a
three-year phase out of separate capital cost reimbursement for skilled nursing
facilities beginning July 1, 1998 under provisions of the Balanced Budget Act
that will provide reimbursement for capital-related costs through the facility's
per diem rates for resident care without regard to the facility's actual capital
costs. The Pennsylvania Medicaid program also limits capital cost reimbursement,
basing reimbursement for capital-related costs for new owners (including rent
paid by lessees) on the appraised fair rental value of the facility to the prior
owner as determined by the Pennsylvania Department of Public Welfare. 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.

         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



                                       24
<PAGE>

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.

         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 or borrowers 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 or borrowers 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, 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 recently issued 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. 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 or borrowers. The costs of complying with these laws,




                                       25
<PAGE>

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 or borrowers to meet their financial obligations to the
Company.

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 Tax Code. 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 manner as to
continue qualifying as a REIT for federal income tax purposes for the year ended
December 31, 2001 and in future periods, but no assurance can be given that the
Company 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 95% (90% for taxable years beginning after
December 31, 2000) of our net taxable income, excluding any net capital gain.
REIT taxable income is the otherwise taxable income of the REIT subject to
adjustments, including a deduction for dividends paid.

         During 2000, the Company recorded significant impairment losses related
to loans and properties under lease and, as a result, recognized a net loss for
financial reporting purposes. For income tax purposes these losses may be
recorded in 2000 or in later periods as required under applicable income tax
rules. When recognized for income tax purposes, these losses will reduce the
amount otherwise required to be distributed to meet REIT requirements. In
addition, 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. An NOL of a REIT in any
given year may be carried forward until utilized but no more than 20 years. REIT
taxable income before reduction for the dividends paid deduction reported for
1999, the last year for which an income tax return has been prepared, was
($782,000).




                                       26
<PAGE>

         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. Note that 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, 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 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. The highest corporate tax rate is
currently 35%. 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.

         The Company may elect to treat any real property it acquires by
foreclosure as foreclosure property if certain conditions are satisfied. Income
from foreclosure property is subject to tax at the maximum corporate rate, but
the income would qualify under the REIT gross income tests. 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 second taxable year after the year
of acquisition (subject to an extension of up to six years at the IRS'
discretion) so long as an independent contractor (which would not include
Genesis or its affiliates) operates the property within 90 days after the
property is acquired. For taxable years beginning after December 31, 2000, 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 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.





                                       27
<PAGE>

         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) 95% 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 95% 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 95% 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 that 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 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 subsidiary, ET Capital Corp.,
will elect, together with the Company, to be treated as a TRS effective January
1, 2001.

         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 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 and would be
eligible for the dividends received deduction for corporations. No portion of
any distributions 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.





                                       28
<PAGE>

         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 Tax 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.

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. Certain of these investors may have greater
resources than the Company. Genesis and other lessees operating properties that
the Company owns or that secure loans made by the Company compete 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. Moreover,
if the development of new assisted living facilities outpaces demand for these
facilities in certain markets, such markets may become saturated. Such an
oversupply of facilities could cause operators of Company-owned facilities to
experience decreased occupancy, depressed margins and lower operating results,
which could have a material adverse effect on their ability to make lease or
loan payments to the Company.

Employees

         As of December 31, 2000, the Company employed six full-time employees.

                                  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.




                                       29
<PAGE>

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

         Approximately 72% of our consolidated assets at December 31, 2000
consisted of real estate properties leased to or managed by and loans on real
estate properties made to Genesis or Genesis Equity Investees, under agreements
as manager, tenant or borrower. We recorded revenues in connection with these
leases and borrowings aggregating $17.9 million in 2000. In addition, our Equity
Investees have also leased properties to Genesis or Genesis Equity Investees. As
a result of these relationships, the Company's revenues and ability to meet its
obligations depends, in significant part, upon:

         o    the ability of Genesis and Genesis Equity Investees to meet their
              lease and loan obligations; and

         o    the revenues derived from, and the successful operation of, the
              facilities leased to or managed by Genesis or Genesis Equity
              Investees.

         On June 22, 2000, Genesis and Multicare filed for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During
the year, the Company, Genesis and Multicare and Genesis and Multicare's major
creditors negotiated agreements to restructure their debt and lease obligations
with the Company. The agreements were approved by the U.S. Bankruptcy Court on
January 4, 2001 and were consummated on January 31, 2001.

         Under the more significant terms of the agreement with Genesis:

1)   Twenty-one of the existing twenty-three lease agreements between Genesis
     subsidiaries and ElderTrust continued in effect in accordance with their
     terms, except as provided below:

         o    Two leases were modified to reduce combined rents for the
              properties by $745,000 per year;

         o    One lease was modified to create an early termination right
              commencing on December 31, 2002; and

         o    One lease was modified to permit ElderTrust to terminate the lease
              during 2001 without penalty if the current tenant is unable to
              achieve occupancy targets specified by loan documents secured by
              property.

2)   Two leases (Windsor Office Building and Windsor Clinic/Training facility)
     were terminated when the two properties subject to the leases were sold to
     Genesis for $1.25 million, such amount being paid via an increase in the
     notes receivable described in 4) below;





                                       30
<PAGE>

3)   An $8.5 million loan previously guaranteed by ElderTrust and owed to
     Genesis by ET Sub-Meridian, an unconsolidated subsidiary of ElderTrust, was
     conveyed to ElderTrust in a manner to effect an $8.5 million reduction in
     amounts owed to ElderTrust by Genesis;

4)   The maturity date for three loans (Oaks, Coquina and Mifflin) by ElderTrust
     to Genesis and affiliated entities with unpaid principal balances totaling
     approximately $7.5 million at June 30, 2000 (after taking into account the
     aforementioned $1.25 million increase and $8.5 million reduction) were
     extended to June 30, 2002 at the rates in effect prior to the Genesis
     bankruptcy filing; and

5)   The maturity date and interest rate for one loan (Harbor Place) with a
     principal balance of approximately $4.8 million made by ElderTrust to an
     entity in which Genesis owns a 100% limited partner interest was extended
     to May 31, 2002 at a 10% interest rate, an increase of 0.5%.

         Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans (Lehigh, Berkshire and Sanatoga) with
outstanding principal amounts totaling approximately $19.5 million, and having a
net book value of $12.5 million, at December 31, 2000, in exchange for the
outstanding indebtedness. These properties were then leased back to Multicare
under long-term operating lease agreements. ElderTrust has no other transactions
with this entity.

         Genesis and Multicare are expected to file plans of reorganization with
the U.S. Bankruptcy Court addressing their other creditors' claims. Both
companies are currently operating as debtors-in-possession subject to the
jurisdiction of the U.S. Bankruptcy Court. Approval of the reorganization plans
by the U.S. Bankruptcy Court will be necessary for Genesis and Multicare to be
able to emerge from bankruptcy. The independent auditors' report on Genesis'
2000 financial statements, included in Genesis' Form 10-K as of September 30,
2000, indicated that there is substantial doubt regarding the ability of Genesis
and Multicare to continue as going concerns. Each Company's ability to continue
as a going concern will be dependent upon, among other things, approval of their
respective plan of reorganization, future profitable operations, the ability to
comply with the terms of their debtor-in-possession financing arrangements and
the ability to generate sufficient cash from operations and financing agreements
to meet their obligations. Although we are hopeful Genesis and Multicare will
emerge from bankruptcy and continue to make lease and loan payments to us, there
can be no assurance that this will occur. Any failure of Genesis and Multicare
to continue their operations and/or to continue to make lease and loan payments
to us could have a significant adverse impact on our operations and cash flows
due to the significant portion of our properties leased to and loans made to
Genesis and Multicare.

         If Genesis and Multicare were to cease making lease and loan payments
to us, we may be required to terminate the underlying leases and foreclose on
the outstanding loans, in which event we would likely be required to find new
operators to operate the properties underlying the leases and loans and/or sell
or close one or more properties. We have contacted several alternative operators
and, based on these preliminary discussions, we believe that an adequate market
currently exists in which we could arrange for property management, leasing or
sale of these assets, and that the properties could be successfully transitioned





                                       31
<PAGE>

to new operators. Based on the discussions with these operators, we believe that
a property could be transitioned to a new operator without undue delay and that,
due to the elderly resident population and care requirements this population
requires, such transition would be completed in an orderly fashion and with the
cooperation of the operators and the appropriate regulatory authorities, if any.
Some of the operators contacted by us have indicated that they have experience
in transitioning skilled nursing facilities to new management and that they have
the staffing needed to transition such facilities. We would expect to rely upon
that experience to effect an orderly transition should Genesis and/or Multicare
fail to emerge from bankruptcy and/or cease making lease or loan payments to us.

         As a result of the relatively short estimated time period required to
transition a property to a new operator, we believe that, even if Genesis or
Multicare were to cease making lease and loan payments to us either because
Genesis and Multicare did not emerge from bankruptcy or otherwise, we would
still be able to satisfy our operating and debt service requirements during the
next 12 months. Management fee arrangements currently charged in the market
place typically range from 4% to 6% of property gross revenues. Actual fees
incurred would depend upon property type and location as well as other property
and operator specific factors. We estimate that, if all of the properties
subject to leases and loans with Genesis and Multicare were returned to us and
were subjected to our agreements with new operators, our annual cash flows could
be reduced by approximately $1.6 million. While difficult to predict, this
estimate is based upon expected property operations and assumptions made by
management as to management fees, capital expenditures and possible property
closures.

         We have multiple debt agreements and are subject to debt covenants
that, among other things, require minimum principal payments and contain various
financial covenants. Although we believe, based upon the above noted estimated
cash flow reduction, that we would be able to meet our operating and debt
service obligations during the next 12 months if it were required to obtain new
managers for the properties now operated by Genesis and Multicare, a termination
of leases and loans with Genesis and Multicare may impair our ability to meet
one or more of the financial covenants contained in our debt agreements. Should
this occur, we believe that alternative arrangements could be reached with our
various lenders to restructure the loan agreements, if necessary, so as to
reflect any adverse change in economic condition. This belief is based, in part,
upon our past history in negotiating mutually acceptable agreements with these
lenders. Depending on the magnitude of the reduction in our operating cash flow,
we would seek to offset the effect of such reduction in operating cash flow on
our ability to meet debt service requirements through asset sales or through
other available means. We believe that we have the ability to, and, if
necessary, intend to, take these actions available to us and, as a result,
believe we will be able to continue to satisfy our debt and operating
obligations as they come due during the next twelve months.




                                       32
<PAGE>

         As indicated above, based upon our assessment of the long-term care
economic environment, our discussions with alternative operators and our past
history with our lenders, we believe that, if the loans and leases with Genesis
and Multicare were terminated, that the assets could be redeployed as needed.
Were this to occur, we believe that new operators would be available to operate
the properties, that any cash flow interruption resulting from such redeployment
is unlikely or would be minimal and that, although cash flows may be reduced, we
would be able to meet our operating and debt service requirements under our
existing debt agreements during the next 12 months and negotiate amendments, if
necessary, with respect to any failure to meet financial covenants in those debt
instruments.

         We must pay-off our existing Credit Facility by August 31, 2002 or
         obtain replacement financing

         On December 28, 2000, and effective January 31, 2001, the Credit
Facility was further extended to August 31, 2002. At December 31, 2000, the
Company had $38.7 million outstanding under the Credit Facility. On January 3,
2000, the term of our Credit Facility was extended from January 1, 2000 to June
30, 2001 through an amendment which also reduced borrowings available under the
Credit Facility to $45.4 million.

         If we are unable to pay-off or obtain replacement financing by August
31, 2002, or are unable to negotiate a further extension of the current Credit
Facility at that time, or for any reason we are in default under the Credit
Facility prior to its maturity, Deutsche Bank could exercise its right to
foreclose on the collateral securing the Credit Facility, which would have a
significant adverse affect on our ability to continue our operations and meet
our obligations, including payment of quarterly shareholder distributions. If we
are unable to raise additional capital through equity financing, or are unable
to increase our borrowing capacity, we may be limited in our ability to fully
fund our long-term capital needs. Through the sale of assets, the maturity of
real estate loans receivable and the minimum monthly debt service requirements,
the Company anticipates paying off the Credit Facility by the August 31, 2002
due date.

         Replacement financing may have significantly greater interest costs

         If we are unable to pay-off our existing Credit Facility by August 31,
2002, we will need to find replacement financing or negotiate a further
extension of the current Credit Facility at that time. The interest rate on any
new debt may be significantly higher than the interest rate on our existing
Credit Facility with Deutsche Bank. Additionally, we may be required to pay
significant financing fees in the future in connection with replacement
financing or negotiating a further extension with Deutsche Bank. An increased
interest rate or significant financing fees would reduce our cash flow. We can
give no assurance that we will be able to obtain replacement financing on
acceptable terms or at all.




                                       33
<PAGE>

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

         At December 31, 2000, we had $38.7 million of variable rate
indebtedness outstanding under our existing Credit Facility. Amounts outstanding
under the Credit Facility bear interest at a floating rate of 2.75% - 3.25% over
one-month LIBOR (9.63% at December 31, 2000), as determined by the percentage of
the Credit Facility outstanding as compared to the borrowing base. In addition,
we have variable rate mortgages of $30.0 million at December 31, 2000, with an
interest rate of one-month LIBOR plus 300 basis points (9.88% at December 31,
2000). Also, we may borrow additional money with variable interest rates in the
future. We would expect significant increases in interest rates to result in
significant increases in interest expense, which could adversely affect cash
flow and our ability to meet our obligations.

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

         As of December 31, 2000, 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 63.5%. 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 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;
              and

         o    we may be unable to obtain additional financing in the future to
              fund working capital, capital expenditures, acquisitions,
              development or other general corporate purposes, or our ability to
              obtain such financing on satisfactory terms may be impaired; and
              we may be more vulnerable to a downturn in our business or the
              economy generally.

         Additionally, we may not have sufficient cash flow to repay
indebtedness outstanding if our creditors require immediate repayment of these
amounts or if the collateral underlying these amounts is insufficient to cover
the outstanding balances.

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

         During 2000, the stock prices of publicly traded equity real estate
investment trusts increased on average by 26.4%, according to industry data
published by NAREIT. The stock prices of publicly traded healthcare equity real
estate investment trusts increased on average by 25.8% according to NAREIT and
our stock price fell by 58.8% during this period. This share price decline,
combined with the net reduction in Medicare reimbursement levels during and
after 1998, also has resulted in a significant curtailment of banks' willingness




                                       34
<PAGE>

to extend loans secured by healthcare-related real estate, and has raised
concerns about the ability of some less-well capitalized nursing home operators
to continue their operations. During 2000, two publicly-traded nursing home
companies filed for protection under the bankruptcy laws due, in part, to
reductions in Medicare reimbursement rates. All of these factors have adversely
affected our ability to access the capital and credit markets. Because we rely
on these markets to fund our growth, our ability to grow will be significantly
limited until such time as the capital and credit markets improve.

         We depend upon external sources of capital

         To qualify as a REIT, we must distribute to our shareholders each year
at least 95% (90% for taxable years beginning after December 31, 2000) 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.

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

         A significant portion of the revenues derived from the eight skilled
nursing facilities owned by us is attributable to government reimbursement under
Medicare and Medicaid operators.

         During 1998, Medicare reimbursements payable to nursing home operators
were significantly reduced due to the implementation of a new reimbursement
methodology for nursing care, ancillary services and capital costs which is
being phased-in over a three year period. Medicare now reimburses nursing home
operators at a flat per diem rate. In the past, a cost-based system of
reimbursement was used. This change in the Medicare reimbursement methodology
adversely affected the revenues of many nursing homes. Assisted living services
currently are not generally reimbursable under government reimbursement
programs, such as Medicare and Medicaid.

         Although lease and loan payments to us are not directly linked to the
level of government reimbursement, to the extent that changes in these programs
have a material adverse effect on the revenues derived from the skilled nursing
facilities owned by us or that secure mortgages and loans to us, these changes
could have a material adverse impact on the ability of the lessees or borrowers
of the skilled nursing facilities that we own or receive debt payments from to
make lease and loan payments to us. Healthcare facilities also have experienced
increasing pressures from private payers attempting to control healthcare costs



                                       35
<PAGE>

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 or loan payments, the possibility exists that one or
more of our lessees or borrowers could default on their leases or loans to us.

         Genesis is not obligated to guarantee leases of its wholly-owned
         subsidiaries if Genesis assigns one or more of these leases to a
         non-wholly-owned subsidiary or to a third party

         Genesis currently guarantees the lease obligations of its wholly-owned
subsidiaries. Under these leases, any assignment of these leases would require
our consent, which we may not unreasonably withhold. If Genesis assigns one or
more of the leases to a non-wholly-owned subsidiary or a third party, Genesis
would no longer be obligated to guarantee the applicable leases. While we would
evaluate the creditworthiness of any assignee in determining whether to provide
our consent, any transferee could be less creditworthy than Genesis.

         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.

         Because Michael Walker serves as chairman and chief executive officer
         of Genesis and chairman of ElderTrust, he has a conflict of interest in
         matters involving Genesis and ElderTrust

         Michael R. Walker, ElderTrust's chairman of the board, is chairman of
the board and chief executive officer of Genesis. At December 31, 2000, Mr.
Walker beneficially owned approximately 2.2% of the common shares of Genesis and
approximately 5.5% of the common shares of ElderTrust. Because he serves as
chairman of both Genesis and ElderTrust, Mr. Walker has a conflict of interest
with respect to ElderTrust enforcing:

         o    the loan and purchase agreements relating to the properties and
              other assets acquired by us from subsidiaries of Genesis or
              entities in which its has an interest or which may be acquired
              from these entities in the future; and

         o    the leases we entered into with Genesis.





                                       36
<PAGE>

         The failure by us to enforce material terms of these agreements could
result in a monetary loss to us, which could have a material adverse effect on
our financial condition, revenues and earnings. Our ongoing relationships with
Genesis as a lessee and manager of a substantial portion of our properties may
also deter us from vigorously enforcing the terms of these agreements.

         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 and D. Lee McCreary, Jr., 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 a trustee 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.

         We depend on our key personnel whose continued service is not
         guaranteed

         We depend on the efforts of our President and Chief Executive Officer,
Mr. McCreary. The loss of his services could have a significant adverse effect
on our operations. While we believe that the employment agreement we have with
Mr. McCreary provides us with some protection, it does not guarantee Mr.
McCreary's continued employment.

         Our board of trustees may change investment policies without
         shareholder approval




                                       37
<PAGE>

         Our board of trustees may change our investment, financing and other
policies without shareholder approval. Any changes in these policies may have
adverse consequences on our business and operations.

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

         Any failure by our lessees or borrowers to comply with applicable
government regulations could adversely affect their ability to make lease or
loan 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        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



                                       38
<PAGE>

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 or
borrowers 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 or borrowers to make their rental or loan payments to us.

         Although not currently regulated at the federal level, except under
laws of 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
inspection 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 or borrowers to meet



                                       39
<PAGE>

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 or borrowers to
comply with these requirements could have a material adverse effect on their
ability to make loan or lease payments to us.

         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 and false claims act, can be enforced by
a private individual "whistleblowers" in a "qui tam" case, and an increasing
number of such cases 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 recently issued 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 the Company's lessees or borrowers to
meet their financial obligations to the Company.

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



                                       40



<PAGE>

         A loss of license or Medicare/Medicaid certification or default by one
or more of our lessees or borrowers 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 or borrowers
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 and loans 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. See "Business -
Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and Loan
Restructuring."

         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 we have made construction loans, we are subject to development
         and lease-up risks

         We have made construction loans. Lending on development projects is
generally considered to involve greater risks than the purchase and leaseback of
operating properties. The risks associated with lending on development projects
include that:

         o    the development activities may be abandoned;

         o    the borrower may be unable to obtain, or experience delays in
              obtaining, all necessary zoning, land-use, building, occupancy and
              other required governmental permits and authorizations;

         o    construction costs of a facility may exceed the original estimates
              possibly making the facility uneconomical;


                                       41

<PAGE>
         o    occupancy rates and rents at a completed facility may not be
              sufficient to cover loan or lease payments;

         o    permanent financing may not be available on favorable terms;

         o    the term or construction loan may not be repaid; and

         o    construction and lease-up may not be completed on schedule
              resulting in increased debt service expense and construction
              costs.

         In addition, construction-lending activities typically require
substantial time and attention from our management.

         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.

         The revenues derived by us from percentage rent leases depend to a
         greater extent on the operator's ability to operate the properties
         subject to these leases successfully due the absence of minimum rent
         provisions

         We lease two assisted living facilities and one independent living
facility under percentage rent leases, which do not require the payment of
minimum rent. The revenues derived by us under these percentage rent leases,
therefore, depends to a greater extent upon the ability of these operators to
operate the properties subject to these leases successfully because of the
absence of minimum rent requirements. On January 31, 2001, one assisted living
facility was converted to a minimum rent lease as part of the debt restructuring
with Genesis. See "Debt Restructuring and Related Matters."

         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.

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

         Lessees operating our owned properties or borrowers operating
properties that secure loans we have made compete on a local and regional basis




                                       42
<PAGE>

with operators of other facilities that provide comparable services. Operators
compete for residents based on a number of factors, including:

         o        quality of care;

         o        reputation;

         o        physical appearance of facilities;

         o        range and type of services offered;

         o        family preferences;

         o        physicians affiliated with the facility;

         o        staff of the facility; and

         o        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
and loan payments to us could be adversely affected.

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

         In general, regulatory and other barriers to competitive entry in the
assisted living industry are not substantial. Moreover, if the development of
new assisted living facilities outpaces demand for these facilities, the market
may become saturated. Such an oversupply of facilities could cause our operators
to experience decreased occupancy, depressed margins and lower operating
results, which could have a material adverse effect on their ability to make
lease or loan payments to us.

         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 and loan payments to
         us





                                       43
<PAGE>

         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 can not 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 or loan payments to us. In addition, the advanced
age of assisted living residents means that resident turnover in assisted living
facilities may be less predictable.

         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
and to provide construction loans. Newly acquired properties and loans we make
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 and borrowers to secure and maintain,
comprehensive liability and property insurance that covers the Company, as well
as the lessees and borrowers 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, 2000 includes approximately $20.0
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




                                       44
<PAGE>

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 default under the bonds used to finance the
Highgate and Woodbridge facilities, our interest in the relevant property would
be subordinate to the interests of the bondholder.

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

         Various provisions of our declaration of trust and bylaws 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 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    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.





                                       45
<PAGE>


         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 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 Tax Code, commencing with our taxable year ended
December 31, 1998. We can give no assurance that we 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 Tax 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. For example, in order to qualify as a REIT, at least 95% of
our gross income in any year must be derived from qualifying sources, and we
must pay distributions to shareholders aggregating annually at least 95% (90%
for taxable years beginning after December 31, 2000) of our REIT taxable income,
excluding capital gains and certain non-cash income. 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
qualification as a REIT or the federal income tax consequences of qualification
as a REIT.

         If we fail to qualify as a REIT or to maintain our REIT status, we will
be subject to federal income taxes at regular corporate rates, including any
alternative minimum tax. Moreover, we may be disqualified from treatment as a
REIT for the next four taxable years. 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. In addition, distributions to our shareholders would no longer
be required to be made by us.







                                       46
<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 may be
owned, directly or indirectly, by five or fewer individuals. 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.

         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. It is essential to our qualification as a REIT that these
arrangements be respected as leases for federal income tax purposes and that the
lessees, including the subsidiaries of Genesis that lease properties from us,
not be regarded as "related parties" of us or our operating partnership, as
determined under the applicable provisions of the Tax Code.

         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 other than
deriving rental revenues payments to the lease of such property until the end of
the second taxable year after the lease termination but only if an independent




                                       47
<PAGE>

contractor begins to operate the property within 90 days after the lease is
terminated. The 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 either a lease of, or a mortgage secured
by, an assisted or independent living facility or skilled nursing facility, to
maintain our REIT qualification, we would have to either 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 lessees or
borrowers 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.

         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. Our corporate subsidiary, ET
Capital Corp., is subject to federal, state and local taxes on its net income.

         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 extent to which a secondary market develops for our common
              shares;

         o    the extent of institutional investor interest in us;

         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




                                       48
<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 would likely adversely
affect the market price of our publicly traded securities.

         Market interest rates may have an effect on the value of our publicly
         traded securities

         One of the factors that investors consider important in deciding
whether to buy or sell shares of a REIT is the distribution rate on such shares,
considered as a percentage of the price of such shares, relative to market
interest rates. If market interest rates go up, prospective purchasers of REIT
shares may expect a higher distribution and this would likely increase our
borrowing costs and potentially decrease funds available for distribution. Thus,
higher market interest rates could cause the market price of our publicly traded
securities to go down.

         Shares available for future sale could adversely affect the market
price of our publicly traded securities

         At December 31, 2000, we had 394,725 units of limited partnership
interest in our operating partnership which are owned by minority interests.
These units are redeemable by the holder for cash or, at our election, common
shares. 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 321,779
are exercisable share options as of December 31, 2000. The Company also has
reserved a total of 102,160 common shares for issuance pursuant to our 1999
share option and incentive plan, of which 34,053 are exercisable share options
as of December 31, 2000. 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.

         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:




                                       49
<PAGE>

         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 that 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.

         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.




                                       50
<PAGE>

         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 and loan 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 or borrowers 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 or loan payments to us.

         ERISA plans may be prohibited from investing in our common shares

         Depending upon the particular circumstances of an ERISA plan, an
investment by an ERISA plan in our common shares may be inappropriate under the
Employee Retirement Income Security Act of 1974. In deciding whether to purchase
our common shares on behalf of an ERISA plan, a fiduciary of an ERISA plan, in
consultation with its advisors, should carefully consider its responsibilities
under ERISA, the prohibited transaction rules of ERISA and the Tax code and the
effect of regulations issued by the U.S. Department of Labor defining what
constitutes assets of an ERISA Plan.

ITEM 2.     PROPERTIES

         The Company's headquarters are currently located at 101 East State
Street, Suite 100, Kennett Square, PA 19348. The Company leases its corporate
office space from Genesis under an operating lease, which expires on May 31,
2001. 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. As of December 31, 2000, the Company had no other material lease
commitments as lessee.





                                       51
<PAGE>


         The following table sets forth certain information comprising the
Company's investments in owned real estate property as of December 31, 2000.
<TABLE>
<CAPTION>
                                                       Number of                               Annualized
             Property                     State        Beds (3)        Investment (4)        Rental Income (5)
-------------------------------------   ----------   --------------    ----------------     -----------------
                                                                           (dollar amounts in thousands)
<S>                                     <C>           <C>              <C>                  <C>
Assisted Living Facilities:
    Heritage Woods *                 (1)   MA                  132            $ 12,493               $ 1,045

    Willowbrook *                    (1)   PA     (7)           54               6,465  (6)              640

    Riverview Ridge                  (1)   PA                   96               6,586                   551

    Highgate at Paoli Pointe         (1)   PA                   81              14,251                 1,200

    The Woodbridge                         PA                   90              13,491                 1,317

    Heritage at North Andover        (1)   MA                   97              12,145                 1,132

    Heritage at Vernon Court         (1)   MA                  115              18,807                 1,677
                                                     --------------    ----------------     -----------------
       Total Assisted Living                                   665              84,238                 7,562
                                                     --------------    ----------------     -----------------
Independent Living Facilities:
    Pleasant View                    (1)   NH                   72               4,178                   466
                                                     --------------    ----------------     -----------------
       Total Independent Living                                 72               4,178                   466
                                                     --------------    ----------------     -----------------

Skilled Nursing Facilities:
    Rittenhouse CC *                 (1)   PA                  183               9,806                   810

    Lopatcong CC                     (1)   NJ                  153              15,177                 1,260

    Wayne NRC                        (2)   PA                  113               8,483                   805

    Belvedere NRC                    (1)   PA                  160              12,631  (6)            1,099

    Phillipsburg CC                  (1)   NJ                   94               2,300                   578

    Chapel NRC                       (1)   PA                  240              12,305                 1,167

    Harston Hall NCH                 (1)   PA                  196               8,566                   826

    Pennsburg Manor NRC              (1)   PA                  120              10,904                 1,109
                                                     --------------    ----------------     -----------------
       Total Skilled Nursing                                 1,259              80,172                 7,654
                                                     --------------    ----------------     -----------------

Medical Office and Other Buildings:
    Professional Office Building I         PA                                    4,571                   844

    DCMH Medical Office Building           PA                                    8,371                 1,574

    Salisbury Medical Office Bldg.   (1)   MD                                    1,418                   170

    Windsor Office Building *        (1)   CT     (7)                              272                    81

    Windsor Clinic/Trg. Facility *   (1)   CT     (7)                            1,120                   116

    Lacey Branch Office Building           NJ                                      625                    57
                                                                       ----------------     -----------------
       Total Medical Office and Other                                           16,377                 2,842
                                                     --------------    ----------------     -----------------
Total Owned Properties:                                      1,996            $184,965               $18,524
                                                     --------------    ----------------     -----------------
</TABLE>





                                       52
<PAGE>



------------------
             *   Represent properties included in the Company's borrowing base
                 for the Credit Facility and pledged as collateral.

             (1) Represent properties that are leased to and/or managed by
                 Genesis or Genesis Equity Investees.  See "Transactions with
                 Genesis."

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

             (3) Based upon the number of private and semi-private beds in
                 service at December 31, 2000.

             (4) Includes investments in real estate properties on loans
                 aggregating $176.6 million, before reductions for accumulated
                 depreciation and includes credit enhancements on several
                 properties, which aggregated $8.4 million. Credit enhancements
                 include bond and operating reserve funds aggregating $4.3
                 million, security deposits of $2.3 million, letters of credit
                 aggregating $1.0 million and mortgage escrow accounts of $0.8
                 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 2000.

             (6) As part of the restructuring, which closed on January 31, 2001,
                 the annual minimum rent for the Willowbrook and the
                 Phillipsburg facilities have been reduced by $345,000 and
                 $400,000, respectively to $295,000 and $177,500, respectively
                 per year beginning February 1, 2001.

             (7) These properties have been identified as held for sale. These
                 assets are identified as properties held for sale and are
                 disclosed separately on the Company's consolidated balance
                 sheet.

         The Company holds a fee interest in each of its properties except for
the land underlying the Windsor Clinic and Training Facility, the Professional
Office Building I and the DCMH Medical Office Building (in which the Company
owns a condominium unit), which are leasehold interests subject to long-term
ground leases from Genesis and other unaffiliated companies.

         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 fixed terms of 5 to 12 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. See "Business - Investments - Owned Property - Operating Leases."
The Company believes that its leased properties are adequately insured under
insurance policies maintained by the lessees.




                                       53
<PAGE>

         The above properties are encumbered by mortgage loans and bonds
aggregating $107.9 million at December 31, 2000, bearing interest at a weighted
average rate of 8.5%. These mortgage loans mature from December 2002 through
September 2025. See Note 9 to the Company's Consolidated Financial Statements
included in this Form 10-K. Additionally, five of the Company's properties, not
already subject to mortgage loans, are included in the borrowing base for the
Credit Facility and are pledged as collateral for outstanding borrowings. See
Note 8 to the Company's consolidated financial statements included in this Form
10-K.

         The following table sets forth certain information regarding the
Company's term and construction loans on real estate property investments as of
December 31, 2000.
<TABLE>
<CAPTION>
                                                      Number of                             Interest Rate
    Term and Construction Loans           State        Beds (2)        Investment (3)        on Loans (3)
-------------------------------------    ---------  ---------------    ----------------   -------------------
                                                                    (dollars in thousands)
             Term Loans
-------------------------------------
<S>                                      <C>        <C>                 <C>                <C>
Assisted Living Facilities:
    Harbor Place *                   (1)    FL                  92              $4,828                  9.5%

    Mifflin *                        (1)    PA                  57               5,164                   9.5

    Coquina Place *                  (1)    FL                  60               4,538                   9.5

    Lehigh *                         (1)    PA                  70               4,200                  10.5

    Berkshire *                      (1)    PA                  64               4,700                  10.5

                                                    ---------------    ----------------
       Total Assisted Living                                   343              23,430
                                                    ---------------    ----------------
         Total Term Loans                                      343              23,430
                                                    ---------------    ----------------

         Construction Loans
-------------------------------------
Assisted Living Facilities:
    Oaks *                           (1)    PA                  52               5,033                  9.0%

    Montchanin *                            DE                  92               9,496                  10.5

    Sanatoga *                       (1)    PA                  75               3,600                  10.5

                                                    ---------------    ----------------
       Total Assisted Living                                   219              18,129
                                                    ---------------    ----------------
         Total Construction Loans                              219              18,129
                                                    ---------------    ----------------
             Total Term and Construction Loans                 562            $ 41,559
                                                    ===============    ================
</TABLE>
----------------
       *  Represent loans included in the Company's borrowing base for the
          Credit Facility and pledged as collateral.

      (1) Represent properties that are managed by Genesis or Genesis Equity
          Investees.  See "Business - Investments -  Loan Restructurings and
          Related Matters."

      (2) Based upon the number of private and semi-private beds in service at
          December 31, 2000.

      (3) Represents principal balance, net of allowances and related rate of
          interest at December 31, 2000.  See Note 4 to the Company's
          consolidated financial statements included in this Form 10-K.





                                       54

<PAGE>

ITEM 3.     LEGAL PROCEEDINGS

         None.

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

         No matters were submitted to a vote of security holders during the
three months ended December 31, 2000, through the solicitation of proxies or
otherwise.

                                     PART II

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

         The following table sets forth, from January 27, 1998, the date the
Company's common shares began trading, through the periods indicated, the high
and low sales prices of the Company's common stock on the New York Stock
Exchange and the distributions paid per share. There were 82 shareholders of
record of the Company's common shares as of February 28, 2001. The number of
shareholders of record does not include an indeterminate number of shareholders
whose shares are held by brokers in "street name." Management believes there are
approximately 4,000 beneficial shareholders of the Company's common shares.
<TABLE>
<CAPTION>
                                                                        Distributions Per
         Quarter ended                 High            Low                   Share
  -----------------------------     -----------     -----------     -------------------------

<S>                                   <C>              <C>                    <C>
  March 31, 1998 (1)                    $19.50          $17.38                       -
  June 30, 1998                          18.00           14.88                  $0.243
  September 30, 1998                     17.75           11.63                   0.365
  December 31, 1998                      14.50            9.25                   0.365
  March 31, 1999                         11.63            7.50                   0.365
  June 30, 1999                          10.38            8.44                   0.365
  September 30, 1999                     10.06            6.50                   0.365
  December 31, 1999                       7.63            5.00                   0.365 (2)
  March 31, 2000                          7.69            2.69                   0.300
  June 30, 2000                           3.63            0.56                   0.300 (3)
  September 30, 2000                      1.38            0.69                       -
  December 31, 2000                       2.81            0.94                       -
</TABLE>

----------
(1) Represents the period from January 27, 1998 through March 31, 1998.
(2) Effective with the quarterly distribution paid in February 2000, the
    quarterly distribution was reduced from $0.365 per share to $0.30 per share.
(3) Effective for the quarter ending September 30, 2000, the Company suspended
    the quarterly distributions.  The Company does not expect to resume paying
    dividends until at least 2002.

                                       55
<PAGE>


         In order to qualify as a REIT for federal income tax purposes, the Tax
Code generally requires that a REIT distribute annually at least 95% (90% for
taxable years beginning after December 31, 2000) of its net taxable income to
its shareholders. See "Business - Taxation." 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 and
intends to continue qualifying as a REIT in future periods. The Company
suspended its distributions to its shareholders until further notice. The amount
and timing of future distributions, however, will depend upon various factors,
including the Company's cash available for distribution and limitations or
restrictions under the Credit Facility on payment of dividends. See "Business -
Genesis and Multicare file for Chapter 11 Bankruptcy Protection," "Business -
Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources." Distributions by
the Company are at the discretion of the board of trustees.




                                       56

<PAGE>



ITEM 6.     SELECTED FINANCIAL DATA

         The following selected consolidated financial data for the years ended
December 31, 2000 and 1999 and for the period from January 30, 1998 through
December 31, 1998, and as of December 31, 2000 and 1999, is derived from the
consolidated financial statements of the Company. The following data should be
read in conjunction with the Company's consolidated financial statements and
related notes, and other financial information included in this Form 10-K,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
                                                              2000             1999              1998
                                                      ----------------- ----------------- ------------------
                                                                 (in thousands, except per share data)
<S>                                                   <C>                     <C>             <C>
Operating Data:
    Revenues                                                 $ 26,584           $28,141            $21,233
    Expenses:
       Property expenses                                        1,128             1,124                975
       Interest expense                                        14,007            13,136              6,256
       Depreciation                                             5,850             5,788              4,460
       General and administrative, separation
         agreement and start-up expenses                        3,622             5,412              4,648
       Loss on impairment of long-lived assets                  5,306                 -                  -
       Bad debt expense                                         9,522                 -                  -
                                                            -----------------------------------------------
             Total expenses                                    39,435            25,460             16,339
                                                            -----------------------------------------------
    Equity in losses of unconsolidated entities, net          (10,010)           (2,482)              (648)
    Minority interest                                           1,531               (19)              (273)
                                                            -----------------------------------------------
    Net income (loss) before extraordinary item               (21,330)              180              3,973
    Extraordinary item, net of minority interest                    -            (1,210)                 -
                                                            -----------------------------------------------
    Net income (loss)                                       ($ 21,330)         ($ 1,030)           $ 3,973
                                                            ===============================================
Per share information:
    Basic and diluted net income (loss) per share
         before extraordinary item                             ($3.00)            $0.03             $ 0.54
                                                            ===============================================
    Basic and diluted net income (loss) per share              ($3.00)           ($0.14)            $ 0.54
                                                            ===============================================
    Weighted average basic and diluted common
         shares outstanding                                     7,119             7,198              7,369
                                                            ===============================================
    Distributions per share                                     $0.60             $1.46              $0.97
                                                            ===============================================

</TABLE>
                                       57


<PAGE>

<TABLE>
<CAPTION>

                                                          December 31, 2000         December 31, 1999
                                                      ---------------------------------------------------
                                                                        (in thousands)
<S>                                                           <C>                    <C>
Balance Sheet Data:
    Real estate properties, net                                 $149,804                $171,681
    Real estate loans receivable                                  41,559                  48,646
    Credit Facility                                               38,720                  39,670
    Mortgages, bonds and notes payable                           108,947                 110,084
    Total liabilities                                            152,931                 155,053
    Total shareholders' equity                                   $80,099                $103,440

                                                                  2000                     1999
                                                      ---------------------------------------------------
                                                                        (in thousands)
Other Data:
    Funds from Operations (1)                                   ($6,620)                  $9,939
                                                      ---------------------------------------------------
</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 comparison purposes the year ended December 31, 1999 has been restated to
conform to the new FFO definition. See "Funds from Operations" for current
definition.

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 that invests principally in senior housing and other healthcare
facilities, including skilled nursing facilities, assisted and independent
living facilities and medical office and other buildings. The Company conducts
primarily all of its operations through the Operating Partnership, of which
ElderTrust is the sole general partner. The Company's consolidated assets
consist primarily of the assets of the Operating Partnership and its
consolidated subsidiaries. As of December 31, 2000, skilled nursing, assisted
and independent living facilities comprised approximately 91% of the Company's
consolidated investments in real estate properties and loans.

                                       58
<PAGE>


         Approximately 72% of the Company's consolidated assets at December 31,
2000 consisted of real estate properties leased to or managed by and loans on
real estate properties made to Genesis or Genesis Equity Investees. Revenues
recorded by the Company in connection with these leases and borrowings
aggregated $17.9 million in 2000. In addition, the Company's Equity Investees
have also leased properties to Genesis or Genesis Equity Investees. As a result
of these relationships, the Company's revenues and ability to meet its
obligations depends, in significant part, upon:

         o the ability of Genesis and Genesis Equity Investees to meet their
           lease and loan obligations; and

         o the revenues derived from, and the successful operation of, the
           facilities leased to or managed by Genesis or Genesis Equity
           Investees.

Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and Loan
Restructuring

         On June 22, 2000, Genesis and Multicare filed for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During
the year, the Company, Genesis and Multicare and Genesis and Multicare's major
creditors negotiated agreements to restructure their debt and lease obligations
with the Company. The agreements were approved by the U.S. Bankruptcy Court on
January 4, 2001 and were consummated on January 31, 2001.

         Under the more significant terms of the agreement with Genesis:

1)   Twenty-one of the existing twenty-three lease agreements between Genesis
     subsidiaries and ElderTrust continued in effect in accordance with their
     terms, except as provided below:

         o Two leases were modified to reduce combined rents for the properties
           by $745,000 per year;

         o One lease was modified to create an early termination right
           commencing on December 31, 2002; and

         o One lease was modified to permit ElderTrust to terminate the lease
           during 2001 without penalty if the current tenant is unable to
           achieve occupancy targets specified by loan documents secured by
           property.

2)   Two leases (Windsor Office Building and Windsor Clinic/Training facility)
     were terminated when the two properties subject to the leases were sold to
     Genesis for $1.25 million, such amount being paid via an increase in the
     notes receivable described in 4) below;

                                       59
<PAGE>

3)   An $8.5 million loan previously guaranteed by ElderTrust and owed to
     Genesis by ET Sub-Meridian, an unconsolidated subsidiary of ElderTrust, was
     conveyed to ElderTrust in a manner to effect an $8.5 million reduction in
     amounts owed to ElderTrust by Genesis;

4)   The maturity date for three loans (Oaks, Coquina and Mifflin) by ElderTrust
     to Genesis and affiliated entities with unpaid principal balances totaling
     approximately $7.5 million at June 30, 2000 (after taking into account the
     aforementioned $1.25 million increase and $8.5 million reduction) were
     extended to June 30, 2002 at the rates in effect prior to the Genesis
     bankruptcy filing; and

5)   The maturity date and interest rate for one loan (Harbor Place) with a
     principal balance of approximately $4.8 million made by ElderTrust to an
     entity in which Genesis owns a 100% limited partner interest was extended
     to May 31, 2002 at a 10% interest rate, an increase of 0.5%.

         Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans (Lehigh, Berkshire and Sanatoga) with
outstanding principal amounts totaling approximately $19.5 million, and having a
net book value of $12.5 million, at December 31, 2000, in exchange for the
outstanding indebtedness. These properties were then leased back to Multicare
under long-term operating lease agreements. ElderTrust has no other transactions
with this entity.

         Although the agreements with Genesis and Multicare have been approved
by the U.S. Bankruptcy Court and successfully consummated, there can be no
assurance that either Genesis or Multicare will successfully emerge from
bankruptcy. As a result, there can be no assurance that Genesis and Multicare
will continue to make loan and lease payments under the terms of the
restructured loan and lease arrangements with those entities.

         Genesis and Multicare are expected to file plans of reorganization with
the U.S. Bankruptcy Court addressing their other creditors' claims. Both
companies are currently operating as debtors-in-possession subject to the
jurisdiction of the U.S. Bankruptcy Court. Approval of the reorganization plans
by the U.S. Bankruptcy Court will be necessary for Genesis and Multicare to be
able to emerge from bankruptcy. The independent auditors' report on Genesis'
2000 financial statements, included in Genesis' Form 10-K as of September 30,
2000, indicated that there is substantial doubt regarding the ability of Genesis
and Multicare to continue as going concerns. Each Company's ability to continue
as a going concern will be dependent upon, among other things, approval of their
respective plan of reorganization, future profitable operations, the ability to
comply with the terms of their debtor-in-possession financing arrangements and
the ability to generate sufficient cash from operations and financing agreements
to meet their obligations. Although we are hopeful Genesis and Multicare will
emerge from bankruptcy and continue to make lease and loan payments to us, there
can be no assurance that this will occur. Any failure of Genesis and Multicare
to continue their operations and/or to continue to make lease and loan payments
to us could have a significant adverse impact on our operations and cash flows
due to the significant portion of our properties leased to and loans made to
Genesis and Multicare.

                                       60
<PAGE>


         If Genesis and Multicare were to cease making lease and loan payments
to the Company, we may be required to terminate the underlying leases and
foreclose on the outstanding loans, in which event we would likely be required
to find new operators to operate the properties underlying the leases and loans
and/or sell or close one or more properties. Management has contacted several
alternative operators and, based on these preliminary discussions, believes that
an adequate market currently exists in which the Company could arrange for
property management, leasing or sale of these assets, and that the properties
could be successfully transitioned to new operators. Based on the discussions
with these operators, the Company's management believes that a property could be
transitioned to a new operator without undue delay and that, due to the elderly
resident population and care requirements this population requires, such
transition would be completed in an orderly fashion and with the cooperation of
the operators and the appropriate regulatory authorities, if any. Some of the
operators contacted by the Company have indicated that they have experience in
transitioning skilled nursing facilities to new management and that they have
the staffing needed to transition such facilities. The Company would expect to
rely upon that experience to effect an orderly transition should Genesis and/or
Multicare fail to emerge from bankruptcy and/or cease making lease or loan
payments to us.

         As a result of the relatively short estimated time period required to
transition a property to a new operator, the Company's management believes that,
even if Genesis or Multicare were to cease making lease and loan payments to us
either because Genesis and Multicare did not emerge from bankruptcy or
otherwise, the Company would still be able to satisfy its operating and debt
service requirements during the next 12 months. Management fee arrangements
currently charged in the market place typically range from 4% to 6% of property
gross revenues. Actual fees incurred would depend upon property type and
location as well as other property and operator specific factors. Management
estimates that, if all of the properties subject to leases and loans with
Genesis and Multicare were returned to the Company and were subjected to
management agreements with new operators, the Company's annual cash flows could
be reduced by approximately $1.6 million. While difficult to predict, this
estimate is based upon expected property operations and assumptions made by
management as to management fees, capital expenditures and possible property
closures.

         The Company has multiple debt agreements and is subject to debt
covenants that, among other things, require minimum principal payments and
contain various financial covenants. Although the Company's management believes,
based upon the above noted estimated cash flow reduction, that the Company would
be able to meet its operating and debt service obligations during the next 12
months if it were required to obtain new managers for the properties now
operated by Genesis and Multicare, a termination of leases and loans with
Genesis and Multicare may impair the Company's ability to meet one or more of
the financial covenants contained in its debt agreements. Should this occur, the
Company's management believes that alternative arrangements could be reached
with its various lenders to restructure its loan agreements, if necessary, so as
to reflect any adverse change in economic condition. This belief is based, in
part, upon the Company's past history in negotiating mutually acceptable
agreements with these lenders. Depending on the magnitude of the reduction in
the Company's operating cash flow, the Company would seek to offset the effect
of such reduction in operating cash flow on the Company's ability to meet its
debt service requirements through asset sales or through other available means.
The Company believes that it has the ability to, and, if necessary, intends to,
take these actions available to it and, as a result, believes it will be able to
continue to satisfy its debt and operating obligations as they come due during
the next twelve months.

                                       61
<PAGE>


         As indicated above, based upon management's assessment of the long-term
care economic environment, its discussions with alternative operators and the
Company's past history with its lenders, the Company believes that, if the loans
and leases with Genesis and Multicare were terminated, that the assets could be
redeployed as needed. Were this to occur, management believes that new operators
would be available to operate the properties, that any cash flow interruption
resulting from such redeployment is unlikely or would be minimal and that,
although cash flows may be reduced, the Company would be able to meet its
operating and debt service requirements under its existing debt agreements
during the next 12 months and negotiate amendments, if necessary, with respect
to any failure to meet financial covenants in those debt instruments.

         The Company has incurred indebtedness to acquire its assets and may
incur additional short and long-term indebtedness, and related interest expense,
from time to time. See "Liquidity and Capital Resources" and Note 4 - Real
Estate Loans Receivable to consolidated financial statements.

         Under the terms of the Bank Credit Facility, the Company cannot
distribute to its shareholders more than 110% of that amount required to
maintain REIT status. The Company intends to maintain its REIT status. However
the amount and timing of distributions will depend upon various factors,
including the Company's cash available for distribution. See "Liquidity and
Capital Resources."

         Substantially all of the Company's revenues are derived from:

            o   rents received under long-term leases of healthcare-related real
                estate;

            o   interest earned from term and construction loans; and

            o   interest earned from the temporary investment of funds in
                short-term instruments.

         The Company has incurred operating and administrative expenses, which
principally include compensation expense for its executive officers and other
employees, office rental and related occupancy costs.

                                       62
<PAGE>


         The Company is self-administered and managed by its executive officers
and staff, and has not engaged a separate advisor or paid an advisory fee for
administrative or investment services, although the Company has engaged legal,
accounting, tax and financial advisors as needed from time to time.

         The primary non-cash expenses of the Company are the depreciation of
its healthcare facilities, amortization of its deferred loan origination costs
and deferred financing costs.

Investments in Equity Investees

         The Company's Equity Investees represent entities in which the
controlling interest is owned by Mr. D. Lee McCreary, the Company's President,
Chief Executive Officer and Chief Financial Officer. As a result, the Company
records its investments in, and results of operations from, these entities using
the equity method of accounting in its consolidated financial statements
included in this Form 10-K.

         ET Capital Corp.

         The Company has a nonvoting 95% equity interest in, and has $3.5
million in loans to ET Capital Corp. ("ET Capital"). The remaining voting 5%
equity interest in ET Capital is owned by Mr. McCreary.

         As of December 31, 2000, ET Capital owned a $7.8 million second trust
mortgage note executed by AGE Institute of Florida, which it acquired from
Genesis during 1998. This note is secured by a second lien on 11 Florida skilled
nursing facilities owned by AGE Institute of Florida and a second lien on
accounts receivable and other working capital assets. The $40.0 million first
mortgage loan that is guaranteed by Genesis is held by a third party. The
facilities were managed by subsidiaries of Genesis through September 30, 2000.
The AGE Institute of Florida's second mortgage note to ET Capital matures on
September 30, 2008 with payments of interest only, at a fixed annual rate of 13%
due quarterly until the note is paid in full. The borrower ceased making
interest payments to ET Capital during the quarter ended June 30, 2000 and since
June 2000 the borrower has been in default under the $40.0 million first
mortgage loan. ET Capital recorded a provision for bad debts of $8.8 million as
of December 31, 2000 for interest and principal due on the $7.8 million second
trust mortgage note through December 31, 2000.

         The Company recorded $0.7 million and $0.7 million in interest income
for the years ended December 31, 2000 and 1999, respectively, on the notes
receivable from ET Capital. The Company also recorded a loss of $7.2 million and
income of $0.2 million related to the portion of its equity interest in ET
Capital's results of operations for the years ended December 31, 2000 and
December 31, 1999, respectively. In addition, the Company recorded an impairment
loss of $1.4 million on the remaining balance of the notes receivable from ET
Capital issued in connection with the second mortgage transaction. See Note 7 of
the Company's consolidated financial statements included in this Form 10-K.

                                       63
<PAGE>


         In addition to the AGE Institute of Florida second trust mortgage note,
ET Capital has notes receivable aggregating $4.4 million at December 31, 2000
from two of the Company's Equity Investees and one of the Company's consolidated
subsidiaries. These loans mature at various dates from April 2008 to December
2011 and bear interest at 14% per annum with interest and principal payable
monthly. ET Capital's long-term debt includes two demand promissory notes
payable to the Company aggregating $5.9 million at December 31, 2000 in
connection with the above second mortgage note transaction. These notes bear
interest at a weighted average rate of 12.1% per annum with interest only
payable quarterly. ET Capital ceased making interest payments, on these notes to
the Company during the quarter ended June 30, 2000. Management of the Company
has determined that these notes are fully impaired at December 31, 2000.

         In addition, ET Capital has loans payable to the Company aggregating
$3.3 million, bearing interest at 15% and maturing at various dates from April
2008 to December 2011. Payments on these notes were current at December 31,
2000.

         ET Sub-Meridian Limited Partnership, L.L.P.

         The Company has a 99% limited partnership interest in ET Sub-Meridian.
The 1% general partner interest is owned by a limited liability company of which
Mr. McCreary is the sole member. ET Sub-Meridian owns the leasehold and purchase
option rights to seven skilled nursing facilities located in Maryland and New
Jersey, which it purchased from Genesis for $35.5 million in cash and issuance
of $8.5 million in term loans during September 1998. The purchase options are
exercisable by ET Sub-Meridian in September 2008 for a cash exercise price of
$66.5 million. ET Sub-Meridian subleased the facilities to Genesis for an
initial ten-year period with a ten-year renewal option. Genesis has guaranteed
the subleases.

         As part of the transaction, 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.

                                       64
<PAGE>

         The Company recorded losses of $2.5 million and $2.3 million related to
the portion of its equity interest in ET Sub-Meridian's results of operations
for the year ended December 31, 2000 and December 31, 1999, respectively. ET
Sub-Meridian has real estate investments and long-term debt of $103.0 million
and $105.4 million, respectively, at December 31, 2000. See Note 7 of the
Company's consolidated financial statements included in this Form 10-K. At
December 31, 2000, ET Sub-Meridian had a $17.6 million subordinated demand loan
bearing interest at 12% per annum payable to the Company in connection with the
above transaction. The Company recorded $2.1 million in interest income on this
loan for the years ended December 31, 2000 and 1999, respectively.

         ET Sub-Heritage Andover, LLC
         ET Sub-Vernon Court, LLC
         ET Sub-Cabot Park, LLC
         ET Sub-Cleveland Circle, LLC

         The Company, through four limited liability companies (ET Sub-Heritage
Andover, LLC, ET Sub-Vernon Court, LLC, ET Sub-Cabot Park, LLC, and ET
Sub-Cleveland Circle, LLC), has member interests in three assisted living
facilities and one independent living facility, which it acquired during
December 1998 from an unrelated third party. A Genesis Equity Investee leases
each of the facilities.

         The Company is the sole member of ET Sub-Heritage Andover, LLC, which,
accordingly, is consolidated into the Company's consolidated financial
statements at December 31, 2000. In each of the remaining three limited
liability companies, the Company has a 99% member interest. The 1% managing
member interest in these three companies is owned by a limited liability company
of which Mr. McCreary is the sole member. The Company currently has the option
to acquire the 1% managing member interest in ET Sub-Vernon Court, LLC from Mr.
McCreary. The option exercise price is $3,200. As the Company has the ability to
acquire the 1% managing member interest in ET Sub-Vernon Court, LLC for a
nominal amount, this company is consolidated into the Company's consolidated
financial statements at December 31, 2000.

         The two unconsolidated limited liability companies have subordinated
demand loans in the aggregate amount of $3.1 million payable to the Company at
December 31, 2000, bearing interest at 12% per annum. The Company recorded
$382,000 and $381,000 in interest income for the year ended December 31, 2000
and 1999, respectively, in connection with these demand loans.

         In addition, three of the limited liability companies have loans
payable to ET Capital aggregating $4.4 million at December 31, 2000, maturing at
various dates from April 2008 to December 2011 and bearing interest at 14% per
annum with interest and principal payable monthly.

                                       65
<PAGE>


         The Company recorded aggregate losses of $342,000 and $401,000 related
to its equity interest in ET-Sub-Cabot Park, LLC's and ET Sub-Cleveland Circle,
LLC's results of operations for the years ended December 31, 2000 and 1999,
respectively. These two entities have real estate investments and aggregate
long-term debt of $30.2 million and $30.2 million, respectively, at December 31,
2000. See Note 7 of the Company's consolidated financial statements included in
this Form 10-K.

Results of Operations

         Year ended December 31, 2000 compared to the year ended December 31,
           1999

              Revenues

         Rental revenues were $18.6 million for the year ended December 31, 2000
as compared to $18.6 million for the year ended December 31, 1999.

         Interest income was $4.5 million, net of amortization of deferred loan
costs of $145,000, for the year ended December 31, 2000 as compared to $5.7
million for the year ended December 31, 1999, a 19.6% decrease. This decrease
was a result of debt restructuring involving Genesis and Multicare during 2000.
See "Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and Loan
Restructuring."

         Interest from unconsolidated Equity Investees was $3.3 million for the
year ended December 31, 2000 as compared to $3.8 million for the year ended
December 31, 1999. This represents a 14.6% decrease over the prior year. This
decrease was primarily due to ET Capital not making its second, third or fourth
quarter 2000 interest payments to the company on its notes payable related to
the AGE Institute of Florida second mortgage transaction. See "Loan
Restructuring and Related Matters."

              Expenses

         Property operating expenses principally relate to medical office
buildings, which are not subject to leases that require the lessees to pay all
operating expenses of the related property. Property operating expenses for
these leased properties were $1.1 million for the years ended December 31, 2000
and December 31, 1999. Property operating expenses as a percentage of medical
office building rental revenues decreased to 38.2% for the year ended December
31, 2000 as compared to 42.9% for the year ended December 31, 1999.

         Interest expense, which included amortization of deferred financing
costs of $0.6 million, was $14.0 million for the year ended December 31, 2000 as
compared to $13.1 million for year ended December 31, 1999. The increase of $0.9
million, is due to fluctuations in the LIBOR rate and under the Third Amendment
to the Credit Facility the terms required the Company to pay a monthly facility
fee in an amount equal to 0.0625% (0.75%) of the outstanding balance. This
increase in interest expense of $1.8 million was partially offset by a reduction
in amortization of deferred financing costs of $0.9 million. Third-party debt,
which includes the Credit Facility and mortgages and notes payable to third
parties, decreased from $148.7 million at December 31, 1999 to $146.7 million at
December 31, 2000. The weighted average interest rate on outstanding third-party
debt increased from 8.4% at December 31, 1999 to 8.5% at December 31, 2000. The
Company's interest rate on the Credit Facility was 9.63% at December 31, 2000
and 9.25% at December 31, 1999. After January 31, 2001, amounts outstanding
under the Credit Facility bear interest at a floating rate equal to 3.25% over
one-month LIBOR per the Fourth Amendment to the Credit Agreement dated January
31, 2001.

                                       66
<PAGE>


         Depreciation was approximately $5.8 million for the years ended
December 31, 2000 and December 31, 1999. This amount relates to depreciation
taken on the real estate properties owned by the Company at December 31, 2000
and 1999.

         General and administrative expenses were $3.6 million for the year
ended December 31, 2000 as compared to $2.6 million for the year ended December
31, 1999, an increase of 38.5%. The increase was primarily due to increased
compensation for officers and the expenses of $0.7 million in connection with
property due diligence for investment transactions that were not completed.

         Bad debt expense of $9.5 million was recorded for the twelve months
ending December 31, 2000 resulting 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.

         An extraordinary loss of $1.2 million, net of a minority interest
benefit of $86,000, was recorded for the year ended December 31, 1999 in
connection with the prepayment of an existing mortgage loan.

         Year ended December 31, 1999 compared with the period from
              January 30, 1998 to December 31, 1998

              Revenues

         Rental revenues of $18.6 million were generated for the year ended
December 31, 1999. This represented a 30.7% increase from $14.2 million for the
corresponding period in 1998. This increase was a result of 1998 including only
eleven months of operations and due to acquisitions of senior housing and other
healthcare-related properties at various times during 1998.

         Interest income of $5.7 million, net of amortization of deferred loan
costs of $227,000, was earned for the year ended December 31, 1999. This
represented a 26.8% increase from $4.5 million for the corresponding period in
1998. This increase was a result of 1998 including only eleven months of
operations and due to additional funding of construction loans at various times
during 1998 and 1999. The increase was comprised of an increase of $1.1 million
in interest on term and construction loans and an increase of $206,000 in
interest earned on excess invested funds and bond and operating reserve funds,
offset, in part, by a decrease of $73,000 in connection with a mortgage loan
receivable that was collected in December 1998.

                                       67
<PAGE>


         Interest from unconsolidated Equity Investees of $3.8 million was
earned for the year ended December 31, 1999. This represented a 163.4% increase
from $1.4 million for the corresponding period in 1998. This increase was a
result of a large increase in the average loan balance with these unconsolidated
Equity Investees from 1998 to 1999, primarily in connection with two
transactions that occurred in September and December 1998.

              Expenses

         Property operating expenses principally relate to medical office
buildings, which are not subject to leases that require the lessees to pay all
operating expenses of the related property. Property operating expenses for
these leased properties were $1.1 million for the year ended December 31, 1999.
This represented a 15.3% increase from $975,000 for the corresponding period in
1998. This increase was a result of 1998 including less than eleven months of
operations for the Company's medical office buildings due to one of these
buildings being acquired by the Company during the last half of February 1998.
Property operating expenses as a percentage of medical office building rental
revenues decreased to 42.9% for the year ended December 31, 1999 as compared to
44.7% for the corresponding period in 1998.

         Interest expense, which included amortization of deferred financing
costs of $1.6 million, was $13.1 million for the year ended December 31, 1999.
This represented a 110.0% increase in interest expense from $6.3 million for the
corresponding period in 1998. This increase was primarily due to 1998 including
only eleven months of operations, increased amortization of deferred financing
costs of $1.5 million, increases in third-party debt at various times during
1998 and 1999 to fund operating, investing and financing activities, and a
higher interest rate on the Credit Facility. Third-party debt, which includes
the Credit Facility and mortgages and notes payable to third parties, increased
from $142.8 million at December 31, 1998 to $148.7 million at December 31, 1999.
The weighted average interest rate on outstanding third-party debt increased
from 7.2% at December 31, 1998 to 8.4% at December 31, 1999. The Company's
interest expense increased as a result of the increase in the interest rate on
the Credit Facility in June 1999 from a margin of 1.80% over the one-month LIBOR
to 2.75%. The Company's interest rate on the Credit Facility was 9.25% at
December 31, 1999 versus 7.36% at December 31, 1998.

         Depreciation was $5.8 million for the year ended December 31, 1999.
This represented a 29.8% increase from $4.5 million for the corresponding period
in 1998. This increase was a result of 1998 including only eleven months of
operations and increases in real estate properties and other depreciable assets
that were placed in service at various times during 1998 and 1999.

                                       68
<PAGE>



         General and administrative expenses were $2.6 million for the year
ended December 31, 1999. This represented a 61.1% increase from $1.6 million for
the corresponding period in 1998. This increase was a result of 1998 including
only eleven months of operations and additional expenses as the Company
established its current internal infrastructure. General and administrative
expenses increased as a percentage of total rental revenues to 9.3% for the year
ended December 31, 1999 as compared to 7.6% for the corresponding period in
1998. This increase was due to the growth in the Company's infrastructure which
began in late 1998. These expenses consisted principally of management salaries
and benefits and legal and other administrative costs.

         Separation agreement expenses of $2.8 million were recorded for the
year ended December 31, 1999 in connection with Mr. Romanov's resignation from
the Company. These expenses are comprised of cancellation of indebtedness
payable by Mr. Romanov to the Company of $2.6 million and $200,000 in costs
payable to third parties in connection with a separation agreement with Mr.
Romanov.

         Start-up expenses were $3.0 million for the period ended December 31,
1998. These expenses were principally comprised of nonrecurring compensation
expense of $2.0 million recorded in connection with the issuance of units of
beneficial interest of the operating partnership to certain officers of the
Company and approximately $700,000 of amounts reimbursed to Genesis for certain
formation expenses.

         An extraordinary loss of $1.2 million, net of a minority interest
benefit of $86,000, was recorded for the year ended December 31, 1999 in
connection with the prepayment of an existing mortgage loan.

Income 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 Tax Code.
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
95% (90% for taxable years beginning after December 31, 2000) of its taxable
income to its shareholders and complies with certain other requirements. The
Company believes it will continue to qualify as a REIT and, accordingly, no
provision has been made for income taxes in the accompanying consolidated
financial statements.

                                       69

<PAGE>

Liquidity and Capital Resources

         Net cash provided by operating activities was $7.5 million for the year
ended December 31, 2000 compared to $16.7 million for the year ended December
31, 1999. Net cash used in financing activities was $7.7 million for the year
ended December 31, 2000 compared to net cash used in financing activities of
$10.5 million for 1999. Net cash used in financing activities for 2000
principally included (a) $1.0 million in payments on the Credit Facility, (b)
$0.8 million in deferred financing fees and other related costs in connection
with amendments to the Credit Facility, (c) $4.3 million in distributions to
shareholders, and (d) $1.1 million in payments on mortgage loans payable. Net
cash used in financing activities for 1999 included borrowings under the Credit
Facility of $9.5 million and new mortgages payable issued of $71.1 million
reduced by $60.1 million in payments on the Credit Facility, $3.0 million in
deferred financing fees and other related costs, $10.5 million in distributions
to shareholders, $14.7 million in payments on mortgage loans and notes payable,
$0.9 million in common share repurchases and $1.2 million prepayment penalty on
a mortgage loan.

         Net cash used in investing activities was $0.3 million for the year
ended December 31, 2000 compared to $4.9 million for 1999. The Company used its
net cash provided by operating activities for the year ended December 31, 2000
principally to fund its investing activities, including $1.7 million in bond and
operating reserve funds and deposits and $0.2 million in capital expenditures
offset by $1.5 million of proceeds received from unconsolidated entities.
Similarly, net cash provided by operating activities for the year ended December
31, 1999 was used principally to fund its investing activities, including (a)
$5.1 million in construction loans, (b) $3.6 million in bond and operating
reserve funds and deposits and (c) $1.3 million in purchases of equipment and
building renovations, partially offset by $4.3 million in payments received on
term and construction loans receivable and $0.8 million of proceeds received
from unconsolidated entities.

         At December 31, 2000, the Company's consolidated net real estate
investments in properties and loans aggregated $202.7 million, including net
assets held for sale of $11,365, as compared to $220.3 million as of December
31, 1999. Working capital, excluding the current portion of the balance
outstanding under the Credit Facility of approximately $5.0 million and $0.9
million as of December 31, 2000 and 1999, respectively, was ($21.5) million and
$3.5 million at December 31, 2000 and 1999 respectively. The working capital
(deficit) at December 31, 2000 was caused primarily by the reclassification of
approximately $25.8 million of long-term debt as current, due to the Company's
technical defaults. Cash and cash equivalents were $3.1 million and $3.6
million, at December 31, 2000 and December 31, 1999, respectively.

         As of December 31, 2000, the Company had shareholders' equity of $80.1
million and Credit Facility borrowings and mortgages, bonds and notes payable to
third parties aggregating $146.7 million, which represents a debt to equity
ratio of 1.83 to 1. This was an increase from 1.44 to 1 at December 31, 1999.
This increase was due primarily to a net decrease of $2.0 million in such
indebtedness and a net decrease in shareholders' equity of $23.3 million. The
net decrease in third-party indebtedness resulted from repayments of third-party
indebtedness aggregating $1.1 million and repayments under the Credit Facility
of $0.9 million. The net decrease in shareholders' equity primarily resulted
from the payment of $4.3 million in dividends to shareholders, and a net loss
aggregating $21.3 million for the year ended December 31, 2000. These equity
reductions were partially offset by the acquisition of minority interests.

                                       70
<PAGE>

         The Company did not fund any construction loan commitments for the year
ended December 31, 2000 as compared to the $5.1 million which was funded by the
Company for the year ended December 31, 1999. The Company, currently, does not
have any further funding requirements under the existing commitments.

         The Company previously was obligated to purchase and leaseback, upon
the maturity of the related loan or the facility reaching stabilized occupancy,
five assisted living facilities (Mifflin, Coquina Place, Lehigh, Berkshire and
Harbor Place) securing term loans and two assisted living facilities (Oaks and
Sanatoga) securing construction loans made by the Company in January 1998. Of
these seven loans, which had an aggregate principal balance at December 31, 2000
of $32.1 million, three loans, secured by the Mifflin, Coquina Place and Oaks
facilities, were made to wholly-owned subsidiaries of Genesis, three loans,
secured by the Lehigh, Berkshire and Sanatoga facilities, were made to
wholly-owned subsidiaries of Multicare and one loan, secured by the Harbor Place
facility, was made to a Genesis Equity Investee. The Company's ability to
purchase and leaseback these facilities was terminated as part of the lease and
loan restructuring with Genesis and Multicare.

Credit Facility

         On January 3, 2000, the term of the Company's bank Credit Facility (the
"Credit Facility") with Deutsche Bank Securities ("Deutsche Bank") was extended
from January 1, 2000 to June 30, 2001 through an amendment ("Third Amendment").
This amendment also reduced borrowings available under the Credit Facility to
$45.4 million. During 2000 the Company failed to meet certain financial
covenants required by its Credit Facility. On December 28, 2000, and effective
January 31, 2001, the Credit Facility was further extended to August 31, 2002
("Fourth Amendment") and the covenants amended to, in part, cure the existing
covenant violations.

         The Credit Facility contains various financial and other covenants,
including, but not limited to, minimum net asset value, minimum tangible net
worth, a total leverage ratio and minimum interest coverage ratio. The Company's
owned properties and properties underlying loans receivable with an aggregate
cost of $79.2 million are included in the Credit Facility borrowing base and
pledged as collateral at December 31, 2000.

Credit Facility Terms Effective through January 30, 2001
Under the Third Amendment

         Under the Third Amendment, the Credit Facility terms required the
Company to make monthly principal payments equal to 0.22% of the outstanding
balance on the first day of the prior calendar month. In addition, the Company
was required to pay a monthly facility fee in an amount equal to 0.0625% of the
outstanding balance. Re-borrowings were not permitted after repayment, except
for the $5.75 million revolving credit portion of the Credit Facility. Dividend
distributions over the term of the loan were limited to $3.0 million plus 95% of
the Company's Funds from Operations, as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") prior to January 1, 2000. At December
31, 2000, the Company had $38.7 million outstanding under the Credit Facility.

                                       71
<PAGE>


         In 2000 the Company paid financing fees and other related costs of
approximately $0.5 million primarily associated with the Third Amendment to the
Credit Facility. Of the $0.5 million, $0.3 million was expensed and included as
a component of interest expense.

         Amounts outstanding under the Credit Facility bore interest at floating
rates ranging from 2.75% to 3.25% over one-month LIBOR as determined by the
percentage of the Credit Facility outstanding as compared to the borrowing base.
The effective interest rate on borrowings outstanding under the Credit Facility
at December 31, 2000 was 10.38%, 2.75% over one-month LIBOR including the
facility fee.

Credit Facility Terms Effective after January 30, 2001
Under the Fourth Amendment

         On December 28, 2000, and effective January 31, 2001, the Credit
Facility was further extended to August 31, 2002. As a result of this further
extension the Company is (i) prohibited from further borrowings under the
facility, (ii) required to make monthly principal payments equal to the cash
flow generated by the Company for the month and, (iii) is prevented from paying
distributions in excess of 110% of that amount required to maintain REIT status.

         In December 2000, the Company paid a non-refundable loan maturity
extension fee of $0.3 million in connection with the Fourth Amendment to the
Credit Facility. In addition, and with respect to the Fourth Amendment, the
Company issued to the lender warrants on January 31, 2001, to purchase 118,750
common shares of stock at $1.70 per share.

         The amounts outstanding under the Credit Facility bear interest at a
floating rate equal to 3.25% over one-month LIBOR and the monthly facility fee
has been eliminated. If this agreement were in effect on December 31, 2000, the
effective interest rate on borrowings outstanding under the Credit Facility
would have been 10.13%.

Other

         Giving effect to the lease and loan restructurings with Genesis and
Multicare, the Company currently expects net cash provided by operations to be
sufficient to enable it to meet its short-term cash flow requirements through
December 31, 2001. See "Genesis and Multicare Chapter 11 Bankruptcy Filings;
Lease and Loan Restructuring."

                                       72
<PAGE>

         The Credit Facility currently matures on August 31, 2002. If the
Company is unable to pay-off or obtain replacement financing by August 31, 2002,
or is unable to negotiate a further extension of the current Credit Facility at
that time, or for any other reason the Company were to be in default under the
Credit Facility prior to its maturity, Deutsche Bank could exercise its right to
foreclose on the collateral securing the Credit Facility, which would have a
significant adverse affect on the Company's ability to continue its operations
and meet its obligations.

         The terms of the Credit Facility extension reduced the Company's cash
flows and impose limits on its ability to make distributions to its
shareholders. Future increases in interest rates, as well as any defaults by
tenants or borrowers on their leases or loans, also could adversely affect the
Company's cash flow and its ability to pay its obligations.

         To qualify as a REIT, the Company must distribute to its shareholders
each year at least 95% (90% for taxable years beginning after December 31, 2000)
of its net taxable income, excluding any net capital gain. If the Company is
unable to make any required shareholder distributions, then the Company may be
unable to qualify as a REIT and would be subject to federal income taxes.

         Facilities owned by the Company and leased to third parties 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 91% of the Company's investments in owned
facilities at December 31, 2000. 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. The Company anticipates
entering into similar leases with respect to additional properties acquired.
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.

         In August 1998, the Company implemented a share repurchase program.
Under the share repurchase program, the Company was authorized from time to time
to repurchase shares in open market transactions up to an amount equal to the
Company's excess cash flow on a quarterly and cumulative basis. In March 1999,
in light of the Company's cash position and Credit Facility negotiations, the
Company suspended the share repurchase program. In November 1999, the Company
reinstated the share repurchase program on a limited basis. The Company
completed this limited share repurchase program in December 1999 with the
repurchase of 82,100 common shares at an average price of $6.08. The Company
repurchased and effectively retired 125,800 and 147,800 common shares for an
aggregate purchase price of $923,000 and $1.7 million for the years ended
December 31, 1999 and 1998, respectively. These shares are reflected as a
reduction of shares issued and outstanding in the accompanying financial
statements. The Company did not repurchase any common shares in 2000.

                                       73
<PAGE>



Funds from Operations

       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 (FFO) 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 property.


                                       74


<PAGE>
         The following table presents the Company's Funds from Operations for
the years ended December 31, 2000 and 1999 and for the period from January 30,
1998 to December 31, 1998:
<TABLE>
<CAPTION>
                                                               2000             1999 (1)         1998 (1)
                                                         ----------------------------------------------------
                                                                             (in thousands)
<S>                                                       <C>                    <C>            <C>
Funds from Operations:
    Net income (loss)                                           ($ 21,330)         ($ 1,030)         $ 3,973
    Minority interest                                              (1,531)              (67)             273
                                                         ----------------------------------------------------
    Net income (loss) before minority interest                    (22,861)           (1,097)           4,246
    Adjustments to derive funds from operations:
      Add:
        Real estate depreciation and amortization:

                Consolidated entities                                5,976             5,963           4,664
                Unconsolidated entities                              4,489             4,492           1,243

        Impairment charges on real
           estate properties                                         5,306                 -               -
        Extraordinary loss on debt extinguishment                        -             1,296               -
                                                         ----------------------------------------------------
     Funds from Operations before allocation to
        minority interest                                          (7,090)            10,654          10,153

     Funds from Operations allocable to
        minority interest                                             470               (715)           (635)
     Funds from Operations attributable to the common
        shareholders                                             ($ 6,620)           $ 9,939         $ 9,518
                                                         ====================================================
</TABLE>
(1) For comparison purposes the year ended December 31, 1999 and the period from
January 30, 1998 to December 31, 1998 have been restated to conform to the new
FFO definition. See "Funds from Operations" for current definition.

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.

                                       75

<PAGE>


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 and loans to 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 extracted from Genesis' annual report on Form 10-K for the year ended
September 30, 2000 and from Genesis' quarterly report on Form 10-Q for the
quarter ended December 31, 2000 as filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act").

         The Genesis financial data presented includes only the most recent
interim and fiscal year end reporting periods. The Company can make no
representation as to the accuracy and completeness of Genesis' public filings.
It should be noted that Genesis has no duty, contractual or otherwise, to advise
the Company of any events subsequent to such dates which might affect the
significance or accuracy of such information.

         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. Such reports and other information concerning Genesis can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
Room 1102, New York, New York 10005. 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.

                                       76
<PAGE>


         The following table sets forth certain summary condensed consolidated
financial data for Genesis for the quarter ended December 31, 2000 and the years
ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
                                                                 For the
                                                              quarter ended      For the years ended
                                                              December 31,          September 30,
                                                             -------------------------------------------
                                                                  2000            2000          1999
--------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>            <C>
                      Operations Data
------------------------------------------------------------
Net revenues                                                        $629,019    $2,433,858    $1,866,426
Operating income before debt restructuring, reorganization
    costs and capital and other costs (1) (4)                         60,018     (138,280)        85,879
Debt restructuring and reorganization costs                           14,209        62,795             -
(Gain) loss on sale of assets                                        (1,770)         7,922             -
Multicare joint venture restructuring                                      -       420,000             -
Depreciation and amortization                                         26,926       116,961        74,955
Lease expense                                                          9,405        38,124        26,653
Interest expense, net                                                 34,154       203,570       119,220
                                                             -------------------------------------------
Loss before income tax benefit, equity in net loss of
    unconsolidated affiliates, extraordinary items and
    cumulative effect of accounting change                           (22,906)     (987,652)     (134,949)
Income tax benefit                                                         -       (27,168)      (44,711)
                                                             -------------------------------------------
Loss before equity in net loss of unconsolidated
    affiliates and extraordinary items                               (22,906)     (960,484)      (90,238)
Minority interest                                                      1,811       132,444             -
Equity in loss of unconsolidated affiliates                             (216)       (2,407)     (178,235)
Extraordinary items, net of tax                                            -             -        (2,100)
Cumulative effect of accounting change (3)                                 -       (10,412)            -
                                                             -------------------------------------------
Net loss                                                             (21,311)     (840,859)     (270,573)
                                                             -------------------------------------------
Net loss applicable to common shareholders (2)                      ($32,811)    ($883,455)    ($290,050)
                                                             ===========================================
</TABLE>
                                       77


<PAGE>
<TABLE>
<CAPTION>
                                                                 For the
                                                              quarter ended      For the years ended
                                                               December 31,         September 30,
                                                             -------------------------------------------
                                                                  2000            2000          1999
--------------------------------------------------------------------------------------------------------
                                                               (in thousands, except per share data)
<S>                                                          <C>                <C>            <C>
Per common share data:
  Basic and diluted
    Loss before extraordinary items and cumulative effect
       of accounting change                                       ($ 0.67)      ($18.55)       ($8.11)
    Net loss                                                      ($ 0.67)      ($18.77)       ($8.17)
    Weighted average shares of common stock and
       equivalents                                                 48,641        47,077        35,485
</TABLE>
--------
(1) Capital costs include depreciation and amortization, lease expense and
    interest expense.
(2) Net income (loss) reduced by preferred stock dividends.
(3) Cumulative effect of accounting change relates to October 1, 1999 adoption
    of American Institute of Certified Public Accountant's Statement of Position
    98-5 "Reporting on the Costs of Start-Up Activities", which requires
    start-up costs to be expensed as incurred.
(4) Operating income is reduced by $374,708 and $167,070 of asset impairment and
    charges for the years ended September 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
                                                            December 31,      September 30,     September 30,
                                                                2000              2000               1999
                                                          ----------------- ------------------ -----------------
                                                                         (amounts in thousands)
<S>                                                        <C>               <C>                   <C>
Balance Sheet Data
   Working capital                                            $  296,960         $  304,241        $  235,704
   Total assets                                                3,126,691          3,127,899         2,429,914
   Liabilities subject to compromise                           2,449,192          2,446,673                 -
   Long-term debt                                                 10,359             10,441         1,484,510
   Shareholders' equity (deficit)                            ($ 279,050)        ($ 246,926)        $  587,890
</TABLE>
         Multicare

         On October 8, 1999, Genesis entered into an agreement to restructure
its 1997 investment in Multicare. Genesis initially acquired a 43.6% interest in
Multicare and was to become sole owner of Multicare at a later date through a
cash payment or the issuance of additional Genesis common shares at equivalent
value. In the restructuring, Genesis completed the Multicare acquisition through
the issuance of convertible preferred shares. The restructuring also included a
$50 million cash investment in Genesis by the Multicare financial partners in
exchange for Genesis common shares and warrants. This transaction was approved
by Genesis' shareholders on November 11, 1999. Prior to the restructuring
transaction, Genesis accounted for its investment in Multicare using the equity
method of accounting. Under the terms of the restructuring agreement, Genesis
has managerial, operational and financial control of Multicare. Accordingly,
Multicare's assets, liabilities, revenues and expenses are now consolidated by
Genesis. The non-Genesis shareholders' remaining 56.4% interest in Multicare is
carried as minority interest.

                                       78
<PAGE>
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's investments in real estate loans receivable bear interest
at fixed rates. Changes in interest rates generally affect the fair market value
of the underlying fixed interest rate loans receivable, but not earnings or cash
flows. The carrying amount of real estate loans receivable at December 31, 2000
approximates the fair value of the underlying properties.

         The Company's bonds 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 Credit Facility and variable rate
mortgages. The Company utilizes interest rate cap agreements to limit the impact
that interest rate fluctuations have on its variable rate mortgages. Interest
rate cap agreements are used for hedging purposes rather than for trading
purposes. 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, other than interest rate cap agreements.

         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.
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 and bonds payable is as follows (in thousands):


               2001                       $ 16,227
               2002                          1,002
               2003                          1,076
               2004                          1,158
               2005                          1,249
               Thereafter                   57,220
                                          --------
                                          $ 77,932
                                          ========

         At December 31, 2000, the fair value of the Company's fixed rate
mortgages and bonds payable approximates its carrying value of $77.9 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, 2000, the fair value of the Company's variable rate debt
approximates its carrying value of $68.7 million. The weighted average interest
rate on borrowings outstanding under the Credit Facility and variable rate
mortgages was 9.5% at December 31, 2000. Assuming the Credit Facility and
variable rate mortgage balances outstanding at December 31, 2000 of $68.7
million remains constant, each one percentage point increase in interest rates

                                       79
<PAGE>

from 9.5% at December 31, 2000 would result in an increase in interest expense
for the coming year of approximately $687,000, based on the current interest
rate terms. Amounts outstanding under the Credit Facility bear interest at
floating rates ranging from 2.75% to 3.25% over one-month LIBOR as determined by
the percentage of the Credit Facility outstanding as compared to the borrowing
base. 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."

                                       80

<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, 2000 and 1999, and the consolidated statements
of operations, shareholders' equity and cash flows for the years ended December
31, 2000 and 1999 and the period from January 30, 1998 to December 31, 1998. We
have also audited the related financial statement schedules III and IV as listed
in the accompanying index for Item 14(a) 2 on page 110. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules 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, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and the period from January 30, 1998 to December 31, 1998 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

                                                                    /s/ KPMG LLP

McLean, VA.
February 2, 2001

                                       81
<PAGE>
                                   ELDERTRUST
                           CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                                                December      December
                                                                                31, 2000      31, 1999
                                                                           -----------------------------
<S>                                                                          <C>             <C>
                                 ASSETS
Assets:
     Real estate properties, at cost                                             $148,939      $165,206
     Less - accumulated depreciation                                             (14,085)      (10,180)
     Land                                                                          14,950        16,655
                                                                           -----------------------------
            Net real estate properties                                            149,804       171,681
     Properties held for sale, net of impairment allowance of $1,433 in
         2000                                                                      11,365             -
     Real estate loans receivable, net of allowance of $7,087 in 2000              41,559        48,646
     Cash and cash equivalents                                                      3,105         3,605
     Restricted cash                                                                8,409         7,194
     Accounts receivable, net of allowance of $1,247 in 2000                        1,466           629
     Accounts receivable from unconsolidated entities                               1,905         1,068
     Prepaid expenses                                                                 483         1,000
     Investment in and advances to unconsolidated entities, net of
         allowance of $1,446 in 2000                                               18,137        31,129
     Other assets, net of accumulated amortization and depreciation of
         $2,840 and $2,148, respectively                                            1,454         1,530
                                                                           -----------------------------
                Total assets                                                     $237,687      $266,482
                                                                           =============================

                  LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
     Bank credit facility                                                         $38,720       $39,670
     Accounts payable and accrued expenses                                          1,613         1,535
     Accounts payable to unconsolidated entities                                       12            13
     Mortgages and bonds payable                                                  107,932       109,005
     Notes payable to unconsolidated entities                                       1,015         1,079
     Other liabilities                                                              3,639         3,751
                                                                           -----------------------------
           Total liabilities                                                      152,931       155,053
                                                                           -----------------------------

Minority interest                                                                   4,657         7,989

Shareholders' equity:
     Preferred shares, $.01 par value; 20,000,000 shares authorized;
         none outstanding                                                               -             -
     Common shares, $.01 par value; 100,000,000 shares authorized;
         7,119,000 and 7,119,000 shares issued and outstanding,
         respectively                                                                  71            71
     Capital in excess of par value                                               120,377       119,106
     Deficit                                                                     (40,349)      (14,747)
     Note receivable from former officer for common shares sold, net                    -         (990)
                                                                           -----------------------------
           Total shareholders' equity                                              80,099       103,440
                                                                           -----------------------------
                Total liabilities and shareholders' equity                       $237,687      $266,482
                                                                           =============================

  The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       82
<PAGE>
                                   ELDERTRUST
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                                    Period from
                                                                                                     January 30,
                                                                     Year ended      Year ended       1998 to
                                                                      December        December        December
                                                                      31, 2000        31, 1999        31, 1998
                                                                 -----------------------------------------------
<S>                                                                  <C>           <C>              <C>
Revenues:
     Rental revenues                                                    $18,601         $18,552         $14,198
     Interest, net of amortization of deferred loan
        origination costs                                                 4,542           5,653           4,458
     Interest from unconsolidated equity investees                        3,252           3,809           1,446
     Fee income                                                               -               -           1,018
     Other income                                                           189             127             113
                                                                 -----------------------------------------------
        Total revenues                                                   26,584          28,141          21,233
                                                                 -----------------------------------------------

Expenses:
     Property operating expenses                                          1,128           1,124             975
     Interest expense, including amortization of deferred
       finance costs                                                     14,007          13,136           6,256
     Depreciation                                                         5,850           5,788           4,460
     General and administrative                                           3,622           2,612           1,621
     Bad debt expense                                                     9,522               -               -
     Loss on impairment of long-lived assets                              5,306               -               -
     Separation agreement expenses                                            -           2,800               -
     Start-up expenses                                                        -               -           3,027
                                                                 -----------------------------------------------
        Total expenses                                                   39,435          25,460          16,339
                                                                 -----------------------------------------------

Net income (loss) before equity in losses of unconsolidated
     entities, minority interest and extraordinary item                (12,851)           2,681           4,894

Equity in losses of unconsolidated entities, net                       (10,010)         (2,482)           (648)
Minority interest                                                         1,531            (19)           (273)
                                                                 -----------------------------------------------

Net income (loss) before extraordinary item                            (21,330)             180           3,973

Extraordinary item:
     Loss on extinguishment of debt                                           -         (1,296)               -
     Minority interest in extraordinary item                                  -             86                -
                                                                 -----------------------------------------------
Net income (loss)                                                     ($21,330)        ($1,030)          $3,973
                                                                 ===============================================

Basic and diluted weighted average number of common
     shares outstanding                                                  7,119            7,198           7,369
                                                                 ===============================================

Net income (loss) per share before extraordinary item - basic
     and diluted                                                        ($3.00)          $0.03            $0.54
                                                                 ===============================================
Net income (loss) per share - basic and diluted                         ($3.00)         ($0.14)           $0.54
                                                                 ===============================================

    The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       83
<PAGE>
                                   ELDERTRUST
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              Years ended December 31, 2000 and 1999 and the Period
                   from January 30, 1998 to December 31, 1998
                                 (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, 1997                     -       $  -      $      -           $      -       $     -       $      -
    Issuance of common shares, net            7,393         74       121,770                  -             -        121,844
    Repurchase of common shares               (148)        (2)       (1,742)                  -             -        (1,744)
    Net income                                    -          -             -              3,973             -          3,973
    Distributions                                 -          -                          (7,177)             -        (7,177)
    Loan to officer                               -          -             -                  -       (3,600)        (3,600)
                                        ------------ ----------  ------------  -----------------  ------------  -------------
Balances at December 31, 1998                 7,245         72       120,028            (3,204)       (3,600)        113,296
    Repurchase of common shares               (126)        (1)         (922)                  -             -          (923)
    Net loss                                      -          -             -            (1,030)             -        (1,030)
    Distributions                                 -          -             -           (10,513)             -       (10,513)
    Forgiveness of loan to
      former officer                              -          -             -                  -         2,600          2,600
    Loan repayment from
      former officer                              -          -             -                  -            10             10
                                        ------------ ----------  ------------  -----------------  ------------  -------------
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
                                        ============ ==========  ============  =================  ============  =============

         The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       84
<PAGE>
                                   ELDERTRUST
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                                    Period from
                                                                                             Year         Year       January 30,
                                                                                            ended        ended        1998 to
                                                                                           December     December      December
                                                                                           31, 2000     31, 1999      31, 1998
                                                                                         ----------------------------------------
<S>                                                                                        <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                                       ($21,330)    ($1,030)       $  3,973
     Adjustments to reconcile net income (loss) to net cash provided by operating
           activities:
         Depreciation and amortization                                                           6,613       7,526          4,802
         Bad debt expense                                                                        9,522           -              -
         Loss on impairment of long-lived assets                                                 5,306           -              -
         Extraordinary loss on extinguishment of debt                                                -       1,296              -
         Non-cash separation expense from debt forgiveness to officer                                -       2,600              -
         Non-cash compensation expense to officers                                                   -           -          2,018
         Non-cash expense in connection with issuance of stock to trustees                           -           -            179
         Non-cash expense in connection with write-off of unamortized deferred financing
              costs                                                                                  -         129              -
         Minority interest and equity in losses from unconsolidated entities                     8,479       2,415            921
         Other                                                                                       -           -              4
           Net changes in assets and liabilities:
           Accounts receivable and prepaid expenses                                            (1,246)       3,704        (3,385)
           Accounts payable and accrued expenses                                                    77        (37)          1,585
           Other                                                                                    78         124          3,645
                                                                                         ----------------------------------------
                 Net cash provided by operating activities                                       7,499      16,727         13,742
                                                                                         ----------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition and cost of real estate investments                                                 -           -      (116,388)
     Investment in real estate loans receivable                                                      -     (5,095)       (50,213)
     Investment in and advances to unconsolidated entities                                           -           -       (38,226)
     Capital expenditures                                                                        (186)     (1,330)          (243)
     Proceeds from collection on advances to unconsolidated entities                             1,536         815          1,462
     Payments received on real estate loans receivable                                               -       4,348          2,314
     Net increase in reserve funds and deposits - restricted cash                              (1,663)     (3,645)        (3,549)
     Other                                                                                           -          52          (559)
                                                                                         ----------------------------------------
                 Net cash used in investing activities                                           (313)     (4,855)      (205,402)
                                                                                         ----------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from initial public offering, net of offering costs                                    -           -        114,213
     Payment of deferred financing fees                                                          (797)     (2,965)          (364)
     Borrowings under credit facility                                                                -       9,518         90,204
     Payments under credit facility                                                              (950)    (60,052)              -
     Proceeds from mortgages payable                                                                 -      71,145              -
     Payments on mortgages payable                                                             (1,073)    (11,734)          (734)
     Payments on notes payable                                                                       -     (3,000)              -
     Purchase of partnership units                                                               (203)           -              -
     Distributions to shareholders                                                             (4,272)    (10,513)        (7,177)
     Distributions to minority interests                                                         (327)       (750)          (469)
     Repurchases of common shares                                                                    -       (923)        (1,744)
     Prepayment penalty on mortgage loan                                                             -     (1,157)              -
     Other                                                                                        (64)       (108)              3
                                                                                         ----------------------------------------
                   Net cash provided by (used in) financing activities                         (7,686)    (10,539)        193,932
                                                                                         ----------------------------------------

Net increase (decrease) in cash and cash equivalents                                             (500)       1,333          2,272
Cash and cash equivalents, beginning of period                                                   3,605       2,272              -
                                                                                         ----------------------------------------
Cash and cash equivalents, end of period                                                      $  3,105      $3,605       $  2,272
                                                                                         ========================================

              The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       85

<PAGE>

                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Operations

         ElderTrust was formed in the State of Maryland on September 23, 1997
and began operations upon the completion of its initial public offering on
January 30, 1998 (the "Offering") pursuant to which it issued 6,957,500 common
shares. Net proceeds to ElderTrust were approximately $114.2 million.

         ElderTrust had no operations prior to January 30, 1998. At December 31,
2000 and 1999, ElderTrust's total assets consisted primarily of a 95% and 93%,
respectively, owned subsidiary, ElderTrust Operating Limited Partnership (the
"Operating Partnership") and its wholly-owned subsidiaries and controlled
partnerships (collectively, "ElderTrust" or the "Company"). At December 31, 2000
and 1999, the Company's assets primarily consisted of (i) a diversified
portfolio of 22 healthcare properties, consisting primarily of assisted living
and skilled nursing facilities which are leased back to the prior owners or
other third parties, (ii) construction loans totaling $18.1 million and $21.2
million, respectively, collateralized by healthcare properties under
construction, (iii) term loans totaling $23.4 million and $27.4 million,
respectively, collateralized by healthcare properties on which construction has
been recently completed but which are still in transition to stabilized
occupancy levels, (iv) a 95% non-voting equity interest in an unconsolidated
entity (ET Capital Corp.) which owns a $7.8 million second mortgage note, (v) a
99% non-voting limited partnership interest in an unconsolidated entity (ET
Sub-Meridian Limited Partnership, LLP) which holds leasehold and purchase option
rights for seven skilled nursing facilities, and (vi) a 99% non-voting limited
member interest in two unconsolidated entities (ET Sub-Cabot Park, LLC and ET
Sub-Cleveland Circle, LLC) which each own an assisted living facility.

         Genesis Health Ventures, Inc. was co-registrant in the Company's
Offering. Approximately 72% and 70% of the Company's consolidated assets at
December 31, 2000 and 1999, respectively, consisted of real estate properties
leased to or managed by and loans on real estate properties made to 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"). In addition, the Company has investments in unconsolidated
entities that have also leased properties to Genesis or 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 6 regarding the Genesis and Multicare
filings on June 22, 2000 for protection under Chapter 11 of the United States
Bankruptcy Code. Additionally, Michael R. Walker serves as Chairman of the Board
and Chief Executive Officer of Genesis and Chairman of the Board of ElderTrust.

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 subsidiaries and controlled partnerships. All
significant intercompany balances and transactions have been eliminated. Certain
amounts included in the consolidated financial statements for prior periods have
been reclassified for comparative purposes to conform to the presentation for
2000.

                                       86
<PAGE>

                                   ELDERTRUST
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (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.

Impairment of Long-Lived Assets and Properties Held for Sale

         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. Properties
held for sale are reported at the lower of the carrying amount or estimated fair
value less cost to sell.

                                       87
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

Real Estate Loans Receivable

         Real estate loans receivable are recorded at cost, less the related
allowance for impairment, if any. Management, considering current information
and events regarding the borrowers' ability to repay their obligations,
considers a note to be impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. It is the Company's policy
that impairment losses are included in the allowance for credit losses through a
charge to bad debt expense. It is also the Company's policy to account for cash
receipts for interest as interest revenue and to perform impairment reviews as
needed.

         Real estate loans receivable consist of term loans on assisted living
facilities in the lease-up phase and construction loans on assisted living or
independent living facilities. Interest income on the loans is recognized as
earned based upon the principal amount outstanding. The loans are generally
fully collateralized by the real estate and may include guarantees from the
borrower and/or affiliates.

Deferred Loan Costs

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

Income 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 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 annually at least 95% (90% for
taxable years beginning after December 31, 2000) of its taxable income to its
shareholders and complies with certain other requirements. The Company believes
it will continue to qualify as a REIT and, accordingly, no provision has been
made for income taxes in the accompanying consolidated financial statements.

Leases and Rental Income

         Real estate properties are leased to operators primarily on a long-term
triple net-lease basis. Some 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. Some
of the lessees subject to fixed rent leases are required to repair, rebuild and
maintain the leased properties.

                                       88
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         Lease payments are recognized as revenue as earned. 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.

Investments in Unconsolidated Entities

         The Company has several investments in entities 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 these investments using the equity method of accounting.

Hedging Transactions

         The Company utilizes interest rate cap agreements to limit the impact
that interest rate fluctuations have on its variable rate mortgages. Cap fees
are amortized over the term of the underlying debt instruments using a method
that approximates the interest method.

Net Income/(Loss) per Share

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

                                       89
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

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.

Start-up Expenses

         Start-up activities, including organizational costs, are expensed as
incurred. Start-up activities are defined as those one-time activities related
to opening a new facility, introducing a new product or service, conducting
businesses in a new territory, conducting business with a new process in an
existing facility, or commencing a new operation. The Company expensed $3.0
million of start-up expenses in 1998.

Recent Accounting Pronouncements

         Derivative Instruments and Hedging Activities

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure the instrument at
fair value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting designation. SFAS No.
133 is effective for the Company on January 1, 2001. The Company does not expect
the adoption of Statement 133 to have a material adverse impact on the Company's
financial condition or results of operations because the Company does not use
derivative instruments other than interest rate cap agreements.

3. Properties Held for Sale

         During November 2000, the Company identified real estate, located in
Windsor, Connecticut, referred to as the Windsor Office Building and the Windsor
Clinic/Training Facility properties as held for sale. The Windsor Office
Building and the Windsor Clinic/Training facility properties were subsequently
sold to Genesis on January 31, 2001 upon the closing of the Genesis Health
Ventures/Multicare restructuring as approved by the U.S. Bankruptcy court on
January 4, 2001. The Company has decided to sell the Windsor properties back to
Genesis, due in part to their inconsistency with the Company's current
infrastructure. The Windsor Office Building property consists of land and a
building with a net carrying value of $243,000 as of December 31, 2000. The
Windsor Clinic/Training facility consists of a building with a net carrying
value of $978,000 as of December 31, 2000. After adjusting for costs to sell,
the impairment losses recognized at December 31, 2000 are $56,000 and $361,000,
respectively.

                                       90
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         During December 2000, the Company entered into discussions to sell the
Woodbridge facility. The sale is expected to close during the second quarter of
2001. The Woodbridge property consists of land and a building with a net
carrying value of $10.1million as of December 31, 2000. After adjusting for
costs to sell, the impairment loss recognized at December 31, 2000 is $1.0
million.

4. Real Estate Loans Receivable

         The following is a summary of real estate loans receivable at December
31, 2000 and December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                      Scheduled      Balance at      Balance at
                                           Type of       Interest      Maturity     December 31,    December 31,
               Property                      Loan          Rate          Date           2000            1999
--------------------------------------- --------------- ------------ ------------- --------------- ---------------
<S>                <C>                   <C>            <C>            <C>           <C>             <C>
Harbor Place        Melbourne, FL         Term           10.0%          5/2002         $  4,828       $  4,828
Mifflin             Shillington, PA       Term            9.5%          6/2002            5,164          5,164
Coquina Place       Ormond Beach, FL      Term            9.5%          6/2002            4,577          4,577
Lehigh              Macungie, PA          Term           10.5%          6/2000            6,665          6,665
Berkshire           Reading, PA           Term           10.5%          6/2000            6,167          6,167
Oaks                Wyncote, PA           Construction    9.0%          6/2002            5,033          5,033
Montchanin          Wilmington, DE        Construction   10.5%          8/2000            9,496          9,496
Sanatoga            Pottstown, PA         Construction   10.5%          1/2001            6,716          6,716
                                                                                       --------       --------
                                                                                       $ 48,646       $ 48,646
                                                      Allowance for credit losses       (7,087)              -
                                                                                       --------       --------
                                                                                       $ 41,559       $ 48,646
                                                                                       ========       ========
</TABLE>
         The following is a summary of real estate loans receivable at December
31, 2000, including allowances for credit losses at December 31, 2000 and the
average recorded investment and total interest received for the period noted
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                     Interest Income   Average Recorded
                                    Allowances     Net Carrying      Recorded During  Investment for the
                        Total       for credit       Value at        the year ended       year ended
     Property         Investment      losses     December 31, 2000  December 31, 2000  December 31, 2000
----------------------------------------------------------------------------------------------------------
<S>                  <C>            <C>          <C>               <C>                <C>
Harbor Place           $  4,828      $     -      $  4,828            $     -              $  4,828
Mifflin                   5,164            -         5,164                292                 3,834
Coquina Place             4,577           39         4,538                258                 2,285
Lehigh                    6,665        2,465         4,200                104                 4,460
Berkshire                 6,167        1,467         4,700                143                 4,812
Oaks                      5,033            -         5,033                269                 4,382
Montchanin                9,496            -         9,496                  -                 9,496
Sanatoga                  6,716        3,116         3,600                169                 4,905
                   ---------------------------------------------------------------------------------------
                       $ 48,646      $ 7,087      $ 41,559            $ 1,235              $ 39,002
                   =======================================================================================
</TABLE>

Activity in the allowance for credit losses for the year ended December 31, 2000
is as follows:

                  Balance at beginning of year                $        -
                  Charges to bad debt expense                    (18,106)
                  Recoveries of bad debt expense                  11,019
                                                              ----------
                  Balance, end of year                        $    7,087
                                                              ==========

                                       91
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         On January 31, 2001, and under the restructuring of the agreements with
Genesis and Multicare (See Note 6), the Company acquired the Lehigh, Berkshire
and Sanatoga facilities in exchange for the release of the Company's loans to
the subsidiaries of Multicare. The Company has leased these properties to
subsidiaries of Multicare for an initial lease term of 10 years, with two
five-year renewal options.

         In addition, the Company had one term loan in the amount of $4.8
million with an annual interest rate of 9.5%, secured by the Harbor Place
facility which was not included in the June 22, 2000 bankruptcy filing by
Genesis. This loan initially matured on January 31, 2000 and again after the
extension on June 23, 2000. The Company had declared this loan in default during
the second half of 2000. On January 31, 2001, under the restructuring of the
relationships between ElderTrust and Genesis, the Company extended the term of
the loan until May 31, 2002, for a fee of $24,000 which was paid on January 31,
2001. The Company also increased the interest rate to 10.0% per annum. Principal
payments will be made monthly to the extent of one half of excess cash, if any,
after payment of operating expenses, management fee, interest and an amount to
be agreed upon by the parties for capital expenditures. The Company has declared
the Montchanin loan, with a principal balance of $9.5 million at December 31,
2000, in default and is pursuing its remedies to collect the amounts due. The
borrower is currently being charged interest at the default interest rate. The
Company has the option to purchase this facility for $13.0 million.

         The Company has no construction loan commitments at December 31, 2000.

5. Real Estate Investments

         As of December 31, 2000, the Company had investments in 22 real estate
properties located in six states. The properties include seven assisted living
facilities and one independent living facility with a total of 737 beds, eight
skilled nursing facilities with a total of 1,259 beds, and six medical office
and other buildings. The Company leases its properties to operators pursuant to
long-term triple net leases.

At December 31, 2000, future minimum lease payments receivable are as follows
(dollars in thousands):

                    2001                     $ 17,779
                    2002                       16,784
                    2003                       15,908
                    2004                       14,967
                    2005                       14,950
                    Thereafter                 52,586
                                             --------
                                             $132,974
                                             ========

                                       92
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         As part of the restructuring, which consummated on January 31, 2001,
the annual minimum rent for the Willowbrook and the Phillipsburg facilities have
been reduced by $345,000 and $400,000, respectively to $295,000 and $177,500,
respectively per year. The lease term of the Rittenhouse facility has been
extended to 2018 representing a minimum increase of $8.9 million in additional
rents over the extended term.

6. Concentration of Risk

         Revenues recorded by the Company under leases with and loans to Genesis
or Genesis Equity Investees were approximately $17.9 million, $18.6 million and
$14.0 million in 2000, 1999 and 1998, respectively. The Company's equity in net
losses of unconsolidated entities (see Note 7) derived from arrangements with
Genesis or Genesis Equity Investees totaled approximately $2.8 million, $2.7
million and $0.8 million in 2000, 1999 and 1998, respectively. The Company's
consolidated revenues depends, in significant part, upon the revenues derived
from Genesis.

         On June 22, 2000, Genesis and Multicare filed for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During
the year, the Company, Genesis and Multicare and Genesis and Multicare's major
creditors negotiated agreements to restructure their debt and lease obligations
with the Company. The agreements were approved by the U.S. Bankruptcy Court on
January 4, 2001 and were consummated on January 31, 2001.

         Under the more significant terms of the agreement with Genesis:

1)  Twenty-one of the existing twenty-three lease agreements between Genesis
    subsidiaries and ElderTrust continued in effect in accordance with their
    terms, except as provided below:
         o    Two leases were modified to reduce combined rents for the
              properties by $745,000 per year;
         o    One lease was modified to create an early termination right
              commencing on December 31, 2002; and
         o    One lease was modified to permit ElderTrust to terminate the lease
              during 2001 without penalty if the current tenant is unable to
              achieve occupancy targets specified by loan documents secured by
              property.
2)  Two leases (Windsor Office Building and Windsor Clinic/Training facility)
    were terminated when the two properties subject to the leases were sold to
    Genesis for $1.25 million, such amount being paid via an increase in the
    notes receivable described in 4) below;

3)  An $8.5 million loan previously guaranteed by ElderTrust and owed to Genesis
    by ET Sub-Meridian, an unconsolidated subsidiary of ElderTrust, was conveyed
    to ElderTrust in a manner to effect an $8.5 million reduction in amounts
    owed to ElderTrust by Genesis;

4)  The maturity date for three loans (Oaks, Coquina and Mifflin) by ElderTrust
    to Genesis and affiliated entities with unpaid principal balances totaling
    approximately $7.5 million at June 30, 2000 (after taking into account the
    aforementioned $1.25 million increase and $8.5 million reduction) were
    extended to June 30, 2002 at the rates in effect prior to the Genesis
    bankruptcy filing; and

                                       93
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

5)   The maturity date and interest rate for one loan (Harbor Place) with a
     principal balance of approximately $4.8 million made by ElderTrust to an
     entity in which Genesis owns a 100% limited partner interest was extended
     to May 31, 2002 at a 10% interest rate, an increase of 0.5%.

         Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans (Lehigh, Berkshire and Sanatoga) with
outstanding principal amounts totaling approximately $19.5 million, and having a
net book value of $12.5 million, at December 31, 2000, in exchange for the
outstanding indebtedness. These properties were then leased back to Multicare
under long-term operating lease agreements. ElderTrust has no other transactions
with this entity.

         Although the agreements with Genesis and Multicare have been approved
by the U.S. Bankruptcy Court and successfully consummated, there can be no
assurance that either Genesis or Multicare will successfully emerge from
bankruptcy. As a result, there can be no assurance that Genesis and Multicare
will continue to make loan and lease payments under the terms of the
restructured loan and lease arrangements with those entities.

         Genesis and Multicare are expected to file plans of reorganization with
the U.S. Bankruptcy Court addressing their other creditors' claims. Both
companies are currently operating as debtors-in-possession subject to the
jurisdiction of the U.S. Bankruptcy Court. Approval of the reorganization plans
by the U.S. Bankruptcy Court will be necessary for Genesis and Multicare to be
able to emerge from bankruptcy. The independent auditors' report on Genesis'
2000 financial statements, included in Genesis' Form 10-K as of September 30,
2000, indicated that there is substantial doubt regarding the ability of Genesis
and Multicare to continue as going concerns. Each company's ability to continue
as a going concern will be dependent upon, among other things, approval of their
respective plan of reorganization, future profitable operations, the ability to
comply with the terms of their debtor-in-possession financing arrangements and
the ability to generate sufficient cash from operations and financing agreements
to meet their obligations. Although we are hopeful Genesis and Multicare will
emerge from bankruptcy and continue to make lease and loan payments to us, there
can be no assurance that this will occur. Any failure of Genesis and Multicare
to continue their operations and/or to continue to make lease and loan payments
to us could have a significant adverse impact on our operations and cash flows
due to the significant portion of our properties leased to and loans made to
Genesis and Multicare.

         If Genesis and Multicare were to cease making lease and loan payments
to the Company, we may be required to terminate the underlying leases and
foreclose on the outstanding loans, in which event we would likely be required
to find new operators to operate the properties underlying the leases and loans
and/or sell or close one or more properties. Management has contacted several
alternative operators and, based on these preliminary discussions, believes that
an adequate market currently exists in which the Company could arrange for
property management, leasing or sale of these assets, and that the properties


                                       94
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

could be successfully transitioned to new operators. Based on the discussions
with these operators, the Company's management believes that a property could be
transitioned to a new operator without undue delay and that, due to the elderly
resident population and care requirements this population requires, such
transition would be completed in an orderly fashion and with the cooperation of
the operators and the appropriate regulatory authorities, if any. Some of the
operators contacted by the Company have indicated that they have experience in
transitioning skilled nursing facilities to new management and that they have
the staffing needed to transition such facilities. The Company would expect to
rely upon that experience to effect an orderly transition should Genesis and/or
Multicare fail to emerge from bankruptcy and/or cease making lease or loan
payments to us.

         As a result of the relatively short estimated time period required to
transition a property to a new operator, the Company's management believes that,
even if Genesis or Multicare were to cease making lease and loan payments to us
either because Genesis and Multicare did not emerge from bankruptcy or
otherwise, the Company would still be able to satisfy its operating and debt
service requirements during the next 12 months. Management fee arrangements
currently charged in the market place typically range from 4% to 6% of property
gross revenues. Actual fees incurred would depend upon property type and
location as well as other property and operator specific factors. Management
estimates that, if all of the properties subject to leases and loans with
Genesis and Multicare were returned to the Company and were subjected to
management agreements with new operators, the Company's annual cash flows could
be reduced by approximately $1.6 million. While difficult to predict, this
estimate is based upon expected property operations and assumptions made by
management as to management fees, capital expenditures and possible property
closures.

         The Company has multiple debt agreements and is subject to debt
covenants that, among other things, require minimum principal payments and
contain various financial covenants. Although the Company's management believes,
based upon the above noted estimated cash flow reduction, that the Company would
be able to meet its operating and debt service obligations during the next 12
months if it were required to obtain new managers for the properties now
operated by Genesis and Multicare, a termination of leases and loans with
Genesis and Multicare may impair the Company's ability to meet one or more of
the financial covenants contained in its debt agreements. Should this occur, the
Company's management believes that alternative arrangements could be reached
with its various lenders to restructure its loan agreements, if necessary, so as
to reflect any adverse change in economic condition. This belief is based, in
part, upon the Company's past history in negotiating mutually acceptable
agreements with these lenders. Depending on the magnitude of the reduction in
the Company's operating cash flow, the Company would seek to offset the effect
of such reduction in operating cash flow on the Company's ability to meet its
debt service requirements through asset sales or through other available means.
The Company believes that it has the ability to, and, if necessary, intends to,
take these actions available to it and, as a result, believes it will be able to
continue to satisfy its debt and operating obligations as they come due during
the next twelve months.

                                       95
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         As indicated above, based upon management's assessment of the long-term
care economic environment, its discussions with alternative operators and the
Company's past history with its lenders, the Company believes that, if the loans
and leases with Genesis and Multicare were terminated, that the assets could be
redeployed as needed. Were this to occur, management believes that new operators
would be available to operate the properties, that any cash flow interruption
resulting from such redeployment is unlikely or would be minimal and that,
although cash flows may be reduced, the Company would be able to meet its
operating and debt service requirements under its existing debt agreements
during the next 12 months and negotiate amendments, if necessary, with respect
to any failure to meet financial covenants in those debt instruments.

7. Investments in Unconsolidated Entities

         Summary combined financial information for unconsolidated entities
accounted for by the equity method is as follows (dollars in thousands):

                 As of and for the year ended December 31, 2000
<TABLE>
<CAPTION>
                                  ET                          ET Sub-        ET Sub-
                             Sub-Meridian,   ET Capital        Cabot        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                           -             -             535            505           1,040
Current liabilities                3,118           223             585            643           4,569
Long-term debt (2)               105,381         9,247          16,717         13,513         144,856
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 income (loss)                (2,485)        (7,587)          (285)           (60)        (10,417)
Percent ownership                    99%           95%             99%            99%
</TABLE>

                                       96
<PAGE>
                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

                 As of and for the year ended December 31, 1999
<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                    $    124       $   352         $     2        $     2      $    480
Real estate properties (1)         106,547             -          17,115         14,129       137,791
Notes receivable                         -        12,358               -              -        12,358
Other assets                         1,110           117             514            490         2,231
Current liabilities                  1,260           414             504            463         2,641
Long-term debt (2)                 106,919         9,424          16,920         13,791       147,054
Total equity (deficit)             (2,106)         2,991            (61)            140           964
Rental revenue                       9,800             -           1,617          1,423        12,840
Interest income                         16         1,687              26             27         1,756
Interest expense                     8,633         1,289           1,387          1,070        12,379
Depreciation/amortization            3,514            14             560            462         4,550
Net income (loss)                  (2,341)           249           (313)           (91)       (2,496)
Percent ownership                      99%           95%             99%            99%
</TABLE>
(1) Includes properties under capital lease.
(2) Includes capital lease obligations.

                As of and for the period ended December 31, 1998
<TABLE>
<CAPTION>
                                  ET                          ET Sub-        ET Sub-
                             Sub-Meridian,   ET Capital        Cabot        Cleveland
                                  LLP          Corp.         Park, LLC     Circle, LLC      Total
                             -------------- -------------  -------------- -------------- ------------
<S>                           <C>            <C>            <C>            <C>            <C>
Current assets                    $      -       $    57         $     -        $     6     $     63
Real estate properties (1)         110,024             -          17,670         14,646      142,340
Notes receivable                         -        12,537               -              -       12,537
Other assets                         1,169           127             504            474        2,274
Current liabilities                  1,458            21             496            577        2,552
Long-term debt (2)                 107,400         9,714          17,151         14,088      148,353
Total equity                           702         2,986             252            231        4,171
Rental revenue                       3,266             -             137            121        3,524
Interest income                          3           939               -              -          942
Interest expense                     2,859           687             127             98        3,771
Depreciation/amortization            1,170            11              46             39        1,266
Net income (loss)                    (760)           164            (36)           (16)        (648)
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.

                                       97

<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         As of December 31, 2000, ET Capital owned a $7.8 million second trust
mortgage note executed by AGE Institute of Florida, which it acquired from
Genesis during 1998. This note is secured by a second lien on 11 Florida skilled
nursing facilities owned by AGE Institute of Florida and a second lien on
accounts receivable and other working capital assets. The facilities are managed
by a third party. This note matures on September 30, 2008 with payments of
interest only, at a fixed annual rate of 13% due quarterly until the note is
paid in full. The borrower ceased making interest payments to ET Capital during
the quarter ended June 30, 2000.

         In 1999, the senior lender on the $40 million first trust mortgage loan
to the AGE Institute of Florida, which is guaranteed by Genesis, extended the
loan maturity date from September 30, 1999 to March 28, 2000 to permit the AGE
Institute of Florida time to obtain refinancing of the loan. A letter agreement
dated December 22, 1999 made certain modifications and defined certain rights of
the senior lender and ET Capital related to their respective loans to the AGE
Institute of Florida. In June 2000, the senior lender notified the borrower that
it was in default of the loan due to the borrowers' failure to meet certain
financial covenants. In November 2000, ET Capital notified the borrower that it
was in default of the $7.8 million second trust mortgage loan held by ET Capital
due to the failure to remit required interest payments and due to the default in
the $40.0 million first trust mortgage loan.

         Management of ET Capital has determined, based on the decrease in the
underlying cash flows generated by the properties securing the note, that the
value of the underlying collateral may not be sufficient to satisfy the
borrower's obligation under the note. As a result, a bad debt allowance of $7.8
million was recorded by ET Capital during the period ended December 31, 2000.
The Company has recorded a similar bad debt allowance of $1.4 million with
respect to its investment in ET Capital.

         In addition to the AGE Institute of Florida second trust mortgage note,
ET Capital has notes receivable aggregating $4.4 million at December 31, 2000
from two of the Company's Equity Investees and one of the Company's consolidated
subsidiaries. These loans mature at various dates from April 2008 to December
2011 and bear interest at 14% per annum with interest and principal payable
monthly. ET Capital's long-term debt includes two demand promissory notes
payable to the Company aggregating $5.9 million at December 31, 2000 in
connection with the above second mortgage note transaction. These notes bear
interest at a weighted average rate of 12.1% per annum with interest only
payable quarterly. In addition, ET Capital has loans payable to the Company
aggregating $3.3 million, bearing interest at 15% and maturing at various dates
from April 2008 to December 2011.

8. Credit Facility

         On January 3, 2000, the term of the Company's bank Credit Facility (the
"Credit Facility") with Deutsche Bank Securities ("Deutsche Bank") was extended
from January 1, 2000 to June 30, 2001 through an amendment ("Third Amendment").
This amendment also reduced borrowings available under the Credit Facility to
$45.4 million. During 2000 the Company failed to meet certain financial
covenants required by its Credit Facility. On December 28, 2000, and effective
January 31, 2001, the Credit Facility was further extended to August 31, 2002
("Fourth Amendment") and the covenants amended to, in part, cure the existing
covenant violations.

                                       98
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         The Credit Facility contains various financial and other covenants,
including, but not limited to, minimum net asset value, minimum tangible net
worth, a total leverage ratio and minimum interest coverage ratio. The Company's
owned properties and properties underlying loans receivable with an aggregate
cost of $79.2 million are included in the Credit Facility borrowing base and
pledged as collateral at December 31, 2000.

Credit Facility Terms Effective through January 30, 2001
Under the Third Amendment

         Under the Third Amendment, the Credit Facility terms required the
Company to make monthly principal payments equal to 0.22% of the outstanding
balance on the first day of the prior calendar month. In addition, the Company
was required to pay a monthly facility fee in an amount equal to 0.0625% of the
outstanding balance. Re-borrowings were not permitted after repayment, except
for the $5.75 million revolving credit portion of the Credit Facility. Dividend
distributions over the term of the loan were limited to $3.0 million plus 95% of
the Company's Funds from Operations, as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") prior to January 1, 2000. At December
31, 2000, the Company had $38.7 million outstanding under the Credit Facility.

         In 2000, the Company paid financing fees and other related costs of
approximately $0.5 million primarily associated with the Third Amendment to the
Credit Facility. Of the $0.5 million, $0.3 million was expensed and included as
a component of interest expense.

         Amounts outstanding under the Credit Facility bore interest at floating
rates ranging from 2.75% to 3.25% over one-month LIBOR as determined by the
percentage of the Credit Facility outstanding as compared to the borrowing base.
The effective interest rate on borrowings outstanding under the Credit Facility
at December 31, 2000 was 10.38%, 2.75% over one-month LIBOR including the
facility fee.

Credit Facility Terms Effective after January 30, 2001
Under the Fourth Amendment

         On December 28, 2000, and effective January 31, 2001, the Credit
Facility was further extended to August 31, 2002. As a result of this further
extension the Company is (i) prohibited from further borrowings under the
facility, (ii) required to make monthly principal payments equal to the cash
flow generated by the Company for the month and, (iii) is prevented from paying
distributions in excess of 110% of that amount required to maintain REIT status.

                                       99
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         In December 2000, the Company paid a non-refundable loan maturity
extension fee of $0.3 million in connection with the Fourth Amendment to the
Credit Facility. In addition, and with respect to the Fourth Amendment, the
Company issued to the lender warrants on January 31, 2001, to purchase 118,750
common shares of stock at $1.70 per share.

         The amounts outstanding under the Credit Facility bear interest at a
floating rate equal to 3.25% over one-month LIBOR and the monthly facility fee
has been eliminated. If this agreement were in effect on December 31, 2000, the
effective interest rate on borrowings outstanding under the Credit Facility
would have been 10.13%.

Other

         Giving effect to the lease and loan restructurings with Genesis and
Multicare, the Company currently expects net cash provided by operations to be
sufficient to enable it to meet its short-term cash flow requirements through
December 31, 2001. See "Note 6 - Concentration of Risk."

         The Credit Facility currently matures on August 31, 2002. If the
Company is unable to pay-off or obtain replacement financing by August 31, 2002,
or is unable to negotiate a further extension of the current Credit Facility at
that time, or for any other reason the Company were to be in default under the
Credit Facility prior to its maturity, Deutsche Bank could exercise its right to
foreclose on the collateral securing the Credit Facility, which would have a
significant adverse affect on the Company's ability to continue its operations
and meet its obligations.

         The terms of the Credit Facility extension restricted the use of the
Company's cash flows and impose the limits on its ability to make distributions
to its shareholders. Future increases in interest rates, as well as any defaults
by tenants or borrowers on their leases or loans, also could adversely affect
the Company's cash flow and its ability to pay its obligations.

         To qualify as a REIT, the Company must distribute to its shareholders
each year at least 95% (90% for taxable years beginning after December 31, 2000)
of its net taxable income, excluding any net capital gain. If the Company is
unable to make any required shareholder distributions, then the Company may be
unable to qualify as a REIT and would be subject to federal income taxes.


                                      100
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

9.  Mortgages and Bonds Payable

         The following is a summary of mortgages and bonds payable at December
31, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>

                                     Effective                     Balance at     Balance at
                                      Interest       Maturity       December       December
Property                               Rate            Date         31, 2000       31, 1999
----------------------------------  ------------   ------------  -------------  -------------
<S>                                 <C>            <C>            <C>            <C>
                                          LIBOR
Wayne NRC                                +3.00%        12/2002       $  4,600       $  4,600
Pennsburg Manor NRC/ Harston              LIBOR
   Hall NCH                              +3.00%        12/2002         14,900         14,900
                                          LIBOR
Lopatcong Care Center                    +3.00%        12/2002         10,500         10,500
DCMH Medical Office Building              8.35%        11/2009          5,790          5,855
Professional Office Building I            8.35%        11/2009          2,551          2,581
Pleasant View                             8.26%        10/2009          3,846          3,890
Salisbury Medical Office Building         8.16%        10/2009          1,034          1,047
Heritage at North Andover                 8.26%        10/2009          8,648          8,747
The Woodbridge
   Bonds due 2005                         7.81%  *      9/2005            735            833
   Bonds due 2025                         7.81%  *      9/2025          9,470          9,500
Belvedere NRC/ Chapel NRC                 8.46%        10/2009         18,720         18,928
Highgate at Paoli Pointe Series
   A Bonds                                7.81%  *      1/2024          9,739          9,878
Riverview Ridge                           7.81%  *      1/2020          2,807          2,890
Vernon Court                              5.80%  *      5/2025         14,100         14,357
Lacey Branch Office Bldg.                 7.81%  *     10/2022            492            499
                                                                     --------       --------
     Total                                                           $107,932       $109,005
                                                                     ========       ========
</TABLE>
         * 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's weighted average effective interest rate on mortgages and
bonds payable was 8.5% and 8.4% at December 31, 2000 and 1999, respectively.

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

                   2001                       $ 26,727
                   2002                         20,502
                   2003                          1,076
                   2004                          1,158
                   2005                          1,249
                   Thereafter                   57,220
                                             ---------
                                             $ 107,932
                                             =========

                                      101
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         The Company is in default on mortgages totaling $25.8 million for
failure to meet technical requirements, including property information reporting
requirements and the tenant filing for bankruptcy. These loans are included in
the 2001 payment requirement schedule above. There can be no assurance that the
Company will be able to cure these defaults. Based, in part, on the Company's
favorable payment history, the Company believes that the lenders will take no
action in regard to these technical defaults.

10. Operating Lease

         The Company leases its corporate office space from Genesis under an
operating lease, which expires on May 31, 2001. 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. The future
minimum rental payments under the operating lease, for the period of January 1
through May 31, 2001, is $25,000.

11. 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 issuance under the 1998 Plan at December 31, 2000. At
the time of the Offering, 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. During 2000,
options of 15,000 were cancelled upon the resignations of two former trustees.

                                      102
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (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. As of December 31, 2000, a
total of 350,000 common shares were reserved for issuance under the 1999 Plan.
Options of 102,160 were granted during 2000 from the 1999 Plan to a key
executive officer and employees of the Company at an exercise price of $0.75 per
share. Of these options 34,053 vest immediately and the remaining 68,107 vest on
each of the annual anniversaries and terminate ten years from the date of grant
or three month's after termination of employment.

         The following summarizes the activity in the 1998 and 1999 Plans for
the years ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
                                                        2000                      1999                        1998
                                                             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          460,500      $ 12.06       536,500       $ 17.16          -        $  -
    Options granted                             426,000         0.82       231,500          6.50       536,500       17.16
    Options exercised                              -            -             -             -             -           -
    Options forfeited                          (15,000)        18.00     (307,500)         18.00          -           -
                                              --------------------------------------------------------------------------------
Options outstanding, end of year                871,500      $  6.47       460,500       $ 12.06       536,500     $ 17.16
                                              ================================================================================
Options exercisable, end of year                355,833      $  8.24        81,400       $ 15.86       150,000     $ 18.00
                                              ================================================================================

Weighted average fair value of options
    granted during the year (calculated as
    of the grant date):                                      $  0.28                     $  0.07                   $  1.69
</TABLE>
         Information regarding stock options outstanding and exercisable under
the 1998 and 1999 Plans as of December 31, 2000 is as follows:
<TABLE>
<CAPTION>
                                                                          Exercise Price Range
                                                          -----------------------------------------------------
                                                            $0.75-$2.75       $5.31-$6.69      $15.13-$18.00
                                                          -----------------------------------------------------
<S>                                                       <C>                 <C>              <C>
Options outstanding at December 31, 2000:
     Shares                                                      426,000           231,500           214,000
     Weighted average exercise price                               $0.82             $6.50            $17.66
     Weighted average remaining contractual life               4.7 years         7.9 years         7.1 years

Options exercisable at December 31, 2000:
     Shares                                                      142,666            85,567           127,600
     Weighted average exercise price                               $0.83             $6.38            $17.78
</TABLE>
         No compensation expense has been recognized for options granted under
the 1998 and 1999 Plans as the Company adopted the disclosure-only provisions of
SFAS No. 123, "Stock Based Compensation" during 2000. Under SFAS No. 123,
compensation expense of $114,000, $106,000 and $443,000 would have been recorded
in 2000, 1999 and 1998, respectively, for the 1998 and 1999 Plan based upon the
fair value of the option awards. Earnings/(loss) per share would have been


                                      103
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

($3.01), ($0.16) and $0.48 in 2000, 1999 and 1998, respectively, had the Company
adopted the fair value provisions of SFAS No. 123. The fair value determination
was calculated using the Black-Scholes option-pricing model to value all stock
options granted in 2000, 1999 and 1998 using the following assumptions:
<TABLE>
<CAPTION>
                                                                 2000           1999           1998
                                                            --------------- -------------- --------------
<S>                                                          <C>            <C>            <C>
        Weighted average risk free interest rate                   6.1%           6.2%           5.9%
        Expected volatility                                       75.7%          21.0%          17.7%
        Expected dividend yield                                   7.71%          11.2%           8.1%
        Weighted average expected life of options            3.55 years     3.89 years     3.65 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 $16,000, $16,000 and $14,000 in 2000, 1999 and 1998, respectively.

12. 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 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 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 $.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.


                                      104
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

13.  Distributions

         The Company must distribute at least 95% (90% for taxable years
beginning after December 31, 2000) of its taxable income 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:

                              2000              1999             1998
                        -----------------------------------------------
Ordinary income             $0.5508           $0.1232           $0.973
Capital gains                     -                 -                -
Return of capital            0.0492            1.3368                -
                        -----------------------------------------------
                            $0.6000           $1.4600           $0.973
                        ===============================================

         On January 13, 2000, the Board of Trustees declared a distribution of
$0.30 per share for the period October 1, 1999 through December 31, 1999. The
distribution was paid on February 15, 2000 to shareholders of record on January
28, 2000. On April 14, 2000, the Board of Trustees declared a distribution of
$0.30 per share for the period January 1, 2000 through March 31, 2000. The
distribution was paid on May 16, 2000 to shareholders of record on April 28,
2000. No additional distributions have been made for the period from April 1,
2000 through December 31, 2000.

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>
                                                                        2000           1999          1998
                                                                    ----------------------------------------
<S>                                                                 <C>            <C>             <C>
Net income (loss) available for basic and diluted
      earnings per share                                              ($21,330)      ($1,030)       $3,973
                                                                    ========================================

Shares for basic and diluted net earnings per share                      7,119         7,198         7,369
                                                                    ========================================

Basic and diluted net income (loss) per share                           ($3.00)       ($0.14)        $0.54
                                                                    ========================================
</TABLE>
         The Operating Partnership units are not included in the determination
of weighted average common shares outstanding since they are not considered to
be common share equivalents as they are redeemable for cash at the Company's
discretion.

15. Repurchase of Common Shares

         In August 1998, the Company implemented a share repurchase program.
Under the share repurchase program, the Company was authorized from time to time
to repurchase shares in open market transactions up to an amount equal to the
Company's excess cash flow on a quarterly and cumulative basis. In March 1999,
in light of the Company's cash position and Credit Facility negotiations, the
Company suspended the share repurchase program. In November 1999, the Company
reinstated the share repurchase program on a limited basis. The Company
completed this limited share repurchase program in December 1999 with the


                                      105
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

repurchase of 82,100 common shares at an average price of $6.08. The Company
repurchased and effectively retired 125,800 and 147,800 common shares for an
aggregate purchase price of $0.9 and $1.7 million for the years ended December
31, 1999 and 1998, respectively. These shares are reflected as a reduction of
shares issued and outstanding in these consolidated financial statements. The
Company did not repurchase any common shares in 2000. The share repurchase
program was suspended for the entire year of 2000.

16. 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 amount of real estate loans receivable at
December 31, 2000 approximates the fair market value of the underlying
properties, as affirmed by the U.S. Bankruptcy Court on January 4, 2001.

         The carrying amounts of the Company's Credit Facility and variable rate
mortgages payable at December 31, 2000 and 1999 approximate fair value because
the borrowings are interest rate variable. The fair value of the Company's fixed
rate mortgages and bonds payable at December 31, 2000 and 1999 is estimated
using discounted cash flow analysis and the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The difference
between the carrying amount and the fair value of the Company's fixed rate
mortgages and bonds payable at December 31, 2000 and 1999 is not significant.

17. Quarterly Financial Information (Unaudited)

         The following quarterly financial data summarize the unaudited
quarterly results for the years ended December 31, 2000 and 1999 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
                                                                     Quarter ended
                                     --------------------------------------------------------------------
                                        December 31         September 30        June 30        March 31
                                     --------------------------------------------------------------------
<S>                                    <C>                  <C>              <C>             <C>
               2000
----------------------------
Revenues                                  $ 7,088             $ 5,991       $   6,501        $ 7,004
Net income (loss)                           5,460               (584)        (26,722)            516
Net income (loss) per share
  - basic                                    0.77              (0.08)          (3.75)           0.07
Net income (loss) per share
  - diluted                                  0.75              (0.08)          (3.75)           0.07
Distributions per share                         -                   -            0.30           0.30
</TABLE>
                                      106
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (continued)

         During the second quarter the Company established allowances of $18.1
million for credit losses on real estate loans receivable from bankrupt
customers. During the fourth quarter, and as a result of negotiations with these
customers, the Company recovered $11.0 million of these allowances. In addition
during the fourth quarter, the Company recorded impairment losses on real estate
properties of $5.3 million.
<TABLE>
<CAPTION>
                                                                     Quarter ended
                                     --------------------------------------------------------------------
                                        December 31         September 30        June 30        March 31
                                     --------------------------------------------------------------------
<S>                                    <C>                  <C>              <C>             <C>
               1999
------------------------------------
Revenues                                   $ 6,949             $ 7,022         $ 7,122       $ 7,048
Net income (loss) before
   extraordinary item                          436                 617         (1,832)           959
Net income (loss)                              436               (593)         (1,832)           959
Net income (loss) per share before
   extraordinary item
   - basic and diluted                        0.06                0.09          (0.25)          0.13
Net income (loss) per share
   - basic and diluted                        0.06              (0.08)          (0.25)          0.13
Distributions per share                      0.365               0.365           0.365         0.365
</TABLE>
18. Related Party Transactions

         Mr. McCreary acquired the controlling interest in ET Capital Corp. and
ET Sub-Meridian, LLP from a former executive official of the Company during
1999. As a result, Mr. D. Lee McCreary owns all of the voting interest in ET
Capital Corp., representing a 5% equity interest. Additionally, Mr. McCreary
also owns a 1% general partner interest in ET Sub-Meridian, through a limited
liability company which he is the sole member. Also, after obtaining final
approval from the Massachusetts Housing Finance Agency and the U.S. Department
of Housing and Urban Development in January 2000, Mr. McCreary owns a 1%
managing member interest in ET Sub-Vernon Court, LLC, ET Sub-Cabot Park, LLC and
ET Sub-Cleveland Circle, LLC.

         In addition, Mr. McCreary owns 12,000 units in the Operating
Partnership at December 31, 2000 and 1999, which represented an interest of
approximately 0.2%, and received cash distributions of $7,500 and $17,500 during
2000 and 1999, respectively.

         In December 2000, the Company acquired 118,750 units owned by a former
Executive Officer of the Company for $203,000.

19. Minority Interest

         The Company owned approximately 94.8% and 93.3% of the Operating
Partnership, at December 31, 2000 and 1999, respectively. The ownership interest
is represented by 7,237,750 and 7,119,000 units owned as of December 31, 2000
and 1999, respectively. The remaining ownership interests include interests
owned directly or indirectly by directors and officers of the Company and
Genesis totaling 394,725 units.

                                      107
<PAGE>

                                  ELDERTRUST
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (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 after March 30, 1999 ("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.

20.   Supplemental Cash Flow Information:

         Supplemental cash flow information for the years ended December 31,
2000 and December 31,1999 and the period from January 31, 1998 through December
31, 1998 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Cash Paid For:                                                                       2000          1999         1998
                                                                                ---------------------------------------
<S>                                                                             <C>          <C>           <C>
    Interest                                                                    $  13,324    $  11,814     $   5,412
                                                                                =======================================

Non-Cash Investing and Financing Transactions:
    Note receivable relating to officer share purchase                          $       -    $       -     $   3,600
                                                                                =======================================
    Assumption of debt in connection with acquisition of real
        estate properties                                                       $       -    $       -     $  50,328
                                                                                =======================================

    Units issued in connection with acquisition of real
        estate properties                                                       $       -    $       -     $  10,511
                                                                                =======================================

    Notes issued in connection with acquisition of real
        estate properties                                                       $       -    $       -     $   4,134
                                                                                =======================================

    Non-cash transaction relating to the sale of partnership units:
        Accounts receivable                                                     $       -    $       -     $   3,000
                                                                                =======================================
        Reduction in advances to unconsolidated entities                        $       -    $       -     $   1,690
                                                                                =======================================
        Issuance of partnership units                                           $       -    $       -     $     375
                                                                                =======================================
        Reduction in cost of real estate investments                            $       -    $       -     $     935
                                                                                =======================================
</TABLE>

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

         None.


                                      108


<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 2000 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

         The information required by this Item is incorporated herein by
reference to the information under the heading "Securities Owned by Management
and Principal Shareholders" 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.

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are included in Part II, Item 8 of this report:

    (1) Financial Statements:                                        Page Number
                                                                     -----------

         Independent Auditors' Report                                      81
         Consolidated Balance Sheets as of December 31, 2000 and 1999      82
         Consolidated Statements of Operations for the years ended
             December 31, 2000, 1999 and the period from January 30 to
             December 31, 1998                                             83

         Consolidated Statements of Shareholders' Equity for the years
            ended December 31, 2000 and 1999 and the period from
            January 30 to December 31, 1998                                84

         Consolidated Statements of Cash Flows for the year ended
            December 31, 2000 and 1999 and the period from
            January 30 to December 31, 1998                                85
         Notes to Consolidated Financial Statements                        86


                                      109
<PAGE>

    (2) The following Financial Statement Schedules are included in Item 14 (d):

           Separate Financial Statements and Schedule for ET Sub-Meridian
                  Limited Partnership, L.L.P.
           Separate Financial Statements and Schedule for ET Capital Corp.
           Schedule III - Real Estate and Accumulated Depreciation
           Schedule IV - Mortgage Loans on Real Estate

           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 112.

(b) Current Reports on Form 8-K:

           The Company filed a report on Form 8-K dated December 11, 2000
           announcing that it had reached tentative agreements with Genesis and
           Multicare relating to a restructuring of its loans and leases with
           these entities. The Form 8-K also addressed continued listing of the
           Company's common shares on the NYSE.

(c) Exhibits:

           The exhibits listed in Item 14(a)(3) above are filed with this Form
              10-K.

(d) Financial Statement Schedules:

           Financial statement schedules are included on pages S-24 through
              S-28.



                                      110
<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 April
10, 2001.

                                                   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 April 10, 2001.

                               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:
                                    --------------------------------------------
                                    Rodman W. Moorhead, III
                                    Trustee


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








                                      111
<PAGE>

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit No.     Description
-----------     -----------
<S>  <C>        <C>
(a) 3.1         Amended and Restated Declaration of Trust of the Company
(a) 3.2         Articles Supplementary to the Company
(a) 3.3         Amended and Restated Bylaws of the Company
(h) 4.1         Rights Agreement between ElderTrust and First Union National Bank, as Rights
                   Agent
(i) 4.2         Articles Supplementary for Classifying and Designating Series A Junior
                   Participating Preferred Shares
(a) 10.1        Second Amended and Restated Agreement of Limited Partnership of the Operating
                   Partnership
(a) 10.2        Registration Rights Agreement between the Company and the persons named therein
(a) 10.3        1998 Share Option and Incentive Plan*
(i) 10.4        1999 Share Option and Incentive Plan*
(a) 10.5        Non-Competition Agreement between the Company and Michael R. Walker*
(b) 10.6        Indemnification Agreement between the Company and each of its officers and trustees*
(b) 10.7        Form of Asset Transfer Agreement between the Operating Partnership and Genesis
                   (Heritage Woods, Willowbrook, Riverview Ridge, Pleasant View, Rittenhouse,
                   Lopatcong, Phillipsburg, Wayne, POB 1, Lacey Bank Building, Belvedere,
                   Chapel Manor and Pennsburg Manor)
(b) 10.8        Plan of Asset Transfer and Contribution Agreement between the Operating Partnership
                   and Senior LifeChoice dated as of September 25, 1997
(b) 10.9        Form of Asset Transfer Agreement between the Operating Partnership and certain
                   limited partners in Senior LifeChoice of Paoli, L.P. and Senior LifeChoice of
                   Kimberton, L.P. who are selling partnership interests for cash
(b) 10.10       Plan of Asset Transfer and Contribution Agreement among the Operating Partnership,
                   GHV Associates and the partners in GHV Associates dated as of September 25, 1997
(b) 10.11       Plan of Asset Transfer and Contribution Agreement among the Operating Partnership
                   and certain partners in Salisbury Medical Office Building General Partnership
                   dated as of September 25, 1997
(b) 10.12       Asset Transfer Agreement between the Operating Partnership and certain parties
                   in Salisbury Medical Office Building General Partnership who are selling
                   partnership interests for cash
(b) 10.13       Form of Term Loan Agreement (Mifflin and Coquina Center (Genesis))
(b) 10.13.1     Form of Secured Note (Mifflin and Coquina Center (Genesis))
(b) 10.13.2     Form of Mortgage and Security Agreement (Mifflin and Coquina Center (Genesis))
(b) 10.13.3     Form of Assignment of Rents and Leases (Mifflin and Coquina Center (Genesis))
(b) 10.13.4     Form of Collateral Assignment of Agreements Affecting Real Estate
                   (Mifflin and Coquina Center (Genesis))
(b) 10.13.5     Form of Guaranty and Suretyship Agreement (Mifflin and Coquina Center (Genesis))
(b) 10.14       Form of Construction Loan Agreement (Oaks (Genesis))
(b) 10.14.1     Form of Secured Note (Oaks (Genesis))
(b) 10.14.2     Form of Mortgage and Security Agreement (Oaks (Genesis))
</TABLE>


                                      112
<PAGE>

<TABLE>
<CAPTION>

<S> <C>         <C>
(b) 10.14.3     Form of Assignment of Rents and Leases (Oaks (Genesis))
(b) 10.14.4     Form of Collateral Assignment of Agreements Affecting Real Estate (Oaks (Genesis))
(b) 10.14.5     Form of Guaranty and Suretyship Agreement (Oaks (Genesis))
(b) 10.15       Form of Assignment and Assumption Agreement between the Operating Partnership
                   and Genesis (Montchanin Construction Loan)
(a) 10.16       Assignment and Assumption Agreement between ET Capital Corp. and Genesis
(a) 10.16.1     Amendment of Working Capital Loan and Security Agreement among ET Capital Corp.,
                   Genesis and AGE Institute of Florida
(a) 10.16.2     Intercreditor Agreement among ET Capital Corp., Genesis and AGE Institute of
                   Florida
(i) 10.16.3     Intercreditor Agreement among ET Capital Corp., AGE Institute of Florida and
                   Bank of America, N.A.
(a) 10.17       Right of First Refusal Agreement between the Operating Partnership and Genesis
(a) 10.18       Option Agreement to purchase Holton Point facility between the Operating Partnership
                   and Genesis
(b) 10.19       Form of Minimum Rent Lease between the Operating Partnership and Genesis (Heritage
                   Woods, Highgate at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg and Wayne)
(b) 10.20       Form of Percentage Rent Lease between the Operating Partnership and Genesis
                   (Willowbrook, Riverview Ridge and Pleasant View)
(b) 10.21       Form of Fixed Rent Lease between the Operating Partnership and Genesis (Salisbury
                   Medical Office Building, Windsor Office Building and Windsor Clinic and
                   Training Facility)
(a) 10.22       Credit Facility
(e) 10.23       First Amendment to Credit Facility
(a) 10.24       Cross Indemnification and Contribution Agreement between the Company and Genesis
(c) 10.25       Subordinated Promissory Note of ET Sub-Meridian payable to the Operating Partnership
                   in the amount of $18.5 million
(c) 10.26       Agreement of Limited Partnership of ET Sub-Meridian
(c) 10.27       Indemnification Agreement dated September 3, 1998 in favor of the persons and
                   entities listed on Exhibit B thereto
(c) 10.28       Indemnification Consent and Acknowledgment Agreement dated September 3, 1998 between
                   the Operating Partnership and Genesis
(c) 10.29       Guarantee Agreement dated September 3, 1998 between Operating Partnership and ET
                   Sub-Meridian
(c) 10.30       Subordinated Promissory Note of ET Sub-Meridian payable to Genesis in the amount of
                   $8.5 million
(d) 10.31       Purchase and Sale Agreement dated as of June 12, 1998 by and among ElderTrust
                   Operating Limited Partnership, Genesis Health Ventures, Inc., collectively "the
                   Purchasers" and Cabot Park Limited Partnership, Cleveland Circle Assisted
                   Living Limited Partnership, Heritage at the Falls Assisted Living Limited
                   Partnership, Vernon Court Associated Partnership, and North Andover Assisted
                   Living Limited Partnership, collectively "the Seller"
(d) 10.32       Amendment to the Purchase and Sale Agreement dated July 22, 1998 by and among
                   ElderTrust Operating Limited Partnership, Genesis Health Ventures, Inc. and
                   Robert A. Fishman, counsel for the Seller and the NDNE/ADS Entities
</TABLE>


                                      113
<PAGE>
<TABLE>
<CAPTION>

<S> <C>         <C>
(d) 10.33       Second Amendment to the Purchase and Sale Agreement dated July 22, 1998 by and among
                   ElderTrust Operating Limited Partnership, Genesis Health Ventures, Inc. and
                   Robert A. Fishman, counsel for the Seller and the NDNE/ADS Entities
(d) 10.34       Amendment to the Purchase and Sale Agreement dated November 30, 1998 by and among
                   ElderTrust Operating Limited Partnership, Genesis Health Ventures, Inc. and
                   Robert A. Fishman, counsel for the Seller and the NDNE/ADS Entities
(d) 10.35       Assignment and Assumption of the Purchase and Sale Agreement by and between
                   ElderTrust Operating Limited Partnership and Genesis Health Ventures, Inc. dated
                   November 23, 1998
(e) 10.36       Operating Agreement of ET-Sub Vernon Court, L.L.C.
(e) 10.37       Operating Agreement of ET-Sub Cabot Park, L.L.C.
(e) 10.38       Operating Agreement of ET-Sub Cleveland Circle, L.L.C.
(i) 10.39       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.
(f) 10.40       Certificate of Designation for Class C (LIHTC) Units of ElderTrust Operating Limited
                   Partnership
(f) 10.41       Second Amendment to Credit Agreement
(i) 10.42       Third Amendment to Credit Agreement
(i) 10.43       Second Amendment to Second Amended and Restated Agreement of Limited Partnership
                   of ElderTrust Operating Limited Partnership
(i) 10.44       Employment Agreement between the Company and D. Lee McCreary, Jr. dated as of
                   October 13, 1999*
(j) 10.45       Master Agreement with Genesis
(j) 10.46       Master Agreement with the Multicare Companies, Inc.
    10.47       Master Agreement
    11.1        Computation of basic and diluted earnings per share
    21.1        Subsidiaries of the Registrant
    21.3        Consent of Independent Auditors
</TABLE>

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

(a)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1997.
(b)  Incorporated by reference to the Company's Form S-11 Registration Statement
     (No. 333-37451).
(c)  Incorporated by reference to the Company's Form 8-K filed on September 18,
     1998.
(d)  Incorporated by reference to the Company's Form 8-K filed on December 16,
     1998.
(e)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1998.
(f)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     March 31, 1999.
(g)  Incorporated by reference to the Company's Form 8-K filed on July 29, 1999.
(h)  Incorporated by reference to the Company's Form 8-K filed on October 13,
     1999.
(i)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1999.
(j)  Incorporated by reference to the Company's Form 8-K filed on December 11,
     2000.



                                      114
<PAGE>


                          Independent Auditors' Report


The Partners
ET Sub-Meridian Limited Partnership, L.L.P.:


We have audited the accompanying balance sheets of ET Sub-Meridian Limited
Partnership, L.L.P. (the Partnership) as of December 31, 2000 and 1999, and the
related statements of operations, partners' capital (deficit), and cash flows
for the years then ended. We also have audited the related financial statement
schedule III. These financial statements and the financial statement schedule
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of ET Sub-Meridian Limited
Partnership, L.L.P. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule III when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

                                                                    /s/KPMG LLP

McLean, VA.
February 2, 2001






<PAGE>




                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                                 BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                              December 31,    December 31,
                                                                                                  2000            1999
                                                                                              ----------------------------
<S>                                                                                       <C>                 <C>
                                         ASSETS
Assets:
     Properties under capital leases, less accumulated amortization of $8,197 and               $103,034         $106,547
         $4,684, respectively
     Cash and cash equivalents                                                                       539              124
     Restricted cash                                                                               1,057            1,110
     Prepaid expenses                                                                                  2                -
                                                                                                -------------------------
              Total assets                                                                      $104,632         $107,781
                                                                                                =========================

                   LIABILITIES AND PARTNERS' DEFICIT

Liabilities:
     Accounts payable and accrued expenses                                                         1,153              126
     Accounts payable to related parties                                                           1,148              317
     Rent received in advance                                                                        817              817
     Capital lease obligations                                                                    64,662           64,373
     Notes payable                                                                                23,143           24,970
     Note payable to related party                                                                17,576           17,576
     Other liabilities                                                                             1,708            1,708
                                                                                                -------------------------
              Total liabilities                                                                  110,207          109,887

Partners' deficit                                                                                (5,575)          (2,106)
                                                                                                -------------------------
              Total liabilities and partners' deficit                                           $104,632         $107,781
                                                                                                =========================














                 The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                       S-2
<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                            STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                   Year ended December    Year ended December
                                                                         31, 2000              31, 1999
                                                                   -------------------------------------------
<S>                                                                  <C>                   <C>
Revenues:
     Rental revenues                                                    $ 9,800                 $9,800
     Other income                                                            28                     16
                                                                       -------------------------------
        Total revenues                                                    9,828                  9,816

Expenses:
     Interest expense                                                     6,592                  6,495
     Interest expense - related party                                     2,144                  2,138
     Amortization expense                                                 3,513                  3,514
     General and administrative                                              40                      2
     Management fee - related party                                          24                      8
                                                                       -------------------------------
        Total expenses                                                   12,313                 12,157

                                                                       -------------------------------
Net loss                                                               ($2,485)               ($2,341)
                                                                       ===============================















       The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-3

<PAGE>




                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                    STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
                     Years ended December 31, 2000 and 1999
                                 (in thousands)


<TABLE>
<CAPTION>

                                                                               General                General
                                                                               Partner                Partner
                                                                         ---------------------  ------------------
                                                            Limited          Toughkenamon,         ET Meridian,
                                                            Partner             L.L.C                  L.L.C.          Total
                                                         --------------- ---------------------  ------------------ --------------
<S>                                                    <C>                     <C>                 <C>          <C>
Balances at January 1, 1999                                  $ 690                $ -                 $12              $ 702
  Net loss                                                 (2,318)               (12)                (11)            (2,341)
  Distributions                                              (449)               (18)                   -              (467)
  Transfer of general partnership interest                       -                  1                 (1)                  -
                                                         ---------              -----               -----           --------
Balances at December 31, 1999                              (2,077)               (29)                   -            (2,106)
  Net loss                                                 (2,460)               (25)                   -            (2,485)
  Distributions                                              (982)                (2)                   -              (984)
                                                         ---------              -----               -----           --------
Balances at December 31, 2000                             ($5,519)              ($56)                 $ -           ($5,575)
                                                         =========              =====               =====           ========












                   The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-4
<PAGE>



                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                      Year ended         Year ended
                                                                                   December 31, 2000  December 31, 1999
                                                                                   -------------------------------------
<S>                                                                                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                              ($2,485)           ($2,341)
     Adjustments to reconcile net loss to net cash provided by operating
           activities:
       Amortization                                                                           3,513              3,514
       Net changes in assets and liabilities:
           Accounts payable and accrued expenses                                              1,858              (198)
           Accrued interest on capital lease obligations                                        289               (93)
           Other                                                                                (2)                 75
                                                                                   -----------------------------------
                 Net cash provided by operating activities                                    3,173                957
                                                                                   -----------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition cost of additions to real estate investments                                     -               (37)
     Net decrease in restricted cash                                                             53                 59
                                                                                   -----------------------------------
                 Net cash provided by investing activities                                       53                 22
                                                                                   -----------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Distributions to partners                                                                (984)              (467)
     Payments of principal on notes payable                                                 (1,827)              (388)
                                                                                   -----------------------------------
                 Net cash used in financing activities                                      (2,811)              (855)
                                                                                   -----------------------------------

Net increase in cash and cash equivalents                                                       415                124
Cash and cash equivalents, beginning of year                                                    124                  -
                                                                                   -----------------------------------
Cash and cash equivalents, end of year                                                        $ 539              $ 124
                                                                                   ===================================

Supplemental cash flow information:
Cash paid for interest                                                                       $8,299             $8,898
                                                                                   ===================================







              The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-5
<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999


1.  Organization and Operations

         ET Sub-Meridian Limited Partnership, L.L.P. (the "Partnership") was
formed pursuant to the Virginia Revised Uniform Limited Partnership Act, as
amended, on August 7, 1998 by and among ET Meridian, L.L.C., a Delaware limited
liability company as the general partner, and ElderTrust Operating Limited
Partnership as the limited partner (the "Limited Partner"). The limited partner
is a 95% owned subsidiary of ElderTrust. During 1999, ET Meridian, L.L.C. sold
its general partner interest in the Partnership to Toughkenamon, L.L.C. (the
"General Partner").

         The Partnership owns the leasehold and purchase option rights to seven
skilled nursing facilities located in Maryland and New Jersey, which it
purchased from a wholly-owned subsidiary of Genesis Health Ventures, Inc.
("Genesis") in September 1998 for $35.5 million in cash and issuance of $8.5
million in term loans. The owners of the skilled nursing facilities provided
$17.7 million of financing to the Partnership in connection with this
transaction. The purchase options are exercisable by the Partnership in
September 2008 for a cash exercise price of $66.5 million. The Partnership
subleased the facilities to Genesis for an initial ten-year period with a
ten-year renewal option. Genesis has guaranteed the subleases.

         All of the Partnership's assets at December 31, 2000 and December 31,
1999 consisted of real estate properties under capital lease, which were
subleased to Genesis. As such, the Partnership's revenues and ability to make
distributions to partners' depend, in significant part, upon the revenues
derived from Genesis (See Note 4). Additionally, Michael R. Walker serves as
Chairman of the Board of Genesis and ElderTrust.

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 amounts of revenues and expenses
during the reporting period. Actual results could vary from those estimates.

Cash and Cash Equivalents

         The Partnership 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.

                                      S-6
<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999
                                   (Continued)


Restricted Cash

         Restricted cash represents future lease payments on the capital lease
obligations and principal and interest payments on the note payable to owners of
the skilled nursing facilities required to be maintained in a lockbox.

Properties Under Capital Leases

         Properties under capital leases consist of real estate properties,
which are recorded at cost. Acquisition costs and transaction fees, including
legal fees and external due diligence costs, are capitalized as a cost of the
respective property. The cost of real estate properties under capital lease is
allocated between land and buildings and improvements based upon estimated fair
values at the time of acquisition. Amortization of properties under capital
lease is provided for on a straight-line basis over an estimated composite
useful life of 28.5 years for buildings and improvements.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

         The Partnership reviews its long-lived assets, which includes
properties under capital leases, 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 fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.

Income Taxes

         No provision for income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to income taxes
and the tax effect of its activities accrues to the partners.

Subleases and Rental Income

         Real estate properties under capital lease are subleased to operators
on a long-term triple net-lease basis. Triple net-leases require lessees to pay
all operating expenses, taxes, insurance, maintenance and other costs, including
a portion of capital expenditures. Subleases provide for minimum rent, based on
the lesser of stated amounts in the sublease agreement or minimum rent for the
prior year multiplied by two times the change in the Consumer Price Index
("minimum rent leases"). Sublease payments are recognized as revenue as earned.

                                      S-7
<PAGE>

                  ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                         Notes to Financial Statements
                    December 31, 2000 and December 31, 1999
                                  (Continued)

3.  Properties Under Capital Leases

         The Partnership conducts all of its operations from properties which
are classified as capital leases. As of December 31, 2000 and 1999, properties
under capital lease consisted of seven skilled nursing facilities with a total
of 1,176 beds located in two states. All of the leases are for 10 years and
expire in 2008.

         The following is an analysis of properties under capital lease at
December 31, 2000 and 1999 by major class (dollars in thousands):
<TABLE>
<CAPTION>

                                                 2000              1999
                                             ------------------------------
<S>                                           <C>                 <C>
Real estate properties, at cost               $100,108            $100,108
Less- accumulated depreciation                  (8,197)             (4,684)
Land                                            11,123              11,123
                                             ------------------------------
     Net real estate properties               $103,034            $106,547
                                             ==============================
</TABLE>

         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, 2000 (dollars in thousands):

2001                                                             $4,245
2002                                                              4,245
2003                                                              4,245
2004                                                              4,245
2005                                                              4,245
Thereafter                                                       78,931
                                                                -------
Total minimum lease payments                                    100,156
Less: amount representing interest at 7.06% per annum            35,494
                                                                -------
Present value of future minimum lease payments                  $64,662
                                                                =======

         The Partnership subleases these properties to operators pursuant to
long-term triple net leases. At December 31, 2000, future minimum sublease
payments receivable are as follows (dollars in thousands):


                                      S-8

<PAGE>



                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999
                                   (Continued)


                 2001                              $ 9,800
                 2002                                9,800
                 2003                                9,800
                 2004                                9,800
                 2005                                9,800
                 Thereafter                         26,133
                                                   -------
                                                   $75,133
                                                   =======

4.  Concentration of Risk

         Revenues recorded by the Partnership under leases with Genesis
aggregated $9.8 million in 2000 and 1999. The Partnership's revenues and ability
to make distributions to partners' depends, in significant part, upon the
revenues derived from Genesis.

         On June 22, 2000, Genesis filed for protection under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). During the year, the
Partnership, Genesis and Genesis' major creditors negotiated agreements whereby
the lease obligations with the Partnership would be continued. The agreements
were approved by the U.S. Bankruptcy Court on January 4, 2001 and were
consummated on January 31, 2001.

         Genesis is expected to file a plan of reorganization with the U.S.
Bankruptcy Court addressing its other creditors' claims. Genesis is currently
operating as a debtor-in-possession subject to the jurisdiction of the U.S.
Bankruptcy Court. Approval of the reorganization plan by the U.S. Bankruptcy
Court will be necessary for Genesis to be able to emerge from bankruptcy. The
independent auditors' report on Genesis' 2000 financial statements, included in
Genesis' Form 10-K as of September 30, 2000, indicated that there is substantial
doubt regarding the ability of Genesis to continue as a going concern. Genesis'
ability to continue as a going concern will be dependent upon, among other
things, approval of their respective plan of reorganization, future profitable
operations, the ability to comply with the terms of their debtor-in-possession
financing arrangements and the ability to generate sufficient cash from
operations and financing agreements to meet their obligations. Although we are
hopeful Genesis will emerge from bankruptcy and continue to make lease payments
to us, there can be no assurance that this will occur. Any failure of Genesis to
continue its operations and/or to continue to make lease payments to us could
have a significant adverse impact on our operations and cash flows due to the
significant portion of our properties leased to Genesis.


                                      S-9

<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999
                                   (Continued)


         If Genesis were to cease making lease payments to the Partnership, we
may be required to terminate the underlying leases, in which event we would
likely be required to find new operators to operate the properties underlying
the leases. Management has contacted several alternative operators and, based on
these preliminary discussions, believes that an adequate market currently exists
in which the Partnership could arrange for property management or leasing of
these assets, and that the properties could be successfully transitioned to new
operators. Based on the discussions with these operators, the Partnership's
management believes that a property could be transitioned to a new operator
without undue delay and that, due to the elderly resident population and care
requirements this population requires, such transition would be completed in an
orderly fashion and with the cooperation of the operators and the appropriate
regulatory authorities, if any. Some of the operators contacted by the
Partnership have indicated that they have experience in transitioning skilled
nursing facilities to new management and that they have the staffing needed to
transition such facilities. The Partnership would expect to rely upon that
experience to effect an orderly transition should Genesis fail to emerge from
bankruptcy and/or cease making lease payments to us.

         As a result of the relatively short estimated time period required to
transition a property to a new operator, the Partnership's management believes
that, even if Genesis were to cease making lease payments to us either because
Genesis did not emerge from bankruptcy or otherwise, the Partnership would still
be able to satisfy its operating and debt service requirements during the next
12 months. Management fee arrangements currently charged in the market place
typically range from 4% to 6% of property gross revenues. Actual fees incurred
would depend upon property type and location as well as other property and
operator specific factors. Management estimates that, if all of the properties
subject to leases with Genesis returned to the Partnership and were subjected to
management agreements with new operators, the Partnership's annual cash flows
could be reduced by approximately $1.0 million. This estimate is based upon
expected property operations and assumptions made by management as to management
fees and capital expenditures.

         The Partnership has payment obligations under its debt agreements.
The Partnership's management believes, based upon the above noted estimated cash
flow reduction, that the Partnership would be able to meet its operating and
debt service obligations during the next 12 months if it were required to obtain
new managers for the properties now operated by Genesis.

                                      S-10
<PAGE>



                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999
                                   (Continued)


         As indicated above, based upon management's assessment of the long-term
care economic environment, its discussions with alternative operators, the
Partnership believes that, if the leases with Genesis were terminated, that the
assets could be redeployed as needed. Were this to occur, management believes
that new operators would be available to operate the properties, that any cash
flow interruption resulting from such redeployment is unlikely or would be
minimal and that, although cash flows may be reduced, the Partnership would be
able to meet its operating and debt service requirements under its existing debt
agreements during the next 12 months.

5. Notes Payable

         The Partnership partially financed the acquisition of properties under
capital leases with notes payable of $8.5 million to Genesis, $17.7 million to
the owners of the skilled nursing facilities and $17.6 million to the Limited
Partner. The $8.5 million promissory note bears interest at an annual rate of 8%
for the first year, 9% for the second year and 10% for remainder of the term of
the note, with interest payable monthly through September 3, 2003. The $17.7
million promissory note bears interest at 7.06% annually, with principal and
interest payable monthly through September 1, 2008. The $17.6 million
subordinated demand loan payable to the Limited Partner bears interest at 12%
per annum and is due on demand. Under the terms of a modification to the $8.5
million promissory note agreement, the principal payment due on September 3,
1999 was extended until the maturity date of September 3, 2003 and the interest
rate on the note was increased to 10% effective September 3, 1999. Under the
terms of the agreements approved by the U. S. Bankruptcy Court, Meridian
Healthcare, Inc. (a Genesis affiliate) assigned to ElderTrust Operating Limited
Partnership, the Limited Partner, the $8.5 million promissory note, in
consideration for reductions in the loan balances on the loans Genesis owes to
ElderTrust Operating Limited Partnership. A modification to the note was
executed to extend the term and change the interest rate.

                                      S-11
<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                          Notes to Financial Statements
                     December 31, 2000 and December 31, 1999
                                   (Continued)



6.  Partners' Capital

         The Partnership percentage interests of the partners are as follows:

           General Partner                                          1%
           Limited Partner                                         99%
                                                                  ----
                                                                  100%
                                                                  ====

Distribution of Cash:

         Cash flow, as defined in the partnership agreement, shall be
distributed to the partners in proportion to their percentage interests.

Distribution of Income or Loss:

         Net income or net loss of the partnership shall be allocated to the
partners in proportion to their percentage interests.

7.  Disclosure About Fair Value of Financial Instruments

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

         The fair value of the Partnership's notes payable at December 31, 2000
and 1999 is estimated using discounted cash flow analysis and currently
prevailing rates. The difference between the carrying amount and the fair value
of the Partnership's notes payable at December 31, 2000 and 1999 is not
significant.

8.  Related Party Transactions

         During 2000, the Partnership paid management fees of $24,000 to the
Limited Partner for administrative services provided to the Partnership.

         At December 31, 2000 and 1999, Mr. D. Lee McCreary, the President,
Chief Executive Officer and Chief Financial Officer of ElderTrust, was the sole
member of the limited liability company which owned the 1% general partner
interest in the Partnership. Mr. McCreary acquired the controlling interest in
the Partnership from the former President and Chief Executive Officer of
ElderTrust, during 1999 for $20,000.


                                      S-12
<PAGE>




                          Independent Auditors' Report


The Board of Directors
ET Capital Corp.:


We have audited the accompanying balance sheet of ET Capital Corp. as of
December 31, 2000, and the related statements of operations, shareholders'
equity (deficit), and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ET Capital Corp. as of December
31, 2000, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
                                                                  /s/ KPMG LLP


McLean, VA.
February 2, 2001
<PAGE>



                                ET CAPITAL CORP.
                                  BALANCE SHEET
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                          December 31, 2000
                                                                                          ------------------
<S>                                                                                      <C>
                                         ASSETS
 Assets:
      Cash and cash equivalents                                                                    $ 78
      Accounts receivable from related party                                                         53
      AGE Institute of Florida note receivable, net                                                   -
      Deferred income tax asset                                                                     270
      Notes receivable from related parties                                                       4,354
                                                                                               --------
               Total assets                                                                      $4,755
                                                                                               ========

                  LIABILITIES AND SHAREHOLDERS' DEFICIT

 Liabilities:
      Accounts payable and accrued expenses                                                         188
      Accounts payable to related parties                                                            35
      Notes payable to related party                                                              9,247
                                                                                               --------
          Total liabilities                                                                       9,470

 Shareholders' Deficit:
       Capital stock, $0.01 par value; 1,000 shares authorized issued and
           outstanding                                                                                -
       Capital in excess of par                                                                   2,822
       Accumulated deficit                                                                      (7,537)
                                                                                               --------
             Total shareholders' deficit                                                        (4,715)
                                                                                               --------
               Total liabilities and shareholders' deficit                                       $4,755
                                                                                               ========




      The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-14
<PAGE>


                                ET CAPITAL CORP.
                             STATEMENT OF OPERATIONS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>


                                                                                   Year ended December
                                                                                        31, 2000
                                                                                  ----------------------
<S>                                                                               <C>
Revenues:
     Interest income, net of bad debt expense of $951                                       $ 257
     Interest income, related parties                                                         633
                                                                                        ---------
        Total revenues                                                                        890
                                                                                        ---------

Expenses:
     Interest expense - related party                                                         726
     Amortization expense                                                                     118
     Bad debt expense                                                                       7,800
     General and administrative                                                                13
     Management fee - related party                                                            24
                                                                                        ---------
        Total expenses                                                                      8,681
                                                                                        ---------

Loss before income taxes                                                                  (7,791)
Income tax benefit                                                                            204
                                                                                        ---------
Net loss                                                                                 ($7,587)
                                                                                        =========

Earnings per share data:
     Basic and diluted loss per share                                                   ($ 7,587)
                                                                                        =========
     Basic and diluted weighted average shares of common stock                              1,000
                                                                                        =========










     The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-15
<PAGE>



                                ET CAPITAL CORP.
                   STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                          Year ended December 31, 2000
                                 (in thousands)


<TABLE>
<CAPTION>

                                                           Capital in   Accumulated
                                   Shares       Capital     Excess of      Equity        Shareholders'
                                 Outstanding     Stock      Par Value    (Deficit)     Equity (Deficit)
                                -------------------------------------------------------------------------
<S>                  <C>                    <C>    <C>       <C>           <C>                   <C>
  Balance at January 1, 2000                1      $ -       $  2,822      $    169              $2,991
    Net loss                                -        -              -        (7,587)             (7,587)
    Dividends                               -        -              -          (119)               (119)
                                -------------------------------------------------------------------------
  Balance at December 31, 2000              1      $ -        $ 2,822     ($  7,537)            ($4,715)
                                =========================================================================




















         The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-16
<PAGE>



                                ET CAPITAL CORP.
                             STATEMENT OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                                Year ended
                                                                                             December 31, 2000
                                                                                             -----------------
<S>                                                                                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                                     ($7,587)
     Adjustments to reconcile net loss to net cash provided by operating activities:
          Bad debt expense                                                                           7,800
          Net changes in assets and liabilities:
            Amortization expense                                                                       118
            Accounts payable and accrued expenses                                                    (212)
            Accounts receivable and prepaid expense                                                    260
            Deferred tax asset                                                                       (270)
                                                                                                  --------
                 Net cash provided by operating activities                                             109
                                                                                                  --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Payments received on notes receivable                                                             204
                                                                                                  --------
                 Net cash provided by investing activities                                             204
                                                                                                  --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Dividends to shareholders                                                                       (119)
     Payments of principal on notes payable                                                          (154)
                                                                                                  --------
                 Net cash used in financing activities                                               (273)
                                                                                                  --------

Net increase in cash and cash equivalents                                                               40
Cash and cash equivalents, beginning of year                                                            38
                                                                                                  --------
Cash and cash equivalents, end of year                                                                $ 78
                                                                                                  ========

Supplemental cash flow information:
Cash paid for interest                                                                               $ 726
                                                                                                  ========











       The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                      S-17
<PAGE>


                                ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000


1.  Organization and Operations

         ET Capital Corp. (the "Company") was incorporated in the State of
Delaware in January 1998. Equity interests are held by ElderTrust Operating
Limited Partnership (the "Operating Partnership"), which owns all of the
nonvoting stock of ET Capital Corp. (representing a 95% equity interest), and
Mr. D. Lee McCreary, who owns the remaining 5% voting stock equity interest.
Additionally, Michael R. Walker, a director of the Company, serves as Chairman
of the Board of Genesis Health Ventures ("Genesis") and ElderTrust.

         The Company's operations consist primarily of financing activities with
third parties and subsidiaries of ElderTrust. These activities generally take
the form of unsecured notes receivable from the third parties and/or
subsidiaries of ElderTrust that are financed through notes payable to the
Operating Partnership. The Company's net revenue is generated through interest
rate spreads ranging from 1% to 2% between the amounts charged on the notes
receivable and the amounts paid on notes payable.

         As of December 31, 2000, the Company owned a $7.8 million second trust
mortgage note executed by AGE Institute of Florida, which it acquired from
Genesis during 1998. This note is secured by a second lien on 11 Florida skilled
nursing facilities owned by AGE Institute of Florida and a second lien on
accounts receivable and other working capital assets. The facilities are managed
by a third party. This note matures on September 30, 2008 with payments of
interest only, at a fixed annual rate of 13% due quarterly. The borrower ceased
making interest payments to the Company during the quarter ended June 30, 2000.
During 2000, the Company recorded interest income of $1.2 million related to the
AGE Institute of Florida Note and a corresponding provision for bad debt expense
of $951,000 during 2000 for interest due on the $7.8 million second trust
mortgage note.

         In September 1999, the senior lender on the $40.0 million first trust
mortgage to the AGE Institute of Florida, which is guaranteed by Genesis,
notified the borrower that it was in default of the loan due to the borrowers'
failure to meet certain financial covenants. In November 1999, the Company
notified the borrower that it was in default of the $7.8 million second trust
mortgage loan held by the Company because of the default in the $40.0 million
first trust mortgage loan. Subsequently, the senior lender extended the maturity
date of the first mortgage trust loan from September 30, 1999 to March 28, 2000
to permit the AGE Institute of Florida time to obtain refinancing of the loan. A
letter agreement dated December 22, 1999 made certain modifications and defined
certain rights of the senior lender and the Company related to their respective
loans to the AGE Institute of Florida. The AGE Institute of Florida has been
working to obtain replacement financing of the $40.0 million first trust
mortgage loan and is seeking a further extension of the loan maturity date from
the senior lender.

                                      S-18

<PAGE>


                                ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Continued)


         In January 2000, the AGE Institute of Florida received a tax
determination letter confirming its tax-exempt status. The Company understands
from the AGE Institute of Florida that it is continuing to pursue tax-exempt and
other financing sources to refinance the first and second trust mortgages. If
the AGE Institute of Florida is unable to refinance the $40.0 million first
trust loan, or is otherwise unable to reach acceptable extension terms with the
senior lender, the senior lender may take actions to recover its investment in
such first trust loan. The Company has no control over the actions of the senior
lender and such actions could be unfavorable to the Company.

         Management of the Company has determined, based on a decrease in the
underlying cash flows generated during 2000 by the properties securing the note,
that the value of the underlying collateral is not sufficient to satisfy the
borrower's obligation under the note. As a result, a bad debt allowance of $7.8
million was recorded by the Company during 2000.

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.

Notes Receivable

         Notes receivable are recorded at cost, less any related allowance for
losses. Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the note agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the

                                      S-19
<PAGE>



                                ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Continued)


present value of expected future cash flows discounted at the note's effective
interest rate. It is the Company's policy that impairment losses are included in
the allowance for doubtful accounts through a charge to bad debt expense. It is
also the Company's policy that impairment losses are included in the allowance
for credit losses through a charge to bad debt expense. It is also the Company's
policy to account for cash receipts for interest as interest revenue and to
perform impairment reviews as needed.

         Interest income on unimpaired notes receivable is recognized as earned
based on the contractual terms of the notes.

Income Taxes

         Income taxes are accounted for using the asset and liability method,
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
established if, based on the weight of available evidence, it is more likely
than not that some portion, or all, of the deferred tax assets will not be
realized. The effect on deferred tax assets of a change in tax rates is
recognized in income in the period that includes the enactment date.

         The Corporation has made estimated federal income tax payments during
2000. In connection with the Company's net loss incurred for the year ended
December 31, 2000, the Company has recorded a deferred tax asset of $270,000
during 2000, which represents federal taxes paid by the Company from its
inception date, which are recoverable.

3.  Concentration of Risk

         At December 31, 2000, the Company's revenue producing assets consisted
primarily of notes receivable from subsidiaries of ElderTrust. These
subsidiaries own assisted living facilities that are leased to equity investees
of Genesis. On June 22, 2000, Genesis filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. Any failure on the part of Genesis to make its
required lease payments could significantly and adversely impact payments to the
Company for interest under the notes, and its ability to meet its debt
obligations.

         If Genesis were to cease making lease payments to ElderTrust's
subsidiaries, the subsidiaries may be required to terminate the underlying
leases. ElderTrust would likely be required to find new operators to operate

                                      S-20
<PAGE>



                                ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Continued)

the properties underlying the leases and/or sell one or more properties.
ElderTrust's management has contacted several alternative operators and, based
on these preliminary discussions, believes that an adequate market currently
exists in which ElderTrust could arrange for property management, leasing or
sale of these assets, and that the properties could be successfully transitioned
to new operators. Based on the discussions with these operators and ElderTrust's
management, the Company's management believes that a property could be
transitioned to a new operator without undue delay and that, due to the elderly
resident population and care requirements this population requires, such
transition would be completed in an orderly fashion and with the cooperation of
the operators and the appropriate regulatory authorities, if any. Some of the
operators contacted by ElderTrust have indicated that they have experience in
transitioning skilled nursing facilities to new management and that they have
the staffing needed to transition such facilities. ElderTrust and the Company
would expect to rely upon that experience to effect an orderly transition should
Genesis fail to emerge from bankruptcy and/or cease making lease payments to us.
Accordingly, the Company believes that ElderTrust's subsidiaries will be able to
comply with the payment terms of the notes receivable.

4.  Notes Receivable from Related Parties

         As of December 31, 2000, the Company's notes receivable consisted of
the following (in thousands):


     ET Sub-Cleveland Circle, LLC                        $     953
     ET Sub-Cabot Park, LLC                                  2,386
     ET Sub-Vernon Court, LLC                                1,015
                                                         ---------

     Total                                               $   4,354
                                                         =========

         These notes mature at various dates between April 2008 and December
2011 and bear interest at 14% per annum with interest and principal payable
monthly.

5.  Notes Payable

         The Company's long-term debt includes two demand promissory notes
payable to the Operating Partnership aggregating $5.9 million at December 31,
2000, obtained in connection with the AGE Institute of Florida transaction.
These notes bear interest at a weighted average of 12.1% per annum with interest
only payable quarterly. The Company ceased making interest payments to the
Operating Partnership during the quarter ended June 30, 2000. Interest expense
related to these notes for the year ended December 31, 2000 was $178,000. The
Company believes, taking into consideration discussions with management of the
Operating Partnership, that the Operating Partnership will not pursue collection
or take any action that would be adverse to the operations of the Company.

                                      S-21
<PAGE>


                               ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Continued)



         Additionally, the Company has three unsecured demand promissory notes
payable to the Operating Partnership at December 31, 2000, which aggregate to
$3.3 million. These notes bear interest at an annual rate of 15% and mature at
various dates from April 2008 through December 2011. Interest expense related to
these notes for the year ended December 31, 2000 was $548,000.

6.  Disclosure About Fair Value of Financial Instruments

         Based on the Company's assessment of the estimated fair value of the
facilities securing the second trust mortgage loan, the Company believes that
the $7.8 million second trust mortgage loan has become fully impaired. The
Company recorded a provision for bad debts of $7.8 million for the second trust
mortgage note in June 2000. Additionally, the Company believes that the fair
value of the $5.9 million note payable is negligible. This assessment is based
on the Company's default under the note, and the non-performance of the AGE
Institute of Florida note.

         The estimated fair values of the Company's other notes receivable and
payable approximate their carrying value as of December 31, 2000.

7.  Related Party Transactions

         Mr. McCreary acquired the controlling interest in the Company during
1999. As a result, Mr. D. Lee McCreary owns all of the voting interest in the
Company, representing a 5% equity interest. Mr. McCreary received cash
distributions of $5,900 during 2000.

         During 2000, the Company paid management fees of $24,000 to the
Operating Partnership for administrative services provided to the Company.


                                      S-22
<PAGE>


                               ET CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Continued)




8.  Earnings Per Share

         The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data)


<TABLE>
<CAPTION>

<S>                                                                     <C>
  Net income (loss) available for basic and diluted earnings per
      share                                                            ($7,587)
                                                                     ==========

  Shares for basic and diluted net earnings per share                     1,000
                                                                     ==========

  Basic and diluted net income (loss) per share                        ($7,587)
                                                                     ==========
</TABLE>




                                      S-23


<PAGE>


                   ET SUB-MERIDIAN LIMITED PARTNERSHIP, L.L.P.
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2000
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                        Initial Cost to                            Gross Amount at Which Carried
                                            Company             Cost                      at Close of Period
                                     ----------------------- Capitalized ------------------------------------------------
                                                  Buildings  Subsequent               Buildings
                                                     and         to                      and                    Accum.
      Description       Encumbrances     Land   Improvements Acquisition    Land    Improvements   Total(1)  Deprec.(2)
-------------------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>       <C>          <C>        <C>          <C>        <C>         <C>
Skilled Nursing Facilities:
   La Plata, MD           $ 9,208      $ 1,306    $ 11,751       $ 4       $ 1,306      $ 11,755  $ 13,061     $  963
   Voorhees, NJ            12,173        1,745      15,699         6         1,745        15,705    17,450      1,286
   Centerville, MD         10,033        1,424      12,809         5         1,424        12,814    14,238      1,049
   Dundalk, MD             13,484        1,916      17,241         6         1,916        17,247    19,163      1,412
   Towson, MD               3,883          546       4,912         2           546         4,914     5,460        402
   Severna Park, MD        12,958        1,841      16,567         6         1,841        16,573    18,414      1,357
   Westfield, NJ           16,484        2,345      21,092         8         2,345        21,100    23,445      1,728
                    ------------------------------------------------     ---------------------------------   --------
Grand Total               $78,223      $11,123    $100,071       $37       $11,123      $100,108  $111,231     $8,197
                    ================================================     =================================   ========
</TABLE>


[RESTUB]
<TABLE>
<CAPTION>

                                  Orig.
                               Construct. /      Date
      Description            Renovation Date   Acquired
---------------------------------------------------------
<S>                           <C>             <C>
Skilled Nursing Facilities:
   La Plata, MD                         1983    Sep-98
   Voorhees, NJ                    1986/1988    Sep-98
   Centerville, MD            1977/1983/1991    Sep-98
   Dundalk, MD                          1981    Sep-98
   Towson, MD                      1972-1973    Sep-98
   Severna Park, MD                     1982    Sep-98
   Westfield, NJ              1970/1980/1994    Sep-98

Grand Total

</TABLE>

(1)  The aggregate cost for Federal income tax purposes is $3,177.
(2) Depreciation expense is calculated using a 28.5 year composite life for
buildings.

The following represents a rollforward of the balance of leased properties under
capital lease and related amortization from January 1, 1999 to December 31,
2000:


                                                                 Accumulated
                                            Cost Basis           Amortization
                                         ----------------    -------------------
   Balance at January 1, 1999               $ 111,194            $ 1,170

   Additions during period:
        Acquisitions                               37              3,514
        Improvements                                -                  -
                                            ---------            -------

   Balance at December 31, 1999               111,231              4,684
                                            ---------            -------

   Additions during period:
        Acquisitions                                -              3,513
        Improvements                                -                  -
                                            ---------            -------

   Balance at December 31, 2000             $ 111,231            $ 8,197
                                            =========            =======

                                      S-24

<PAGE>


                                   ELDERTRUST
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2000
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                         Initial Cost to                          Gross Amount at Which Carried at
                                             Company            Cost                       Close of Period
                                     ----------------------- Capitalized -----------------------------------------------
                                                 Buildings    Subsequent                 Buildings
                                                    and           to                        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     $1,151
   Clark's Summit, PA           - (3)      645        5,802        18           645           5,820    6,465        596
   Wilkes-Barre, PA         2,724          662        5,932         -           654           5,932    6,586        572
   Paoli, PA                9,680        1,128       10,079         -         1,152          10,287   11,439      1,053
   North Andover, MA        8,770        1,194       10,729         3         1,194          10,732   11,926        785
   Newton, MA              13,964        1,793       16,091         5         1,793          16,096   17,889      1,177
                     -------------   --------------------------------    -----------------------------------  ---------
     Subtotal              35,138        6,671       59,876        26         6,687          60,110   66,797      5,334
                     -------------   --------------------------------    -----------------------------------  ---------

Independent Living Facility:
   Concord, NH              3,900          407        3,667         -           407           3,667    4,074        375

Skilled Nursing Facilities:
   Philadelphia, PA             - (3)      985        8,821         -           985           8,820    9,805        903
   Lopatcong, NJ           10,500        1,490       13,406         -         1,490          13,406   14,896      1,372
   Phillipsburg, NJ             -          679        6,110        10           230           2,070    2,300          -
   Wayne, PA                4,600          662        5,921     1,761           662           7,682    8,344        678
   Chester, PA             18,975 (4)    1,187       10,670         -         1,187          10,670   11,857      1,092
   Philadelphia, PA             - (4)    1,230       11,074         -         1,230          11,074   12,304      1,133
   Flourtown, PA           14,900 (5)      784        7,052         -           784           7,100    7,884        722
   Pennsburg, PA                - (5)    1,091        9,813         -         1,091           9,813   10,904      1,005
                     -------------   --------------------------------    -----------------------------------  ---------
     Subtotal              48,975        8,108       72,867     1,771         7,659          70,635   78,294      6,905
                     -------------   --------------------------------    -----------------------------------  ---------

Medical Office and Other Buildings:
   Upland, PA               2,585            -        4,383        72             -           4,488    4,488        454
   Drexel Hill, PA          5,865            -        8,132        26             -           8,211    8,211        834
   Salisbury, MD            1,050          135        1,212         -           135           1,265    1,400        125
   Forked River, NJ           494           62          563         -            62             563      625         58
                     ------------    --------------------------------    -----------------------------------  ---------
     Subtotal               9,994          197       14,290        98           197          14,527   14,724      1,471
                     ------------    --------------------------------    -----------------------------------  ---------

                     ------------    --------------------------------    -----------------------------------  ---------
Total Operating           $98,007      $15,383     $150,700    $1,895       $14,950        $148,939 $163,889    $14,085
                     ============    ================================    ===================================  =========
</TABLE>

<PAGE>

[RESTUB]

<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
   North Andover, MA                  1995       Dec-98
   Newton, MA                    1905/1995       Dec-98

     Subtotal


Independent Living Facility:
   Concord, NH                        1926       Jan-98

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

     Subtotal


Medical Office and Other Buildings
   Upland, PA                         1977       Jan-98
   Drexel Hill, PA               1984/1997       Feb-98
   Salisbury, MD                      1984       Jan-98
   Forked River, NJ                   1996       Jan-98

     Subtotal



Total Operating

</TABLE>


(1)  The aggregate cost for Federal income tax purposes is $157,069.
(2)  Depreciation expense is calculated using a 28.5 year composite life for
     both building and equipment.
(3)  Encumbered by the Credit Facility in the aggregate amount of $38.7 million.
(4)  This is a single note which covers both properties.
(5)  This is a single note which covers both properties.

                                      S-25

<PAGE>

                                   ELDERTRUST
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                          December 31, 2000 (continued)
                             (dollars in thousands)


<TABLE>
<CAPTION>

                                                Initial Cost to                          Gross Amount at Which Carried at
                                                    Company            Cost                       Close of Period
                                            ----------------------- Capitalized -----------------------------------------------
                                                        Buildings    Subsequent                 Buildings
                                                           and           to                        and                  Accum.
    Description             Encumbrances         Land  Improvements  Acquisition     Land      Improvements Total(1)  Deprec.(2)
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>          <C>            <C>      <C>            <C>          <C>        <C>
Properties held for sale:
Assisted Living Facilities:
   Kimberton, PA                  $9,945       $1,239      $10,834        $1        $1,261         $10,013  $11,274     $1,130

Medical Office and
        Other Buildings:
   Windsor, CT                         - (3)        -        1,481         -             -           1,120    1,120        142
   Windsor, CT                         - (3)       33          295         -            33             239      272         29
                            ------------    --------------------------------    -----------------------------------  ---------
     Subtotal                          -           33        1,776         -            33           1,359    1,392        171
                            ------------    --------------------------------    -----------------------------------  ---------

                            ------------    --------------------------------    -----------------------------------  ---------
Total assets held for sale        $9,945       $1,272      $12,610        $1        $1,294         $11,372  $12,666     $1,301
                            ============    ================================    ===================================  =========
</TABLE>


[RESTUB]
<TABLE>
<CAPTION>


                               Orig.
                             Construct. /        Date
    Description              Renovation Date   Acquired
--------------------------------------------------------
<S>                                <C>            <C>
Properties held  for Sale:
Assisted Living Facilities:
   Kimberton, PA                      1996       Jan-98

Medical Office and
        Other Buildings:
   Windsor, CT                        1996       Jan-98
   Windsor, CT                   1934/1965       Jan-98

     Subtotal


</TABLE>

(1)  The aggregate cost for Federal income tax purposes is $16,880.
(2)  No depreciation expense has been recorded during the period these assets
     have been held for disposal.
(3)  Encumbered by the Credit Facility in the aggregate amount of $38.7 million.



                                      S-26
<PAGE>


                                   ELDERTRUST
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                          December 31, 2000 (continued)
                             (dollars in thousands)


The following represents a rollforward of the balance of real estate properties
and related accumulated depreciation from January 1, 1998 to December 31, 2000
excluding assets held for sale:
<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                             Cost Basis             Depreciation
                                                         -------------------    ----------------------
<S>                <C>                                       <C>                      <C>
Balance at January 1, 1998                                     $       -               $     -

Additions during period
     Acquisitions                                                180,426                 4,442
     Improvements                                                    147                     2
                                                               ----------             --------

Balance at December 31, 1998                                     180,573                 4,444

Additions during period
     Acquisitions                                                      -                 5,723
     Improvements                                                  1,288                    13
                                                               ---------              --------

Balance at December 31, 1999                                   $ 181,861               $10,180
                                                               ---------              --------

Additions during period
     Acquisitions                                                      -                     -
     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                 5,832
                                                               ---------              --------
Balance at December 31, 2000 (1)                               $ 163,889               $14,085
                                                               =========              ========
</TABLE>

(1) Balance does not reflect assets held for sale. Assets held for sale are
    disclosed separately on the Balance Sheet.


                                      S-27

<PAGE>

                                   ELDERTRUST
                                   SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                                December 31, 2000
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                        Final       Periodic
                                               Number of    Interest   Maturity      Payment                     Face Amount
Description                                      Beds         Rate       Date         Term      Prior Liens      of Mortgages
-----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>        <C>           <C>       <C>           <C>
Term Loans - Assisted Living Facilities:
Melbourne, FL                                       92        10.0%      5/2002           (3)      None               $4,828
Shillington, PA                                     57        9.50%      6/2002           (2)      None                5,164
Ormond Beach, FL                                    60        9.50%      6/2002           (2)      None                4,577
Macungie, PA                                        70       10.50%      6/2002           (2)      None                6,665
Reading, PA                                         64       10.50%      6/2002           (2)      None                6,269
                                                  ----                                                               -------
     Subtotal                                      343                                                                27,503
                                                  ----                                                               -------

Construction Loans - Assisted Living Facilities:
Wyncote, PA                                         52        9.00%      6/2002           (2)      None                5,380
Wilmington, DE                                      92       10.50%      8/2000           (2)      None                9,500
Pottstown, PA                                       75       10.50%      1/2001           (2)      None                6,511
                                                  ----                                                               -------
     Subtotal                                      219                                                                21,391
                                                  ----                                                               -------

Grand Total                                        562                                                               $48,894
                                                  ====                                                               =======
</TABLE>

[RESTUB]
<TABLE>
<CAPTION>

                                                 Carrying Amount       Loans Subject to
                                                 of Mortgages at     Delinquent Principal
Description                                     December 31, 2000(1)     or Interest
------------------------------------------------------------------------------------
<S>                                               <C>                   <C>
Term Loans - Assisted Living Facilities:
Melbourne, FL                                          $4,828               (6)
Shillington, PA                                         5,164               (5)
Ormond Beach, FL                                        4,538               (5)
Macungie, PA                                            4,200               (5)
Reading, PA                                             4,700               (5)
                                                      -------
     Subtotal                                          23,430
                                                      -------

Construction Loans - Assisted Living Facilities:
Wyncote, PA                                             5,033               (5)
Wilmington, DE                                          9,496               (4)
Pottstown, PA                                           3,600               (5)
                                                      -------
     Subtotal                                          18,129
                                                      -------

Grand Total                                           $41,559
                                                      =======
</TABLE>


<PAGE>

(1)  The aggregate cost for Federal income tax purposes is $41,559.
(2)  Interest only payable to maturity date.
(3)  Interest only payable to maturity date. Principal payments will be made
     monthly to the extent of one half of excess cash, if any, after payment of
     operating expenses, management fee, interest and an amount to be agreed
     upon by the parties for capital expenditures. Principal payments will
     become effective upon closing of bankruptcy proceedings, which were
     consummated on January 31, 2001.
(4)  Loan is currently in default status. The original maturity date was August
     1, 2000. Borrower is currently seeking financing to pay off loan. Loan is
     subject to a default interest rate of 3% payable each month, the loan is
     not settled. Borrower is currently paying interest at the stated interest
     rate of 10.5%, as provided in the loan agreement.
(5)  Loans are currently in default at December 31, 2000. On June 22, 2000
     Genesis and the Multicare companies, the borrowers under these loans, filed
     for protection under Chapter 11 of the United States Bankruptcy Code. The
     Company, Genesis and Multicare were able to negotiate agreements, which
     were approved by the bankruptcy court on January 4, 2001 and were
     consummated on January 31, 2001, which cured all defaults on the loans. See
     "Genesis and Multicare Chapter 11 Bankruptcy Filing; Lease and Loan
     Restructuring" and "Debt Restructuring and Related Matters."
(6)  Loan is currently in default at December 31, 2000. Under the master
     agreement between Genesis Health Ventures and ElderTrust as executed on
     January 31, 2001, all defaults resulting solely from the filing of the
     bankruptcy proceedings by Genesis as guarantor of the Harbor Place loan
     shall be waived. See "Genesis and Multicare Chapter 11 Bankruptcy Filing;
     Lease and Loan Restructuring" and "Debt Restructuring and Related Matters."

Mortgage loan activity for the years ended December 31, 2000, 1999 and the
period from January 30, 1998 through December 31, 1998 is as follows:
<TABLE>
<CAPTION>

                                                 2000                 1999             1998
                                             ------------        -------------    -------------
<S>                                            <C>                   <C>              <C>
    Balance, beginning of year                 $  48,646             $ 47,899         $      -

       Additions during the period:
           New mortgage loans                          -                5,095           50,213

       Deductions during the period:
            Collections of principal                   -              (4,348)          (2,314)
            Other (refinancing agreement)(7)     (7,087)
                                               ---------            ---------        ---------

    Balance, end of year                       $  41,559             $ 48,646         $ 47,899
                                               =========            =========        =========
</TABLE>

(7) Adjustment to mortgage amounts due to negotiation with Genesis due to its
   bankruptcy proceedings.

                                      S-28